Looking Back on Negotiations over WTO Dispute Settlement Understanding

KAWASE Tsuyoshi
Consulting Fellow, RIETI

Trade negotiations at the World Trade Organization (WTO) on the Doha Development Agenda are getting bogged down with member countries and regions missing one deadline after another for concluding talks. They failed to meet one deadline at the end of 2002, by which they were to have completed negotiations on the treatment of medical patents and access to medicines under the Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement; and then, another was on March 31st of this year for talks on modalities for commitments in agricultural trade. At the end of May, WTO members were supposed to have concluded two sets of negotiations: one concerning ways to reduce tariffs under the framework of the Non-Agricultural Market Access (NAMA), and another to clarify and improve the WTO dispute settlement procedures set forth by the Dispute Settlement Understanding (DSU). But neither one of them met the deadline. Of these failed negotiations, issues subjected to the WTO New Round negotiations have been drawing much attention because of their impact on a vast range of industrial sectors and high political sensitivity. Not much attention is being paid to the DSU negotiations, however, due probably to the highly specialized and technical nature of the negotiations.

But let's think it over again. If the WTO provides only a weak dispute settlement mechanism, violations of the WTO rules, no matter how rampant, would not be corrected. Whatever promises were made by member states, with regard to the opening of their market, would remain ineffective and not complied with, and substantive rules under the WTO would come to naught. In this context, the DSU negotiations, which deal with the key procedural methods for dispute settlement, determine the effectiveness of the whole WTO regime, and thus, should not be undervalued.

I have been in charge of the DSU agreement at the Multilateral Trade System Department of the Ministry of Economy, Trade and Industry, and attended a series of negotiations on the issue in Geneva. Based on this experience, I would like to shed light on the DSU negotiations which may not be receiving much attention but are just as important as other negotiation forums.

Background of DSU Negotiations

Initially, the review of the DSU had been included in the built-in agenda in the ministerial decision adopted in April 1994 at the ministerial meeting in Marrakech, Morocco, under the Uruguay Round of trade talks. According to the decision, the review procedures were to be concluded within four years after the DSU took effect, or by January 1st, 1999.

Actual work to review the dispute settlement rules began in 1997, but no agreement was made by the initial deadline of January 1st, 1999. The deadline was then extended to July 31, 1999, but again no agreement was reached. Subsequent to this, Geneva-based delegates from Japan and some other countries voluntarily and informally continued the review negotiations and put forward their own draft proposal, known as a 'joint proposal'. However, neither the WTO ministerial conference in Seattle, US, nor another in Doha, Qatar, adopted the proposal. Instead, it was agreed - as mandated by Paragraph 30 of Doha Ministerial Declaration - that negotiations on the DSU shall commence with an aim to reaching an agreement by May 2003. Thus, the revision of the DSU was separated from other issues so that negotiations would proceed outside the, "single undertaking," to enable the, "early harvest," of an agreement with disregard to any possible delays in other areas.

The ongoing Doha process kicked off in February 2002 with the launch of the Special Session of the Dispute Settlement Body (DSB). The Special Session, chaired by Hungarian Ambassador to Geneva Peter Balas, was set up by the WTO Trade Negotiations Committee (TNC). By the end of May, 2003, the DSB Special Session had met formally 13 times. Also, before, during, and after each of these formal meetings numerous informal sessions took place, where mainly members having specific proposals were invited for more in-depth talks. In 2002, Members presented their conceptual proposals, which were then sorted out by theme, and discussions in an issue-by-issue manner were completed by the end of the year. After the turn of the year, member countries and regions were asked to re-submit their proposals in the form of draft legal texts. By the end of January, almost all the proposals were put on the table and delegations began working on the specific wordings of the proposed legal texts.

Although the delegations met on countless occasions and made diligent efforts, they were unable to narrow gaps for many of the proposals, even at a conceptual level. Also, many of the draft clauses included wording deficiencies or were questionable in practicability. Negotiations thus stymied and it was not until May 16th that the Chairman's Text, a platform legal text for the final agreement, was put forward. For two weeks from May 19th, the delegations strenuously negotiated on the details of the Chairman's Text, giving up their weekends and sometimes working till midnight. As it turned out, however, it was too late to meet the deadline.

Gaps among member countries were still wide open at 3 p.m. on May 28th when the Special Session of the DSB convened for its final meeting. During the meeting, a revised Chairman's Text, which reflected some revisions made during the previous weeks' discussions, was distributed to the delegations and it was announced that the chairman, at his own responsibility, would submit to the TNC a Report by the Chairman (TN/DS/9 [PDF:248KB]) to which the revised Chairman's Text would be attached. To this, delegations from member countries and regions expressed regret for the outcome of the negotiations; and as to whether or not to continue negotiations they simply read out the innocuous official view of their government. As such, the special session had ended.

