1. The WTO Dispute Settlement Dr. Valentina Vadi Maastricht University University of Rome III 22 November 2012

2. Synopsis From the GATT years to the WTO DS From the GATT years to the WTO DS Characteristics of the WTO DS Characteristics of the WTO DS Principles of WTO DS Principles of WTO DS Institutions Institutions Proceedings Proceedings The Challenges Ahead The Challenges Ahead

3. From the GATT to the WTO GATT (1947-1995)=political, consensus, power-based system of dispute settlement, GATT (1947-1995)=political, consensus, power-based system of dispute settlement, Art. XXII and XXIII GATT 1947 Art. XXII and XXIII GATT 1947 WTO WTO rule-based architecture rule-based architecture final and legally enforceable decisions. final and legally enforceable decisions. Quasi-judicial = shift in legal philosophy, closer to the characteristics of ordinary systems of litigation Quasi-judicial = shift in legal philosophy, closer to the characteristics of ordinary systems of litigation

4. Dispute Settlement in the GATT 1947 Diplomatic Consultations Diplomatic Consultations After 1955, Panels of neutral GATT experts  recommendations  adopted by the Contracting Parties (GATT Council, after 1960) by consensus After 1955, Panels of neutral GATT experts  recommendations  adopted by the Contracting Parties (GATT Council, after 1960) by consensus Remedies: GATT Council makes recommendations to withdraw a measure (restoration); may authorize suspension of concessions. Retaliation is disfavoured, no punishment or damages Remedies: GATT Council makes recommendations to withdraw a measure (restoration); may authorize suspension of concessions. Retaliation is disfavoured, no punishment or damages

5. Critical Assessment Successful Successful Decisions implemented and observed Decisions implemented and observed  Shortcomings: - Delays in the process - Blocking of the adoption of panel reports - Delays in implementation

6. The WTO Dispute Settlement Mechanism Continuation of the GATT regime Continuation of the GATT regime - Multilateral procedures rather than unilateral action (E.g. Section 301 of the US Trade Act 1974) A Court of International Trade? A Court of International Trade? - compulsory jurisdiction - compulsory jurisdiction - short timeframes (9 months panels; 90 days AB) - short timeframes (9 months panels; 90 days AB) - no backlog - no backlog - rules of law - rules of law - binding decisions - binding decisions - sanctions may be imposed - sanctions may be imposed - Appellate Body - Appellate Body

7. Nature of Disputes Disputes on technical trade issues Disputes on technical trade issues  Zeroing Methodology (Complainant: European Communities) Disputes on politically sensitive issues: Disputes on politically sensitive issues: 1) Trade & environment  China — Measures concerning wind power equipment  China — Measures concerning wind power equipment  China — Raw Materials  China — Raw Materials  US – Shrimp/turtles case  US – Shrimp/turtles case 2) Trade & Public health  European Union and a Member State — Seizure of Generic Drugs in Transit (Complainant: Brazil)  European Union and a Member State — Seizure of Generic Drugs in Transit (Complainant: Brazil)  Brazil – Retreaded Tyres  Brazil – Retreaded Tyres  EC – Hormones; EC – Asbestos  EC – Hormones; EC – Asbestos 3) Trade and Public Morals  US – Gambling  US – Gambling

8. Object and Purpose Securing prompt settlement to a dispute Securing prompt settlement to a dispute - Mutually acceptable preserving rights & obligations preserving rights & obligations Security & predictability Security & predictability Clarification in accordance with customary rules of interpretation of public international law Clarification in accordance with customary rules of interpretation of public international law  It cannot add or diminish rights and obligations!!! No judicial activism Genuine intention to see the dispute resolved. Genuine intention to see the dispute resolved. something more than mere violation of substantive provision = failure to act in good faith

9. Methods of Dispute Settlement Consultations/negotiation (Art. 4 DSU) Consultations/negotiation (Art. 4 DSU) Good offices, mediation and conciliation (Art. 5 DSU) Good offices, mediation and conciliation (Art. 5 DSU) - 25% of the disputes are settled! - 25% of the disputes are settled! Adjudication (Art. 6 – 19 DSU) Adjudication (Art. 6 – 19 DSU) - Repeated players: US, EU (US is also the most active respondent!) - Repeated players: US, EU (US is also the most active respondent!) Arbitration (Art. 25 DSU) as an alternative; only one case so far. Arbitration (Art. 25 DSU) as an alternative; only one case so far.

