Dispute Settlement at the WTO: The views of a longtime panelist, negotiator, and committee chair

Date March 2, 2012
Speaker Christian HABERLI, Ph.D.(Senior Research Fellow, World Trade Institute, Bern University)
Moderator ARAKI Ichiro(Professor, Yokohama National University)


Christian HABERLI's PhotoDr. Christian HABERLI

The World Trade Organization (WTO) is so famous because it can enforce its rules, although it is not a supra-national organization. In the WTO, all Members are theoretically equal. It does not make sense to have a "cop," whose job is to enforce the rules, if that person cannot carry a stick with which to do so. But in the case of the WTO, no member has the power to be the cop of any other member. In this situation, the only possible cop is a procedural automaticity.

Another issue that contributes to the WTO's fame is that certain organizations see it as having too much of a presence in areas that should concern only the relevant countries or other international organizations, such as health or environmental policies. This begs the question, what are the limits for the WTO to interfere in other countries' business? These are the themes that we will be discussing today.

The structure of my presentation is as follows: 1) I will give a brief overview of what I think the WTO is about; 2) I will talk about the 10 stages in the life of a panelist; and 3) I will draw on examples from the three most recent cases involving the Agreement on Technical Barriers to Trade (TBT), which is designed to prevent non-tariff trade barriers and tells countries that they cannot just take any new measure without looking at their trade impact. These cases are U.S.-Country of Origin Labeling (COOL), U.S.-Clove Cigarettes, and U.S.-Tuna.

1) What is the WTO about? The WTO is very simply about non-discrimination, and there are two facets to this. The first is that all members have the same rights. If two members negotiate a tariff on a certain product, all members get the same tariff rate on that product. This is called the "most-favored nation" (MFN) right. The second is that foreign suppliers of goods and services cannot be treated less favorably than domestic suppliers of the same goods and services. This right is called "national treatment." Countries are free to discriminate against their own suppliers, but not against those of other nations.

MFN provisions tend to have a snowball effect; when two member countries agree on something between themselves, all other member countries get the same treatment, and so some countries are getting something for nothing. On the other hand, if a country has specific trade interests, it would want to join the negotiations. Developing countries began to realize this in the Uruguay Round when they came to the table with their own concessions in order to get something. These negotiations involve a give and take, and countries that are unable to make concessions may only get benefits of little value to them.

2) The 10 stages in the life of a WTO panelist. The context of the panels is a bit like an insider club; I had already been a negotiator for over 10 years when I was asked to sit in the famous Bananas case (In the same way I was later asked to chair the Committee on Agriculture). Then I did my first Sanitary and Phytosanitary (SPS) case, Japan-Apples. Next came EC-Biotech, the genetically modified organisms (GMO) case. This brought about a 1,000-page report. The ruling was un-appealed, and perhaps for this reason WTO Director-General Lamy appointed me for two more cases: a novel and substantive General Agreement on Trade and Services (GATS) case, called China-Trading Rights, and U.S.-Country of Origin Labeling (COOL), which was the first decision on whether a measure designed to ensure country of origin information acts as a trade barrier, incompatible with the TBT agreement.

Stage 1: Nomination Panelists can be nominated by the parties, but usually the latter cannot agree on this. The Director-General can then nominate them pursuant to the Dispute Settlement Understanding upon recommendation by the Secretariat, which reveals who has the real power in the WTO.

It was the Secretariat who called me in for the Bananas case, and I was nominated because all the other candidates not from a party country had been rejected by the parties. From this, it can probably be guessed that New Zealand and Switzerland have the most panelists, as they are small, non-litigating countries with no cases.

Stage 2: The psychological stage Once you have been nominated to a panel, there is an organizational meeting with the Secretariat and the Parties. It seems like a simple formality, but it is a de facto pre-negotiation. The impression a panelist makes at the meeting can be decisive for the case, for the authority of him as a judge, and for him being accepted as a team player.

