Anthony Aust. Handbook of International Law
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or other nullification or impairment of benefits under the ‘covered agreements’
35
must have recourse
to the Understanding, not to other means.
36
At all stages of any dispute settlement procedure
involving a least-developed country member, particular consideration must be given to the latter’s
special situation.
The DSB began operations in 1995. By the end of 2004, over 300 complaints had been filed, and
there are now about thirty new ones each year. Over 100 panels have been established, the other
complaints having been resolved by consultations. In the first ten years, some seventy-five panel
reports and fifty Appellate Body reports were adopted by the DSB, although the number of appeals
is decreasing. The system is complex, and only a brief overview can be given here.
Although the DSB applies the ‘customary rules of interpretation of public international law’,
instead of considering breaches of rights the DSB looks more at whether the ‘benefits’ that a
member expects to derive from a covered agreement have been ‘impaired’ by measures taken by
another member. By its recommendations and rulings, the DSB seeks to produce positive, workable
and mutually acceptable solutions.
The objective of the system is first to secure the withdrawal of any unlawful measures.
Compensation is to be resorted to only if immediate withdrawal is impracticable, it then being a
temporary measure pending withdrawal. The system therefore more resembles conciliation, although
it is not left just to economists; lawyers are also intimately involved. But, as a last resort, the
member invoking the dispute settlement procedure has, subject to authorisation by the DSB, the
option of ‘suspending the application of concessions or other obligations under the covered
agreements on a discriminatory basis vis--vis the other Member’ (a long-winded way of referring to
the imposition of countermeasures).
37
The Understanding sets strict time limits, although the DSB
can extend them, and the parties are always encouraged to reach a solution by any means they can
35. Those agreements listed in Appendix 1 to the Understanding: the WTO Agreement: the
Understanding, the Multilateral Trade Agreements (Multilateral Agreements on Trade in Goods, GATS
and TRIPS) and the Plurilateral Trade Agreements (the Agreements on Trade in Civil Aircraft and on
Government Procurement, the International Dairy Agreement and the International Bovine Meat
Agreement). Appendix 2 lists special or additional rules and procedures for covered agreements.
36. Article 23; and United States – Sections 301–310 of the Trade Act of 1974, Report of the Panel, 22
December 1999, WT/DS152/R, paras. 7.35–7.46. The EC also has it own, self-contained system of
enforcement: see Case C-5/94, R. v. MAFF, ex parte Hedley Lomas [1996] ECR I-2553.
37. See p. 425 below on countermeasures in general.
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agree on. There is no need for nationals of the complainant member who are affected by measures
taken by another Member first to exhaust local remedies.
38
Panels
If the parties to a dispute have not resolved it by consultations, the complaining party may ask that a
panel be established. The panel’s role is to make findings to help the DSB in formulating
recommendations or giving rulings provided for under the covered agreements. A panel has three
members unless the parties agree to have five. The Secretariat maintains a list of possible members
and proposes nominations. A party can oppose a nomination only for compelling reasons. Should
there be no agreement on the appointment of members, the WTO Director-General will at the
request of either party make the appointments. Third parties that have notified the DSB of a
substantial interest in the matter may make
38. See p. 441 below.
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written submissions to, and be heard by, the panel. The panel’s deliberations are confidential. It
consults regularly with the parties, giving them adequate opportunity to develop a mutually
satisfactory solution. But if they fail the panel submits a report to the DSB, which is circulated to all
Members. The report is then adopted by the DSB within sixty days, unless a party notifies the DSB
that it will appeal, or the DSB decides, by consensus, not to adopt the report (so-called negative
consensus).
Appellate Body
The DSB appoints seven persons to serve on the Appellate Body for four-year terms, renewable only
once. Three of them sit on any one case. Appeals from panel cases are limited to issues of law
covered in the panel report. The power to adopt interpretations of the WTO Agreement and other
covered agreements is vested exclusively in the WTO Ministerial Conference and General Council
(Article (2)). But this does prevent the panels or the Appellate Body interpreting any of the
agreements, subject always to such adopted interpretations, which may themselves have to be
interpreted.
Only the parties to the dispute may appeal, although third parties which have notified the DSB of
a substantial interest in the matter may make written submissions to, and be heard by, the Appellate
Body. The proceedings are confidential, and continue for no more than ninety days. The Appellate
Body may uphold, modify or reverse the legal findings and conclusions of the panel. The DSB then
adopts the report of the Appellate Body (which is binding on the parties) unless the DSB decides, by
consensus, not to adopt the report.
