2. Chapter 3 Dispute Settlement System and Trade Policy Review Mechanism 14/21-SEP-2006

3. Dispute Settlement System-1 I. Overview (New Features) Overview (New Features) II. Rules and Procedure of Dispute Settlement Rules and Procedure of Dispute Settlement III. Case Study: The Timetable In Practice Case Study: The Timetable In Practice IV. Types of complaints Types of complaints

4. Based on clearly-defined rules. Settle disputes through consultation if possible Principles: equitable, fast, effective, mutually acceptable. Legal framework: GATT, Art 22-23 DSU Special rules and procedure of individual WTO agreement I Overview

6. GATT, Art 22

7. GATT,Art 23

8. DSU

9. II. Rules and Procedure of WTO DS Applied to disputes under WTO Agreement, Multilateral Agreements on Trade in Goods, GATS, TRIPS, DSU, TPRM and Plurilateral Trade Agreements Conflict of Rules and procedure of DSU and special or additional rules procedure of individual agreements: latter one prevail DSU 1 Principle of Application ( ) Art 1.1-1.2, Appendix I of DSU,Appendix I

10. DSU Appendix I

11. II. Rules and Procedure of DS Consultation Panel examination Appellate review Implementation ( In case of non-implementation- Retaliation Compensation( ) Suspend Concession( ) 2 Procedures for Dispute Settlement ( ) Art 4-22, Appendix III of DSU, How long to settle a dispute

12. DSB 4 1 2 3 10 30 10 30 4 DSB Article 4 Consultations 1.Members affirm their resolve to strengthen and improve the effectiveness of the consultation procedures employed by Members. 2.Each Member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of any covered agreement taken within the territory of the former. 3.If a request for consultations is made pursuant to a covered agreement, the Member to which the request is made shall, unless otherwise mutually agreed, reply to the request within 10 days after the date of its receipt and shall enter into consultations in good faith within a period of no more than 30 days after the date of receipt of the request, with a view to reaching a mutually satisfactory solution. If the Member does not respond within 10 days after the date of receipt of the request, or does not enter into consultations within a period of no more than 30 days, or a period otherwise mutually agreed, after the date of receipt of the request, then the Member that requested the holding of consultations may proceed directly to request the establishment of a panel. 4.All such requests for consultations shall be notified to the DSB and the relevant Councils and Committees by the Member which requests consultations. Any request for consultations shall be submitted in writing and shall give the reasons for the request, including identification of the measures at issue and an indication of the legal basis for the complaint.

13. Consultation (Art. 4 of DSU) Necessary step to solve dispute Timetable: One makes a request the other one reply within 10 days after the receipt enter into ~ within 30 days after the receipt reaching a mutually satisfactory solution within 60 days after the receipt Requirements: All such request for ~ shall be notified to the DSB, relevant Council and Committees Submitted in writing, giving reasons for request, identification of measures at issue and indication of the legal basis for the complaint. Third member(has substantial trade interest):may join If fail, the complaining party may request the establishment panel

14. Process of Panel (Art 6-16) Article 6 Establishment of Panels 1. If the complaining party so requests, a panel shall be established at the latest at the DSB meeting following that at which the request first appears as an item on the DSB's agenda, unless at that meeting the DSB decides by consensus not to establish a panel. 2. The request for the establishment of a panel shall be made in writing. It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. In case the applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference. 6 1 DSB DSB DSB 2

15. 1.Establishment of panel (Art 6) Make a request in the first DSB meeting, and establish a panel in the next DSB meeting. The request shall be in writing 2.Power of panel (Art 7) To examine the matter, make findings, and make the recommendation or rulings. 3.Composition of panel (Art 8) Be composed of Well-qualified and individuals Be independent of members Normally 3 panalists, or 5 if request Developing country The panel -to be continued

16. The panel 4.Procedures (Art 12 and Appendix 3) Before the first hearing ( ) Each side presents its case in writing to the panel First hearing( ) The complaining country,responding country and those have interest in the case make their case. Rebuttals ( ) The country involved summit written rebuttals before the meeting and present oral arguments at second panel s meeting (complained party first) Experts ( ) If scientific an d technical matters are raised First Draft ( ) The descriptive (factual and argument) section of its report to two sides(for 2 weeks comment). It does not include findings and conclusions. Interim report ( ) A report including findings and conclusions to 2 sides. Then 1 week to ask for a review Review ( ) – must not exceed 2 week. Final report ( ) Submitted to 2 sides, and 3 weeks later, circulated to all WTO members. The report becomes a ruling

