This article is written by Aparna Jayakumar, from Guru Gobind Singh Indraprastha University. It analyses the risk of jurisdiction clashes between the dispute settlement mechanisms with the help of different international treaties and conventions.
In recent years, the United States (US) has obstructed fresh appointments to the World Trade Organization’s Appellate Body (AB) (WTO). Washington has regularly criticised the AB’s operation, claiming “judicial overreach” that has produced unfavourable verdicts for the US in trade conflicts. As a result of such impediments, the appeals procedure has ceased to function, bringing the dispute settlement mechanism—the WTO’s “crown jewel”—to a halt. Pending trade dispute appeals will no longer be heard, and future trade dispute resolution can be stymied indefinitely by simply appealing “into the void.” The AB crisis could not have arrived at a worse time, with global supply chains disrupted by the COVID-19 epidemic, which has forced governments to implement sweeping export prohibitions and limitations.
There is a chance that more trade disputes will occur in the future. Technical trade barriers (TBT), which include standards, technical regulations, and conformity assessment procedures, are one sort of non-tariff measure that has grown significantly in the last ten years. During the years 2005-2017, 1400 TBT measures were notified to the WTO on average per year, compared to 625 on average during the period 1995-2005.
India has three pending WTO appeals, two with the United States and one with Japan; it is also dealing with new accusations from nations such as Brazil. Since 1995, India has appealed or cross-appealed judgements in 12 of the 56 cases in which it has been involved. The majority of India’s appeals have been in cases with the United States, as either a complaint or a respondent. This emphasises the relevance of India’s appellate procedure, which relies India’s appellate procedure, which relies on the rules-based trading system to resolve difficult disputes with key trading partners. Given the impartial and rules-based nature of the WTO’s dispute settlement system (WTO DSS), as well as its role in guaranteeing the trading system’s stability and predictability, India strongly supports it and has proposed solutions to the challenges expressed by the US.
However, until the issue is resolved, New Delhi must look into other options for resolving its trade problems, both present and future. After all, unresolved trade disputes might result in the application of unilateral trade penalties, undermining peaceful relations between countries. It is critical to create alternative dispute resolution mechanisms to avoid trade disagreements turning into political conflicts and, as a result, harming exporters, businesses, and sectors.
Dispute Settlement Mechanisms (DSM) in Regional Trade Agreements (RTAs)
Most RTAs have their own dispute resolution procedures, and to the extent that RTA TBT (technical barriers to trade) provisions are the same as (or similar to) WTO TBT provisions, the risk of overlap and conflicting rulings between the WTO and the RTA dispute settlement mechanisms (DSM) exists. Such an overlap, also known as jurisdictional overlap, can occur if a dispute can be brought to both the RTA DSM and the WTO DSM, which can occur when the dispute is over a provision that is the same (or similar) under the RTA and the WTO Agreement.
This overlap may result in a conflict of rulings if a WTO Member takes the dispute to both the RTA DSM (under RTA law) and the WTO DSM (under WTO law) and receives inconsistent or contradictory rulings. To avoid such potential conflicts of rulings, the parties to an RTA can employ a variety of strategies, which can apply to all or some of the RTA’s provisions. They can, for example:
- necessitate the use of the WTO DSM exclusively;
- require the use of the RTA DSM exclusively; or
- allow for the selection of the forum while prohibiting recourse to multiple fora.
There is no denying that there is a rapid increase in the number of regional free trade agreements, often known as preferential trade accords. The first forty-five years of GATT (from 1948 to the completion of the Uruguay Round in 1994) witnessed a total of 124 notifications of RTAs to the General Agreement on Tariffs and Trade (GATT). Since its establishment, the World Trade Organization (WTO) has received notification of more than twice as many more RTAs—a total of 380 RTAs as of July 2007. There are expected to be more than 400 RTAs in effect by 2010. If one considers those that are in force but have not yet been notified to the WTO, those that have been signed but have not yet been notified to the WTO, and those that are in the negotiation or proposed stage.
