|Date||October 31, 2013|
|Speaker||Valerie HUGHES(Director, Legal Affairs Division, World Trade Organization)|
|Moderator||ONODERA Osamu(Director, Multilateral Trade System Department, Trade Policy Bureau, Ministry of Economy, Trade and Industry)|
The title of my presentation is "The WTO Dispute Settlement System: Past, Present & Future." I will speak first about dispute settlement under the World Trade Organization's (WTO) predecessor—the General Agreement on Tariffs and Trade (GATT)—and will then turn to the changes to the dispute settlement system that were brought about when the WTO came into being in 1995. I will also refer to the objectives for introducing a new dispute settlement system in 1995, as well as the present situation and possible future challenges for WTO dispute settlement. I will refer to Japan's experiences in the context of my remarks.
Dispute settlement under the GATT was not highly developed in the early days. Unlike today, where the WTO dispute resolution mechanism is made up of numerous procedural provisions set out in the Dispute Settlement Understanding, the GATT contains only two formal provisions dealing with dispute resolution—Articles XXII and XXIII. When the GATT was concluded in 1947, dispute resolution procedures were addressed in another draft treaty, which would have established what was to be known as the International Trade Organization (ITO). This treaty never came into existence, and neither did the ITO. Hence the dispute settlement rules never took effect. Nevertheless, at that time, the Contracting Parties (i.e., the countries that were members of the GATT) favored a system under which they could resolve their disputes diplomatically and without recourse to strict legal rulings. Detailed dispute settlement procedures proved unnecessary at the time, and decisions resolving disputes were made at plenary meetings of all Contracting Parties, which started at 23 and later expanded. Initially, the Chairman would make a simple, oral decision following a brief airing of the dispute by the parties concerned.
As time went on and the number of Contracting Parties grew, small working groups were nominated to settle disputes. These groups included both the complainant and the respondent, as well as several other Contracting Parties, all of whom would participate in the decision-making process. There was no neutral decision-maker like we have today. The three-person panel approach was introduced in 1952. The process worked to a degree, but there were some issues. Robert Hudec, a famous professor of GATT law, commented that early GATT dispute settlement decisions were written with an "elusive diplomatic vagueness," leaving the result uncertain in many cases. Certainly, there was no legal analysis or detailed reasoning as there is today. Hudec also considered that the system responded better to the interests of the "strong" rather than those of the "weak." Early disputes concerned basic tariff compliance issues, which were often relatively easy to resolve. But as trade policies became more sophisticated, increasingly complicated issues, including non-tariff barriers, formed the subject-matter of disputes.
By the 1980s, there were calls to strengthen the dispute resolution system. The number of cases had increased considerably, and they were increasingly complex in subject-matter, and some Contracting Parties considered the system to be too weak or flawed to discipline properly the Contracting Parties' domestic policies. Submissions before panels became increasingly legalistic as lawyers replaced diplomats in dispute settlement work. Panel decisions were regarded as of inconsistent quality. Moreover, the system could easily be derailed as challenged Contracting Parties could delay or block the establishment of panels or the adoption of panel reports, tactics that were successful due to the need for consensus to take these decisions. The WTO needed a dispute resolution system that would address these weaknesses in the GATT system.
As a testament to its importance, the first matter highlighted by Trade Ministers in their declaration in Marrakesh on the establishment of the WTO was the creation of a more effective and reliable dispute resolution mechanism. Unlike dispute settlements under the GATT of 1947, the WTO dispute settlement mechanism is central to the WTO. Article 3 of the Dispute Settlement Understanding (DSU)—the WTO agreement governing dispute resolution—declares that the dispute resolution system is central to providing security and predictability to WTO Members and to ensuring a proper balance between rights and obligations. Under the new rules, the delay tactics one could use under the GATT are eliminated, such that only the first request by a Member for the establishment of a panel can be rejected, but a second request can only be rejected by a unanimous decision. This approach is what is known as "negative consensus," which replaced the positive consensus approach of the GATT, and which makes establishment of a panel virtually automatic. The same is true with regard to the adoption of panel reports—all Members would have to agree not to adopt a report in order to block its adoption. Clearly, the Member who won the case is not going to oppose adoption.
The DSU provides that panels and the Appellate Body are to clarify the provisions of the WTO agreements having reference to the customary rules of interpretation of public international law, which are codified in the Vienna Convention on the Law of Treaties. Articles 31 to 33 of the Vienna Convention set out the interpretation provisions.
