The WTO's Crowning Glory

The WTO's dispute settlement system is perhaps the greatest single accomplishment of the Uruguay Round of trade negotiations. So much so that everyone from human rights advocates to environmentalists want access to it. They recognize that the WTO's mechanism for resolving disputes is truly unique among international institutions in that it actually has some teeth.

While the dispute settlement mechanism works well, there are a couple areas that need improvement in the next round of trade negotiations.

Singing its Praises

The WTO's settlement procedures are a vast improvement over the previous system that existed under the GATT. Under the old GATT regime, countries could ignore the decisions of panels with impunity. Even Canada, the boy scouts that we are, did so on occasion. The result was that countries felt it was hardly worth pursuing a trade dispute since, even if they won, there was no guarantee that anything would change in the end.

The new system makes panel and appellate body decisions binding. Countries whose practices are found to be inconsistent with WTO obligations must bring their measures into conformity or face the prospect of WTO-sanctioned countermeasures.

The WTO panel decisions can be appealed, something that was not possible under the previous GATT system. The WTO appellate body is a permanent group of seven individuals, each appointed for a term of up to eight years. While the appeal body considers only matters of law and does not rehear the facts of a case, the fact that appeals are possible was important in getting members to agree to be bound by dispute settlement decisions.

Countries that get embroiled in disagreements are required to consult for at least 60 days in an effort to reach a mutually satisfactory "out of court" resolution. If consultations are unsuccessful, the dispute proceeds through a series of steps from the creation of a dispute settlement panel, panel hearings, interim and final panel reports, and appellate body hearings and report. Despite all these stages, the WTO system has still shaved months off the time the GATT used to take to deal with disputes.

The WTO's Dispute Settlement Understanding provides a single forum for resolving disputes that arise under a handful of WTO agreements, including the GATT, GATS, TRIPS and even some plurilateral agreements like the Agreement on Government Procurement. The single window aspect adds vastly to the coherence and effectiveness of the WTO system.

The dispute settlement body has been instrumental in convincing the developing world of the merits of the WTO. The very first case brought was a developing country's challenge of a developed country practice – Venezuela and Brazil's case against the U.S. on gasoline. The fact that newer members of the WTO are guaranteed access to and have made ample use of the dispute settlement provisions has been central in dispelling the notion that the WTO is an old boy's club.

To the cynics, the huge proliferation of WTO disputes suggests that the system is out of control and that judicial policy is trying to take over trade policy. In fact, it demonstrates something quite different. The effectiveness of the dispute settlement procedures shows the faith that WTO members have placed in the agreements they negotiated. Their willingness to use the system shows their commitment to a rules based system for liberalizing world trade.

The Results

The best evidence of the superiority of the new system is the use that it gets. In the 47 years of the GATT, some 300 disputes were brought for resolution, an average of 6 or 7 per year. By late September 1999, less than six years into its operation, the WTO's dispute settlement body had received 180 requests for consultation representing 140 separate cases. This is over five times the annual caseload handled under the GATT.

By our tally, there have been 140 separate WTO disputes (Table 13.1). As cases often involve multiple parties and can disappear only to reappear later, totals under each category are approximate estimates. The difficulties of precision aside, however, two striking facts stand out in the table. The first is that many disputes are resolved during the consultation stage and are then settled or withdrawn. The importance of consultation is even more apparent when one recognizes that a large number of cases have languished in consultation for some time. The second observation is that almost all cases that proceed to the stage of a panel report end up going on to appeal.

Stretched Resources

The success of the dispute settlement mechanism has put severe strains on the system. It is being used to the point of being over burdened.

The requirement to create qualified panels within the short time frame stipulated in the WTO provisions has proven to be a difficult challenge. The panels are made up from a list of candidates put forward by WTO member countries. Ideally, panel members have a knowledge international trade and are either lawyers or trade specialists who have been active in the field.

Grumblings are being heard about the quality of some recent WTO panels. Some have come close to unseemly conflict of interest situations. None of this is surprising given the shear number of panels that have been needed in the past five years, the complexity of the issues and the limited number of qualified but independent individuals available with expertise in this specialized area. Over time, this situation is certain to improve. In the meantime, the growing pains are evident.

One solution might be to create a permanent body of experts who would do nothing but serve on dispute settlement panels. This would make the panel process rather like the WTO appellate body, which is a permanent group. While a permanent body would improve the consistency of panel decisions, we would lose the varied perspective and expertise that ad hoc panels bring. Besides, one wonders if we really need another body of Geneva-dwellers that have been captured by the Lac Léman mind-set.