Stage 3: Duration of the dispute settlement The Understanding states that after the establishment of the panel, dispute settlements last six months maximum, or three months for perishable goods (without appeals). Most cases take longer than this but are still fast. The litigating parties tend to take their time, as do even the complainants in some cases. The WTO Legal Division is wary of the Appellate Body, which is why panels now produce such voluminous reports. Complications also cause delays, and nasty panel questions can take time to answer.

In spite of these considerations, the WTO generally delivers justice comparatively faster and much cheaper than other fora. Small cases now cost less than $1 million, which is not much considering the alternatives. Least developed countries can get free legal advice for their litigation in Geneva.

Stage 4: Who wants to win? People often say that in the WTO you can either negotiate or litigate, that there is no having it both ways. I say that just about everything is by negotiation. Recourse to dispute settlement and appeals are political decisions based on an assessment of the overall national interests.

Three groups are always interested in winning: the economists, who want a global welfare increase, the importers, and the consumers; but none of these are consulted. Litigation and winning are neither academic considerations nor about being right or wrong. Dispute settlement is only about market access. In most cases, the respondent trade ministry actually wants to lose. It believes that WTO discipline is good policy and that it is good for economic growth in its country; the trade minister thus can use these cases to help push through pro-growth reform policies.

Stage 5: Two substantive meetings with the parties Despite the fact that these meetings are confidential, there is increasing posturing, especially in open hearings. Politics are important, but often, they miss the legal point. I am sympathetic to a minister's impassioned speech about a change in policy affecting his country's economy, but I cannot take it into consideration as far as the ruling goes, since what is being decided is simply whether or not a member party is violating its obligations to the WTO.

In this kind of meeting, some questions are helpful and serve to "complete the analysis" for the Appellate Body, which cannot make a substantive review of the case. However, there are also many useless and time-consuming statements, and there might be a move to have only one such hearing in the future.

Stage 6: The many stakeholders in the bigger cases Some other stakeholders are third parties, amici curiae, sometimes lawyers or universities, non-government organizations (NGOs), private lawyers, and concerned citizens. My favorite third parties are Japan and Australia, as they make very good systemic contributions. Sometimes a third party actually disserves the party that it was trying to help. The public boasting of the ministers can sometimes do the same thing. These missteps underline how important it is for a party to do its homework, and that it should not take these meetings and expert hearings lightly.

Stage 7: Drafting of the panel report with the rulings This is the most important stage. After the hearings, the main job starts. The dilemma is that the panel is not supposed to make or set new rules. At the same time, it is the job of the panel to assist the dispute settlement body in finding a "positive solution." This is hard work implying difficult choices even when there is no overt negotiating happening.

In my experience, the three decisive factors in the whole of the panel's work process are professionalism, working climate, and interaction. The Secretariat does not pre-determine the rulings on the basis of WTO jurisprudence, and there is no precedent that legally binds the subsequent courts. The panelists can play a decisive role in finding which ruling the respondent will have fewer problems with for implementation.

Stage 8: The Interim Report The Interim Report goes to the parties, and they can make comments or save their gunpowder for the appeal, which often they do.

Stage 9: The Panel Report There are generally not many changes between the interim report and the final report.

Stage 10: How to remain a panelist It is highly important to show sensitivity to each case, and to formulate rulings that the losing party might be able to comply with. This is the most important difference between private and public court cases, and between panelists and the Secretariat.

Now I will present the cases that I mentioned earlier.

Agreement on TBT: Three examples

(1) The U.S. Country of Origin Labeling (COOL) case The United States adopted a measure obliging retailers to inform consumers of the country of origin of beef and pork. The United States defines "U.S. origin" as cattle or hogs that are born, raised, and slaughtered in the country. This excludes beef or pork that has been exported to the United States just for slaughtering. There were four different versions of these labels with confusing wording as to the origin, and this made it difficult for the United States to substantiate that it was just informing the consumer on the origin of the product.

