Chapter 7
WTO Dispute settlement as a Model for International Governance

What lessons does the World Trade Organization dispute settlement mechanism hold for the compliance systems of international environmental treaties? This is an important question to consider as analysts and policymakers make efforts to rationalize the architecture of global governance. In recent years, the comparative institutional perspective has increasingly been applied on the international plane. While the results so far may be minimal, this approach has great promise in making the best modalities of each regime available to other regimes.

Overview of the WTO Dispute System

The WT0 does not have a compliance system per se; it has a dispute settlement system. The Dispute Settlement Body （DSB） is only seized of matters when a WTO Member government lodges a complaint about a dispute where the complaining government believes that benefits accruing to it are being impaired by the actions of another Member government. The Dispute Settlement Understanding （DSU） refers to this as a "case" which arises out of a "dispute". Thus, a mere allegation of noncompliance without more, or a disagreement as to the interpretation of the WTO treaty, are not technically within the ambit of the WTO dispute system.

Some important implications of this DSU orientation are worth noting. First, trade complaints are formally raised by governments, not by the WTO Secretariat or by private individuals. （It is true that some governments like the United States routinely raise complaints in the WTO on the behest of a private industry, but the WTO takes no cognizance of that.） Although the WTO has an elaborate Trade Policy Review Mechanism （TPRM） that might flag WTO-inconsistent policies by governments, this Mechanism has no connection to the WTO dispute settlement system. The WTO is not unusual in having a state-centric dispute settlement mechanism; that is still typical of international agreements, with some conspicuous conceptions being the International Labor Organization （ILO）, the North American Free Trade Agreement in Chapter 11, and some human rights courts. Second, a government needs to assert some interest in bringing a case, but this standing requirement is interpreted liberally and may be unreviewable. The complaining government does not have to show trade harm. The third implication, and perhaps the most important one, is that a case / dispute can end with a settlement that does not correct the non-compliance. The DSU states that "the aim of the dispute settlement mechanism is to secure a positive solution of the dispute". It goes on to say that a mutually, acceptable solution "consistent with the covered （WTO） agreements is clearly to be preferred, " which of course foresees the possibility that a dispute can be settled in a way that is inconsistent with WTO rules.

The Bananas case is an example of settlement without compliance. At the Doha Ministerial, the WTO approved two rule waivers for the European Communities （EC） that legitimized the EC's trade discrimination. The ability to settle disputes notwithstanding a continuing violation of WTO norms should be the first yellow flag to analysts considering the WTO system as a model for environmental governance.

The WTO dispute process is complex, but a simplified version is as follows. The complaining government has a procedural right to secure an independent panel to review its claims and the defendant government's response. The panel will review pleadings, reply briefs, hold a oral hearing, and submit follow-up questions, and reach a decision within six to nine months. When not appealed, this decision is to be adopted by the DSB （which consists of all WTO member governments） unless the governments take a consensus not to adopt （reverse negative consensus）. When appealed on issues of law, the Appellate Body will consider briefs, responding briefs, hold an oral hearing, and then issue a decision within 60 to 90 days. This appellate decision is to be adopted by the DSB unless there is a consensus not to do so. So far, all panel and Appellate Body decisions brought to the DSB have been adopted. Following adoption, defending governments that lose are given a "reasonable" period of time to comply. If the original complaining party believes that compliance has not ensued, it may lodge a DSU Article 21.5 complaint which brings back the original panel to review the quality of compliance. That decision is due in 90 days and may be appealed. Once the appeal is exhausted and if compliance has not ensued, the complaining party may seek authority to "suspend concessions or other obligations" —which is WTO shorthand for retaliation, countermeasure or sanction. Because of an anomaly in DSU rules, the complaining government may seek retaliation first before asking for the non-compliance to be determined. Under current practice, however, the consideration of retaliation does not occur until after an Article 21.5 panel has found continued non-compliance. The complaining government then seeks authority to retaliation at a certain monetary level, and an Article 22.6 arbitration determines what the proper level should be. During this process, the litigating governments can settle, perhaps through trade compensation by the losing government. （No case at that stage has ended by compensation so far.） Once the arbitration is complete, typically within 60 days, the complaining government gains the right to impose trade retaliation on the losing defendant government at the arbitration-set monetary level. The purpose of this retaliation, according to arbitrations, is not to punish but rather to induce compliance. The DSB continues to exercise continuing oversight over a dispute until it is definitively settled. In one case so far, a second Article 21.5panel was appointed.

