WTO Dispute Resolution System : What can be done?

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You’re talking about an institution that was called by the membership as the jewel of the crown. To see it go away or to see it not functioning, I think is very sad because we are now at a crossroad, and I think now the creation of new disciplines and economic law is becoming more and more important. 

History tells us that we should care. If you look at history, you can see that the rise of international adjudication corresponds to the reflux of the use of force in international relations. When trade regulation derails in fact what comes next is indeed not only trade wars but war and if we don’t find ways of settling disputes peacefully then trade will become more a trigger for more tensions and also multilateralism is at a threat nowadays and I think that the main challenge of the next decade is mostly to save what exists in order to preserve the best chances for peace. So, I’m not speaking exclusively about adjudicatory system but nevertheless about an approach which favors settling dispute peacefully. 

The central practical problem is that the United States in particular has gone dissatisfied with especially the Appellate Body for many years now and decided to act upon this and using a provision in the agreements that require consensus decided that it could dismantle the Appellate Body in response. Which means that the WTO can no longer provide the kind of binding dispute settlement for which it became famous, and which made it a strong organization from the perspective of the various countries.   

Probably it’s not possible to get the US back into a revised form of a two-tiered system as we know it today. My thinking is that and that’s actually quite an interesting experiment, a number of members have created an alternative dispute settlement system, including European Union, Japan, China and many other, I would say systemic countries, they actually have had a good experience with the existing system and they want to continue that and so I think if the system is able to attract more members down the road, we will have a system that works for part of the membership and I think that’s probably in the short term, the only real possible pragmatic solution. 

Other countries have understood the seriousness of the US concerns and have tried to make accommodations so that they can still have a functioning WTO system but in the long term, what they would like is to get the US back into the system, participating in WTO dispute settlement preferably with the Appellate Body but I think at the moment, nobody’s sure whether that can be done. So what governments are trying to do for now is come up with temporary solutions, patches to keep the system going but with the hopes of some long-term you know resurrection of the system maybe in a new form. 

I think that a lot can be done without necessarily amending the treaties or doing things formally. Much of these communities have developed practices and it’s on those practices and written practices that we need to act and think about. One I think that if we continue to use and refer to precedent, well we need to be very critical in the way we do it. So, precedent is important but it’s not a holy rite, it’s not something that is untouchable also because if you never touch a precedent then it bloats it becomes very difficult to manage so that is not done by amending the treaties. It is done by way of practice. The second thing is that yes, we need a greater kind of porosity between the inside and the outside of the institution, and the third thing is transparency. So, for a long time, the dispute settlement process was kind of shrouded in mystery, one saw only the final point, the report being issued. I think that a lot of great many steps can be taken to make the process more transparent. 

The existing rules of the WTO actually do provide a sufficient ways to deal with the challenge that are raised by China’s State capitalism and we look at the history of China’s SOE reform and we also look at how to creatively use the existing rules in the WTO to deal with the China Challenge and this is partly in response to a very popular narrative nowadays that the existing rules of the WTO are insufficient and therefore we need new rules and we argue that actually you do not need new rules.   

So it feels a little bit like a dead-end right. Depending on what you’re looking at and what day of the week or the month you’re looking at it, it will feel a little bit like a dead-end but first of all, International Trade governance is not dead, it’s just happening in a different way. Parties seem to be resolving the disputes and at the same time if you’re in an existential crisis, but something really works, you try to figure out in that context what is it that works about it and can we replicate it in the more problematic areas. So, with respect to dispute settlement should we be making dispute settlement more diplomatic or less formal? Should we create different streamlines and mechanisms that operate independently of each other that can be more efficient in a way, right? Is it an efficiency problem? is it a political capital problem? Do we need to get some people back on the table? What types of incentives do you give certain countries and certain alliances to go back to the WTO? Perhaps finding mechanisms that work for those giant trading partners maintain the legitimacy to the system because you can’t just cater to one or two parties you have to maintain some type of legitimacy and you have to be a little bit faithful to your past. So whatever has happened with the WTO, there’s an acquis as we say in the European Union so that acquis maybe need to be brought forward and how does that need to happen? So it’s a multi-dimensional game, it’s multidimensional chess and I’m not sure there is an end to the actual game and I’m not sure there’s one solution that will win them all. 

So what is happening is that the United States you know, they see itself as having a particular role in the world of being sort of a global super power and it feels now threatened, I think that’s fair enough to say, you know you can go just go through what Congress has been saying about China, the rise of China.  

