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Dispute Settlement In Trade & Investment Agreements

Suhail A. NathaniPartner

Economic Laws Practice

Mumbai● New Delhi ● Ahmedabad

August 24, 2007

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Dispute Settlement In Trade & Investment Agreements: Scheme of

Presentation Dispute Settlement Mechanism (DSM) in the WTO:

History & Working Evolution Instruments Structure of WTO DSS Legal Basis for a Disputes Various Stages Rules of Interpretation Amicus Curiae Briefs Standard of Review India’s Experience Ongoing Review

DSM in Regional Trade Agreements (RTAs) Background Mechanism Private Party Rights: Investor-State Dispute Settlement DSM in RTAs vis-à-vis WTO DSS: Mexico Soft Drinks Case

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Dispute Settlement In Trade & Investment Agreements

Dispute Settlement under WTO

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History and Working of the DSS

World Trade Organisation (WTO) established in the year 1995; successor to the GATT,1947

One of the primary objectives is to settle trade disputes; done through the DSS

WTO DSS created as part of the WTO Agreement during the Uruguay Round.

Embodied in Understanding on Rules and Procedures Governing the Settlement of Disputes; (Dispute Settlement Understanding -DSU).

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History and Working of the DSS (Cntd.)

DSU constitutes Annex 2 of the Marrakesh Agreement establishing the World Trade Organization (WTO Agreement)

Sets out the procedures and rules Present day DSS: result of evolution of rules,

procedures and practices developed over 50 years under the GATT,1947.

Prior to WTO DSS, trade disputes settled under the GATT,1947 DSS.

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Dispute Settlement under GATT,1947

Shortcomings of the GATT DSS Appointment of panel, adoption of rulings,

imposition of sanctions: done through positive consensus

No detailed procedures No fixed timetable Rulings easier to block Cases dragged on for years Overall an inefficient system; not very popular

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Dispute Settlement under WTO: Instruments

Article XXII and XXIII of GATT,1947 Understanding on Rules and Procedures

Governing the Settlement of Disputes Few specific rules in other WTO agreements.

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Dispute Settlement under WTO: Improvements over GATT, 1947

It remedies the inherent defects of the GATT DSS Introduces the negative consensus rule Resulting in automatic establishment of panel & appellate body

(AB), automatic adoption of panel/ AB reports and automatic authorization of countermeasures against the non complying party

Integrated framework applying to all agreements with only minor variations

Provides more detailed procedures for each stage of dispute Establishes specific time frames and deadlines for prompt

settlement of disputes Provision for appellate review Overall an efficient system Effectively used by members to settle more than 300 disputes in

the last 12 years.

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Structure of the WTO DSS

Ministerial Conference: top most decision making body of the WTO

The DSB is the administrative body which handles Day-to-day work of dispute settlement and comprises of all WTO member countries.

The DSB reports to the Ministerial Body. DSB comprises of ad hoc Dispute Panels and

a standing Appellate Body (AB)

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Legal Effect Panel/Appellate Body Reports

Report becomes binding after adoption by the DSB Reports binding only on the Parties to the dispute Since reports relate to specific matters in the dispute

between the Parties to the dispute: Reports have no precedent value

However Panels and Appellate Body accord due deference to previous Reports for the purposes of: Enhancing the “security and predictability” of the

multilateral trading system (Art. 3.2, DSU) Upholding the “legitimate expectations” created among

the WTO Members from previous adopted Reports (AB Report, Japan Alcoholic Beverages II)

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Dispute Settlement Panel: Function and Composition

Quasi-judicial body, similar to domestic tribunals Adjudicates disputes in the first instance No permanent panel at the WTO; different panel composed for

each dispute Normally composed of three( in some cases five) experts on an

ad hoc basis Selected by the DSB in consultation with the disputing parties,

possibly from the indicative list maintained by the WTO Secretariat

Preferably one member is from a developing country and the other two from countries not party to dispute.

Panel reviews the factual and legal aspects of the case, records its findings and makes recommendations

On acceptance by the DSB, the Panel report becomes binding on the parties.

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Dispute Settlement AB: Functions and Composition

Unlike Panel, AB is a permanent body of seven members

Reviews legal aspects of reports issued by the Panel. AB members appointed by the DSB by

consensus(Art.2.4 DSU) for a four years term and can be reappointed once (Article 17.2 DSU)

AB members to be persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally, and they must not be affiliated with any government (Art. 17.3 DSU)

AB members to be broadly representative of the membership of the WTO (Art. 17.3 DSU)

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Legal Basis for a Dispute

Violation The DSU is primarily concerned with settlements of

disputes that involve an infringement of an obligation assumed under one or more of the WTO agreements.

