The World Trade Organisation ("WTO").

A Member is obliged to give to the trade of the other members, no less favourable treatment than agreed upon in its schedule of concessions.  These tariff reductions either come immediately into effect, or are phased in gradually, up to ten years after the entry into force of the Agreement Establishing the WTO.  Any other bound tariff duties or charges on items must also be recorded in the tariff schedule, thereby becoming bound.

A Member may not discriminate between other Members, in relation to like produces, originating from other Members, or in relation to like produces destined for different member countries.  This prohibition of discrimination is known as the mfn treatment.  The discrimination relates to an advantage, favour, privilege or immunity to a like produce, in relation to customs duties and charges imposed on the importation or exportation of a like product, or in relation to international transfer of payments for exports or imports, or in relation to any rules and formalities connected with the import or export of a product.  

A Member is also required to ensure national treatment of all produces, imported or domestic.  This national standard obligation comprises: internal taxes, regulations and requirements in relation to the internal sale, transportation, distribution, use or the content of the produce are not to be applied in such a manner as to accord protection to domestic production of like products.  Protectionism through the application of internal taxes and regulations is to be avoided; the internal taxes and charges should not be discriminatory.  This national treatment has been interpreted to entail an obligation to provide equality of competitive conditions for like imported produces in related to domestic produces.  Thus, the trade effects of the tax differential is not relevant.   The term “like produce” has been frequently used in the GATT 1994.  Its precise scope can vary according to the context in which the term is to be found.  But, generally, problems in its interpretation are to be considered on a case by case basis.  The product can mean either similar or identical product.  Factors taken into account in determining whether a product is like or similar include; the products end use in a given market; consumers tastes and habits and the products properties, nature and quality.  Further, similar tariff classification can be useful indicator of likeness; and under Article X of GATT 1994 there is a specific obligation on the part of members to publish all trade and trade related measures.  This requirement of transparency gives rise to a measure of certainty, predictability and accountability of governmental measures.

Clearly the WTO has established a free market, offering access to other Members, whilst ensuring hat neither country’s produce is discriminated against.  Done though a series of agreements, the Members have agreed to adhere to the rules laid down in a uniform manner to other Member countries or face being brought before the dispute settlement body with the possibility of compensation or sanctions.  The priority of the WTO is to liberalise international trade in goods, which it appears to be achieving.

The WTO is composed of governments and political entities (such as the EU) and, similarly to the EU, is a member-driven organisation.  As member-driven organisations, the WTO and EU are driven by an implied balance of rights and obligations.  

With its similarities to the WTO, the EU is clearly one of the largest and most comprehensive entity combining fifteen member states.  The European Commission speaks for the member states at almost all of the WTO meetings.  And the member states themselves meet in Brussels and Geneva in relation to EU matters.  The working group of the EU Council (“The Article 133 Committee”, named after Article 133 of the European Community Treaty) meets and discusses trade policy matters including issues surrounding the launch of rounds of trade negotiations at the WTO and difficulties in relation to the export of individual products, thereby ensuring that Community policies maintain their consistency and effectiveness.  

One of the main benefits of the WTO and EU system is that they are both rule-based.  Rule making guarantees that all members adopt the same basic standards which is especially relevant to the WTO when dealing with global trade.  Both are trying to diminish discrimination in one form or another and both have the facility for justice.  As previously mentioned, the WTO dispute settlement regime would appear far superior here as the emphasis is on getting the conflicting countries to talk and negotiate their differences rather than go straight to court and seek retribution of some description.  

Clearly EU legislation and procedures are in line with the applicable WTO and similar international agreements on matters relating to unfair trading practices and are ensuring that industries and businesses are not disadvantaged by unfair practices from the other trading states.

However, the EU is not always working in conjunction with the WTO. It has recently imposed a policing around an agricultural regime.  Moreover, it seems to want the WTO to become a more regulatory agency. Further, it proposes to add complex and intrusive regulation to the WTO agenda.  Some of which would impose burdensome environmental and other standards on developing countries. Clearly it is trying to raise the standards in developing countries to a level attained by the developed countries, but this may come at a price.  It could be that it disables developing countries to export at a reduced rate or it would drive up their costs of production and make their products uncompetitive in international markets.