Originally for the past 75 years security was the outlier, it was the exception. Predominantly, governments focused on economic relations. What we haven’t seen until recently is governments feeling comfortable for the first time to bring claims, to bring complaints to the WTO to argue that those security measures are actually inconsistent with the WTO, with the WTO rules. So that is one of the new changes when we’re seeing right now with how the multilateral trading system works. And a part of this is technology is just evolving very quickly. Another aspect of this is that how we conceive of defense and security is very much changing when I say we I mean governments, and companies, firms, producers. So the way we fight we went you know if you think about gun blow diplomacy, trench warfare,, proxy wars now we’re in this new state where war is really fought through the ability to control supply. The idea of Economic Security isn’t new we’ve heard of those concepts being put together. I think what we’re seeing now is that governments are learning that it’s not just about the sort of straightforward military or defense interests and in fact one of the big criticisms of some of the very first reports that we saw come out of the World Trade Organization that defines essential security interests in a really narrow tight way close to military close to that traditional sense of security, well a lot of critiques came out of that saying, I’m sorry but how do you not see climate as a security issue? How do you not see, you know, other aspects of Human Rights abuses, different aspects that today we conceive of as a security issue? And so we have to be really careful I think to be able to map out how something could be an urgent global issue like climate action. Versus the sort of domestic concern allowing governments to ensure that they are prepared for their own self-defense and preservation and the safety of their people. We sort of have to begin to navigate what those different aspects are and then they in turn, the government and firm responses that factor into thinking about that risk. 

So I think we actually have to think very creatively about how these types of trade disputes can be handled within the current climate and I think that increasingly calls for other alternative types of negotiations, conciliations, good offices, and an experimentation unfortunately. So there’s no concrete “Oh we have to do plan A and that will solve all of our problems”. CUSMA, T-MEC, USCMA, as we say in the United States. The United States now can enforce labor rights commitments, not just against Trade Partners but Corporations and Trade Partner Countries. So, we see the United States closing its borders to specific facilities in Mexico for, based on the United States view, violating labor rights. So, this system effectively is becoming exactly what developing countries were concerned about it becoming when they stopped the WTO. We do know now that the system as it is working is in favor of developed countries. It’s being used against developing countries, it has nothing to do with labor rights, and we need a better system in the future. 

the USMCA is working well and so far, the dispute has gone through the system in a swift and a very smooth way and that is very good for the system. So, could the USMCA become a substitute for WTO and whether countries will go Regional instead of multilateral?  

I think one of the major issues is that we focus too much on the formal dispute settlement system itself. We have this obsession of bringing the Appellate Body back online, we are trying to figure out the technical legal issues that we can fix to appease the United States’s concerns over adjudication but I think we need to look at other aspects of the WTO, the regular work that happens in the many committees that do the day-to-day monitoring and transparency function of the institution that actually do a lot to diffuse tensions between members. And I think that the big thing that makes it successful in many ways is that it doesn’t involve lots of lawyers and so what you see in the Committees are often Regulators that come in and you get Regulators that talk to each other about measures. Sometimes you can resolve issues there on the margins and that works out just great. So, I think it’s an important part of the dispute settlement system overall. It’s not a replacement for it but it’s something that can support its function day-to-day. 

The question that I’m really interested in is “Why do those safeguards, Institution safeguards which were present in the WTO, why were they not used?” but I think that’s something that needs more attention, there’s a lot of attention on what the Appellate Body did wrong, there’s less attention on why did the WTO membership, which had certain tools available to correct the development of the law, why did it not use those tools? And just briefly on what are the tools; The main most important one is that of an authoritative interpretation so the WTO membership could have adopted an authoritative interpretation correcting some of the rulings that were adopted by the Appellate Body. And I think we need to look at mechanisms to introduce a bit more automaticity into the process. So where for example the dispute settlement organs a panel or the Appellate body if it still exists would be able to remand interpretive questions to the membership and say “look these are the interpretations you have to take a decision” and there has to be some automaticity so that the membership has to, through a vote somehow decide on which interpretation should prevail. So, to rebalance the institutional, the roles of the legislator, which is supposed to make interpretations, and the dispute settlement organs, which are supposed to solve disputes. 

The deadlock over the appointment of judges to the Appellate Body (AB) has pushed the WTO dispute resolution system into crisis. What can be done to reinvigorate the system? What reforms are needed and how exactly should they be implemented – these questions were among the central topics of the discussion at the Ottawa symposium.

The participants explored various reform options to fix the systematic malfunctioning of the WTO dispute settlement system, as well as various trade-offs that such reform may require. Inspired by the commitment of the Geneva Ministerial Declaration of June 2022 to re-establish a well-functioning WTO dispute settlement system, conference participants – WTO negotiators, government officials, trade law practitioners, and academics – brought their unique expertise to explore conventional and non-conventional ways to overcome the current challenges. Participants shared their ideas and policy solutions, evaluated the implications of reform proposals in view of various interests of WTO Members. The conference covered many important issues, from reforming WTO adjudication and the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) to reinvigorating economic diplomacy.