The Appellate Body is also a feature of the WTO system that was not present under the GATT system. Creating an appellate process ensured recourse to a body that could correct decisions should a panel err. In addition, instituting an appellate system has led to the development of a solid body of WTO law, which in itself responds to the need for security and predictability in the trading system, as called for in Article 3 of the DSU. Originally, it was thought that panel reports would be appealed only rarely, when panels went seriously off the rails. However, contrary to expectations, more than 60% of panel reports have been appealed since 1995.
The aim of WTO dispute settlement is to resolve problems, not to win cases—in other words, litigation is not intended to be the primary means of solving trade disputes. This is why the WTO dispute settlement process starts with a 60-day consultation period during which disputing parties meet to discuss the issues and try to work through their disagreements. The respondent has an opportunity to explain how its measure works, and the complainant has an opportunity to ask questions about practical aspects of the measure's operation. This will often lead to resolution of disputes such that proceeding to litigation becomes unnecessary. In fact, it is during the consultations phase that most disputes are resolved.
If, however, the matter is not resolved in the consultations phase, the complainant can move to the litigation phase and request the establishment of a panel to consider the matter. This is done at the meetings of the Dispute Settlement Body (DSB), which meets every month. Although the respondent can block establishment on the first request, it cannot do so on the second request, when the panel will be established unless all WTO Members decide against doing so. (Of course, this will not happen because the complainant will not decide against doing so.)Once the panel is established, the complainant and respondent must appoint three neutral persons to serve on the panel. Although Panel members can be chosen from an "indicative list" of persons nominated by the Members, it is not necessary to choose panelists from that list. If an agreement on the selection of the panelists cannot be reached, either disputing party can ask the Director-General of the WTO to choose them, which must be done within 10 days of the request. This prevents the process from stalling at the panel composition phase. Once the three panelists are chosen, the panel's working procedures (including timelines for written submissions and hearing dates) are established. The DSU stipulates that the Secretariat assist panels in carrying out their work, although the final decision is always that of the panel, not the Secretariat. Depending on the nature of the case, the Secretariat staff assisting the panel might be from the Legal Affairs Division or the Rules Division; the latter assists with cases involving trade remedies (dumping, subsidies, and safeguards), while Legal Affairs assists with all other cases (such as GATT 1994, services, Sanitary and Phytosanitary (SPS), Technical Barriers to Trade (TBT), Trade Related Aspects of Intellectual Property Rights (TRIPS), agriculture, etc.).
Two rounds of written submissions and hearings take place, after which a confidential interim report is issued to the disputing parties. The complainant and the respondent can request the panel to make specific amendments to the interim report, such as correct facts or representations of parties' arguments, which the panel takes into account in preparing its final report. The final report, which is circulated to all WTO Members once it is translated into all three WTO languages (English, French, and Spanish), may be adopted at the DSB or appealed to the Appellate Body concerning errors of law and interpretation. The Appellate Body is not entitled to make findings of fact so the panel's factual findings cannot be appealed, except if the panel has not been objective in its factual findings.
The Appellate Body consists of seven standing members chosen by WTO Members. They serve for a term of four years, and can be reappointed once. Appeals are not heard by all seven members; rather, the Appellate Body sits in Divisions made up of three members. If an appeal involves Japan, a member of the Division hearing the case can be Japanese, whereas at the panel level, nationals of disputing parties can serve on a panel only if the disputing parties agree (which they never do). The Appellate Body may uphold, reverse, or modify the findings of the panel. The Appellate Body Report is submitted by the winning party to the DSB for adoption, upon which it becomes binding, but only for the parties to the dispute. Although decisions technically do not have precedential value, WTO Members, panels, and the Appellate Body itself tend to rely on them, giving them de facto precedential value.
Members have a reasonable period of time in which to comply with rulings, and disputing parties can return to the original panel for a further ruling should there be a failure to comply.
Since 1995, 469 WTO cases have been brought to the WTO for resolution (as of October 31, 2013). The WTO system responds to both developed and developing countries. Of the 159 WTO members, 63% have participated in some capacity in WTO dispute resolution, showing broad confidence in the system. Participation may be as a complainant or respondent, or as what is referred to as a third-party, which allows a Member interested in an issue to participate when it has a systemic interest in the dispute—such as when the system at large may be affected by the issues in dispute or the Member has a law similar to the one being challenged. Third parties are entitled to express oral and written views to the panel and the Appellate Body. Japan is among the top 10 participants in dispute settlement activity, both in terms of the number of cases initiated and defended. In line with their greater trade volumes, the participation of the United States and the European Union (EU) greatly exceeds that of everyone else.
