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“Progressing” With the Wto Dispute Settlement Reform

India wants to retain the WTO Dispute Settlement Body in its present two-step form, but is it the way forward?

With the conclusion of the 13th Ministerial Conference in Abu Dhabi, UAE (MC13), the future of the dispute settlement system of the WTO, and as a result, the effectiveness and relevance of the WTO remains ominous. With no conclusion on the reform and the reinstatement of the Appellate Body of the WTO, the question arises, what is the way forward?

The Past

As provided in the WTO Dispute Settlement Understanding (DSU), the governing document that created the dispute settlement system in 1996, the Appellate Body is comprised of seven members having four-year terms, with reappointments to be done by negative consensus.

Since 2016, the United States has been stalling the reappointments, stating that the Appellate Body has been overreaching its mandate and that reform is necessary.[1] Since 2019, there have been fewer than three members at the Appellate Body, the minimum necessary to hear an appeal, resulting in a stalemate.

With the Covid-19 pandemic causing further delay in arriving at a solution, the countries finally agreed to have a fully functioning dispute settlement system by 2024 at the 12th Ministerial Conference last year in Geneva, Switzerland (MC12).[2] However, the MC13 only concluded with a weak Declaration dated March 2, 2024, which noted the “progress” so far on the discussions, welcomed submissions from countries and instructed WTO officials to accelerate discussions inclusively and transparently.[3]

The ”progress”, officially, is almost non-existent. Since the MC12, there have only been informal discussions on possible reform. Most notably, informal discussions led by Mr. Marco Molina of Guatemala has gained traction to the extent that it is reported to the Dispute Settlement Body (DSB) at every second regular meeting of the DSB and has resulted in a Draft Text dated February 14, 2024[4] (Draft Text).

The Draft Text suggested several radical reform to the WTO dispute settlement system which essentially overturns the DSU concluded in 1996 after years of GATT negotiations that began in 1947. For instance, it proposes allowing countries to engage in alternate dispute resolution (good offices, conciliation, mediation) and arbitration mechanisms before initiation of the consultation procedure, while under the present system, consultation marks the initiation of a WTO dispute which may be resolved through alternate dispute resolution, arbitration or by the constitution of the DSB. Other fundamental changes include increasing confidentiality of the proceedings with disclosure only of the existence of the dispute thereby reducing transparency and consistency in the interpretation of WTO law. Notably and contrary to Indian interests, the Draft Text also reduces the reference to special and differential treatment of Developing and Least Developed Countries in the process. It also sets procedural restrictions on submissions, evidence, timelines, etc. for the DSB procedures.

India and other Developing and Least Developed Countries have pointed out that such informal discussions do not reflect the views of all the countries.[1] Further, these countries are unable to effectively participate in the informal discussions, with technological and operational limitations, inability to effectively consult with their respective capitals and thoroughly prepare and present their views and suggestions and submit comprehensive proposals, and difficulty with reviewing progress. The discussions also sometimes run parallel to official WTO meetings.[2] In view of this, India’s proposal at the MC13 towards reform was the introduction of a three-point action plan[3] for the “formalization” and “multilaterization” of the reform process and a call to prioritize the restoration of the Appellate Body.

Considering the “progress” to date has only been informal discussions that do not adequately reflect the views of all countries including India, there seems to be no “progress”, especially from the Indian standpoint.

The Present

A common result of all the aforementioned discussions and the ministerial conferences is also the absence of a solution for the Appellate Body crisis. Even the Draft Text fails to mention a solution, dubiously referring to the appeal/ review mechanism as a “Work in Progress”.

Most recently, at the DSB Meeting dated January 26, 2024, 130 countries led by Guatemala, including India, circulated the 73rd proposal for the appointment of the Appellate Body members. In response, the US stated that it wished to continue the stalemate, since while several members may prefer the status quo, the old system was not working for the US and a reform of the

Appellate Body is necessary.[1] This was opposed by several countries who stressed the need to comply with the obligations under the WTO to appoint Appellate Body members.

The Way Forward

Considering that a functional WTO is in the interest of furtherance of international trade and development, especially for India and other Developing and Least Developed Countries, it is important to consider that agreeing to the tweaking of the WTO DSU can be beneficial and conducive to India’s role as a consensus builder at the WTO. Needless to say, India has had its fair share of losses before the Appellate Body and has raised several concerns over its functioning. Moreover, with the increased political and economic relevance of India on the international platform, it seems unlikely that India will need a stringent and binding dispute resolution mechanism to resolve its disputes before the WTO or otherwise. India has also always taken measures to reduce its exposure towards compulsory jurisdiction, whether it be not submitting itself to the mandatory jurisdiction of any international adjudicatory body or removing itself from such procedures under its own bilateral investment treaties. India has also not joined the “Multi-Party Interim Appeal Arrangement” created by several countries under Article 25 of the DSU. Therefore, it is now time to reconsider India’s consistent stand for the restoration and preservation of the two-stage binding WTO dispute settlement mechanism with reform.

India has also suggested proceeding with the appointment of the Appellate Body members without the agreement of the USA, the singular outlier.[2] While this may be a possible solution, it cannot be ignored that India had initiated 11 out of 24 WTO disputes against the USA and has defended 8 out of 31 WTO disputes initiated by the USA against it, none of which is pending due to the recent diplomatic resolution of the WTO disputes given the present stalemate.[3] Therefore, it is not in the best interest of India for the exclusion of the USA. Further, the exclusion of the USA from the dispute settlement system may result with the WTO becoming an irrelevant international body, much like its predecessor, the International Trade Organization, which the US refused to ratify and join in 1948.

Presently, with the current stalemate, countries are choosing to appeal Panel reports into the void or resort to alternate dispute resolution arrangements under the WTO regime, including the MPIA. In this context, it is a good option for India to end the stalemate by safeguarding and negotiating its interests, including the special and differential treatment, into a functional WTO dispute settlement system, even if it involves amending the DSU. Needless to say, such a WTO with a functional, albeit newly organized, dispute resolution system, will be more relevant to India than the WTO of today.

[1] [fn] US Report on the Appellate Body of the World Trade Organization, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf [/fn]

[2] [fn] MC 12 Outcome Document,

https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/MIN22/24.pdf&Open=True [/fn]

[3] [fn] MC 13 Ministerial Decision on DSB, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/MIN24/37.pdf&Open=True [/fn]

[4] [fn] Draft Text introduced at Special Meeting of General Council, February 16, 2024

https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/Jobs/GC/385.pdf&Open=True [/fn]

[5] [fn] Joint Communication dated November 24, 2023 from, Egypt and South Africa titled Reflections on the reform of the WTO Dispute Settlement System

https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/Jobs/DSB/7.pdf&Open=True [/fn]

[6] [fn] Minutes of the Dispute Settlement Body Meeting held on December 12, 2023

https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/DSB/M485.pdf&Open=True [/fn]

[7] [fn] Official Press Release on India’s position at MC13, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2009791 [/fn]

[8] [fn] WTO News Report on Discussions concerning dispute settlement reform,

https://www.wto.org/english/news_e/news24_e/dsb_26jan24_e.htm [/fn]

[9] [fn] Statement by India on Agenda Item 18 General Council Meeting – 13 – 15 December 2023: Communication From India

https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/GC/262.pdf&Open=True [/fn]

[10] [fn] Joint Statement from India and the United States,

https://pib.gov.in/PressReleasePage.aspx?PRID=1955696 [/fn]

Author

Aditi Warrier and Salonee Shukla,
DGS Associates