Non Violation and Situation Complaints: GATT Art. XXIII(1)(b): When a benefit under the

WTO Agreements, accruing to a Member directly or indirectly, is nullified or impaired as a result of another Member country applying a measure, irrespective of whether or not such measure conflicts with any of the WTO Agreements (Non Violation)

GATT Art. XXIII(1)(c): extends such nullification or impairment as resulting from a broader range of circumstances, captured by the phrase ‘existence of any other situation’. (Situation Complaint)  

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Non-Violation or Situation Complaints

Non Violation The burden of proof is on the complainant, who must present a

“detailed justification” of the complaint by: Defining the “benefit” being nullified or impaired Defining the “measure” responsible Showing a casual relationship between the measure and the

nullification or impairment Eg. Photographic Paper, Asbestosis

Where the elements of a non-violation complaint are proved, there is no obligation to withdraw the measure – only that the offending member must make a “mutually satisfactory

adjustment.”

Situation All other nullification or impairment of benefits are deemed to be

impeded by “any situation.”

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Basic Stages of Dispute Settlement

The (national) dispute initiation stage.

Consultation stage Panel stage Appellate review stage Adoption Implementation and

Surveillance

Stage Process No. of Days

1st Stage

Consultations, mediation, etc 60 days

2nd Stage

Panel set up and panellists appointed

45 days

3rd Stage

Final panel report issued to parties 6 months

Final panel report circulated to WTO members

3 weeks

4th Stage

Dispute Settlement Body adopts report (if no appeal)

60 days

(without appeal) Total = 1 year

5th Stage

Appeals report 60-90 days

Final Dispute Settlement Body adopts appeals report

30 days

(with appeal) Total = 1y 3m

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Basic Stages of Dispute Settlement: Dispute Initiation

Complaints made: By a particular Business or Industry To its government Against trade restrictive measures by a WTO

member country Concerned Government may conduct an

internal enquiry to ascertain the legality of the complained measures

On being satisfied it may decide to challenge the measure of that WTO member country.

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Basic Stages of Dispute Settlement: Consultations

Request for Consultations: In writing & state the reasons for request Forms Legal basis of complaint (Art.4.4 DSU) Notified to DSB and concerned Councils &

committees (Art. 4.4 DSU) Typically take place in Geneva & are

Confidential( Art. 4.6 DSU) Dispute not resolved: Request DSB for

establishment of Panel

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Basic Stages of Dispute Settlement: Request for establishment &

Constitution of Panel Request for establishment of panel initiates the adjudication process Request to be made to the Chairman of the DSB Indicate whether: consultations were held, identify the specific measures at issue, and provide a brief summary of the legal basis of the complaint (Article

6.2 of the DSU). Constitution of Panel: The WTO Secretariat proposes names, parties either agree or for

compelling reasons oppose( Art.8.6 DSU) If panel not composed within 20 days of its establishment by this

method, either party may request the Director General (DG) WTO to compose the panel.

The DG appoints the panel members in consultation with the chairperson of the DSB and the chairperson of the relevant Council or Committee, after consulting with the parties, within 10 days after sending this request to the chairperson of the DSB. ( Art.8.7 DSU)

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Basic Stages of Dispute Settlement:Panel Proceedings

In accordance with working procedures ( DSU appendix III)

Fixing of Terms of references Oral & written submissions of the parties Meetings of parties & Panel Interim Report & review Final report issued to the parties within 6

months of the terms of reference Final report submitted to DSB

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Basic Stages of Dispute Settlement:Panel Proceedings (Cntd.)

Third parties may also participate, provided they establish “substantial interest”.

3rd Parties have limited rights of participation & right to seek information

Amicus Curiae briefs may be entertained on Panels discretion.

Expert review groups may be appointed by the Panel ( DSU appendix IV)

Confidentiality to be maintained.

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Basic Stages of Dispute Settlement:Appeal

Standing Appellate Body Only parties to dispute can appeal Appeal limited to issues of law and legal

interpretations developed by the panel( Art. 17.6 DSU)

AB may uphold, modify or reverse the legal findings & conclusions of the panel (Art. 17.13 DSU)

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Basic Stages of Dispute Settlement:Appeal (Contd.)