The positive features of the WTO dispute process are worth noting. First, the dispute settlement system has compulsory jurisdiction that is not contestable. Second, decisions are fairly rapid in comparison to national court or international tribunal timetables. Third, judgments by the panel or Appellate Body are published immediately on the WTO website. Fourth, panels can draw in scientific expertise and have done so in most of the cases involving the environment or public health. Fifth, the experiment of the Appellate Body has been successful; the Appellate Body has corrected several panel decisions that were clearly erroneous. Sixth, the panels and the Appellate Body have been sensitive to the need to interpret the WTO agreements within the context of public international law. One can dispute whether they have gone too far or not far enough, but hardly anyone would claim today that the WTO ought to be a self-contained system of law.

One can also list some negative features. First, the adjudication proceeds in closed sessions with no opportunity for the public to observe. Second, although the Appellate Body has created some space for the filing of amicus curiae briefs,in no instance so far has a panel or the Appellate Body acknowledged taking a brief into account that was submitted independently of a government's submission. Third, the Appellate Body has at times seemed arrogant in the way it treated panel findings. Fourth, although the Appellate Body has been willing to correct some of its own mistakes in subsequent decisions, it has not acknowledged the changes.

What has been the experience so far under the WTO system? To date, there have been about 57 cases that have reached a panel judgment, and in almost all of those cases a WTO violation was found. I have not seen any studies as to the rate of actual compliance, but my impression is that it is fairly high. Authorization of retaliation has occurred in only five instances, and in only three of them was the retaliation used. The United States retaliated against the EC on bananas; Canada and the United States retaliated against the EC on hormones; Ecuador gained authorization to retaliate against the EC on bananas, but did not use it; and Canada gained authorization to retaliate against Brazil on aircraft, but did not use it.

In conclusion, the WTO has a remarkably good dispute settlement system in many ways. With the exception of the International Tribunal for the Law of the Sea （ITLOS）, no global environment regime has anything rivaling it. Several years ago, Ernst-Ulrich Petersmann made the observation that the trading system was adjudicating more environmental disputes than the environmental regime was. That may not be true anymore, but the WTO continues to issue decisions that have environmental and health implications — for example, in 2001, there were decisions regarding asbestos and the shrimp-turtle dispute.

Criticism of WTO Adjudication

The success of the WTO dispute system has led to charges that it is working too well. The crude version of these criticisms is that it is wrong for sovereign governments to allow faceless bureaucrats to pass judgment on their laws and to call into question democratic domestic decision-making. The more sophisticated criticism is that the Appellate Body has been too activist and has gone too far. There are several strands of argument there. One is that the Appellate Body is too activist in reversing panels. Another is that the Appellate Body does not show enough deference to national government decisions. Another is that the Appellate Body is too willing to decide ambiguous points of law. （The critics often don't explain what the Appellate Body should do instead. Do they want a political question abstention doctrine or do they want a finding that the defendant government has not violated an existing WTO rule?） The sophisticated criticism deserves some attention and response.

It is often said that the WTO has over-legalized or over-legalized dispute settlement. A thoughtful article by Joseph Weller （Weller 2001） captures this debate well as he explains the tension between the traditional diplomatic ethos and the culture of law. Certainly, the WTO has moved in the direction of legal resolution as opposed to political resolution. This was thought to be of benefit to the smaller countries, but it is not clear how much of a benefit to them it has been.

