INTERNATIONAL TRADING SYSTEM

TERM PAPER DISPUTE SETTLEMENT MECHANISM UNDER WTO

Submitted To Mr. G. Jawahar Babu (Associate Professor) DISPUTE SETTLEMENT MECHANISM

Submitted By Phailin Nambiar (09BA219)

INTRODUCTION

Dispute settlement is regarded by the World Trade Organization as the central pillar of the multilateral trading system, and as the organization's "unique contribution to the stability of the global economy". A dispute arises when one member country adopts a trade policy measure or takes some action that one or more fellow members considers to a breach of WTO agreements or to be a failure to live up to obligations. By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally this entails abiding by agreed procedures (Dispute Settlement Understanding) and respecting judgments, primarily of the Dispute Settlement Body (DSB), the WTO organ responsible for adjudication of disputes. A former WTO Director-General characterized the WTO dispute settlement system as "the most active international adjudicative mechanism in the world today." A procedure for settling disputes existed under the old GATT, but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively. The Uruguay Round agreement introduced a more structured process with more clearly defined stages in the procedure. It introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of the procedure. The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes. If a case runs its full course to a first ruling, it should not normally take more than about one year 15 months if the case is appealed. The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible. Disputes in the WTO are essentially about broken promises. WTO members have agreed that if they believe fellow-members are violating trade rules, they will use the multilateral system of settling disputes instead of taking action unilaterally. That means abiding by the agreed procedures, and respecting judgments. A dispute arises when one country adopts a trade policy measure or takes some action that one or more fellow-WTO members considers to be breaking the WTO agreements, or to be a failure to live up to obligations. A third group of countries can declare that they have an interest in the case and enjoy some rights. Although much of the procedure does resemble a court or tribunal, the

preferred solution is for the countries concerned to discuss their problems and settle the dispute by themselves. The first stage is therefore consultations between the governments concerned, and even when the case has progressed to other stages, consultation and mediation are still always possible. The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are automatically adopted unless there is a consensus to reject a ruling any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view DISPUTE SETTLETMENT MECHANISM

First stage: consultation (up to 60 days). Before taking any other actions the countries in dispute have to talk to each other to see if they can settle their differences by themselves. If that fails, they can also ask the WTO director-general to mediate or try to help in any other way.

Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for the panel to conclude). If consultations fail, the complaining country can ask for a panel to be appointed. The country in the dock can block the creation of a panel once, but when the Dispute Settlement Body meets for a second time, the appointment can no longer be blocked (unless there is a consensus against appointing the panel. The panels final report should normally be given to the parties to the dispute within six months.

In cases of urgency, including those concerning perishable goods, the deadline is shortened to three months.

The agreement describes in some detail how the panels are to work. The main stages are:
1. Before the first hearing: each side in the dispute presents its case in writing to the panel. 2. First hearing: the case for the complaining country and defence: the complaining country

(or countries), the responding country, and those that have announced they have an interest in the dispute, make their case at the panels first hearing.
3. Rebuttals: the countries involved submit written rebuttals and present oral arguments at the

panels second meeting.

4. Experts: if one side raises scientific or other technical matters, the panel may consult experts or

appoint an expert review group to prepare an advisory report.

5. First draft: the panel submits the descriptive (factual and argument) sections of its report to the

two sides, giving them two weeks to comment. This report does not include findings and conclusions.
6. Interim report: The panel then submits an interim report, including its findings and

conclusions, to the two sides, giving them one week to ask for a review.
7. Review: The period of review must not exceed two weeks. During that time, the panel may hold

additional meetings with the two sides.

8. Final report: A final report is submitted to the two sides and three weeks later, it is circulated to

all WTO members. If the panel decides that the disputed trade measure does break a WTO agreement or an obligation, it recommends that the measure be made to conform with WTO rules. The panel may suggest how this could be done.
9. The report becomes a ruling: The report becomes the Dispute Settlement Bodys ruling or

recommendation within 60 days unless a consensus rejects it. Both sides can appeal the report (and in some cases both sides do).

The process Stages in a typical WTO dispute settlement case

This chapter explains all the various stages through which a dispute can pass in the (WTO) dispute settlement system. There are two main ways to settle a dispute once a complaint has been filed in the WTO:

(i) (ii)

The parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and Through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by theDSB. consultations between the parties; adjudication by panels and, if applicable, by the Appellate Body; and (iii) the implementation of the ruling,

There are three main stages to the WTO dispute settlement process: (i) (ii)

which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.

