10 things the WTO can do.
https://www.wto.org/english/thewto_e/whatis_e/10thi_e/10thi00_e.htm
Is the WTO Dispute Settlement System Fair?
https://www.cfr.org/article/wto-dispute-settlement-system-fair
Sandford, Iain, and Maree TanKiang. 2011. "Resolving and defusing trade
disputes: the potential for creativity in the Australia-European Union relationship."
(attached)
Grimmett, Jeanne J. 2010. "Dispute Settlement in the World Trade Organization:
An Overview" (attached)
Bown, Chad and Cara Reynolds. 2015. “Trade flows and trade
disputes.” (attached)
Walters, Jeffrey. 2011. "Power in WTO Dispute Settlement." Journal of Third
World Studies 28, no. 1: 169-183. (attached)
Trade Disputes
INTRODUCTION
This week's lesson centers on trade disputes within the context of the World Trade Organization (WTO).
Our focus this week is on the rules established by the dispute settlement mechanisms of the WTO.
However, as practitioners of international negotiation, you're more likely to run into a private commercial
dispute. The reading below explains the nature and types of dispute settlement procedures available for
individuals, corporations, and governments. The readings include Sandford and TanKing's "Resolving and
Defusing Trade Disputes" (2011), a journal article about trade disputes in general. The Grimmett (2011)
and Walters (2011) articles are about the WTO specifically. The Vaillant 2014 article focuses on the EUMercosur negotiations.
World Trade Organization and Polarity
How the WTO Works:
To understand how disputes are organized under the World Trade Organization
(WTO), check out their subject catalog of ongoing disputes. Also take a look at
the interactive map of where most of the disputes occur throughout the world,
noting the bright red color within the industrialized states.
Although we're focusing on trade disputes, it's important to remember that trade
negotiations are by nature multi-party - including a combination of
governments, corporations, small business, associations, and individuals in any
dispute. Johan Galtung underscores the principles of multipolarity. As
international relations scholars, we have the benefit of drawing from our own
discipline to understand how negotiations in trade agreements are structured.
Galtung explains a framework of six civilizations and how their approach to
conflict impacts their agreements.
Dispute Settlements
“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 authors of these agreements are the member
governments themselves – the agreements are the outcome of negotiations among members. Ultimate
responsibility for settling disputes also lies with member governments, through the Dispute Settlement
body” (WTO 2016).
Good Offices is a term used in public and private international law. The term
means low-key actions by a third party in an effort to bring parties in a dispute
toward a dialogue or negotiation. There may be informal consultations to help
these efforts – offers of transportation, security, locations for meetings, or factfinding (US Institute of Peace 2016). Remembering our ascending scale of
conflict resolution techniques, good offices is a relatively more passive role
than a mediator or conciliator. An example would be the government of
Switzerland offering to hold talks on the Iran nuclear negotiations in 2015.
Private corporations may also avail of good offices from other corporations or
countries.
SOUTH AFRICA
DS500: Provisional Anti-Dumping Duties on Portland Cement from Pakistan
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds500_e.htm
Complainant: Pakistan
CHINA
DS501: Tax Measure Concerning Certain Domestically Produced Aircraft
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds501_e.htm
Complainant: USA
COLOMBIA
DS502: Measure Concerning Imported Spirits
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds502_e.htm
Complainant: EU
Advantages of Arbitration Work in Trade
Disputes
Many private and commercial contracts include arbitration clauses in order to avoid lengthy court
proceedings. Benefits of arbitration that we have discussed in Week 4 include an impartial third-party to
settle the dispute; an agreement that is enforceable in a court of law; confidentiality of the proceedings;
expertise of the arbitrator; and limited discovery (OSEC 2016). In addition, arbitration is less expensive
than litigation, is faster less adversarial. With arbitration, parties who have an ongoing relationship are less
threatened as both can bring their dispute to the arbitrator without sacrificing their long-term relationship.
REASONS TO ARBITRATE IN TRADE DISPUTES
•
•
•
•
•
•
•
•
Impartiality
Enforceability
Confidentiality
Expertise of the arbitrator on the issue
Limited discovery
Expense
Brevity
Impact on long-term relationships
Rule-oriented Approach to Dispute Resolution
Disputes, as we have seen, may be settled through a number of methods in the international environment.
We've focused on negotiations to this point, but in trade disputes, the United States takes a more rule-based
approach rather than a strict negotiations approach. Rachel Brewster argues it's a little odd that the United
States would prefer rule-based negotiations. "Power has its privileges, and one is the ability to control
international negotiations. Powerful states are advantaged by negotiation-based approaches . . . because
they have the resources to resolve individual disputes on favorable terms" (Brewster 2006, 251). But in
designing the WTO, the United States pushed for a trade court "over the resistance of other major
industrialized governments" (Brewster 2006, 251).
The United States has been both a winner and loser in rule-based negotiations at the WTO in the past
twenty years. "It has successfully challenged European Union restrictions on American imports but failed
in a challenge to the structure of the photographic film market in Japan. In addition, the United States has
lost several cases concerning its own laws, including complaints against its tax system and environmental
regulations" (Brewster 2006, 251-52).
Under the old system of the General Agreement on Tariffs and Trade (GATT), set up after World War II
with the Bretton Woods System, a panel system developed by default because there was no dispute
resolution system (Brewster 2006, 254). The overall impact in the way disputes are handled under the
WTO means two things for the United States: temporary violations are easier because the contracting
parties agree to avoid retaliation and the issue can be resolved in the trade court. But permanent violations
are more costly because sanctions are a certain outcome (Brewster 2006, 259).
Consider the case of the United States and Brazil in the "cotton wars" - one of the first test cases of the new
rules-based approach. Listen to the C-SPAN episode after the WTO announced its ruling against the United
States in 2004 (25 min.).
Conclusion
The World Trade Organization settles international trade disputes, which could involve a number of
governments or other organizations. Many agreements include arbitration clauses, which provide a number
of benefits, such as confidentiality, impartiality, or expertise of the arbitrator. Additionally, the WTO aims
to settle disputes fairly. For instance, the US established a rule-based rather than negotiation-based dispute
resolution method in an effort to level the advantages of powerful states.
Cornell University ILR School
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Dispute Settlement in the World Trade Organization (WTO): An
Overview
Jeanne J. Grimmett
Congressional Research Service
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Dispute Settlement in the World Trade Organization (WTO): An Overview
Abstract
[Excerpt] Dispute settlement in the World Trade Organization (WTO) is carried out under the WTO
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). In effect since
January 1995, the DSU provides for consultations between disputing parties, panels and appeals, and
possible retaliation if a defending party fails to comply with a WTO decision by an established deadline.
Automatic establishment of panels, adoption of panel and appellate reports, and authorization of
requests to retaliate, along with deadlines and improved multilateral oversight of compliance, are aimed
at producing a more expeditious and effective system than had existed under the General Agreement on
Tariffs and Trade (GATT). To date, 405 complaints have been filed, approximately half involving the United
States as complainant or defendant.
Expressing dissatisfaction with WTO dispute settlement results in the trade remedy area, Congress, in the
Trade Act of 2002, directed the executive branch to address dispute settlement in WTO negotiations. WTO
Members have been negotiating DSU revisions in the currently stalled Doha Development Round of trade
negotiations but no final agreement on the DSU has been reached. Use of the DSU has revealed
procedural gaps, particularly affecting the compliance phase of a dispute. These include a failure to
coordinate procedures for requesting retaliation with procedures for tasking a WTO panel with
determining whether a defending Member has complied in a case and the absence of a procedure for
withdrawing trade sanctions imposed by a complaining Member where the defending Member believes it
has fulfilled its WTO obligations. As a result, disputing Members have entered into bilateral agreements
permitting retaliation and compliance panel processes to progress on an agreed schedule and have
initiated new dispute proceedings aimed at removing retaliatory measures.
Where a U.S. law or regulation is at issue in a WTO case, the adoption by the WTO of a panel or Appellate
Body report finding that the measure violates a WTO agreement does not give the report direct legal
effect in this country; thus federal law is not affected until Congress or the executive branch, as the case
may be, takes action to remove the offending measure. Where a restrictive foreign trade practice is at
issue, Section 301 of the Trade Act of 1974 provides a mechanism by which the United States Trade
Representative (USTR) may challenge the measure in a WTO dispute settlement proceeding and
authorizes the USTR to take retaliatory action if the defending Member has not complied with the
resulting WTO decision. Although Section 301 was challenged in the WTO on the ground that it requires
the USTR to act unilaterally in WTO-related trade disputes in violation of DSU provisions requiring resort to
multilateral WTO dispute settlement, the United States was ultimately found not to be in violation of its
DSU obligations.
H.R. 496 (Rangel) would create an Office of the Congressional Trade Enforcer that would, inter alia,
investigate restrictive foreign trade practices in light of WTO obligations and call on the USTR to pursue
WTO cases where alleged violations are found; express congressional dissatisfaction with WTO
decisions; and restrict implementation of a revised methodology for calculating dumping margins
adopted by the Commerce Department in 2007 in response to adverse WTO decisions. S. 363 (Snowe)
would grant the U.S. Court of International Trade exclusive jurisdiction to review de novo certain USTR
determinations under Section 301 of the Trade Act of 1974, which may in some cases involve the
initiation and conduct of WTO disputes, and would amend various Section 301 authorities themselves. S.
1466 (Stabenow) and S. 1982 (Brown) would establish mechanisms under the Trade Act of 1974
requiring the USTR to identify particularly harmful foreign trade practices and, where appropriate, to
initiate WTO cases to remedy these practices.
Keywords
World Trade Organization, WTO, dispute settlement, legislation, negotiation, public policy, trade,
commerce, globalism
Comments
Suggested Citation
Grimmett, J. J. (2010). Dispute settlement in the World Trade Organization (WTO): An overview.