A distinguishable concern is that the Appellate Body is making mistakes in not interpreting WTO rules as the governments intended and is changing the rights and obligations of governments, even though it is instructed not to do that. It is hard to take this complaint seriously. Assuming governments are acting in good faith, any WTO dispute involves a difference of opinion as to what the WTO rights and obligations are. The panel and Appellate Body determine these obligations to be sure, but only in favor of what one of the two parties is arguing. Moreover, the WTO Agreement has a mechanism that governments can use to issue binding interpretations of WTO rules that can correct future panels. No recourse to this mechanism has yet occurred, at least not directly.

A more subtle claim is that even if （or when） the Appellate Body decides a case in a way that the drafters of the WTO had not intended, there is no way in practice that this unexpected interpretation can be reversed. This claim is part of a broader concern that the WTO has operated in an imbalanced fashion because the judicial arm has been so robust while the legislative arm has been so moribund. John Jackson was one of the first to make this point. In a recent book （Barfield 2001）, Claude Barfield has elaborated on this argument, and posits that on some issues, the governments purposefully left WTO rules vague with the intention perhaps of revisiting it in a future negotiation. Into this lacunae the Appellate body has stepped, Barfield argues, but they should be more careful in doing so. Barfield has advocated a blocking mechanism whereby a minority of governments could nullify an Appellate Body report.

What should one make of this position? It is certainly true that the WTO legislative （or executive） functions have been carried out in a disappointing way. The WTO Agreement established several subsidiary bodies but they are not comparable in activity to the subsidiarity bodies acting under multilateral environmental agreements （MEAs）or autonomous institutional arrangements, as one recent seminal article calls them （Churchill & Ultstein, 2000）. There is an interesting irony here. Despite not being international organizations, the MEAs have active subsidiarity bodies that make decisions about compliance, annexes, etc. Yet despite being an international organization, and an allegedly powerful one, the WTO committees, councils, bodies, etc. do not do accomplish very much. One reason why is that there is a de facto consensus decision-making rule. Relatedly and perhaps more important, the WTO retains a bazaar-like atmosphere where bargaining deal is supreme and nothing is done in the community interest.

This past inability to legislate is what makes the Doha Declaration of November 14, 2001 so interesting because it looks a lot like legislation. If launching a new Round were all the Declaration did, it would have taken a couple of pages. But the governments were not willing to do that so solely. The Declaration and its attached Decision on Implementation and Declaration on TRIPS and public health are full of decisions that seem to have immediate effect in interpreting WTO rules and calling for further WTO action. The legal significance of the Doha Declaration will assuredly be a matter of some debate in the months ahead. Some people will say that it is just a series of political statements and glosses that are non-binding and have no legal effect within the WTO legal system. Others will say that the Declaration is WTO secondary legislation and begins to reset the imbalance in the WTO as between the judicial and the legislative.

In summary, the WTO dispute system gives a great deal of authority to panelists and Appellate Body members who act independently of government instruction. The environment regime does this far less so. Analysts who contemplate trying to graft the WTO procedures into environmental institutions should recognize the tensions that now exist in the trading system over this allocation of authority. In my view, governments would be disinclined to create a WTO-like system in environmental institutions. Indeed, if the WTO dispute system were being rewritten today, I suspect that governments would make it less independent of political control.

While on the topic of adjudication, two other features of the WTO system should be noted. First, there is no basis in WTO rules for removing a WTO complaint to another international forum. Had the swordfish case proceeded, there might have been parallel adjudications in the WTO and the ITLOS. This jurisdictional issue came up early in the Foreign Sales Corporation case, where the U.S. government argued unsuccessfully that the EC should have brought the matter to the OECD. If the WTO model is replicated elsewhere, governments are going to have to deal with this the problem at assigning jurisdiction.

