by Mary Louise Malig
Read the publication in full here
Breaking down the Dispute Settlement Mechanism
Bully capitalism versus the Appellate Body
The interim dysfunctional way of settling disputes and the reform proposals
The barely functioning and non-functional pillars of the WTO
Back in 1995, when the World Trade Organization (WTO) had just started, it was the talk of the town. This was a multilateral trade, rules-based organization that had the legal power to ensure that those trade rules were enforced. The WTO prides itself as being rules- based and unique in that they can enforce decisions through their own Dispute Settlement Understanding (DSU) that includes the Dispute Settlement Mechanism (DSM), and also includes the Appellate Body (which is similar to a Supreme Court). The WTO can brag about this mechanism because they are the only multilateral organization that has legally binding agreements and with it, the ability to sanction a Member state if it did not comply. The WTO was the dream come true of the neoliberals and a nightmare for many who were already suffering the impacts of neoliberal policies.
Fast forward to November 30, 2020, and the term of the last sitting Appellate Body member ended. The seven seats of the Appellate Body were all now empty. Truth be told, since the rules state that there should be at least three Appellate Body Members to hear a dispute, the Appellate Body stopped functioning as early as 2018 as it had no quorum.
Even though the WTO insists it is held up by three pillars: 1) monitoring trade agreements 2) providing a platform, space and support for negotiations on new issues and trade deals 3) settling disputes using their legal mechanism; many believe that the ability to settle disputes and with that, enforce rules, through sanctions and other such penalties which can include changing a sovereign state’s laws; therein lies the true power of the DSM and the WTO itself. There are clear cut consequences for Members if they remain non- compliant with WTO rules, the losing Party either has to provide compensation with the agreement of the complainant, or it may face retaliatory measures such as trade sanctions.
The legally binding nature of the WTO trade agreements and the existence of the DSM and Appellate Body cannot be understated. This is power. The climate talks results for example, even if done multilaterally under the United Nations, is nowhere near binding. The United Nations Framework on Climate Change (UNFCCC) cannot enforce it as the promises to save the planet are voluntary. This is the same in various other issues such as the environment, biodiversity, and many more. Free trade above everything else is more than a slogan, it is a reality.
However, fast forward to present and there still is no Appellate Body and each day that goes by without it, so do chips at the credibility and power of the WTO. So, 27 years later, the WTO is again the talk of the town. But not in a favorable light. The numerous predictions by trade analysts that hitting the DSM and having no Appellate Body are going to be the death of the WTO, or at the very least, a significant crippling. Nevermind the fact that in those 27 years, the WTO pillar on negotiations has only had one accomplishment, the Bali Package or more importantly, the Trade Facilitation Agreement. The very first agreement the WTO has produced since transforming from the General Agreement on Tariffs and Trade (GATT) Uruguay Round in 1995.
This ability to enforce losing Parties/Member countries to change a WTO non-compliant national or local rule/ law and or pay compensation or suffer retaliatory measures by the winning Party/Member country, is what makes the WTO DSM a very powerful tool and makes the WTO a very powerful organization. Not only does it have legally binding trade agreements but more importantly, it has the power to enforce these agreements upon sovereign states. This power and rulings were bound to gain disgruntled Member states, including the United States, and that is exactly what has caused the WTO Dispute Settlement Mechanism to be currently in a dysfunctional state and for the Appellate Body to have zero jurists.
Before going further into the discussion on the problems and current status of the process of settling disputes in the WTO, it is best to get a good grasp of what and how the DSM works. The legal text establishing the process of settling disputes was agreed, finalized and included in the legal texts that established the WTO. It is in the set of legal texts agreed on at the end of the Uruguay Round that transformed the GATT into the WTO and also decisions taken at the Ministerial Meeting at Marrakesh in April 1994. These texts are called the “Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts”  and includes “The Marrakesh Agreement Establishing the World Trade Organization” as well as all the other legal texts of the 60 plus agreements. The text relevant to the settlement of disputes is called “Understanding on Rules and Procedures Governing the Settlement of Disputes” or what has been referred to as the DSU for short. The text lays out coverage, application, administration, procedure, the panels, the Appellate Body, the dispute settlement body, timeframes, recommendations for rulings, compensation, the suspension of concessions, arbitration, special procedures for least developed countries and the role of the WTO Secretariat. The 60 plus agreements under the WTO is under the jurisprudence of the Dispute Settlement. These legal texts together agreed and adopted facilitated the transition from the GATT into the WTO. Most important to note is that there is a legal text on settling disputes in this package and as such was also adopted and made a legal instrument to ensure that the agreements are enforced and that there is a process to be followed for settling any disputes involving these agreements and modalities.
The WTO has always and continues to pride itself as a rules-based organization. They have rules and the Member countries follow them. This aims to make trade flows run smoothly and predictably. The legal rules for dispute settlement that is the DSU is included in the legal texts of the WTO precisely as a way to demonstrate that the agreements are taken seriously and that breaches to the rules will be met with consequences. A Member country can submit a complaint if another Member country is deemed to be implementing non-WTO compliant ways. To ensure that the process of settling the dispute is trusted to be fair, there is a process laid out.
 The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts https://www.wto.org/english/res_e/publications_e/legal_texts_e.htm
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