Why WTO dispute settlement is important

The WTO’s AB, once described as its “Crown Jewel”, was considered among the most valuable features of the WTO system, providing a peaceful means of settling trade disputes among the WTO Members. Ricardo Ramírez-Hernández, Professor, Faculty of Law, Mexican National University, and Hélène Ruiz Fabri, Professor, Sorbonne Law School, University Paris 1 Panthéon-Sorbonne, discuss the importance of the WTO dispute settlement system not only for the WTO Members, but for international law and the multilateral trade system in general. They explore potential consequences of AB’s “malfunctioning” and express their concerns that its impact may be far-reaching for the whole global community. In the absence of a mechanism for the resolution of trade disputes, the increasing tension between states may threaten international peace and trigger trade wars and interstate conflicts.

More information on the WTO dispute settlement system and its importance for the global community can be found in the Rethinking WTO Dispute Settlement Report, summarising the discussion at the 2023 Ottawa Conference in more detail. The Report highlights various concerns related to WTO dispute settlement and sheds light on the wide range of the current challenges facing WTO dispute settlement, mapping existing reform ideas and providing structured reflections on the potential trade-offs of further reforms.

Reforming WTO adjudication

After the crippling of the AB by the United States, WTO Members have been trying to find solutions to address the current crisis and inoperability of the WTO dispute settlement system. The speakers explore various directions and consequences of reforming WTO adjudication system. As Geraldo Vidigal, Professor, Amsterdam Law School, University of Amsterdam points out, the blockage of the appointment of new AB members by the United States had an impact on the whole WTO system: the WTO can no longer provide the kind of binding dispute settlement for which it became famous and which made it a vital international organization from the perspective of the various states. Manfred Elsig, Professor of International Relations, World Trade Institute, University of Bern, further explains that a number of WTO Members, including the European Union, Japan, China and other states, have created an alternative second stage dispute settlement mechanism in an attempt to continue having a working WTO dispute settlement system (the so-called the Multi-Party Interim Appeal Arbitration Arrangement, MPIA). Simon Lester, International Trade Lawyer, WorldTradeLaw.net, is of the opinion that this arrangement may work as a short-term solution, however in the long term, WTO Members would like to get the United States back into the system participating in WTO dispute settlement, preferably together with a restoration of the AB.

Explore other proposals on reforming the WTO adjudication system provided by the Ottawa Conference participants in the Rethinking WTO Dispute Settlement Report. The participants expressed their views on how the WTO dispute settlement system can be improved and whether meaningful reforms would require an amendment to the DSU at all. In addition to discussing systematic WTO reform issues, the Report refers to specific procedural challenges that impede the efficient function of WTO dispute settlement. The Report lays out the participants’ deliberations over the scope of needed reform: should it (i) focus solely on dispute settlement reform; (ii) combine dispute settlement reform and changes to substantive rules; (iii) or result in a complete overhaul of the institution.

Evolving WTO practice

One of the important questions discussed at the Ottawa Conference was whether a meaningful reform would require amendments to the WTO treaties, including the Dispute Settlement Understanding (DSU), or whether the reform goals can be achieved through evolving WTO practice. Tommaso Soave, Assistant Professor at Central European University, argued that a lot can be done without necessarily amending the treaties. In particular, he refers to three issues that require more focus: 1) the role of the precedent, 2) a greater porosity between the inside and the outside of the institution, 3) a more transparent adjudication process.

Henry Gao, Professor, Singapore Management University, supported the idea that reforms do not necessarily require the introduction of new rules, by using China as an example. As he explained, despite a popular narrative that the WTO’s rules fail to “bite” in the case of China, the existing WTO rules actually do provide sufficient framework to deal with the challenges raised by China’s state capitalism. More information on how the existing WTO rules can be used creatively to deal with the China challenge can be found in Henry Gao and Weihuan Zhou’s book “Between Market Economy and State Capitalism China’s State-Owned Enterprises and the World Trading System”.

Maria Panezi, Associate Professor, Faculty of Law, University of New Brunswick, raises an important question of whether it is possible to create different pathways and mechanisms that can operate independently and be more efficient. She refers to other issues that must be addressed for the reform to move on: do the WTO challenges relate to efficiency or politics? do we need to get some people back at the table? What types of incentives are needed to bring countries back to the WTO?

More information about the potential reform of the WTO dispute settlement system without amending WTO treaties can be found in the Rethinking WTO Dispute Settlement Report, which reflects the deliberations of the Ottawa Conference participants. The Report addresses the debate on whether meaningful reforms would require an amendment to the DSU. It also refers to earlier proposals circulated by Canada to alter informal dispute settlement practices without the need to reform the DSU. As was noted by participants, certain options and certain flexibility are already embedded in the rules, for example, such underutilized procedures as authoritative interpretations and voting. The participants also raised the question of whether such flexibilities could be extended further to universalize the MPIA.

