Role of WTO in Dispute Resolution

WORLD TRADE ORGANISATION IN DISPUTE RESOLUTION SYSTEM

Author: Khushi Paliwal, Mohanlal Sukhadia University

INTRODUCTION

The World Trade Organization (WTO) is the largest economic organization at the international level whose sole focus is on trading activities and its rules and regulations between the nations of the world. It was officially commenced 25 years ago on 1 January 1995 under the Marrakesh Agreement which was replaced by GATT (General Agreement on Tariffs and Trade) which commenced in 1948. Its main purpose is to reduce the tariffs and other barriers that arise during the trading process and to help producers of goods and services, exporters, and importers to conduct their business efficiently. The WTO is run by its member governments and currently, it has 164 countries as its member. Its headquarters is situated in Geneva, Switzerland where all major decisions are made by the membership as a whole, either by ministers who usually meet at least once every two years or by their ambassadors or delegates who meet on a regular basis. 

The agreements which are formed under WTO are usually lengthy and complex because it covers a wide range of activities from intellectual property to market services and the principles of liberalization and the permitted exceptions. It is the multilateral trading system whose primary purpose is to open trade for the benefit of all.

DISPUTE SETTLEMENT MECHANISM IN THE WORLD TRADE ORGANIZATION  

The dispute settlement procedure of the World Trade Organization (WTO) is governed by the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU- Disputes Settlement Understanding) but in some cases, the Special or Additional Rules and Procedures Contained in the Covered Agreements apply (article 1.2 and appendix 2 of the DSU). This complete system works and the agreements under it are formed in a manner so that it does not discriminate between stronger and weaker countries and help them to prevent trade conflicts as much as possible.

The only ultimatum of WTO is that all its members shall respect the rules and orders, given or decided in the interests of a safer and more reliable trade environment and if any member country has broken the defined regulation of WTO or gone against them then they shall refer the matter to the dispute settlement mechanism rather than adopting unilateral measures. Settling disputes in a timely and structured manner are important so that it does not restrict the growth of the trade market. 

After this institution came into force in 1995 it gained practical importance as members frequently started appealing to WTO regarding their conflicts with other member countries or problems arising out of the trading system. The dispute settlement system which constitutes the WTO agreements contains all the specific multilateral agreements that have been concluded in the Uruguay Round and especially the result of the evolution of rules, procedures and practices developed under the GATT 1947. It is a short Agreement containing 16 Articles which sets the institutional framework regarding its functions and objectives. 

FUNCTIONS, OBJECTIVES AND KEY FEATURES OF THE SYSTEM

  1. Providing security and predictability to the multilateral trading system

The flow of goods and services is usually conducted by private economic operators and not by the states. In such a situation, each participant of a market requires stable laws when it comes to long-term transactions. In light of this, the dispute settlement system provides an independent ruling to protect the rights of participants or can pass the trade sanctions against those who are not ready to accept the decree. Apart from this, the DSU aims to provide a fast, efficient, dependable and rule-oriented process.

  1. Preserving the rights and obligations of WTO Members

If party A is inconsistent with the procedures established by WTO then the aggrieved party has a right to claim against party A and those claims will be examined by the Panels and the Appellate body.

  1. Clarification of rights and obligations through interpretation

The legal provisions in international agreements often lack clarity because they are compromise formulations resulting from multilateral negotiations. It means the same text or provisions can be understood in more than one way just to satisfy the demand of that specific case. The articles dealing with such interpretations are Article 31, 32 and 33 which states General rule, Supplementary means of interpretation and treaties authenticated in two or more languages respectively. 

  1. “Mutually Agreed Solutions” as “Preferred Solution”

The foremost solution by DSU to the parties in conflict is to settle the dispute through mutual agreement and if it cannot work then the adjudication is to be used. 

  1. Prompt settlement of disputes

If a case is adjudicated, it normally takes no more than one year for a panel ruling and no more than 16 months if the case is appealed, according to Article 20 of the DSU. If the complainant deems the case as urgent then the case should take even less duration than defined above. 