The vast majority of them are free trade agreements or limited scope agreements, with the remaining RTAs being customs union agreements. Substantively, the majority of these agreements address the same issues as various WTO agreements, including trade in goods and services, intellectual property, customs and valuation provisions, sanitary and phytosanitary provisions (SPS provisions), technical trade barriers, agricultural issues, and the ubiquitous preferential tariff levels. Almost all of these free trade or limited scope agreements have some type of dispute resolution mechanism. Although these provisions and the types of conflict resolution methods they establish varied significantly, the various systems can typically be classified as one of the following:
- Choice of forum agreements, with or without an additional condition giving exclusive jurisdiction to the first chosen forum;
- Exclusive jurisdiction agreements, which require that all disputes arising under the RTA be resolved solely through the RTA’s dispute resolution process; or
- Preference agreements, which establish a preferred forum that can only be changed to an alternate forum with the parties’ agreement. The majority of RTAs notified to date are of the first type, with a choice of forum provision that allows the complaining party to choose whether to submit a claim via the RTA’s dispute settlement procedure or under the WTO’s Dispute Settlement Understanding.
Should the conflicts be addressed and how
Many concerns have been identified by WTO members as a result of the “spaghetti bowl” of overlapping trade agreements outside the WTO. The Doha Declaration includes a mandate for negotiations to clarify and strengthen “disciplines and procedures under existing WTO regulations applicable to regional trade agreements.” As a result, WTO members could choose any of the ways proposed by many academics to handle the issues of overlaps and conflicts with RTAs. Each of these solutions, however, creates substantial issues in its own right.
These recommendations, in particular, raise problems about how far the WTO can or should go in taking into account the law, facts, or decisions of any given fraction of its members, as well as the risks the WTO faces in relinquishing jurisdiction to settle core questions of international trade law. Among the ideas suggested for possible dispute settlement, are:
- Allow WTO panels to apply RTA Law as a defense: Where appropriate, WTO panels could be allowed to accept RTA-based defenses. As a result, panels of the WTO or an RTA could apply the same statute.
- Forum convenience: Article 23 of the Dispute Settlement Understanding (DSU) might be revised to allow members to choose the most convenient forum for settling a particular disagreement.
- Exhaustion of remedies: Members could agree to require parties to exhaust their RTA remedies before filing a WTO dispute, or to exhaust their WTO remedies before filing an RTA dispute.
- Required suspension of other Forum Process: Members could establish rules that allow or require the suspension of proceedings in one forum while the matter is heard in another.
- Article 13 of the DSU: Article 13 of the DSU, which allows panels to request information from parties or any other source, could be used to get information, evidence, or even judgments from an RTA tribunal.
- Res Judicata: Article 23 could be changed to allow a panel to deny jurisdiction if an RTA tribunal has already adjudicated the same subject.
Interim solutions within WTO
- Dispute Settlement Understanding (Article 5): good offices, conciliation, and mediation
Parties can agree to voluntarily engage in “good offices, conciliation, or mediation” to resolve trade disputes under Article 5 of the WTO’s Dispute Settlement Understanding (DSU). These choices can be exercised “at any moment” even while the WTO is conducting adjudication. This is consistent with the spirit of DSU Article 3.7, which states that “a solution mutually acceptable to the parties to a dispute” is desired. In keeping with this, the inclusion of this provision demonstrates the drafters’ preference for negotiated solutions over adjudicative ones.
