FROM GATT 1947 TO WTO: A SYNOPSIS BY VUSUMUZI MI BHEBHE The World Trade Organisation (WTO) dispute settlement system

was not established out of nowhere. The system has its roots in the General Agreement on Tariffs and Trade 1947 (GATT) dispute settlement system. It must be understood that there were so many flaws that were inherent in the GATT system such as the existence of fragmented dispute settlement procedures, lack of strict time frames to settle disputes, requirement of positive consensus in relation to important decisions, the diplomatic or anti-legalistic approach to dispute settlement and lack of fool proof mechanisms for the implementation of decisions of the panels. The WTO system adopted the good attributes of the GATT system but it must be noted that the WTO system metamorphosed into a rule based system, with definite and established procedure in the Dispute Settlement Understanding (DSU), and with a legalistic approach to dispute settlement. The fundamental departure of the WTO system from the GATT system is the advent of the inverted consensus rule as opposed to the latters positive consensus rule which has augmented the efficacy of the system which shall be elaborated infra. The WTO came into being in 1995. It is the successor of the GATT 1947 established in the wake of World War II.1 The WTO is the only international organization dealing with the global trade between nations. Its main function is to ensure that trade flows as smoothly as possible.2 Its ultimate objective can however be affected by a number of factors for example the fact that trade relations often involve some conflicting interests, the various trade agreements that make the WTO system often need to be interpreted and member states need to expeditiously resolve trade related disputes due to the enormous negative effects these might have on their relations. This logically means that an effective dispute settlement mechanism is an essential component of the WTO. Such being the case, the ensuing discussion will set out to elaborate the changes and positive aspects that came with the WTO dispute settlement understanding (WTO DSU). The GATT had only two articles on dispute settlement namely Art XXII on Consultation and XXIII on Nullification or Impairment.3 The GATT system therefore lacked comprehensive rules governing dispute settlement. The former was primarily concerned with consultations between contracting parties in the event of disputes over the application of the GATT rules. Basically, consultations entail negotiations between the members concerned. As regards the
1
2

D William (1987) Dispute Settlement Under GATT 11 F.J.I.L51. P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials. 3 K Van der Borght The Review of the WTO Understanding on Dispute Settlement: Some Reflections on the Current Debate p1224.

article on nullification or impairment, it would only find relevance in the event of parties failing to reach an agreement in terms of Article XXII. Neither of the above mentioned Articles explicitly referred to dispute settlement or provided for detailed procedures to handle disputes as noted by Bossche.4 When consultations under Article XXII and XXIII:1 of the GATT 1947 failed to solve a dispute, the dispute was initially handled by working parties set up pursuant to Article XXIII:2. These working parties consisted of representatives of all interested Contracting Parties, including the parties to the dispute and made decisions based on consensus.5 The procedures used by parties under the GATT therefore varied and this was problematic in that it led to uncertainty as to how exactly a dispute would be settled albeit in the majority of cases panels were established for that purpose. Article XXII:1 of the GATT on consultation did not impose an obligation to engage in such process amongst member states.6 Consultation meant the possibility of mediation by third parties of the staff of the GATT Secretariat. In the event of failure of the consultation and or mediation the complaining state would have to resort to provisions of Article XXIII. 7 Article XXIII on nullification defined the conditions under which the violation of the GATT rules permitted contracting parties to seek redress and the means of doing so. A GATT member alleging that any benefit accruing to it had been impaired or nullified was obliged to make representations to the defaulting party or other interested or affected contracting parties. Impairment of a benefit would be alleged for instances in cases of noncompliance by another member with its obligations under the GATT agreement. Parties thus approached would thus give sympathetic considerations to the representations made. In the event of the parties failing to redress the matter on their own, the other contracting parties would then be seized with the matter with a view to investigating into the matter and making the necessary recommendations.8 Davey notes that the aggrieved party would then be allowed to request the appointment of a panel to adjudicate the dispute. The request would be made to the GATT Council, a body which was open to all members. There was considerable delay between the initial request an the setting up of a panel.9 An empirical example would be the DISC case where it took the GATT Council three years to appoint a panel.10 The panel would receive written or oral submissions
4 5

P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials page 176. Ibid page 177. 6 R Read (2005) Trade Dispute Settlement Mechanism: the WTO dispute settlement understanding in the wake of the GATT page 2. 7 Ibid. 8 P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials. 9 WJ Davey (1987-1988) Dispute Settlement in GATT vol 11:51 page 59. 10 Ibid.

