PROJECT-REPORT

International Trade Law

WTO DISPUTE SETTLEMENT

SUBMITTED TO

SUBMITTED BY

MS. ALAMDEEP KAUR

AKSHIT GULERIA

DEPARTMENT

ROLL NO.

U.I.L.S, P.U.

09/12

CHANDIGARH

SEMESTER
8TH
SECTION
A

ACKNOWLEDGEMENT
I would like to thank my subject teacher, respected Ms. Alamdeep
Kaur for providing me with this glorious opportunity to work on this
project and enhance my knowledge. I would also like thank the
department library for the immense contribution it played in the
completion of this project on time.

THANKING YOU!
AKSHIT GULERIA
09/12

TABLE OF CONTENTS
S.NO

PARTICULARS

PG.NO.

INTRODUCTION

THE DISPUTE SETTLEMENT

UNDERSTANDING

FUNCTIONS, OBJECTIVES
AND KEY FEATURES OF THE
DISPUTE SETTLEMENT
SYSTEM

PARTICIPANTS IN THE
DISPUTE SETTLEMENT
SYSTEM

HOW ARE DISPUTES

SETTLED?

10

APPEALS

12

THE CASE HAS BEEN

DECIDED: WHAT NEXT?

12

CASE STUDY

13

BENEFITS FOR
DEVELOPING COUNTRIES

14

10

OBSTACLES FOR
DEVELOPING COUNTRIES

16

11

12

IMPLICATIONS OF DISPUTE
SETTLEMENT
UNDERSTANDING
CONCERNING INDIA

CONCLUSION

18

21

13

BIBLIOGRAPHY

22

INTRODUCTION
As one of the major outcomes of the Uruguay Round, the WTO Dispute Settlement
Understanding (DSU) is regarded as one of the central pillars of todays multilateral trading
regime. It is expected that this new rule-oriented dispute settlement mechanism (DSM) can
replace the GATTs power-based dispute resolution system, thus can bring more equality and
protection to developing countries. Some researches support this claim. According to Holmes,
Rollo and Young, in the DSM of the WTO, there is no strong evidence of a bias against
developing countries either as complainants or respondents.1 In other words, the new DSM
enhances equality between developing member countries and developed ones.

THE DISPUTE SETTLEMENT

UNDERSTANDING
The current dispute settlement system was created as part of the WTO Agreement during the
Uruguay Round. It is embodied in the Understanding on Rules and Procedures Governing the
Settlement of Disputes, commonly referred to as the Dispute Settlement Understanding and
abbreviated DSU (referred to as such in this guide). The DSU, which constitutes Annex 2
of the WTO Agreement, sets out the procedures and rules that define todays dispute
settlement system. It should however be noted that, to a large degree, the current dispute
settlement system is the result of the evolution of rules, procedures and practices developed
over almost half a century under the GATT 1947.

FUNCTIONS, OBJECTIVES AND KEY

FEATURES OF THE DISPUTE
SETTLEMENT SYSTEM
PROVIDING SECURITY AND PREDICTABILITY
MULTILATERAL TRADING SYSTEM

TO

THE

A central objective of the WTO dispute settlement system is to provide security and
predictability to the multilateral trading system (Article 3.2 of the DSU). Although
international trade is understood in the WTO as the flow of goods and services between
Members, such trade is typically not conducted by States, but rather by private economic
operators. These market participants need stability and predictability in the governing laws,
rules and regulations applying to their commercial activity, especially when they conduct
trade on the basis of long-term transactions. In light of this, the DSU aims to provide a fast,
efficient, dependable and rule-oriented system to resolve disputes about the application of the
provisions of the WTO Agreement. By reinforcing the rule of law, the dispute settlement
system makes the trading system more secure and predictable. Where non-compliance with
the WTO Agreement has been alleged by a WTO Member, the dispute settlement system
provides for a relatively rapid resolution of the matter through an independent ruling that
must be implemented promptly, or the non-implementing Member will face possible trade
sanctions.

PRESERVING
MEMBERS

THE

RIGHTS

AND

OBLIGATIONS

OF

WTO

Typically, a dispute arises when one WTO Member adopts a trade policy measure that one or
more other Members consider to be inconsistent with the obligations set out in the WTO
Agreement. In such a case, any Member that feels aggrieved is entitled to invoke the
procedures and provisions of the dispute settlement system in order to challenge that
measure. If the parties to the dispute do not manage to reach a mutually agreed solution, the
complainant is guaranteed a rules-based procedure in which the merits of its claims will be
examined by an independent body (panels and the Appellate Body). If the complainant
prevails, the desired outcome is to secure the withdrawal of the measure found to be
inconsistent with the WTO Agreement. Compensation and countermeasures (the suspension
of obligations) are available only as secondary and temporary responses to a contravention of
the WTO Agreement (Article 3.7 of the DSU). Introduction to the WTO dispute settlement
5

system Thus, the dispute settlement system provides a mechanism through which WTO
Members can ensure that their rights under the WTO Agreement can be enforced. This
system is equally important from the perspective of the respondent whose measure is under
challenge, since it provides a forum for the respondent to defend itself if it disagrees with the
claims raised by the complainant. In this way, the dispute settlement system serves to
preserve the Members rights and obligations under the WTO Agreement (Article 3.2 of the
DSU). The rulings of the bodies involved (the DSB, the Appellate Body, panels and
arbitrations) are intended to reflect and correctly apply the rights and obligations as they are
set out in the WTO Agreement. They must not change the WTO law that is applicable
between the parties or, in the words of the DSU, add to or diminish the rights and obligations
provided in the WTO agreements (Articles 3.2 and 19.2 of the DSU).

