Dispute Settlement in the World Trade Organization: An Overview
Dispute Settlement in the World Trade
Organization: An Overview
Jeanne J. Grimmett
Legislative Attorney
American Law Division
Summary
Dispute settlement in the World Trade Organization (WTO) is carried out under
the rules and procedures of the WTO Dispute Settlement Understanding (DSU). The
DSU provides for consultations between disputing parties, panels and appeals, and
possible compensation or retaliation if a defending party fails to comply with an adverse
decision by an established deadline. Automatic establishment of panels, adoption of
panel and appellate reports, and authorization of requests to retaliate, along with
deadlines and improved multilateral surveillance of compliance, are aimed at producing
a more expeditious and effective system than had existed under the GATT. To date, 373
complaints have been filed under the DSU; slightly more than half involve the United
States as a complainant or defendant. Expressing dissatisfaction with WTO dispute
settlement results in the trade remedy area, Congress, in the Trade Act of 2002, directed
the executive branch to address dispute settlement in WTO negotiations. Although
WTO Members have been negotiating DSU revisions in the WTO Doha Round, a draft
agreement has not yet resulted. S. 364 (Rockefeller) and H.R. 708 (English) would
establish a congressional advisory committee to review WTO decisions and provide for
private party participation in WTO disputes. S. 364 would also require congressional
approval of domestic administrative actions taken to comply with WTO decisions and
rescind certain administrative actions that have gone into effect. H.R. 1278 (Camp) and
S. 445 (Stabenow) would create a Trade Enforcement Officer intended in part to assist
the United States Trade Representative (USTR) in undertaking WTO disputes. S. 460
(Snowe) would allow judicial review of certain USTR determinations under Section 301
of the Trade Act of 1974, which may in some cases involve the initiation and conduct
of WTO disputes. S. 1919 (Baucus) would, inter alia, create a Chief Trade Enforcement
Officer, establish a WTO Dispute Settlement Review Commission, and require a report
from the Commission before an administrative change taken to comply with a WTO
decision could take effect. This report will be updated.
Background. From its inception, the General Agreement on Tariffs and Trade
(GATT) has provided for consultations and dispute resolution among GATT Contracting
Parties, allowing a party to invoke GATT dispute articles if it believes that another’s
measure, whether violative of the GATT or not, has caused it trade injury. Because the
GATT does not set out a dispute procedure with great specificity, GATT Parties over time
developed a more detailed process including ad hoc panels and other practices. The
procedure was perceived to have certain deficiencies, however, among them a lack of
deadlines, the use of consensus decision-making (thus allowing a Party to block the
establishment of panels and adoption of panel reports), and laxity in surveillance and
implementation of dispute settlement results. Congress made reform of the GATT dispute
process a principal U.S. goal in the Uruguay Round of Multilateral Trade Negotiations.
WTO Dispute Settlement Understanding. The Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU), negotiated during the Uruguay
Round and effective as of January 1, 1995, continues past GATT dispute practice, but also1
contains features aimed at strengthening the prior system. A Dispute Settlement Body
(DSB), consisting of representatives of all WTO Members, administers dispute
proceedings. While the DSB ordinarily operates by consensus (i.e., without objection),
the DSU reverses past consensus practice at fundamental stages of the process. Thus,
unless it decides by consensus not to do so, the DSB will establish panels; adopt panel and
appellate reports; and, where WTO rulings have not been implemented and if so requested
by a prevailing party, authorize the party to impose a retaliatory measure. The DSU also
sets forth deadlines for various stages of the proceedings and improves multilateral
monitoring of the implementation of adopted rulings. Given that panel reports would
otherwise be adopted automatically, WTO Members have a right to appeal a panel report
on legal issues. The DSU creates a standing Appellate Body to carry out this added
appellate function; the Body has seven members, three of whom serve on any one case.
The DSU provides for integrated dispute settlement under which the same rules apply to
disputes under virtually all WTO agreements unless an agreement provides otherwise.
If a dispute reaches the retaliatory stage, a Member may, under certain circumstances,
impose a countermeasure in a sector or under an agreement other than the one at issue.
The preferred outcome of the dispute mechanism is “a solution mutually acceptable to the
parties and consistent with the covered agreements”; absent this, the primary objective of
the process is withdrawal of a violative measure, with compensation and retaliation being
avenues of last resort. To date, 373 complaints have been filed under the DSU; slightly
more than half involve the United States as complaining party or defendant. The United
States Trade Representative (USTR) represents the United States in WTO disputes.