17. The panel Process-1

18. Appellate Review

19. 1.Establishment of Appellate Body Standing body hearing appeals from panel cases.(by DSB) Be composed of 7 persons (comprising of recognized authority with demonstrated expertise in law, international trade, and so on) 2.Power of AB Just concerned with issues of law covered in panel report and legal interpretation developed by the panel 3.Points of the appeal Only disputed parties may appeal, not third party. Not exceed 60 days (from appeal to AB circulates its report) The Appellate Review( (Art 17)

20. 4. Procedures Be confidential The AB report shall be drafted based on the information provided and the statements made, without presence of parties ( ) Adoption of AB report Shall be adopted by DSB within 30 days following the circulation (unless the DSB decides by consensus not to adopt it) The Appellate Review( (Art 17)

21. The process of Appellate Body-2

22. DUS 21 Implementation (

23. Implementation (Art 21.3) At a DSB meeting held within 30 days of the reports adoption, the member must state its intention to implement panel or appeals report. Prompt implement or given areasonable period of time If non-implementation, whats the next? If a panel finds a complaint is justified, its report typically recommends that the offending member cease its violation of GATT rules, such as by withdrawing the offending measures. After a report is adopted, DSB will monitor whether or not its recommendations are implemented.

24. Compensation and suspend concession (Art 22)

25. Compensation (Art 22.2 of DSU) Implementing Member does not achieve full compliance finally Enter into negotiation with the complaining party Not monetary payment, but offering a benefit (tariff reduction-equivalent to benefit nullified and impaired) No mutually acceptable compensation agreed Countermeasure by the prevailing Member

26. Suspend concessions ( ) Art 22.2 of DSU Complaining side Asking DSB for permission to impose trade sanction ( suspend concessions )concessions Authorization granted by DSB Complaining party is allowed to impose countermeasures If after 20 days, no satisfactory compensation is agreed ( within 30 days of the expiry of the reasonable period of time unless there is a reverse consensus) (That would be inconsistent with the WTO agreement, in response to a violation or non-violation nullification or impairment.) Retaliation

27. Concessions or obligation Commitments and obligation, such as tariff reduction or other obligations, which Member have made in multilateral trade negotiations and are bound under GATT 1994

28. Debate on Retaliation Resulting the complainant responding to a WTO-inconsistent trade barrier with another trade barrier, which is contrary to the liberalization philosophy underlying WTO. Measures erecting trade barriers come at price, which are always economically harmful for both disputed parties. To enforce recommendations and rulings Has the effect of rebalancing mutual trade benefits Inducing compliance Temporary:must be revoked once compliance achieved last resort: prefer to constructive means

29. Rules governing the suspend concession (Art22.4 of DSU) The level of suspend concession The level nullification or impairment equivalent Same sector same agreement other agreement (Art 22.3 of DSU)

30. Question1 A panel has found Tramontana s internal taxes on cigarettes to be inconsistent with Article III of GATT 1994. The panel report was adopted by the DSB in February 1996. In February 1997, Patria noted that Tramontana had still not adjusted its tax system to conform to Article III. What are Patria s options? Patria has no options, it must wait for Tramontana to implement the DSB s recommendations and rulings. Following the expiration of the reasonable period of time for implementation, Tramontana must enter into negotiations about compensation, and after 20 days, Patria may proceed to the suspension of obligations. Having waited a whole year, Patria can now apply unilateral countermeasures against Tramontana by impeding imports from that origin.

31. Question2 WTO Member Y has just won a GATT dispute against WTO Member Z involving bananas. The reasonable period of time has expired without full implementation, and there is no agreement between the parties on compensation. What options for retaliation exist for Y? Y must retaliate in the area of bananas only. Y may retaliate in the area of other goods, but it can only resort to the suspension of GATT 1994 obligations. Y can suspend obligations in any goods sector, and under any multilateral agreement on trade in goods. If Y considers that it is not practical or effective, and the circumstances are serious enough, it may seek retaliation under the GATS) or the TRIPS Agreement. Y may suspend obligations in any goods sector, and under any multilateral agreement on trade in goods only.

