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DSU process becoming outrage on law and justice, says critic

A leading Third World analyst and the author of a monograph on the WTO's Dispute Settlement Understanding (DSU) has said that the DSU, viewed by the organization and its membership as its ‘flagship’ and bedrock of trade security for weaker trading partners, in its actual functioning seems in danger of becoming an outrage on law and judicial systems.

by Martin Khor


Geneva, 20 Sep 2000 -- The Dispute Settlement Understanding of the World Trade Organization, viewed by the organization and its membership as its ‘flagship’ and bedrock of trade security for weaker trading partners, in its actual functioning seems in danger of becoming an outrage on law and judicial systems, a leading Third World trade analyst and the author of a monograph on the DSU, said here in the third week of September.

Mr. Chakravarthi Raghavan, Chief Editor of the South-North Development Monitor was making a presentation at a panel session on the WTO and its dispute settlement process at a seminar for Group of 77 countries, on “Current Developments at the WTO: Perspective of Developing Countries”.

Mr. Raghavan is the author of the monograph published recently by the Third World Network, “The World Trade Organization and its Dispute Settlement System: Tilting the Balance against the South”.  While he began looking at the DSU and its process purely from a technical viewpoint of helping developing countries in their review of the DSU, mandated at Marrakesh, said Raghavan, when he began delving deeper he was disturbed by two sets of problems.

There was a basic problem, a major systemic problem, related to the rules themselves and the distortion of the original GATT concept of ‘withdrawal of equivalent concessions’ to rebalance rights and obligations that has now been made into a thin legal veneer for exercising power and inflicting punishment.

A second set of issues related to the way the actual DSU, the panel and Appellate Body (AB) processes, guided by the WTO secretariat, was actually functioning, making the purportedly judicial process into an outrage on law and judicial systems, under any kind of legal systems—Anglo-Saxon systems of ‘Rule of Law’ or the continental systems based on concepts of Droit Administratif, said Raghavan.

Despite the specific provisions of the WTO and the DSU, the dispute settlement process, and the panels and even more, the Appellate Body has now become a legislative organ, creating rights and obligations on sovereign states without their express consent in international law, he said.

In some comments on the presentations, Mr. Leo Palma of the Philippines, a legal expert and discussant at the session, said that while under all systems, the judiciary does try to create new law through interpretations, the legislatures have the inherent right which they often exercise to correct such new law by interpretation.

But the consensus decision-making process of the WTO, which most members find to be to their advantage, was preventing this necessary corrective to the judiciary in national systems. It was not really clear how the WTO membership could resolve this dilemma, Palma added.

During the discussion stage of the session, India’s Ambassador and Permanent Representative to the WTO, Mr. S.Narayanan, in some informal comments from the floor, said that it was clear that major and smaller trading entities and nations were becoming equally concerned over the panel processes’ tendency to encroach through panel/AB decisions on the ‘legislative’ organs.

But there was also a selfish tendency that asserts itself. “If I win a case and benefit, I am unlikely, looking from a purely, mercantalist view, to agree to a consensus to change a decision of the panel or AB, even if I feel uncomfortable with the systemic implications.”

Even major trading nations, who have trade power, have become conscious of this problem. But this can be resolved only through a frank discussion of the issues at the Dispute Settlement Body and the General Council, Narayanan said.

Palma also said earlier that the WTO and its agreements could be interpreted only in terms of their provisions, and the provisions of the DSU and that the authority to “clarify” the existing provisions of the agreement, in accordance with “customary rules of international public law” could not be stretched to invoke the more general principles of international law and external judicial pronouncements.

Earlier, Raghavan said that the GATT theory of “withdrawal of equivalent concessions”, when two members have exchanged in reciprocal bargaining concessions (multilateralised later by incorporating them in schedules), and one was not carrying out its part of the bargain, was used and was meant to be used for the other party to create a new balance, in effect withdrawing its own equivalent concessions exchanged.