Washington, DC: Congressional Research Service.
http://digitalcommons.ilr.cornell.edu/key_workplace/723
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/key_workplace/723
Dispute Settlement in the World Trade
Organization (WTO): An Overview
Jeanne J. Grimmett
Legislative Attorney
April 8, 2010
Congressional Research Service
7-5700
www.crs.gov
RS20088
CRS Report for Congress
Prepared for Members and Committees of Congress
Dispute Settlement in the World Trade Organization (WTO): An Overview
Summary
Dispute settlement in the World Trade Organization (WTO) is carried out under the WTO
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). In effect
since January 1995, the DSU provides for consultations between disputing parties, panels and
appeals, and possible retaliation if a defending party fails to comply with a WTO decision by an
established deadline. Automatic establishment of panels, adoption of panel and appellate reports,
and authorization of requests to retaliate, along with deadlines and improved multilateral
oversight of compliance, are aimed at producing a more expeditious and effective system than
had existed under the General Agreement on Tariffs and Trade (GATT). To date, 405 complaints
have been filed, approximately half involving the United States as complainant or defendant.
Expressing dissatisfaction with WTO dispute settlement results in the trade remedy area,
Congress, in the Trade Act of 2002, directed the executive branch to address dispute settlement in
WTO negotiations. WTO Members have been negotiating DSU revisions in the currently stalled
Doha Development Round of trade negotiations but no final agreement on the DSU has been
reached. Use of the DSU has revealed procedural gaps, particularly affecting the compliance
phase of a dispute. These include a failure to coordinate procedures for requesting retaliation with
procedures for tasking a WTO panel with determining whether a defending Member has complied
in a case and the absence of a procedure for withdrawing trade sanctions imposed by a
complaining Member where the defending Member believes it has fulfilled its WTO obligations.
As a result, disputing Members have entered into bilateral agreements permitting retaliation and
compliance panel processes to progress on an agreed schedule and have initiated new dispute
proceedings aimed at removing retaliatory measures.
Where a U.S. law or regulation is at issue in a WTO case, the adoption by the WTO of a panel or
Appellate Body report finding that the measure violates a WTO agreement does not give the
report direct legal effect in this country; thus federal law is not affected until Congress or the
executive branch, as the case may be, takes action to remove the offending measure. Where a
restrictive foreign trade practice is at issue, Section 301 of the Trade Act of 1974 provides a
mechanism by which the United States Trade Representative (USTR) may challenge the measure
in a WTO dispute settlement proceeding and authorizes the USTR to take retaliatory action if the
defending Member has not complied with the resulting WTO decision. Although Section 301 was
challenged in the WTO on the ground that it requires the USTR to act unilaterally in WTO-related
trade disputes in violation of DSU provisions requiring resort to multilateral WTO dispute
settlement, the United States was ultimately found not to be in violation of its DSU obligations.
H.R. 496 (Rangel) would create an Office of the Congressional Trade Enforcer that would, inter
alia, investigate restrictive foreign trade practices in light of WTO obligations and call on the
USTR to pursue WTO cases where alleged violations are found; express congressional
dissatisfaction with WTO decisions; and restrict implementation of a revised methodology for
calculating dumping margins adopted by the Commerce Department in 2007 in response to
adverse WTO decisions. S. 363 (Snowe) would grant the U.S. Court of International Trade
exclusive jurisdiction to review de novo certain USTR determinations under Section 301 of the
Trade Act of 1974, which may in some cases involve the initiation and conduct of WTO disputes,
and would amend various Section 301 authorities themselves. S. 1466 (Stabenow) and S. 1982
(Brown) would establish mechanisms under the Trade Act of 1974 requiring the USTR to identify
particularly harmful foreign trade practices and, where appropriate, to initiate WTO cases to
remedy these practices.
Congressional Research Service
Dispute Settlement in the World Trade Organization (WTO): An Overview
Contents
Background ................................................................................................................................1
WTO Dispute Settlement Understanding .....................................................................................1
Steps in a WTO Dispute..............................................................................................................3
Consultations (Article 4) .......................................................................................................3
Establishing a Dispute Panel (Articles 6, 8) ...........................................................................3
Panel Proceedings (Articles 12, 15, Appendix 3) ...................................................................4
Adoption of Panel Reports/Appellate Review (Articles 16, 17, 20)........................................4
Implementation of Panel and Appellate Body Reports (Article 21) ........................................5
Compliance Panels (Article 21.5) ..........................................................................................5
Compensation and Suspension of Concessions (Article 22) ...................................................5
Use of Multilateral Dispute Settlement Procedures ......................................................................7
Compliance Issues ......................................................................................................................7
“Sequencing” ........................................................................................................................7
Removal of Retaliatory Measures..........................................................................................7
WTO Dispute Settlement and U.S. Law ......................................................................................9
Legal Effect of WTO Decisions.............................................................................................9
Section 301 of the Trade Act ............................................................................................... 10
th
111 Congress Legislation ........................................................................................................ 12
Contacts
Author Contact Information ...................................................................................................... 12
Congressional Research Service
Dispute Settlement in the World Trade Organization (WTO): An Overview
Background
From its inception in 1947, the General Agreement on Tariffs and Trade (GATT), signed by the
United States and ultimately by a total of 128 countries, provided for consultations and dispute
resolution, allowing a GATT Party to invoke GATT dispute settlement articles if it believes that
another Party’s measure, whether violative of the GATT or not, caused it trade injury. Because the
GATT did not set out a dispute procedure with great specificity, GATT Parties developed a more
detailed process including ad hoc panels and other practices. The procedure was perceived to
have certain deficiencies, however, among them a lack of deadlines, a consensus decision-making
process that allowed a GATT Party against whom a dispute was filed to block the establishment
of a dispute panel and the adoption of a panel report by the GATT Parties as a whole, and laxity
in surveillance and implementation of panel reports even when reports were adopted and had the
status of an official GATT decision.
Congress made reform of the GATT dispute process a principal U.S. goal in the GATT Uruguay
Round of Multilateral Trade Negotiations, begun in 1986 and concluded in 1994 with the signing
of the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement). The
WTO Agreement requires any country that wishes to be a WTO Member to accept all of the
multilateral trade agreements negotiated during the Round, including the General Agreement on
Tariffs and Trade 1994, an updated version of the GATT adopted in 1947, as well as the
Understanding on Rules and Procedures Governing the Settlement of Disputes, applicable to
disputes arising under virtually all WTO agreements.
The Uruguay Round package of agreements not only carries forward original GATT obligations,
such as according goods of other parties nondiscriminatory treatment, not placing tariffs on goods
that exceed negotiated or “bound” rates, generally refraining from imposing quantitative
restrictions such as quotas and embargoes on imports and exports, and avoiding injurious
subsidies, but also expands on these obligations in new agreements such as the Agreement on
Agriculture, the Agreement on the Application of Sanitary and Phytosanitary Measures, the
Agreement on Antidumping, and the Agreement on Subsidies and Countervailing Measures.
Congress approved and implemented the WTO Agreement and the other agreements negotiated in
the Uruguay Round in the Uruguay Round Agreement Act, P.L. 103-465. The agreements entered
into force on January 1, 1995.
WTO Dispute Settlement Understanding
The Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)
continues past GATT dispute practice, but also contains features aimed at strengthening the prior
system. 1 The DSU provides for integrated dispute settlement under which the same rules apply to
1
The text of the DSU, panel and Appellate Body reports, and information on the WTO dispute process are available at
http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm. WTO disputes are listed and summarized by the WTO
Secretariat in its “Update of WTO Dispute Settlement Cases,” available at the WTO website, above. Information on
WTO disputes involving the United States, including the text of U.S. written submissions to WTO panels, may be
found at the USTR website, at http://www.ustr.gov/trade-topics/enforcement. For the status of current cases in which
the United States has been successfully challenged, see CRS Report RL32014, WTO Dispute Settlement: Status of U.S.
Compliance in Pending Cases, by Jeanne J. Grimmett.
Congressional Research Service
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Dispute Settlement in the World Trade Organization (WTO): An Overview
disputes under virtually all WTO agreements, subject to any special or additional rules in an
individual agreement.
The WTO Dispute Settlement Body (DSB), created under the DSU and consisting of
representatives of all WTO Members, administers WTO dispute settlement proceedings. While
the DSB ordinarily operates by consensus (i.e., without objection), the DSU reverses past
consensus practice at fundamental stages of the process. Thus, unless it decides by consensus not
to do so, the DSB will establish panels; adopt panel and appellate reports; and, where WTO
rulings have not been implemented and if requested by a prevailing party, authorize the party to
impose a retaliatory measure. The DSU also sets forth deadlines for various stages of the
proceedings and improves multilateral monitoring of the implementation of adopted rulings.
Given that panel reports would otherwise be adopted automatically, WTO Members have a right
to appeal a panel report on legal issues. The DSU creates a standing Appellate Body to carry out
this added appellate function. The Appellate Body has seven members, three of whom serve on
any one case.
Dispute settlement under the WTO is primarily Member-driven, that is, it is up to the parties to a
dispute to decide whether or not to take particular actions available to them, e.g., to request a
panel if consultations fail, to request authorization to impose countermeasures against a noncomplying member, or to impose such measures even if the DSB has authorized them. As stated
in Article 3.7 of the DSU, the preferred outcome of a dispute is “a solution mutually acceptable to
the parties and consistent with the covered agreements.” Absent this, the primary objective of the
process is withdrawal of a violative measure, with compensation and retaliation being avenues of
last resort.
As of the date of this report, 405 complaints have been filed under the DSU, with approximately
one-half of these resulting in the establishment of a panel. In some of these proceedings, however,
the panel process was discontinued due to a settlement of the dispute or for other reasons. To date,
131 original panel reports have been publicly circulated. Some panels have also issued an
additional report or reports under Article 21.5 of the DSU determining whether the defending
Member complied in a particular dispute. About two-thirds of the original panel reports were
appealed.
