1.2.1. The general overview of the settlement system. The issue of dispute settlement was briefly analyzed in the previous section of the current study. Thus, dispute settlement was delineated as one of the core functions of the World Trade Organization (WTO). In the context of the present research, it should be reminded that the issue of dispute settlement is reflected in the problem statement, which is followed throughout the entire dissertation with the purpose to be verified.
To proceed further, the previous discussion revealed that dispute settlement is a very significant domain of the multilateral trading system. The foregoing discussion regarded dispute settlement primarily as a process. Nevertheless, the present section focuses on it as a system rather than a process. From the logical point of view, a system means a combination of interrelated structural elements that exist because of the connection between each other, whereas the term ‘process’ implies a sequence of correlated steps. Hence, it follows that the concept of ‘process’ reveals itself in dynamics, whereas a system manifests itself in statics.
In view of the above, it should be clarified that the approach to dispute settlement as a system will undoubtedly augment the findings already achieved concerning the one as a process.
When the preliminary issues have been clarified, it is prudently to focus on the WTO’s dispute settlement system. To start with, its system is considered to be very efficient and important. The importance of it lies in its effective structure and functioning. According to Article 3.2 of the Dispute Settlement Understanding, the dispute settlement system of the WTO is a core component in providing safety and predictability of the multilateral system of trade. Moreover, by signing the Agreement establishing the World Trade Organization, member-states have recognized that the adopted system of dispute settlement will assist in the process of preserving the entitlements and commitments of members under the international trade agreements.
However, according to the World Trade Organization, even the best international agreement loses its value and regulative force, if its obligations cannot be properly enforced, in case when one of the parties fails to comply with such duties. The previously mentioned position of the World Trade Organization leads to the inference that an effective system of dispute settlement enhances the practical value of the obligations incumbent on the signatories of an international agreement.
In addition, the justification of the WTO gives reasonable grounds to claim that the dispute settlement system is a system of enforcement, because the employment of the dispute settlement mechanism may be juxtaposed with the enforcement of contractual obligations.
To continue, the World Trade Organization (OMC) reinforces the practical value of its dispute settlement system by asserting that the current system has been adopted during the Uruguay Round of Multilateral Trade Negotiations. In other words, all member-states have agreed to comply with the provisions of the settlement system at the same moment, when the Agreement establishing the World Trade Organization was signed. That is, the establishment of the World Trade Organization coincides with the adoption of the dispute settlement system. In addition, a mental note should be made that the settlement system, which is capable to provide a timely and structured resolution of disputes, helps to prevent harmful effects of unsettled international trade conflicts.
If the practical appropriateness of the WTO’s dispute settlement system is taken into account, it should be purported that the first eight and a half years of the settlement system (from January 1995 to June 2003) resulted in 295 requests for consultations over that period. The statistics mentioned above makes evident that the system have been frequently used and trusted since the establishment of the World Trade Organization. Moreover, statistical data evinced that in 42% of cases (in 124 disputes), a developing member-state was a complainant. Furthermore, in one year, namely in 2001, developing country-members filed three quarters of the overall number of requests for consultations. This statistics means that more and more developing countries rely on the effectiveness of the WTO’s dispute settlement system.
The increasing interest of developing countries aiming to solve their conflicts in the framework of the WTO’s dispute settlement system may be explained by the attractiveness of the system and its furtherance in achieving individual objectives. According to the World Trade Organization, the above statistics substantiates the inference that, in general, the dispute settlement system functions successfully. Feasibly, the growing faith of developing countries in the system is incited by the diligent and unprejudiced work of the panel and the Appellate Body, which serve not only to settle the issue in question, but also to clarify the parties’ rights and obligations prescribed in the WTO’s legal documents. For instance, Article 3.2 of the Dispute Settlement Understanding clearly articulates that, among other things, the dispute settlement system of the World Trade Organization functions to clarify the existing prescriptions of the treaties in conformity with the interpretation of acts and rules in public international law.
