The WTO’s dispute settlements mechanism is all but dead

Headline : The WTO’s dispute settlements mechanism is all but dead

Details :

In News:

  • The World Trade Organization’s (WTO’s) dispute settlement mechanism is on the brink of collapsing.

 

About: World Trade Organisation (WTO)

  • In 1948, the General Agreement on Tariffs and Trade (GATT) came in as an ad hoc and provisional mechanism to enable international trade and to establish multilateral rules for the settlement of trade disputes.
  • More than four decades after GATT, the U.S. drove the agenda to establish the World Trade Organisation (WTO) which came into existence in 1995.
  • It’s an organization for liberalizing trade. It operates a system of trade rules.
  • It’s a forum for governments to negotiate trade agreements.
  • It’s a place for governments to settle trade disputes.

Dispute settlement at WTO:

  • Resolving trade disputes is one of the core activities of the WTO.
  • A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
  • The WTO has one of the most active international dispute settlement mechanisms in the world.
  • Dispute Settlement Body:
    • Settling disputes is the responsibility of the Dispute Settlement Body, which consists of all WTO members.
    • The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider the case.
    • As the panel’s report can only be rejected by consensus in the Dispute Settlement Body, its conclusions are difficult to overturn.
  • Appellate Body:
    • The appeal to the DSB ruling is heard by the Appellate Body (AB) and a report is submitted to the DSB.
    • The appeal is heard by three member panel of the permanent Appellate Body (consisting of a total  seven-members) set up by the Dispute Settlement Body and broadly representing the range of WTO membership.
    • Once the AB report is adopted by the DSB, the member concerned is obliged to implement the findings and recommendations within a reasonable period of time.
  • Enforcement of dispute settlement:
    • In case of reluctance or refusal to implement of the recommendations by a party, the affected member may seek enforcement by requesting the DSB to authorise retaliatory measures.
    • The DSB may allow retaliation in the same sector (goods, services or intellectual property rights) or even authorise cross-retaliation, but it must be at the same level as the measure complained against.
    • The process of enforcement is, thus, controlled multilaterally to ensure fairness of treatment towards all concerned.

 

Over the years, US has criticized the Appellate Body and called for changes:

  • Over the years, the US in particular found itself on the wrong side of these developments on a few occasions.
    • The US is frustrated at the AB’s rulings against its anti-dumping duties against foreign products, as well as AB’s relaxations for Chinese state-owned enterprises (SOEs).
  • The US believes the WTO is biased against it, and has criticised it for being “unfair”.
  • The US President Trump and others also believe the WTO has encouraged China — helping it to strengthen its economy at the cost of other nations including the US.

US caused AB membership to shrink:

  • The US administration, hoping to raise attention to these issues, began blocking the he appointments of new members, and the reappointments of members who had completed their four-year tenures.
  • For more than two years, the US has refused to allow vacancies at AB to be filled up.
  • As a result, the strength of the AB (which can have seven members) has already been reduced to three.

 

News Summary:

AB will be rendered disfunctional:

  • The AB will become dysfunctional as two more members retired on December 10, 2019. This leaves AB with only 1 member and the requirement of a quorum of three members can no longer be met.

What it means:

  • AB becoming disfunctional would mean that dispute resolution would not progress beyond the panel process and there would be no final decision in disputes raised before the body.
  • The importance of AB can be seen from the fact that between 1995 and 2014, around 68% of the 201 panel reports adopted were appealed.
  • It could also signal the demise of the 24-year-old WTO itself, as the system for settling disputes has been the organisation’s most important function.
  • Once the appellate body becomes non-functional, with no avenue for appeal, there could be the risk of arbitration proceedings against any member at the wrong end of the panel report.
  • Shortage of members was already impacting AB:
    • The strength of the AB has already been reduced to three in last year or two.
    • The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years. The backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.
    • The three members have been proceeding on all appeals filed since October 1, 2018 (as minimum of three members must hear any appeal).

Impact on India:

  • India has so far been a direct participant in 54 disputes, and has been involved in 158 as a third party.
  • India has been impacted directly as a result of this situation of shortage of AB membership.
  • Case of dispute with Japan:
    • Earlier, the panel had found that India had acted “inconsistently” with some WTO agreements in a dispute with Japan over certain safeguard measures that India had imposed on imports of iron and steel products.
    • India had then notified the Dispute Settlement Body of its decision to appeal certain issues of law and legal interpretations in December 2018.
    • However, India’s appeal could not be heard due to the inability to staff the AB to hear the dispute.
  • The situation could be difficult for India, which is facing a rising number of dispute cases, especially on agricultural products.
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