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Info Service on WTO and Trade Issues (Oct24/02) Geneva, 2 Oct (D. Ravi Kanth) — India has proposed the “reimbursement” of litigation costs to a developing country if it prevails in a trade dispute against a developed country during the ongoing discussions at the World Trade Organization on the reform of the dispute settlement system, said people familiar with the development. As the future of the current binding dispute settlement mechanism remains uncertain, particularly due to alleged attempts by a major industrialized country to do away with the Appellate Body, it is somewhat unclear if the developed countries will agree to such a reimbursement model, said people familiar with the development. In a four-page restricted proposal, titled “Litigation costs in WTO dispute settlement”, seen by the SUNS, India has suggested two models for reimbursing the litigation costs incurred by developing countries in trade disputes with industrialized countries. The two models are the “dispute settlement fund model” and the “reimbursement model.” The legal costs and expenses incurred for invoking dispute settlement proceedings from the panel stage to the Appellate Body as well as for invoking retaliatory measures are huge. It is no surprise that the developed countries not only deploy huge legal resources but also other lobbying techniques for winning a trade dispute, said a person, who asked not to be quoted. The WTO’s covered agreements do not address the issue of costs associated with dispute settlement/litigation, though the Dispute Settlement Understanding (DSU) “provides for special and differential treatment to developing countries and least-developed country measures.” India said, “the prevalent WTO practice is that the disputing parties are responsible for covering the costs associated with the litigation process, encompassing expenses such as engaging experts, travel, legal support, testimonial arrangements, and related expenditures.” Due to the lack of resources in developing countries, including least-developed countries (LDCs), the developing countries are often constrained in pursuing trade disputes. At present, the only available mechanism to address the costs of litigation, albeit outside the framework of the WTO, is the Advisory Center on WTO Law (ACWL). “The ACWL provides assistance relating to legal assessment, analysis of the evidence, discussion of legal strategy, drafting and preparation of questions for consultations, panel stage, and Appellate Body stage each for a particular number of hours,” said India. According to India, “the ACWL classifies developing countries into three categories – A, B, and C – according to their GNP per capita and share in world trade, and charges them accordingly.” MODELS India noted that it is the African Group that first made the proposition to create a “fund” that needs to be made available to developing countries who wish to avail themselves of the dispute settlement procedures. In a similar vein, according to India, China had also proposed “the establishment of a trust fund by developed countries, administered by the WTO Secretariat, for compensating legal costs incurred by developing countries.” The African Group, according to India, had suggested that a fund for assisting developing countries “could be financed from the regular budget of the WTO and voluntary contributions from Members, and disbursements would be in accordance with criteria to be adopted by the DSB.” India said, “a number of developing countries, either individually or collectively, have proposed that litigation costs involved in (trade) disputes should be borne by the developed country if the developing country prevails in the dispute.” India said that New Delhi has co-sponsored “a proposal on special and differential treatment for developing countries, wherein it had proposed that the panel or Appellate Body shall determine a reasonable amount of the legal costs and other expenses of the developing-country Member, to be borne by the developed-country Member.” More than two decades ago, India along with Cuba, Honduras, Indonesia, Malaysia, Pakistan, Sri Lanka, Tanzania, and Zimbabwe had proposed the reimbursement model to compensate developing countries in trade disputes that they had prevailed over the developed countries. In its proposal, India argued that “in a dispute involving a developing country Member and a developed country Member as a complaining party and as a party complained against, respectively, or vice versa, and where that dispute does not end with a panel or the Appellate Body finding against the former, the panel or the Appellate Body should award litigation costs to the developing-country Member based on the actual expenses.” According to India, “these expenses would typically include cost of collecting necessary data regarding the dispute, lawyers’ fees and charges, expenses for preparation of necessary documents (request for consultations, oral and written advice rendered prior to, during or after consultations, oral and written submissions and all other documents necessary for preparation and participation in the dispute settlement proceedings), participation in the consultations, panel and the Appellate Body stages of the dispute proceedings, and the cost of travel and boarding and lodging in Geneva for a reasonable number of the Capital-based officials.” Further, given the marathon dispute resolution process at the WTO, India said “the expenses for proceedings under Articles 21.3( c) (for determining reasonable period of time), 21.5 (for determining compliance with the DSB’s recommendations), and 22.6 (authorization of retaliatory measures) of the DSU should also be similarly reimbursable.” India said that “the award of litigation costs should be binding on the parties and not subject to appeal.” In the event of a split verdict by the panel or the Appellate Body “where some claims are decided in favour of the developing country, but not all,” India said that it “may be best to leave it to the panel or the Appellate Body to decide how much of the total expenses need to be disbursed to the developing country.” India also highlighted the modalities of how such a reimbursement model would function, on the lines of the award of costs in a dispute, such as the Permanent Court of Arbitration, International Centre for the Settlement of Investment Disputes (ICSID), and the International Chamber of Commerce. According to India, the mechanism for reimbursing the costs “would not require the establishment of an institutional mechanism for its administration.” India, however, acknowledged that “it is likely that such a model, if pursued by Members, would include constraints on the amount of cost that can be provided as reimbursement.” CROSS-RETALIATION Earlier, India had floated a proposal on cross-retaliation, arguing that: “As part of the WTO dispute settlement mechanism, if a country fails to comply with the ruling of a panel or the Appellate Body (AB), and a compensatory adjustment cannot be reached within 20 days after the expiration of the “reasonable period”, the complaining member, acting under Article 22.2 of the DSU, may request the Dispute Settlement Body to authorize it to retaliate, that is, suspend the trade concessions or obligations under the covered agreements towards the non-complying country.” It argued that “Article 22.3 of the DSU provides for the principles that govern the process of retaliation by the complaining party – it sets out three types of retaliation that have to be considered sequentially.” India said that, “As per DSU Article 22.3(a), the complaining country should first endeavour to suspend trade concessions or other obligations in the same sector in which a violation has been found.” The term “sector” is defined further in Article 22.3(f), India said, adding that: “While with respect to trade in goods, “sector” means “all goods”, it has a restrictive meaning in the context of trade in services (GATS) and intellectual property (TRIPS).” According to the Indian proposal, “if a dispute is under GATS, which is classified under 12 sectors (such as business services, communication services, etc.), a country wishing to retaliate must first do so within the specific sector in which the non-complying country has breached its obligations.” India emphasized that “DSU Article 22.3(b) further provides for cross-sectoral retaliation under the same agreement – if the complainant country finds that it is “not practicable or effective” to retaliate in the same sector(s), it may seek to suspend concessions or other obligations in other sectors under the same agreement.” “This could happen in situations where retaliation entails more harmful effects for the complainant country in comparison to the non-complying country at which it is directed,” India said, arguing that, “This could be because of several factors like enormous trade imbalance especially if the complainant is a developing country and the non-complying country is a developed nation.” Further, according to India, “There could also be a situation where the complainant country is heavily dependent on imports from the non-complying country and any retaliation would harm the complainant country more than the non-complying country.” However, it is not clear whether India is planning to pursue its cross-retaliation proposal in the ongoing reform discussions, said people familiar with the development. +
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