The Current and Future WTO Dispute Settlement System - Practical problems discussing Article 21.5 and Article 22 of the DSU

Abstract

To settle disputes concerning rights or obligations under WTO agreements, the WTO enforces a dispute settlement system. The WTO dispute settlement system has been in operation since 1995 and has, during this time, been the most productive of all international dispute settlement systems. The Dispute Settlement Understanding is a dispute settlement system between governments, and the use of the system is limited to members of the WTO. The WTO dispute settlement process contains four main stages, namely consultations, the panel stage, appellate review proceedings, and implementation and enforcement. I am focusing on the critical stage of implementation and enforcement and the practical problems that may arise using the remedies available in this phase of the process in this thesis.

The Dispute Settlement Understanding offers three types of remedies when a member is breaking WTO law. The withdrawal or amendment of the WTO-inconsistent measure is the final remedy. The DSU also provides for two temporary remedies which may be applied while awaiting the withdrawal or amendment or if the losing party fails to bring its inconsistent measure into compliance with WTO obligations. The two temporary remedies are compensation and suspension of concessions or other obligations. One issue arising at the implementation stage of the DSU is the relationship between article 21.5 of the DSU and article 22.2 of the DSU. Question may arise whether the compliance proceedings or the suspension of concessions proceedings has priority, if either. Past DSU review negotiations have not found a solution to this issue of sequencing yet, the discussion is continuing in the current negotiations.

The concept of compensation has not been used very frequently. There are several possible reasons why compensation as a remedy is rarely used in practice and I am focusing on three aspects in this thesis. First, compensation is voluntary, and the disputing parties have to agree on the solution. Second, the compensation must be consistent with the covered agreements. Third, the current system on compensation may not provide for effective reparation of damages suffered by the complaining party. There have been discussions from time to time to make the compensation within the DSU financial but every proposal has always been turned down.

To suspend concessions or other obligations is a remedy used more frequently than compensation. However, there are practical problems arising with this remedy as well. First, retaliation measures are trade destructive and can affect the injured party negatively as well as the losing party. Second, in particular the possibility to retaliate is not a genuine option to smaller or developing country members. Third, these smaller and developing country members are also the ones that are most affected by the possibility to “cross-retaliate”. The discussion in this thesis shows that the remedy is not efficient for every party in every single dispute and may therefore uphold the inequality between the members of the WTO.

It was determined by the time of the introduction of the DSU that the system was to be examined and evaluated after using it for a couple of years. The negotiations are still in progress. The members were encouraged to contribute with questions, proposals, and comments concerning changes and improvements of the DSU to these special sessions. The Chairman of the Special Session of the DSU summarized the proposals and drafted legal texts which ended up in the so-called Chairman’s text. To me, it seems like the review of the DSU has been set aside while awaiting the negotiations in other important WTO areas. We may see the DSU as part of the overall “give and take” in the end anyway, even if this was not a desirable outcome in the beginning of the negotiations.

356 consultation questions have been made since the introduction of the dispute settlement system. It is important to remember that the great majority of the cases are settled through consultations or mutually agreed solutions, never reaching the full DSU process and the problems with the remedies described in this thesis.The remedies available today may not always result in the most efficient solution. However, it is important to remember that the remedies existing today are the remedies which the member states found they were willing to accept both as successful complainants and as unsuccessful defendants. From a democratic, diplomatic, and political point of view, an emergency exit like article 22 of the DSU is necessary for the practical function of the WTO dispute settlement system.