by Martin Khor

Harare, 30 Mar 2000 -- The WTO's Dispute Settlement System has been gradually tilting the balance against the developing countries inside the WTO -- increasing their obligations, sometimes through perverse interpretations of the rules, and expanding rights of a few industrial countries, two trade experts warned here this week.

Speaking at a week-long workshop here for trade officials from Southern African region, the experts warned that the system which was viewed by developing country negotiators as an important plus, for signing on and ratifying the Marrakesh Treaty -- namely, for the assurances it gave them of trade security and certainty and reining in use of economic power by the major nations -- is becoming an instrument to further tilt the balance against them in a system which was already highly skewed and imbalanced and unjust.

These views were presented by Mr. Chakravarthi Raghavan, Chief Editor of the South-North Development Monitor and Mr. Bhagirath Lal Das former Director of UNCTAD's Trade Programme and a former Indian Ambassador and Permanent Representative to the GATT.

They were speaking at a panel session on the WTO Dispute Settlement Understanding at SEATINI's Third workshop (SEATINI-3). Trade officials from 32 countries of this region are at this workshop and assessing the outlook for the trading system after the collapse of the 3rd Ministerial Conference at Seattle on 30 Nov - 3 Dec 1999.

Drawing on a forthcoming Third World Network publication of which he is the author, "The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South", Raghavan said that through a steady process of interpretations, usurping the authority vested in the Ministerial Conference and the General Council, the dispute settlement system and its panels have, with single-minded purpose, eroded the rights of the developing countries, increased their obligations, and titled the balance in the system against them.

The power-based rules of the system were being made more oppressive by the interpretations of the panels and the standing appellate body which seem to be equally sensitive to the power-structures, Raghavan said. If some actions are not taken quickly to remedy this, the medium to long-term viability of the trading system itself was in jeopardy.

Das noted that the DSU was the 'flagship' of the WTO system, and touted as a major advance on the old GATT mechanism and, paradoxically, was seen as a way of protecting developing country interests. But the DSU was operating against the interests of the developing countries. It was a strange coincidence that panels and the Appellate Body have extended the obligations of developing countries and the main beneficiary has been the United States.

The paper presented by Raghavan had raised some serious issues and cited some facts, and these needed to be studied very carefully by trade negotiators, governments and others in the South, Das said.

"It is time to raise a cry from the developing countries about the inequities of the system, both inside and outside the WTO," Das said.

Earlier Raghavan said: "It is time that the issue of the DSU and the manner in which the system is functioning is seriously debated in our countries - as a serious issue of politics and political economy - and not as a legalistic or technical one."

Raghavan said the Dispute Settlement process even under the old GATT, a provisional treaty, had problems. Since it functioned on consensus decision-making basis, at every stage from reference to a panel to the final adoption of the ruling, one side or the other or any one could block it, and the majors often did.

This led to frustrations.

Under the Uruguay Round, at the Montreal mid-term review, the issue came up and a certain measure of automaticity was agreed to and put in place -- covering every aspect from beginning until the final process of adoption of panel rulings, which still required consensus to be adopted. In the final Uruguay Round package (the Marrakesh Agreement for the WTO), the automatic adoption of panel rulings was provided for unless there was a consensus to the contrary. As a price for this, the EC sought and got instituted an appeal process, for a standing Appellate Body to hear and rule on issues of law. Only either party to a dispute could go in appeal.

To the extent there was a finality to the disputes as between parties, this was an improvement.

But in the old GATT, when a panel ruling was adopted by a consensus of the contracting parties it meant they agreed, at least implicitly, with the interpretation of the provisions. "Now, a panel gives an interpretation and this is automatically adopted."

The WTO agreements, he noted, was perhaps the only international treaty couched in such non-legal language. At the last moment, all of them were cobbled together into the WTO and the DSU was part of it, supposedly merely procedural.

To guard against problems that might arise from automatic adoption of panel rulings as between two parties, the DSU has provided that only the ministerial conference, and when it is not in session, the General Council can provide authoritative interpretation by a two thirds majority. The DSU and the panels it has provided cannot add to or subtract from the rights and obligations.