Navigating national security concerns

Geraldo Vidigal, Faculty of Law, University of Amsterdam, delves into the shifting dynamics of global power, highlighting the waning dominance of the United States as a global superpower and the consequential rise of China. He underscores how this transition is altering the landscape of international relations, particularly within the World Trade Organization (WTO). Mona Paulsen, Faculty of Law, London School of Economics, further elaborates that the WTO has witnessed a broader understanding of essential security interests beyond traditional military and defence concerns for member states. Discourse on security concerns now extends to encompass issues such as climate change and human rights abuses, reflecting a recognition that security encompasses multifaceted dimensions crucial for government preparedness and the protection of citizens’ welfare. As Professor Paulsen highlights, this broader conception of security prompts governments to reassess trade policies and regulations to address emerging threats effectively. This trend has given rise to disputes between states because of fundamental disagreements over what truly constitutes “national security” and how such concerns result in (un)justified protectionist measures. For those interested in delving deeper into the intricate intersection of national security concerns and the World Trade Organization (WTO), the Rethinking WTO Dispute Settlement Report offers a valuable resource.

Settling trade disputes outside the WTO

Desirée LeClercq and Ricardo Ramírez-Hernández explored alternative mechanisms utilized by WTO member states to address trade disputes. Professor LeClercq, ILR School, Cornell, highlighted the United States’ utilization of the Canada-United States-Mexico Agreement (CUSMA) to enforce labour rights commitments among trade partners and against corporations. Professor Ramirez, Faculty of Law, Mexican National University, emphasized that the dispute settlement system within CUSMA is functioning effectively, sparking consideration about whether regional agreements like CUSMA could offer viable alternatives for settling trade disputes. This discussion underscores the evolving landscape of trade governance and the potential role of regional agreements in complementing or even supplanting traditional WTO mechanisms.

This dialogue reflects broader conversations within the WTO community regarding alternative dispute resolution mechanisms. The Rethinking WTO Dispute Settlement Report, summarizing key insights from the recent Ottawa conference, delves into this theme extensively. The conference focused on exploring various forms of Alternative Dispute Resolution (ADR) in trade-related areas and their potential applications. Discussions delved into the historical reluctance among states to rely on ADR, the advantages ADR presents, potential drawbacks such as power asymmetries, and recommendations for promoting ADR as a viable means of dispute resolution going forward. Those interested in understanding the complexities of ADR and its implications for global trade governance are encouraged to review the comprehensive findings presented in the Report.

Re-Invigorating Economic Diplomacy

Inu Manak, Council on Foreign Relations, brings attention to the importance of focusing not only on the formal dispute settlement system within the WTO but also on the regular work conducted within WTO committees. She emphasized that the day-to-day monitoring and transparency functions performed by these committees play a critical role in addressing disagreements before they escalate into formal disputes. Dr. Manak explained that these committees are effective in facilitating communication, fostering understanding, and promoting cooperation among member states. She underscored that these proactive measures are essential for maintaining the stability and functionality of the dispute settlement system, highlighting the significance of preventive economic diplomacy in mitigating tensions within the global trade arena. Expanding on this perspective, Professor Nicolas Lamp, Faculty of Law, Queen’s University, raised concerns regarding the failure to use other “tools” within the WTO which would have granted the membership greater control over the interpretation of WTO law. For example, he explains that the member states had the ability to provide authoritative interpretations of the law to “correct” Appellate Body interpretations. He pointed out that despite having such mechanisms in place, these tools remained largely untapped. His remarks shed light on how member states can influence and correct the trajectory of WTO jurisprudence, underscoring the importance of effective governance and oversight in maintaining the legitimacy of the multilateral trading system.

For those eager to delve into the complexities of the WTO dispute settlement system and the dynamics of economic diplomacy between states, the Rethinking WTO Dispute Settlement Report serves as an invaluable resource. Readers will find insights into the significance of these deliberative mechanisms, the diverse approaches adopted by WTO members in their utilization, and the challenges encountered. Moreover, the Report outlines proposed improvements aimed at addressing the growing complexities associated with the increased use of these mechanisms, offering valuable perspectives for enhancing the efficacy of international trade governance.

Carry on the conversation

Dialogue at the conference underscored the pressing need for the WTO dispute settlement mechanism to evolve in response to the contemporary demands and realities of global trade. While adapting to new challenges, it’s essential to preserve the virtues that have enabled the WTO to effectively resolve trade disputes for over two and a half decades. This endeavour demands intensive effort, ongoing dialogue, and a shared commitment to the principles and objectives that underpin the WTO. It is our hope that the conference and the Report can serve as a valuable stepping stone in this direction, fostering collaborative action towards a more resilient and responsive international trade governance framework.

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