30-Sep-2023-Editorial

GLOBAL DISPUTE SETTLEMENT, INDIA, AND APPELLATE REVIEW

What is WTO?

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.

At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.

The goal is to help producers of goods and services, exporters, and importers conduct their business.

The History of WTO

From the early days of the Silk Road to the creation of the General Agreement on Tariffs and Trade (GATT) and the birth of the WTO, trade has played an important role in supporting economic development and promoting peaceful relations among nations.

The General Agreement on Tariffs and Trade (GATT) traces its origins to the 1944 Bretton Woods Conference, which laid the foundations for the post-World War II financial system and established two key institutions, the International Monetary Fund (IMF) and the World Bank.

The conference delegates also recommended the establishment of a complementary institution to be known as the International Trade Organization (ITO), which they envisioned as the third leg of the system.

In Havana in 1948, the UN Conference on Trade and Employment concluded a draft charter for the ITO, known as the Havana Charter, which would have created extensive rules governing trade, investment, services, and business and employment practices.

The Havana Charter never entered into force, primarily because the U.S. Senate failed to ratify it. As a result, the ITO was still born (born dead).

Meanwhile, an agreement as the GATT signed by 23 countries in Geneva in 1947 came into force on Jan 1, 1948 with the following purposes:

• to phase out the use of import quotas
• and to reduce tariffs on merchandise trade,

The GATT became the only multilateral instrument (not an institution) governing international trade from 1948 until the WTO was established in 1995.

Despite its institutional deficiencies, the GATT managed to function as a de facto international organization, sponsoring eight rounds (A round is a series of multilateral negotiations) of multilateral trade negotiations.

 

Year	Place/name	Notable Outcomes	Countries
1947	Geneva	45,000 tariff cuts – average 35% cut	23
1949	Annecy	Tariff reductions	13
1951	Torquay	Tariff reductions	38
1956	Geneva	Tariff reductions	26
1960-1961	Geneva Dillon Round	Tariff reductions	26
1964-1967	Geneva Kennedy Round	35% average cut on industrial goods Tariff, Commitments on use of anti-dumping laws	62
1973-1979	Geneva Tokyo Round	34% average cut on industrial goods, commitments on non-tariff measures	102
1986-1994	Geneva Uruguay Round	services trade and inctual property included, “built-in-agenda” on agriculture, WTO institution created.	123

So, the GATT became the only multilateral instrument governing international trade from 1948 until the WTO was established in 1995.

The Uruguay Round, conducted from 1987 to 1994, culminated in the Marrakesh Agreement, which established the World Trade Organization (WTO).

The WTO incorporates the principles of the GATT and provides a more enduring institutional framework for implementing and extending them.

The GATT was concluded in 1947 and is now referred to as the GATT 1947. The GATT 1947 was terminated in 1996 and WTO integrated its provisions into GATT 1994.

The GATT 1994 is an international treaty binding upon all WTO Members. It is only concerned with trade in goods.

Where is the WTO Secretariat

The WTO Secretariat, based in Geneva, has approximately 620 staff. It is headed by a Director-General, who is supported by four Deputy Directors-General. Since the WTO is run by its member governments, the Secretariat has no decision-making powers.

How runs WTO ?

The WTO is run by its member governments. All major decisions are made by the membership, either by ministers (who usually meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva).

The Structure of Governance in WTO including Dispute Settlement

The Ministerial Conference

The topmost decision-making body of the WTO is the Ministerial Conference, which usually meets every two years.

It brings together all members of the WTO, all of which are countries or customs unions.

The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.

General Council

The General Council is the WTO’s highest-level decision-making body located in Geneva, meeting regularly to carry out the functions of the WTO.

It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years.

The General Council also meets, under different rules, as

1. The General Council,
2. the Trade Policy Review Body,
3. and the Dispute Settlement Body (DSU)

Three councils, each handling a different broad area of trade, report to the General Council:

1. The Council for Trade in Goods (Goods Council)
2. The Council for Trade in Services (Services Council)
3. The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)

As their names indicate, the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade.

Again, they consist of all WTO members.

The Trade Policy Review Body (TPRB)

The WTO General Council meets as the TPRB to undertake trade policy reviews of Members under the TPRM and to consider the Director-General’s regular reports on trade policy development.