In practice, the panels and Appellate Body had been merrily interpreting and have been doing it in a way that adds to the obligations of developing countries and the rights of the developed countries. And the process of authoritative interpretation is blocked because, there is no recourse to voting, but a consensus is insisted on and thus any authoritative interpretation is prevented.

"This is not right or just, and unless quickly remedied, the WTO system will break down," Raghavan warned.

The problems of the DSU and the biases that have crept in were due to several reasons, including an attempt of some of the powerful nations to get via the DSU what they could not get in the Uruguay Round itself. And an important element in this was the role of the secretariat and its legal division vis-a-vis the panels, and the separate secretariat for the standing Appellate Body in appeals.

In panel proceedings, as is shown in the paper, at every stage the secretariat plays a leading role. It suggests the names of panelists, and parties are told they should accept them unless they have some grave reasons not to. If parties can't agree, the D.G. names the panelists, which means the secretariat. And people with a particular ideological bent are chosen. And panelists know that if they do not follow the secretariat line, they won't be called again.

Right through the panel process, at every stage, the secretariat guides the panels. They even provide notes to the panels, guiding them to reach particular conclusions, and often based on secretariat files about the intentions and meanings behind particular provisions. And these are done behind the back of the parties. This is defended on the basis that in the US Supreme and Federal courts, the judges have clerks who do the research and help the judges. This "precedent", if any, cannot by any means apply here.

For one thing, the clerks to judges in the US courts are appointed by the judges, and often from the best law schools -- students who want to do an internship before going on to practice law. The WTO secretariat cannot take on the role of the "clerks" of judges.

A second problem arising out of the imprecisely worded compromise texts, is that while the Marrakesh agreement required every one to sign on to every agreement, there was no provision that the agreements and obligations would be cumulative.

Generally, where there are two or more agreements, there are rules of interpretation about this - the specific overriding the general, etc. At first (in the banana case) the panels said that the obligations under the GATT, GATS and TRIPS were 'cumulative'. This itself was questionable. But to import this to make the GATT 1994 and the other goods agreements to be cumulative is nonsense. If negotiators had intended it they would have said so.

The GATT 1994, and the number of elaborations in specific agreements were just cobbled together into the WTO at the very last without anyone being clearly aware.

Many negotiators knew there were some possible conflicts between the original GATT and the agreements relating to them that clarified or expanded or, in fact, amended them. They were first told these could be fixed through the legal scrutiny stage, but then were told not to open anything lest everything unravel. They were then told the problems could be sorted through authoritative interpretations.

Nevertheless, they had provided in an interpretative note to GATT 1994 that if there were contradictions between GATT 1994 and any of the agreements, the latter will prevail.

But by claiming the right (as interpreters of the treaty) to ensure there are no contradictions among the agreements, the panelists have made them cumulative, and the rights of developing countries under specific agreements like subsidies have been taken away. There are a number of rulings like these, Raghavan said.

Most notable was the ruling against Indonesia in its national car project, and more recently the rulings on two safeguards complaints against South Korea and Argentina.

The secretariat, Raghavan said, was also bringing in so-called negotiating history from its own files, when no negotiating history was ever presented to and approved by the negotiators.

In banana rulings, the panel interpreted the EC-ACP Lome agreement and said that only providing tariff preferences was an obligation of the EC, while the development provisions were not. Hence, it said the GATT/WTO waiver was only in respect of the tariff preferences, and not any actions the EC might take for development purposes of the ACP countries.

In the US 301 case, a political judgement has been given by saying that though the US law violated the WTO provisions, the members could accept the US assurance - to Congress and the panel - that it would not implement it in violation of the WTO.

And in the most recent EC-Canada patent case, in an annex where the secretariat note on the negotiating history is provided, the purported gist of what WIPO representatives told the negotiators on the state of affairs in a WIPO expert committee on harmonization of patents and copy rights is included!

The result of all this is that the balance against the developing world is tilted.

And the rules of the system based on power equations, are now enforced through a power-based panel process.

If this had been in a domestic jurisdiction, the judges would have been impeached, Raghavan said.

