WTO Dispute Settlement Mechanism Research Articles

THE NECESSITY OF CAPACITY BUILDING FOR INDONESIA'S EFFECTIVE UTILIZATION OF WTO DISPUTE SETTLEMENT MECHANISM: IMPLEMENTATION OF GATT ARTICLE XX FOR TRADE AND ENVIRONMENT ISSUES

AbstrakThe World Trade Organization Agreement, aimed to also protect theenvironment, provides a special provision on environment under article xx.Any dispute arose between parties in respect to the article should be settledtrough the WTO Dispute Settlement Mechanism. Although environmentalprotection should be sought in trade, it is often problematic for developingcountries. They generally lack an adequate domestic environmentallegislation and its enforcement because they place greater priority oneconomic development. Indeed, there have been a number of cases foughtbetween developing countries and developed countries on this very issuewithin the WTO Dispute Settlement Mechanism. In addition, there areseveral conditions that might prevent them of using the mechanism effectivelywhich includes: lack of understanding of WTO law and its jurisprudences,lack of institutional capacity, and the fear of retaliation from developedcountries when bringing the claim against developed countries to DisputeSettlement Mechanism. Indonesia, as one of developing countries also facesthe above three problems. This paper will discuss what Indonesia need toprepare so that they can use the Dispute Settlement Mechanism effectively toresolve any dispute (if any) with other country, particularly in respect to theviolation of the article XX under the WTO Agreement

Trading Profiles and Developing Country Participation in the WTO Dispute Settlement System

It has been alleged since its inception that the WTO Dispute Settlement (DS) mechanism is biased against developing countries, as manifested in e.g. allegedly too low rates of dispute initiation. To shed light on this issue, this study analyses the determinants of developing country participation in the DS system, using bilateral industry-level trade data, and a data set on dispute initiation that is significantly richer than what has been employed in the literature. But the study also points to a number of fundamental conceptual and data problems that beset the whole empirical literature that seeks to draw policy conclusions based on country participation in the DS system. While perhaps appreciated by researchers working in this area, these problems appear to go unnoticed by practitioners drawing on this literature.

Sore Losers? Gatt/WTO Disputes and Exchange Rate Policy

In recent years, many IPE scholars have focused on the determinants of state decisions to initiate and/or settle trade disputes through the WTO's dispute settlement mechanism. Furthermore, some have suggested that these multilateral trade decisions themselves inform a state's trade policy: losing a WTO dispute, for example, has been shown to increase the likelihood of joining a preferential trade agreement (PTA). To date, however, this body of literature has paid little attention to the effects of GATT/WTO membership and disputes on governments’ other economic policy choices, such as monetary policy and the choice of exchange rate regimes. In this paper, we argue that states that have suffered GATT/WTO defeats are more likely to act as 'sore losers' - that is, to pursue exchange rate policies as a substitute for trade protection in order to improve the terms of trade. Using data on up to 57 countries from 1974-2000 we find robust evidence of such behavior over the last three decades. Countries that have suffered more defeats in GATT/WTO disputes are less likely to choose fixed exchange rate regimes and more likely to shift their exchange rate policy toward a more flexible regime. These countries are also more likely to 'fear pegging' (i.e., to adopt de facto floating exchange rates despite their de jure commitments to fixed rates) and more likely to experience real exchange rate depreciations in the aftermath of their defeats. These findings shed light on the complex relationship between trade and exchange rate policies. More broadly, they suggest that compliance with multilateral commitments may be 'in name only' when close policy substitutes allow states to circumvent these obligations.

