Political Bargaining In The Dispute Settlement Process example essay topic

'The WTO is now a debating society with a Supreme Court'. Has the legalization of the WTO weakened its diplomacy-based negotiating mechanism? With the creation of the World Trade Organization (WTO), dispute settlement has moved to the centre stage of the multilateral trading order. Hence, in this essay I will consider the effects of the new Dispute Settlement Mechanism (DSM) on trade relations. At first, I will illustrate how the DSM operates and how it is different from dispute settlement under the General Agreement on Tariffs and Trade (GATT). Secondly, I will underline the relative success of the new DSM but also point to some emerging problems and weaknesses inherent in a highly legalized DSM.

I will conclude that the DSM has weakened the WTO's diplomacy-based negotiating mechanism as the emphasis of dispute settlement has markedly shifted from political bargaining to legal proceedings. Yet, I will contend that the description of the WTO as a "debating society" is inadequate since member states are explicitly creating and enforcing trade rules rather then just debating over them. Moreover, to portray the new DSM as a "Supreme Court" seems implausible since on the one hand, it represents an ad-hoc two-tier system and not a full time court; on the other, it still supports and favours out-of-court settlements at almost any stage of the legal process. The goal of establishing a more effective DSM during the Uruguay Round negotiations was to foster the creation of a "rule-oriented system" that gives guidance in the way of predictable and generally stable rules to all participants of the multilateral world trading system (Article 3.2 of the DSU). Although international trade is understood in the WTO as the flow of goods and services between members, it is typically not conducted by states, but rather by private economic actors. These market participants need stability and predictability in the government laws, rules and regulations applying to their commercial activity, especially when they conduct trade on the basis of long-term transactions.

Hence, the DSU aims to provide a fast, efficient, dependable and rule-oriented system to resolve disputes about the application of the provisions of the WTO agreement. An interesting facet of the cases brought so far to the DSM is the much higher amount of participation by developing countries. They have brought a number of the cases themselves, even against some of the big industrial trading entities (Thailand vs. US in December 2004 or Korea vs. EC in February 2004). In addition, virtually the first time in the history of institutionalized multilateral trade, developing countries have brought cases also against other developing countries. Yet, it should be noted that to a large degree, the current DSM has not been designed and created 'from the scratch' but was the result of the evolution of rules, procedures and practices developed over almost half a century under the GATT 1947. Much of the reflection on the new dispute settlement has focused on the alleged "juridification" of the WTO.

It has been stressed that prior to GATT, third party dispute resolution required the consent of the disputants both to begin the process and to accept its results. Those two features compromised foundational principles of the rule of law and on many occasions froze the utility of dispute resolution, especially for the meek and economically and politically feeble states. In the treaty named "Dispute Settlement Understanding" (DSU), the blocking of a final panel report by contesting states was eliminated, which had proven to be a major defect of the GATT. The DSU introduced "automatic ity" into the process of dispute settlement whereby reports of a dispute settlement panel and the Appellate Body are to be deemed adopted and binding as treaty law on the parties involved unless there is a consensus against it. By reinforcing the rule of law, the DSM is supposed to make the world trading system more secure and predictable. Where non-compliance with the WTO agreement has been alleged by a WTO member, the DSM provides for the resolution of the matter through an independent ruling that must be implemented promptly, or the non-implementing member will face possible trade sanctions.

Typically, a dispute arises when one WTO member adopts a trade policy or measure (US 2002 tariff on certain steel products) that one or more members (Brazil, China, Chinese Taipei, EC, Japan, Korea, New Zealand, Norway, Switzerland) consider to be inconsistent with the obligations set out in the WTO agreement. In such a case, any member government that feels aggrieved is entitled to invoke the procedures and provisions of the DSM in order to challenge that measure. If the parties to the dispute do not manage to reach a mutually agreed solution, the plaintiff is guaranteed a rules-based two-tier procedure in which the merits of its claims will be examined by an independent body (panels and the Appellate Body). If the plaintiff prevails, the desired outcome is to secure the withdrawal of the measure found to be inconsistent with the WTO agreement. Compensation and countermeasures (the suspension of obligations) are available only as secondary and temporary responses to a breach of the WTO agreement (Article 3.7 of the DSU). Jackson contends that the new Dispute Settlement Mechanism is a welcome step toward a more rule-oriented system that will allow better adjustment of frictions between nation-states, as well as greater predictability and reliability for entrepreneurs.

Indeed, it is widely recognized that the new DSM has, on balance, functioned well: increasing numbers of developed and developing countries have had recourse to it; and compliance has generally been good. In this context, the description of the WTO as a "debating society" seems inadequate since member states are visibly creating and enforcing trade rules rather than just debating over them. Moreover, the new DSM with its two-tier system is different from a "Supreme Court" since it encourages diplomacy-based solutions and supports out-of-court settlements at almost any stage of the legal process. Despite this positive and encouraging note, however, there are also some emerging problems inherent in the DSM, which must be accounted for. This can be done effectively by comparing the nature and the conduct of negotiations within the GATT and the WTO system.