A multilateral trade system cannot function if this principle was used to apply trade power and pressures, for the strong to prevail over the weak, or over another of more or less equal strength. If this was allowed, then the WTO trade system was in danger of being turned into a UN Security Council system, where under the thin veneer of the legal right of self-defence, the most powerful nations have been carrying on a military campaign, whether it be in Iraq now or during the Kosovo war, he suggested.

But this was a systemic problem that only those who set the WTO treaty could resolve, but if it is not resolved soon, it will bring into question the legitimacy of the system and its public acceptance.

But there were other problems that were cropping up relating to the functioning of the panel and AB process that he had dealt with in his monograph and would ask governments and trade policy establishments of developing countries to carefully study and weigh.

He drew particular attention to the view on the “single undertaking” concept for the conduct of the Uruguay Round, which meant that obligations were cumulative. The WTO, Annex IA had a clear interpretative note envisaging conflicts among the various agreements, and has said that in the event of a conflict, between GATT 1994 and a provision of an annexed agreement, the latter shall prevail.

Yet, the panels and the AB have decided to so interpret as to remove conflicts - first enunciated in the Indonesia car case, and then followed. And the injunction about ‘ordinary meaning’ of a term has sent panels into dictionary hunting, and in one ruling, Black’s Law dictionary has been invoked.

Since he wrote and published the monograph, there were a few other cases and panel rulings, to which he would draw attention—the safeguards cases against Argentina and Korea, the European patents case against Canada over generic pharmaceuticals issue, and the European case against the United States over playing of recorded music at some commercial places without payment of royalties to the authors/owners, and the case regarding US restrictions on imports of steel, where the AB has come back to assert its right to receive views of non-governmental groups, in this case, of the US steel industry.

In the Korean government procurement case, in a footnote, the panel had even asserted the right of panels to set right errors and lack of bona fides in negotiations. This was truly extraordinary, even for the WTO panels.

Later, during discussions, Amb. Narayanan of India said that it seemed that the panels and AB were taking the view that the conflict envisaged in the interpretative note was only one when a member obeying one agreement would necessarily come into conflict with another. There was also a view being advanced that what the panels and the AB were not expressly prohibited, could be done by them.

Raghavan however said that this was an inacceptable contention in any system of law.

All these cases cited by him in the monograph, had been analyzed in the various issues of the SUNS, including an article by Mr.B.L.Das which raised some very serious questions that member-governments must carefully study, Raghavan said.

Whatever view the original negotiators had in mind about the DSU, and the provisions there for the secretariat to service panels, in actual functioning, the panel process has raised some questions. And many explanations that trade officials offered to him in private, but not publishable by direct and named attribution, had roused in his, a sense of outrage being committed in terms of law and justice, Raghavan said.

From the time a dispute went to a panel process, and until the final end, the system was now such, that the secretariat has assumed a very important role—from the choice of panellists (even in terms of those fewer and fewer cases where the parties agree to a set of panellists, and the naming of panels by the WTO Director-General which threatens to become the general practice rather than an exception), through the panel proceedings, whereby the secretariat has now taken up a lead role.

He had been told, but as a newsperson, he would not name or identify the source, that as soon as a dispute goes to a panel as such, the secretariat begins its own internal discussions at top levels on the stand or view that the secretariat should take.

And some panellists had told Raghavan that as soon as the oral hearings are over, and the panel starts its own deliberative process, in many cases, the secretariat comes up with the view that the panel should take.

Those from outside who willingly or unwillingly go along with the secretariat line seem to be figuring in the membership of chosen panels more often than those taking an independent line. He could easily name some half a dozen persons, from outside Geneva, whether former trade officials or others, who seem to be called in more frequently to serve as panellists than others who have more independent views.

Invariably, the panel conclusions (after panels guided by the secretariat agree on conclusions) are drawn up and the arguments and reports written up by the secretariat.

The same seemed to be happening in the AB too, though the details of its functioning are not so very clear or easy to find out.

Raghavan said had been told privately by trade officials that the secretariat providing notes and briefs to panels after the hearing is over, behind the back of the parties, was similar to the US practice where law clerks of the judges undertake research for judges and give briefs.