Development or the Environment

Problem statement: The relationship between trade and environment is very complex though development and environment are invariably related to each other. There is a close relationship between development and conservation of the environment. The relationship between the WTO and MEAs is reducing and eliminating barriers to trade in environmental goods and services. This relation was acknowledged in 1972 Stockholm Conference on Human Environment. Over the past 20 years, an extraordinary number of international environmental agreements have been concluded. Very few MEAs actually regulate trade or contain trade-related provisions. Theoretically, MEA trade measures and WTO rules can and should interact in a positive and synergistic way. Approach: The main aim of this paper/research is to find out whether the international law has any method of dispute resolution or a systematic approach towards the ongoing debate between the environment and trade which is interlinked in a very complex manner. The resolution of these complex inter-linkages has become a challenge which we have to face. Results: The author had tried to highlight the complex relationship of WTO-MEA where both the environment and trade policy makers prefer unilateral solution for the environmental problem. Resorting to such unilateralism can pose a risk of arbitrary discrimination. The source of the conflict between the WTO and MEAs lies within the measures contained in MEA's and WTO rules. For example, the violation of WTOs non-discrimination principle by MEAs. The two vital questions that occurred were whether trade measures under multilateral environmental agreements are compatible with WTO rules and If MEA-related disputes are brought to the WTO system, should the WTO discourse on the relationship between the WTO and MEAs? Conclusion: Both trade and environment are crucial for the well being of human society. What is most important is to strike a proper balance between free trade and environmental protection. There are a large number of multilateral environmental agreements. Although Special Trade Obligations (STOs) can be found in only a minority, these MEAs usually incorporate environmental norms that may result in clashes with trade norms of the WTO. One of the major steps is to control trade, as it is contributing to environmental damage. The other is by providing additional incentives to join MEAs and restricting non-parties to trade with parties in restricted goods. e.g., Montreal Protocol bans trade with non-parties in ozone-depleting substances. If a conflict arise in the future between the WTO Agreements and other rules of international law, WTO dispute settlement bodies will have to consider recognized rules under public international law to settle the conflict. In the context of a dispute between two WTO members, any WTO member that considers that any of its WTO benefits have been nullified or impaired it has an absolute right to trigger the WTO dispute settlement mechanism and request consultations and the establishment of a panel.

Nothing ventured, nothing gained? A case study of Africa's participation in WTO dispute settlement

The thrust of this research centres on the inadequate participation of African countries in the WTO dispute settlement mechanism. Using the US upland cotton dispute initiated by Brazil as a case study, the author investigates four leading West African cotton exporters – Benin, Burkina Faso, Chad and Mali – the 'Cotton 4'. While Benin and Chad participated in the dispute as third parties, Burkina Faso and Mali were noticeably absent, despite their joint criticism of cotton subsidies in the sectoral initiatives on cotton delivered by the group at two WTO ministerial meetings. The author attempts to ascertain the rationale for African countries' decisions to participate in disputes or to 'free ride' within the international trade arena, arguing that the incentives or disincentives affecting these decisions stem from the inability to retaliate against developed countries under the WTO dispute settlement understanding (DSU); financial and technical limitations in accessing the DSU; disproportionately heavy reliance on principal trading relationships; and other socio-political and economic considerations.

Saving the WTO from the Risk of Irrelevance: The WTO Dispute Settlement Mechanism as a 'Common Good' for RTA Disputes

Over the past few decades, Regional Trade Agreements (RTAs) have proliferated globally. Such proliferation of RTAs created a renewed sense of urgency for the WTO to take action in order to avoid the fate of being eclipsed into irrelevance. There are several options for coping with the challenge. Theoretically speaking, the best approach would be to heighten the level of ambition in global trade talks to reduce all trade barriers to zero so that the discriminatory effect created by RTAs could be reduced or even eliminated. In reality, such an approach would be impossible for well-known reasons. The next best option would be for the WTO to draft ‘best practices’ or model RTAs to minimize the effect of further fragmentation created by different breeds of RTAs. The problems with this approach are first the resource constraints of the WTO, second the bounded rationality of human beings, and third, whether a ‘one size fits all’ approach would work. Yet another option offered is to strengthen the WTO's monitoring system of RTAs, with the 2006 rules on transparency being the most recent example. Unfortunately, as the Committee on RTAs (CRTAs), the main enforcer of the monitoring rules in the WTO, has been plagued with ineffectiveness because of the consensus rule, heightened monitoring rules would not be of much help either. In this article, we will discuss a fourth option, i.e. to use the WTO dispute settlement mechanism as a venue for resolving RTA disputes. The rationale underlying this initiative is that, by using the WTO dispute settlement system for RTA disputes, the Members will be able to develop a body of ‘common law’ on RTAs, which would then either form the basis of multilateral rules on RTAs or harmonize RTAs. This way, we can try to minimize the harmful effect of RTAs, and indeed turn RTAs from ‘stumbling blocks’ into ‘building blocks’ of the multilateral trading system.