Recommendations
When a panel or the Appellate Body concludes that a measure is inconsistent with a covered
agreement, it ‘recommends’ that the member bring the measure into conformity with the covered
agreement, and may ‘suggest’ ways in which the member could implement the recommendation.
The findings and recommendation of the panel or Appellate Body cannot add to or diminish rights
and obligations under the covered agreements. Within thirty days of the adoption of a panel or
Appellate Body report, the member must tell the DSB of its intentions as regards the implementation
of the recommendation.
Compensation and countermeasures
Compensation and countermeasures are ‘temporary’ measures available in the event that
recommendations or rulings are not implemented, neither being preferable to full implementation.
Compensation is voluntary. If the member fails to comply with recommendations and rulings within
the reasonable period it must, if so requested, enter into negotiations with the other party with a view
to agreeing compensation. If that cannot be agreed, any complaining party may ask the DSB to
authorise it to take countermeasures (Articles 3(7) and 22).
In considering what countermeasures to seek, Article 22(3) requires the complaining party to
follow certain general principles: (a) countermeasures should be with respect to the same sector(s) as
that in which the panel or Appellate Body has found a violation or other nullification or impairment;
(b) if that is not practicable or effective, countermeasures may be sought in other sectors of the same
agreement; (c) and if that is not practicable or effective, and the circumstances are serious enough,
the complaining party may seek countermeasures in respect of another covered agreement. In
applying these principles, account should be taken of ( ) the trade in the sector or under the
agreement under which the panel or Appellate Body has found a violation or other nullification or
impairment, and the importance of such trade to the complaining party and
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( ) the broader economic elements related to the nullification or impairment and the broader
economic consequences of countermeasures.
The DSB authorises countermeasures unless it decides, by consensus, to reject the request. The
level of the authorised countermeasures must be proportionate to the nullification or impairment,
and the DSB cannot authorise countermeasures if they are prohibited by a relevant covered
agreement. However, the question of countermeasures is referred to arbitration if the respondent
member (1) objects that the authorised countermeasures are disproportionate or (2) claims that the
principles and procedures set forth in Article 22(3) were not followed when the complaining party
had requested authorisation for countermeasures pursuant to subparagraphs (b) or (c) above. The
arbitration is carried out by the original panel or by one or more arbitrators appointed by the
Director-General. Meanwhile, countermeasures must not be taken. The arbitral award is final. If the
countermeasures are approved, the DSB must then, upon request, authorise them, unless it decides,
by consensus, to reject the request.
In September 2000, the DSB adopted an Appellate Body report in favour of the EC that the
United States had not brought its Antidumping Act 1916 into conformity with its WTO obligations.
In January 2002, the EC asked the DSB to authorise countermeasures. The United States objected to
their proposed level, and the matter went to arbitration. In February 2004, the arbitration award
decided that the EC could impose countermeasures (suspension of its obligations under GATT 1994
and the Anti-Dumping Agreement) within certain parameters.
39
When last heard, the US Senate was
considering repeal of the Act.
Rather than going through the panel/Appellate Body procedure, an alternative means of dispute
settlement for issues that have been clearly defined by both parties is simple binding and expeditious
arbitration within the WTO, and this is encouraged. It is of course subject to the agreement of the
parties.
NAFTA
The North American Free Trade Agreement 1992 between Canada, Mexico and the United States
entered into force in 1994.
40
NAFTA aims to remove trade barriers and promote fair competition
and investment. A Free Trade
39. WT/DS136; ILM (2004) 931.
40. ILM (1993) 289. The website is the best primary source of texts and other information: www.nafta-sec-
alena.org. Collier and Lowe, The Settlement of Disputes in International Law, Oxford, 1999, pp. 111–15,
has a useful summary of the dispute mechanism.
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Commission oversees its implementation and can also give interpretations of the Agreement to
domestic courts, although these are not binding in domestic law.
Chapter 20 of NAFTA provides that when there is a dispute between two member states about a
trade measure which comes also within the scope of the WTO, the complaining party has discretion
as to which forum to use. Under NAFTA, the dispute is subject to consultations and, ultimately, a
report by a five-person arbitral panel. If a third NAFTA member has a substantial interest in the
subject matter, it may join in as a complaining party. If the panel reports that a measure is
inconsistent with NAFTA obligations, yet the member responsible does not remedy this
inconsistency, the complaining member can take countermeasures similar to those under the WTO
Agreement. But a member state may not provide in its domestic law for any right of action based on
a claim that a measure taken by another member state is inconsistent with NAFTA.