from other interested parties. Following its consideration of the comments, the panel would then submit its report to the GATT Council would then adopt such a report by consensus. This reflects the inherent flaws within the GATT system in that it lacked specified time frames within which to resolve disputes. The DISC case in which the European Community (EC) alleged that certain United States (US) tax legislation amounted to an export subsidy. In response the US counterclaimed that several EC member state tax systems were also operated as export subsidies. The conduct of the combined cases epitomized the shortcomings of the dispute settlement system in that it took almost a decade to resolve such a dispute because of lack of specified time frames.11 The procedure of the WTO dispute settlement mechanism is different from that which existed under GATT 1947. The WTO system has comprehensive and extensive rules governing the dispute settlement system. The WTO DSU contains twenty-seven articles and four appendices and as such provides a significantly more substantial and effective framework for settling international trade disputes than the GATT system that preceded it.12 This is one major change as well as a benefit which was not there under the GATT system. The dispute settlement understanding is administered by the Dispute Settlement Body (DSB) which is the WTO General Council acting in a specialised role under a separate chair. 13 There was no such body under the GATT system and such a lacuna hindered the effective settlement of disputes as parties would have to rely on temporary arrangements.14 The WTO DSU unlike the GATT system also established a unified dispute settlement system covering all of the WTO Agreements. The DSB also introduced strict deadlines to settle disputes within a time frame acceptable to the business community.15 Appellate Body proceedings are also not expected to exceed 90 days. These accelerated procedures with shorter time limits are a fundamental break from the GATT regime which had a propensity to be unduly prolonged due to lack of clearly established time frames to settle disputes. The WTO DSU also moved from the diplomatic dispute settlement system of the GATT to a rule based system. This is aptly summarised by Hudec who stated that: during the first thirty years of the GATT history, roughly 1948 to 1978, the GATT disputes procedure did exhibit a distinctly diplomatic character.16 The problem with a

11 12

Ibid page 64. World Trade Organization The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations. 13 JH Jackson et al (2002) Legal Problems of International Economic Relations, Cases and Text 5 (ed). 14 Ibid. 15 K Van der Borght The Review of the WTO Understanding on Dispute Settlement: Some Reflections on the Current Debate p1224. 16 P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials page 178.

diplomatic system is that it is based on the political power of a state translating to a situation of might as right instead of right as might which is only achievable under a rule based system. Ernst-Ulrich Petersmann wrote that Rules and their rule-oriented rather than poweroriented interpretation and application enhance predictability and legal security, the risks of abuse of power. Investors and consumers prefer to do business where rules are observed and enforced.17 The DSU has therefore changed the nature of the dispute settlement process from a diplomatic to a legalized process and from a power-based to a rule-based procedure. It is also important at this juncture to give a synopsis of the WTO dispute settlement procedure in a bid to highlight how certain and expeditious the process is. In terms of Article 4 of the DSU parties must conduct consultations, if such consultations fail to resolve the dispute within sixty days, the complainant may as of right requests for the establishment of a panel. A panel is established in terms of Article 6 of the DSU and the panel is established by the DSB, the panel has nine months to resolve the dispute and this is indicated by the issuing of a report to the parties as well as the DSB. If any party notes an appeal, the Appellate Body has sixty days to conduct its review and completes the process by issuing a report upholding, modifying or reversing the panel report. The panel report, or in the case of an appeal, the Appellate Body report and the panel report will be adopted by the DSB. After the adoption of the reports, the respondent if found to be in breach of WTO law will have to implement the recommendations and rulings adopted by the DSB within a reasonable time.18 There are so many changes that the described WTO dispute settlement system has instituted which have brought with them some invaluable benefits.The GATT system was founded upon the principle of positive consensus which meant that important decisions of working parties were to bind member states if adopted unanimously. This rendered the dispute settlement system ineffective in that countries defending a complaint could veto the ratification procedure or block adverse decisions so as to avoid being obliged to bring their trade policies into GATT compliance.19 The negative consensus requirement means that the adoption of panel reports can no longer be blocked by the losing respondents thus it triggers the right of plaintiffs to retaliate. This means that under the negative consensus regime of the WTO, there is a quasiautomatic adoption of reports since it is impossible to achieve unanimity in rejecting such reports. The advantage of the negative consensus rule is that it assists in preventing member

17 18

Ibid 179. World Trade Organization (2004) A Handbook on the WTO Dispute Settlement System: A WTO Secretariat Publication page 44. 19 R Read (2005) Trade Dispute Settlement Mechanism: the WTO dispute settlement understanding in the wake of the GATT page 5.

