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DSU process becoming an outrage of law and justice, says critic

The WTO’s dispute settlement panels and its Appellate Body have both come under fire for going beyond their judicial function and operating as if they were legislative organs.

Martin Khor


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

Chakravarthi Raghavan, Chief Editor of the South-North Development Monitor (SUNS), was making a presentation at a panel session on the WTO and its dispute settlement process at the seminar on ‘Current Developments in the WTO: Perspective of Developing Countries’.

Raghavan is the author of a monograph published recently by the Third World Network, The World Trade Organisation and its Dispute Settlement System: Tilting the balance against the South. While he had initially looked at the DSU and its process purely from the technical viewpoint of helping developing countries in the mandated review of the DSU, said Raghavan, when he began delving deeper he was disturbed by two sets of problems.

There was a major systemic problem related to the dispute settlement rules themselves and the distortion of the original GATT concept of ‘withdrawal of equivalent concessions’, which 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 dispute settlement panel and Appellate Body (AB) process, guided by the WTO secretariat, was actually functioning, turning the purportedly judicial process into an outrage on law and judicial systems - be it the Anglo-Saxon legal 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 panels and, even more, the AB have now become legislative organs, creating rights and obligations on sovereign states without their express consent as required in international law, he said.

In some comments on the presentations, Leo Palma of the Philippines, a legal expert and discussant at the session, said that while the judiciary under all systems 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 in national systems to the judiciary. It was not really clear how the WTO membership could resolve this dilemma, Palma added.

Encroachment on legislative organs’ remit

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

But there was also a selfish tendency that asserts itself. ‘If I win a case and benefit, I am unlikely, looking from a purely mercantilist 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 which have trade power have become conscious of this problem. But this can be resolved only through a frank discussion of the issues at the WTO Dispute Settlement Body (DSB) and the General Council, Narayanan said.

Earlier, Palma said that the WTO agreements could be interpreted only in terms of their provisions and the provisions of the DSU. The authority to ‘clarify’ the existing provisions of an 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.

Applying power and pressure

Raghavan said that the GATT theory of ‘withdrawal of equivalent concessions’ - applied when two Members have exchanged reciprocal bargaining concessions (which are later multilateralised by their incorporation in the Members’ respective schedules) and one was not carrying out its part of the bargain - was used and was meant to be used for the other Member to create a new balance in rights and obligations by 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 another more or less equally strong. If this was allowed, he said, then the WTO trade system would be in danger of ending up like the UN Security Council system, where, under the thin veneer of the legal right of self-defence, the most powerful nations have been carrying on military campaigns, such as in Iraq now or during the Kosovo war.

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.

There were also other problems that were cropping up and which relate to the functioning of the panel and AB process. These problems had been dealt with in his monograph and he would ask governments and trade policy establishments of developing countries to carefully study and weigh them.

Raghavan drew particular attention to the developing view that the ‘single-undertaking’ concept for the conduct of the Uruguay Round meant its obligations were cumulative. The general interpretative note to Annex 1A (which comprises agreements in the area of trade in goods) of the Marrakesh Agreement Establishing the WTO envisages conflicts among the various agreements in the goods sector, and says that in the event of a conflict between GATT 1994 and a provision of an agreement in Annex 1A, the latter shall prevail. Yet, the panels and the AB have decided to so interpret the provisions of the WTO agreements as to remove conflicts Ð as enunciated first in the Indonesia car case and then in following cases. And the injunction to interpret a treaty in accordance with the ‘ordinary meaning’ of the terms thereof has sent panels dictionary-hunting; in one ruling, Black’s Law dictionary was invoked.

Since he wrote and published the monograph, there have been 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, the European case against the United States over the 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 asserted its right to receive the views of non-governmental groups, in this case those of the US steel industry. In the Korea government procurement case the panel had, in a footnote, even asserted the right of panels to set right errors and lack of bona fides in treaty negotiations themselves. This was a truly extraordinary view, even for the WTO panels.

Later, during discussions, Amb. Narayanan of India said it seemed that the panels and AB were taking the view that the conflict envisaged in the general interpretative note to Annex 1A 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 panels and the AB were not expressly prohibited from doing, could be done by them.

Raghavan, however, said this was an unacceptable contention in any system of law.

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

Role of WTO secretariat

Whatever the view the original negotiators may have had in mind about the DSU and the provisions thereof for the WTO secretariat to service the panels, the panel process has, in its actual functioning, raised some very important questions. And many explanations that trade officials offered to him in private (and which are not publishable by direct and named attribution) had roused in him the sense that an outrage was being committed in terms of law and justice, Raghavan said.

From the time a dispute is sent to a panel process until the end of the process, the system now works such that the secretariat has assumed a very important role - from the choice of panellists (in view of the increasingly few cases where the disputants themselves agree on the composition of a panel, the naming of panellists by the WTO Director-General now threatens to become the general practice rather than an exception) through to the panel proceedings.

He had been told - as a newsperson (therefore 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 it should take, Raghavan said. And some panellists had told him 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 the panel should take.

Those who willingly or unwillingly go along with the secretariat line seem to figure in the membership of chosen panels more often than those who take an independent line. He could easily name some half-a-dozen persons from outside Geneva, be they 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 the panels, guided by the secretariat, have agreed on them) are drawn up, and the arguments and reports written up by the secretariat.

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

Raghavan said he had been told privately by trade officials that the provision by the secretariat, behind the backs of the parties, of notes and briefs to a panel after the hearing is over, was similar to the US practice where law clerks 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 themselves, who select brilliant law students from prestigious universities. These clerks do some work for a couple of years to gain experience, and then go out and join law firms. This practice cannot be compared with the WTO secretariat’s providing briefs and giving negotiating history from its own files, which 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. It then begins to service the various WTO bodies supervising these agreements, and participates in this way in the panel process too.

This is unacceptable. However, the cure for this is very simple:  separate, structurally and organically, the function of servicing panels and the AB from the WTO secretariat, and place it outside - whatever the cost. If the secretariat wants to have a say, Members must decide whether it should, 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 to the dispute.

Any other way out, or continuance of the present practice, will mean the dispute settlement process becomes like the ‘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, Raghavan said.

Strange development at AB

In an article commenting on the Argentina and Korea safeguards disputes and the AB reports on them, Bhagirath Lal Das, former Ambassador and Permanent Representative of India to GATT, had noticed identical wording in four or five paragraphs of conclusions in both AB reports, which had been issued at more or less the same time by two different divisions of the AB. This was rather strange.

In any judicial process, more so in processes 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 the Das article was published, some trade officials and diplomats drew Raghavan’s attention to the working procedures of the AB, agreed to by the DSB. With some difficulty, he had obtained 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 finalises the appellate report for circulation to the WTO members....’

The only authority for the AB was that 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 Article 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 on a division bench to consult the other four or to come to a common view with the other four on a ruling. 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 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 panel and AB rulings, the only way out is through  authoritative  interpretations - a right  vested  solely  in  the WTO Ministerial Conference or the General Council. No one else could usurp this authority.

In national systems of justice, in India for instance, Raghavan said he had come across cases where the appeal courts and the Supreme Court set aside judgements which were not drawn up or gave the appearance of not having been drawn up or dictated in open court by the judge or judges who heard the case. In any system of law and justice, judges who ask others to draw up judgements would be impeached and removed.

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

Otherwise, he was worried that the WTO system would lose legitimacy and collapse.               

 


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