Volume 6, Number 13, Page 2

Revising the Dispute Settlement Understanding of the WTO

By Durval de Noronha Goyos Jr.1

In spite of all the hopes for greater regulatory implementation of the multilateral trade system included in the Uruguay Round of the GATT, the World Trade Organization’s (WTO) dispute resolution system has been a widely recognized disappointment, which fostered the generalized perception that the Organization is failing in its mission.2 A recent report presented by Canada noted that important implementation issues need to be addressed.3 The problem is adversely affects the effectiveness of the system in every stage of the process. Such shortcomings derive from the systemic deficiencies the dispute resolution system, due to simplistic and inadequate formulation of juridical concepts and procedural rules, and are by no means limited to implementation issues. In reality, the dispute resolution system of the WTO ignores conventional jurisprudence and practice in favor of an idiosyncratic conception devised by diplomats, by which disputes remaining after the failure of diplomatic arbitration may be resolved outside a uniform legal system.

One of the principal defects of the Dispute Settlement Understanding (DSU) is the non-admission of cross-complaints. This situation requires the installation of one panel for the cross complaint of one party, with distinct arbiters for the cross-complaint of the other. This requirement creates the likely possibility that the awards of two, three or four different panels may be diverse and contradictory. Such a possibility is not remote. In the cases of Brazil vs. Canada, presently under appeal, there were some noticeable conceptual differences in the findings of the different panels, both dealing with the matter of subsidies for the respective aeronautical industries.

An analogous situation bearing the possibility of disparate and conflicting decisions may be found in the circumstances of joinder of plaintiffs, in which there are distinct panels formed for the joined parties or their groups. The variable norms for terms, which allow panels to establish at their discretion different “terminus ad quem” (according to the party and on a case by case basis) are the source of procedural instability. In the same manner, the process for the definition of the so-called “terms of reference” is worrisome in its enormous potential to aggravate the failings of the system. In the WTO system of dispute resolution, contrary to more traditional legal regulation, it is imperative that a party establish the legal foundation of its case, in addition to the facts. This is then interpreted by the Dispute Settlement Body (DSB) as the “terms of reference” for the panel. Thus, the possibility exists that within the same factual case, there may be two, three or four different panels, with an equal number of “terms of reference” and contradicting decisions.

Another failing of the system, foreseen at its very inception and already affecting the rights of parties, pertains to the DSU’s omission of norms dealing with preliminary points of law: for example, those pertinent to conflicts between treaties. The point was originally raised by John Toulmin QC CMG4 in a speech given in 19975 when he stateAd that “there exist circumstances in which a panel should have the capacity to resolve disputes deciding on preliminary points of law”. In fact, there are questions regarding conflicts between international treaties that amply justify decisions on preliminary issues. Such conflicts occur, for example, between the assured rights of signatory developing countries of the transitory treaty clause of the IMF and obligations arising from existing intellectual property treaties and other agreements. As the scope of the WTO is increased, the potential of conflicts with other treaties tends to increase.

Another perceived inconsistency of the DSU is its incapacity to clearly differentiate the “interested party” from the joint party. At this point, it should be mentioned that as interests in dispute resolution by the multilateral system are entirely private, the non-recognition of the right of action of private parties is unjustified. International law has evolved to accept physical persons and entities as subject to obligations, as well as holding the right of action. This should be accepted by the WTO, maintaining the right of concurrent actions of the member states in order to preserve their perceived interests.

As is the case with the International Court of Justice, the WTO dispute resolution system does not support the principle of “state decisis,” making its decisions valid only for the parties of a concrete case. Consequently, precedent may or may not serve as reference to future cases. Given, however, the degree of procedural confusion governing the adjective rules and the unreliability of the system, the trend is toward cases analyzed on their own merits, independent of analogous past decisions. This situation is reinforced by the legal division of the WTO “noting”, “recalling” and “recognizing” past cases.