Each of these words relates to a distinct set of mechanisms. “Good offices” typically entail offering logistical support to assist the parties in negotiating in a constructive environment. “Conciliation and mediation” entails the direct involvement of a neutral third party in conversations and negotiations. In conciliation, the third party aids fact-finding and inquiry; in mediation, the third party has a more active role and adds to the conversations, and may even propose solutions to the parties. In terms of a neutral third party, the DSU proposes that the WTO Director-General (WTO DG) offer good offices, conciliation, or mediation to assist members in resolving their disputes. The proceedings under this provision are private and confidential, and they do not result in legal conclusions but rather aid in the negotiation of a settlement. Developing countries also believe that mediation can aid in addressing basic development and equitable concerns. Members of the World Trade Organization, including Paraguay, Haiti, and Jordan, have proposed making mediation necessary in disputes involving developing or least developed nations.
The functions of the WTO DG as a neutral third party in disputes is a troublesome component of this procedure. While it is intended to be impartial and neutral, observers have contended that previous WTO DGs have displayed a bias towards the global South and have overtly allied with the US on many topics. Since the former WTO DG, Robert Azevêdo, left in May 2020, this critical position has been empty until a new appointment is made. With a fresh election underway, debates are raging about the enormous responsibility that the organization’s future leader will have.
The Article 5 mechanism may be a realistic alternative for India in conflicts involving minor countries, but not for those involving great powers such as the United States, the European Union, or even China. In this regard, New Delhi may make recommendations to the WTO to offer the services of professional mediators (unaffiliated with the WTO secretariat). This can formalize the procedure and enable India to approach it to settle trade issues with major trading partners. In reality, Article 5 has rarely been invoked, and India has never opted for it. Several factors must be considered to successfully perform good offices, conciliation, and mediation. It is considered that the higher the direct involvement of opposing parties in the process of resolving their disputes, the more likely an acceptable and long-term conclusion. On the other hand, an amicable settlement is only possible when both parties are interested in resolving the disagreement as soon as possible. As long as the office of WTO DG remains vacant, this option is no longer viable.
- Agreement to not appeal panel reports
In March 2019, Indonesia and Vietnam reached an agreement to settle a dispute over Indonesia’s safeguard duties on iron and steel products. They agreed that in the absence of a functioning Appellate body, the panel report (the first step of WTO adjudication) would be considered binding and would not be challenged. South Korea and the United States have reached a similar “no appeal” agreement in their dispute over anti-dumping penalties on oil country tubular items from Korea. If countries agree on such a system, “no appeal arrangements” might be used on a broader scale and agreed to in advance by several member states. This strategy may be especially useful in cases when legal clarification and interpretation of WTO rules and responsibilities are required. Furthermore, if the United States is willing to engage in such accords, the mechanism’s relevance and political significance for India will grow.
One advantage is that it protects a member’s right to use all of the WTO DSS’s facilities and procedures, such as consultations, panel proceedings, and implementation. A dispute will be resolved in a familiar environment, within the scope of WTO agreements, rules, and regulations, maintaining the system’s impartiality. During the dispute, the parties would have access to decision implementation and monitoring, as well as fair procedures. Developing countries, such as India, will be eligible for special and differential treatment, as well as legal advice from the World Trade Organization’s Advisory Centre on Law (ACWL). The ‘no appeal’ rule indicates that panel decisions will be binding regardless of the outcome, which is a disadvantage of this technique. The defendant has little motivation to enter into such an agreement. If the complainant loses, the measure remains in place; if the defendant loses, it has no recourse.
The WTO Secretariat’s legal advisers are still vital in providing research support, orienting panel reports, and inspiring them with thorough reasoning and authority citations. This process lacks transparency, and many believe the panellists lack sufficient independence from the WTO insider group. In this regard, the appellate mechanism acts to check and balance the legal questions and reasoning adopted in panel proceedings.
- A separate system for disputes over trade remedies
When unfair trade practices or sudden import surges cause or threaten to cause material injury to their domestic industry, governments of WTO members can use trade remedy measures as a defense mechanism. Many of the United States’ objections have been attributed to the AB’s approach to adjudicating trade remedy cases, particularly those involving the United States. Some of these reservations are valid. The standard of review envisaged for WTO trade remedy disputes is substantively different from that envisaged for other disputes. Article 17 of the Anti-Dumping Agreement, for example, specifies a distinct standard of examination. Such a standard requires WTO Panels to defer to domestic authorities’ evaluations if the text of the agreement “allows” such an interpretation, even if other interpretations are feasible.