The COOL measure was ruled to be a technical regulation, and to violate the TBT Agreement because it accords less favorable treatment to imported products than to like domestic products. It also violates TBT-Article 2.2 because it does not fulfill its (legitimate) objective of providing consumers with clear and accurate information on the origin of the meat.

A letter from U.S. Secretary of Agriculture Vilsack suggested "voluntary" action by the slaughterhouses, which took this as an instruction. The panel found this, nevertheless, to constitute "unreasonable administration" under GATT-Article X, which provides that governments should not write letters without carefully considering the impact of such letters. While not a direct violation of the TBT Agreement, governments need to take care when writing to industry.

New issues that came up in this case included, first, the panel confirming that labeling is a policy tool for legitimate objectives such as consumer information. It became clear that the issue was not the labeling itself, but how it was implemented; COOL labels did not effectively label the "born, raised, and slaughtered" definition of U.S. origin. The second new issue was the panel's acceptance of a measure with a differential cost implication based on foreign or domestic providers. The problem was that in COOL, the slaughterhouses could not do otherwise than segregate the processing of imported cattle/hogs to be able to conform to the labeling requirements. This decreased the price for Canadian and Mexican livestock, and the complainants were impacted by this measure through lower earnings and supplies.

The TBT Articles and the GATT are clear that expectations of actual trade levels are not protected, and tariffs and concessions do not guarantee trade for a country. Violation of a measure does not need to already have a trade impact or involve an actual trade effect. However, the parties (Canada, Mexico, and the United States) supplied extensive materials with econometric evidence showing the impact of this measure on each of them, as a result of which it was found by the econometrists in the Secretariat to have a deleterious impact on the foreign supply of livestock for slaughtering. This ruling infuriated U.S. cattle producers. In a new procedure not foreseen in the Dispute Settlement Agreement, the Dispute Settlement Body (DSB) has deferred its decision on the panel report until the end of March 2012, leaving the United States with more time to think about appealing, which I think is likely to happen.

Two other panels have more or less completed their rulings at the same time as COOL: U.S.-Tuna II, and U.S.-Cloves. With Tuna, a violation was found because the dolphin-safe label was more trade restrictive than necessary. In Cloves, the approach was the public health objective, which amounted to a violation of GATT-Article III. This was a new analysis of "like products," in that there are cigarettes with cloves, menthol, candy, etc., and the conclusion was that because of the public health objectives, actually competing products that did not receive the same treatment produced a violation of the national treatment obligation.

One of the issues I mentioned at the beginning of the presentation was where is the "cop"? How can the WTO enforce compliance between sovereign governments? The "negative consensus rule" provides an interesting answer. The DSB has to adopt the panel's report unless there is a total consensus against it, which never happens. This is the way in which the member governments accept being bound by the rules, with the theoretical possibility of refusal by consensus. The sanctions (meaning punitive tariffs) can be argued as existing to re-establish a balance at a lower level between rights and obligations.

The second issue touched upon at the beginning of the presentation is whether international trade law is always more important than health or environmental policies. This is the difference between objectives and instruments. A country may have certain objectives, such as a zero health risk, but then it must also have zero risk enforcement domestically. The WTO only looks at the implementation of non-trade objectives in respect of trade rules.

The WTO is against protectionism, not protection, and this is a fine distinction. The GMO case is an illustration of this: prohibiting GMOs in your own country reduces your country's competitiveness by reducing its productivity. This constitutes self-discrimination for protection's sake, not protectionism against imports. Perhaps these are limits that WTO should not deal with, but its duty is to establish a panel and reach a decision whenever there is a complaint.


ARAKI Ichiro (Professor, Yokohama National University)
The issue of TBT was, until very recently, a rather technical issue, and there was not much policy discussion about it. These three cases have rapidly changed the situation. There are likely to be policy implications on the Japanese government's formulation of new technical regulations and standards.

A case about the safety standards imposed on metal baseball bats in the 1980s caused Japan's Ministry of International Trade and Industry (MITI) to have to review all of its regulations to comply with the requirements of the GATT Standards Code. These three cases are likely to have an analogous impact on all countries concerned.

