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DSU, A STICK TO PRY OPEN THIRD WORLD MARKETS?

by Someshwar Singh

Geneva, 6 June 2000 -- Since its creation over five years ago in January 1995, nearly 200 disputes relating to international trade have been brought before the World Trade Organization (WTO).

Bulk of these disputes, over 57 percent, are on-going - with State parties either engaged in consultation or the cases being examined by panels or appeals to a panel's finding.

Some of the 'consultations' initiated as far back as 1997 seem still to be at that stage, with the dispute neither closed by settlement nor taken to panels - a kind of damocles sword!

Of the nearly 200 disputes, there were only 15 cases where panel rulings were actually implemented. Of these, only two cases involved developed countries pitted against each other - US and Canada, and US and Japan.

In all the remaining 13 cases, developing country markets were involved - pitted against the mighty world traders - most often involving the USA, and then the EC or Japan. And of these 13 cases, only in three cases were there WTO panel rulings in favour of developing countries. Two where Venezuela and Brazil got a favourable panel ruling against the United States for its discrimination of their gasoline and the third where Costa Rica won against quantitative restrictions placed by the United States on underwear.

In each of the remaining 11 cases, the onus of rectification fell on the shoulders of the developing countries. Implying thereby, that either they were running foul of the established WTO rules or that they were not respecting some of the recently signed Uruguay Round Agreements.

In fact, in many instances, the panel rulings sought to level the playing field in the markets by insisting that foreign firms (invariably meaning from the developed country markets) be treated at par with the local firms -i.e. recourse to any domestic protection should be stopped forthwith. This was applicable, for instance, in the cases relating to Korean local liquor, Indonesian automobiles and Argentinean footwear, textiles and apparel.

In two of these 'settled' panel rulings, first the US and then the EC, India was asked to change its laws to be in conformity with the requirements of the Trade Related Intellectual Property Rights (TRIPs).

The panel found that India had not complied with its obligations under Article 70.8 (a) or Article 63 (1) and (2) of the TRIPs Agreement by failing to established a mechanism that adequately preserves novelty and priority in respect of applications for product patents for pharmaceutical and agricultural chemical inventions, and was also not in compliance with Article 70.9 of the TRIPS Agreement by failing to establish a system for the grant of exclusive marketing rights.

The WTO is of the view that without these international trade disputes being resolved, the world would become a more chaotic place. In fact, WTO Director General Mike Moore suggests that the art of negotiations as expounded by the WTO's dispute settlement process should be extended to other areas of international relations.

In a statement issued on 6 June, Moore says "Without this system, it would be virtually impossible to maintain the delicate balance of international rights and obligations. Disputes would drag on much longer, have a destabilizing effect on international trade, which, in turn, could poison international relations in general. The system's emphasis on negotiating a settlement could serve the same governments equally well in other areas of international relations."

While expounding the virtues of WTO's dispute settlement process by calling it "the backbone of the multilateral trading system, Moore infuses a sense of realism nonetheless.

"Although no one can claim that the WTO's dispute settlement system compensates for unequal economic power distribution in the world, it must be emphasized that this system gives small countries a fair chance, they otherwise would not have, to defend their rights," he said.

But as pressure grows for a new round of multilateral talks, there are bound to be more "obligations" thrust on developing countries in particular, allowing for greater market penetration into areas hitherto left in the domain of culture and tradition, or even education - particularly through the expanding domain of "services". From these added obligations are likely to follow more trade disputes and their "negotiated settlement" at the WTO.

Of the 193 disputes brought to the WTO as of 30 May 2000, thirty two were withdrawn following consultations between the parties concerned. 86 disputes are still under consultations, while 22 are being examined by panels. Three of the cases were the subject of panel reports which have been appealed. In the implementation stage are 23, following adoption of panel and appellate reports. Finally, 8 cases were closed without the need for implementation and in the case of 4 disputes, the authority for panel elapsed or was made to lapse.

An analysis of the total number of disputes reveals that out of the total of 118 cases in which the US/EC/Japan were complainants, 48 were against developing country markets; and of the 81 cases where they were respondent, 26 of those came from complaints arising in developing countries.

Among the developing countries, India and Argentina appear to have been hauled before panels the most, followed by Korea and Brazil. India, Mexico and Brazil, on the other hand, are also among the leading developing countries that have brought forward trade disputes as complainants.

In terms of the division of the disputes by subject area, the largest numbers pertained to SPS/TBT (26), agriculture (25), TRIPS (21), TRIMS (15), textiles (13) and GATS (9). Moreover, of the total of 193 disputes, 151 referred to "distinct matters" such as alcohol, brooms, buses, cars, cement, coconut, coffee, computers, footwear, gasoline, leather, macaroni, rice, scallops, steel, tomatoes and underwear. Meanwhile, a new paper "The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South," by Chakravarthi Raghavan, just published by the Third World Network, brings out some of the problems that have come to the fore in the last 5 years of the operation of the system.

Raghavan suggests that the DSU needs to be reviewed and reformed -- as a matter of high priority before any new negotiations are conducted and new commitments are undertaken by developing countries.

These reforms should include organically separating the secretariats servicing panels and appellate body from the WTO; curbing the role of the secretariat in guiding panels in private, abolition of the appellate body as a permanent standing forum; and, ensuring that the DSU procedural rights are not used by panels to reduce developing country procedural and substantial rights in the WTO agreements.

In a preface to Mr Raghavan's paper, former Indian ambassador to the WTO, Bhagirath Lal Das observes, "Though the DSU has brought about some degree predictability and efficiency in the resolution of disputes, the utility of the system in actual operation has fallen far short of the initial expectations and euphoria. Furthermore, in some respects, it has operated against the interests of the developing countries."

According to Mr Das, Raghavan's analysis of the issues suggests an urgency in bringing about improvements in the system. "It needs the serious attention of the General Council of the WTO, in particular, that of the developing-country Members."

The dispute settlement process is very costly for the developing countries, Mr Das adds. Most of the time, they have to call upon the assistance of the law firms of major developed countries which charge heavy fees. "The developing countries would therefore not be as prompt and willing to initiate the dispute settlement process for exercise of their rights as would a developed country. Hence, there is a basic imbalance in rights and obligations between a developing country and a developed country, because of a vast differential between the capacities of these two sets of countries to invoke the enforcement process."

So when Moore speaks of weaker developing countries having a "fair chance" to address their rights, in reality it means they cannot actually exercise those rights.

There are several other handicaps for the developing countries in the system. The relief granted is generally much delayed, as it may take up to about 30 months from the time the dispute settlement process was started. And this delay may be very detrimental to the developing countries. With weak trade linkages in their external economy, they are likely to suffer irreparable damage by the time they get full remedy.

"Apart from all these systemic problems," adds Mr Das,"a major new problem is emerging in the operation of the panel and appeal process. The panels and the Appellate Body very often engage in very substantial interpretations of the WTO Agreements. By coincidence, it has so happened that in a large number of cases, these interpretations have enhanced the obligations which are mostly those of developing countries and enhanced the rights which are mostly exercised by the developed countries." (SUNS4685)

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