Approximately one-half of the 405 WTO complaints involve the United States as complaining
party or defendant. The United States Trade Representative (USTR) manages U.S. participation
and is the chief representative of the United States in the WTO, including in WTO disputes.2
The DSU was scrutinized by WTO Members under a Uruguay Round Declaration, which called
for completion of a review within four years after the WTO Agreement entered into force (i.e., by
January 1999). Members did not agree on any revisions in the initial review and continued to
negotiate on dispute settlement issues during the current WTO Doha Development Round of
multilateral trade negotiations, doing so on a separate track permitting an agreement to be
adopted apart from any overall Doha Round accord. In 2008, the chairman of the dispute
settlement negotiations prepared a consolidated draft legal text based mainly on Member
proposals, which Members agreed to use in their negotiations.3 The United States has proposed
2
Trade Act of 1974, P.L. 93-618, § 141(c)(1)(C),(D), 19 U.S.C. § 2171(c)(1)(C),(D). See also Uruguay Round
Agreements Act, P.L. 103-465, §§ 123, 127, 129, 19 U.S.C. § 3533, 3537, 3538.
3
Special Session of the Dispute Settlement Body, Report by the Chairman to the Trade Negotiations Committee,
(continued...)
Congressional Research Service
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Dispute Settlement in the World Trade Organization (WTO): An Overview
such revisions as greater Member control over the process, guidelines for WTO adjudicative
bodies, and increased transparency, e.g., open meetings and timely access to submissions and
final reports.4 Other Member proposals include, inter alia, a permanent roster of panelists,
enabling the Appellate Body to remand decisions to panels for further proceedings, rules for
sequencing and the termination of retaliatory measures (see below), tightened time frames,
enhanced third-party rights, and special treatment for developing country disputants.5
Steps in a WTO Dispute
Following are the stages in a DSU proceeding, with the applicable DSU articles for each:
Consultations (Article 4)
The DSU permits a WTO Member to consult with another Member regarding “measures affecting
the operation of any covered agreement taken within the territory” of the latter. If a WTO
Member requests consultations with another Member under a WTO agreement, the latter Member
must enter into consultations with the former within 30 days.6
If the dispute is not resolved within 60 days, the complaining party may request a panel. The
complainant may request a panel before this period ends if the other Member has failed to enter
into consultations or if the disputants agree that consultations have been unsuccessful.
Establishing a Dispute Panel (Articles 6, 8)
A panel request, which must be made in writing, must “identify the specific measures at issue and
provide a brief summary of the legal basis for the complaint sufficient to present the problem
clearly” (Art. 6.2). Under GATT and now WTO dispute settlement practice, a Member may
challenge a measure of another Member “as such,” “as applied,” or both. 7 An “as such” claim
challenges the measure independent of its application in a specific situation and, as described by
(...continued)
TN/DS/23 (December 5, 2008).
4
See, e.g., WTO documents TN/DS/W/79 (July 13, 2005), TN/DS/W/82 (Oct. 24, 2005), TN/DS/W/82/Add.1 (Oct. 25,
2005), as corrected, and TN/DSW/86 (Apr. 21, 2006). See also documents posted on the USTR website, at
http://www.ustr.gov/trade-topics/enforcement/us-proposals-wto-dispute-settlement-understanding-negotiations.
5
For further information on proposals, see Institute of International Economic Law, DSU Review, at
http://www.law.georgetown.edu/iiel/research/projects/dsureview/synopsis.html.
6
Once the WTO is notified that a request for consultations has been made, the dispute will be assigned a number.
Disputes are numbered in chronological order. The prefix WT/DS, followed by the assigned number, is then used to
designate WTO documents issued in connection with the dispute. For example, the pending dispute between the United
States and China, China—Measures Affecting Trading Rights and Distribution Services for Certain Publications and
Audio Entertainment Products is DS363, with the U.S. request for consultations sent to China on August 10, 2007,
numbered WT/DS363/1, and the WTO Appellate Body report issued on December 21, 2009, numbered
WT/DS363/AB/R.
7
Appellate Body Report, United States—Anti-dumping Act of 1916, paras. 60-61, WT/DS136/AB/R, WT/DS162/AB/R
(Aug. 28, 2000).
Congressional Research Service
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Dispute Settlement in the World Trade Organization (WTO): An Overview
the WTO Appellate Body, seeks to prevent the defending Member from engaging in identified
conduct before the fact.8
If a panel is requested, the DSB must establish it at the second DSB meeting at which the request
appears as an agenda item, unless it decides by consensus not to do so. Thus, while a defending
Member may block the establishment of a panel the first time the complaining Member makes its
request at a DSB meeting, the panel will be established, virtually automatically, the second time
such a request is placed on the DSB’s agenda. While DSB ordinarily meets once a month, the
complaining Member may request that the DSB convene for the sole purpose of considering the
panel request. Any such meeting must be held within 15 days after the complaining Member
requests that the meeting be held.
The panel is ordinarily composed of three persons. The WTO Secretariat proposes the names of
panelists to the disputing parties, who may not oppose them except for “compelling reasons” (Art.
8.6). If there is no agreement on panelists within 20 days from the date that the panel is
established, either disputing party may request the WTO Director-General to appoint the panel
members.
Panel Proceedings (Articles 12, 15, Appendix 3)
After considering written and oral arguments, the panel issues the descriptive part of its report
(facts and argument) to the disputing parties. After considering any comments, the panel submits
this portion along with its findings and conclusions to the disputants as an interim report.
Following a review period, a final report is issued to the disputing parties and later circulated to
all WTO Members. A panel must generally provide its final report to disputants within six
months after the panel is composed, but may take longer if needed; extensions are usual in
complex cases. The period from panel establishment to circulation of a panel report to WTO
Members should not exceed nine months. In practice, panels have been found to take more than
13 months on average to publicly circulate reports.9
Adoption of Panel Reports/Appellate Review (Articles 16, 17, 20)
Within 60 days after a panel report is circulated to WTO Members, the report is to be adopted at a
DSB meeting unless a disputing party appeals it or the DSB decides by consensus not to adopt it.
Within 60 days of being notified of an appeal (extendable to 90 days), the Appellate Body (AB)
must issue a report that upholds, reverses, or modifies the panel report. The AB report is to be
8
Appellate Body Report, United States—Sunset Review of Anti-Dumping Measures on Oil Country Tubular Goods
from Argentina, para. 172, WT/DS268/AB/R (Nov. 29, 2004). The Appellate Body further described “as such” claims
as follows:
By definition, an “as such” claim challenges laws, regulations, or other instruments of a Member
that have general and prospective application, asserting that a Member’s conduct—not only in a
particular instance that has occurred, but in future situations as well—will necessarily be
inconsistent with that Member’s WTO obligations. In essence, complaining parties bringing “as
such” challenges seek to prevent Members ex ante from engaging in certain conduct. The
implications of such challenges are obviously more far-reaching than “as applied” claims.
9
See, e.g., Henrik Horn & Petros C. Mavroidis, The WTO Dispute Settlement System 1995-2006: Some descriptive
statistics, at 28-29 (Mar. 14, 2008), at http://siteresources.worldbank.org/INTRES/Resources/469232-1107449512766/
DescriptiveStatistics_031408.pdf.
Congressional Research Service
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Dispute Settlement in the World Trade Organization (WTO): An Overview
adopted by the DSB, and unconditionally accepted by the disputing parties, unless the DSB
decides by consensus not to adopt it within 30 days after circulation to Members. The period of
time from the date the panel is established to the date the DSB considers the panel report for
adoption is not to exceed nine months (12 months where the report is appealed) unless otherwise
agreed by the disputing parties.
Implementation of Panel and Appellate Body Reports (Article 21)
In the event that the WTO decision finds the defending Member has violated an obligation under
a WTO agreement, the Member must inform the DSB of its implementation plans within 30 days
after the panel report and any AB report are adopted. If it is “impracticable” for the Member to
comply immediately, the Member will have a “reasonable period of time” to do so. The Member
is expected to implement the WTO decision fully by the end of this period and to act consistently
with the decision after the period expires. 10 Compliance may be achieved by withdrawing the
WTO-inconsistent measure or, alternatively, by issuing a revised measure that modifies or
replaces it.11
Under the DSU, the “reasonable period of time” is: (1) that proposed by the Member and
approved by the DSB; (2) absent approval, the period mutually agreed by the disputants within 45
days after the report or reports are adopted by the DSB; or (3) failing agreement, the period
determined by binding arbitration. Arbitration is to be completed within 90 days after adoption of
the reports. To aid the arbitrator in determining the length of the compliance period, the DSU
provides a non-binding guideline of 15 months from the date of adoption. Arbitrated compliance
periods have ranged from six months to 15 months and one week. The DSU envisions that a
maximum 18 months will elapse from the date a panel is established until the reasonable period
of time is determined.
Compliance Panels (Article 21.5)
Where there is disagreement as to whether a Member has complied—i.e., whether a compliance
measure exists, or whether a measure that has been taken is consistent with the WTO decision in
the case—either disputing party may request that a compliance panel be convened under Article
21.5. A compliance panel is expected to issue its report within 90 days after the dispute is referred
to it, but it may extend this time period if needed. Compliance panel reports may be appealed to
the WTO Appellate Body and both reports are subject to adoption by the DSB. 12
Compensation and Suspension of Concessions (Article 22)
If the defending Member fails to comply with the WTO decision within the established
compliance period, the prevailing Member may request that the defending Member negotiate a
compensation agreement. If such a request is made and agreement is not reached within 20 days
10
E.g., Report of the Appellate Body, United States—Measures Relating to Zeroing and Sunset Reviews, Recourse to
Article 21.5 of the DSU by Japan, paras. 153-158, WT/DS322/AB/RW (Aug. 18, 2009).