Moreover, the dispute settlement rules of the WTO under Articles 2, 3 and 22 of the Dispute Settlement Understanding were examined by the European Court of Justice (“ECJ”) recently in the case of Portugal v Council.  Here, the ECJ could not review the legality of the Council decision on justicibility, in the light of the WTO rules relating to direct effect within EC Law.  This again shows the strength of the WTO in its governance together with the aim for non-discrimination of both the WTO and EU.

The legal effects of international agreements (namely the WTO and GATT) in EC law can be seen through its recent cases.  By virtue of Articles 281 and 300 of the EC Treaty, the Community has legal personality and is empowered to enter into contractual relations with other persons and organisations.  The question arising concerns the legal effect of international agreements entered into by the EC.  The direct effect of international agreements concerns and capacity for such agreements to be directly invoked and enforced not only within the legal orders and courts of the member states, but also within the legal order of the EU before the Court of Justice.

Is it that the international agreements are binding on the member states, their nationals, the organisation or all three?  The ECJ has held that international agreements can, under certain circumstances, be directly effective.  However, it appears that there are a number of political considerations that come into play here.  It is the provisions under GATT and the WTO which have dominated this area of law in recent years.  In the case of International Fruit Company v Produktschap voor Groenten en Fruit, the Court concluded that the provisions of GATT were insufficiently precise and unconditional in the sense that they permitted the obligations contained therein to be modified, and they allowed for too great a degree of flexibility.  The ECJ was unwilling to accord direct effect to international obligations of this nature, in particular since they were normally invoked to challenge the legality of EC legislation itself.  This was also confirmed in the case Hauptzollamt Mainz v Kupferberg.  The Court in the International Fruit  judgement appeared to equate direct effect with the possibility of review of legality, and to rule out the latter unless the former were present.  In a later decision in the Germany v Commission case the ECJ made it clear that a GATT provision could be invoked for the purposes of alleging the incompatibility of an EC measure only in two circumstances: (1) where the community intended to implement that particular obligation, or (2) where the Community measure being challenged expressly referred to the particular GATT provision.  A very restrictive approach here by the ECJ. 

In other cases, the ECJ has applied the principle that EC law should be interpreted in the light of international law and of binding international agreements to the provisions of GATT and other WTO agreements.  This has the consequence of enhancing their effectiveness in certain circumstances, albeit not normally when they are being invoked to challenge EC measures.  

Finally, it is clear that until the Portugal v Council case, the ECJ and Court of First Instance, have avoided addressing the question of the legal effect and enforceability of the WTO agreements.  This shows that the WTO system is far superior, in that it is more judicial and less political in practice than that of the Community’s.

The functions of the WTO in providing a substantive code of conduct directed at the reduction of tariffs and other barriers to trade, and the elimination of discrimination in international trade relations has a clear overlap with EU policies.  However, the EU is predominantly European countries whereas the WTO has no distinction between the east and western countries, and therefore, subject to membership and accession, could, and probably will, eventually cover every trading country worldwide.

 

It is, however, with regard to dispute settlement, that the WTO surpasses the EU and other international regimes. And it is to this area of the WTO that its prominent role in global governance is clear.  The WTO has endeavoured to create stability within the global economy in its use of dispute settlement.  The priority is to use consultation procedures to settle a dispute, but not to pass judgement.  It is a rules-based system, incorporating timetables for completion of cases. By May 2003, only about one third of the nearly 300 cases had reached the full panel process. The majority having either been notified as settled “out of court” or remain in prolonged consultation.

Settling disputes existed under the old GATT (Articles XXII and XXIII), but it was the Uruguay Round agreement which introduced a more structured process.   This includes; greater discipline, the right to a panel, reports being adopted as of right and an emphasis on a prompt settlement, which has been essential for the WTO to function effectively. The Uruguay Round agreement also made it impossible for the losing country to block the adoption of the ruling.  Under the GATT procedure, rulings could only be adopted by consensus therefore blocking could be easy. The WTO dispute settlement mechanism is a seemingly legalized, predictable and reliable system for settling disputes.  