At a minimum, there is a need to expand the number of individuals on the panel roster list and to enlarge the legal, translation and other resource staff. This will be no mean feat since WTO budgetary resources have been flat due to the unwillingness of important contributors to open their pocketbooks wider.

The other burden imposed by the new system is on the resources of the member countries. Even keeping a watching brief on cases before the dispute settlement body, let alone participating as a principal or observer, can prove to be extremely taxing. If developed countries like Canada are feeling the pinch, it is difficult to imagine how countries in the developing world can cope. In fact, many can not. A case in point is the inability of important Central American banana producers to participate in the recent bananas dispute despite its overwhelming importance to their economies.

While the enthusiasm for dispute settlement might well abate in time, the present strains are proving hard to bear. WTO decisions are having quite fundamental effects on domestic policy making. Moreover, the repercussions of the WTO rulings have extended beyond the countries directly involved in the disputes. To maintain the confidence of members in the overall system, panels need to have the resources and credentials necessary to do a good job. The Millennium Round provides an opportunity to do something about this. A good start would be to make provision for more generous funding.

Negotiators at the Millennium Round might also give some thought to a programme to assist developing countries to participate more fully in dispute proceedings. The issue is a transitional one since trade expertise in much of the developing world will certainly increase with time. At present, however, the complexity, volume and expense of cases is overwhelming. The interests and perspective of the developing country members needs to be heard. Otherwise, much of the WTO's effectiveness will be lost. It will come to be perceived, perhaps justifiably, as a club where only rich countries get a chance to a fair hearing.

Improving Compliance

A couple of recent WTO cases have revealed a rather disturbing weakness in the dispute settlement provisions. Getting the losing party to implement a panel report or appellate body determination can be a long and messy business.

Dispute Settlement Body determinations are supposed to be binding. If a party's measures are found to be inconsistent with its WTO obligations, the Member must bring its practices into compliance. If they do not, the successful challenger is entitled to take countermeasures of equivalent commercial effect. The countermeasures must be blessed by the WTO and usually take the form of suspending trade concessions or some kind of financial compensation.

While this sounds all very straightforward, it can be anything but in practice. Certain provisions of the Dispute Settlement Understanding, specifically Articles 21.5, 22 and 23 dealing with disagreements over compliance measures, retaliation in cases of non-compliance and discouraging unilateral action, respectively, are ambiguous. As a result, it is unclear as to which provision applies in a situation when a challenging Member is unsatisfied with the actions, or inaction, of another Member in response to a WTO panel ruling.

In a couple of recent cases, losing parties have made minor changes to their policies, maintaining that they have complied with WTO requirements. The challenging countries have disagreed, claiming that one non-conforming measure has merely been substituted for another. Because the provisions are unclear, a Member intent on dodging an unfavourable ruling could force its adversaries into a never-ending series of panels, indefinitely delaying implementation of the original ruling.

Compliance became an issue in the American challenge of Europe's banana import regime. After being ruled against in the bananas case, the EU showed no desire to make meaningful changes to its practices. The Americans did not take this news calmly. Not content to wait for guidance on countermeasures from the Dispute Settlement Body, the U.S. threatened to impose a host of trade sanctions of its own. The prospect of unilateral action by any member, particularly a powerful country like the U.S., is very damaging for the multilateral trading system whose integrity depends on the coordinated action of all WTO participants. If trading partners as large as Europe and the United States they are unable to resolve their disputes amicably, what kind of example does this set for newer and less powerful Members of the WTO?

More Transparency

In crafting the WTO's dispute settlement provisions, negotiators bent over backwards to devise a system that is non-confrontational. Among other things, this meant limiting the hearings and other formal proceedings to official delegates representing the countries involved in the dispute. It also meant restricting the circulation of documents to only the parties involved in the dispute.

The desire was well-intended. A low-key, conciliatory approach is more likely to result in negotiated compromises than a winner-takes-all litigious model. The idea was that if one could keep the private trade lawyers out, especially the $400-per-hour, Gucci-loafer-wearing, Washington D.C. variety of trade lawyer, we would all be a lot better off.

The trouble is that all the secrecy that surrounds the proceedings gives off a bad aura. A lot of important things are being decided by WTO panels. Panel and appellate body reports can significantly change the way that governments conduct their business. This is true even for countries that were not involved in the disputes under consideration. It is only appropriate that non-member participants be given an opportunity to attend the proceedings and read the submissions filed.