INSTITUTIONAL STRUCTURE The DSB uses a special decision procedure known as 'reverse consensus' or 'consensus against' that makes it almost certain that the Panel recommendations in a dispute will be accepted. The process requires that the recommendations of the Panel (as amended by the Appellate Body) should be adopted "unless" there is a consensus of the members against adoption. This has never happened, and because the nation 'winning' under the Panel's ruling would have to join this reverse consensus, it is difficult to conceive of how it ever could. Once it has decided on the case, i.e., whether the complaint had been shown to be right or wrong, the DSB may direct the 'losing' Member to take action to bring its laws, regulations or policies into conformity with the WTO Agreements. This is the only direction that emerges from a WTO dispute. There is no concept of "punishment" or even restitution. The DSB will give the losing party a "reasonable period of time" in which to restore the conformity of its laws etc. If the losing party fails to restore the conformity of its laws within the "reasonable period of time", the DSB mayon an exceptional basisauthorise a successful complainant to take retaliatory measures to induce action on the part of the losing party. This is very rare. Almost all WTO members "voluntarily" implement DSB decisions in time. Of course, when a losing country brings its laws etc. into conformity it may choose how to do so; indeed, it may not necessarily make the changes that the winning party would prefer.

Dispute Settlement Body The Dispute Settlement Body (DSB) of the World Trade Organization (WTO) makes decisions on trade disputes between governments that are adjudicated by the Organization. Its decisions generally match those of the Dispute Panel.The DSB is, in effect, a session of the General Council of the WTO: that is, all of the representatives of the WTO member governments, usually at ambassadorial level, meeting together. It decides the outcome of a trade dispute on the recommendation of a Dispute Panel and (possibly) on a report from the Appellate Body of WTO, which may have amended the Panel recommendation if a party chose to appeal. Only the DSB can make these decisions: Panels and the Appellate Body are limited to making recommendations.

From complaint to final report If a member state considers that a measure adopted by another member state has deprived it of a benefit accruing to it under one of the covered agreements, it may call for consultations with the other member state. If consultations fail to resolve the dispute within 60 days after receipt of the request for consultations, the complainant state may request the establishment of a Panel. It is not possible for the respondent state to prevent or delay the establishment of a Panel, unless the DSB by consensus decides otherwise.The panel, normally consisting of three members appointed ad hoc by the Secretariat, sits to receive written and oral submissions of the parties, on the basis of which it is expected to make findings and conclusions for presentation to the DSB. The proceedings are confidential, and even when private parties are directly concerned, they are not permitted to attend or make submissions separate from those of the state in question. Disputes can also arise under Non-violation nullification of benefits claims.

The final version of the panel's report is distributed first to the parties; two weeks later it is circulated to all the members of the WTO. In sharp contrast with other systems, the report is required to be adopted at a meeting of the DSB within 60 days of its circulation, unless the DSB by consensus decides not to adopt the report or a party to the dispute gives notice of its intention to appeal.[14] A party may appeal a panel report to the standing Appellate Body, but only on issues of law and legal interpretations developed by the panel. Each appeal is heard by three members of the permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership. Members of the Appellate Body have four-year terms. They must be individuals with recognized standing in the field of law and international trade, not affiliated with any government. The Appellate Body may uphold, modify or reverse the panel's legal findings and conclusions. Normally appeals should not last more than 60 days, with an absolute maximum of 90 days. The possibility for appeal makes the WTO dispute resolution system unique among the judicial processes of dispute settlement in general public international law. Dispute Settlement Understanding In 1994, the WTO members agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes or Dispute Settlement Understanding (DSU) (annexed to the "Final Act" signed in Marrakesh in 1994).Pursuant to the rules detailed in the DSU, member states can engage in consultations to resolve trade disputes pertaining to a "covered agreement" or, if unsuccessful, have a WTO panel hear the case. The priority, however, is to settle disputes, through consultations if possible. By January 2008, only about 136 of the nearly 369 cases had reached the full panel process. The operation of the WTO dispute settlement process involves the parties and third parties to a case and may also involve the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts, and several specialized institutions. The General Council discharges its responsibilities under the DSU through the Dispute Settlement Body (DSB). Like the General Council, the DSB is composed of representatives of all WTO Members. The DSB is responsible for administering the DSU, i.e. for overseeing the entire dispute settlement process. It also has the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize the suspension of obligations under the covered agreements. The DSB meets as often as necessary to adhere to the timeframes provided for in the DSU.