The DSU was scrutinized by WTO Members under a Uruguay Round Declaration,
which called for completion of a review within four years after the WTO Agreement
entered into force (i.e., by January 1999). Members did not agree on any revisions in the
initial review and have continued to negotiate on dispute settlement issues during the
Doha Round, doing so on a separate track permitting an agreement to be adopted apart
1 The text of the DSU, panel and Appellate Body reports, and information on the WTO dispute
process are available at [http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm]. WTO
disputes are listed and summarized by the WTO Secretariat in its “Update of WTO Dispute
Settlement Cases,” available at the WTO website, above. Information on WTO disputes
involving the United States, including the text of U.S. written submissions to WTO panels, may
be found at the USTR website, at [http://www.ustr.gov/Trade_Agreements/Monitoring_
Enforcement/Section_Index.html]. For the status of current cases in which the United States has
been successfully challenged, see CRS Report RL32014, WTO Dispute Settlement: Status of U.S.
Compliance in Pending Cases, by Jeanne J. Grimmett.
from any overall Doha Round accord. The United States has proposed greater Member
control over the process, guidelines for WTO adjudicative bodies, and increased
transparency, e.g., open meetings and timely access to submissions and final reports.2
WTO Members have also proposed, inter alia, a permanent roster of panelists, Appellate
Body remand to panels, rules for sequencing and the termination of retaliatory measures
(see below), tightened time frames, enhanced third-party rights, and special treatment for
developing country disputants.3 A draft text has not yet resulted.4
Steps in a WTO Dispute. Following are the stages in a DSU proceeding:
Consultations (Art. 4). If a WTO Member requests consultations with another
Member under a WTO agreement, the latter must enter into consultations within 30 days.
If the dispute is not resolved within 60 days, the complaining party may request a panel.
The complainant may request a panel earlier if the other Member has failed to enter into
consultations or if the disputants agree that consultations have been unsuccessful.
Establishing a Dispute Panel (Arts. 6, 8). If a panel is requested, the DSB
must establish it at the second DSB meeting at which the request appears as an agenda
item, unless it decides by consensus not to do so. The panel is generally composed of
three persons. The Secretariat proposes the names of panelists to the disputants, who may
not oppose them except for “compelling reasons.” If there is no agreement on panelists
within 20 days from the date the panel is established, either disputing party may request
the WTO Director-General to appoint the panelists.
Panel Proceedings (Arts. 12, 15, Appendix 3). After considering written and
oral arguments, the panel issues the descriptive part of its report (facts and argument) to
the disputing parties. After considering any comments, the panel submits this portion
along with its findings and conclusions to the disputants as an interim report. Following
a review period, a final report is issued to the disputing parties and later circulated to all
WTO Members. A panel must generally provide its final report to disputants within six
months after the panel is composed, but may take longer if needed; extensions are usual
in complex cases. The period from panel establishment to circulation of a panel report to
all Members should not exceed nine months. In practice, panels have taken 12 months
on average to publicly circulate reports (see, e.g., Horn & Mavroidis, The WTO Dispute
Settlement System 1995-2004: Some descriptive statistics, at 28 (January 31, 2006)).
Adoption of Panel Reports/Appellate Review (Arts. 16, 17, 20). Within
60 days after a panel report is circulated to WTO Members, the report is to be adopted at
a DSB meeting unless a disputing party appeals it or the DSB decides by consensus not
to adopt it. Within 60 days of being notified of an appeal (extendable to 90 days), the
Appellate Body (AB) must issue a report that upholds, reverses, or modifies the panel
report. The AB report is to be adopted by the DSB, and unconditionally accepted by the
disputing parties, unless the DSB decides by consensus not to adopt it within 30 days after
2 See, e.g., WTO documents TN//DS/W/79 (July 13, 2005), TN/DS/W/82 (October 24, 2005),
TN/DS/W/82/Add.1 (October 25, 2005), as corrected, and TN/DSW/86 (April 21, 2006).
3 For further information on proposals, see Institute of International Economic Law, DSU Review,
at [http://www.law.georgetown.edu/iiel/research/projects/dsureview/synopsis.html].
4 For a recent status review, see WTO document TN/DS/21 (December 6, 2007), as corrected.
circulation to Members. The period of time from the date the panel is established to the
date the DSB considers the panel report for adoption is not to exceed nine months (12
months where the report is appealed) unless otherwise agreed by the disputing parties.
Implementation of Panel and Appellate Body Reports (Art. 21). In the
event of an adverse decision, the defending Member must inform the DSB of its
implementation plans within 30 days after the panel report and any AB report are adopted.
If it is “impracticable” to comply immediately, the Member will have a “reasonable period
of time” to do so. The period will be: (1) that proposed by the Member and approved by
the DSB; (2) absent approval, the period mutually agreed by the disputants within 45 days
after the report or reports are adopted; or (3) failing agreement, the period determined by
binding arbitration. Arbitration is to be completed within 90 days after adoption of the
reports. To aid the arbitrator, the DSU provides a non-binding guideline of 15 months
from the date of adoption; awards have ranged from six months to 15 months and one
week. The DSU envisions a maximum of 18 months from the date a panel is established
until the reasonable period of time is determined. Where there is disagreement as to
whether a Member has complied, a compliance panel may be convened (Art. 21.5).