Can Foreign Investors in Services Benefit from WTO Dispute Settlement? Legal Standing and Remedies in WTO and International Arbitration

Disputes involving trade and investment in services are a rarity in the WTO. Up to now, the WTO dispute settlement mechanism (DSM) has addressed over 130 cases, of which a handful concerned trade and investment in services. It is possible to identify three relevant reasons that may explain, at least to some extent, the marginal attention that WTO dispute settlement has needed to pay to investment in services.This study attempts to explore two aspects of international disputes in investment in services. In a first part, it focuses on the international agreements granting standing for private parties in international dispute settlement procedure. With regard to WTO dispute settlement mechanism, the study attempts to explore how the disciplines of the Understanding on Dispute Settlement Procedures (DSU) together with the disciplines adopted in the GATS relate to foreign investors in services. It also addressed whether or not and how private parties are involved in WTO dispute settlement procedures. A second part of the study addresses the remedies Investor-State arbitration on the one hand and WTO dispute settlement mechanism on the other hand offers to resolve an investment-in-services dispute. Attention is drawn to the implications of these different remedies for foreign investors in services. Ultimately, the study attempts to answer the question of whether WTO dispute settlement procedures could become a valid alternative for investor-in-services - State dispute settlement.

One Country, Two Systems, and Three Memberships: Legal and Economic Integration between China and its Two SARs

This paper examines legal and economic integration between China and its two Special Administrative Regions, namely, Hong Kong and Macau. Two dimensions are dealt with in this paper: the constitutional/national framework and the WTO/CEPA framework. In the constitutional/national framework, this paper examines the interaction between People’s Supreme Court and the Court of Final Appeal in Hong Kong and Macau. It analyzes the horizontal and vertical interaction between courts in China and in the Special Administrative Regions, focusing mainly on three issues: the Standing Committee/CFA, exclusive/residual competence, and the competition of jurisdiction. In the WTO/CEPA framework, this paper presents the legal bases and accession histories of these three memberships in the WTO, and examines their trade policies and practices both in the GATT and the WTO. Emphasis is placed on how and why Hong Kong, China and Macau, China enjoy full memberships in the WTO as China does. This paper finally explores the dispute settlement mechanism provided in the Closer Economic Partnership Arrangements between China and its two SARs, and examines the possibility for these three members to avail themselves of the WTO dispute settlement mechanism. This paper finds that the legal and economic integration between China and its two SARs offers much both to comparative lawyers and international trade lawyers: the vast diversity of legal culture in these three areas yields an unprecedented conflict and combination, while the interaction between China and its two separate customs territories, Hong Kong, China and Macau, China, in the international trading regime, presents a new landscape in the WTO.

Independence Under Fire: Extra-legal Pressures and Coalition Building in WTO Dispute Settlement

This study uses detailed quantitative analyses of the complete history of rulings made by the Panels and the Appellate Body of the WTO Dispute Settlement Mechanism during its first ten years of operation, to assess the robustness of theories regarding the decision-making of these institutions. Regression analyses are used to test for correlation between the success of Complainants in dispute settlement and a variety of factors, representing the hypothesized capacity of states to influence Panels and the Appellate Body through dimensions of political and economic power, the impact of the relative practical capacities of states in dispute settlement proceedings, and the formation of coalitions of states in support of a particular Complainant or Respondent. The results of the regression analyses - that few significant correlations exist between the independent variables and the dispute outcomes - provide evidence that the judicial institutions of the Dispute Settlement Mechanism are independent from Member State influence. The one reliable correlation found in these analyses demonstrates that a Complainant state does have substantial advantage in Panel proceedings if it has previously participated in more disputes than the Respondent.