It is encouraged by the WTO, for the countries in conflict to settle their problems themselves through consultations between the respective governments.  However, if unsuccessful, then the procedure is not that dissimilar to that of a court or tribunal, largely based on the rule of law.  Once a case has been decided, the WTO look for prompt compliance with the recommendations or rulings of the dispute settlement body.  If this is not done then it is usual for a compensation award to be sought by the winning country.  If compensation cannot be agreed, the common penalty is a trade sanction.  The dispute settlement body further monitors the compensation negotiations/agreements and any trade sanction.

So how does this work? A dispute can arise when one country adopts a trade policy measure or takes some form of action that another WTO members believes is breaking a WTO agreement.  Basically a broken promise.  Or if a country fails to live up to its obligations to another country. It is possible, therefore, for a third country or group of countries to prove that they have an interest in a case and also enjoy some rights here.

As previously mentioned, it was the Uruguay Round Agreement, which, introduced the more structured process that is used today. It introduced greater discipline in relation to the length of time a case should take to be settled and flexible deadlines set during the various stages of the procedure. The Uruguay Round Agreement emphasized prompt settlement as being essential for the WTO to function effectively. It sets out in considerable detail the procedures and the timetable that should be followed to resolve disputes. And, if a case runs its full course to a first ruling, it should not normally take more than about one year, or approximately fifteen months if the case is later appealed. These agreed time limits are flexible, offering cases, which are considered urgent a speedier schedule.  This is obviously beneficial where the likes of perishable goods are involved. 

Settling disputes is the responsibility of the Dispute Settlement Body, which consists of all WTO members. The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider a case, and to accept or reject the panels’ findings or the results of an appeal. It monitors the implementation of the rulings and recommendations, and has the power to authorize retaliation when a country does not comply with a ruling.

The first stage of the procedure is the consultation stage, whereby the countries involved are under a legal obligation to attempt to settle their dispute through consultation between themselves or through mediation with the assistance of the WTO Director-General. This is achieved by the complaining country submitting a request for consultation and an initial meeting.  This is clearly the most effective and cost efficient way of settling disputes. In public international law, consultations are a form of negotiation that appear as a means of settling disputes and are often evidenced in treaties as the sole means of settling disputes.  Most international conflicts are settled through some form of negotiation with the parties having direct discussions to conclude an effective solution.

This consultation stage can only be effective however, if the parties are willing to participate in good faith to facilitate a mutually beneficial resolution.  Although to participate in good faith appears quite weak, it is one of the basic principals of contract law. When dealing with international trade, the financial aspect can be astronomical, especially to a developing country. It is therefore understandable that a country may wish to take their case all the way to obtain compensation.  However, if a country does not take stage one seriously and does not consider the negotiations put to it, it may well be in breach of Articles 4.1, 4.2 and possibly 4.5 of the dispute settlement understanding.

The second stage is for a panel to be appointed.   The panel is a cross section of other member country’s representatives totaling five, who are appointed by the Director-General.  Once the panel is established the panelists are required according to Article 8.9 to serve in their individual capacity and expertise and not as a government representative.  Governments are prohibited from giving instructions to try to influence the panelist on matters related to the dispute before the panel.  Article 11 of the WTO states that the panel shall “make an objective assessment of the matter before it, including an assessment of the facts and the applicability of and conformity with the relevant covered agreements”.

The panel works through several states to complete its final report.  This should normally be given to the parties in dispute within six months. With regard to cases of urgency, this deadline is to be shortened to three months.  The report is submitted to the parties in dispute within approximately three weeks of completion and is circulated to all WTO members. If the panel decides that the disputed trade measure does break a WTO agreement or an obligation, it recommends that the measure be made to conform with WTO rules. The panel may suggest how this could be done. The report then becomes the Dispute Settlement Body’s ruling or recommendation within sixty days, unless a consensus rejects it. Either or both parties can appeal this report, but the appeal has to be based on a point of law, not an examination of new issues or a re-examination of existing evidence. 

Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership. Members of the Appellate Body have four-year terms. They have to be individuals with recognized standing in the field of law and international trade, not affiliated with any government.