After the general overview has been made, it is possible to reflect on the major disadvantages of the WTO’s dispute settlement system. In this light, it is interesting to note that the World Trade Organization does not contend that its settlement system is devoid of weaknesses. As a matter of fact, the system does manifest limitations and drawbacks. Thus, full dispute settlement is a considerably durable process, within which the complainant may suffer substantial economic losses.
To elaborate further, the system offers no ‘interim relief’, or, in other words, provisional measures, which may protect economic or trade interests of the successful complainant in the process of dispute settlement. Moreover, the advantage in dispute settlement does not guarantee that the winning complainant will not be awarded with any reimbursement for losses inflicted during the time prescribed to the respondent to implement the ruling, or will not get any compensation from the other party for its legal expenses.
In addition, it should be taken into consideration that not every member-state is capable to practically solve the problem of non-implementation by resorting to the suspension of obligations, which should be regarded as countermeasures taken by the prevailing member, or, in other words, the complainant’s entitlement to impose trade sanctions on the respondent that has declined to implement the ruling.
All things considered, the WTO’ dispute settlement system is not as perfect as sometimes it is considered to be.
1.2.2. Composition of the settlement system. When the preliminary analysis of the WTO’s dispute settlement system has been made, it is possible to start the in-depth exploration of its composition. Thus, the term ‘composition’ implies the combination of simpler constituents into a more complex structure. In other words, the composition of the WTO’s dispute settlement system means that the system consists of integral parts and elements, which conjunctively make it functional.
In its broad sense, the composition of the settlement system must be reduced to bodies and persons involved in the dispute settlement process. According to the World Trade Organization, the functioning of the dispute settlement process is only possible through the participation of the third parties and parties to a case, as well as through the operation of the panels of the Dispute Resolution Board, the WTO Secretariat, the Appellate Body, independent experts, arbitrators, and some specialized institutions.
In this connection, it should be pointed out that each structural element of the settlement system plays a unique role in its operation. Hence, it follows that the malfunction of one constituent may lead to the failure of the overall system. As far as the third parties and parties are concerned, it might be appropriate to note that the only participants in the dispute settlement system are the governments of WTO’s member-states, which can participate either as parties or as third parties. The uniqueness of the status of member governments lies in the fact that they are the only ones, which are entitled to trigger dispute settlement proceedings in the World Trade Organization. To all intents and purposes, the Dispute Settlement Understanding refers to a member initiating a dispute as a ‘complaining party’ or a ‘complainant’, whereas the opposite party is frequently titled as a ‘respondent’.
To elaborate further, the WTO’s bodies should be regarded as another bunch of actors in the field of dispute settlement proceedings. In this light, it should be claimed that the WTO’s legal documents differentiate a political institution, the Dispute Settlement Body (DSB), and independent ‘quasi-juridical’ establishments, such as panels, the arbitrators and Appellate Body. It is interesting to notice that the WTO considers the Dispute Settlement Body (DSB) to be a political institution, rather than a juridical one. Such approach implies that the DSB is not involved in the direct settlement of disputes between the parties through the application of law. To be more precise, the DSB is authorized to establish panels, adopt panel and Appellate Body reports, monitor the implementation of rulings and recommendations, and give permission to the suspension of an obligation under the WTO’s agreements. In addition, it is incumbent on the Dispute Settlement Body to refer the dispute to adjudication by establishing a panel.
To continue, the WTO Secretariat, coupled with the Director-General, is another body involved in the dispute settlement process. According to the Dispute Settlement Understanding, the Director-General of the WTO may officially offer good offices, conciliation or mediation with the purpose of furthering member-states to settle a dispute. In other words, the Director-General manages an alternative to adjudication ways of settling trade disputes between member-states. Besides, the administrative responsibilities of the Director-General include the appointment of arbitrators under Article 22 of the Dispute Settlement Understanding. According to the provisions of Article 6.10 and Article 22 of the DSU, the appointment of an arbitrator is an alternative to panellists. To sum up, the commitments of the Director-General are predominantly of alternative nature. That is, the Director-General is empowered to offer member-states various types of alternatives in settling disputes without recourse to panels and the Appellate Body.