RETALIATION

If all else fails, two more possibilities are set out in the DSU: While such "retaliatory measures" are a strong mechanism when applied by economically powerful countries like the United States or the European Union, when applied by economically weak countries against stronger ones, they can often be ignored. This has been the case, for example, with the March 2005 Appellate Body ruling in case DS 267, which declared US cotton subsidies illegal Whether or not the complainant has taken a measure of retaliation, surveillance by the DSB is to continue, to see whether the recommendations of the panel or the Appellate Body have been implemented. If a member fails within the "reasonable period" to carry out the recommendations and rulings, it may negotiate with the complaining state for a mutually acceptable compensation. Compensation is not defined, but may be expected to consist of the grant of a concession by the respondent state on a product or service of interest to the complainant state. If no agreement on compensation is reached within twenty days of the expiry of the "reasonable period", the prevailing state may request authorization from the DSB to suspend application to the member concerned of concessions or other obligations under the covered agreements. The DSU makes clear that retaliation is not favored, and sets the criteria for retaliation. In contrast to prior GATT practice, authorization to suspend concessions in this context is semi-automatic, in that the DSB "shall grant the authorization [...] within thirty days of the expiry of the reasonable period", unless it decides by consensus to reject the request. Any suspension or concession or other obligation is to be temporary. If the respondent state objects to the level of suspension proposed or to the consistency of the proposed suspension with the DSU principles, still another arbitration is provided for, if possible by the original panel members or by an arbitrator or arbitrators appointed by the Director-General, to be completed within sixty days from expiration of the reasonable period.

TRADING AND DEVELOPING COUNTRIES

Like most of the agreements adopted in the Uruguay Round, the DSU contains several provisions directed to developing countries. The Understanding states that members should give "special attention" to the problems and interests of developing country members. Further, if one party to a dispute is a developing country, that party is entitled to have at least one panelist who comes from a developing country. If a complaint is brought against a developing country, the time for consultations (before a panel is convened) may be extended, and if the dispute goes to a panel, the deadlines for the developing country to make its submissions may be relaxed. Also, the Secretariat is authorized to make a qualified legal expert available to any developing country on request. Formal complaints against least developed countries are discouraged, and if consultations fail, the Director-General and the Chairman of the DSB stand ready to offer their good offices before a formal request for a panel is made. As to substance, the DSU provides that the report of panels shall "explicitly indicate" how account has been taken of the "differential and more favorable treatment" provisions of the agreement under which the complaint is brought. Whether or not a developing country is a party to a particular proceeding, "particular attention" is to be paid to the interests of the developing countries in the course of implementing recommendations and rulings of panels. In order to assist developing countries in overcoming their limited expertise in WTO law and assist them in managing complex trade disputes, an Advisory Centre on WTO Law was established in 2001. The aim is to level the playing field for these countries and customs territories in the WTO system by enabling them to have a full understanding of their rights and obligations under the WTO Agreement.

WORLD TRADE ORGANIZATION DISPUTE 160

On January 26, 1999, the European Communities (EC) and its Member States requested consultation with the United States concerning a dispute over discrepancies between the WTO Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPs Agreement) and Section 110(5) of the United States Copyright Act amended by the Fairness in Music Licensing Act. In practice, The dispute was over the legality of the playing of radio and television music in public places (such as bars, shops, restaurants etc.) without the payment of a royalty fee (World). The disputed parties worked through the existing process of WTO Dispute Settlement. First the EC lodged a complaint against the US with the Dispute Settlement Body (DSB) and requested consultation over the dispute. Then the parties requested a panel leading to the bodys eventual formation, followed by the circulation of the panel report. The parties accepted the Panel Report without appeal and the dispute ended in arbitration over implementation of the panels recommendations. Australia, Brazil, Canada, Japan, and Switzerland acted as third parties in this dispute (World).