The Impact of WTO Accession on China's Legal System: Trade, Investment and Beyond

This paper assesses the impact of China's accession to the World Trade Organization on its foreign trade and investment regime. While the government had begun liberalizing the Chinese economy long before joining the WTO, the accession induced regulatory, institutional and normative changes that have transformed the landscape of trade and investment in China. The profound impact of the WTO stems directly from the extensive commercial and rule commitments China undertook in its accession. Focusing on the most significant of these commitments, the paper examines their implications for Chinese constitutional law and their effect on the regulation of foreign trade, foreign investment, intellectual property rights, and domestic governance. In addition, it looks at enforcement of China's commitments through the WTO review and dispute settlement mechanisms. The paper concludes that China's WTO accession has made its foreign trade and investment regime far more liberalized and less opaque than a decade ago. More importantly, the accession has institutionalized the process of China's domestic reform externally through the force of WTO obligations. Although much uncertainty remains concerning the future direction of government policies, WTO membership ensures that the course of China's economic development will be charted within the disciplines of the WTO system.

Arbitration and the World Trade Organization—The Forgotten Provisions of Article 25 of the Dispute Settlement Understanding

This article explores one of the most forgotten provisions in the World Trade Organization’s (WTO’s) large body of agreements, namely, Article 25 of the Dispute Settlement Understanding (DSU) and considers the use of arbitration as an alternative means of dispute settlement under the DSU. Given the intense interest in the WTO dispute settlement mechanism and the unique importance of arbitration, Article 25 is worthy of study. It is a highly useful provision, which, were it invoked more often, could ease the dispute settlement process for the parties involved. This examination of Article 25, its genesis, and current usage patterns, also takes in a background look at the WTO dispute settlement mechanism through a procedural lens and pays particular attention to Arab countries’ participation (or non-participation) in WTO dispute settlement proceedings.

Monopolizing clinical trial data: implications and trends.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement, Box 1) has to a large extent harmonized standards for intellectual property rights, including patents. For many countries, the TRIPS standards were higher than their previous standards. For example, TRIPS obliges countries to allow patenting of pharmaceuticals and imposes a minimum duration of 20 years for patents. Before TRIPS entered into force, a number of (developing) countries either did not grant patents for medicines, or had a shorter patent term. Since generic medicines can only be marketed in the absence of a patent or after its expiry, the implementation of TRIPS in those countries means it will take longer before generic versions of new medicines can enter the market. The TRIPS Agreement has therefore been criticized for its anticipated detrimental effect on access to medicines, especially in developing countries. Box 1: TRIPS and TRIPS-Plus The TRIPS Agreement harmonizes standards for various types of intellectual property rights, such as copyrights, patents, and trademarks. TRIPS is an integral part of the WTO Agreements, which create binding obligations among WTO member countries. TRIPS is subject to the WTO's dispute settlement mechanism, which may—as a last resort—allow WTO member countries to apply trade sanctions against a noncompliant country. This is a powerful enforcement mechanism, especially vis-a-vis developing countries, which can usually ill afford to be faced with trade sanctions. Meanwhile, intellectual property protection that surpasses the standards and requirements of the TRIPS Agreement is often referred to as “TRIPS-plus.” There are many different TRIPS-plus provisions. For example, patent term extensions enable prolongation of the patent term beyond the 20 years required by TRIPS, under certain circumstances. Data exclusivity and “linkage” (see text) are other TRIPS-plus provisions. These TRIPS-plus provisions all delay or hamper generic competition. But while much of the debate on TRIPS, intellectual property rights, and access to medicines has focused on patents (Box 2), largely outside the limelight the rather abstract notion of data exclusivity has quietly been introduced and promoted. Data exclusivity refers to the granting of exclusive rights over the data required for registration of pharmaceuticals, notably the clinical and preclinical trial data. Data exclusivity, too, can jeopardize access to medicines and negatively affect public health. This article tries to demystify the concept and implications of “data exclusivity,” and to provide an overview of current trends. Box 2: Patents, Registration, and Marketing of Medicines The pharmaceutical market is highly regulated. Two sets of laws and regulations play a crucial role in shaping this market: the intellectual property laws and the laws and regulations pertaining to drug registration. Intellectual property rights, especially patents, confer negative rights: if a particular medicine is under patent, the patent holder can prevent others from producing or selling (generic versions of) that medicine in the country concerned. But a patent does not give the patent holder the right to put that medicine on the market. In order to be allowed on the market, a medicine has to be registered by the national drug regulatory authority. Moreover, a patent applies to an invention, not to a medicine per se. Patents can be granted for instance for a new chemical entity, a production process, or a particular formulation. Thus, a single medicine can be covered by more than one patent. Some patents (notably those on the chemical entity) completely block generics. But in other cases it may be possible to produce a generic version without infringing the patent, e.g., a tablet would not infringe a patent that only covers liquid dosage forms.