In Feb 2021, Nigeria’s Ngozi Okonjo-Iweala was appointed as Director-General of the World Trade Organisation (WTO), the leading international trade body.

Ngozi Okonjo-Iweala is the first African official and the first woman to hold the position.

The TPRB is thus open to all WTO Members.

Dispute Settlement Body (DSU)

The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members.

Such disputes may arise with respect to any agreement contained in the Final Act of the Uruguay Round that is subject to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

The DSB has authority to:

1. establish dispute settlement panels,
2. refer matters to arbitration,
3. adopt panel, Appellate Body and arbitration reports,
4. maintain surveillance over the implementation of recommendations and rulings contained in such reports,
5. and authorize suspension of concessions in the event of non-compliance with those recommendations and rulings.

Appellate Body

The Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

The DSB shall appoint persons to serve on the Appellate Body for a four-year term.

It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members.

The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute.

The Appellate Body has its seat in Geneva, Switzerland.

Dispute Settlement at WTO

The WTO’s procedure for resolving trade conflicts under the Dispute Settlement Understanding is vital for ensuring that trade flows smoothly.

Judgements by specially appointed independent experts are based on interpretations of the agreements and individual members’ commitments.

The system encourages members to settle their differences through consultation with each other. If this proves to be unsuccessful, they can follow a stage- by-stage procedure that includes the possibility of a ruling by a panel of experts and the chance to appeal the ruling on legal grounds.

Confidence in the system is borne out by the number of cases brought to the WTO – more than 500 cases since the WTO was established compared with the 300 disputes dealt with during the entire life of the GATT (1947-94).

Why in News?

G-20 also highlighted the need for reforms in WTO

The recently concluded G-20 Declaration, among its many commitments, reiterated the need to pursue reform of the World Trade Organization (WTO) to improve all its functions and conduct proactive discussions.

The bad game of US

The WTO’s dispute settlement system, conceived as a two-tier panel cum appellate body structure, has been dysfunctional since 2019, because the United States has blocked the appointment of appellate body members. It felt that the decision given by the DSB are favouring China.

The U.S. seems inclined towards the dejudicialisation of international trade law — an approach whereby countries take back control from international courts and tribunals.

Dispute Settlement, the Crown Jewel

Hailed as the crown jewel of the WTO, the dispute settlement system, with the scope for appellate review and mechanisms to enforce rulings, has issued over 493 rulings since its establishment in 1995.

To put this in context, the International Court of Justice has dealt with only around 190 cases since 1947.

The Investor State Dispute Settlement: Is it an Alternative

The investor-state-dispute settlement (ISDS) is a universal component of Bilateral Investment Treaties (BITs). The ISDS today is the principal means to settle international investment law disputes.

Till January 1, 2023, 1,257 ISDS cases have been initiated. India has had a mixed history with ISDS, with five adverse awards: four in favour, and several pending claims.

Benefits of an appellate review

A critical structural facet of the ISDS mechanism (also present in India’s BITs and a few free trade agreements) is that it operates through ad hoc or one-off arbitration tribunals without any appellate review.

The absence of an appellate review mechanism has meant inconsistent and incoherent decisions.

This has caused instability and improbability for states and foreign investors, making the regime chaotic.

An appellate mechanism will also be better than existing mechanisms such as the annulment (Cancellation) proceedings, which only apply to arbitrations administered by the International Centre for Settlement of Investment Disputes — an institution India is not a member of.

Discussions on creating an appellate review mechanism are ongoing at the United Nations Commission on International Trade Law or UNCITRAL’s working group III, deliberating on ISDS reforms.

There are several critical issues in creating an appellate review, such as

1. what form it should take — an ad hoc appellate mechanism (a body constituted by the disputing parties on a case-by-case basis) or a standing appellate mechanism;
2. what the standard to review the decisions of the first-tier tribunal should be; and
3. what the time frame and the effect of the decision should be.

These issues will, hopefully, be thrashed out at UNCITRAL.

India’s stand

Although India has not made a formal statement on this issue, India, presumably, supports the idea of an appellate review in the ISDS because Article 29 of the Indian model BIT talks of it.

Since India’s quest has always been to establish a rule-based global order, it should support an appellate review which will usher in greater confidence for states and investors in international investment law.

For those same reasons, India should also push for the restoration of the WTO appellate body towards achieving the goal of a fully and well-functioning dispute settlement system at the WTO.