BOP ruling calls into question dispute settlement system

The WTO ruling in the Indian BOP case has thrown the
spotlight on the dispute settlement system. Several
contentious rulings have generated concern as to whether
panels and the Appellate Body have overstepped their
jurisdiction and altered the balance of members' rights and
obligations. Also called into question is the impartiality of
the WTO secretariat, which services the panels.

by Chakravarthi Raghavan

GENEVA: The WTO panel ruling against India on the balance-of-
payments case, as some other recent rulings, has raised some
systemic issues on the WTO accords and their internal balance
of rights and obligations, as well as about the role of the WTO
secretariat in panel proceedings.
The three-member panel ruled that the import restrictions
maintained by India - quantitative restrictions, import
licensing schemes and canalizing some essential imports through
state trading agencies - are contrary to India's obligations
under GATT 1994 and other WTO agreements in the area of trade
in goods, and are not justified by the situation of India in
terms of its balance of payments.
A reading of the full report of the panel shows that though
the entire range of these issues were agitated before the
panel, in fact the real dispute between India and the
industrialized countries (Australia, Canada, the EC, Japan, New
Zealand, Switzerland and the US), both before the BOP Committee
and in subsequent "consultations", had been over the phasing
out of the restrictions.
Agreement was reached between India and all others (save the
US) for a 6-year phase-out, with the bulk of restrictions
removed in five years and those on a few sensitive products in
the sixth year. The US had blocked consensus on such a plan in
the BOP Committee, rejected the plan in consultations, and took
it to a dispute panel which ruled in its favour.
The panel, on the phase-out issue, has, however, suggested
a period longer than the 15 months normally given by
arbitrators for compliance.
But from the wider perspective of developing countries,
those now having recourse to the BOP provisions and those who
may be forced to do so in future, the ruling has raised some
serious systemic questions.
These include the role of the WTO General Council and its
bodies (which alone can add to or subtract from the bundle of
rights and obligations), and that of the DSU which can only
interpret the rights and obligations of contestants.
Another is the role of the WTO secretariat, which is
gradually extending the WTO's jurisdiction through an
interpretation process via the panel systems. And a reading of
various panel rulings suggests that instead of functioning as
an impartial secretariat servicing the contract and acting in
the interests of all its membership, it is now promoting
particular ideological views and tendencies of dominant trading
These issues have become even more important as the full
range of obligations of developing countries begin kicking in
at the end of the five-year transition period in 2000, and new
negotiations with new issues are proposed to be launched and
completed as a single undertaking as the major trading nations

Exercise of power

The BOP ruling shows that, using the WTO system and its
provisions for taking decisions by consensus in the WTO and its
bodies, the majors like the US can block agreements, take
issues to the dispute settlement process where the rule of
negative consensus prevails, and use the trade sanctions route
for enforcement. This exercise of power is facilitated by the
secretariat's role in the DSU process.
Developing countries had been talking of using the next
round to redress the past inequities and tackle their
implementation problems, and using the review process of the
DSU to tackle some other problems. But the statement of the US
Trade Representative, Charlene Barshefsky, on the arbitrator's
ruling on the banana dispute negatives such a hope. Once a
ruling is given and an arbitrator has fixed an implementation
period, Barshefsky has said in a statement relayed to the media
here, the other party could judge for itself whether there has
been compliance, take the issue to an arbitration panel for
judgement on levels of trade damage, and impose trade
sanctions, with no need for a DSU review on this.
The WTO (unlike the old GATT) is a definitive treaty, with
its annexed agreements setting out the various rights and
obligations in various sectors and areas; an overarching
dispute settlement mechanism to settle disputes, but without
adding to or subtracting from existing rights and obligations;
provision for the General Council to interpret existing rules,
and new obligations created by changes in rules with the
necessary majorities and ratification processes.
But by a succession of rulings, where the panels and
panellists are different, but having a common thread of the
guiding hand of a permanent secretariat, the rights and
obligations of individual agreements have been bundled,
cumulated and extended; without any formal change in rules, the
obligations of developing-country members have been increased
and their rights eroded.
While the DSU prescribes the procedures for settling
disputes, it is the various individual agreements that create
the right (and obligations) of consultations and dispute
settlement. Some do so with a bland reference to the
applicability of Art. XXII and XXIII of GATT 1994. Others use
some varying language about the application of these articles.
But the BOP ruling in effect has made them all have the same
meaning, with or without qualifications, namely, an untramelled
panel right to look into and rule on all disputes.
The panel has ruled that both the substantive and procedural
provisions of Art. XVIII of the GATT for determination of a BOP
jurisdiction or otherwise, and determining a phase-out period
for removal of restrictions if the BOP claim is found
unjustified - all issues involving not merely strict GATT law
and rights and obligations, but political economy and
development considerations - can coexist without any necessary
The BOP panel report has given sanction to the ability of a
country to block a consensus in the BOP Committee and the
General Council, and then take the case to a panel to try and
win the argument about whether the BOP restrictions are
justified and how soon they should be dismantled.
The WTO dispute settlement system provides for an Appellate
Body to hear appeals and rule on questions of law. But that
body has shown itself to be more sensitive to political winds
than to law.
Though it has jurisdiction only on points of law, in effect
it has on more than one occasion overturned panel rulings
(based on facts determined by them), and then undertaken a de
novo examination of facts or made a finding on legal issues not
addressed by the panel, or adopted what is being called an
"evolutionary" approach to interpretations of the provisions of
the agreements. Whatever justification could be cited by
domestic courts for this, as by the US Supreme Court, it seems
to have no application for international agreements.