11
Id. para. 154.
12
As of the date of this report, there have been 29 compliance panel proceedings, 13 of which involved the United
States. Nineteen of the 29 panel reports were appealed, including 11 appeals by the United States.
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after the compliance deadline expires, or if negotiations have not been requested, the prevailing
Member may request authorization from the DSB to retaliate, i.e., suspend concessions or
obligations owed the non-complying Member under a WTO agreement.
Generally, a Member should first try to suspend concessions or obligations in the same trade
sector as the one at issue in the dispute (Art. 22.3(a)). If this is “not practicable or effective,” the
Member may then seek to suspend concessions in another sector under the same WTO agreement
(Art. 22.3(b)). If, however, suspending concessions in other sectors under the same agreement is
not “practicable or effective” and “the circumstances are serious enough,” the Member may seek
to suspend concessions or obligations under another WTO agreement, or “cross-retaliate” (Art.
22.3(c)).
Retaliation most often involves the suspension of GATT tariff concessions, i.e., the imposition of
tariff surcharges, on selected products from the non-complying Member. In some cases, however,
the non-compliant Member may not be a major exporter of goods to the prevailing Member or
some or all of the goods that are exported are considered to be critical to the prevailing Member’s
economy. In such case, if firms of the non-compliant Member are active service providers or
exercise significant intellectual property rights in the prevailing Member’s territory, the prevailing
Member may seek to suspend market access obligations under the General Agreement on Trade in
Services (GATS) or obligations under the Agreement on Trade-Related Aspects of Intellectual
Property Rights (Agreement on TRIPS).
The DSB is to grant a retaliation request within 30 days after the compliance deadline expires
unless it decides by consensus not to do so, or the defending Member requests that the retaliation
proposal be arbitrated. Depending on the contents of the proposal, the defending Member may
object to the level of the proposed retaliation, i.e., that it is not equivalent to the level of trade
injury in the dispute, claim that DSU principles and procedures for requesting cross-retaliation
have not been followed, or both.13 Once requested, arbitration is automatic and is to be completed
within 60 days after the compliance period ends. An arbitral decision is considered final.
After the arbitral decision is issued, the prevailing party may request that the DSB approve its
proposal, subject to any modification by the arbitrator. The prevailing Member is not required to
request authorization, however, nor is the Member required to do so by a given date if it chooses
to pursue such a request. If imposed, retaliation is permitted to remain in effect only until the
offending measure is removed or the disputing parties otherwise resolve the dispute.
13
See Decision by the Arbitrator, United States—Subsidies on Upland Cotton, Recourse to Arbitration by the United
States under Article 22.6 of the DSU and Article 4.21 of the SCM Agreement, paras. 5.10-5.236, WT/DS267/ARB/1
(Aug. 31, 2009), for a recent arbitral analysis of a request to cross-retaliate. In response to U.S. non-compliance in
Brazil’s challenge of U.S. cotton subsidies, Brazil sought authorization to suspend concessions under the Agreement on
Trade-Related Aspects of Intellectual Property Right and the General Agreement on Trade in Services, arguing, as
required under the DSU, that suspending concessions on goods alone was not “practicable or effective” and that the
circumstances in the case were “serious enough” to permit it to do so. The arbitrator ultimately allowed Brazil to crossretaliate, but required that a variable annual threshold tied to the level of U.S. imports into Brazil be exceeded before
Brazil could exercise this option.
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Use of Multilateral Dispute Settlement Procedures
Article 23 of the DSU requires that WTO Members invoke DSU procedures in disputes involving
WTO agreements and that they act in accordance with the DSU (i.e., not unilaterally) when
determining if another Member has violated a WTO agreement, determining a date by which the
Member must comply with a WTO decision, and taking any retaliatory action against a noncomplying Member. Whether U.S. trade remedy law, specifically Section 301 of the Trade Act of
1974, requires the United States to act in violation of Section 23 of the DSU was at issue in an
early WTO case, United States—Sections 301-310 of the Trade Act of 1974, discussed below.
Compliance Issues
“Sequencing”
Although many WTO rulings have been satisfactorily implemented, difficult cases have tested
DSU implementation articles, highlighting deficiencies in the system and prompting suggestions
for reform. For example, gaps in the DSU have resulted in the problem of “sequencing,” which
first manifested itself in 1998-1999 during the compliance phase of the successful U.S. challenge
of the European Union’s banana import regime. Article 22 allows a prevailing party to request
authorization to retaliate within 30 days after a compliance period ends, while Article 21.5
provides that disagreements over the existence or adequacy of compliance measures are to be
decided using WTO dispute procedures, including resort to panels. A compliance panel’s report is
due within 90 days after the dispute is referred to it and may be appealed. The DSU does not
integrate an Article 21.5 procedure into the 30-day Article 22 deadline, nor does it expressly state
how compliance is to be determined so that a prevailing party may pursue action under Article 22.
Absent the adoption of multilateral rules on the matter, disputing parties have entered into ad hoc
procedural agreements in individual disputes.
Removal of Retaliatory Measures
The DSU is also silent on how authorized retaliation is to be terminated in the event a defending
Member believes that it has complied in a dispute. This issue has been the subject of United
States - Continued Suspension of Obligations in the EC—Hormones Dispute (DS320), a dispute
initiated by the European Union (EU)14 against the United States in 2004 for continuing to
maintain increased, i.e., 100% ad valorem, tariffs on EU goods first imposed in 1999 in retaliation
for the EU’s failure to comply with the adverse WTO ruling on the EU’s ban on hormone-treated
beef. The EU also initiated a separate case against Canada on the same basis.15 The Appellate
14
As of December 1, 2009, “European Union” replaced “European Communities” as the official name of this WTO
Member. The terms European Communities and EC still appear in older WTO materials, including panel and Appellate
Body reports, bilateral procedural agreements in particular disputes, and communications to the WTO Dispute
Settlement Body. Except for references to any such older WTO documents or other governmental materials using this
name, this report uses “European Union” or the acronym “EU” in the report text or notes regardless of the time period
being discussed. For further information, see European Union or Communities?, at http://www.wto.org/english/
thewto_e/countries_e/european_union_or_communities_popup.htm.
15
Canada—Continued Suspension of Obligations in the EC-Hormones Dispute, WT/DS321.
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Dispute Settlement in the World Trade Organization (WTO): An Overview
Body and modified panel reports in the underlying beef hormone case, EC -Hormones,16 found
that an EU ban on imports of meat and meat products from cattle produced from six specific
growth-promotion hormones violated the Agreement on the Application of Sanitary and
Phytosanitary Measures (SPS Agreement); the reports were adopted by the WTO in February
1998.
Claiming that a 2003 European Union Directive rendered it WTO-compliant, the EU argued that
the defending Members, by maintaining their increased tariffs on EU products, were violating the
following WTO obligations: (1) the GATT most-favored-nation article; (2) the GATT prohibition
on tariff surcharges; and (3) various DSU provisions, including Article 23, which requires WTO
Members to invoke WTO dispute settlement for disputes arising under WTO agreements and
precludes certain unilateral actions in trade disputes, and Article 22.8, which permits sanctions to
be imposed only until the defending Member’s WTO-inconsistent measures have been removed
or the dispute is mutually resolved.
In separate panel reports issued March 31, 2008, the WTO panel found that the EU was
maintaining bans on certain hormones without a sufficient scientific basis in violation of the SPS
Agreement, and that United States and Canada had breached Article 23 requirements to resort to
WTO dispute settlement and to refrain from unilateral actions by (1) not initiating a WTO
proceeding to resolve the EU compliance issue and (2) determining unilaterally that the EU was
still in violation of the EC - Hormones decision. The panel also found, however, that to the extent
that the challenged EU measure had not been removed, the United States and Canada had not
violated Article 22.8, which requires that sanctions be removed once the offending measure is
withdrawn.17 The panel noted that it had functioned similarly to a compliance panel for the sole
purpose of determining whether Article 22.8 was violated and, because it did not have jurisdiction
to make a definitive determination in this regard, it suggested that the United States and Canada
initiate a compliance panel proceeding against the EU under Article 21.5 in order to comply with
their DSU obligations and to promptly resolve the dispute.
The Appellate Body, in separate reports issued October 16, 2008, reversed the panel’s findings
that the U.S. and Canada were in breach of the DSU as well as the panel’s findings that the EU
was still in violation of the SPS Agreement. 18 Because the Appellate Body could not complete the
analysis needed to determine whether the contested EU measure had been withdrawn, however, it
recommended that the parties initiate an Article 21.5 compliance panel proceeding to resolve their
disagreement as to whether the EU is in compliance with the EC—Hormones decision and thus
whether the U.S. and Canadian countermeasures have a legal basis. The AB and modified panel
reports were adopted November 14, 2008.
16
European Communities—Measures Concerning Meat and Meat Products (Hormones), WT/DS26 (complaint by
United States); European Communities—Measures Affecting Livestock and Meat (Hormones), WT/DS48 (complaint by
Canada).
17
Panel Report, United States - Continued Suspension of Obligations in the EC—Hormones Dispute, WT/DS320/R
(Mar. 31, 2008); Panel Report, Canada - Continued Suspension of Obligations in the EC—Hormones Dispute,
WT/DS321/R (Mar. 31, 2008). At the request of the disputing parties, panel proceedings in the case were opened to the
public via closed-circuit TV broadcast at the WTO, this being the first time that public access was permitted in a WTO
dispute settlement proceeding. Disputing parties have also agreed to public access of this type in several subsequent
disputes.
18
Appellate Body Report, United States—Continued Suspension of Obligations in the EC—Hormones Dispute,
WT/DS320/AB/R (Oct. 16, 2008); Appellate Body Report, Canada—Continued Suspension of Obligations in the EC—
Hormones Dispute, WT/DS321/AB/R (Oct. 16, 2008).