As for why the WTO dispute settlement is so successful, I agree that part of it is the balance of rights and obligations. I would add to this the aspect of "repeated game," that complainants can become respondents at any time. A complainant who prevails expects the respondent to implement the ruling, and as a respondent, if you don't implement a ruling, you cannot expect results the next time you become the complainant.

Questions and Answers

Q: Would you tell us a bit about the relationship between the Appellate Body and the panels? Is there tension between the two?

Christian HABERLI
Panels are nominated for each individual case; the WTO members do not want professional panelists. Those in the Appellate Body are there for eight years maximum.

There do not tend to be tensions between the two. There used to be a firewall that prohibited the same Secretariat staff from serving both the Appellate Body and the panels, or from there being any kind of intercourse among them, but now they sometimes talk to each other.

The two have very different roles; the Appellate Body can only review cases of appeal or points of appeal. It has no remand authority so it cannot send a case back to the panel. The panel does not deal with the case again unless it comes back for implementation (Art. 21.5) or fixing sanctions (arbitration, Art.22.6). As the WTO is about obligations and not about questions of academic right and wrong, panels need to do their jobs and should, in my opinion, come to rulings without having dissenting opinions. This may be different for the Appellate Body, as precedent has more weight.

Q: How do you assess the level of implementation? Which countries do you feel have good or unsatisfactory records of implementation?

Christian HABERLI
Implementation is close to 100%. There are currently 420 cases other than anti-dumping, and of those, maybe three have not been settled.

The case dealing with Myanmar sanctions did not come to the establishment of a panel. The complainants did not push the case because the U.S. federal government would not have been able to make the municipalities abide by the decision, and as the goal of settlement is market access, it didn't make sense to go through with it.

The second case, which is not exactly on the implementation side, was about the growth hormone-treatment of cows. The EU having failed to prove that consumer health was affected by this treatment paid the sanction (supplementary duties) for 10 years before it found a solution in the "Hilton Beef quota." It is a kind of a dirty deal as the EU will only import "high-quality beef" (meaning of U.S. and Canadian origin). This is a deviation from the obligation of the treatment of like products, but since much of the meat trade is doing the same thing, there will be no consequences.

The GMO ruling is not really implemented because there are not many new decisions on applications for new products from the complainants. On the other hand, the ruling was "historical"; it only said that between 1998 and 2004, there had been no decisions (moratorium) and that this non-approval was a violation of the ECs obligation under the SPS agreement. As such, it is not implementable, and in the meantime, the EC has approved some other applications and asserts that it is no longer an issue.

Bananas took 10 years and found a political solution which was not an implementation of the ruling but an agreement on how far down the EU would go with the MFN tariff for bananas (despite its commitment to the African, Caribbean and Pacific Group of States (ACP) countries to maintain a preferential treatment for their bananas). It was a package deal negotiated by the "good services" of the Director-General and only the second time that good services were used.

China's acceptance of WTO rulings was a big question, but fortunately it has so far not disrespected any ruling, and overall, it has been adjusting. This may be because the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) uses lost cases in order to reform the Chinese economy.

Russia might be more difficult. But it is a sovereign choice to pay for a violation, and every member has the right not to respect the ruling, and to pay higher tariffs for their exports instead.

Q: What is the general trend of WTO dispute settlement cases as far as the number of cases and changes in their nature, particularly in light of the failure of multilateral trade negotiations and the proliferation of bilateral and regional Free Trade Agreements (FTAs)?

Christian HABERLI
Americans like to resolve things in Geneva. For instance, COOL (between the United States, Canada, and Mexico) might have been resolved in the North American Free Trade Agreement (NAFTA), but so far, the WTO seems to have more stringent rules on these non-tariff matters than any of the regional agreements.Latin Americans are frequent users of dispute settlement.

Europe has many regional trade agreements, but they are softer rather than being stringent and enforceable. Inter-Asian disputes are rather rare—perhaps they prefer to settle things on a golf course?