Proposals and Negotiation Position of Each Member Country or Region

Next, let me briefly explain each WTO member's position in the DSU negotiations. Simply put, the Quad members are divided into two sides - Japan, the European Union (EU) and Canada generally in favor of the legalization of dispute settlement procedures on one side, and the United States calling for greater procedural discretion to parties to disputes on the other - as far as one can judge from the proposals they put forward. Meanwhile, least developed countries (LDCs), a group of African countries, India, China and Paraguay insisted on special and differential (S&D) treatment for developing countries. Brazil, Mexico, Costa Rica, Thailand and South Korea put forward distinctive proposals. Japan and the EU put forward detailed revision proposals that called for clarification of the sequence from the establishment of an original panel - as stipulated in Paragraph 5 of Article 21 of the existing DSU on rules and procedures - to the DSB authorization of suspension of concessions and the implementation of retaliatory measures - as stipulated in Article 22 of the DSU. The sequencing procedures, which are left vague under the existing DSU, caused conflicts between the US and the EU over the EU banana import regime, and its clarification had been of a great concern since the time of the 'joint proposal' even before its submission to the Seattle Ministerial. As a result of this background, the proposed legal texts concerning the sequencing issue stand out as the most symbolical and refined among the various proposals put forward this time.

When we look at respective member countries' proposals more closely, Japan, in addition to the sequencing issue, puts emphasis on enhancing the enforceability of the DSU recommendations. Specifically, it calls for allowing countries to take adequately strict retaliatory measures to those continuing to apply a domestic law mandating WTO-inconsistent measures, and granting a panel authority to recommend the suspension of a country's administrative discretion over WTO-inconsistent measures if the country repeatedly applies the same discretionary measures in violation of the Agreement.

Proposals by the EU, on the other hand, are distinctively intended to strengthen a dispute settlement panel's authority, specifically calling for turning the panel (equivalent in the first instance to a court) into an organ of permanent panelists and granting the Appellate Body a remand authority (to return the case to the original panel when factual findings are deemed insufficient for any legal judgment to be made by the Appellate Body). Also, taking a lesson from its disputes with the US (over the cases of hormone-treated beef and banana), the EU has been proposing that countries be prohibited from periodically changing targeted products on retaliation lists, a measure implemented by the US under the so-called, "carousel," provision of trade law as a means of maximizing retaliatory impact on offending partners.

Canada falls in the same group as Japan and the EU in urging for the legalization of dispute settlement procedures. Its proposals include the enhancement of the list of panelists - transforming the current indicative list into a streamlined panel roster - to ensure availability of qualified panelists and the reinforcement of protection over business confidential information known as BCI.

On the other hand, the US, in its first set of proposals, called for greater transparency in the dispute settlement process. Against the backdrop of growing criticism from both the civil society and the Congress (particularly among the Democrats) over the secrecy and closed nature of the WTO panels and Appellate Body, the US urged for making WTO panel meetings open to the public, allowing public access to various documents and statements, and accepting amicus curiae briefs (opinions submitted to the panel for reference by third parties - those not involved in the disputes - such as nongovernmental organizations). Meanwhile, another submission filed jointly by the US and Chile urged for the implementation of provisions for the Appellate Body to issue an interim report so as to enable parties involved in the dispute to comment and allow them - by mutual agreement - to delete or have the DSB decline to adopt a certain part of the report. They also called for rights to allow parties involved in the dispute to - again by mutual agreement - suspend panel and Appellate Body procedures. These proposals are intended to limit the authority of the Appellate Body, a semi-permanent body, to independently interpret the WTO rules by putting appellate procedures under the control of parties in the dispute. In an essay tribute to the memory of Professor Robert Emil Hudec, RIETI Senior Fellow Ichiro Araki introduced Professor Hudec's criticism against moves toward the excessive legalization and automation of dispute settlement procedures. The proposals by the US are the embodiment of his ideas.

The so-called S&D proposals put forward by developing countries basically sought for burden alleviation and special consideration in dispute settlement procedures in view of the lack of knowledge, limited human resources, and social economic reality of developing countries; or in line with their fiscal capabilities. As some of the straightforward proposals, they are requesting that more time be given to developing countries in each stage of procedures (e.g. longer negotiation periods and the postponement of deadlines for document submissions) and that members from developing countries be included among panelists to ensure that consideration will be given to the possible impact on developing economies in a panel judgment.