states from evading the decisions of the panel or Appellate Body which was the common practice under the GATT system. The result is that many states have faith in the WTO settlement system, Bossche records that between 1 January 1995 and 1 September 2004 a total of 314 disputes had been brought before the WTO dispute settlement system and this is more than were brought to the GATT in the forty-seven years between 1948 and 1955.20 The drafting of the DSU means that the WTO dispute settlement system has a unified dispute settlement system covering all of the WTO Agreements. The WTO dispute settlement system is therefore an integrated dispute settlement system meaning it has jurisdiction over any dispute between WTO members arising under the covered agreements.21 The GATT system did not have such procedures and so it relied largely on creation of ad hoc processes.22 Some of the Agreements concluded under the GATT at the Tokyo Round (1973-1979) such as the Anti-Dumping Code included special procedures for the settlement of disputes arising under these agreements and as a result dispute settlement became fragmented (fragmented dispute settlement under GATT). There is the compulsory jurisdiction of the WTO dispute settlement system which means that a complaining member is obliged to bring any dispute arising under the covered agreements and there is no choice by the responding member to accept the WTO dispute settlement system.23 This is in contrast with the jurisdiction of international courts which is based on consensus of the parties to bring disputes. The WTO dispute settlement system also has exclusive jurisdiction which was also not found under GATT. Exclusive jurisdiction granted by Article 23:2 (a) of the DSU entails that members shall have recourse to the dispute settlement system to the exclusion of any other system.24 This helps in guarding against vigilante justice or unilateral agreements such as those that were found in section 301 of the US Trade Act in protest of the dysfunctional GATT system. This assists in achieving certainty as to the procedures that will take place when a party has violated its WTO Agreement obligations. The concept of rule of law entails that there is prohibition of self-help in any legal system which is why the concepts of compulsory and exclusive jurisdiction of the WTO dispute settlement system are invaluable.

20 21

P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials page 176. Ibid 186. 22 R Read (2005) Trade Dispute Settlement Mechanism: the WTO dispute settlement understanding in the wake of the GATT page 5. 23 Ibid 189. 24 P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials page 189.

Under the GATT system, members did not have a right to the establishment of a dispute settlement panel. The delays that ensued in the process of establishment of panels as highlighted in the DISC case supra greatly affected the effectiveness of the whole system. In sharp contrast the, WTO system, there is now a right to a panel and reports are adopted as of right unless there is consensus in the DSB to the contrary.25 This is the so called negative or inverted consensus rule. Under the WTO system, dispute resolution proceeds automatically, this as a result reflects another difference with the GATT system. This new setup ensures that there is an expeditious settlement procedure of disputes. Under the GATT system, the panels comprised of trade diplomats who did not have any legal training.26 These panels were mandated to reach a decision which would be acceptable to all members including the losing party and as a result their conclusions were not legally sound and were not convincing.27 Under the WTO system, a change has been brought by the

establishment of an Appellate Body. The availability of an appellate body stuffed with highly qualified lawyers with the requisite expertise ensures well informed decisions and consistency of the reports and of the WTO jurisprudence in general, benefits which were not available under the GATT system.28 This aspect has brought with it the benefit of uniformity in the decisions of the DSB. It has also given the losing member an opportunity to appeal against a panel decision which brings some measure of satisfaction and ensures reverence for the whole dispute settlement system. In summation, on the basis of the foregoing considerations, it is clear that the WTO dispute settlement system is different from the GATT system to a larger extent and has greatly yielded some benefits. The WTO has brought with it a paradigm shift from a diplomatic approach to dispute settlement to one which is legalistic. These fundamental changes have resulted in an effective and reliable dispute settlement system compared to the one that existed under the GATT of 1947.

25 26 27

K Van der Borght The Review of the WTO Understanding on Dispute Settlement: Some Reflections on the Current Debate p1224. Bossche 178. Ibid 180. 28 K Van der Borght The Review of the WTO Understanding on Dispute Settlement: Some Reflections on the Current Debate p1224.

BIBLIOGRAPHY: Textbooks: 1. P Van den Bossche (2005) The Law and Policy of the World Trade Organization: Cases and Materials Cambridge University Press: Cambridge. 2. JH Jackson et al (2002) Legal Problems of International Economic Relations, Cases and Text 5 (ed) Journals: 1. K Van der Borght The Review of the WTO Understanding on Dispute Settlement: Some Reflections on the Current Debate. 2. R Read (2005) Trade Dispute Settlement Mechanism: the WTO dispute settlement understanding in the wake of the GATT. 3. World Trade Organization (2004) A Handbook on the WTO Dispute Settlement System: A WTO Secretariat Publication. 4. World Trade Organization The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations. 5. WJ Davey (1987-1988) Dispute Settlement in GATT vol 11:51. 6. D William (1987) Dispute Settlement Under GATT 11 F.J.I.L51.