Furthermore, Article 17.5 states that if the domestic authority’s evaluation is neutral and objective, and includes a proper establishment of the facts, it will not be overturned (even though the Panel might have reasoned differently). Despite the unique standard of review (which gives even the Panels less leeway in making factual determinations), the Appellate Body purportedly adopted the task of evaluating (and overturning) the judgments of the investigating agencies. In a series of decisions, for example, the AB has invalidated the US regulatory authority’s technique of “zeroing” in determining dumping.
Terrence P. Stewart, an American trade remedy lawyer, estimates that the WTO issued nearly five times as many trade remedy decisions against the US as it did against any other member. Stewart contends that the WTO’s current approach endangers the US trade remedy system and may erode trust in the WTO. This concern has been shared by a number of other academics and trade remedy lawyers.
The World Trade Organization’s Dispute Settlement System is widely regarded as one of the most sophisticated dispute settlement systems in international law. Any solution that risks fragmenting the system will necessitate major concessions from its supporters.
Interim solutions outside WTO
- Bilateral negotiations
Negotiations can help to ensure the following:
- Procedures’ flexibility; the parties’ control over the dispute;
- The nature of the classification allows for open and honest debate;
- The ability to accept or reject a proposed settlement;
- Avoiding “winner-loser” scenarios, which have consequences for the parties’ reputations; and
- Limited influence of legal considerations which allows for the inclusion of political, social, environmental and ethical interests.
Transparency and openness are not typically linked with negotiations; nonetheless, opacity can feed conjecture and attract media, while also limiting the government’s freedom and flexibility in decision-making. Publicity mobilises various populations who may reject the trade agreement on economic or ideological grounds, exposes negotiators to criticism, and forces them to behave in a way that pleases the crowd.
Representatives have a higher incentive to ‘posture’ by taking uncompromising bargaining positions in front of an audience and may be hesitant to back down from early claims. This might limit bargaining space and lead to a breakdown in negotiations. For example, New Delhi’s exit from the Regional Comprehensive Economic Partnership (RCEP) —a mega-regional trade deal—came in the backdrop of widespread criticism from small manufacturers and farmers, who opposed India’s participation in the agreement.
Other hazards are inherent in discussions. Bilateral ad hoc solutions frequently reflect the relative power of the countries rather than the merits of their case. Much depends on the parties’ readiness and goodwill, as well as the bargaining methods they employ. For example, in its battles with Japan and South Korea over identical items (automobiles and auto parts), the United States utilised various bargaining techniques. These are known as “value claiming” and “value-creating” tactics, respectively.
While “value claiming” techniques included public threats, numerous deadlocks, and failed to produce a long-term agreement, “value-creating” strategies were more integrative, avoided threats, and resulted in mutually beneficial outcomes. In other words, the US’s tough stance toward Japan was motivated by domestic constituencies. To be fair, the hybrid WTO dispute settlement process includes negotiations (in the form of consultations) as part of the WTO DSS.
- Create a dispute resolution system that does not include the United States
A fundamental aim for countries seeking to protect the WTO DSS while contemplating an alternative procedure is to establish a system that causes the least amount of disruption to the status quo. Prof. Pieter Jan Kuijper of the University of Amsterdam has proposed the formation of a negotiation group called the “Real Friends of Dispute Settlement” to draught a treaty that establishes an alternate appellate review or dispute settlement procedure — without the United States — with as a few changes to the existing mechanism as possible.
Based on the DSU’s existing rules, it would include a method just for appellate reviews, or even a full dispute resolution procedure.
Some of the logistical and practical components of this conflict resolution approach are as follows:
- Existing AB members would join, and new members would be appointed to fill vacancies.