Another feature of the WTO system is that it has inadequate dispute avoidance. To be sure, WTO rules call for consultations, good offices, mediation, and conciliation. But in practice nothing of substance is carried out. The Transatlantic Business Dialogue has repeatedly pointed out the need for dispute avoidance with respect to the EC and the US, but little has been done so far to settle disputes before a legal case is brought. One recent innovation at the WTO is that the EC and the US agreed to arbitration on the amount of nullification or impairment in the Copyright case. The arbiters issued their decision recently, and what happens next will bear watching.

Criticism of WTO Remedies

The most distinguishing feature of WTO dispute settlement, in contrast to systems in other regimes, is that a finding of violation can lead to a trade sanction if the scofflaw government does not comply. It is somewhat ironic that the trading system, which ostensibly favors trade, is so willing to undo the benefits of trade through authorized trade retaliation. No other regime would take such a self-contradictory action.

The reason why the WTO slips so easily into apparent self-mockery is that the WTO has little commitment to free trade as a human right. The WTO takes some account of the rights of private individuals, but only their procedural rights. Thus, when the WTO authorized Canada and the United States to retaliate against the EC by raising tariffs on agricultural products from Europe, the WTO as an institution did not seem to care that frustrated American consumer would be injured （in addition to the frustrated European farmers）. An international organization will have a difficult time promoting free trade unless it is interested in the traders themselves.

What the WTO is committed to is the idea of trade reciprocity and the gradual liberalization of trade through a negotiated reduction of trade barriers. Thus, one has to be careful in viewing the trade and environment regimes as symmetric. The environment regime does view environmental protection as a goal, but the WTO does not really view free trade as a universal goal. The WTO is normatively hollow in comparison to the environment regime, or for that matter to the labor or human rights regimes.

The ability of the WTO to impose sanctions against a non-complying party has led to "sanction-envy " by other regimes and various activists. It is said that the A/TO is powerful and effective because of the sanctions, whereas other international organizations, like the ILO, are weak and toothless. This has led some politicians to want to move more issues into the WTO, such as labor standards.

The question of sanctions in MEAs is a complicated one and often misunderstood. Although over 20 MEAs provide for recourse to trade measures, none of these is a trade sanction in the same way that the WTO uses them. In CITES for example, trade measures are the instrument of the treaty; it is about trade. In the Montreal Protocol, trade measures can be used purposively to control the flow of ozone- depleting technology. Fishery treaties also call for trade measures but only as a means of achieving the purpose of the treaty. These trade measures are predicated on an entirely different principle than the trade measures that the WTO employs in the DSU when it authorizes one country to sanction another.

As noted above, governments have undertaken trade sanctions authorized by the WTO in just three instances （2 hormones, 1 bananas）. In none of those three cases did compliance ensue as a result. Certainly, three data points is too small of a set to draw a conclusion about the inefficacy of trade sanctions, or the threat of trade sanctions, to induce trade compliance. But one cannot easily assume that sanctions are the jewel of the WTO system, as some commentators allege.

In my view, what underlies the high rate of compliance with WTO decisions is not the sanction at the end of the litigation, but rather the integrity of the dispute settlement system. The governments get their day in court, can even appeal, and then get considerable time to implement the panel decision. This process helps a government gain the domestic political support that it needs to correct the A/TO violation.

So I completely disagree with those who would argue that the possibility of trade teeth should be grafted on to other organizations or treaties. Rather than the "stick " of the WTO, it is better to use carrots to get governments to comply, such as financial and technical assistance. In saying this, I am not ruling out other modalities of achieving compliance such as levying fines or giving international decisions direct effect in national courts. But would argue against any environmental treaty system adopting the WTO DSU Article model as a means of inducing governments to comply.

Conclusion

The WTO dispute settlement system is the most active one today at the international level and has tremendous importance for the progressive development of international law. The environment regime has nothing to be ashamed about, however, because it does better than the WTO on legislation, and has an equally effective compliance system in many agreements. Environmentalists can study what the WTO does well and seek to learn from that in environmental regimes. But the most problematic feature of the WTO, the possibility of sanctions, should not be copied anywhere else, and should eventually be removed from the WTO.

　Supplementary Reading