As far as the WTO Secretariat is concerned, it should be elucidated that it reports to the Director-General, helps members settle disputes, offers special training courses, and provides complementary legal advice and assistance to developing member-states in respect of dispute settlement proceedings. Additionally, the WTO Secretariat offers its assistance to parties in forming panels by proposing nominations, and assists panels once they are established. Likewise, it is incumbent on the WTO’s Secretariat to provide administrative furtherance for the Dispute Settlement Board.
After the political and administrative bodies of the World Trade Organization have been explored, it might be appropriate to shed some light on ‘quasi-juridical’ institutions, which are directly involved in the settlement of conflicts between member-states. Thus, panels should be taken into consideration as quasi-juridical bodies, which are responsible for the adjudication of disputes between members in the first instance. As a rule, WTO’s panels are composed of three, and sometimes five, specialists nominated on an ‘ad hoc’ basis.
In view of the above, it should be construed that a WTO’s panel is similar to an arbitration tribunal. Nevertheless, WTO’s panels are established on an ‘ad hoc’ basis. In the context of arbitration, the ‘ad hoc’ principle means that a tribunal is formed exclusively for the settlement of one case. The same principle applies to WTO’s panels. According to the Dispute Settlement System Training Module, a panel established by the Dispute Settlement Body must be composed, because neither permanent panels, nor permanent panellists function in the framework of the World Trade Organization.
In contrast to panels, the Appellate Body is a permanent institution of seven members authorized to review the legal facets of reports issued by panels. To put it briefly, the Appellate Body is considered to be the final stage in the adjudicatory part of the dispute settlement system. The significance of it lies in its innovative nature. The previous dispute settlement system under GATT 1947 had no stage of appeal. Therefore, the introduction of the adjudicatory institution mentioned above should be recognized as one of the major novelties of the Uruguay Round of Multilateral Trade Negotiations. In the context of its functionality, it should be purported that the Appellate Body reviews disputed legal issues, and may uphold, reverse, or alter the panel’s ruling. In the augmentation of the Appellate Body’s functionality, there exists the Appellate Body Secretariat. The major obligations of the Secretariat consist in the provision of legal assistance and administrative support to the Appellate Body in order to ensure its independence.
In addition to panels and the Appellate Body, arbitrators may be involved in dispute settlement proceedings to adjudicate specific questions. Arbitrators function either as individuals or as groups. They may be helpful in situations, when the panel is not established, or when a party subject to retaliation may additionally request arbitration, if it objects to the rate or the essence of the suspension of the obligation proposed.
Apart from the above, it should be claimed that another group of supplementary actors in the domain of the WTO’s dispute settlement is represented by experts. They are frequently involved in proceedings, which deal with complex factual questions of technical or scientific nature, and require special knowledge and skills.
When all things are considered, it should be summarized that the WTO’s dispute settlement system is composed of various bodies, which conjunctively guarantee its intactness and integrity.
1.2.3. Functioning of the settlement system in theory. After the constituents of the WTO’s dispute settlement system have been examined, it is the right time to explore functioning capabilities of the system in practice. To all intents and purposes, the actors and bodies of the WTO’s dispute settlement system determine its dynamics. From the previous discussion, it is possible to grasp that the settlement system operates at a number of reciprocal stages. In other words, there are different stages of reviewing a dispute. Nonetheless, at all stages of dispute settlement, the World Trade Organization encourages all countries to consult each other in order to avoid the adjudication. Therefore, it is possible to discern the stage of adjudicative dispute settlement from the stages of dispute settlement ‘out of court’.
The premises mentioned above lead to the inference that the functional capability of the WTO’s dispute settlement system is twofold: adjudicative and non-adjudicative. In this light, it should be emphasized that the adjudicative nature of the system manifests itself particularly at the stage of the panel process.
