A problem of implementation

Updated: Jan 26 2005, 05:30am hrs
The World Trade Organisation (WTO) is given credit for having replaced power-oriented diplomacy with a rules-based system of settlement. In comparison with other international institutions, the WTO is unique in the sense that it could de facto replicate internationally the compulsory jurisdiction associated with national courts. Institutional effectiveness of the WTO, i.e., the capability to enforce rights and obligations of members inter se, can be traced to this special dispute settlement mechanism embodied therein. The Understanding on Rules and Procedures governing the Settlement of Disputes (DSU), a multilateral trade agreement forming part of the WTO system, provides for this mechanism.

Under DSU, any WTO member can complain against any other member that as a result of the latters action, any benefit accruing to it under the Agreement is being nullified or impaired. There is a presumption that a breach of obligation by any member would adversely affect the interest of other members; and it is for the member committing the breach to rebut this presumption. There is an obligation upon such a member to enter into consultation with the complaining member to sort out the issue amicably.

In case, the consultation fails, the complainant may ask the dispute settlement body (i.e., the General Council, convened to consider the dispute) to establish a panel to go into the dispute. Because of the principle of reverse consensus (i.e., a decision shall be deemed to have been accepted, unless it is rejected unanimously including the complainant) applicable throughout the dispute settlement proceeding, the panel will be automatically in place. It will have to complete its investigation within a period of six months.

There can be an appeal on question of law from the panels report to the appellate body, a standing body of the WTO. The report of the appellate body will be submitted to the Dispute Settlement Body (DSB) within a period of two months. It shall be deemed to have been accepted by the DSB, unless it is unanimously rejected therein. Since the party which has won will definitely oppose to rejection, the report will be accepted and become the WTO ruling.

The track record during the last 10 years demonstrates that the mechanism has, by and large, won the confidence of member states. Both developed and developing countries have made extensive use of the DSU. The developing countries have won quite a few disputes against the developed countries. India won the shrimp-turtle case against the US and cotton bed linen case against the European Community.

Anti-dumping cases constitute a significant proportion of disputes and it should be said to the credit of the WTO that in practically every case, it has ruled against the imposition of such, thereby demonstrating its tough stand against protectionism.

What about the implementation of these rulings Though most of the rulings have been voluntarily complied with by the states concerned, there have been a number of cases wherein the states have dragged their feet. The US and to some extent the EC are main culprits in this regard. Some glaring legal lacunae have come to the fore in the course of implementation and deliberations are going on to tie up the loose ends. But no significant progress has been so far registered.

To start with, the main problem is the format of the ruling itself. The ruling shall always be that the member concerned shall bring the impugned measure into conformity with the agreement (i.e. the relevant multilateral trade agreement). Though in most cases, such as anti-dumping measures, it only means the withdrawal of the impugned measures, there can be situations wherein it is not that easy. In the well-known banana dispute between the US and the EC, there was disagreement as to whether the EC had complied with the ruling and the issue was referred to the panel again. The panel once again reported that the EC had not complied with the ruling.

The issue could have been easily sorted out if only the original panel had specified the exact measures to be undertaken by the EC. But that would have meant the panel passing a decree, and that situation was not acceptable to sovereign states. No doubt, Article 19 of the DSU provides that in addition to recommendations, the panel or appellate body may suggest ways in which the member concerned could implement the recommendation. Though there may not be much of a difference between recommendation and suggestion, the use of different terminologies has created confusion. So far, no panel or appellate body has ever suggested the means of implementing the recommendation.

Even as the complainant and the respondent are arguing on the compliance issue, the complainant can move the DSB to invoke sanctions. It is possible for the respondent to offer compensation until such time as it implies with the WTO ruling. But if such compensation is not forthcoming, the affected party is entitled to suspend concessions and other obligations, which it owes to the party in breach. Such suspension can continue as long as the breach. Such suspension may take the shape of cross-retaliation in the sense that the member concerned may suspend its obligation under another multilateral trade agreement.

In brief, the implementation is treated as a matter between the parties to the dispute. There is no provision in the WTO for collective sanction against an offending member. It is probably unrealistic to expect collective sanction at the present stage of international relations. Though the League of Nations and the United Nations provided for collective economic sanctions, they have been rarely invoked. Therefore, it would be better for a functional institution, like the WTO, not to get into these kinds issues.

Whereas a country, like the US, can retaliate against a country like India, the reverse situation cannot even be imagined. This probably explains the lack of compliance on the part of big countries like the US in the banana dispute. Costa Rica, the main complainant, was authorised to suspend its copyright obligations towards the EC. But such a move would be of little consequence if other countries refuse to import the materials so produced in Costa Rica. Therefore, one possible step forward would be for the WTO to permit the parallel imports of such items by other countries notwithstanding the IPR protection in their respective jurisdictions. This is the only way by which a poor country can retaliate.

In brief, judicialisation of dispute settlement has been great contribution of the WTO. But the problem of implementation has not been fully taken care of. In a decentralised system like ours, there are inherent difficulties in this regard. But with the backing of public opinion, we can hope to move forward.

The writer is director, National Law School of India University, Bangalore