CLARIFICATION OF RIGHTS AND OBLIGATIONS THROUGH

INTERPRETATION
The precise scope of the rights and obligations contained in the WTO Agreement is not
always evident from a mere reading of the legal texts. Legal provisions are often drafted in
general terms so as to be of general applicability and to cover a multitude of individual cases,
not all of which can be specifically regulated. Whether the existence of a certain set of facts
gives rise to a violation of a legal requirement contained in a particular provision is,
therefore, a question that is not always easy to answer. In most cases, the answer can be found
only after interpreting the legal terms contained in the provision at issue. In addition, legal
provisions in international agreements often lack clarity because they are compromise
formulations resulting from multilateral negotiations. The various participants in a
negotiating process often reconcile their diverging positions by agreeing to a text that can be
understood in more than one way so as to satisfy the demands of different domestic
constituents. The negotiators may thus understand a particular provision in different and
opposing ways. For those reasons, as in any legal setting, individual cases often require an
interpretation of the pertinent provisions. One might think that such an interpretation cannot
occur in WTO dispute settlement proceedings because Article IX:2 of the WTO Agreement
provides that the Ministerial Conference and the General Council of the WTO have the
exclusive authority to adopt interpretations of the WTO Agreement. However, the DSU
expressly states that the dispute settlement system is intended to clarify the provisions of the
WTO Agreement in accordance with customary rules of interpretation of public international
law (Article 3.2 of the DSU). The DSU, therefore, recognizes the need to clarify WTO rules
and mandates that this clarification take place pursuant to customary rules of interpretation.
In addition, Article 17.6 of the DSU implicitly recognizes that panels may develop legal
interpretations. The exclusive authority of Article IX:2 of the WTO Agreement must
therefore be understood as the possibility to adopt authoritative interpretations that are of
general validity for all WTO Members unlike interpretations by panels and the Appellate
Body, which are applicable only to the parties and to the subject matter of a specific dispute.
Accordingly, the DSU mandate to clarify WTO rules is without prejudice to the rights of
Members to seek authoritative interpretations under Article IX:2 of the WTO Agreement
(Article 3.9 of the DSU). As regards the methods of interpretation, the DSU refers to the
6

customary rules of interpretation of public international law (Article 3.2 of the DSU).
While customary international law is normally unwritten, there is an international convention
that has codified some of these customary rules of treaty interpretation. Notably, Articles 31,
32 and 33 of the Vienna Convention on the Law of Treaties embody many of the customary
rules of interpretation of public international law. While the reference in Article 3.2 of the
DSU does not refer directly to these Articles, the Appellate Body has ruled that they can serve
as a point of reference for discerning the applicable customary rules.

MUTUALLY AGREED SOLUTIONS AS PREFERRED SOLUTION

Although the dispute settlement system is intended to uphold the rights of aggrieved
Members and to clarify the scope of the rights and obligations, which gradually achieves
higher levels of security and predictability, the primary objective of the system is not to make
rulings or to develop jurisprudence. Rather, like other judicial systems, the priority is to settle
disputes, preferably through a mutually agreed solution that is consistent with the WTO
Agreement (Article 3.7 of the DSU). Adjudication is to be used only when the parties cannot
work out a mutually agreed solution. By requiring formal consultations as the first stage of
any dispute, the DSU provides a framework in which the parties to a dispute must always at
least attempt to negotiate a settlement. Even when the case has progressed to the stage of
adjudication, a bilateral settlement always remains possible, and the parties are always
encouraged to make efforts in that direction (Articles 3.7 and 11 of the DSU).

PROMPT SETTLEMENT OF DISPUTES

The DSU emphasizes that prompt settlement of disputes is essential if the WTO is to function
effectively and the balance of rights and obligations between the Members is to be
maintained (Article 3.3 of the DSU). It is well known that, to be achieved, justice must not
only provide an equitable outcome but also be swift. Accordingly, the DSU sets out in
considerable detail the procedures and corresponding deadlines to be followed in resolving
disputes. The detailed procedures are designed to achieve efficiency, including the right of a
complainant to move forward with a complaint even in the absence of agreement by the
respondent (Articles 4.3 and 6.1 of the DSU). If a case is adjudicated, it should normally take
no more than one year for a panel ruling and no more than 16 months if the case is appealed
(Article 20 of the DSU). If the complainant deems the case urgent, consideration of the case
should take even less time (Articles 4.9 and 12.8 of the DSU).
These time-frames might still appear long, considering that time for implementation will have
to be added after the ruling. Also, for the entire duration of the dispute, the complainant may
still suffer economic harm from the challenged measure; and even after prevailing in dispute
settlement, the complainant will receive no compensation for the harm suffered before the
time by which the respondent must implement the ruling.
However, one must take into account that disputes in the WTO are usually very complex in
both factual and legal terms. Parties generally submit a considerable amount of data and
documentation relating to the challenged measure, and they also put forward very detailed
legal arguments. The parties need time to prepare these factual and legal arguments and to
7

