dispute-settlement-system-of-wto

Context: The highest adjudicating body for resolving global trade disputes at the World Trade Organization’s dispute settlement system could become dysfunctional, as the United States continues to block selection process for filling vacancies in Appellate Body.

Background:

  • For the past two years, the US has repeatedly blocked the selection process for filling vacancies at the WTO’s Appellate Body, the highest adjudicating body for global trade disputes. 
  • Consequently, a quorum of three members as required for adjudicating any trade dispute will remain unfulfilled. 

About Dispute Settlement System 

  • Established in 1995, the World Trade Organization’s (WTO) Dispute Settlement System (DSS) is used to resolve trade-related disputes between WTO member states.
  • The operation of the (WTO) dispute settlement process involves the parties and third parties to a case, the DSB panels, the Appellate Body, the WTO Secretariat, arbitrators, independent experts and several specialized institutions.
  • Dispute Settlement Body: The General Council is WTO’s highest decision-making body and it also meets as the DSB. 
  • The DSB is responsible for administering the DSU, i.e. for overseeing the entire dispute settlement process.
  • The general rule is for the DSB to take decisions by consensus if no WTO Member, present at the meeting when the decision is taken, formally objects to the proposed decision.
  • Unlike panels, the Appellate Body is a permanent body of seven members entrusted with the task of reviewing the legal aspects of the reports issued by panels. 
  • The Appellate Body is thus the second and final stage in the adjudicatory part of the dispute settlement system. 
  • This second adjudicatory stage was one of the major innovations of the Uruguay Round of Multilateral Trade Negotiations.
    • The DSB appoints the members by consensus for a four-year term and can reappoint a person once.
    • An Appellate Body member can, therefore, serve a maximum of eight years. On average, every two years a part of the Appellate Body membership changes.

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).
  • The panel’s 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.

Appeals

  • 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 panel’s 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.