African Countries and the WTO's Dispute Settlement Mechanism

The WTO Dispute Settlement Mechanism was designed, inter alia, to secure the ‘rule of law’ within international trade and provide all members with opportunities to exercise their rights under multilateral trade agreements. But, after ten years, no sub‐Saharan African country has yet used the option to initiate a dispute. This article examines what prevents the WTO Africa Group from using the system and critically reviews the solutions they have proposed to remedy this. It concludes by discussing how this reflects broader problems concerning African participation in WTO, and puts forward some alternative proposals.

Equality and Inequality in the WTO Dispute Settlement (DS) System: Analysis of the GATT/WTO Dispute Data

This article explores the distributive aspects of the dispute settlement mechanism (DSM) of the World Trade Organization WTO. Even though the strictly binding dispute settlement (DS) system can operate in an unbiased way and thereby minimize power disparity among disputants, in general, the content of law on which the whole DS system is based is favorable to developed countries in the system. This study of the WTO DSM demonstrates that (1) the procedural/substantive dispute outcomes of the WTO are not significantly affected by power disparity between disputants (thus, enhancing the principles of “equality before the law” and “protecting the weak”), but that (2) the strict substantive provisions and the newly included provisions of the WTO agreements are advantageous to developed countries and disadvantageous to developing countries (thus, increased inequality in the content of the law). In order to understand the distributive consequences of the legal DSM, we need to combine an analysis of the operation of the legal body with an examination of the content of the law.

The Evolution of Japan's Aggressive Legalism

Japan's recent trade policy is sometimes characterised as ‘aggressive legalism’ in the sense that it aggressively utilises the multilateral trade rules embodied in the Marrakesh Agreement Establishing the World Trade Organisation in dealing with disputes with its trade partners. This policy may appear to be a marked departure from Japan's past practice of favouring bilateral, non‐legal settlement of trade disputes. Upon closer examination, however, while Japan has been moderately active in using the WTO dispute settlement process for resolving its trade disputes, it behaves more like a country that resorts to surgical strikes on selected targets (usually the United States) under a powerful cover of the European Community. Compared to Japan, Korea's attitude in the WTO is more aggressive. While the Japanese Ministry of Economy, Trade and Industry (METI) is not content with the status quo and is seeking to expand its aggressiveness in the WTO dispute settlement mechanism, it faces an uphill battle. One of the difficulties facing trade officials in Japan may be the lack of a national system for lodging WTO complaints, open to any citizens or firms, like Section 301 of the US Trade Act of 1974 or the European Trade Barriers Regulation. Nonetheless, in the historical context, Japan is far more aggressive than in the past in utilising the rules of the GATT/WTO to advance its national interests. It will never revert to the infamous practice of bilateralism and grey area measures.

Planes, Trains and Automobiles: The Impact of the WTO ‘Court’ on Canada in its First Ten Years

Observers interested in the nature and scope of judicial policy-making traditionally focused on the extent to which domestic courts shaped national policy arrangements. With the emergence of more robust international tribunals, however, many are raising questions about the degree to which foreign judges are influencing domestic legal regimes. This project addresses one corner of this debate by analysing the impact of the WTO ‘court’ on Canada. The legal challenges have provoked considerable controversy as the country has lost, either in whole or in part, each case brought against it. Moreover, there has been widespread public concern about these disputes as many have involved significant social issues. Yet despite the country’s successive defeats before the WTO ‘court’, the policy impact of the trade tribunal has been relatively modest. Contrary to suggestions, the WTO dispute settlement mechanism has not superimposed some form of neo-liberal order on the Canadian state via its judicial decision-making process.