The appeal can uphold, modify or reverse the panel’s legal findings and conclusions. Normally appeals should not last more than 60 days, with an absolute maximum of ninety days. The Dispute Settlement Body has to accept or reject the appeals report within thirty days.  A rejection is only possible by consensus.

Finally, if a country has done something wrong, it should swiftly correct its fault. And if it continues to break an agreement, it should offer compensation or suffer a suitable penalty. The losing party must also bring its policy into line with the ruling or recommendations. The dispute settlement agreement stresses that “prompt compliance with recommendations or rulings of the Dispute Settlement Body is essential in order to ensure effective resolution of disputes to the benefit of all Members”.

If the country that is the target of the complaint loses, it must follow the recommendations of the panel report or the appeals report. It must state its intention to do so at a Dispute Settlement Body meeting held within 30 days of the report’s adoption. If complying with the recommendation immediately proves impractical, the member will be given a “reasonable period of time” to do so. If it fails to act within this period, it has to enter into negotiations with the complaining country (or countries) in order to determine mutually acceptable compensation, such as tariff reductions in areas of particular interest to the complaining side.

If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the Dispute Settlement Body for permission to impose limited trade sanctions (“suspend concessions or obligations”) against the other side. The Dispute Settlement Body must grant this authorization within 30 days of the expiry of the “reasonable period of time” unless there is a consensus against the request.

In principle, the sanctions should be imposed in the same sector as the dispute. If this is not practical or if it would not be effective, the sanctions can be imposed in a different sector of the same agreement. In turn, if this is not effective or practicable and if the circumstances are serious enough, the action can be taken under another agreement. The objective is to minimize the chances of actions spilling over into unrelated sectors while at the same time allowing the actions to be effective.

The Dispute Settlement Body then monitors how adopted rulings are implemented. Any outstanding case remains on its agenda until the issue is resolved.

According to Kim Van Der Borght, it appears that among the WTO Members who have utilized the dispute settlement procedure there is a general consensus of satisfaction.  The WTO’s role is strengthened by this credibility and predictability of the multilateral trading system.  It has created an impartial and objective manner to which disputes are settled and solutions found.  

Although developed countries can take an active part in the dispute settlement process, the majority of WTO members are developing countries.  It is therefore obvious that there may be a lack of financial means and expertise here, which may hinder their effectiveness in protecting their rights.  Further, the developing countries may have no effective way of enforcing recommendations, and retaliation may be likely to hurt them more than a developed country.   This clearly shows some adjustments or fine-tuning, which is required by the WTO to assist the less developed countries. 

However, as quoted by Cameron and Makuch, “no dispute settlement and rule enforcement can remain healthy, well-used and credible unless the rules, which it applies, lend themselves to proper examination and enforcement”. Therefore, as the number of cases increase over the years, it is clear that the internationally agreed rules laid down by the WTO are respected and used by the world trade countries.  This strengthens the global presence of the WTO in its governance in this respect.  

Just from the three areas discussed here, it is clear to see that the WTO is a major multilateral, established organisation having extensive members from Albania to Zimbabwe, with more attempting to joint soon.  

Much of the WTO’s power lies in one of its main functions; its dispute settlement process and resolving conflicting trade interests.  The WTO’s role lies in interpreting complex agreements on trade, and in settling differences though procedures based on an agreed legal foundation, thereby discouraging conflicts between nations in the form of political or even military.  

Because of its agreements and rule-based set-up, Member countries are setting the standard for each country's international trade.

Clearly the WTO is not without its problems, which need addressing, and relatively soon, especially with regard to the developing countries.  The like of the UK, USA, France, Spain and Germany have shown a clear dominance in the WTO which is reflected in the recent TRIPS Agreement, which has the potential to directly and indirectly shape national copyright policy law.

But emphasis should be given to the need for training within the developing countries in relation to their understanding of the multitude of agreements and their implications.  

These countries may be financially disadvantaged and it is up to the policy-makers to respond to this shortfall whilst still ensuring the preservation of a trading system that has led to unprecedented growth in the world economy and contributed to the peaceful coexistence of nations.

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