  1. Prohibition against unilateral determinations

Under the multilateral trading system if any of its aggrieved members decided to take unilateral action or countermeasure, it would be seen as infringement of WTO agreement. Such countermeasures sometimes result in ‘trade war’ and to prevent such situations DSU made it mandatory for every member to act in accordance with law. 

  1. Exclusive jurisdiction

It not only excludes unilateral action by any member but at the same time, it does not allow the use of other fora for the resolution of a WTO-related dispute.

  1. Compulsory nature

All the member countries are subject to the same law as mentioned above, as they have all signed and ratified the WTO Agreement as a single undertaking, of which the DSU is a part. Under the Member’s accession, the consent to accept the jurisdiction of the WTO dispute settlement system is already contained and all are abided by it. 

BODIES INCLUDED IN THE SYSTEM

  • Dispute Settlement Body (DSB) 

The DSB comprises a chairman and WTO members’ representatives. It is responsible for the DSU’s application and gives decisions by consensus whenever required. This body usually meets once in a month but the Director-General has the power to conduct more such meetings if the members request to do so.

  • Director-General and Secretariat of WTO

When cases of less developed countries arise then the Director-General acts as a conciliator or mediator for them. He has the power to appoint an arbitrator if the parties are unable to find an arbitrator for themselves or unable to agree on a definite time.

The Secretariat provides administrative support to DSB. he can organize special courses for training and can help developing country members with legal advice. 

  • Panels

There is nothing like a permanent panel but every time a new panel is appointed for each case. The panel needs to act independently without any external interference. It comprises three or sometimes five experts in exceptional cases. Panels are quasi-judicial bodies which are responsible for resolving the disputes between the parties.

  • Appellate Body 

This body is made up of seven appointed members. If a party is not satisfied with the panel’s judgement it can appeal in the appellate body. It is the second and the final legal stage. 

  • Arbitrators

Arbitration is an alternative process in the dispute settlement system. Here an arbitrator is called to resolve the issue between the conflicting partners but its decision is final; it cannot be subjected to further appeals. 

  • Experts 

When it comes to technical or scientific issues, the experts’ opinions are required by the panel in dealing with that particular conflict.

LITIGATION PROCEDURE OF THE SYSTEM

The official beginning of dispute in WTO is when someone files a ‘Request for Consultations’ and here the DSU enters in the view. Initially this consultation gives parties the chance to do mutual settlement between them. The duration for the accomplishment of this mutual agreement is 30 days. If that too does not work then the matter reaches to the panel and from here the litigation stage begins. 

  1. Stage-1 (Panel)

If the consultations didn’t work then the complaining party can go for the panel established by the Dispute Settlement Body (DSB). Once the panel is established within 45 days, it has to produce a report with the facts of the case and relevant legal provisions for the DSB within 6 to 9 months so that the case can reach to its appropriate judgment. 

  1. Stage-2 (Appellate Body)

This route is optional; if a party does not find the panel judgment satisfactory then it can approach the Appellate Body. This body examines the legal aspects of the challenge and may uphold, modify, or reverse the legal findings and conclusions of the panel.

According to DSU, parties may adopt these three positions in relation to the given judgement- 

  • Implementation: Under this the offending party is asked to do what the Panel or Appellate Body has said within a reasonable duration. 
  • Payment of compensation: If the given reasonable duration exceeds and the offending party did not act according to the decree, then it is liable for the compensation. 
  • Retaliatory measures: When the offending party has not performed any of the above recommended solutions then the DSB has authority to take retaliatory measures against it. 

INDIA AND WORLD TRADE ORGANISATION

Since 1948, India has been a member of GATT. It was a party and a founding member of Uruguay Round and WTO respectively. WTO plays a vital role in the upliftment of the Indian economy whether it would be in agricultural or industrial fields. The phasing out of MFA by 2005 has benefited India as the exports of textiles and clothing will increase. Tariff reductions and reduced non-tariff barriers shall facilitate greater access to foreign markets. It ranked India fifth for commercial services exports and sixth for commercial services imports.