10. Steps in Dispute Settlement 1) consultation (Article 4) 2) Panel proceedings (Art. 6-16) 3) Appellate review proceedings 4) Implementation and enforcement

11. Jurisdiction  Disputes arising out of any of the WTO ’covered agreements’ Annex I -Some agreements include special or additional rules which prevail in case of conflict with DSU rules. (complementary; if conflict=lex specialis) -Customary rules of treaty interpretation- Vienna Convention on the Law of Treaties  compulsory jurisdiction  exclusive jurisdiction vis-à-vis other int’l for a or unilateral conduct  Only contentious jurisdiction (no abstract ruling on hypothetical future measures)

12. Access Government-to-government Government-to-government Members of the WTO can be parties or third parties to a dispute Members of the WTO can be parties or third parties to a dispute NO Non-Members, IOs, NGOs, companies or individuals NO Non-Members, IOs, NGOs, companies or individuals BUT: indirect access for private parties, lobbying, ‘behind the scenes’ role BUT: indirect access for private parties, lobbying, ‘behind the scenes’ role - US: section 301 (1974) Trade Act - EC Trade Barriers regulation - Chinese Law

13. Amicus Curiae Briefs Persons that are not parties to the disputes Persons that are not parties to the disputes No right to be heard, no right to have the brief considered No right to be heard, no right to have the brief considered Shrimp/Turtle  panel  no amicus curiae; AB  panels have the power to seek information from any individual or body; Shrimp/Turtle  panel  no amicus curiae; AB  panels have the power to seek information from any individual or body;  Discretion of the AB or Panels  EC Asbestos AB  additional procedure setting requirements for admission  no amicus was accepted  Developing countries’ Criticism: WTO = Contract - NGOs are unfriendly; - Fair prompt and effective resolution of trade disputes - Undue burden on other participants (lack of legal resources)  WTO member can also file amicus curiae briefs.

14. Causes of Action When do Members have access? When do Members have access? 1) Violation complaints (presumption that the benefits are impaired or nullified- doubtful whether it may rebutted) most common type of complaint 2) Nullification or impairment of benefits (the aggrieved party needs to show impairment of benefits) none successful so far 3) Situation complaints. No cases.

15. Standing to Bring Claims EC-Bananas EC-Bananas EC questions the legal interest of the US to bring a dispute about bananas because US bananas production is minimal; no export of bananas EC questions the legal interest of the US to bring a dispute about bananas because US bananas production is minimal; no export of bananas  AB: Members have broad discretion in deciding whether to bring a case - Actio popularis   Third parties: a) Opportunity to be heard b) No right of appeal c) Original complaints => Parties

16. Number of Disputes 424 disputes as of 20 April 2011

17. Success Rate This disparity transcends case type, country identity, income level and other litigant- specific characteristics.

18. Atypical Measures subject to WTO DSM 1) Private actions attributable to a government (Korea beef) case by case assessment 2) Measures no longer in force can be the subject of examination if they currently affect the operation of a covered agreement. 3) Legislation as such: only legislation that mandates a violation of GATT obligations can be found in violation of these obligations. -GATT panels: legislation which gives discretion to executive authorities to act inconsistently with GATT cannot be challenged (only the application inconsistent with GATT of such discretionary measures can be challenged). -WTO panel: legislation with discretion can violate WTO law too, as it ‘constitute an ongoing threat and can produce a chilling effect’ on the individual economic operators and WTO Members

19. Rules of Interpretation 3.2 DSU = goal of the DSS is to clarify provisions in accordance with customary rules of treaty interpretation Article 31 and 32 of the Vienna Convention Law of Treaties (VCLT)= customary international law Textual, systemic and teleological interpretation= one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order. Textual, systemic and teleological interpretation= one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order. Principle of effectiveness (ut res magis valeat quam pereat) Principle of effectiveness (ut res magis valeat quam pereat) Article 31(3) (c) =WTO law is not to be read in clinical isolation from public international law Article 31(3) (c) =WTO law is not to be read in clinical isolation from public international law - Evolutionary interpretation - Evolutionary interpretation - only those rules of international law applicable in the relations between all WTO members ( EC biotech- award criticized) - only those rules of international law applicable in the relations between all WTO members ( EC biotech- award criticized)

20. Rules of Interpretation Article 31 VCLT: General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise…its preamble and annexes… 3. There shall be taken into account, together with the context: […] (c) any relevant rules of international law applicable in the relations between the parties. […] Article 32 VCLT supplementary means of interpretation (preparatory works- historical background- negotiating history) if the interpretation according to Article 31 leaves the meaning obscure or leads to absurd results. Article 32 VCLT supplementary means of interpretation (preparatory works- historical background- negotiating history) if the interpretation according to Article 31 leaves the meaning obscure or leads to absurd results.