As of today, the WTO has had 469 cases over 19 years, resulting in the establishment of 208 panels and the adoption of 176 panel reports and 110 Appellate Body reports. The WTO system is used often because it is a very effective system, not just for winning cases but for resolving disputes. The system is faster than most dispute settlement systems; it takes about a year after the panel is composed to have a decision. SPS cases take longer—perhaps a year and a half as they involve complex scientific and expert evidence and separate hearings with technical experts. Appeals usually take three months. Another positive feature of the system is its high compliance rate. There is a 90% compliance rate. Although there is no "police force" enforcing compliance, Members are generally inclined to comply with rulings; reputation is important to sovereign governments, as is their mutual desire to see the system work. Members also want others to comply when they are on the "winning" side. The DSB has authorized retaliation due to non-compliance only18 times.
Although many wonder whether the WTO will maintain its high level of activity in dispute settlement given the many regional trade agreements (RTAs) that have been negotiated, all of which have dispute resolution mechanisms, it appears that there is no danger of the WTO "going out of business" in dispute settlement. In fact, despite the hundreds of RTAs that have been concluded since 2000, their members continue to come to the WTO to resolve their trade disputes. Canada and the United States could have taken their softwood lumber cases to the North American Free Trade Agreement (NAFTA) system, but they chose the WTO. Similarly, in a case brought by El Salvador, Costa Rica, and Nicaragua against the Dominican Republic, despite their membership in the United States-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR), they used the WTO system The Association of Southeast Asian Nations (ASEAN) has never had a dispute brought to its system, even though it is virtually identical to the WTO system.
There are a number of the new entrants involved in disputes today. China entered the WTO at the end of 2001, and, for the first five years, it was not active at all in dispute resolution as a main party, but it is now one of the most active. (China, however, has been an active third party participant from the beginning of its membership.) Russia has been a member since August 2012 and already has had two cases brought against it. It has also participated as a third party in eight disputes. Vietnam, a fairly new member, is an active member as well. Furthermore, Argentina these days is a complainant and respondent in many cases.
Today's disputes involve traditional issues (GATT 1994, SPS), but also new issues such as those involving energy and green subsidies. The feed-in tariff (FIT) case is one that Japan successfully brought against Canada regarding electricity markets.
Turning to the dispute settlement activities of Japan, it is currently a complainant in a major case involving export restrictions placed by China on rare earths, tungsten, and molybdenum. The United States and the European Communities are also complainants in the case. The complainants argue that China committed in its Protocol of Accession not to place export duties on certain products, and that China has placed export quotas on these same products in violation of its obligations under the GATT 1994. China argued that it was entitled to rely on the exceptions under Article XX of the GATT 1994 to justify its export duties and export quotas. Article XX permits WTO Members to justify violations of their trade obligations in certain circumstances, including if the measures are imposed for public health reasons or to conserve natural resources. The question is whether or not China is entitled to rely on Article XX of the GATT 1994 to justify a violation of a commitment that does not fall under the GATT—namely, its export duty commitments contained in its Protocol of Accession. Another question is whether China can justify its export quotas—which are prohibited under the GATT—under that provision. The decision should be issued early next year.Japan has had 170 disputes, not all of which have turned into panels (as of October 31, 2013). It has been a claimant in 19 cases and a respondent in 15. It is in the top 10 on both sides—complainant and respondent. What kinds of cases has Japan been bringing? As a complainant, the cases involve the auto industry, the steel industry, green energy, and IT products. As a respondent, Japan has been subject to claims from Canada, the European Union (EU), Korea, and the United States, involving alcoholic beverages, film, apples, some agricultural cases, and a case on laver that was resolved eventually. Dynamic random-access memory (DRAM) is another area where Japan has been challenged.
The Appellate Body uses its previous decisions to inform its new ones. As more disputes are decided, the decisions contribute to the already complex body of law that has come about after 18 years of WTO dispute settlement activity.
What characterizes WTO dispute settlement activities today? It is the norm that a number of parties collaborate and bring a case against one party, resulting in bigger cases. This did not happen often in the early days. Today, more evidence is filed in disputes, and the evidentiary requirements are more extensive. The panels and the Appellate Body are requiring more rigor in the evidence submitted. Moreover, many regulatory measures are being challenged and these cases often require technical expertise, complicating matters for the panelists.