Those opposed to the idea of more transparency raise concerns that confidential information will released. Unless members are confident that proper safeguards are in place, they will not come forward with the information panels require to do their work.

The protection of truly confidential information can still be accomplished in a more open and transparent system. Canada has already taken a step in this direction by pledging to prepare non-confidential summaries of any submissions it makes to the WTO. While it has to tighten up its timing to ensure that the public version is available at the same time as the confidential brief is filed in Geneva, and before the juicy bits have already been leaked to the business press, Canada's idea is a good one. Countries involved in disputes should have to file both confidential and non-confidential submissions. The public versions should be immediately available on the WTO website.

This idea would make things a lot easier for the WTO itself. The existing system creates all sorts of confusion and extra work. Some information is in the public domain; some is not when there no real rationale for keeping it secret. WTO panels, who have to prepare public reports, have to go through the considerable effort of paraphrasing information that could otherwise have been taken directly from parties' submissions. The result is that a lot of energy gets expended handling material that really does not need to be protected. Not only does this cost more in the end, but the illusion of secrecy does not engender confidence in the system.

The other argument against more transparency is that WTO panel and appellate body proceedings would turn into circuses for the disaffected. Imagine the horror going through the minds of trade bureaucrats at the thought that their sedate existence in Geneva might be disrupted by environmentalists and activists of other ilk. Its enough to make them want to put in for a transfer to the OECD.

There might be good reason to deny non-governmental organizations and others not party to a dispute the right to actually participate in the proceedings. The GATT/WTO tradition has long been one of government-to-government dealings as a way of minimizing rancour and encouraging constructive diplomacy. This does not mean, however, that non-participants should be shut out completely. In addition to being granted access to public briefs and information, they should be allowed to attend panel and appellate body proceedings provided confidential information is not being discussed. Although political cultures and structures differ amongst WTO member governments, they should consider instituting mechanisms for gathering the views of domestic groups, the so-called "civil society". What is more, governments should make sincere attempts to reflect these opinions in their own submissions before dispute settlement bodies.

Finally, there is the issue of interim reports. In the old GATT days, a first draft of panel reports were released on a confidential basis to the countries involved in the case prior to being circulated to all Members. The idea was that the early release would provide those directly affected with an opportunity to catch and correct any mistakes made by the panel. This practice has been carried over to the WTO, even though the job of the appellate body makes it redundant. After all, appellate review is supposed to clear up errors made by the panel.

The interim report business has created no end of confusion. Some governments have not considered themselves bound by the report's confidential status and have commented publicly on its contents. This puts other parties to the dispute in an awkward situation, not wanting to break WTO protocol but being frustrated at being put at a disadvantage in the public relations game. One common scenario is for one party to claim victory in a case upon release of the interim report. Given the complexity of these cases, it is not difficult to find at least one minor point that a panel will decide in a party's favour. The adversary, who might well have been victorious overall, has little recourse. The interim decision is not available for members of the press to analyze for themselves. By the time the official report is released some weeks later, the press and public have lost interest. In the meantime, the folks back home are livid at their trade policy officials for having lost a case that they might really have won.

It is high time to end this messy state of affairs. WTO panel decisions should be released in public and only once. This would place all WTO members on an equal footing and provide the transparency the public deserves.

The chances are good that reforms will be made to improve the transparency of the dispute settlement system. In its July 29th position paper by WTO Ambassador Esserman, the United States proposed "providing for earlier circulation of panel reports, making parties' submissions to panels public, allowing for submissions amicus briefs and opening hearings to observers from the public". These proposals were reportedly submitted to the Dispute Settlement Review which is supposed to report and make recommendations to the Seattle Ministerial for ratification. If we are lucky, this might be one of the "early Harvest" accomplishments in Seattle.

Little Dispute over Disputes

By and large, the WTO's dispute settlement provisions operate remarkably well. The few problems that exist can be solved with increased resources and clearer drafting to remove some ambiguities related to enforcement and compliance. This should be easy to achieve in the Millennium Round negotiations.

The issue of transparency is a tremendously important one. It is crucial to have domestic constituencies on side if we are to advance the cause of trade liberalization. Disputes are dealing with issues that hit very close to the bone in terms of national sovereignty – matters relating to environment, health and safety, for example. The fears of citizens that dispute settlement bodies are over stepping their boundaries and trampling on legitimate national prerogatives need to be addressed and allayed. An important element of that is to remove the intrigue and secrecy that now exists, and make the whole process more open. There is no reason why the non-participating governments and the public at large should not be given more access to dispute proceedings. In fact, the integrity of the system might well depend on it.