respond to the arguments put forward by the opponent. The panel (and the Appellate Body)
assigned to deal with the matter needs to consider all the evidence and arguments, possibly
hear experts, and provide detailed reasoning in support of its conclusions. Considering all
these aspects, the dispute settlement system of the WTO functions relatively fast and, in any
event, much faster than many domestic judicial systems or other international systems of
adjudication.

PROHIBITION AGAINST UNILATERAL DETERMINATIONS

WTO Members have agreed to use the multilateral system for settling their WTO trade
disputes rather than resorting to unilateral action (Article 23 of the DSU). That means abiding
by the agreed procedures and respecting the rulings once they are issued and not taking the
law into their own hands.
If Members were to act unilaterally, this would have obvious disadvantages that are well
known from the history of the multilateral trading system. Imagine that one Member accuses
another Member of breaking WTO rules. As a unilateral response, the accusing Member
could decide to take a countermeasure, i.e. to infringe WTO obligations with regard to the
other Member (by erecting trade barriers). Under traditional international law, that Member
could argue that it has acted lawfully because its own violation is justified as a
countermeasure in response to the other Members violation that had occurred first. If,
however, the accused Member disagrees on whether its measure truly infringes WTO
obligations, it will not accept the argument of a justified countermeasure. On the contrary, it
may assert that the countermeasure is illegal and, on that basis, it may feel justified in taking
a countermeasure against the first countermeasure. The original complainant, based on its
legal view on the matter, is likely to disagree and to consider that second countermeasure
illegal. In response, it may adopt a further countermeasure. This shows that, if the views
differ, unilateral actions are not able to settle disputes harmoniously. Things may spiral out of
control and, unless one of the parties backs down, there is a risk of escalation of mutual trade
restrictions, which may result in a trade war.
To prevent such downward spirals, the DSU mandates the use of a multilateral system of
dispute settlement to which WTO Members must have recourse when they seek redress
against another Member under the WTO Agreement (Article 23.1 of the DSU). This applies
to situations in which a Member believes that another Member violates the WTO Agreement
or otherwise nullifies or impairs benefits under the WTO agreements or impedes the
attainment of an objective of one of the agreements.
In such cases, a Member cannot take action based on unilateral determinations that any of
these situations exist, but may only act after recourse to dispute settlement under the rules and
procedures of the DSU. Whatever actions the complaining Member takes, it may only take
them based on the findings of an adopted panel or Appellate Body report or arbitration award
(Article 23.2(a) of the DSU). The Member concerned must also respect the procedures
foreseen in the DSU for the determination of the time-period for implementation and impose

countermeasures only on the basis of an authorization by the DSB (Article 23.2(b) and (c) of
the DSU). This excludes unilateral actions such as those described above.

EXCLUSIVE JURISDICTION
By mandating recourse to the multilateral system of the WTO for the settlement of disputes,
Article 23 of the DSU not only excludes unilateral action, it also precludes the use of other
forum for the resolution of a WTO-related dispute.

COMPULSORY NATURE
The dispute settlement system is compulsory. All WTO Members are subject to it, as they
have all signed and ratified the WTO Agreement as a single undertaking, of which the DSU is
a part. The DSU subjects all WTO Members to the dispute settlement system for all disputes
arising under the WTO Agreement. Therefore, unlike other systems of international dispute
resolution, there is no need for the parties to a dispute to accept the jurisdiction of the WTO
dispute settlement system in a separate declaration or agreement. This consent to accept the
jurisdiction of the WTO dispute settlement system is already contained in a Members
accession to the WTO. As a result, every Member enjoys assured access to the dispute
settlement system and no responding Member may escape that jurisdiction.

PARTICIPANTS IN THE DISPUTE

SETTLEMENT SYSTEM
PARTIES AND THIRD PARTIES
The only participants in the dispute settlement system are the Member governments of the
WTO, which can take part either as parties or as third parties. The WTO Secretariat, WTO
observer countries, other international organizations, and regional or local governments are
not entitled to initiate dispute settlement proceedings in the WTO. The DSU sometimes refers
to the Member bringing the dispute as the complaining party or the complainant (this
guide mostly uses the term complainant). No equivalent short term is used for the party to
whom the request for consultations is addressed. The DSU sometimes also speaks of
Member concerned. In practice, the terms respondent or defendant are commonly
used; this guide mostly uses the term respondent.