Regional trade agreements never reduce domestic subsidies. All of the different types of agreements and negotiations are creating an intertwined and complex situation, and this is more serious now that the Doha Round is dead. It is a matter for concern that dispute settlement only applies to rules that are 15 or 20 years old, and the rules get outdated and new ones cannot be applied. So far, the WTO attracts disputes because it is the only place where a decision can be reached, but it is not sure to remain so forever.

Q: Are there new situations or cases that are not covered by the WTO rules but that would benefit from them, or is it that the rules themselves are not appropriate to the contemporary situation?

Christian HABERLI
Why did Doha fail on a classical GATT problem of industrial tariffs, which GATT did successfully deal with for 60 years? Because the level of ambition was not realistic, even as applied tariffs are lower in all countries, applied subsidies in agriculture are lower than the entitlement.

The biggest problem with outdated rules is that there are none on investment and competition, the so-called Singapore subjects. Now, we have a "salad bowl" of 3,000 investment treaties, and investment protection is sometimes seen as being the wrong type of protection. The same is true of competition. The anti-trust situation in the United States is different from that in Europe, and this is an issue for global operators.

In agriculture today, some countries can subsidize exports and others cannot, and this is not conducive to food security. In services, operators will not look at GATS schedules because in Marrakesh, nobody took on commitments above and beyond the market access they already had at that time. Since then, the world has changed, but we don't have many new commitments other than an Information Technology Agreement (ITA). In real services trade, we are 15 years beyond the development of financial services, insurance, etc., and that is what we should be negotiating now in Geneva.

There might be sectoral negotiations in financial services. A new ITA could be established. But it seems that package negotiations with a "single undertaking" will be very difficult for the next couple of years.

Q: A considerable number of people in Japan are opposed to the Trans-Pacific Partnership (TPP) because it would include the Investor-State Dispute Settlement (ISDS) mechanism. What is your view of the inclusion of this mechanism in FTAs or regional trade agreements? Do you think that the cases dealt with by ISDS will increase globally in the next five or 10 years?

Christian HABERLI
This goes back to the "salad bowl" of 3,000 bilateral investment treaties (BITs) I mentioned earlier, mostly with ISDS. We have nothing like this in the WTO; only governments can complain. Some countries like Australia do not want ISDS involved in the TPP because they do not want a foreign company to interfere with their countries' policies. The global situation today is totally different for investment and investment disputes. Many FTAs and regional trade agreements now have investment settlement mechanisms. It would be nice if we could harmonize some of these.

In agricultural FDI we have seen "land-grabbing," with foreign investors using the BIT as a basis to enforce a contract that should have never entered into force. This may re-enforce abusive protection. There are many other problems in the BIT situation which should be addressed. The best place to deal with this would be the WTO, but this is not realistic, and so the best available place could be the TPP or another regional trade agreement. It needs to be harmonized. There is a problem, and it is the responsibility of the governments to take it up.

ARAKI Ichiro
So you are against the proliferation of investor-to-state arbitration?

Christian HABERLI
I'm against overprotection and under-regulation.

Q: You have said that the primary concern of dispute settlement is market access, but the panel's main job is to apply the WTO rules to uphold the Vienna Convention, which may or may not work to this end. In this sense, how true is the Japanese proverb, "Same bed, different dreams," between or among panelists?

Christian HABERLI
Panels should not have agendas or objectives. They should apply rules, interpret them, and sometimes they may have to create them. To take the Vienna Convention on the Law of Treaties as an instrument to introduce rules and to supplement a deficient WTO rule in the sense of freer trade is very daring.

There are clear limits: where governments have not taken commitments, it is not for panels or the Appellate Body to supplement those commitments. If the WTO does that, it becomes a supra-national organization.

In this sense, panelists have the same dreams and should work toward them as scientists. For example, the climate change challenge cannot be solved as long as in the WTO, tariffs are the same regardless of greenhouse gas emissions. This will be a serious problem to mitigate climate change, and we should start solving it.

*This summary was compiled by RIETI Editorial staff.