Weiler, for instance, illustrates the benefits of the GATT system and asserts that it successfully managed a relative insulation from the "outside" world of international relations and established among its practitioners a closely knit environment revolving round a certain set of shared normative values (of free trade) and shared institutional (and personal) ambitions situated in a matrix of long-term first-name contacts and friendly personal relationships. This club-like and predominantly low-profile character of the GATT system has ensured the relative success of the diplomacy-based negotiating mechanism. Within the WTO system, however, rather than operating in a mutually beneficial negotiating atmosphere, trade diplomats and staff of national delegations and the WTO find themselves acting or being compelled to act as lawyers, or relying on lawyers, much more heavily than before. Thus, the dispute settlement procedure becomes part of the negotiating tactics for various dispute settlement attempts. The current clash between the EU and the US about subsidies and tax breaks for the aircraft builders Airbus and Boeing respectively underlines this problem: both sides threaten each other to bring the issue to the WTO for legal proceedings if the contestant is not ready to make any substantial concessions in their bilateral negotiations. One the one hand, it can be said that this is a positive trend since it emphasizes the credibility and confidence in the DSM.

On the other, however, this type of tactics poisons the overall negotiating atmosphere and makes a diplomacy-based solution much harder to achieve. In this respect, the recent deadlock of negotiations between the trade representatives Robert Zoellick and Peter Mandelson ensuing a hostile shame-and-blame policy on both sides of the Atlantic indicates the trend towards over-reliance on legal proceedings if diplomatic bargaining turns out to be frustrated or unsatisfying. Furthermore, Busch and Reinhardt point to potential weaknesses of the WTO system deriving from the time-consuming nature of the DSM procedure. In theory, according to the WTO secretariat, the dispute settlement should take up to one year without appeal (Panel Ruling) and one year and three months with appeal (Appellate Body Review). Yet, Bush and Reinhardt claim that the central problem is the long delay, which can be several years before the institution's definitive legal statement emerges, with the added stages of appeal, compliance review, appeal of the compliance review, and mandated arbitration of compensation amounts. Clearly, working out bargaining solutions would be both less costlier and much more efficient in terms of time and resources for all parties involved in the process.

Broek identifies an apparent paradox in the present WTO system since on the one hand, the system tries to overcome pure power based international relations through enhanced legalization but on the other, it seems to rely entirely on state power in its mechanisms for enforcement of compliance, especially on larger trading blocs such as the USA or the EU. This leads to concerns about asymmetries, because whereas sovereign equality is the principle in international legal relations, inequality is the reality. Obviously, compliance is an important part of the DSM to ensure its credibility and efficiency. If compliance particularly of the large WTO members is not forthcoming, the WTO system might be indeed labelled a "debating society" since it lacks the precondition for legal solutions to trade conflicts.

According to Sally, trade negotiators have an unavoidable tendency to conclude vaguely worded final texts that give legal expression to political compromise and fudge. Many Uruguay Round agreements, for example, contain numerous gaps and ambiguities, especially regarding domestic regulation. Inevitably, there are limits to legal certainty with ample room for diverging legal interpretations. Sally finds that given quasi-automatic dispute settlement, there is more incentive for governments to fill in these regulatory gaps through litigation in panels and Appellate Body rulings rather than through negotiation and quiet, behind-the-scenes diplomacy. This is a clear indication for a weakened diplomacy-based negotiating mechanism. Finally, the unprecedented publicity of today's WTO system, especially the increasing number of non-governmental organisations (NGOs) interested in the negotiating process, makes diplomatic solutions to trade negotiations more difficult since "the deals" must also be sold to the domestic electorate.

The disastrous failures of Seattle in 1999 and Cancun in 2003 can be attributed to a certain extent to the publicity of these events and NGOs such as Oxfam, which increasingly sought to exert pressure on the negotiating parties. In the eyes of a broader public, the DSM might therefore be seen as a more legitimate instrument for settling disputes than back-door negotiations between unequal trading partners. This would imply a deliberate move to undermine the diplomacy-based negotiating mechanism in order the increase the legitimacy and the fairness of the results. In this essay, I have first shown the operational procedures of the DSM and demonstrated how it is different from dispute settlement under the GATT.

I have then listed some of the emerging problems inherent in a highly legalized DSM. I have also argued that the description of the WTO as a "debating society with a Supreme Court" is misleading. In conclusion, I assert that the DSM has indeed weakened the WTO's diplomacy-based negotiating mechanism since legal proceedings have increasingly substituted political bargaining in the dispute settlement process.

Bibliography

o Broek, Naboth van den, 'Power Paradoxes in Enforcement and Implementation of World Trade Organization Dispute Settlement Reports', Journal of World Trade, 37 (1), 2003, pp.
127-162 o Busch, Marc L. and Reinhardt, Eric, 'Testing International Trade Law: Empirical Studies of GATT / WTO Dispute Settlement', in Kennedy, Daniel L.M. and Southwick, James D., 'The Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec', (New York: Cambridge University Press, 2002) pp.
457-481 o Hudec, Robert E., 'The role of the GATT secretariat in the evolution of the WTO dispute settlement procedure', in Bhagwati J. and Hirsch M. (eds. ), 'The Uruguay Round and Beyond: Essays in Honour of Arthur Dunkel', University of Michigan Press, 1998 o Jackson, John H.
Designing and Implementing Effective Dispute Settlement Procedures: WTO Dispute Settlement, Appraisal and Prospects', in Krueger, Anne O., 'The WTO as an International Organization', (Chicago: UCP, 1998) o Sally, Razee n, 'The WTO in Perspective', in Hocking, Brian and McGuire, Steven, 'Trade politics: international, domestic and regional perspectives', 2nd edition, (London: Routledge, 2004) o Weiler, J.
H.H., 'The Rule of Lawyers and the Ethos of Diplomats - Reflections on the Internal and External Legitimacy of WTO Dispute Settlement', Journal of World Trade, 35 (2), 2001, pp.