NO NON-GOVERNMENTAL ACTORS
Since only WTO Member governments can bring disputes, it follows that private individuals
or companies do not have direct access to the dispute settlement system, even if they may
often be the ones (as exporters or importers) most directly and adversely affected by the
9

measures allegedly violating the WTO Agreement. The same is true of other nongovernmental organizations with a general interest in a matter before the dispute settlement
system (which are often referred to as NGOs). They, too, cannot initiate WTO dispute
settlement proceedings. Of course, these organizations can, and often do, exert influence or
even pressure on the government of a WTO Member with respect to the triggering of a
dispute. Indeed, several WTO Members have formally adopted internal legislation under
which private parties can petition their governments to bring a WTO dispute. There are
divergent views among Members on whether non-governmental organizations may play a
role in WTO dispute settlement proceedings, for example, by filing amicus curiae
submissions with WTO dispute settlement bodies. According to WTO jurisprudence, panels
and the Appellate Body have the discretion to accept or reject these submissions, but are not
obliged to consider them.

HOW ARE DISPUTES SETTLED?

Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in
another guise), which consists of all WTO members. The Dispute Settlement Body has the
sole authority to establish panels of experts to consider the case, and to accept or reject the
panels findings or the results of an appeal. It monitors the implementation of the rulings and
recommendations, and has the power to authorize retaliation when a country does not comply
with a ruling.
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).
Officially, the panel is helping the Dispute Settlement Body make rulings or
recommendations. But because the panels report can only be rejected by consensus in the
Dispute Settlement Body, its conclusions are difficult to overturn.
The panels findings have to be based on the agreements cited. 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:
Before the first hearing: each side in the dispute presents its case in writing to the panel.
10

 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.
REBUTTALS: the countries involved submit written rebuttals and present oral arguments
at the panels second meeting.
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.
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.
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.
REVIEW: The period of review must not exceed two weeks. During that time, the panel
may hold additional meetings with the two sides.
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.
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).

60 days

Consultations, mediation, etc

45 days

Panel set up and panellists appointed

6 months

Final panel report to parties

3 weeks

Final panel report to WTO members

60 days
appeal)

Dispute Settlement Body adopts report (if no

Total
=
1 year (without appeal) 6090 days Appeals
report 30 days Dispute Settlement Body adopts appeals report
Total

1y 3m (with appeal)

11

APPEALS
Either side can appeal a panels ruling. Sometimes both sides do so. Appeals have to be based
on points of law such as legal interpretation they cannot rexamine existing evidence or
examine new issues.
Each appeal is heard by three members of a 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 have to be individuals with
recognized standing in the field of law and international trade, not affiliated with any
government.
The appeal can uphold, modify or reverse the panels legal findings and conclusions.
Normally appeals should not last more than 60 days, with an absolute maximum of 90 days.
The Dispute Settlement Body has to accept or reject the appeals report within 30 days and
rejection is only possible by consensus.

THE CASE HAS BEEN DECIDED: WHAT

NEXT?
Go directly to jail. Do not pass Go, do not collect . Well, not exactly. But the sentiments
apply. If a country has done something wrong, it should swiftly correct its fault. And if it
continues to break an agreement, it should offer compensation or suffer a suitable penalty that
has some bite.
Even once the case has been decided, there is more to do before trade sanctions (the
conventional form of penalty) are imposed. The priority at this stage is for the losing
defendant to bring its policy into line with the ruling or recommendations. The dispute
settlement agreement stresses that prompt compliance with recommendations or rulings of
the DSB [Dispute Settlement Body] is essential in order to ensure effective resolution of
disputes to the benefit of all Members.
If the country that is the target of the complaint loses, it must follow the recommendations of
the panel report or the appeal report. It must state its intention to do so at a Dispute
Settlement Body meeting held within 30 days of the reports adoption. If complying with the
recommendation immediately proves impractical, the member will be given a reasonable
period of time to do so. If it fails to act within this period, it has to enter into negotiations
with the complaining country (or countries) in order to determine mutually-acceptable

12

compensation for instance, tariff reductions in areas of particular interest to the

complaining side.
If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the
Dispute Settlement Body for permission to impose limited trade sanctions (suspend
concessions or obligations) against the other side. The Dispute Settlement Body must grant
this authorization within 30 days of the expiry of the reasonable period of time unless there
is a consensus against the request.
In principle, the sanctions should be imposed in the same sector as the dispute. If this is not
practical or if it would not be effective, the sanctions can be imposed in a different sector of
the same agreement. In turn, if this is not effective or practicable and if the circumstances are
serious enough, the action can be taken under another agreement. The objective is to
minimize the chances of actions spilling over into unrelated sectors while at the same time
allowing the actions to be effective.
In any case, the Dispute Settlement Body monitors how adopted rulings are implemented.
Any outstanding case remains on its agenda until the issue is resolved.