This Raghavan said was nonsense. The law clerks of the judges of the Supreme Court or Federal Courts are appointed by the judges, picking brilliant law students from prestigious universities. These clerks, appointees of judges, do some work for a couple of years, getting experience, and then go out and join law firms. This cannot be compared with the WTO secretariat providing briefs, and giving negotiating history from its files, that are not made public nor approved by the negotiators, as is needed in terms of international law.

Thus, the secretariat services the negotiations, and often works indirectly via the 'green room' or other processes to promote a particular agreement or wording. Now, it also begins to service the various WTO bodies supervising these agreements, and participates in this way in the panel process too.

This is unacceptable. The cure for this is very easy: separate the function of servicing of panels and the AB from the WTO secretariat, structurally and organically, and place it outside - whatever the cost. If the secretariat wants to have a say, members must decide whether it should have, not on a case-by-case basis, but as a principle of the DSU. And even then the secretariat should be able to do so only in the presence of the parties.

Any other way out, or continuance of the present practice, will make the dispute settlement process a “Star Chamber” process of the middle-ages and bring into contempt the entire WTO law and practice.  This is not in the interests of the trading system, he said.

In an article commenting on the safeguards disputes against Korea and Argentina, and the AB reports on them, Mr. Bhagirath Lal Das, noticed in both AB reports, issued at more or less the same time, and heard by two different divisions of the AB, identical wording in four or five paragraphs of conclusions, and this was rather strange.

In any judicial process, and more so in a process like that of the AB, the judges who hear a case or dispute, can confer among themselves, and get one of them to write a ruling and then discuss, modify and approve it. But the secretariat, even that of the AB, cannot have a role, nor can judges assign the job of writing their ruling to someone else and then sign it.

After Mr. Das wrote the article and it was published, some trade officials and diplomats drew Mr. Raghavan’s attention to the working procedures of the AB, agreed to by the DSB. With difficulty he had got a copy of these procedural rules and looked at them.

Under the title ‘Collegiality’, the AB rules said in Rule 4.(1): “To ensure consistency and coherence in decision-making, and to draw on the individual and collective expertise of the Members, the Members shall convene on a regular basis to discuss matters of policy, practice and procedure.”

Rule 4. (3), provided that, “In accordance with the objectives set out in paragraph 1, the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the Appellate report for circulation to the WTO members....”

The only authority for the AB were those in the DSU itself. No rules of procedure can provide additional powers like these, even if approved by consensus by the DSB, Raghavan insisted. Only amendments to the DSU could do that.

The only DSU provision that could have a bearing on this issue was Art.17. Art 17.1 stipulates that the AB shall consist of seven members, and “three of them shall serve on any one case”. There is no specific rule or provision to authorise the three in a division bench to hear a case, consulting the other four or coming to a common view with the other four on a ruling. And in any event, unlike Anglo-Saxon jurisprudence based on the principles of “court of record”, in other systems judges cannot create new law.

Even more, Art. 17.3, the only provision to which Raghavan’s attention was drawn, merely says “.... All persons serving on the AB shall be available at all times and on short notice, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO.  They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.”

This provides no backing whatsoever for any collegiate view.

If differences arise as a result of panels and AB rulings, the only way out is through authoritative interpretations - a right vested solely in the Ministerial Conference or the General Council. No one else could usurp this authority.

In national systems of justice, in India for instance, he had known cases where the appeal courts and the Supreme Court have set aside judgements where the judgements were not drawn up or gave the appearance of not being drawn up or dictated in open court by the judge or judges who heard it.

In any system of law and justice, judges who ask others to draw up judgements and sign them, would be impeached and removed.

Unless this practice and that of the secretariat guiding and drawing panel or Appellate rulings are given up, the entire system would lose legitimacy and brought into disrepute.

As an individual, not as a lawyer, but with long experience of legal and judicial process, said Raghavan, he felt outraged by the WTO/DSU processes both in terms of law and justice. He appealed to trade diplomats and governments to look seriously at these problems and resolve them quickly.

Otherwise, the WTO system would lose legitimacy and collapse, he warned.-SUNS4746

About the writer: Martin Khor is Director of the Third World Network.

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