The WTO Dispute Settlement Mechanism: Battlefield or Cooperation?

EU-US trade disputes have recently caught much attention, because they have involved lasting non-compliance coupled with WTO-authorized retaliation. A recent paper by Breuss (2004) shows that the outcome in most cases has probably involved economic damage on both sides. Does this testify to a general weakness, or even failure, of the WTO Dispute Settlement Mechanism? This paper develops a theoretical framework, based on the Bagwell-Staiger (2002) theory of the GATT/WTO, that helps us explain why the DSM might lead to mutually harmful non-compliance cum sanctions. If this happens, we should still not jump to concluding failure of the DSM. Interpreting the DSM as a political cooperation device, the framework allows us to identify conditions under which the outcome is efficient in political economy terms, even though it might involve economic harm on both sides. In addition to a better understanding of the empirical results reported by Breuss (2004), the framework also allows us to identify certain general weaknesses and flaws of the DSM that should be recognized when reviewing the Dispute Settlement Understanding in the Doha round negotiations.

WTO Safeguards and Trade Liberalization: Lessons from the Argentine Experience in the Footwear Industry

The footwear case provides an example of the complexities of WTO rules on the use of safeguards, and of the interaction of multilateral and regional processes of liberalization. As a result of Argentina's trade liberalization policies, footwear imports increased rapidly. The WTO DSB addressed these measures and as a consequence, Argentina had to dismantle most of them. The events support the following conclusions: - The jurisprudence of the WTO's Appellate Body, has created serious uncertainty as to when a country can use safeguards. This does not contribute to the political balance that is crucial when developing countries implement liberalization policies. - It is an error to negotiate ambiguous multilateral agreements on the expectation that the WTO Dispute Settlement mechanism will later clarify them. - An overvalued currency heightened the industry's problems. The decline in imports following the recent devaluation was more important than that following the implementation of earlier relief measures. - Mercosur Members should have created an adjustment-smoothing instrument.

WTO Safeguards and Trade Liberalization: Lessons from the Argentine Footwear Case

The footwear case provides an example of the complexities of WTO rules on the use of safeguards, and of the interaction of multilateral and regional processes of liberalization. As a result both of Argentina's unilateral liberalization and the removal of barriers within Mercosur, imports of footwear increased rapidly. As Mercosur provides no intra-regional safeguard mechanism, the government of Argentina responded by applying import relief and WTO safeguards against third countries. The WTO Dispute Settlement Body addressed these measures and as a consequence, Argentina dismantled most of them, leading to four main conclusions. First, the jurisprudence of the WTO's Appellate Body, has created serious uncertainty as to when a country can use safeguards. This does not contribute to the political balance that has to be maintained when developing countries implement trade liberalization programs; in fact, it detracts from this crucial goal. Second, it is an error to negotiate ambiguous multilateral agreements on the expectation that the WTO Dispute Settlement mechanism will clarify them. Third, an overvalued currency heightened the industry's problems. In the case of footwear, the decline in imports following the recent devaluation was more important than that following the implementation of earlier relief measures. Fourth, the political economy of liberalization also indicates the need for regional agreements to include adequate transition mechanisms that will facilitate adjustment to free trade and to maintain support for it.

Implementing the Kyoto Protocol without the USA: the strategic role of energy tax adjustments at the border

This article explores options for countries that have ratified the 1997 Kyoto Protocol to the UN Framework Convention on Climate Change and that intend to implement ambitious climate protection strategies – the ‘Kyoto coalition’ – to deal with possible comparative disadvantages vis-a-vis third parties, in particular industrialized countries that do not adhere to the Kyoto Protocol. Specifically, the article focuses on the instrument of border adjustments for energy taxes. We outline the rationale for such adjustments and examine in detail whether certain border adjustments for energy taxes would be permissible under world trade law, in particular the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures. We conclude that despite remaining ambiguity in both the legal provisions and the pertinent case law, border tax adjustments are under certain circumstances compatible with world trade law. Yet, given persisting legal uncertainty, it seems likely that affected members of the World Trade Organization would challenge such energy tax adjustments at the border before the WTO dispute settlement mechanism.