CASE STUDY
On 23 January 1995, Venezuela complained to the Dispute Settlement Body that the United
States was applying rules that discriminated against gasoline imports, and formally requested
consultations with the United States. Just over a year later (on 29 January 1996) the dispute
panel completed its final report. (By then, Brazil had joined the case, lodging its own
complaint in April 1996. The same panel considered both complaints.) The United States
appealed. The Appellate Body completed its report, and the Dispute Settlement Body adopted
the report on 20 May 1996, one year and four months after the complaint was first lodged.
The United States and Venezuela then took six and a half months to agree on what the United
States should do. The agreed period for implementing the solution was 15 months from the
date the appeal was concluded (20 May 1996 to 20 August 1997).
The case arose because the United States applied stricter rules on the chemical characteristics
of imported gasoline than it did for domestically-refined gasoline. Venezuela (and later
Brazil) said this was unfair because US gasoline did not have to meet the same standards it
violated the national treatment principle and could not be justified under exceptions to
normal WTO rules for health and environmental conservation measures. The dispute panel
agreed with Venezuela and Brazil. The appeal report upheld the panels conclusions (making
some changes to the panels legal interpretation). The United States agreed with Venezuela
that it would amend its regulations within 15 months and on 26 August 1997 it reported to the
Dispute Settlement Body that a new regulation had been signed on 19 August.

13

BENEFITS FOR DEVELOPING

COUNTRIES
The Uruguay Round reforms have brought great influence on developing countries
participation and performance in the WTO dispute settlement system. The establishment of a
single organizational forum for managing disputes with formalized procedures and greater
legal transparency certainly has brought about many positive results that improve the equality
status of developing countries. How the new DSM Enhances Equality: On the one hand, the
new DSM in the WTO is a multilateral mechanism for dispute resolution, which provides
developing countries with a more favorable environment than that under the bilateral
mechanism. Under the rule-based DSM, all the members, no matter they are weak or strong,
have the right to resort to the DSM to seek fair and reasonable resolutions for their trade
disputes, which is a law-protected equality. The mechanism reduces the instability arising
from countries unilateral actions. And it also increases the transparency of the dispute
settlement procedure thus help enhance the fairness.
A. IMPROVEMENT IN BARGAINING POWER:
The new DSM improves the bargaining power of developing countries. The system is based
on formal legalized rules, thus members are equal in front of the law. Even the
superpowers need to abide by the regulations. Thus developing countries gain more equality,
and hence more power for equal bargaining. Just as Cameron and Campbell argue, resolving
disputes through a judicial route is particularly beneficial for smaller countries, as without
the rules and procedures of the DSU and the extensive obligations in the WTO agreements,
they would not have the necessary bargaining power vis--vis the larger powers. For
instance, Brazil had not pursued a complaint against the EU under the GATT system since it
knew the complaint would be blocked. However, under the new WTO mechanism, Brazil
notified the EU that it would bring the dispute to the DSB for formal consultation, which is
the first step of the WTO dispute settlement procedure. A few days later, the EU made
concessions that it had previously held as impossible, and the dispute was resolved.
Furthermore, while the GATT system might cripple weaker countries bargaining power by
its positive consensus rule, the new WTO DSM improves the situation through the
negative consensus framework, which greatly reduces the possibility of blockage.
B. INDEPENDENCE TO DEVELOPING COUNTRIES:
Second, from the angle of independence, under the power-based GATT system, the
independence of developing countries was eroded because of their economic and political
dependence on developed countries. Sometimes they could hardly express their real
attitudes. Under the new WTO DSM, as a contrast, a certain level of independence is
guaranteed by the fixed legal regulation system. Thus the rule-based arrangements for
dispute resolution tend to produce more equal outcomes, mitigating power/wealth disparities.
14

C. GENERAL SPIRIT OF COMPLIANCE WITH THE DSM RESULT:

The general spirit of compliance with the result of the DSM is another optimistic indicator of
improved equality. In this rule-based system, the major powers in international trade have
indicated that they will comply with the mandates of the Dispute Settlement reports when
they are finalized and formally adopted. And even the most powerful players cannot defy
the final rulings without risking harm to the institution. When developing countries file
complaints against developed ones to the DSB, even if the result is negative to the developed
side, the recommendations or rulings can still be implemented. This situation tends to
reduce asymmetries in post agreement bargaining power and enhance developing
countries equality status in the phase of rulings implementation. Besides, countries now get
easier access to countermeasures provided through cross-retaliation, which makes
developing countries able to impose pressure on developed ones. Thus, as developing
members have more assurance as to the implementation situation of the DSM results, their
equality status in the system is improved.
D. PROVISIONS PROVIDING
DEVELOPING COUNTRIES:

SPECIAL

FAVORABLE

CONDITIONS

TO

Considering the concrete DSU provisions, because of the increasing concern on developing
countries particular needs and interests, the DSU provides plenty of provisions offering
special favourable conditions to developing countries through the whole dispute settlement
procedure. Thus developing countries can enjoy more equality with developed countries.
Article 4.10 of the DSU calls for members to pay special attention to the particular problems
and interests of developing countries in consultations. Article 12.10 allows for the extension
of the consultation time-period. Article 8.10 states that a developing country involved in a
dispute can request that the panel includes at least one panelist from a developing member
country if the other side is a developed state. And Article 12.11 provides that the panel report
must indicate the form in which the special and differential treatment rules of the DSU have
been taken into account, if a developing country member involved in a dispute raises such
rules. At the stage of implementation, according to Article 21.2 of the DSU, particular
attention should be paid to matters affecting developing countries interests.
As to surveillance, Article 21.8 states that if a case is brought by a developing country, the
DSB needs to take into consideration not only the trade coverage of the challenged measures,
but also their impact on the economy of the developing country concerned. Furthermore
Article 27.2 requires the WTO Secretariat to make available legal expertise assistance from
the WTO technical cooperation services to any developing member upon its request. And
Article 24.1 calls for due restraint in bringing disputes against a least-developed country
(LDC) and in asking for compensation or seeking authorization to suspend obligations
against a LDC that has lost a dispute.

15

OBSTACLES FOR DEVELOPING

COUNTRIES
Moons research shows that under the new DSM of the WTO, developing countries now are
much more frequently taken to court by developed countries, as the percentage of
developed countries as complaints and developing countries as defendants increased
considerably from 9.5% under the GATT system to 28.1% under the WTO mechanism.
Reinhardt and Busch find out that developing countries are one third less likely to file
complaints against developed states under the WTO than they were under the post-1989
GATT regime.
A. HIGH COSTS AND LIMITED RESOURCE AVAILABILITY
First, the costs of access of the DSM are very high. And compared with developed states,
developing countries actually have fewer resources to invest to defend their WTO rights. It
is usually a long process for the WTO to settle a trade dispute through the DSM. Except for
the litigation costs, countries initiating disputes in the DSM face income losses from
hindered trade during the dispute investigation period. For developing countries, especially
those highly relying on their limited exports for national incomes, these potential income
and market losses may be more unbearable than the litigation bills.
B. LIMITED LEGAL RESOURCES
Except for financial investments, legal resources, especially the legal expertise, are also
essential for WTO dispute settlement. Actually, the shortage of special expertise, personnel
and information for legal activities is an important reason why developing countries are
suffering inequality and unfavourable outcomes in the DSM. Industrialized states such as the
US and the EU, also the major players in the WTO, are well equipped with legal experts in
the area of the WTO legal system, and they have a worldwide network of commercial and
diplomatic representation that feeds their systems with relevant data. In contrast, developing
countries have limited legal expertise and it is harder for them to collect data and
information because of the lack of networks. Many developing countries have only one or
two lawyers to address WTO issues.
Inequality Stemming from Power-Based International Relations
The other kind of sources of inequality is about international relations among countries. The
WTO is an international organization, the establishment and operation of which are made
possible only if member countries are willing to give up a part of their sovereignty to make
the institutional contract. This means actions of the WTO may be inevitably influenced by
the international political and economic interactions. The DSM is also unexceptional. As
what Moon points out, at the law making stage for establishing the DSM, weaker states have
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to make concessions to stronger countries for the latters acceptance of a rule based system,
the result of which is the agreements advantageous to stronger actors.
C. INADEQUATE COMPENSATION
The WTO retaliation mechanism prescribes that complaints cannot unilaterally take
retaliatory actions unless the DSB makes decisions and permits them to, which means that
the defendant side is able to violate the WTO laws and hurt the other sides interests during
the long time-period, until the WTO recognizes and decides to take action to correct the
violations. With economic strength, developed countries can relatively easily affect
developing economies even just in a short time. Thus it is possible that before the DSB
authorize them to impose trade sanctions, the developing countries domestic markets and
internal economic capabilities have already been badly harmed. For those small developing
states, this situation may be even worse.
Even if a developing country as complaint wins in a dispute, the compensation methods
under the DSM are limited. Usually it comes out in the forms that the losing defendant
withdraws the measures found inconsistent with WTO law, or the winning complaint gets
authorization from the DSB to impose limited trade sanctions. Under the current
retaliation-as-compensation approach, there is no room for retroactive compensation or
punishment measures that can help developing countries make up for its previous economic
losses that have been already caused before the decision is made.
Even if the defendant side corrects its action after the dispute, the complaint still has to
assume the economic losses generated before the correction. For developing countries
particularly, while their economies are generally weak and vulnerable to outside impact,
such burden may be too heavy for them to bear.
D. LACK OF ENFORCEMENT CAPABILITY
It is also arguable whether developing countries possess adequate enforcement capability to
fully implement the WTO rulings or recommendations even if the results are favourable to
them. Under the DSM, the final dispute settlement decisions are supposed to be
implemented on a decentralized, bilateral basis. The DSM relies entirely on state power for
enforcement of its rulings. It may be hard for a developing country to raise tariff rates on
certain products imported from a developed country, even if it is authorized to, since this
action may hurt itself in turn at the end. With a relatively weak economy, a developing
country may depend on certain imports from developed countries for development; if the
products included in the retaliation are actually essential for its own growth, it can hardly be
expected that the developing country will really deter or limit the imports. But considering
the other side since most developing countries markets and economic power are relatively
small and weak, whether or not they take retaliatory actions to developed countries products
does not bring much difference to the developed economies, unless they retaliate in alliance,
which does not usually happen. Thus, while the retaliatory actions taken by developing
countries to developed states cannot bring much danger or worries to the latter but may incur
negative consequences to the users themselves, developing countries actually do not possess
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real equality with developed countries because of the asymmetry of enforcement

capabilities.