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The EU requested consultations under Article 21.5 in December 2008,19 but the proceeding
involving the United States has been suspended under a bilateral agreement. In a May 2009
memorandum of understanding (MOU) intended to resolve the underlying beef hormone dispute,
the United States and the EU agreed, inter alia, that the EU will expand market access for exports
of U.S. beef in three phases. In the first phase, the United States may maintain retaliatory tariffs
currently applied to EU products and will not impose the new duties that it announced in January
2009 under its “carousel” retaliation provision (see below). The two parties also agreed that they
will suspend WTO litigation, i.e., not request a compliance panel, for the first 18 months of the
agreement.20 The USTR delayed the imposition of the additional duties on new items until
September 19, 2009, and officially terminated these duties as of this date.21 As a result of these
actions, the duties were never imposed.
WTO Dispute Settlement and U.S. Law
Legal Effect of WTO Decisions
The adoption by the WTO Dispute Settlement Body of a panel or Appellate Body report finding
that a U.S. law, regulation, or practice violates a WTO agreement does not give the report direct
legal effect in this country. Thus, federal law is not affected until Congress or the executive
branch, as the case may be, changes the law or administrative measure at issue. 22 Procedures for
executive branch compliance with adverse decisions are set out in §§ 123(g) and 129 of the
Uruguay Round Agreements Act, P.L. 103-465, 19 U.S.C. §§ 3533(g), 3538. Only the federal
government may bring suit against a state or locality to declare a state or local law invalid
because of inconsistency with a WTO agreement; private remedies based on WTO obligations are
also precluded.23 Federal courts have held that WTO panel and Appellate Body reports are not
binding on the judiciary24 and have treated determinations involving “whether, when, and how” to
19
Press Release, European Commission, EU requests WTO consultations concerning WTO-compliance of its
restrictions on hormone-treated beef and WTO inconsistency of continued US and Canadian trade sanctions (Dec. 22,
2008), at http://ec.europa.eu/trade/issues/respectrules/dispute/pr221208_en.htm.
20
Press Release, Office of the USTR, USTR Announces Agreement with European Union in Beef Hormones Dispute
(updated June 22, 2009), at http://www.ustr.gov/about-us/press-office/press-releases/2009/may/ustr-announcesagreement-european-union-beef-hormones-; European Commission, Memorandum on Beef Hormones dispute signed
with the United States (May 14, 2009), at http://ec.europa.eu/trade/issues/respectrules/dispute/memo140509_en.htm.
21
At the time of the May 2009 agreement, some products had been removed from the list of covered items pursuant to
the USTR’s January 2009 announcement. While the Office of the USTR ultimately delayed the effective date of the
additional duties on new products until September 19, 2009, the removal of items announced in January became
effective as of March 23, 2009. Implementation of the U.S.-EC Beef Hormones Memorandum of Understanding, 74
Fed. Reg. 40864 (Aug. 13, 2009). The United States officially terminated the additional duties on new items on
September 19, 2009, leaving in place the additional duties on the reduced list of products that had been in force since
March 23, 2009. Implementation of the U.S.-EC Beef Hormones Memorandum of Understanding, 74 Fed. Reg. 48808
(Sept. 24, 2009).
22
See Uruguay Round Agreements Act Statement of Administrative Action, H.Doc. 103-316, vol. 1, at 1032-33.
Uruguay Round implementing legislation states that “[n]o provision of any of the Uruguay Round Agreements, nor the
application of any such provision to any person or circumstance, that is inconsistent with any law of the United States
shall have effect.” Uruguay Round Agreements Act (URAA), P.L. 103-465, § 102(a)(1); see also H.Rept. 103-826, Pt.
I, at 25.
23
URAA, P.L. 103-465, § 102(b), (c).
24
E.g., Corus Staal BV v. Department of Commerce, 395 F.3d 1343 (Fed. Cir. 2005), cert. denied, 126 S.Ct. 1023
(2006); see generally CRS Report RS22154, World Trade Organization (WTO) Decisions and Their Effect in U.S. Law,
(continued...)
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Dispute Settlement in the World Trade Organization (WTO): An Overview
comply with a WTO decision as falling within the province of the executive rather than the
judicial branch.25
Section 301 of the Trade Act
Sections 301-310 of the Trade Act of 1974 (referred to collectively as Section 301), 19 U.S.C. §§
2411 et seq., provide a mechanism for private parties to petition the United States Trade
Representative (USTR) to take action regarding harmful foreign trade practices. If the USTR
decides to initiate an investigation, whether by petition or the USTR’s own motion, regarding a
foreign measure that allegedly violates a WTO agreement, the USTR must invoke the WTO
dispute process to seek resolution of the problem. Section 301 authorizes the USTR to impose
retaliatory measures to remedy an uncorrected foreign practice, some of which may involve
suspending a WTO obligation (e.g., imposing a tariff increase on a product in excess of the rate
negotiated in the WTO or the “bound” rate). The USTR may terminate a Section 301 case if the
dispute is settled, but, under § 306 of the act, the USTR must monitor foreign compliance and
may take further retaliatory action if compliance measures are unsatisfactory.
If the USTR has taken action against the goods of another country for its failure to comply with a
WTO decision, § 306(b)(2)(B)-(F), of the Trade Act, 19 U.S.C. § 2416(b)(2)(B)-(F), directs the
USTR periodically to revise the list of imported products subject to retaliation, unless the USTR
finds that implementation of WTO obligations is imminent or the USTR and the petitioner agree
that revision is unnecessary. This authority to rotate the products subject to retaliatory action is
often referred to as “carousel retaliation.” The European Union filed a WTO complaint
challenging the statutory provision shortly after its enactment in 2000, alleging that the statute
mandates unilateral action and the taking of retaliatory action other than that which had been
authorized by the WTO in violation of the DSU.26 Because the United States had not invoked the
provision, the EU refrained from seeking a panel in the case.
In December 2008, however, the United States exercised “carousel” authorities to propose
modifications to the list of EU products subject to the WTO-authorized tariff surcharges that it
had originally imposed in EC—Hormones, discussed earlier. A final modified list was published
in January 2009.27 Originally applicable to all covered goods entering the United States on or
(...continued)
by Jeanne J. Grimmett.
25
Koyo Seiko Co. v. United States, 551 F.3d 1286, 1291 (Fed. Cir. 2008).
26
Request for Consultations by the European Communities, United States—Section 306 of the Trade Act of 1974 and
Amendments Thereto, WT/DS200/1 (June 13, 2000).
27
Modification of Action Taken in Connection with WTO Dispute Settlement Proceedings on the European
Communities’ Ban on Imports of U.S. Beef and Beef Products, 74 Fed. Reg. 4265 (Jan. 23, 2009).
The continued imposition of the beef hormone sanctions as applicable to toasted bread products from Spain has been
successfully challenged in the U.S. Court of International Trade, the specialized federal trade court located in New
York City, on the ground that the sanctions expired by operation of law in late July 2007. Gilda Industries, Inc. v.
United States, 625 F.Supp.2d 1377 (Ct. Int’l Trade 2009).
Section 307(c)(1) of the Trade Act of 1974, 19 U.S.C. § 2417(c)(1), provides that if “a particular action” has been taken
by the USTR under Section 301 during any four-year period, e.g. the imposition of increased tariffs on the products of
a foreign country, and neither the petitioner in the Section 301 case nor any representative of the domestic industry
which benefits from the action has submitted to the USTR during the last 60 days of the four-year period a written
request for the continuation of the action, the action is to terminate at the end of the four-year period. It was alleged in
the case that the operative four-year period for the beef hormone sanctions began at the end of July 2003 and that no
(continued...)
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Dispute Settlement in the World Trade Organization (WTO): An Overview
after March 23, 2009, the revisions include removal of some products from the original list of
covered products, the addition of new products to the list, modified coverage with regard to
certain EU member states, and an increase to 300% ad valorem of duties on one product,
Roquefort cheese. The EU announced on January 15, 2009, that it had decided to “start
preparations” to pursue WTO dispute settlement regarding the carousel statute, stating that it
“breaches the WTO requirement of equivalence between the damage caused by the sanction or
ban and the retaliation proposed.”28 As noted above, under an MOU with the EU aimed at settling
the beef hormone dispute, the United States has agreed not to impose the announced tariff
increases on new items and officially terminated these additional duties as of September 19,
2009.29
The EU filed a broader challenge to Section 301 in 1998 based on various obligations in Article
23 of the DSU, which, as noted earlier, precludes certain unilateral actions in trade disputes
involving WTO agreements. Section 301 may generally be used consistently with the DSU,
though some U.S. trading partners have complained that the statute allows unilateral action and
forces negotiations through its threat of sanctions. The WTO panel found that the language of §
304, which requires the USTR to determine the legality of a foreign practice by a given date, is
prima facie inconsistent with Article 23 because in some cases it mandates a USTR
determination—and statutorily reserves a right for the USTR to determine that a practice is WTOinconsistent—before DSU procedures are completed. 30 The panel also found, however, that the
serious threat of violative determinations and consequently the prima facie inconsistency was
removed because of U.S. undertakings, as set forth in the Uruguay Round Statement of
Administrative Action (H.Doc. 103-316), a document submitted to Congress along with the
Uruguay Round agreements, and U.S. undertakings made before the panel, that the USTR would
use its statutory discretion to implement Section 301 in conformity with WTO obligations.
Moreover, the panel could not find that the DSU was violated by § 306 of the Trade Act of 1974,
which directs USTR to make a determination as to imposing retaliatory measures by a given date,
given differing good faith interpretations of the “sequencing” ambiguities in the DSU. The panel
report, which was not appealed, was adopted in January 2000.