THE COMPLAINT The European Community and its Member States considered the United States in violation of international copyright law at the cost of European artists. The European Community questioned the US Copyright Act in which Section 110(5) creates two exemptions. The first, a so-called business exemption, allowed food, drink, and retail establishments under certain size and equipment restrictions, to display audio or visual transmissions without paying a royalty fee provided the establishments did not charge directly for the transmission and did not display the service beyond the establishments boundaries. The second, a homestyle exemption, gave the same exemption to small establishments that used only broadcasting equipment commonly found in private homes (World). The two TRIPs articles cited by the European Community disagreed with the US exemptions; stating 1) in article 13, that exceptions to copyright law would be exclusive to cases that do not unreasonably run contrary to the interests of the right holder and 2) in article 9(1), that members party to the TRIPs agreement would almost entirely comply with the Berne Convention for the Protection of Literary and Artistic Works (TRIPS). The Berne Convention is an international agreement that defines creative property rights across borders, which gives the copyright holder the exclusive right to control not only the broadcast of the work but also the public exhibition of it through the use of loudspeaker or analogous instrument. The complainant specifically noted article 11(1) of the Berne Convention which places the right to control any communication to the public of the performance of [the] works by any means solely in the copyright holder (Berne). IMPLEMENTATION

The parties calculated that the business exemption had nullified 1,219,900 Euro per year. The United States proposed 15 months as a reasonable amount of time needed to implement the recommendations of the DSB and, after some arbitration, the DSB and EC accepted the time period. The US, however, failed to bring the law into the bounds of the TRIPs Agreement within the deadline, and the European Communities pressured the DSB to suspend concessions. As both the EC and the third party Australia bemoaned the United States slow progress, the US continually reported that its delegation was working with Congress to enact the settlement. In the end, the US failed to mobilize Congress to pass the issue before the next Congressional recess. The EC and the US reached a mutual temporary agreement on June 23, 2003 (World).

INDIA AND WTO FUTURE PERSPECTIVE India is one of the founding members of WTO along with 134 other countries. India's participation in an increasingly rule based system in governance of International trade, would ultimately lead to better prosperity for the nation. Various trade disputes of India with other nations have been settled through WTO. India has also played an important part in the effective formulation of major trade policies. By being a member of WTO several countries are now trading with India, thus giving a boost to production, employment, standard of living and an opportunity to maximize the use of the world resources. India is a founder member of the General Agreement on Tariffs and Trade (GATT) 1947 and its successor, the World Trade Organization (WTO), which came into effect on 1.1.95 after the conclusion of the Uruguay Round (UR) of Multilateral Trade Negotiations. India's participation in an increasingly rule based system in the governance of international trade is to ensure more stability and predictability, which ultimately would lead to more trade and prosperity for itself and the 149 other nations which now comprise the WTO. India also automatically avails of MFN and national treatment for its exports to all WTO members. According to the WTO Secretariat Report, along with the policy statement by the Government of India, India is expected to snatch most of the business deals that are presently catering the developed nations which includes major service based industries like telecom, financial services, infrastructure services such as transport and power. The increase in availability and reduction in tariffs has prompted many developed nations to go for business with India especially in IT and ITeS industry. If the trend continues then by 2025, India is expected to cater to the software and services demands of major giants of the business world. Analyzing the present relationship with the promising economic growth of India, one can be sure that India is going to enjoy a very candid and bright relationship with WTO and associated member nations by 2025. The main benefits of World Trade Organization are as follows: The system helps to contribute towards international peace, by helping the trade to flow smoothly and dealing with disputes over trade issues. The system allows disputes to be handled constructively. With Global boundaries evading, more and more trade is taking place, and hence, leading to more chances for disputes. To put forth to the claim, around 300 cases have been filed since inception of WTO, and without peaceful and harmonious way to resolve them, they could have led to a political crisis. It's a system, which is based on rules and has nothing to do with power of the nation. It gives consumers more choice and a broader range of qualities to choose from. The fact that there exists a forum to handle crisis, gives confidence to nations to do more and more trade, thereby increasing the income, and stimulating economic growth.

CONTENT
SL.NO TOPICS PAGE NO

Introduction

Dispute Settlement Mechanism

Process Of Dispute Settlement Mechanism

Institutional Structure

Trading in Developing Countries

10

India and WTO- Future Perspective

13

Sources

1. WWW.WIKEPEDIA.COM 2. www.macherarketingteacher.com