The three official WTO languages are English, French, and Spanish. 99% of the cases are conducted in English, although more are now being done in Spanish due to the participation of Latin American countries. If a Japanese law is submitted into evidence, it must be translated into one of the three official languages. Similarly, if a case is brought against a Chinese measure, much of the evidence will be in Chinese, and it will need to be translated. The same is true for cases challenging Russian measures, where much of the evidence will be in Russian. Although this evidence is translated into one of the official WTO languages, having someone who can read the original is useful. It is important, therefore, to have Secretariat staff members who have special language skills.
There has been an increase in the use of private sector counsel in WTO dispute settlement. Many lawyers from private law firms now have specialized practices arguing for the governments before WTO panels and the Appellate Body.
Let us look at China's dispute settlement activities. It is currently one of the most active members. It has brought eight cases against the United States, three against the EU, while 31 cases have been brought against it by various members. China has been a third party in almost every case since it acceded at the end of 2001, which is a clever strategy. A third party has access to hearings that are not generally open to the public and can observe how other active Members, such as the United States and the EU, strategize. One can gain insight into how they might argue should they bring a case against you. Also, third parties can acquire the submissions and confidential documents, which are unavailable to non-third parties.
Japan has contributed to dispute settlement at the WTO not just in terms of participating in panels. It has supplied a number of panelists and three Appellate Body members since 1995. Finally, Japan has been a leading contributor in what we call the Dispute Settlement Understanding (DSU) negotiations. Since the late 1990s, the dispute settlement rules have been undergoing study to determine if they need to be adjusted in the light of practice. Nothing has ever been changed, thus showing that the system is working well. The first chair of these negotiations was Ambassador Suzuki of Japan.
The WTO dispute settlement mechanism of the future will be quite active and it will continue to be a very specialized area of law. We can expect to continue to see multi-issue cases challenging many measures. In the China-Raw Materials case, for example, over 100 measures were challenged. Multi-party cases likely will continue as well, in part because Members like to have "friends" when they challenge other big Members. I also expect that the WTO dispute settlement mechanism will continue to be preferred to the dispute settlement mechanisms established in RTAs, given that Members are familiar with the WTO system and they know that it works and works well. The subject matter of future disputes likely will include issues regarding the environment, energy issues, and regulatory activities related to health protection. Trade remedies, including subsidies, and dumping, likely will also continue to be a common subject of disputes in the WTO system.
Questions and Answers
Q1: What is the most challenging aspect of future implementations from your perspective?
My question is regarding the contract dispute settlement mechanism and the lack of legislative functions in the WTO. The panel is facing various challenges regarding the interpretation of law because, in certain areas, there are no rules as is in the case of investment competition. What kinds of challenges are you facing daily in interpreting WTO laws?
Do you believe the DSU procedure must get back much to like how it was in the old political solution of disputes, or not so much, but more or less? In particular, we have to pay attention to the fact that the disputes on some sensitive issues, such as public health and the environment, are increasing.
First, in terms of the future challenges and what is the most challenging aspect we will face, as the director of legal affairs, it should not be surprising that I would say the biggest challenge will be the resources and the number of people needed to conduct dispute settlement work. Dispute settlement activity is very heavy now. There are between 40 and 50 people in the three divisions that do this work (in the Rules Division, my division, and the Appellate Body Secretariat), although we also rely on translation and some administrative divisions to support our work. However, there are about 700 people that work in the WTO, so we are a small percentage of the people carrying out one of the most active aspects of WTO work. This may change, and the Bali Ministerial may unblock the negotiations arm of the organization. Therefore, we may have more negotiations going forward to occupy more fully the other WTO Divisions, but we have a very small number of people to conduct dispute settlement, which is a specialized field. Thus, trying to find the expertise and the people that can lead a case and assist panels is a very difficult task. The WTO membership is not providing additional money to hire new people.
Regarding the contrast between high activity in the dispute settlement area and inability of the legislative branch to achieve results, and the lack of clarity in the rules, which leads to disputes, that indeed does bring many challenges. Negotiators sometimes do not say precisely what they mean because this ambiguity is necessary in order to achieve agreement—this is what is often called "constructive ambiguity." Constructive ambiguity is not unique to the WTO; many international treaties are concluded using this drafting technique. One of the things that we do not have in the WTO is an official negotiation record. Therefore, it cannot be said definitively when trying to interpret the agreements that "This is what the negotiators meant." The intent of the negotiators must be determined by reference to the words they used. As such, it is important in negotiating agreements to say what you mean, and mean what you say; you have to be clear. If you are not clear because you are unable to be (that is, if you use the "constructive ambiguity" technique), then you have to accept that, in dispute settlement, your preferred reading of the words used may not be accepted by the panel or the Appellate Body. Thus, be very careful when you're negotiating.
