Bridges Weekly Trade News Digest • Volume 7 • Number 40 • 26th November 2003
DSU Review: Members React To Mexican Study
The WTO Dispute Settlement Body (DSB) met for a special (negotiating) session from 13-14 November, focusing on a study by Mexico that diagnosed some of the problems of the WTO Dispute Settlement Understanding (DSU). The Mexican paper highlighted three sets of problems related to compliance, access to the dispute settlement system and procedural issues. Members are currently undertaking a review of the DSU, scheduled to conclude by the end of May 2004 (see BRIDGES Weekly, 28 July 2003). According to the Mexican report, the review missed an end-May 2003 deadline because Members lacked focus.
Study identifies non-compliance as fundamental problem
Mexico circulated and presented the paper entitled "Diagnosis of the Problems Affecting the Dispute Settlement Mechanism: Some Ideas by Mexico" to Members for discussion at the 13-14 November meeting. The paper highlighted non-compliance with panel rulings as the most fundamental problem within the DSU. It noted that losses caused by non-compliance with rulings and procedural delays amounted to hundreds of millions of dollars each year. According to the paper, non-compliance problems occurred both when Members failed to ensure the conformity of their laws, regulations and administrative procedures with WTO obligations (compliance a priori), and when Members failed to withdraw measures found to be inconsistent with WTO provisions (compliance a posteriori).
Need to shorten DSU procedural timeframes highlighted
On procedural timeframes, the study noted that out of 77 cases where the WTO had found a Member to be in violation of WTO rules, immediate compliance had been secured only five times, with five cases being settled mutually. The average ‘reasonable period of time’ (RPT) to comply ran to 292 days. The study also pointed out that the average period of time between the establishment of a panel and the expiry of the reasonable period of time was 775 days, or over two years, which grew to 1507 days or over 4 years once the consultation period was included.
The report noted significant financial implications of the long delays, and cited the example of the "Ecuador-Bananas" dispute against the EU. This case translated into losses of USD 161 million during the RPT, which would increase to USD 428 million if counting the period after the establishment of a panel, or USD 832 million after the request for consultations.
The study stressed the need for the DSU to provide incentives for Members to comply as soon as possible. It highlighted the need for countries to obtain compensation or exercise retaliation at an early stage, the need for earlier arbitration on nullification and impairment, and the need to determine nullification or impairment retroactively. Some of these ideas reflected Mexico’s position as highlighted in a previous WTO submission (TN/DS/W/23, available at http://docsonline.wto.org, and BRIDGES Weekly, 20 November 2002).
Measures to enhance compliance
The Mexican study touched on compensation (for example, giving greater market access to the winning party of the dispute, or possibly monetary compensation), noting that compensation was provided for by Article 22.1 of the DSU Agreement. On collective retaliation (retaliation by more than one Member), the study pointed out that while collective retaliation was not authorised as such, in some cases more than one Member had been authorised to suspend concessions or obligations. In the cases, the Members involved were co-complainants.
In discussion, one Member noted that in cases where several co-complainants are involved, collective retaliation was not a problem as such. However, the level of retaliation had to be equivalent to the nullification and impairment of benefits for each party, and it was unclear whether Members could transfer the right of retaliation to another Member. A Mexican delegate acknowledged that the issue of collective retaliation was unclear, and relevant information was difficult to come by.
Developing countries fail to make use of DSU
The Mexican study noted that many developing countries and least developed countries (LDCs) were not taking recourse to the DSU. Disputes initiated by developed countries were far more frequent than those initiated by developing countries, and LDCs had never been engaged in dispute settlement. Not a single panellist so far had been appointed from an LDC, while a number came from developing countries. The study noted that neither financial aspects nor a lack of consideration of development issues were at the core of the problem of low developing country participation, but suggested the reasons had more to do with non-compliance and costly procedural delays. On special and differential treatment (S&D), Members (complainants or defendants) had invoked such provisions in 13.8 percent of cases examined by the study. According to the report, this finding contradicted the view of many LDCs, who had called for the evolution of a more "development-friendly" jurisprudence at the WTO (see BRIDGES Weekly, 17 October 2002).
Discussions of the report
According to trade sources, the report received a positive response from developing countries. One LDC delegate pointed out that some of the LDC concerns were not given due priority. He said that, contrary to the findings of the report, the high financial costs of dispute settlement were an important reason for LDCs not taking recourse to the DSB, though he agreed that non-compliance issues were the most important reason.
Echoing the LDC delegate’s views, an African trade delegate said that the lack of compliance, combined with pressures from powerful trading partners, were a major disincentive for LDCs to engage in dispute settlement cases. "The ends should justify the means and costs as well," he stated, adding that "…it is asking whether a measure will be implemented or not that gives me sleepless nights". He also noted that since LDCs already had significant access and privileges, there was little scope for disputes related to their trade. On compensation, he said any compensation should start at the consultation stage in order to offset trade losses incurred by African exporters. On collective retaliation, he noted the problems many African countries faced in becoming co-complainants and acting collectively, such as coordination problems, reliance on different products, bilateral pressure etc.
The DSU discussions continued on a list of questions regarding the pre-panel (consultation) stage that had been circulated by Chair Péter Balás (Hungary). The Chair also invited Members to continue point-by-point discussions and to submit textual amendments at the next and later meetings. The EC made an oral presentation highlighting issues related to sequencing, compensation and third-party rights. The EC felt that the chair’s text drafted in May was a good starting point for the negotiations (see BRIDGES Weekly, 4 June 2003).
The next meeting of the DSB special session is scheduled for 18-19 December.
ICTSD reporting; "Mexican Study Cites Non-compliance as Top Problem in WTO Dispute System," WTO REPORTER, 14 November 2003.
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