Although the official languages of the WTO are English, French and Spanish, for all practical purposes, arbitration panel activities are conducted in English. This alone is detrimental to countries whose primary language is not English. Yet this disadvantage is aggravated by the use of semantic arguments, a necessary corollary of a system plagued by the rough omission of an appropriate juridical lexicon and by the idiosyncratic use of language. For instance, a recurring semantic question before appellate panels recently has been when a “decision” is not a “decision” (sic).6

In addition, rules of appeal regulate “oral audiences” (sic), perhaps because a written audience comes across as too impersonal. In cases of first instance, “substantive meetings” are part of the established procedure. Happily, there are no “adjective meetings” contemplated in the rules, perhaps as a result of the already customary practice of the multilateral system to allow for secret meetings. The word “review” is used as much for the “reconsideration” allowed for in first stage of the process, as well as for appreciation at the appellate level. The noun submission is utilized indiscriminately in the guise of pleadings, rejoinder, response, interlocutory pleading, appellate reasons, appellate counter reasons and even in the mined field of pleadings by “third parties”. The term “rebuttal,” of lay usage, is utilized in the guise of rejoinder, surrejoinder and rebutter. Ratter than using the expressions “plaintiff” and “defendant, awkward euphemisms such as “the party which has brought the complaint” and “the party against which the complaint has been brought” are employed.

This situation is made still worse by the essential and non-transparent role played by the legal division of the WTO in supporting the DSB. As the arbiters are appointed on a “ad-hoc” basis, they depend heavily on the bureaucratic support of the legal division. It is not entirely clear to what extent such “support” is in fact guidance or inducement, particularly when one takes into consideration the fact that a WTO arbiter is not required to have any legal knowledge.7 In addition, the WTO has refused in writing to divulge the nationality of the members and functional chart of its legal division, which is absolutely outside the scope of any acceptable norm of governance and jurisprudence.

Obviously, a system riddled with such grave defects would have serious problems not only in the administration of the law, but also in implementing its decisions. The Canadian non-paper on implementation raises the issues of who determines if the party complained against (plaintiff) has complied with the recommendations and ruling of the DSB, which process should be followed to make a determination of non-compliance and when a prevailing party is entitled to obtain authorization from the DSB to suspend concession or other obligations. It is important to note that while raising such important matters, the Canadian non-paper reaffirms Canada’s position that the resolution of this problem lies “not with a strict legal construction of existing provisions, but rather with a clarification of the DSU.8

During the WTO ministerial conference scheduled to take place in Seattle, Washington from November 29 to December 3, 1999, it is expected that a new round of trade negotiations of the multilateral regime will be launched. Such negotiations must address the need for a complete reformulation of the WTO dispute resolution system, in order that the rule of law in international trade relations may prevail and that the Organization retain a minimum level of credibility. Toward this end, all concerned need to recognize that a dispute resolution system is necessarily litigious and must be founded and structured within the rigors of recognized institutions of law.

Durval de Noronha Goyos Jr. is a senior partner of Noronha-Advogados, in São Paulo, Brazil.

1 Member of the Brazilian and Portuguese Bars. Senior partner of Noronha-Advogados. WTO panelist. Post-graduate professor of the law of international trade. “Ad-hoc” Brazilian representative for the Uruguay Round of the GATT. President of the Brazilian Bar’s Commission on the GATT. President of the Mercosur Association for the Rule of Law in International Relations. Author of “The WTO and the Treaties of the Uruguay Round” and “GATT, Mercosur & NAFTA.”

2 A recent leader of the newspaper “The Economist” (May 8, 1999) pointed out that this dispute-settlement mechanism is meant to have teeth, since a country cannot veto unfavorable rulings. But the WTO is failing to do its job. Its rulings are going unheeded.

3 Review of the Dispute Settlement Understanding, Canadian Non-paper on Implementation, May 7,1999.

4 Official referee of the supreme Court and ex-president of the Council of Bars and Law Societies of the European Union

5 See “O Direito do Comércio Internacional”, Lamprcia, Noronha, Baena Soares, Toulmin et at, Obs. Legal Editora, Sao Paulo, 1997, page 32.

6 A notable part of the appellate report in the case USA vs. Japan in the matter of alcoholic beverages.

7 See article 8, 1, of the DSU

8 See note 2 above