IMPLICATIONS OF DISPUTE
SETTLEMENT UNDERSTANDING
CONCERNING INDIA
The impact of DSU can further be understood on the developing countries like India with
the help of cases being referred under the substantial issues like most-favoured nation
treatment, the national treatment, quantitative restrictions, agriculture, textiles and clothing,
patent protection, the environment, trade-related investment measures, etc.
A. MOST-FAVOURED-NATION TREATMENT
Generally, the MFN treatment implies that every time a Member lowers a trade barrier or
opens up its market, it has to do so for the like goods or services from all its trading
partners.
INDONESIA AUTO CASE: It was argued that even if a particular regulation did not
mention a country by name but its effect was to benefit a particular producer or a country, it
violated the MFN principle. India found no legal strength in this argument, since, according
to it, any automobile manufacturers based in any country could have availed of the specific
benefits and subsidization programme introduced by Indonesia, provided they fulfilled the
conditions specified in the Indonesian regulation. The fact that none had approached
Indonesia in that regard, according to India, could not be construed as an indication that the
regulation violated the MFN principle.20The Panel found that under the February 1996 car
programme the granting of customs duty benefits to parts and components was conditional
on their being used in the assembly in Indonesia of a National Car. The granting of tax
benefits was conditional and limited to the Pioneer Company producing National Cars. And
there was also a third condition for these benefits: the meeting of certain local content
targets. For these reasons, the Panel found Indonesias Car Programme inconsistent with
Article I.
CANADA AUTO CASE: India argued that the Panel would need to determine whether
the 1965 Auto Pact between Canada and the US was consistent with the MFN obligation.
The important issue in Indias view was whether the Auto Pact provided any advantage to
imports of automobiles originating in the US and Mexico in relation to imports of like
products originating from other Member countries. Thus, the question before the Panel was
whether the import duty exemption was consistent with GATT Article 1.1. Here also, the
Panel applied a three-fold test as in the abovementioned case. The Panel found that by
reserving the import duty exemption to certain importers, Canada accords an advantage to
products originating in certain countries which advantage is not accorded immediately and
unconditionally to like products originating in the territories of all other WTO Members.
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Canada was therefore found in violation of the MFN treatment obligation. The Panel
clarified that Article XXIV could not justify a measure which granted a WTO-inconsistent
duty-free treatment to products originating in third countries not parties to a customs union
or free trade area.
B. NATIONAL TREATMENT
The national treatment implies that imported goods, once they have cleared customs and
border procedures, are to be accorded treatment no less favourable than that accorded to
like products of national origin in respect of all laws, affecting their internal sale. The aim
is to prevent domestic tax and regulatory policies from being used as protectionist measures
that would defeat the purpose of tariff bindings. The choice of the no-less-favourable
standard is to ensure an effective equality of treatment. This implies that contracting
parties have an obligation to accord formally different treatment to domestic and imported
products.
INDIA AUTO CASE: The EC and the US claimed that the indigenization obligation was
inconsistent with Article III: 4. In order to determine whether the Indian measure was
inconsistent with Article III:4, the Panel found it necessary to examine whether imported
products and domestic products were like products; whether the measure constituted a law,
regulation or requirement; whether it affected the internal sale, offering for sale, purchase,
transportation, distribution or use; and whether imported products were accorded a less
favourable treatment than the treatment accorded to like domestic products.
As regards the first test, the Panel noted that India did not dispute the likeness of the
relevant automotive parts and components of domestic or foreign origin for the purposes of
Article III:4. With respect to the second test, the Panel enquired and found the
indigenization condition constitutes a condition to the granting of an advantage, namely, in
this instance, the right to import the restricted kits and components. It therefore constitutes a
requirement within the meaning of Article III:4. The Panel next examined whether the
Indian measure affected the internal sale, offering for sale, purchase or use of the imported
products within the meaning of Article III:4. The Panel found: To meet the indigenization
requirement, car manufacturers must purchase Indian parts and components rather than
imported goods. This provides an incentive to purchase local products. Such a requirement
modifies the conditions of competition between the domestic and imported products and
therefore affects the internal sale, offering for sale, purchase and use of imported parts and
components in the Indian market within the meaning of Article III:4 of the GATT 1994.
And, finally, to determine whether imported products were treated less favourably than
domestic products, the Panel examined whether the Indian measure modified the conditions
of competition in the Indian market to the detriment of imported products. According to the
Panel, the very nature of the indigenization requirement generated an incentive to purchase
and use domestic products and hence created a disincentive to use like imported products.
Such a requirement clearly modified the conditions of competition of domestic and