Finally, on whether the pendulum has swung too far in favor of legalism? Well, of course, as a lawyer, I will say "No." But returning to the diplomatic solutions of the old GATT days is unlikely. The system is too complex now. The system is much different than what it was previously. It is complex, and politics will not always resolve these things. Law will not resolve everything, either. There are some cases that should never come to the WTO and should be resolved at a negotiating table. We know such cases can be quite sensitive, so there is still significant room for diplomatic resolution. That is the reason for the consultations phase. But if a case proceeds to the panel stage, it must be accepted that the cases today will be based on legal decisions rather than purely diplomatic solutions.
Q2: I'd like to ask a question from the standpoint of political science. The problem with the international system is that it lacks the final power of enforcement. What do you think is the best way of enforcement? How can you ensure it?
Enforcement is an issue, of course, because there's no international police force. But remember that I did mention that we have 90% compliance in WTO dispute settlement, so most Members do comply. How can we get that last 10% to do so, I guess, is the question. Some have said that for those who have violated their WTO obligations and haven't complied with panel or Appellate Body rulings requiring them to bring the measure into conformity, let them simply pay compensation. Other Members think that this isn't a good idea because the big, rich countries that can pay will get away with trade violations and those that are not so rich and cannot pay will not. However, there is one aspect of the WTO system that contributes to high enforcement, which is very unique. Every month at the DSB meeting, Members review the status of compliance with panel and Appellate Body rulings for those disputes where compliance has not yet occurred. That sort of name-and-shame approach is often politically helpful in that a Member will not want to be seen as non-compliant. In addition, Members comply with rulings against them because they are interested in having others comply when they win. The fact that we have 90% compliance is actually quite impressive.
Q3: I have a question about the cases which are brought from the FTA countries. How do you deal with the provision of these regional arrangements?
Panels and the Appellate Body generally have declined to apply provisions of agreements other than WTO agreements, maintaining that their jurisdiction is limited to WTO agreements. Members of the NAFTA, for example, cannot directly challenge RTA obligations before the WTO, although they might challenge similar obligations found under the WTO. The WTO panels and the Appellate Body interpret the WTO obligation rather than the RTA obligation per se. Even when panels and the Appellate Body were asked to do so, they were very careful to avoid interpreting what that respective RTA says. You are absolutely right that it would not be appropriate for a WTO adjudicator to interpret a provision over which it has no jurisdiction, even when Members request it to do so.
Q4: Following up your answer, that brings about another problem with the implementation because some parties could insist that we have a waiver from a regional agreement in spite of a decision by the WTO DSB.Valerie HUGHES
I see what you mean. Some parties will say, "Under the RTA, we are allowed to do that, and the WTO permits Members to enter into RTAs." However, WTO panels and the Appellate Body will find out whether there is a violation in the WTO. They generally will not seek to interpret the RTA itself. In many of the RTAs, there is a provision governing dispute settlement called a "fork in the road." It says that one can pursue dispute settlement under the WTO or under the RTA. Once the "fork" is chosen—that is, the WTO route or the RTA route—you are bound by that route and cannot go back on the other. As such, the government has an obligation to go the way it has chosen. It is interesting that, more and more, non-WTO adjudicative bodies are citing WTO decisions in their reports. This may contribute to some degree of uniformity in the law of trade obligations under the WTO and the RTAs.
Q5: I'd like to know which country has lost the most dispute settlements. Also, in terms of the number of cases.
The member that has lost the most is the one that has faced the most challenges. That Member, the United States, has also won the most cases, because it has brought the most. So looking purely at wins and losses does not give a good idea of which Members are trade compliant and which are not. For example, it would not be accurate to say that Japan is more complaint than others simply because it has only lost six cases, because it has only had a few cases brought against it compared to other Members.
Q6: Do you think there is a possibility that the WTO might start becoming involved in the interpretation of dispute settlement issues under FTAs if a sufficient number of countries start to say that this is what the WTO should be doing? What would be the conditions?
If panels and the Appellate Body were to be asked to adjudicate a case brought under an FTA, they would likely look at the rules and say that they do not have the authority to do so. The Membership would have to give it that jurisdiction. If you were to ask "Can the Secretariat assist panels under FTAs?" if the membership agreed to it, then I would think it can be done. It may even be desirable, as it could result in less fragmentation in the law.
*This summary was compiled by RIETI Editorial staff.