Panel report adopted by the DSB within 60 days after the circulation to members unless:

Party notifies decision to appeal DSB decides by consensus not to adopt it AB report adopted by the DSB within 30 days after

circulation to members. Where violation of WTO Agreements is found,

panel/AB may: (Art.19.1 DSU) Recommend members to bring the measures in

conformity Suggest ways of implementing the recommendations

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Dispute Settlement under WTO: Implementation & Surveillance

Panel/AB report to be adopted within “reasonable period of time” (Art. 21.3 DSU):

RPT proposed by member & approved by DSB,

or mutually agreed by the parties, or determined through arbitration (15 months) Compliance review: (Art. 21.5 DSU) must be

decided by original panel, if possible. Status report by the member on progress in

surveillance

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Dispute Settlement under WTO:Remedies for Non- compliance

On failure to bring the measure in conformity within reasonable period of time, possibility of:

Compensation; or Suspension of concessions equivalent to the

level of nullification or impairment Authorization to suspend within 20 days of

expiry of reasonable period of time

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Dispute Settlement under WTO:Remedies for Non- compliance

Compensation: if implementing party fails to achieve full compliance within a reasonable period of time (Art. 22.2 of DSU): Has to enter negotiations with the complaining party to

ascertain mutually acceptable compensation Compensation not in terms of monetary payments Respondent supposed to offer a benefit (e.g. tariff reduction)

Suspension of concessions in (Art. 22.2 DSU): Same sector, or Other sector. Or Other agreement. Arbitration on the level of suspension (Art. 22.6 DSU)

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Rules of Interpretation

WTO Agreement points two sources of law: The covered agreements The international agreements incorporated in the covered

agreements In addition, the decisions, procedures and customary practice

followed by the GATT Contracting Parties throughout the GATT years shall also be followed( Art. XVI.1, WTO Agreement)

WTO adjudicating bodies have identified the following interpretative elements: Panel/Appellate Body reports Decisions & recommendations by various WTO organs International agreements not reflected in the WTO

agreement Customary international law (e.g. Art. 31 of the Vienna

Convention on Law of Treaties) The travaux preparatoires of the WTO Agreement

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Amicus Curiae Briefs Acceptance of amicus curiae briefs from third parties- A controversial

issue Recent rulings of Appellate Body-Clearly show that the power of

Panels/Appellate Body to accept amicus curiae briefs is an established principle

Shrimp-Turtle Case: Appellate body stated that: Art. 13.1 of the DSU confer power to “seek” information from any

individual/body Power to “seek” shall be interpreted to include the power to accept and

consider amicus curiae briefs. Two methods for submission & consideration of amicus curiae briefs( EC-

Sardines): An amicus curiae brief can be submitted to Panel/Appellate Body with

the consent of participating WTO Members. Private organizations/individuals can submit amicus curiae briefs

directly to the Panel (Art. 13.1) & to the Appellate Body (Art. 17.9, DSU) Whether to accept/consider amicus curiae is up to the

Panels/Appellate Body’s discretion.

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Standard of Review Art. 11 of DSU:

Panel should make an objective assessment of matter before it Including and objective assessment of the facts of the case; and The applicability & conformity with the relevant covered agreements. Panel must observe due process of law ( Appellate Body in Chile

Price –Bands Case) Art. 17.6(i) of Antidumping Agreement-Special standard of review for

antidumping proceedings: Panel not to overturn the proper establishment of facts and unbiased

& objective evaluation made by national antidumping authorities Art. 17.6(ii) of Antidumping Agreement-National Deference principle:

If in Panel’s view a relevant provision admits two permissible interpretation, it shall accept the interpretation which supports the finding of the concerned national antidumping authority.

Art. 17.6 of the Antidumping Agreement is supplementary to Art. 11 of DSU (Appellate body in US-Hot-rolled steel)

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WTO DSS: India’s Experience

India is one of the leading developing country users of the WTO DSS Involved in total of 84 cases at the WTO DSS: As complainants in 17 cases As respondents in 19 cases As third party in 48 cases

Mixed success at the DSS: India-QRs Case: India forced to dismantle QR regime on complaint

from US India-Patents Case: India forced to change its IPR law regime and

bring it in consonance with the TRIPS on complaint from EC EC-Bed Linen Case: India’s claim that practice of “zeroing” while

establishing the existence of margins of dumping was inconsistent with Anti-Dumping agreement was held to be correct and EU was forced to change its measures.

EU-GSPs Case: No clear benefit to India, even though the measure complained against was held to be WTO non compliant.