Chapter 11 of NAFTA has detailed provisions for the protection of investments similar to those
commonly found in BITs, and for investment disputes to be decided by international arbitration
under ICSID, the ICSID Additional Facility Rules or the UNCITRAL Rules.
41
Recourse to
arbitration bars the investor from pursuing domestic remedies. Arbitrations that have a question of
fact or law in common may be consolidated. An award may be enforced under ICSID, the New York
Convention
42
or the Inter-American Convention on International Commercial Arbitration 1975
(Panama Convention).
43
MERCOSUR
The Mercado Común del Sur (MERCOSUR) was established in 1991 by the Treaty of Asunción,
44
and the Ouro Preto Protocol 1994.
45
Its purpose
41. For examples of recent cases, see Feldman v. United Mexican States, 126 ILR 1 and 536; Myers v.
Canada, ILM (2001) 1408; 126 ILR 161; and Pope & Talbot Inc. v. Canada, ILM (2002) 1347; 126 ILR
127.
42. 330 UNTS 3 (No. 4739); UKTS (1976) 26; TIAS 6997. See Collier and Lowe, The Settlement of
Disputes in International Law, Oxford, 1999, pp. 266–70.
43. 1438 UNTS 249 (No. 24384); ILM (1975) 336.
44. ILM (1991) 1041. For this and the other Mercosur treaties and information generally, see
www.mercosur.org.uy (Spanish and Brazilian Portuguese only). See also M. Haines-Ferrari, The
MERCOSUR Codes, London, 2000; Haines-Ferrari, ‘Mercosur: Individual Access and the Dispute
Settlement Mechanism’, in Cameron and Campbell (eds.), Dispute Resolution in WTO, London, 1999, p.
270; and Haines-Ferrari, ‘Mercosur: A New Model of Latin American Economic Integration?’ (1993) Case
Western Journal of International Law 413.
45. ILM (1995) 1244. See also (1998) ICLQ 149.
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is to develop a common market and customs union. Based in Uruguay, its members are Argentina,
Brazil, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela. Bolivia and Chile are associate
members. The Protocol of Brasilia 1991 (to be replaced by the Protocol of Olivos 1992, once
ratified) has a system for dealing with disputes between the member states, including on behalf of
their nationals. First there are direct negotiations, then internal MERCOSUR mechanisms and
ultimately an ad hoc arbitration panel. The Protocol of Colonia 1993 provides for NAFTA-type
mixed arbitration of investment disputes. In 1995, MERCOSUR concluded a framework co-
operation agreement with the EU.
46
MERCOSUR has not been very effective. In late 2004, it was reported that South American states
were considering replacing it with a larger and more comprehensive South American Community
(Comunidad Sudamericana de Naciones).
International commercial arbitration
47
It is beyond the scope of this book to go into detail about international commercial arbitration. It is
enough to say that there are sets of rules, quite similar in content, for the conduct of commercial
arbitrations between (mainly) corporations or, to a much smaller extent, between corporations and
states. Unless the parties to a dispute are bound by contract or treaty to accept particular rules, they
can agree to use any of these sets of rules. If the latter, they will almost certainly use one of the
ready-made sets of rules as a basis, there being no point in reinventing the wheel. Those rules most
used are the arbitration rules of the International Chamber of Commerce (ICC)
48
and the UN
Commission on International Trade Law (UNCITRAL).
49
Although the parties can agree changes to
the rules, if one of the institutions is asked to conduct the arbitration it generally does not look with
favour on any messing about with its tried and tested rules. The ICC, based in Paris, was established
in 1919. But arbitrations under its rules, or the UNCITRAL rules, can be held anywhere, although
they are often held in London or Geneva.
46. See http://europa.eu.int/comm/external_relations/mercosur/intro/.
47. For the various rules, see Smit and Pechota, Arbitration Rules – International Institutions, London,
1997; or for links to the main websites, see www.internationaladr.com/iir/.
48. See www.iccwbo.org/tribunal/english/arbitration/rules.asp.
49. See www.uncitral.org/en-index/.