(...continued)
request was made to continue the sanctions during the final 60 days of this period. The court found that the retaliatory
measures terminated by operation of law on July 29, 2007, absent a timely petitioner or industry request, neither of
which had occurred. The court ordered the U.S. Department of Customs and Border Protection to refund to the plaintiff
all retaliatory duties collected on its imported products between July 29, 2007, and March 23, 2009, the date these
items were officially removed from the list of goods subject to the increased tariffs.
The United States has since appealed this decision to the U.S. Court of Appeals for the Federal Circuit. Gilda Industries
v. United States, appeal docketed, No. 2009-1492 (Fed. Cir. Aug. 10, 2009). See generally U.S. Faces Flood of
Lawsuits after CIT Orders Refund of Duties, INSIDE U.S. TRADE, Aug. 21, 2009, at 1.
28
Press Release, European Commission, EU Prepares WTO action over US trade sanction law (Jan. 15, 2009), at
http://ec.europa.eu/trade/issues/respectrules/dispute/pr150109_en.htm. Article 22.4 of the DSU provides that “the level
of the suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of the
nullification or impairment.” The “carousel” issue has also been raised by the EC in Doha Round dispute settlement
negotiations. Dispute Settlement Body, Special Session, Contribution of the European Communities and Its Member
States to the Improvement of the WTO Dispute Settlement Understanding, at 6, TN/DS/W/1 (Mar. 13, 2002).
29
See supra note 21 and accompanying text.
30
Panel Report, United States—Sections 301-310 of the Trade Act of 1974, WT/DS152/R (Dec. 22, 1999).
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Dispute Settlement in the World Trade Organization (WTO): An Overview
111th Congress Legislation
Legislation introduced in the 111th Congress generally reflects congressional concerns that the
executive branch has not challenged restrictive foreign trade practices in the WTO to a sufficient
degree and that, where WTO decisions have been adverse to the United States, the executive
branch has too readily used existing statutory authorities to comply with these decisions,
particularly where U.S. trade remedies are involved. A particular concern has been U.S.
compliance with WTO decisions faulting the use of “zeroing,” a practice employed by the
Department of Commerce in antidumping proceedings to determine the applicable dumping
margin, i.e., the amount by which the price of an import when sold in the United States falls
below the fair value of the product, generally the price in the exporting country. The amount of
antidumping duties finally imposed on an imported product is based on this margin. “Zeroing” is
a practice under which sales above fair value are disregarded or given a “zero” value, thus
allowing the dumping margin to be determined solely on the basis of less than fair value sales
and, as alleged by some, improperly inflating the dumping margin. The Commerce Department
abandoned the use of “zeroing” in original antidumping investigations in early 2007, but has not
yet responded to WTO decisions rejecting U.S. use of the practice in later stages of U.S.
antidumping proceedings.
H.R. 496 (Rangel) would create an Office of the Congressional Trade Enforcer (CTE), which,
inter alia, would investigate restrictive foreign trade practices in light of WTO obligations and
call on the United States Trade Representative (USTR) to initiate WTO dispute proceedings
where the CTE finds that practices violate such obligations; express congressional dissatisfaction
with WTO dispute settlement decisions finding that the U.S. practice of “zeroing” violates the
WTO Antidumping Agreement and with decisions of the WTO Appellate Body generally; and
place restrictions on the Department of Commerce in implementing the revised zeroing practice
that it adopted in 2007 in response to adverse WTO decisions.
S. 363 (Snowe) would give the U.S. Court of International Trade, the specialized federal trade
court based in New York City, exclusive jurisdiction to review de novo certain USTR
determinations under Section 301 of the Trade Act of 1974, including in some cases
determinations that may involve the initiation and conduct of WTO disputes, and would amend
various Section 301 authorities themselves.
S. 1466 (Stabenow) and S. 1982 (Brown) would establish mechanisms under the Trade Act of
1974 requiring the USTR to identify particularly harmful foreign trade practices and, where
appropriate, to initiate WTO cases to remedy these practices.
Author Contact Information
Jeanne J. Grimmett
Legislative Attorney
jgrimmett@crs.loc.gov, 7-5046
Congressional Research Service
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POWER IN WTO DISPUTE SETTLEMENT
Walters, Jeffrey
Journal of Third World Studies; Spring 2011; 28, 1; ProQuest Central
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Australian Journal of International Affairs Vol. 65, No. 4,
pp. 469487, August 2011
Resolving and defusing trade disputes: the potential
for creativity in the AustraliaEuropean Union
relationship
IAIN SANDFORD
AND
MAREE TANKIANG*
Disagreements are a natural and inevitable part of any substantial relationship. This is particularly true in the area of international trade, where
national interests and the domestic commercial objectives with which they
are closely aligned often come into conflict with the interests of trading
partners. Because disagreements are inevitable, trade agreements usually
provide a framework for resolution of disputes. However, the typical
dispute settlement framework established in trade agreements seldom
captures the imagination of the business community. Indeed, public
international law frameworks for trade dispute settlement tend not to be
used for anything other than disputes of the largest magnitude or where
there is a deep political issue that is otherwise insoluble. This article argues
that such an approach to the crafting of dispute clauses in trade agreements
is a missed opportunity. It suggests that, in the context of the relationship
between Australia and the European Union, there is potential to develop a
range of different approaches to address problems in an effective and
accessible manner.
Keywords: disputes; European Union; trade
Introduction
Disagreements are a natural and inevitable part of any substantial relationship.
This is particularly true in international trade, where national interests and the
domestic commercial objectives with which they are aligned often come into
conflict with the interests of trading partners. Because disagreements are
inevitable, trade agreements usually provide a framework for resolution of
disputes. However, the typical dispute settlement framework established in
*Iain Sandford is Director of the International Trade Group at Minter Ellison Lawyers, Canberra,
and Adjunct Professor of Law at the University of Canberra. He has worked on a range of
international and commercial disputes, including as a panellist in World Trade Organization
dispute proceedings.
Maree TanKiang is a corporate lawyer, specialising in intellectual property law. Maree recently
joined the Commonwealth Scientific and Industrial Research Organisation (CSIRO) as in-house
legal counsel.
ISSN 1035-7718 print/ISSN 1465-332X online/11/040469-19 # 2011 Australian Institute of International Affairs
DOI: 10.1080/10357718.2011.584857
470
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trade agreements seldom captures the imagination of the business community.
Indeed, such frameworks tend not to be used for anything other than disputes of
the largest magnitude or where there is an otherwise insoluble political issue.
This article argues that the typical approach to crafting dispute clauses in
trade agreements misses an important opportunity. It suggests that, in the
context of the relationship between Australia and the European Union (EU),
there is potential to develop a range of different approaches to address problems
in an effective and accessible manner. The analysis is divided into three parts. In
the first part, we describe the ‘default’ approach to dispute resolution clauses in
trade agreements. We also highlight some impediments created by this
approach for the effective resolution of international trade disputes. The next
part reviews examples of international dispute settlement frameworks in trade
agreements that, in different ways, address some or all of these problems. In
the final section, we apply principles and lessons from these examples to
possible frameworks for disputes that may arise in the context of EUAustralia
trade. We briefly consider quarantine issues. Further, as a case study, we refer to
a recent Federal Court trademark case as an example where an innovative
approach to dispute resolution could provide a useful option compared with
existing mechanisms. We suggest there are lessons from the innovative
approaches adopted in other contexts that could be applied to supplement
existing frameworks for dealing with AustraliaEU disputes.
Problems with the default approach to dispute settlement clauses in trade
agreements
Dispute settlement systems reflect the nature of intergovernmental trade
agreements
Trade agreements are instruments of countries’ foreign policies and are, for that
reason, inherently political undertakings. They are about the way governments
relate to each other over time. Accordingly, they often have non-economic
objectives*for example, the trade agreement at the heart of the EU is perhaps
the world’s most successful example of using economic integration to drive
geopolitical goals around peace and security.
But trade agreements are also about international commerce. Commercial
agreements inevitably deal with private interests and the dealings of private
parties. Although governments negotiate trade deals and private parties are not
formally parties, such agreements have important impacts for the opportunities
enjoyed and challenges faced by commercial actors.
From the point of view of private interests in the domestic economy, trade
agreements can create opportunities or benefits for importers and consumers by
reducing the impact of government measures that act as barriers to entry for
foreign suppliers of goods or services. At the same time, trade agreements focus
on creating opportunities for export-oriented industries by reducing foreign
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471
trade barriers. Governments’ economic objectives in trade agreements usually
include promoting beneficial economic integration, and, where trade barriers
(i.e. governmental measures) represent the most important barriers to market
entry, their removal results in greater economic integration over time.
This dual political/governmental and economic/commercial character means
it is a mistake to analyse trade agreements only by reference to how they deal
with trade and economic issues. The dual character permeates not only the
commitments and rules agreed in such treaties, but also the systems the partners
create to manage the relationship embodied in the agreement, such as the
dispute settlement framework.
The availability of an outlet for disagreements is important, both from the
political/governmental as well as the economic/commercial points of view.
From the political side, it allows disputes to be quarantined from other aspects
of the relationship. A dispute settlement system that allows each side to have its
say, that is free from perception of bias, and that has a track record of being
reasonable and fair also has the benefit of rendering an outcome that can more
easily be seen as a politically ‘legitimate’ resolution of the dispute, even if one
side wins and the other loses.1
The ‘default’ approach to dispute settlement clauses in trade agreements
But intergovernmental political interest in disputes also means that governments
are generally keen to ensure that the governments themselves*as opposed to any
private domestic interests*address disagreements. Accordingly, most intergovernmental dispute frameworks establish an obligation to ‘consult’ to resolve the
dispute on a bilateral negotiated basis. At the same time, however, the
commercial impact of trade measures means that the private parties usually
want an outcome that actually has commercial meaning for them. A commercially meaningful outcome to a trade dispute may include eventual withdrawal
(or upholding) of an impugned trade measure, but it will usually also include
timely resolution, compensation for losses and certainty of outcome.