Compensation and Suspension of Concessions (Art. 22). If the defending
party fails to comply with the WTO decision within the established period, the prevailing
party may request that the defending party negotiate a compensation agreement. If
agreement is not reached within 20 days after the compliance deadline expires, or where
negotiations have not been requested, the prevailing party may request authorization from
the DSB to retaliate. The DSB is to grant any such request within 30 days after the
compliance deadline expires unless it decides by consensus not to do so, or the defending
Member requests that the retaliation proposal be arbitrated (most often, on the ground that
it exceeds the level of trade injury in the dispute). Arbitration is to be completed within
60 days after the compliance period ends; once a decision is issued, the prevailing party
may request that the DSB approve its proposal, subject to any modification by the
arbitrator. If imposed, retaliation may remain in effect only until the offending measure
is removed or the disputing parties otherwise resolve the dispute (Art. 22.8).
Resort to the Multilateral System (Art. 23). Article 23 of the DSU requires
WTO Members to use DSU procedures in disputes involving WTO agreements and to act
in accord with the DSU (i.e., not unilaterally) when determining if a Member has violated
a WTO agreement, determining a period for compliance, and taking any retaliatory action.
Compliance Issues. Although many WTO rulings have been satisfactorily
implemented, difficult cases have tested DSU implementation articles, highlighting
deficiencies in the system and prompting suggestions for reform. For example, gaps in
the DSU have resulted in the problem of “sequencing,” which first manifested itself in
1998-1999 during the compliance phase of the successful U.S. challenge of the European
Union’s banana import regime. Article 22 allows a prevailing party to request
authorization to retaliate within 30 days after a compliance period ends, while Article 21.5
provides that disagreements over the existence or adequacy of compliance measures are
to be decided using WTO dispute procedures, including panels. A compliance panel’s
report is due within 90 days after the dispute is referred to it and may be appealed. The
DSU does not integrate an Article 21.5 procedure into the 30-day Article 22 deadline, nor
does it expressly state how compliance is to be determined so that a prevailing party may
pursue action under Article 22. Absent the adoption of multilateral rules on the matter,
disputing parties have entered into ad hoc procedural agreements in individual disputes.
The DSU is also silent on how authorized retaliation is to be terminated in the event
a defending Member believes that it has complied in a case, an issue that is currently the
subject of a dispute brought by the European Communities (EC) against the United States
and Canada for continuing to maintain increased tariffs on EC goods first imposed in
1999 in retaliation for the EC’s failure to comply with the adverse WTO ruling on the
EU’s ban on hormone-treated beef. Claiming that a 2003 EU Directive rendered it WTO-
compliant, the EC argued that the defendants are violating the GATT most-favored-nation
article, the GATT prohibition on tariff surcharges, and various DSU provisions, including
Article 23, precluding unilateral actions in trade disputes, and Article 22.8, permitting
sanctions to be imposed only until WTO-inconsistent measures have been removed. In
a report issued March 31, 2008, the WTO panel found that the EC is maintaining bans on
certain hormones without a sufficient scientific basis in violation of WTO obligations,
and that the United States and Canada breached Article 23 by (1) not initiating a WTO
proceeding to resolve the EC compliance issue and (2) determining unilaterally that the
EC was still in violation. It also found, however, that the two Members had not violated
Article 22.8.5 The panel appeared to call on the United States and Canada to comply with
their DSU obligations by initiating a compliance panel proceeding against the EC, and
stated that it had performed functions similar to those of a compliance panel only to make
its Article 22.8 finding. The disputants have until the end of May 2008 to appeal.
WTO Dispute Settlement and U.S. Law. The adoption by the WTO Dispute
Settlement Body of a panel or appellate report finding that a U.S. measure violates a WTO
agreement does not give the report direct legal effect in this country. Thus, federal law
would not be affected until Congress or the executive branch, as the case may be, changed6
the law or administrative measure at issue. Procedures for executive branch compliance
with adverse decisions are set out in §§ 123 and 129 of the Uruguay Round Agreements
Act, P.L. 103-465. Only the federal government may bring suit against a state or locality
to declare a law invalid because of inconsistency with a WTO agreement; private
remedies based on WTO obligations are also precluded (P.L. 103-465, § 102(b),(c)).