21. Burden of Proof The party who asserts a fact bears the burden of proof (needs to provide proof). The party who asserts a fact bears the burden of proof (needs to provide proof). - Sufficient evidence is produced= the burden shifts to the other party.  Actori incumbit probatio = the burden of proof is on the complaining party to establish a prima facie case of inconsistency with WTO law - prima facie case = evidence and legal argument - prima facie case = evidence and legal argument - rebuttal - rebuttal - the panel balances all evidence on record; not bound by the arguments of the parties- Jura novit curia - the panel balances all evidence on record; not bound by the arguments of the parties- Jura novit curia -if uncertainty remains  benefit of doubt to the defending party -if uncertainty remains  benefit of doubt to the defending party  Legal responsibility of the defendant to raise a defence

22. The WTO DSM: Institutions  Dispute Settlement Body (political body) - Establishes panels; appoints Members of AB - Adopts panel and AB reports - Supervises the implementation - Authorizes sanctions  Panels  Panels (3 or 5 persons) (quasi-judicial) - Well qualified individuals - - Selected from a roster of persons suggested by Members - - Serve in their individual capacities (independence)  Appellate Body (7 persons -4 years mandate) - Reviews panel rulings - Standing institution - Demonstrated expertise in int’l trade law - Not affiliated with any government

23. Legal Effect Reports are binding on the parties to the dispute once the DSB adopts them. Reports are binding on the parties to the dispute once the DSB adopts them. - No legal effect on other WTO members - No precedents! - Article 3.2 DSU "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in covered agreements". - Ministerial Conference and General Council have the exclusive authority to adopt interpretations of the covered agreements (IX WTO Agreement)

24. Compliance with Recommendations and Rulings

25. Remedies 1) Withdrawal of the WTO-inconsistent measure 2) Compensation 3) Retaliation (suspension of concessions)

26. Withdrawal (immediate) withdrawal of the WTO-inconsistent measure= obligation to cease the illegal conduct (immediate) withdrawal of the WTO-inconsistent measure= obligation to cease the illegal conduct If this impracticable  reasonable period of time for implementation (no > 15 months) (Art. 21) If this impracticable  reasonable period of time for implementation (no > 15 months) (Art. 21) - A period set by the DSB after proposal by the Member concerned; - A period agreed by the parties - A period determined through arbitration  The domestic or political situation in the Member concerned is of no relevance in determining the reasonable period of time;  Particular attention should be paid to matters affecting DCs

27. Sequencing Problem  Sequencing problem: lack of guidance over what a losing party must do to comply. 1) Loosing party takes minimal steps and declare itself in full compliance; 2) The winning party disagrees! EC Bananas EC Bananas 1) compliance panel under art. 21 Revised banana regulations violated the GATT and the GATS Revised banana regulations violated the GATT and the GATS 2) Arbitral panel under art. 22 Set the amount of compensation due to continued nullification or impairment of trade benefits  Confusion, amendment would be better (Shoenbaum, Palmeter and Mavroidis)

28. Compensation Failure to comply with recommendations and rulings of the DSB within a reasonable period of time Failure to comply with recommendations and rulings of the DSB within a reasonable period of time  C o m p e n s a t i o n C o m p e n s a t i o n Temporary, until implementation takes place Additional trade concessions by the losing party in related trade areas Forward looking (only damages that will be suffered in the future) Voluntary (parties have to agree)  Option to buy out treaty obligations?

29. Retaliation If no satisfactory compensation is agreed, If no satisfactory compensation is agreed, Any Party having invoked the dispute settlement procedure May request authorization from the DSB to retaliate; -no need for the parties to agree -trade destructive, poisons int’l relations, inadequate to offset the losses -not a genuine option for developing countries But see Gambling case Antigua Barbuda v US

30. Retaliation Parallel Same sector Cross-sector Different sectors Same agreements Cross-Agreement Suspension of concessions, equivalent to the nullification or impairment of benefits the nullification or impairment of benefits Authorized and monitored by the DSB

31. Towards Stare Decisis? - Evidence of treaty practice - Persuasive or ‘informal’ precedents: they create ‘legitimate expectations’ among parties (US- Japan Alcoholic Beverages, US Shrimp Turtle) - Systemic considerations - binding precedent  common law jurisdictions, but civil law jurisdictions comprise the majority of WTO members - Zeroing cases: acts of rebellion or declarations of independence?

32. Critical Assessment  Pros Rule-oriented settlements v. power-oriented dispute settlements Rule-oriented settlements v. power-oriented dispute settlements Quasi-judicial mode Quasi-judicial mode Very successful mechanism Very successful mechanism  Cons Making law instead of interpreting law Making law instead of interpreting law No mechanisms to correct AB’s mistakes No mechanisms to correct AB’s mistakes (Matsushita Shoenbaum Mavroidis  peer review group) need to open the dispute settlement process need to open the dispute settlement process