However, some of the proposals presented by developing countries would, if implemented, fundamentally change the nature of the DSU. These include requests concerning mandatory arbitration, retroactive compensation for nullification, and impairment of developing countries' rights under the WTO Agreement; collective countermeasures by developing countries. Their proposals also include measures involving financial burdens, for instance, demanding that developing countries be compensated for litigation costs and that a fund be set up to help improve a developing countries' capability to utilize the WTO dispute settlement procedures. These proposals are hard to swallow for countries that receive no benefits from these measures, developed countries in particular.

Furthermore, requests have been filed to limit the referral to a panel of cases against a developing country (proposal by China) and to give an additional period of time to developing countries to implement DSB recommendations based on reports by a panel and/or the Appellate Body (proposed by India). These and some other requests are meant to alleviate developing countries' substantive obligations legitimately owed under the WTO through various procedures and do not contribute to the strengthening of the multilateral trade system.

Bringing together all those countries with such diverse negotiation positions is no easy task. Particularly, because as described above some of the S&D proposals are very extreme, there exists an unbridgeable gap between developed and developing countries. Meanwhile, another marked North-South discord can be seen over the proposal concerning transparency; developed countries except for Japan support this but developing countries find it unacceptable.

Differences exist even among developed countries. The obvious confrontation between the three countries in favor of legalization and the US prioritizing the discretionary power of parties to dispute is not the only difference. Although the three in the former group agree on a general principle, they are opposed to each other when it comes to specific points. The Chairman's Text included neither the EU's proposal to establish a permanent panel nor Japan's proposal concerning domestic, "mandatory," and/or, "discretionary," laws that provide a foundation for the repeated implementation of WTO-inconsistent measures. This indicates that both Japan and the EU were unable to seek a consensus, even within the three-country framework.

Even with regard to the sequence issue, which has a long history of collaboration running from the time of the 'joint proposal', countries are not at all monolithic. Australia has been urging for simpler sequencing procedures, noting that the issue has been "over-negotiated". Meanwhile, Japan and the EU - both of them among the most earnest in promoting the sequencing issue - were having fierce exchanges until the last minute, unable to compromise over detailed points, including whether or not to hold consultations before a complaining party request the establishment of a compliance panel to handle alleged noncompliance to DSB recommendations and rulings by the party concerned.

Among the major proposals, only moderate ones, for example a request filed by Costa Rica and others calling for greater third party participation on panels and the US proposal concerning the suspension of panel procedures by parties, remained non-controversial. A meaningful package of agreements, which would satisfy all the WTO members, was still a far cry away.

Reasons Behind Failed Negotiations

As such, member countries were split over proposals and in negotiation positions, trapped in a complex web of intertwined interests. Why have their negotiations - four times in the past and once again in the end of May - failed? I perceive the reasons behind this as follows.

First of all, the aforementioned divergence of proposals and negotiation positions shows that opinions differ among member countries as to the modality of the DSU on a philosophical level. Rules and procedures set out in the current DSU, in which international judicial control is functioning, are said to be closer to court procedures (Note 1). As mentioned earlier, the basic stance of three of the Quad members (the EU in particular) was to further promote the judicial feature of the DSU, while the US was trying to push the DSU procedures back close to a more diplomatic forum at the time of the General Agreement on Tariffs and Trade (GATT). In this regard, the situation of the DSU negotiations is substantially different from that of the Uruguay Round in which negotiations proceeded based on the premise of seeking a certain extent of legalization and strengthening enforceability of trade rules.

Secondly, while the negotiations themselves are 'horse trading', the nature of the negotiation subject requires highly technical legal consistency. This feature makes it extremely difficult to bring the negotiations to a certain conclusion. For instance, in negotiations on the market access of trade in goods or services, it would be enough if the interests of those parties concerned converged. In the DSU negotiations, however, simply agreeing on specific items of negotiation is not enough. A legal text that incorporates the agreed terms must be drafted and adjusted to ensure consistency with the overall WTO rules, and such adjustments are an extremely difficult task. For instance, many WTO members recognize the necessity to set the sequence of DSU procedures, but its implementation would prolong the time required for the whole procedure. Likewise, the remand proposal was unable to be completed due to the difficulty in drafting a relevant legal text, despite the fact that the proposal, as an idea, received wide support.