Sections 301-310 of the Trade Act of 1974 (Section 301), 19 U.S.C. §§ 2411 et seq.,
provide a means for private parties to petition the USTR to take action regarding harmful
foreign trade practices. If the USTR decides to initiate an investigation, whether by
petition or on its own motion, regarding an allegedly WTO-inconsistent measure, he or
she must invoke the WTO dispute process to seek resolution of the problem. Section 301
authorizes the USTR to impose retaliatory measures to remedy an uncorrected foreign
practice, some of which may involve suspending a WTO obligation (e.g., imposing a tariff
5 Panel Report, United States - Continued Suspension of Obligations in the EC-Hormones
Dispute, WT/DS320/R (March 31, 2008). The dispute has also been notable because, at the
request of the disputing parties, panel proceedings were for the first time opened to the public via
closed-circuit TV broadcast at the WTO.
6 See Uruguay Round Agreements Act Statement of Administrative Action, H.Doc. 103-316, vol.
1, at 1032-33. Uruguay Round implementing legislation states that “[n]o provision of any of the
Uruguay Round Agreements, nor the application of any such provision to any person or
circumstance, that is inconsistent with any law of the United States shall have effect.” P.L. 103-
465, § 102(a)(1); see also H.Rept. 103-826, Pt. I, at 25. Note that federal courts have held that
WTO reports are not binding on the judiciary. E.g., Corus Staal BV v. Department of Commerce,
395 F.3d 1343 (Fed. Cir. 2005), cert. denied, 126 S.Ct. 1023 (2006); see generally CRS Report
RS22154, WTO Decisions and Their Effect in U.S. Law, by Jeanne J. Grimmett.
increase in excess of negotiated rates). The USTR may terminate a Section 301 case if
the dispute is settled, but under § 306 of the act must monitor foreign compliance and may
take further retaliatory action if compliance measures are unsatisfactory. A “carousel”
provision added to § 306 in 2000 directs the USTR periodically to revise the list of
imports subject to retaliation unless the USTR finds that implementation of WTO
obligations is imminent or the USTR and the petitioner agree that revision is unnecessary.
As noted earlier, Article 23 of the DSU precludes certain unilateral actions in trade
disputes involving WTO agreements. Section 301 may generally be used consistently
with the DSU, though some U.S. trading partners have complained that the statute allows
unilateral action and forces negotiations through its threat of sanctions. The EC
challenged the WTO-legality of Section 301 in 1998, the dispute panel finding that the
language of § 304, which requires the USTR to determine the legality of a foreign practice
by a given date, is prima facie inconsistent with Article 23 because in some cases it
mandates a USTR determination — and statutorily reserves a right for the USTR to
determine that a practice is WTO-inconsistent — before DSU procedures are completed.
The panel also found, however, that the serious threat of violative determinations and
consequently the prima facie inconsistency was removed because of U.S. undertakings,
as set forth in the Uruguay Round Statement of Administrative Action (H.Doc. 103-316)
and made before the panel, that the USTR would use its statutory discretion to implement
Section 301 in conformity with WTO obligations. Moreover, the panel could not find that
the DSU was violated by § 306, which directs USTR to make a determination as to
imposing retaliatory measures by a given date, given differing good faith interpretations
of the “sequencing” ambiguities in the DSU (Panel Report, United States — Sections 301-
310 of the Trade Act of 1974, WT/DS152/R (December 22, 1999)). The panel report was
not appealed. The EC has also challenged the “carousel” statute (see above), but has not
sought a panel (WT/DS200). The issue has been raised in Doha dispute settlement
negotiations.
110th Congress Legislation. S. 364 (Rockefeller) and H.R. 708 (English) would
establish a Congressional Advisory Commission on WTO Dispute Settlement to review
WTO decisions in light of enumerated criteria and provide for private party participation
in WTO disputes. S. 364 would also require congressional approval under an expedited
procedure of any domestic administrative modification or final rule proposed to comply
with an adverse WTO report, require the USTR after any adverse dispute finding to work
within the WTO to seek clarification of U.S. WTO obligations under the agreement at
issue and under certain circumstances prohibit the executive branch from modifying an
administrative measure in order to comply with the decision, and rescind certain
administrative compliance actions currently in effect. H.R. 1278 (Camp) and S. 445
(Stabenow) would create a Trade Enforcement Officer in the Office of the USTR intended
in part to assist the USTR in undertaking WTO disputes. S. 460 (Snowe) would allow
judicial review of certain USTR determinations under Section 301 of the Trade Act,
which may in some cases involve the initiation and conduct of WTO disputes, along with
making other amendments to the statute. S. 1919 (Baucus) would, inter alia, create a
Chief Trade Enforcement Officer in the USTR, establish a WTO Dispute Settlement
Review Commission to evaluate WTO decisions under statutory norms, and prohibit a
domestic regulatory modification taken to comply with an adverse WTO decision from
taking effect unless and until Congress receives the Commission’s report on the WTO
decision involved. To date, no action has been taken on any of these bills.