The practical economic interests of private stakeholders mean that private
sector groups may sometimes wish themselves to challenge measures that they
perceive to be inconsistent with the deal agreed to. Even where they have no
direct right of access, private stakeholders like to be able to see what is going on
and be able to have their say in an appropriate form. As has been observed
elsewhere, international dispute resolution systems that do not have these kinds
of characteristics tend to suffer from a deficit of ‘external’ legitimacy.2
In response to the demand for commercially legitimate resolutions to disputes
involving trade measures, governments will usually allow their measures to be
tested in domestic courts, although there are factors that mean this may not be a
realistic option. For example, in a common law system like Australia, the
sovereign parliament may validly enact domestic laws that are inconsistent with
treaty obligations, or a domestic court may adopt a deferential standard of
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administrative review when looking at trade measures such as dumping or
quarantine decisions. Of course, where international trade agreements are fully
implemented into domestic law, domestic courts can provide the best remedy
because domestic judicial decisions are legally binding and enforceable.
An excellent example in the Australian context is the Project Blue Sky litigation
in which New Zealand broadcast media makers were able to invalidate an
Australia media content standard that gave more favourable treatment to
domestic over New Zealand content providers.3
Recognising the need for an outlet for disputes, most modern trade
agreements will have a dispute settlement framework built in. In the context
of EUAustralia relations, the relevant mechanism is the World Trade
Organization’s (WTO’s) ‘Understanding on Rules and Procedures Governing
the Settlement of Disputes’4 (the Dispute Settlement Understanding or DSU),
which provides for consultations, review of measures by a panel, and appeal on
points of law to a standing Appellate Body. The system in the DSU has been
emulated in other agreements and has become something of a ‘default’ model
for dispute settlement systems in trade agreements (see, for example, Chapter
17 of the AustraliaASEAN [Association of Southeast Asian Nations]New
Zealand Free Trade Agreement*Australia’s most recently concluded such
agreement).
Four resolution problems
The default system has a number of features. These include that it is a
government-to-government process. Although, as described above, private
commercial interests will often bear the commercial brunt of governmental
measures affecting trade, under the default model only governments are
empowered to challenge those measures. A government generally will only do
that where the point of principle raised is of significant importance to it*either
because the trade affected is valuable or strategically important; the problem is
egregious and obvious; or the problem has proven insoluble through other means.
The default model is also an elaborate process, involving the appointment of
an ad hoc panel and a lengthy process of adjudication. In addition, the decision
of the panel is not itself binding but usually merely forms the basis of
recommendations as to how to resolve the dispute. In the WTO, for example,
panel reports must be adopted by the Dispute Settlement Body.
A further issue under WTO dispute settlement system and free trade agreement
(FTA) frameworks is a perception by commercial parties that the system lacks
enforceability. There are some opportunities for self-help enforcement through a
process of trade retaliation. However, trade retaliation carries the principal
drawback of necessarily reducing the benefits of a trade agreement for the
country imposing the retaliatory measures. Furthermore, such measures can
prejudice domestic interests that had nothing to do with the original dispute, as is
illustrated in several European Court of Justice cases, such as the FIAMM
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473
case, where European companies sought compensation from the European
Commission for harm caused as a result of US retaliatory measures imposed due
to European non-compliance with the WTO bananas cases.5 At the end of the
day, there is no automatic method to obtain compensation for harm caused by
illegal measures. Effectively, there is no remedy for private interests affected other
than looking forward to the prospective withdrawal of an offending measure.
These features create in the default model at least four problems, which
means that it fails to be an appropriate outlet for the resolution of many
disputes. These resolution problems may be summarised as follows:
. Dispute settlement under the default approach tends to take a long time to
resolve disputes (we call this the ‘speed problem’).
. Dispute settlement within government-to-government frameworks under
trade agreements tends to be reserved for matters of high political
importance or tremendous economic value (we call this the ‘threshold
problem’).
. Certain stakeholders*particularly in the private sector*effectively have
little opportunity to use these systems to address the problems they may
encounter with governmental measures affecting their trade (we call this the
‘access problem’).
. Remedies are prospective and do not compensate affected interests for harm
caused by wrongful acts or omissions. There is no injunction to prevent harm
being continued*even to the point where members are given a ‘reasonable
period of time’ to rectify measures found to be inconsistent with WTO
obligations (we call this the ‘enforcement problem’).
This is not to say that the WTO system and FTA dispute systems which are
modelled on it are not suitable for their purpose. It is just that their purpose is
limited to resolving the biggest and toughest international trade disputes in a
manner that is legitimate for the government stakeholders in the WTO system.
It does not try to resolve the many smaller (but still commercially significant)
problems that play out in a trade relationship from year to year.
Alternative approaches to dispute resolution
It would not be correct to suggest that the standard government-to-government
dispute resolution system and recourse to domestic courts are the only dispute
resolution mechanisms offered by modern trade agreements to address
governmental measures that appear to violate trade commitments or rules.
Although government-to-government resolution is the default setting, there are
a number of examples of alternative approaches to dispute resolution in trade
agreements. In this section, we review the architecture of, and experience with,
a selection of some of the alternative models from the WTO’s DSU, FTAs,
private law and investment practice.
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WTO: Article 5 and Article 25 of the DSU
In addition to its well-known system of consultations, establishment of a panel
and appeal to the standing Appellate Body, the WTO DSU also provides for two
alternative dispute resolution models*namely, ‘good offices, conciliation and
mediation’ (good offices) and ad hoc arbitration.
Good offices are contemplated by Article 5. The process is voluntary,
confidential and without prejudice to the rights of parties in any further
proceedings under the DSU. The system involves facilitated resolution of
disputes, although little formal detail guides how the process is to work. The
Director General of the WTO made a standing offer as to the availability of his
good offices to resolve disputes in 2001 (WTO 2001). Although this offer has
never been taken up, there has been one case in which a process of mediation
via the office of the Director General addressed an issue relating to preferences
for tuna arising between Thailand, the Philippines and the European
communities. In that matter, the parties agreed they were not in a dispute as
such.6 Nonetheless, the use of good offices appears to have allowed the parties
to reach a satisfactory reconciliation of their differing views.7 The details of that
resolution formally remain confidential, although a case study on this matter
has been published (Xuto 2005).
Arbitration is provided for by Article 25 of the DSU.8 Article 25.1 sets forth
that: ‘Expeditious arbitration within the WTO as an alternative means of
dispute settlement can facilitate the solution of certain disputes that concern
issues that are clearly defined by both parties’. The parties are given full control
over the process, with the only formal requirements imposed by the DSU
relating to notification of the Dispute Settlement Body and that the award is
binding. Other members are entitled to join arbitrations, if the parties agree.
A key element of the Article 25 framework is that ‘Articles 21 and 22 of [the
DSU] shall apply mutatis mutandis to arbitration awards’. This means the
Dispute Settlement Body is charged with monitoring implementation and that
the DSU’s provisions on compliance review and enforcement apply to the
outcomes of Article 25 arbitrations. Since the arbitration is governed by the
DSU, this process also has the advantage that the WTO Secretariat will also
lend administrative assistance and arbitrators’ costs are borne by the organisation rather than the parties.
Perhaps surprisingly, Article 25 arbitration has not caught on in the WTO.
The single example of its use, however, illustrates some of its potential. United
States*Section 110(5) of the US Copyright Act was a dispute that had been
addressed by a panel. The Section 110 measure had been found to be
inconsistent with US obligations. The evident intention of the United States
ultimately was to comply, although it was not possible to amend the relevant
legislative measures within the period of time determined for implementation.
This being the case, Article 22.2 of the DSU required the parties to negotiate
with a view to developing mutually acceptable compensation. The initial
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question in such discussions, however, is always: What value? Rather than
going through the usual process*under which the European communities
would request the right to retaliate, the United States would object to the
amount and the matter would be referred to arbitration under Article 22.6*the
parties themselves resolved to use a special Article 25 arbitrator, with terms of
reference effectively the same as for an arbitrator appointed under the provision
of Article 22.6 of the DSU. The arbitrator issued its award to the effect that the
level of nullification or impairment was a little over t1.2 million per annum,
leading the United States to establish a fund in that order to compensate
affected European right holders.
The alternative dispute resolution options of good offices and arbitration
would appear, in the abstract at least, to have potential to solve the threshold
problem. This is particularly the case where the non-take-up of the dispute
problem arises because the state involved is otherwise disinclined to engage in
dispute resolution activity because the cost or commitment required to pursuing
a case outweighs the interests concerned. Good offices or the ability to shape a
streamlined arbitral procedure designed to limit complexity, the need for
specialised counsel and other elements contributing to cost would seem to be a
potential remedy. The fact that these procedures can be kept low key and
reasonably confidential means that relatively low-level disputes could be dealt
with in this way.
North American Free Trade Agreement: Chapter 19
The North American Free Trade Agreement (NAFTA)9 and the CanadaUnited
States Free Trade Agreement (CUSFTA)10 on which it was based, contain
several distinct forms of dispute settlement. Perhaps the most innovative (and by
far the most utilised) is Chapter 19, which provides for a system of binational
panels to review anti-dumping or countervailing duty (AD/CVD) decisions.
Chapter 19 essentially gives a foreign private party affected by an AD/CVD
decision the opportunity to elect to have an appeal heard not by the domestic
court of the country adopting measures, but instead by a panel of trade experts
drawn from both its own country and that of the importing country. It is an
innovative hybrid of public international and domestic law: the existence of
the process and the displacement of domestic courts’ jurisdiction is mandated
by the treaty, but the process itself applies the substantive and procedural law of
the importing country.
