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WTO’s dispute settlement mechanism

 

Topics Covered:

Important International institutions, agencies and fora, their structure, mandate.

 

WTO’s dispute settlement mechanism

What to study?

For prelims: WTOs dispute settlement mechanism- objectives, how it operates?

For mains: issues associated and the need for reforms.

 

Context: The World Trade Organization’s (WTO’s) dispute settlement mechanism is on the brink of collapsing. Of the three members currently on the seven-member body, the terms of two has ended.

What’s the issue now?

The dispute settlement mechanism requires at least three members to function, and world trade is about to enter a phase in which there will be no official resolution for many international disputes — potentially creating the circumstances for a free-for-all.

Who is to be blamed for the situation?

  • Over the last couple of years, the membership of the body has dwindled to (the present) three persons (instead of the required seven) as the United States has blocked the appointments of new members, and the reappointments of members who had completed their four-year tenures.
  • The US believes the WTO is biased against it, and has criticised it for being “unfair”. The administration of President Donald Trump has, therefore, taken the decision to starve the body of personnel and to disregard its authority — imposing new tariffs on not just China, but also American allies such as Canada, Europe, and Japan.

What is the WTO’s Appellate Body, and why is it important?

The Appellate Body, set up in 1995, is a standing committee of seven members that presides over appeals against judgments passed in trade-related disputes brought by WTO members.

Who can approach?

  • Countries involved in a dispute over measures purported to break a WTO agreement or obligation can approach the Appellate Body if they feel the report of the panel set up to examine the issue needs to be reviewed on points of law. Existing evidence is not re-examined; legal interpretations are reviewed.
  • The Appellate Body can uphold, modify, or reverse the legal findings of the panel that heard the dispute. Countries on either or both sides of the dispute can appeal.

Significance:

The WTO’s dispute settlement procedure is seen as being vital to ensuring smooth international trade flows. The Appellate Body has so far issued 152 reports. The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.

So, what is the problem in the WTO Appellate Body?

Over the last two years, the membership of the body has dwindled to just three persons instead of the required seven.

The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years, and the backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.

With the Appellate Body unable to review new applications, there is already great uncertainty over the WTO’s dispute settlement process.

  • If the body is declared non-functional, countries may be compelled to implement rulings by the panel even if they feel that gross errors have been committed.
  • Should such a country refuse to comply with the order of the panel on the ground that it has no avenue for appeal, it will run the risk of facing arbitration proceedings initiated by the other party in the dispute.

 

Sources: the Hindu.