As far as the panel process is concerned, it needs to be clarified that the process also consists of several interrelated stages. It is relevant to start the analysis of the process from the stage of consultation. It is comprehensively regulated in Article 4 of the Dispute Settlement Understanding. According to the DSU, the parties may enter into the stage of consultation, if a request for consultations is made in accordance with a specific agreement. The member submitting the request must reply to it within 10 days after the date of receipt. Furthermore, it is incumbent on member-states to enter into consultations in accordance with the legal principle of good faith. During the consultations, the parties lay special emphasis upon specific problems, which concern the interest of developing member-states. According to the World Trade Organization, the stage of consultation may last for 60 days.
To elaborate further, the complaining party may request the Dispute Settlement Body to establish a panel. According to the provisions of the Dispute Settlement Understanding, the request for establishing a panel must be submitted in a written form. Taking into consideration the aforementioned stage, it should be purported that the establishment of panels follows the stage of consultation. Therefore, in requesting the establishment of a panel, the complaining party must inform the Dispute Settlement Body whether consultations have taken place. Besides, the Dispute Settlement Understanding requires from the complainant to outline the legal basis of the disputed problem, as well as to identify the pertinent measures at issue.
The next stages of the functioning of the dispute settlement system should be regarded as terms of reference and the composition of a panel. At these stages, preparatory procedures, such as the determination of terms of reference and the composition of a panel, occur. These procedures must be finished in 20 days according to the prescriptions of the Dispute Settlement Understanding.
After the preliminary procedures have take place, the dispute comes to the stage of panel examination. As the case may be, the stage of panel examination is regulated by Article 20 and Article 12 of the Dispute Settlement Understanding. To put it briefly, the stage normally incorporates two meetings with the parties to the dispute and one meeting with third parties.
After the procedures of panel examination, the interim review stage takes place. In a broad sense, it may be characterised as a period in dispute settlement proceedings, within which the panel is obliged to formulate a descriptive part of its draft report. In view of the above, it should be construed that the descriptive part of the panel’s report includes sections with facts and pertinent arguments. The significance of this stage lies in the possibility of a party to bring a written request for the panel to revise precise facets of the interim report, if certain mistakes and inconsistencies are found. Thus, the entitlement to request the panel to review the report helps to ensure its preciseness before the issuance of the final version.
At the next stage, the final report of the panel is drafted. In case of urgency, it must be issued within three months from the composition of the panel. Otherwise, the final report must be issued within six months from the establishment of the panel. As an exception, it may be written within nine months, if the reasons for the delay are explained to the Dispute Settlement Body.
The next stage of the dispute settlement process may be either the adoption of the panel’s report by the Dispute Settlement Body or the appellate review. In the context of the aforesaid stages, it should be ascertained that the final report must be adopted at a DSB meeting within sixty days after it is circulated to members, unless a party to the conflict officially notifies the Dispute Settlement Board that it is going to appeal the report, or the DSB makes a decision by consensus not to adopt it.
As far as the stage of the appellate review is concerned, it should be clarified that the permanent Appellate Body is established by the Dispute Settlement Body, and these are parties to the dispute only, not third parties, that are entitled to appeal the panel report. Despite this, third parties may be provided with the opportunity to deliver speeches and make written submissions before the Appellate Body, if expressing a substantial interest in the disputed matter, it have notified the Dispute Settlement Body beforehand. Comparing the legal status of third parties in the WTO’s dispute settlement system with that in the domestic adjudicative system, it is possible to notice that the former provides third parties with less preferable legal entitlements than the latter. In most domestic legal systems, third parties are entitled to appeal decisions of courts, whereas the WTO agreements deprive them of such an important right.
Returning back to the analysis of the appellate review, it is necessary to point out that the appeal must be limited to matters of law evaluated in the panel report and legal interpretations elaborated by the panel. It means that a party to the dispute has no right to refer to new legal documents or additional legal norms, which have not been covered in the panel report. In addition, the party is entitled to substantiate its position only with legal interpretations of the panel. It means that no other legal doctrines or interpretations are taken into consideration by the Appellate Body.
Finalizing the review, it should be added that the panel process also includes post-procedural stages, such as implementation, retaliation and cross-implementation. Despite the secondary position in the ladder of the panel process, the aforementioned stages play a crucial role in the practical implementation and enforcement of the WTO’s agreements in cases when the decision of the panel has been already made.