Role of secretariat

The WTO secretariat services the panels, and its officials in
the legal and substantive divisions guide panels in their
deliberations and conclusions - about past GATT practice and
decisions, meanings of the language used in various agreements,
and the secretariat's view of the negotiating history. And the
secretariat provides notes to panels behind the backs of
These practices, which trade diplomats had been talking
about in private, were raised at a General Council meeting
(over the interpretation of the DSU articles in the US-EC
banana case) by the Indian ambassador S. Narayanan. If there
was an answer to him, the press office of the WTO which briefs
the media on meetings (which are all restricted) did not relay
But trade diplomats say that the secretariat practice of
providing notes to panels behind the backs of the disputants is
being justified by citing the practice in the US Supreme Court
(and perhaps lower federal courts) where individual judges have
"clerks" who do research and provide notes to them on the
But this explanation cannot stand a moment of scrutiny. The
US Supreme Court and its secretariat are independent of the
Executive and the Congress. Supreme Court judges, once
appointed, serve virtually for life, removable only through
The "clerks" of judges are chosen from the ranks of those
who are at the top of their graduating class in prestigious
universities. Each judge chooses and appoints his or her
"clerks", who do not serve permanently but only for 2-3 years,
the stint constituting a useful beginning in the c.v. and a
springboard for them to join prestigious and lucrative law
firms or go into academia.
In the WTO, panellists are temporary and ad hoc (in fact,
their names are suggested by the secretariat and agreed to
either by the parties or by the Director-General in cases of
disagreement), while the secretariat, as "clerks", is permanent
and serves the panel as a whole and not individual panellists.
If the practice of "clerks" providing private briefs to
panellists is to prevail, then each panellist must be able to
choose and appoint his own "clerk" to do his own research, one
trade observer, on hearing this explanation, said.
And there is an ocean of difference (wider than the Atlantic
and deeper than the Pacific) between the "rule of law" as
understood and practised in the US, in the legal systems of,
say, Europe, Japan and India and a few other developing
countries (with an independent judicial system) and the WTO's
"rule-based" system, where the rules themselves were drafted in
privacy and secrecy - with most delegations not even having
lawyers to scrutinize the texts or given time to have their
capitals look at the drafts - and with a panel system so
heavily influenced by the secretariat, whose recruitment,
promotions and so on do not even follow the UN system and rules
and practices.
It is no great secret among trade diplomats that the US, in
agreeing to the consensus choice of Ruggiero as the WTO head,
made sure that under him the Legal division would be headed by
an American - an eminent trade law academic with a particular
view of trade law and trade economics - while a Canadian was
named to head the independent Appellate Body secretariat. And
the seven members of the Appellate Body themselves were chosen
in a process where their acceptability to the US was first
determined, and then the choice was presented to others to get
their consensus.
The US Supreme Court practices, hearings and procedures and
exercise of jurisdiction (including an evolutionary approach to
interpretation) are totally inapplicable to the WTO and its
secretariat servicing the panels and bringing its subjective
views and judgements to bear on issues and disputes.