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WTO DSS: India’s ExperienceOngoing Dispute

India is presently involved in a dispute with the USA (WT/DS360) concerning the imposition of “Additional Duties” on imports of alcoholic beverages and certain identified industrial & agricultural products

Initial complaint was brought by the European Communities against levy of “Additional Duties” on imports of Alcoholic Beverages under Section 3(1) & 3(5) of the Customs Tariff Act,1975(WT/DS356); USA joined as a complainant later on Following consultations India removed the “Additional duties”

on alcoholic beverages levied under Section 3(1), Customs Tariff Act,1975

Thereafter EC requested the Panel to suspend the proceedings

USA decided to continue with the Panel proceedings In substance the dispute now concerns the “Additional Duties”

imposed under Section 3(5) of the customs Tariff Act,1975

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Ongoing Review of the WTO DSS

Broad consensus that DSS has worked reasonably well

Nevertheless review is desirable As agreed by the Members during the Uruguay

Rounds, review of the DSU started in 1997-not part of Doha Round “Single Undertaking”

Has not resulted in any agreed outcome Doha Ministerial Declaration contained a mandate for

“negotiations on improvements and clarifications” of the DSU.

No results till date, though countries have made their submissions on desired changes in the system.

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Dispute Settlement In Trade & Investment Agreements

Dispute Settlement Mechanism under RTAs/FTAs

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Dispute Settlement Mechanism under RTAs/FTAs: Background

Shift in the focus of trade liberalization from WTO to RTAs/FTAs

Surge in the number of RTAs 330 RTAs notified to the WTO (earlier GATT)

till 2005 206 RTAs notified since 1995 Several other in force but not notified

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Relevance of DSMs in RTAs

Trade disputes by their nature require resolution/solution rather than ruling on right or wrong

Overburdened domestic judicial systems Skepticism over impartiality of National

Courts Need for time bound resolution

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Characteristics of an Ideal DSM

Clear procedure Effective administration Impartial, Speedy, Transparent, Inexpensive Upholding principles of Pvt. and Public

International Law Develops coherent jurisprudence

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DSMs under RTAs: Typical Structure

Akin to WTO DSS Consultations/Negotiations Establishment of Arbitral Panel/Committee Appeal: Appellate Board Enforcement Mechanism: Measures to be

brought in conformity or else withdrawal of concessions/benefits

May provide limited access to private parties

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DSMs under RTAs: Private Party Rights

RTAs: Agreements between two or more countries granting preferential market access

Contractual Agreements: Imposing obligations upon signatory countries and not upon private parties

Scope of recent RTAs more ambitious: covering issues such as the trade in Services, Intellectual Property Rights, Investment, Government Procurement, Competition Policy, Labour, Environment etc

Directly affect the commercial interests and investment decisions of Private Parties

Thus Private Parties given limited access to DSMs: usually in case of investor-state disputes

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Private Party rights under FTAs

FTA Subject Matter of Dispute Nature of Private Party Right

North American Free Trade Agreement

Investment Between Commercial Entities(Investor) and State Parties

US-Singapore FTA Investment Between Commercial Entities(Investor) and State Parties

EFTA-Singapore FTA Investment Between Commercial Entities(Investor) and State Parties

EFTA-Korea Investment Agreement

Investment Between Commercial Entities(Investor) and State Parties

EU Treaty Interpretation & application of Treaty Articles, secondary legislations, directives etc.

Between business firms & individuals and member states & EC Institutions.

Indo-Sri Lanka FTA Not Specified Between Commercial Entities

India-Afghanistan Preferential Trade Agreement

Not Specified Between Commercial Entities

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DSMs under RTAs vis-à-vis WTO DSS: Mexico Soft Drinks Case

Detailed rules for resolution of disputes contained in RTAs Establishing DSMs running parallel to WTO DSS May provide countries with two options for dispute resolution Mexico Soft Drinks Case: Issue of conflict of jurisdiction

between NAFTA Panel and WTO Panel Both Panel and AB held that “WTO Panel would seem not to be

in a position to choose freely whether or not to exercise its jurisdiction”

Interesting issues arising out of Mexico Soft Drinks Case: Firstly, what should a country consider when entering into an

RTA with dispute settlement provisions? Flowing from this question, what is the implication of the

choice of dispute settlement forum available to a WTO member who is also a signatory to an RTA that has its own dispute settlement provisions?

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Dispute Settlement In Trade & Investment

Agreements

The EndThank You!