Blog

The Settlement of Trade Disputes: Where do we stand and what can be done?

By Gerhard Erasmus
19 Nov 2018
Share on
10 minute read
The Settlement of Trade Disputes: Where do we stand and what can be done?

The crisis in the dispute settlement arrangement of the World Trade Organization (WTO) has a paralysing effect on the multilateral trade system. While the workload of the Dispute Settlement Body increases, proceedings for new disputes cannot be finalized. There are urgent matters to be dealt with, such as the claim by the United States (US) that its recent tariff increases on steel and aluminium are allowed under the national security exception of Article XXI of the GATT. Should the legitimacy associated with finality and clarity through independent dispute settlement be eroded, unilateral measures and retaliation (the very actions to be prevented by a rules-based system) could follow. The WTO crisis will deepen.

The refusal by the US to cooperate in the appointment of new Appellate Body members is the most immediate manifestation of this particular crisis but the causes run deeper. They are linked to demands, by some, for more general WTO reforms. America’s rivalry with China, claims that the WTO design cannot cope with illegal subsidies and the theft of intellectual property and technology, as well as concerns about flaws in the dispute settlement practice of the WTO, explain Washington’s concerns. Several of them predate the Trump administration.

Reforming the WTO will be a huge challenge. There is no consensus about how to undertake this task and what the best way forward should be. Such a process will, if it is launched, be fraught with technical and political difficulties. It has become extremely difficult to reach consensus among the 164 member states and their diverse needs, as demonstrated by the meagre outcomes of the recent Buenos Aires WTO Ministerial.[1]

New agreements on disciplines necessary for expanding the scope of rules-based trade have proven elusive. This happens at a time when new regional partnership agreements include chapters on investment, e-commerce, competition and public procurement. Many commentators now argue for a change in strategy and to aim for plurilateral agreements among those WTO members able and willing to pursue that road.

Exactly how dispute settlement reforms will be tackled as part of such endeavours, is not clear. The Dispute Settlement Understanding has jurisdiction over plurilateral agreements concluded under the auspices of the WTO. However, if the present dispute settlement crisis is not resolved, there will not be a WTO mechanism for resolving disputes over plurilateral agreements.

Restoring the WTO dispute settlement system is vital for the legitimacy of the WTO and the multilateral trade regime it represents. This will require more than the re-appointment of Appellate Body members. Mechanisms for political oversight, diverting sensitive issues from adjudication, narrowing the scope of adjudication, improving institutional support and providing members more say over certain procedures may be necessary.[2]

There have already been proposals for new forms of oversight in the WTO. In October 2018 an American proposal has been circulated by the Council for Trade in Goods on Procedures to enhance and strengthen Notification Requirements under WTO Agreements.[3] It notes the following deficiencies:

Notification requirements and procedures for many WTO agreements are not working as intended, and consideration needs to be given to ways to improve compliance with the requirements. In this regard, consideration should be given to tangible benefits for compliance and negative consequences for non‑compliance.

Regional trade agreements too need well-functioning dispute settlement mechanisms. They may even be more relevant for private firms, importers and exporters since the WTO system does not allow private parties standing. Well integrated regional trade arrangements often provide for their own dispute settlement systems, which usually allow private parties standing before regional courts, provided local remedies within the member states in question have been exhausted. This is possible in the EAC, ECOWAS and in COMESA. (The SADC Tribunal was disbanded in 2011 after it had ruled against Zimbabwe for expropriating private land without compensation.)

The dispute settlement practice of Africa’s Regional Economic Communities (RECs) are, however, not well developed. African governments do not litigate against each other over trade issues. Applications by private parties mostly involve officials working in regional Secretariats, or about claims that human rights have been violated.

A Protocol on Dispute Settlement has been adopted as part of the new African Continental Free Trade Area (AfCFTA). It copies the WTO example and consists of a Dispute Settlement Body (DSB) and an Appellate Body (AB). The latter is to be established by the DSB, which is composed of representatives of the State Parties. It will administer the provisions of the Protocol.[4] The AB is a permanent institution composed of 7 members.[5] It shall hear appeals from panel cases. The DSB also has the authority to establish Dispute Settlement Panels, adopt Panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and to authorise the suspension of concessions and other obligations under the Agreement.[6] The Secretariat of the AfCFTA must assist Panels and provide them with secretarial support.[7] Only State Parties have access to dispute settlement under this Protocol.

It is unlikely that this arrangement (which will only have jurisdiction over disputes related to goods and services trade under AfCFTA rules) will usher in a bold new future for rules-based trade and dispute settlement. The REC courts will continue to function.[8] They will have jurisdiction over disputes about the application or interpretation of REC agreements and related instruments. And then there is the rather unique provision in Article 10 of the AfCFTA Agreement about the powers of the African Union Council with respect to the settlement of disputes between the Sate Parties:

The Assembly shall have the exclusive authority to adopt interpretations of this Agreement on the recommendation of the Council of Ministers. The decision to adopt an interpretation shall be taken by consensus.

The issues and challenges discussed here do not indicate that formal dispute settlement has lost its meaning within the scheme of rules-based trade and integration. The bigger concern is that the global trading system may be at a tipping point. The future of dispute settlement arrangements, whether in the WTO or in regional arrangements, is dependent on the ability of the relevant State Parties to establish suitable structures, to use and respect them, and to reform them when necessary.

Dispute settlement is not an end in itself; when effective it ensures predictability and certainty as part of arrangements which liberalize trade and, in doing so, protect the interests of states as well as private parties. The crisis in the WTO seem to indicate that the scope of the applicable rules and the jurisdiction of adjudicating bodies, as well as procedures for surveillance of compliance, have not kept pace with external developments. They need to be reformed and updated as part of the restructuring of the bigger enterprise.


[1] See the tralac Trade Brief, Why Africa should not ignore what happened in Buenos Aires (2018), at https://www.tralac.org/publications/article/12727-why-africa-should-not-ignore-what-happened-in-buenos-aires.html

[2] McDougall, R. 2018. Crisis in the WTO Restoring the WTO Dispute Settlement Function, CIGI Papers No. 194, at https://www.cigionline.org/publications/crisis-wto-restoring-dispute-settlement-function

[3] JOB/GC/148, 30 October 2018.

[4] See pdf Article 5 of the Protocol on Rules and Procedures on the Settlement of Disputes (4.67 MB)  to the Agreement Establishing the AfCFTA.

[5] Art 20, Protocol on Settlement of Disputes.

[6] Art 5, Protocol on Settlement of Disputes.

[7] Art 29, Protocol on Settlement of Disputes.

[8] Art 18, AfCFTA Agreement.

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

Leave a comment

The Trade Law Centre (tralac) encourages relevant, topic-related discussion and intelligent debate. By posting comments on our website, you’ll be contributing to ongoing conversations about important trade-related issues for African countries. Before submitting your comment, please take note of our comments policy.

Read more...