Weakening WTO’s Dispute Settlement System

What is the issue?

  • Over the years, the results obtained by the World Trade Organisation (WTO) in dispute settlement have largely been reassuring.
  • But even this aspect is facing challenges in the recent days, which need attention, especially in the context of the US’s role.

What was the US’s role in WTO’s origin?

  • It was the US that pressed for WTO’s judicialisation.
  • It also argued for the rule of negative consensus and strongly supported the introduction of the appellate review stage.
  • Under the negative consensus rule, members’ requests are approved unless the Dispute Settlement Body (DSB) decides by consensus not to do so.
  • These may apply for accepting the establishment of a panel or adopting the report of a panel or of the Appellate Body (AB).
  • Thus, the procedures were freed from blockages that had earlier made the dispute settlement mechanism dependent on negotiations.
  • It was the US, again, that had put forward the proposal for stipulating time limits for each stage of the procedure.

What is US’s current stance?

  • Worryingly, the dispute settlement system of the WTO is now under attack, being led by the United States itself.
  • The US’s attempts to weaken the dispute settlement procedures began in the pre-Trump era.
  • The US has been stalling reappointments to the AB on the expiry of the initial term of four years.
  • E.g. in 2011, Jennifer Hillman, a US nominee was denied a second term, Seung Wha Chang from South Korea was opposed a second term in 2016
  • Denial of automatic reappointment for a second term was clearly aimed at curtailing the independence of AB members.
  • Since President Trump assumed office, the US has been blocking even fresh appointments to WTO’s Appellate Body.
  • On a number of occasions, he has even threatened that the US would leave the WTO.
  • Demands – The US is insisting to find solutions on issues relating to AB’s functioning, before the selection procedures for filling up vacancies can proceed.
  • Some of the questions in debate include –
  1. having the name of a member in the report, who had participated in the decision but had demitted office before its submission
  2. the legal status of an AB report that has not been concluded within the stipulated period of 90 days
  3. examining a member’s domestic law as a matter of law rather than treating it as a matter of fact
  4. treating AB rulings as a precedent to be followed in future cases

Is US’s stance justified?

  • None of the issues raised by the US is unreasonable, although some of them have less weight than others.
  • But what is unreasonable is the linkage of these with the filling up of the vacancies in the AB.
  • Further, the US has not made any definitive proposal on the solutions, which raises doubts over its genuine interests.

What is the possible intention then?

  • US is aiming to weaken the dispute settlement machinery that it had sought to strengthen a little over 23 years ago.
  • Its expectation at the time of negotiations was that its laws would be consistent with the WTO Agreement.
  • So US would be a complainant rather than a defendant in future disputes and it thus wanted a strong dispute settlement machinery.
  • This was to ensure that other members, mainly the developing countries, carried out their obligations.
  • But the reality now is that the US, too, is a defendant in a number of cases.
  • In fact, the US has been repeatedly bruised in anti-dumping disputes.
  • In effect, these go against the US’s objectives two decades back and are even creating for it some amount of discomfort now.

How does the future look?

  • The AB has already been reduced to three members, the minimum number necessary to keep it working.
  • In December 2019, two more members will retire and the AB will cease to function.
  • A panel report must be adopted by the DSB within 60 days of its circulation unless a party to the dispute formally notifies its decision to appeal.
  • After the AB has become non-functional, a decision by the losing party to appeal will imply that a dead-end has been reached.
  • In that situation, the dispute settlement system of the WTO, as a whole, will stand substantially dismantled.
  • It will, of course, remain open for the parties to try to negotiate further based on the findings and recommendations in the panel report.
  • This would essentially take the process back to the GATT (General Agreement on Tariffs and Trade – replaced by WTO) 1947 days when the dispute settlement was a matter of negotiations.
  • But it is not to be forgotten that a strong dispute settlement machinery underpins the rules-based multilateral trading system embodied in the WTO Agreement.

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