The secretariat and the panelists chosen by them have a particular ideology of neo-liberal mercantalist frame and they are using the panel process to advance these interests. In many areas where the Uruguay Round negotiators could not agree on exact things, the panel process is now being used to give the same meaning to what the US had sought.

As possible remedies, Raghavan suggested that the panel rulings should be definitive as between the parties, and the same negative consensus rule for adoption should apply.

But the views and interpretations can be used in future cases or even cited only when by positive consensus the members accept it, in a separate action.

The standing Appellate Body should be abolished, and where any appeals on law are needed,, there should be ad hoc bodies named. Any standing body acquires a vested interest, and this has been more than evident in the present case.

The authority of the ministerial conference and the general council to provide authoritative interpretations should be restored, and if necessary, developing countries should have recourse to voting, with some procedural safeguards. This authority is now stymied by a perverse use of the consensus decision-making.

The secretariat that services the panel process and the Appellate Body process sect should be both organically and structurally separated from the WTO sect, the DG and the overall command structures. They should be totally independent and play only a servicing role.

If the sect of the WTO is to provide guidance, it should be in open panel process in the presence of parties and not otherwise. And any attempt by the sect to introduce from its files the alleged negotiating history or background should be censured.

These are just some preliminary views to set things right.

The developing countries accepted the WTO on the basis that it provides them, through the DSU, trade security and certainty and helps their trade and development.

The WTO DG recently described the DSU as the jewel in the crown of the WTO.

But five years experience shows that adding to the problems of substance in the rules themselves, the DSU is an oppressive instrument of power structures and advancing the interests of transnational corporations and against developing world. If this is not quickly cured, the WTO system will suffer the fates of other oppressive regimes.

Mr. Das said the paper presented by Raghavan, and briefly summarized, should be read and studied in detail. The DSU, viewed as a flagship of the WTO system, was touted as a major advance on the old GATT, and the entire WTO 'sold' to developing countries on this basis. Now the practice is different from the theory, and the DSU was operating against the developing countries, and the panels and Appellate Body had increased obligations of developing countries and coincidentally increased the rights of the US.

Two rulings could be cited as examples, though there were others too. The Indonesian automobile case was a perverse ruling. Indonesia had given some facilities and privileges to the particular car manufacturer in return for manufacturer agreeing to do something -including domestic linkages and capacity building for development purposes. Under the subsidies agreement, Indonesia was fully entitled to do this.

And if this conflicted with GATT 1994, the subsidies agreement had to prevail. And if there was a conflict between TRIMS and Subsidies agreement, the latter being more specific should prevail. But the panel went into a circuitous and confused ruling, first to distinguish between Art. III of GATT 1994 (where subsidies agreement would prevail), and then that when the TRIMS referred to GATT 1994 Art.III, it referred to the substance of that article, and that the TRIMS and subsidies accord were cumulative, and hence the Indonesia car policy was not permissible!

The second case was the US S.301 case. It is a whole armoury of S.301, Special 301 and Super 301. Even under the old GATT, this was illegal, but no question about its illegality under WTO.

The EC after some time took the US to the panel. And the panel has given a strange ruling. It says the US law contravenes WTO. Then it says the US administration has given an assurance to the Congress, and it has been repeated before the panel, that in implementing the law it would do so in a manner not violating the WTO.

The WTO provides that every member shall bring its laws into conformity with the WTO. And instead of ruling that the S.301 should be brought in line, the panel gives no finding or ruling on this basis, but says in view of the US assurances, DSB can accept it and not make any recommendation to the US.

Das said that at a minimum, each country should now strengthen its legal ability, and also regionally. The General Council should be asked to give guidelines to panels that if they find a conflict between two agreements or feel the need for clarification of the meaning, they should refer the matter to the General Council for an authoritative interpretation.

There were also other reliefs to the developing countries that could be provided by members acting collectively. Now, even when a developing country brings a dispute it takes 15-18 months for a ruling, and its implementation another 15 months. In disputes involving developing and developed countries, where the developing country is in the right, financial compensation from the date of the complaint should be provided.

And substantively, the DSU rules should be changed to deal with other problems pointed out. (SUNS4638)

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

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