HOW DOES THE USA BEAT INDIA AT WTO IN THE EXPORT INCENTIVE CASE AND HOW DID IT IMPACT INDIAN COMPANIES? 

Factually, India’s import rates are much higher than its export rates and to boost its exports rates, India came up with the Export Promotion Schemes. The main goal behind the scheme is to prepare the potential industries for competition with foreign rivals. 

To cover up such deficit, GOI run many Export Promotion Schemes including-

  1. Export-oriented units scheme
  2. Merchandise Exports from India Scheme
  3. Export Promotion capital Goods Scheme
  4. Special Economic Zones
  5. Duty-free imports from exporters programme etc.

These schemes started harming American companies. For example, India started selling any particular commodity in Rs. 100/- to Germany which America used to sell in Rs. 110/- ; ultimately Germany started purchasing that commodity from Indian markets instead of America due to its low-cost. 

On 14 March 2018, the US had dragged India to the WTO’s dispute settlement mechanism over New Delhi’s export incentive schemes. Where the task of adjudicating disputes is delegated to the Dispute Settlement Body (DSB). It was a special assembly of the WTO’s General Council, which includes all WTO members. The process of dispute settlement begins with a request for informal consultations between the parties and then reaches the appointment of a three-member investigation panel. The report came out and ruled that India’s export promotion schemes violated several provisions of the WTO’s subsidies and countervailing measures (SCM) agreement. Under Article 3.1 of the WTO’s SCM Agreement, developing countries with a gross per capita of $1,000 per annum are not entitled to provide export subsidies. Whereas India has per capita income of more than $2,000. The penal has ruled that India must withdraw all the schemes with a time period of 90-180 days. Although India maintained that the subsidies programs will be discontinued, as per the government’s announcement in 2015 and 2017, New Delhi had not yet scrapped the five programs. 

This will certainly have an impact on exports made by Indian Companies. especially, producers of steel products, pharmaceuticals, chemicals, information technology products, textiles and apparel. India has challenged the Panel’s ruling at the Appellate Body. Till the judgment, the ruling will remain dormant.

India has already set the ball rolling to replace the MEIS (Merchandise Exports from India Scheme). It has proposed the Remission of Duties or Taxes on Export Product (RoDTEP) scheme and this commenced from 1 January 2020. 

CONCLUSION

In this world of globalization where everyone is concerned about its socio-economic growth, the establishment of a global system like WTO protects the interest of each nation and puts away the discriminatory factors. It not only lowers trade barriers through negotiation but also reduced costs of production and reduced prices of finished goods and services which ultimately results in a lower cost of living. It is not possible that everyone agrees with everything in the WTO and this is one of the most important reasons for having this system, we can say it’s a forum for promoting peace related to trade issues.

Think of all the things we can now have because we can import them. Things like fruits and vegetables out of season, foods, clothing and other products that used to be considered exotic, cut flowers from any part of the world and all sorts of household goods, books, music, movies, and so on are all because of the constructive and effective work of WTO.

REFERENCES

  1. WTO | What is the WTO?, available at: https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm#:~:text=The%20World%20Trade%20Organization%20 (last visited on September 17, 2020)
  2. WTO | Introduction to the WTO dispute settlement system, available at: https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c1s3p1_e.htm (last visited on September 17, 2020)
  3. India and WTO – Detailed Analysis of All Related Issues and Concepts, Insightsias,  available at: https://www.insightsonindia.com/2016/01/20/india-and-wto-detailed-analysis-of-all-related-issues-and-concepts/ (last visited on September 17, 2020)
  4. India loses export incentive case filed by U.S. at WTO, The Hindu, India, available at: https://www.thehindu.com/business/Economy/india-loses-export-incentive-case-filed-by-us-at-wto/article29851326.ece  (last visited on September 17, 2020)

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