- New members would cover the costs.
- Should members agree, the new mechanism could also be used to resolve disputes from other regional trade agreements.
Concerns have also been raised concerning the political implications of such a system, notably for India. In terms of products and services, the United States is India’s top trading partner. 19 of India’s 56 WTO disputes have involved the United States as either a complaint or respondent. An alternate dispute resolution process that excludes the United States will not assist India in resolving its most serious trade problems. The geopolitical ramifications for India as it strives to enhance its economic, trade, and strategic ties with the United States would be tremendous.
Any progress on the proposed US-India trade agreement, which intends to discuss sensitive topics such as steel and aluminum tariffs, as well as the GSP, would be halted indefinitely. Furthermore, keeping the US out of the mechanism implies that it will become a free rider in a rules-based economic system that subjects others to enforceable dispute resolution but not itself. A process like this will rip the fabric of multilateralism apart and irreversibly destabilize the rules-based multilateral trading system that has been in place since 1995. If participating in a political solution to the AB crisis outside of the WTO means the end of the crisis, it may not be in India’s best interests to do so.
- Resolution of disputes under Regional Trade Agreements
The ‘spaghetti bowl effect‘ has been observed in Regional Trade Agreements (RTAs) around the world over the last two decades. As of September 2020, 305 RTAs had been notified to the WTO. The total number of RTA notifications in force is 492. (based on separate counting of goods, services, and accessions). Most of these agreements include their independent dispute settlement mechanisms, with detailed provisions. Given the availability of alternative dispute resolution procedures under their trade agreements, this section investigates whether such alternative dispute resolution methods can be used. Until now, much of the debate concerning dispute resolution under RTAs has centered on its interaction with the WTO dispute settlement mechanism, owing to overlapping jurisdiction.
While the problem has been interpreted by WTO adjudicators and carefully analyzed by scholars, the significance for the present purposes is solely in determining whether or not RTA dispute settlement methods may serve as a viable alternative to WTO adjudication. At the outset, it may be clarified that despite the availability of WTO Panels, the question of resorting to RTA dispute settlement, as a possible alternative outside the WTO, has been considered for two reasons.
- First, in the absence of an appellate process, RTA dispute settlement provides greater assurance for countries by assuring them that complaints will not be left in legal limbo as a result of the panel’s decision. Importantly, where members have incorporated fork-in-the-road rules stating that once a dispute has been commenced in one forum (say, the WTO), the alternative forum (here, the RTA mechanism) cannot be used, RTAs are the only viable option (to prevent the case from going into limbo).
- Second, while an enforcement mechanism may be provided in RTAs (when included), the WTO’s enforcement process (albeit normally considerably more effective) is likely to be legally crippled due to an indefinitely ongoing appeal.
India’s Regional Trade Agreements
- India-ASEAN Agreements
- Asia Pacific Trade Agreement (APTA)
- India-Chile PTA
- Global System of Trade Preferences among Developing Countries (GSTP)
- India-Afghanistan PTA
- India-Sri Lanka
According to the Indian government, the ideal scenario would be the revival of the WTO dispute settlement mechanism, which provides an impartial and rules-based system for resolving trade disputes, helps maintain consistency in trade rules, and reduces fragmentation in an increasingly interconnected world. Despite the fact that poor nations suffer cost, time, and access issues, they are better off using the WTO dispute settlement procedure. The WTO’s developing-country members are likely to bear the brunt of the crisis, especially since nations such as India, China, Brazil, Mexico, and Turkey have been aggressive litigants in recent years. These countries have carefully learnt from a system that looked to be more attentive to the viewpoints of developed countries over the last 25 years (after the founding of the WTO), cultivating their capacity to engage with the system in a meaningful manner. Furthermore, the transition from a power-based multilateral framework dominated by a few large economies to a rules-based trading system has been slow and costly. As a result, WTO members must continue to work on reviving the AB.
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