Thirdly, as mentioned in the report by the chairman of the DSB Special Session, it is widely perceived that the existing DSU has been functioning fairly well; and therefore, WTO members do not stake much on revising the DSU. They have little incentive to withdraw part or all of their proposals, which in turn leaves little room for them to compromise for the sake of concluding the negotiations. In the 16th edition of its e-mail newsletter on the WTO New Round issued last summer by the Ministry of Foreign Affairs, an official in charge compared the situation of the DSU negotiations to a 'shopping list'. Put in that context, from the point of view of developed countries, accepting developing countries' S&D proposals only to get something extra on top of the existing DSU is nothing but a 'bad bargain'.

Fourthly, because countries have taken up their stance based on their respective 'trauma' over specific trade disputes, they have little room to retreat from their original positions. I have already mentioned that the EU proposals concerning the sequencing issue and the prohibition of 'carousel' provisions stemmed from its experience of the banana and hormone-treated beef disputes with the US. Likewise, the US filed its joint proposals with Chile in order to appease mounting discontent stemming from a series of lost cases over US trade remedy laws. Brazil called for the introduction of a 'fast track' dispute settlement procedure in handling a case filed against a country repeating the same practice that has been found WTO consistent in a previous case initiated by another country, whereas Canada asked for greater BCI protection. Both moves have the same root, which is the Brazil-Canada dispute over aircraft subsidies. Developing countries' rejectionary reactions to the proposal concerning amicus curiae briefs are, to a large extent, attributable to their experience in the shrimp-turtle dispute with the US.

Finally, the detachment of the DSU negotiations from the single-undertaking framework is yet another factor making the DSU negotiations difficult. When negotiations cover a wide scope of fields, as was the case in the Uruguay Round, countries often make concessions in their respective low-priority areas in exchange for winning support in areas of higher priority (e.g. liberalizing agricultural trade in exchange for revising the WTO Antidumping Agreement to its favor). But such trade-off deals are hard to make when the scope of negotiations is limited to the DSU. Developing countries, if they want to achieve the S&D treatments within the DSU framework, have little room to compromise with developed countries.

Future of DSU Negotiations

On June 10 and 11, the TNC discussed on the future proceedings of the DSU negotiations, where many participants reportedly called for the continuation of talks in some way. The WTO General Council, in a meeting at the end of July, is set to decide the handling of the negotiations. The prevailing view at this moment is that the DSU negotiations will be resumed after the upcoming WTO ministerial conference, to be held in Cancun, Mexico in September (Inside US Trade, May 30, 2003, at 1).

I personally have reservations about resuming the negotiations while the aforementioned problems remain unsolved. Some people might say that the DSU is an, "international infrastructure shared by all the WTO member countries and regions, and therefore should not be used as a bargaining chip" (Nihon Keizai Shimbun, May 27, 2003). However, it may be a worthwhile idea to review the Doha mandate and re-incorporate the DSU revisions into the single-undertaking framework. By doing so, each country would cease to try and gain its intended benefits only within the self-contained ambit of the DSU negotiations; and there may emerge a new forum of negotiations where only those truly concerned about the DSU procedures become engaged in serious discussions, while paying the cost of making concessions in negotiations in other areas.

Also, the discussions to date, which inherit ideas set forth by the 'joint proposal', do not necessarily provide an accurate picture of the problems we face today. As to the sequencing issue, for instance, a series of practices to solve problems through an ad hoc agreement has been formed by countries, including the US, which have been against the introduction of formal sequence procedures. Thus, the sequencing of the DSU procedures is no longer an issue of urgency. Rather, it is said that the problems Geneva has been facing lately center on procedural issues unique to multi-complainant disputes, such as rows over the Byrd Amendment to the US trade law and US steel safeguard measures.

What is needed now is to take more time and build up experience with the existing DSU, including the handling of these new problems. Then, we can sort out the areas where informally established common practices can compensate, as is the case of the sequencing problem; and then, we can focus on and rethink the areas that urgently need amending to the text of the DSU. Countries may as well take into serious consideration the option to take a rest and cool down until they come to see true deficiencies in the current DSU, and find their 'shopping list' filled with things they really want.

* In writing this column, I received precious advice from Ms. Yayoi Matsuda, first secretary of the permanent mission from Japan to the International Organizations in Geneva. I hereby would like to express my thanks to her. Opinions expressed or implied in this column are solely those of the author and do not necessarily represent views of the Japanese government or the Research Institute of Economy, Trade and Industry.

June 17, 2003

Concerning this point, please refer to Chapter IV of "WTO-Taisei no Ho-Kozo (Legal Structure of WTO System)" by Prof. Akira Kotera, faculty fellow at RIETI, or "WTO Dispute Settlement as Judicial Supervision" Journal of International Economic Law Vol.5, at 287, by Prof. Yuji Iwasawa.

June 17, 2003