The Use of Retaliations in the WTO-System

Table of Contents

1. Table of Figures

2. List of Abbreviations

3. Introduction

4. The World Trade Organization
4.1 The Dispute Settlement Understanding
4.1.1 The Implementation Stage
4.1.2 Compensation and the Suspension of Concessions

5. The Use of Retaliations in the Dispute Settlement Procedure
5.1 Three-Stage Retaliation
5.2 Possibility of Arbitration within the DSU

6. The WTO Retaliation System in Practice
6.1 Problems within the WTO Retaliation System
6.2 Cases of Retaliation under the Dispute Settlement System
6.2.1 Statistical Overview of Retaliations within the WTO

7. Conclusion

Bibliography

1. Table of Figures

Fig.: 1 “A Flow Chart of the Panel Process”

Fig.: 2 “Retaliation Requests within the WTO”

Fig.: 3 “Targets by Country within the WTO-Retaliation System”

Fig.: 4 “Retaliation Requests”

2. List of Abbreviations

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3. Introduction

Dispute settlement is the central pillar of the multilateral trading system. In the World Trade Organization (WTO) it is the unique contribution to the stability of the global economy. There is the Dispute Settlement Understanding (DSU) within the WTO then to solve problems in the trading system. What to do in the face of noncompliance within the DSU? When all else fails, Retaliations under Article 22 of the DSU of the WTO represent the countermeasures of last resort. This essay intends to discuss aspects of the WTO-Retaliation System.

Part one of the essay offers an introductory background to World Trade Organization. Chapter 4.1 summarizes the Dispute Settlement Understanding followed by the examination of the Implementation Stage and the Compensation and the Suspension of Concessions. Chapter 5 of the essay looks on The Use of Retaliations in the Dispute Settlement Procedure and gives an theoretical introduction to the Three-Stage-Retaliation and the Possibility of Arbitration in the DSU. Part 6 discusses the WTO Retaliation System in Practice. Chapter 6.1 especially looks at Problems within the WTO Retaliation System. Finally this seminar paper offers Cases of Retaliation under the Dispute Settlement System including a Statistical Overview of Retaliations within the WTO. And in the end the essay is rounded by a conclusion.

4. The World Trade Organization

What is WTO? “The WTO deals with the rules of trade between nations at a global or near-global level.”¹ In other words, there are three important sides to the WTO’s work: the WTO is an international agency which encourages trade between member nations, administers global trade agreements and resolves disputes when they arise.² The third important side to the WTO’s work is to help to settle disputes then. In most cases trade relations involve conflicting interests. Agreements often need interpreting, including those carefully negotiated in the WTO-system. To settle these differences in agreement is through some neutral procedure based on a legal foundation which is agreed also. That is the idea behind the dispute settlement process written into the WTO agreements.³ The dispute settlement procedure of the WTO is governed by the Understanding on Rules and Procedures Governing the Settlement of Disputes. With certain exceptions, the DSU is uniformly applicable to differences that arise in the context of all WTO agreements (DSU Article 1).

4.1 The Dispute Settlement Understanding

The settlement of disputes is contemplated by the WTO as “the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy.” The WTO demands that all its members respect the rules in the interest of a safer and more consistent multilateral trade system. In this sense, WTO members have agreed that, when they judge that other members have broken trade rules, they shall refer the issue to the dispute settlement system of the WTO rather than adopting unilateral actions.⁴ This involves complying with the agreed procedures and respecting the decisions reached by the dispute settlement bodies set up for that reason.⁵ To conclude, a dispute based on the violation of WTO rules can only be dealt by the multilateral forum, rather than by regional dispute settlement mechanism. The multilateral trade system of the WTO contains such s dispute settlement mechanism. But when was the DSU born?

Since the Establishment of the General Agreement on Tariffs and Trade (GATT) of 1947, it has evolved from a barely codified, largely diplomatic mechanism into a codified procedure combining elements of consultation and adjudication. Since the entry into force of the WTO agreement after the Uruguay Round, the DSU governs the settlement of disputes between WTO members under the agreements which are covered.⁶

The full WTO dispute settlement process involves parties, the Dispute Settlement Body (DSB), Panels, the Appellate Body, WTO Secretariat, arbitrators, independent experts and various specialized agencies.⁷ This essay gives an introduction to the Implementation Stage, Retaliation-System and the Possibility of Arbitration within the WTO dispute settlement process.

