World Trade Organisation And Legalization

"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 Ð''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 "automaticity" 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