Review is accordingly conducted as if the binational panel were a domestic
court. The panel must, in particular, apply the standard of review that would be
applied by a domestic court. Panels may affirm or reject (in whole or in part) an
administrative decision in an AD/CVD case. If a decision is rejected, the matter
is remanded to the domestic investigating authority for reconsideration. There is
no appeal to the domestic courts from the decision of a binational panel,
although there is a limited right for the government of an affected NAFTA party
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to seek review of a binational panel decision through an Extraordinary
Challenge Committee (ECC). Chapter 19 has been well used. Under CUSFTA,
there were 49 cases and 3 ECCs. Under NAFTA, at the date of writing in
October 2010, there have been well over 120 cases and 3 further ECCs.
Chapter 19 has a limited ambit, relating only to AD/CVD matters. It is a
complex process, closely akin to litigation in the domestic courts. As such, there
remains a threshold issue for invoking the process, such that the affected
exporter must be sufficiently affected by the AD/CVD measures as to be
prepared to expend substantial resources on a legal case. Chapter 19 cases also
fail to address the speed problem. However, Chapter 19 avoids the need for
affected industries to escalate the problem to their government in order to
initiate a case, meaning there is no inherent need for political consideration of
the merits of taking action. Stakeholders have a right of action for themselves,
thereby addressing access issues. Furthermore, by acting in the place of a
domestic court, rulings are enforceable in the same manner as the decisions of a
domestic court. They do not require ‘implementation’ by national authorities in
the manner of other international trade rulings, such as the findings of a WTO
panel. As such, the process is potentially powerful in resolving disputes.11
AustraliaUnited States Free Trade Agreement and Pharmaceutical Benefits
Advisory Committee review
Under the AustraliaUnited States Free Trade Agreement (AUSFTA),12
Australia was required to establish a review mechanism whereby the sponsor
of a drug (usually the drug manufacturer) could request an independent review
of Pharmaceutical Benefits Advisory Committee (PBAC) decisions not to list
their drug on the Pharmaceutical Benefit Scheme (PBS), which subsidises the
consumer cost of listed medicines (see Annex 2-C of the AUSFTA and
associated Exchange of Letters). From July 2006, the review process was also
made available when the PBAC had not recommended the extension of a listing
of a PBS-listed drug for an additional indication (Medicare Australia 2006). The
review system was established under Australian law as required by the treaty.
In line with its commitments, Australia established a panel of experts from a
number of disciplines, including clinical pharmacology, epidemiology and health
economics. An independent reviewer is appointed under the mechanism to
review applications from drug companies. The reviewer considers the information made available to the PBAC by the applicant, as well as details of
recommendations of the PBAC, and reports of PBAC subcommittees (ibid.). No
new information is provided to the reviewer and the reviewer submits his or her
findings and comments to the PBAC. The PBAC then re-evaluates its initial
decision, in light of the reviewer’s findings, and may change its initial
recommendation to the relevant Minister. The independent reviewer has no
power to overrule PBAC recommendations (DoHA 2006). The Minister
examines the PBAC recommendations and uses his or her discretion to determine
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477
whether to list a particular drug on the PBS per the process set out under Section
85 of the National Health Act 1953 (Cth).
Since the independent review process was established in 2006, there have
been two independent reviews of PBAC decisions. In each case, the review was
undertaken and considered by the PBAC within eight months of the PBAC’s
original recommendation not to list.
The PBAC review mechanism deals effectively with both the threshold and
access problems by giving affected interests a direct right of access to a dispute
resolution (review) forum. It deals with a politically charged issue in a very lowkey way, meaning that government intervention and politicisation of the issue is
minimised. The cost of applications in proportion to the cost of a listing
application in general is understood to be fairly low. The main drawback of the
PBAC review mechanism from a ‘dispute resolution’ point of view is the absence
of any mechanism to address the ‘enforcement problem’. Reviews may make
recommendations only; these may or may not change the approach the PBAC
takes when re-evaluating an application; and the ultimate decision is at the
discretion of the Minister. The extent of this drawback has not been tested in
practice. In both reviews that have been undertaken, the reviewer did not
recommend that the PBAC reconsider its original decision and the PBAC found
that the review provided no new basis to reconsider its previous recommendation.
Uniform Domain-Name Dispute-Resolution Policy
Sometimes, trade agreements will co-opt dispute settlement frameworks to
address cross-border issues that might arise in the context of the partners’ trade
relations. An example is the reference in Article 17.3 (‘Domain Names on the
Internet’) of the AUSFTA’s chapter on ‘Intellectual Property Rights’ to the
Uniform Domain-Name Dispute-Resolution Policy (UDRP), which provides:
In order to address trademark cyber-piracy, each Party shall require that the
management of its country-code top-level domain (‘ccTLD’) provide an
appropriate procedure for the settlement of disputes, based on the principles
established in the Uniform Domain-Name Dispute-Resolution Policy.
The Internet Corporation for Assigned Names and Numbers (ICANN) is the
organisation responsible for domain names and Internet Protocol addresses.
ICANN is established under the California Nonprofit Public Benefit Corporation Law for charitable and public purposes, and is therefore a creature of US
municipal statute.
Increasing commercial use of the Internet led to a problem of ‘cybersquatting’, whereby recognisable brands were registered by persons unaffiliated with
the business operated by the brand or the intellectual property right holder. In
the mid to late 1990s, it was considered that the problem of cybersquatting
required urgent attention, and governments perceived drawbacks both with
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treaty-based and ad hoc national approaches to resolving the issue. Following
recommendations from the World Intellectual Property Organization (WIPO),
ICANN created the UDRP, which is now automatically adopted by the
individual registrars who register domain names on the Internet.
The policy provides for any person to submit a dispute under the UDRP to an
accredited dispute resolution centre such as the WIPO Arbitration and
Mediation Center, which, at the end of 2001 (the latest figures cited), accounted
for roughly 60 percent of activity under the UDRP.13 Pursuant to clause 4(a) of
the policy, claims may be made where it is alleged:
(i) the domain name registered by the domain name registrant is identical or
confusingly similar to a trademark or service mark in which the
complainant (the person or entity bringing the complaint) has rights; and
(ii) the domain name registrant has no rights or legitimate interests in respect
of the domain name in question; and
(iii) the domain name has been registered and is being used in bad faith.
The administrative panel considering the issue may decide in favour of the
registrant (in which case nothing happens), it may decide the registration should
be cancelled or it may rule that the registration should be transferred to the
applicant. Where cancellation or transfer is ordered, the registrar will take this
action unless notified of a court challenge to the decision. As international
dispute resolution procedures go, the process is extremely simple, cheap and
effective. It does not attempt to displace the jurisdiction of domestic courts, but
is overwhelmingly preferred to litigation, as WIPO details on its website.14
The UDRP is frequently used. Recent WIPO figures indicate that its
Arbitration and Mediation Center had administered more than 16,000 cases
since December 1999 (WIPO 2009b). There were 2329 cases in 2008 alone
(WIPO 2009a). It is open to anyone with an issue; does not rely on intervention
by states; is low key, cheap and relatively speedy; and the results are
implemented*thereby addressing the speed, threshold, access and enforcement
problems identified in other forms of trade dispute resolution.
Investorstate dispute settlement frameworks under investment agreements
(and FTA investment chapters)
Many bilateral investment agreements and FTA investment chapters, as well as
the multilateral Energy Charter Treaty, provide for investors to initiate
arbitration proceedings against a government for certain measures affecting
the investor’s investment. The nature of investorstate dispute settlement (ISDS)
under treaties differs from international commercial arbitration in that the
investor itself is not privy to the agreement to arbitrate. Instead, the investor
benefits from a standing offer from the host government made in favour of all
investors sufficiently connected with the treaty partner.
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Australia’s network of investment agreements numbers roughly 20 bilateral
investment treaties (BITs), as well as FTAs with Singapore, Thailand and Chile,
and the AustraliaASEANNew Zealand agreement. Australia is also a
signatory to the Energy Charter Treaty, although this agreement has never
entered into force for Australia. EU member states have substantial networks of
BITs, particularly with developing country and economy-in-transition partners.
ISDS rules extend the reach of international arbitration to matters falling under
public international law*namely, the treatment of investments covered by
investment treaties. Importantly, they provide direct access to the private parties
whose interests have been affected. They also provide for the same framework of
remedies that is available in the context of private international arbitrations*
namely, recognition and enforcement of awards by the domestic courts. In
Australia, dispute settlement rules are embodied in the International Arbitration
Act 1974 (Cth), which gives effect to the requirements of both the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, adopted in 1958
by the United Nations Conference on International Commercial Arbitration at its
twenty-fourth meeting (New York Convention), and the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States,
signed by Australia on 24 March 1975 (the ICSID Convention).
Although, internationally, investment treaty arbitrations are relatively
common (with an average of about 30 known disputes initiated around the
world in each of the last five years)15 there is no history of such disputes
involving Australia as a respondent, and there are no publicly known cases in
which Australian investors have availed themselves of ISDS rights.
A key drawback of ISDS is a perception that it raises issues of a sensitive political
nature. For that reason, anecdotal evidence is that investors hesitate to invoke the
process for fear of alienating a host government*ISDS is seen as something of a
last resort. ISDS is also regularly criticised by those who consider it could be
abused as a tool for ‘chilling’ regulation in pursuit of legitimate government
objectives. This has carried through into a reluctance from some governments to
endorse ISDS, particularly following the experience in Canada with early disputes
under NAFTA’s investorstate rules (Chapter 11) challenging provincial government measures that were ostensibly adopted on environmental grounds.
Thus, although ISDS addresses the ‘access’ and ‘enforcement’ problems, the
sensitive issues it raises cause particular issues around the ‘threshold’ problem.
As with other elaborate international dispute settlement regimes, ISDS also fails
to yield speedy results...
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