4.1.1 The Implementation Stage

Disputes in the WTO are in actual fact about broken promises. Disputes occurs when one country implements a trade policy measure or do something that one or more WTO members believes to be breaking the WTO agreements, or to be failure to live up to responsibilities. A third group of countries can declare that they have interest in the case and have the benefit of some rights.⁸ Following to this, the procedure of settling disputes starts up to the Implementation Stage:

illustration not visible in this excerpt

Fig.: 1 “A Flow Chart of the Panel Process”

Source: WTO.org: http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp2_e.htm (09.01.2011)

Where the panel and / or the Appellate Body have reached the conclusion that trade measures for a country are not compatible with its responsibilities under any of the multilateral trade agreements, it recommends that the member state shall bring its measure into conformity with the WTO agreements. The panel or the Appellate Body are free to make suggestions on how this conformity can be reached.⁹

The member whose trade measure has been found to be in violation of WTO obligations shall communicate to the DSB how it plans to implement the DSB recommendations. As a general rule, the recommendations and rulings should be implemented directly or within a reasonable period of time (RPT). If the parties to the dispute cannot agree within a RPT, it will be determined by binding arbitration within 90 days after the adoption of the recommendations and rulings. It should not exceed 15 month, but it can adjusted upwards or downwards in exceptional circumstances.¹⁰ The DSU requires that the DSB keeps the implementation of adopted recommendations under surveillance and that the implementation of rulings is placed on the DSB agenda after six month following the determination of the reasonable period of time, unless the DSB decides otherwise. The dispute remains on the agenda until it is resolved. During this time, the defendant party is required to submit written status reports to the DSB 10 day prior to each meeting with information on the progress in the implementation of the recommendations and rulings.¹¹

If a dispute arises between the parties on whether implementation has been sufficient or whether it has taken place at all, “such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel”.¹² Where no implementation occurs, the DSU grants for compensation or for the suspension of concessions or other obligations (SCOO).

4.1.2 Compensation and the Suspension of Concessions

Compensation does not mean that monetary payment for example is paid to or otherwise provided for the direct trade loss of WTO members as a result of the measures taken my another WTO member.¹³

As we learned before, that where no implementation occurs, the DSU provides for compensation or for the SCOO as vehicles of temporary relief in case on non- compliance. However, neither compensation nor the SCOO is preferred to full implementation. It is important to note that full implementation of the recommendations and rulings of the DSB are the primary objective of the dispute settlement procedure. Another important aspect is that compensations are voluntary and, if they are granted by the DSU, they shall be consistent with the covered agreements.¹⁴ Upon request from the complainants, the defendant shall enter into negotiations with a view to developing mutually acceptable compensation. When there is no satisfactory compensation, which has been agreed within twenty days after the date of expiry of the RPT, the complainants may ask for authorization from the DSB to suspend the application to the defendant concerned of SCOO under covered agreements.¹⁵ The SCOO can take several forms, for example in terms of trade in goods; usually the complaining member raises the tariff rates on certain selected products from the member concerned.¹⁶

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¹ World Trade Organization, The WTO, 5th ed., Geneva: WTO 2010, p. 11.

² Ferguson, I.F., The World Trade Organization: Background and Issues, Congressional Research Service (2007), pp. 2-6.

³ E.g. World Trade Organization, The WTO, pp. 11-12.

⁴ E.g. World Trade Organization, The WTO, p. 57.

⁵ Breuss, F., WTO Dispute Settlement from an Economic Perspective - More Failure than Success?, Research Institute for European Affairs (2001), pp. 9-11.

⁶ Brown, C.P. & Pauwelyn, J., The Law, Economics and Politics of Retaliation in WTO Dispute Settlement, 1st ed., New York: CAMBRIDGE University Press, 2010, pp. 1-2.

⁷ Guohua, Y., Mercurio B., & Yongjie, L., WTO Dispute Settlement Understanding: A Detailed Interpretation, 1st ed., The Hague: KLUWER Law International, 1995, pp. 1-31.

⁸ E.g. World Trade Organization, The WTO, p. 57.

⁹ Article 19.1 DSU.

¹⁰ Article 21.1-3 DSU.

¹¹ Article 21.4-6 DSU.

¹² Article 21.5 DSU.

¹³ World Trade Organization, A Handbook on the WTO Dispute Settlement System, 1st ed., Cambridge: CAMBRIDGE University Press, 2004, pp. 250-255.

¹⁴ Article 22.1 DSU.

¹⁵ Article 22.2 DSU.

¹⁶ E.g. World Trade Organization, The WTO, p. 60.