Dispute Settlement Mechanism of WTO

  • Category
    Economy
  • Published
    25th May, 2019

Issue

Context:

  • The World Trade Organization’s (WTO’s) dispute settlement mechanism is going through a “crisis”: the body is struggling to appoint new members to its understaffed Appellate Body that hears appeals in trade.
  • Unless the issue is resolved, the body could become defunct, and countries locked in international trade disputes will be left with no forum for recourse.

About:

Recent issues in WTO

  • Over the last few years, the membership of the body has shrivelled to just three persons instead of the required seven.
  • Many analysts have said that Buenos Aires summit has highlighted the existential crisis faced by WTO especially during a time when emerging economies have adopted assertive and developed economies have adopted protectionist attitude.
  • This is because the United States, which believes the WTO is biased against it, has been blocking appointments of new members and reappointments of some members who have completed their four-year tenure.
  • Two members will complete their tenures in December 2019, leaving the body with just one member.
  • At least three people are required to preside over an appeal, and if new members are not appointed to replace the two retiring ones, the body will cease to be relevant.
  • The understaffed appeals body has been unable to stick to its 3 month deadline for appeals filed in the last few years, and the backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.

WTO’s dispute settlement mechanism

  • The Appellate Body, set up in 1995, is a standing committee of seven members that presides over appeals against judgments passed in trade-related disputes brought by WTO members.
  • With over 500 international disputes brought to the WTO and over 350 rulings issued since 1995, the organisation’s dispute settlement mechanism is one of the most active in the world, and is the highest authority in these matters.
  • Countries involved in a dispute over measures purported to break a WTO agreement or obligation can approach the Appellate Body if they feel the report of the panel set up to examine the issue needs to be reviewed on points of law.
  • It can uphold, modify, or reverse the legal findings of the panel that heard the dispute.
  • The WTO’s dispute settlement procedure is seen as being vital to ensuring smooth international trade flows. It has so far issued 152 reports. The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.

Analysis

Why US is blocking appointments?

  • The U.S. has been long proven isolationist and has never truly embraced the idea of a multilateral system in which its leadership could be contested.
  • The U.S. drove the agenda to establish the WTO purely to pursue its own commercial interests. It is not willing to be judged by an independent multilateral quasi-judicial institution.

Related Concerns over politicisation of the WTO appointment and reappointment process

  • S. and China have imposed counter-productive duties, accusing each other of harming their domestic interests. WTO has not been able to prevent the trade wars despite best efforts and has been labelled as a talk shop. There is concern that China may be on its way to having a permanent seat.
  • This negates the core non-discriminatory principle of WTO.

India’s Disputes in WTO

  • India has so far been a direct participant in 54 disputes, and has been involved in 158 disputes as a third party.
  • In February 2019, the body said it would be unable to staff an appeal in a dispute between Japan and India over certain safeguard measures that India had imposed on imports of iron and steel products.

The dispute panel between India and Japan had found that India had acted “inconsistently” with some WTO agreements and it had notified the Dispute Settlement Body of its decision to appeal certain issues of law and legal interpretations in December 2018.

Implications

  • With the Appellate Body unable to review new applications, there is already great uncertainty over the WTO’s dispute settlement process.
  • If the body is declared non-functional in December, 2019, countries may be compelled to implement rulings by the panel even if they feel that gross errors have been committed.
  • Countries may refuse to comply with the order of the panel on the ground that it has no avenue for appeal. It will run the risk of facing arbitration proceedings initiated by the other party in the dispute.
  • This also does not bode well for India, which is facing a rising number of dispute cases, especially on agricultural products.
  • In the backdrop of rising trade tension between the U.S. and China, the overall weakening of the WTO framework could have the effect of undoing over two decades of efforts to avoid protectionism in global trade.
  • This WTO crisis might well be the final battle to retain control over a Western-centric organisation.
  • The time has come for the emerging economies and the developing world to have a greater say in how to shape multilateralism and its institutions.

Way Forward

  • Usually, new appointments to the Appellate Body are made by a consensus of WTO members, but there is also a provision for voting where a consensus is not possible.
  • The group of 17 least developed and developing countries, including India, that have committed to working together to end the impasse at the Appellate Body can submit or support a proposal to this effect, and try to get new members on the Appellate Body by a majority vote.
  • But, this may be an option of the last resort, as all countries fear unilateral measures by the U.S. as a consequence of directly opposing its veto.

Learning Aid

Practice Question:

WTO’s power to settle disputes is what makes it more important than the earlier GATT.” In light of this statement explain why U.S. is blocking appointments and what can be done to resolve this problem especially highlighting the role of India?

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