The World Trade Organisation’s dispute settlement mechanism has, for decades, provided stability and predictability to the resolution of disputes between member countries. As escalating global crises increasingly affect world trade, however, the WTO needs to reform or risk becoming irrelevant.
Many are questioning whether the 2024 Ministerial Conference – the WTO’s highest decision making body – is the last chance to save the WTO. At the top of the agenda of the conference being held in Abu Dhabi is the blocking by the US of new Appellate Body member appointments. The Appellate Body of seven persons deals with appeals against panel findings in disputes brought by WTO members.
The WTO’s dispute settlement system isn’t perfect. It is overly technocratic and expensive; and the Appellate Body was often accused of overreaching its authority.
The dispute settlement mechanism was designed to provide a safeguard against unfair trade practices by treating all countries equally and regardless of their economic power. Once seen as the “jewel in the crown” of the WTO, the two-tier dispute settlement system has not been fully functional since December 2019. The Appellate Body collapsed when the terms of two of its three remaining members expired. Due to the requirement for three members to hear an appeal, there was no longer a standing body that could decide on appealed panel findings. This put cases on hold, threatening to undermine the WTO’s legitimacy.
In the hope of solving the current crisis, WTO members have put forward alternative models for resolving disputes. One is a multi-party interim arrangement. It provides a temporary alternative for appealing trade disputes. Originally set up by 16 WTO members, the arrangement quickly expanded to include 54 of the 164 WTO members. This reflected broad support for a final-stage arbitral process and the binding nature of the arbitral award issued by the panel.
However, its use appears to have stalled as more countries have opted to either settle their disputes bilaterally or even suspend them.
Developing countries, such as India, have been critical of the interim arrangement. They have argued that it sidesteps their right to appeal under WTO rules. They want the standing Appellate Body to be reinstated.
Among the most controversial proposals for reform is an idea tabled by the US. It proposes a dispute settlement system with an “opt-out” clause for countries that only wish to accept the jurisdiction of the Appellate Body on a case-by-case basis. This is similar to the International Court of Justice: countries choose to “opt in” and be subject to the jurisdiction of the court.
What’s at stake
A fully functioning dispute settlement mechanism with an appellate tribunal is indispensable for creating a just and equitable global economy. The US proposals for an opt-out system of dispute resolution would allow countries to disregard unfavourable decisions of the appellate tribunal.
This is problematic for several reasons.
First, it would weaken the WTO’s credibility and effectiveness by making the current crisis permanent. It contributes to a move towards bilateral dispute settlement, exemplified by the US-India deal to end six of their ongoing WTO disputes. This signals a worrying departure from multilateralism, a recent trend which risks sidelining the most vulnerable developing countries even more.
Second, being allowed to sidestep rulings would further marginalise developing countries, undermining the WTO’s mission to foster equal competitive conditions. It risks leaving less economically developed countries unable to challenge trade rule violations and seek remedies against unfair trade practices.
Two cases illustrate the dangers of a system where powerful countries ignore rulings without fear of repercussions.
The first example is the long-running bananas dispute between the European Community and some developing countries in Latin America. They successfully challenged the European Community’s banana import rules, claiming they were discriminatory and violated the most favoured nation principle. The principle states that countries cannot generally discriminate between their trading partners. The European Community vetoed two panel reports, leading to a lengthy legal battle. The process was complicated by the General Agreement on Tariffs and Trade’s requirement for decisions based on consensus, which drained the limited resources of the developing countries involved.
The second example is the notorious US-Gambling dispute, where the US was found to have violated WTO rules. Antigua and Barbuda were granted permission to retaliate, but the Appellate Body’s recommendations have still not been upheld. For small island nations like Antigua and Barbuda, the cost of this litigation has been far-reaching, harming their economies. Meanwhile, the US, insisting that its laws comply, has not faced any significant or negative economic consequences from either the dispute or its outright non-compliance with the outcome.
Third, an “opt out” approach could allow economically stronger members to sidestep rulings, exacerbating power imbalances. Such a trend jeopardises the economic development prospect of poorer countries by affecting long-term investment and trade decisions.
Most African countries have rarely used the WTO’s dispute process. But addressing the reasons for this may enable them to engage with the system in future.
To-do list for developing countries
A functioning dispute settlement system would resonate with the WTO’s broader vision of fairness, equality and sovereignty in global trade.
To achieve this, developing countries must:
reject the opt-out model
call for greater support, including technical assistance and capacity-building, to ensure effective participation in the dispute settlement process
collaborate with each other and with developed countries to strengthen their collective voice in reform discussions.
Adopting a unified stance and getting commitment among all members to compulsory jurisdiction is the only way the WTO can remain a cornerstone of the international trade system.