A careful reading of various WTO panel and Appellate Body
rulings - such as in the Venezuelan gasoline case, the Indian
TRIPS case, the Indonesian automobile dispute, the shrimp-
turtle case, and now in the BOP case - seems to lend strength
to the growing feeling among trade experts and former
negotiators and officials in developing countries of a partisan
role by the secretariat.
The secretariat has a vested interest in the current system
- where it dispenses patronage in suggesting names of
panellists to the parties and, where the latter cannot agree on
them, to the Director-General - and in the entire process of
dispute settlement.
Trade diplomats too have a vested interest: those who, after
a tour of duty in Geneva, are reassigned to other posts (where
they may even be dealing with non-trade issues and may feel
frustrated over their unexploited trade expertise) but get
nominated to the roster of panellists, thus affording them the
opportunity, when on a panel, to visit Geneva, keep up with the
WTO scene and catch up on trade issues.
Some panellists have been named to and served on more than
one panel.
In the past too, the secretariat was partial, but in the WTO
its partiality has become more blatant and open, with some
senior officials privately justifying or explaining it as being
part of their "advocacy" role.
Whether or not there is a new round - irrespective of what
will or will not be included or whether it will be an open-
ended agenda process - and though individual developing
countries or groups of them may have differing or even
conflicting interests, trade observers from the Third World
have begun to say, developing countries have a common interest
in joining together and setting right the dispute settlement
system and the secretariat's role and functioning - perhaps
even before agreeing to launch a new round.
Some of these questions have been flagged by some
delegations in the DSU review process, and some, such as
appointment of panellists and the role of the Appellate Body,
have been raised by Pakistan in a submission to the Ministerial
preparatory process.
The Pakistan document says that while the basic principles
on which the system of selection of panellists is based should
not be changed, the selection of panellists should be from a
pool of candidates representing a broad range of expertise
ensuring a balance between panellists from developed and
developing countries.
Pakistan has asked for data from the secretariat on the
names of individuals selected as panellists since the
establishment of the WTO, their nationality, background and
experience - whether as members of the Mission, officials from
national capitals or non-government experts.
In respect of the latter, it has also asked for information
whether the name of the NGO expert was in the indicative list
of experts or what criteria were used to select the individual.
Information has also been sought on the number of cases
where the DG had to decide on the panel composition as parties
were unable to agree on the names suggested.
In terms of the role of the Appellate Body, the Pakistan
paper notes that it can hear only issues of law covered in the
agreements, but has no authority to send back for examination
by panels, where it considers that the panel has failed to
examine fully the facts of the case or, in interpreting the
law, has not taken into account some of the provisions of the
This situation, the paper says, has led the Appellate Body
to examine de novo the facts of the case or make a finding on
legal issues not addressed by the panel (as in the US shrimp-
turtle case).
In all such cases, the Pakistani paper says, the Appellate
Body should be required to send the case back to the panel for
Challenging the "evolutionary" approach adopted in
interpretations, Pakistan notes that the Appellate Body has
also said in the shrimp-turtle case that in interpreting the
terms and words of legal instruments drafted some 50 years
back, the treaty interpreter "must read the treaty in the light
of contemporary concerns of the community of nations" even
though such concerns may not have existed when the treaty was
Disagreeing with such a broad interpretation, and
underscoring Art. 3 of the DSU that panels and the Appellate
Body cannot add to or diminish rights and obligations in
covered agreements, Pakistan points out that the broad
interpretation given by the Appellate Body to Art. XX (g) of
GATT 1994, namely that the term "exhaustible natural resources"
originally intended to cover physical resources must now be
broadened to cover "living resources" taking into account
contemporary concerns of the community for environmental
protection, has resulted in significantly increasing the thrust
of Art XX to justify trade restrictions, and thus diminishing
the rights of member-countries.
Such a customary law to interpretation applies only to
treaties negotiated on a once-and-for-all basis, and not to
those, like the WTO agreements, which contain provisions for
surveillance on a continuous basis.
The Pakistan document has also assailed the Appellate Body
for taking on board the amicus briefs of NGOs, and taking them
into account in giving rulings on "unsolicited" information or
briefs by NGOs.
In view of the uncertainty created, it must be clarified
that the DSU's Art. 13.2 does not permit panels or the
Appellate Body to take into account unsolicited information
including amicus briefs.
While some of the issues have thus been brought up by
Pakistan, other basic issues are still to be thought out and
raised by developing countries.
On the role of the secretariat in WTO activities and in the
panel processes of judging between parties, some trade experts
like B L Das suggest differing approaches may be needed, and
perhaps the secretariat servicing panels may need to be
organically separated from the WTO. (SUNS4414)

The above article first appeared in the South-North Development
Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.