Disputes settlement: back to GATT?

Few now deny that the world has been largely persuaded to do things the American way.

A little-commented-upon but hugely significant aspect of this has been the steady imposition of the explicit contract where trust plays little or no role at all.

In a country where everyone was a stranger, the reliance on the written contract, and its enforcement through the legal system, was natural.

After the Second World War, the Americans sought to apply the same solution to international trade as well. Thus was born the idea of rule-based trade via the General Agreement on Trade and Tariffs or GATT.

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The problems with rules, however, is that they have to be observed. When they are not, someone has to adjudicate over the resulting dispute that can arise over the interpretation of the rules as well as over the breach.

And so the idea of a dispute settlement mechanism in GATT was conceived and implemented. It worked well enough for a while, but as trade volumes increased along with the number of participants, it became clear that the old system needed to be overhauled. This was done during the Uruguay Round, which gave birth to a new system of dispute settlement in which all were equal and where economic clout alone would not matter.

Has this made any difference or is it business-as-usual as it used to be under the old system? Peter Holmes, Jim Rollo, and Alasdair R. Young in a recent paper* for the World Bank set forth to find out. They ask if "recent trends confirm previously identified patterns and examine whether there are divergences from the overall pattern according to the type of dispute."

They focus on three questions:

• Why do some countries complain more than others ?
• Who wins?
• Is there a difference to these patterns depending on the type of measure at the heart of the complaint?

And the answers are:

• Who complains depend on a country's trade share. The higher it is, the more likely it is to complain or be complained against. This seems pretty obvious.
• Complainants overwhelmingly win (88 per cent). This is also very important because the US and the EU are often on the losing side. The US just carries on as before and the EU comes with a new way of being in the same breach. It also seems that "The high proportion of complainant victories may suggest that complainants consider very carefully the likelihood of success before bringing a complaint."
• Regulatory issues are becoming less important as reasons for disputes. Trade defence disputes are the rising issue. "The more recent surge in trade defence cases has brought the NICs (newly industrialised countries) and LDCs (less developed countries) more clearly into the picture, especially proportionately, as the EU/US cases have fallen." This is perhaps the most important finding with wide implications for negotiations.

Although the developing countries think so, there is not much, if any, evidence of a bias against developing countries either as complainants or respondents.

One striking aspect of the findings is the absolute decline in the number of complaints concerning "within border" measures. The authors say "part of the answer may be that some parties succeeded in incorporating in the Uruguay Round agreements rules that addressed specific existing barriers.

Another part of the answer might be that the DSB (dispute settlement body) has issued a number of rulings -- asbestos, shrimp-turtle, and beef hormones -- that have interpreted various agreements in such a way as to emphasise the legitimate scope for governments to adopt non-discriminatory, but trade-impeding regulations.

Another possible explanation, facilitated by DSB interpretations of the rules, is that governments have got better at making their rules compatible with existing multilateral commitments."

They conclude that "whatever the reason, the more recent trend in WTO cases suggests a return to the more familiar Gatt-type border measures environment."

What effect is the new system having on the current negotiations? It seems that it has generated pressure for reform, mostly in anti-dumping legislation.

On the whole, the authors find that things are "settling down, with a lower than expected number of cases in recent years, and moving back towards more traditional border measures".

*Emerging Trends in WTO Dispute Settlement: Back to the GATT? World Bank Policy Research Working Paper 3133, September 2003

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