imported parts and components in the Indian market in favour of domestic products. The
Panel therefore found that the indigenization condition, as contained in Public Notice No.
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60 and in the MOUs, was a violation of Article III: 4. Applying the same criteria, the Panel
found that kits and certain listed components of domestic and foreign origins were like
products, that the requirements affected the competitive conditions of the imported product
on the Indian market, and that the trade balancing condition accorded a less favorable
treatment to the imported products than to like products of domestic origin, within the
meaning of Article III: 4.
C. QUANTITATIVE RESTRICTIONS (QRS) AND AGRICULTURE
QRs are those control measures which limit the quantities of goods that may be exported or
imported. QRs are to be administered nondiscrirninately. The purpose of the Agreement on
Agriculture (AoA) is to open up trade in agriculture. The commitments under the AoA can
be divided into market access, export competition, and domestic support. All Members were
required to make commitments in each of these areas, although the extent of their
commitments varies.
MARKET ACCESS - Here, developed and developing countries were to convert all Non
tariff barriers (NTBs) into tariffs and bound them. The AoA also enjoins Members from
maintaining or reverting to NTBs, which have been converted into customs duties. This
however excludes measures, such as QRs maintained under the BOP provisions. It is this
provision of the AoA, which underlay India QRs.
In this case, the US claimed that since processed food, fresh fruits and vegetables and other
agricultural products were consumption goods, which could directly satisfy human needs
without further processing, Indias QRs on imports of consumer goods also served as a
form of agricultural protectionism. Quoting the IMF, that there was no BOP necessity for
the QRs, the US concluded that India violated its obligations under Article 4.2 of the AoA.
India, on the other hand, argued that footnote 1 to Article 4.2 clarified that it did not extend
to measures maintained under the BOP provisions. According to India, the question of the
consistency of Indias import restrictions with Article 4:2 depended on their consistency
with GATT Article XVIII: B and the legal status of Indias import restrictions under the
AoA was consequently identical to that under GATT. India wanted the Panel to understand
that its claim that its import restrictions were consistent with Article XVIII: B included the
claim that they were consistent with the AoA.
Having found that Indias QRs violated GATT Article XI:1, not justified under Article
XVIII:B and also violated GATT Article XVIII:11, the Panel concluded that Indias
restrictions were not measures maintained under balance-of-payments provisions, within
the meaning of footnote 1 to Article 4.2 of the Agreement on Agriculture. The issue was
not raised in the appellate proceedings. It was mainly due to the peace clause, the issue of
agriculture has so far figured only obliquely in Indias experience with the DSS. But the
issue remains most contentious. The anticipated gains from the agricultural trade
liberalization have thus far escaped developing countries. A number of developed countries
have continued to provide high domestic support and export subsidies to their agricultural
sectors. Market Access in the developed countries is also hampered by their maintaining
high tariffs on products of interest to developing countries.
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CONCLUSION
The DSM of the WTO is a multilateral rule-oriented mechanism. Although many problems
still exist, with its recently acknowledged special concern about developing countries
particular needs and interests, it has brought about many positive and favourable changes to
developing member countries status. From the perspective of equality, weaker states now
possess a relatively better environment and more power to defend their WTO interests
through this new dispute settlement system. However, developing countries still do not
enjoy a really neutral playing field where they can really trade equitably and efficiently 132
SPIL International Law Journal with developed states.
Though the DSU provisions are not biased literally, developing countries are not able to
fully take advantage of the DSM in practice, even if certain provisions are supposed to favor
them in principle. The analysis of the experiences of developing nations throughout the
evolution of the dispute settlement procedure demonstrates the particular challenges
developing nations have faced under the GATT procedure and then under the WTO DSM.
Since the large increase in their GATT membership in the 1960s, developing nations have
supported a strong dispute settlement procedure to ensure a better level of compliance by all
nations. Their participation in the dispute settlement process has gradually changed from
fairly insurmountable difficulties in bringing claims and enforcing rulings (through lack of
economic and political influence) to a situation where confidence in the renovated system is
apparent through increased use and reliance on a structure of legal and procedural
disciplines ensuring a degree of certainty.

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BIBLIOGRAPHY
CHIBBER MOHITA, DISPUTE SETTLEMENT MECHANISM
UNDER WTO VIS--VIS INTERNATIONAL INVESTMENT
AGREEMENTS:
IMPLICATIONS
FOR
DEVELOPING
COUNTRIES, INSTITUTE OF FORENSIC SCIENCE, MUMBAI,
2014
WORLD TRADE ORGANIZATION A HANDBOOK ON THE WTO
DISPUTE SETTLEMENT SYSTEM, 1ST ED, PRESS SYNDICATE OF
THE UNIVERSITY OF CAMBRIDGE, UNITED KINGDOM, 2004
PETERSMANN EMST-ULRICH, THE GATT DISPUTE/ WTO
DISPUTE SETTLEMENT SYSTEM: INTERNATIONAL LAW, 1 ST
ED ,KLUWER LAW INTERNATIONAL, LONDON, 1997

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