32. How long to Settle a dispute?

33. III Case Study -- Time Target/ actual period DateAction (0 = start of case) -5 years 1990US Clean Air Act amended -4 months Sep-94US restricts gasoline imports under Clean Air Act 0 60 days 23-Jan-95Venezuela complains to Dispute Settlement Body, asks for consultation with US +1 month 24-Feb-95Consultations take place. Fail. +2 months 25-Mar-95Venezuela asks Dispute Settlement Body for a panel +2½ months30 days 10-Apr-95Dispute Settlement Body agrees to appoint panel. US does not block. (Brazil starts complaint, requests consultation with US.) +3 months 28-Apr-95Panel appointed. (31 May, panel assigned to Brazilian complaint as well) +6 months 9 months (target is 6-9) 10-12 July and 13-15 July 1995 Panel meets +11 months 11-Dec-95Panel gives interim report to US, Venezuela and Brazil for comment +1 year 29-Jan-96Panel circulates final report to Dispute Settlement Body

34. III Case Study -- Time Target/ actual period DateAction (0 = start of case) +1 year, 1 month 21-Feb-96US appeals +1 year, 3 months60 days 29-Apr-96Appellate Body submits report +1 year, 4 months30 days 20-May-96Dispute Settlement Body adopts panel and appeal reports +1 year, 10½ months 3-Dec-96US and Venezuela agree on what US should do (implementation period is 15 months from 20 May) +1 year, 11½ months 9-Jan-97US makes first of monthly reports to Dispute Settlement Body on status of implementation

35. On 23 January 1995, Venezuela complained to the Dispute Settlement Body that the United States was applying rules that discriminated against gasoline imports, and formally requested consultations with the United States. Just over a year later (on 29 January 1996) the dispute panel completed its final report. (By then, Brazil had joined the case, lodging its own complaint in April 1996. The same panel considered both complaints.) The United States appealed. The Appellate Body completed its report, and the Dispute Settlement Body adopted the report on 20 May 1996, one year and four months after the complaint was first lodged. The United States and Venezuela then took six and a half months to agree on what the United States should do. The agreed period for implementing the solution was 15 months from the date the appeal was concluded (20 May 1996 to 20 August 1997). The case arose because the United States applied stricter rules on the chemical characteristics of imported gasoline than it did for domestically- refined gasoline. Venezuela (and later Brazil) said this was unfair because US gasoline did not have to meet the same standards it violated the national treatment principle and could not be justified under exceptions to normal WTO rules for health and environmental conservation measures. The dispute panel agreed with Venezuela and Brazil. The appeal report upheld the panels conclusions (making some changes to the panels legal interpretation). The United States agreed with Venezuela that it would amend its regulations within 15 months and on 26 August 1997 it reported to the Dispute Settlement Body that a new regulation had been signed on 19 August. http://www.wto.org/english/res_e/webcas_e/webcas_e.htm

36. Types of complaints Article XXIII:1 of GATT 94 --- Nullification or Impairment 1. If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of a. the failure of another contracting party to carry out its obligations under this Agreement, or b. the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement, or c. the existence of any other situation, the contracting party may, with a view to the satisfactory adjustment of the matter… 2 alternative options on which a complaint may reply Next page

37. Violation complaint- Article XXIII:1(a) The failure of another member to carry out its obligation resulting in nullification or impairment of a benefit Non-violation complaint- Article XXIII:1(b) (c) The application of a member by a Member The existence of a benefit accruing under the applicable agreement The nullification or impairment of a benefit as a result of the application of the measure. Types of complaints As a result, the dispute settlement System can be invoked

38. Dispute Settlement System-2 I. Legal effect of panel and appellate body reports and DSB recommendations and rulings II. Dispute Settlement without recourse to Panels and the Appellate Body-Good offices, Conciliation and Mediation, Arbitration III. Legal issues arising in WTO dispute settlement proceedings IV. Developing countries in WTO dispute settlement V. Evaluation of the WTO dispute settlement system: results to date