Legal Briefing

The contribution of the GATT system to the development of a rule-based dispute settlement mechanism in the WTO

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India | 01 February 2012

The American Journal of International Law was founded by a group of publicists who believed that international law could abolish (or at least substantially diminish) the role of power in world affairs. But numerous articles in the journal focused on this relationship – how power constrains international law, how the powerful can harness international law to their ends, and how international law may autonomously reconfigure power in its own right1. While some believed that power and coercion could become far less prominent in world affairs through the development of international law, others viewed international law as a reflection of the interests of powerful states. This relationship and its analysis shows that ‘power’ is omnipresent in international affairs and has its privileges, one of these being the ability to control international negotiations. 


Powerful states are advantaged by negotiation-based approaches to settling disagreements because they have the resources to resolve individual disputes on favourable terms. By contrast, rule-based dispute resolution benefits weak states as a means to hold powerful states to the terms of their agreements. These two approaches to dispute settlement have been at the forefront since the inception of the General Agreement on Tariffs and Trade (GATT) that eventually culminated in the World Trade Organisation (WTO).

This article seeks to provide a brief analysis of how the GATT system paved the way for a rule-based dispute settlement mechanism within the WTO.

GATT AS A PRECURSOR TO A RULE-BASED WTO DISPUTE SETTLEMENT PROCEDURE?

One of the essential debates regarding the GATT system surrounds its dispute settlement mechanism. At the early stages of the GATT, negotiation between member states was the trend, as disputes were usually settled after going through diplomatic procedures at ‘semi-annual meetings’ between the contracting parties. Thereafter the ‘intercessional committee’ of the contracting parties was in charge of settling disputes. In time, so-called ‘working parties’ were introduced, which were composed of representatives of nations and finally, panels came up2. It has been argued that by adopting this procedure, the emphasis had shifted from the formal role of the GATT as third-party arbiter to its informal role as a catalyst for the resolution of disputes by the disputing parties themselves3.

That being so, a question that deserves attention is whether the GATT preparatory work and practice through the decades established a goal of dispute settlement more oriented towards conciliation and negotiation or towards rule integrity?

LITERATURE AND OPINIONS

This question has evoked mixed responses. Some believe that GATT was merely a negotiating forum primarily designed to preserve a balance of concessions and obligations4. However as John Jackson points out, substantial historical evidence exists to the contrary, necessitating a step-by-step enquiry into dispute resolution under GATT.

The GATT dispute settlement system was based entirely on GATT Article XXIII, under which any GATT contracting party that considered that any benefit accruing to it under the agreement had been nullified or impaired could refer the matter for investigation and ruling by the contracting parties5. GATT negotiators expected that Article XXIII would provide the broad framework for dispute settlement, but the detailed procedures would be worked out in the negotiations of an international trade organisation (ITO). When negotiations over the establishment of an ITO failed, the GATT system was left to proceed on the basis of Article XXIII6.

Very soon, the GATT contracting parties realised that the volume of unresolved disputes and the ungainly nature of an adjudicative process that, in theory, required judgement by all members and consensual decision making, necessitated some pragmatic refinements. As a result, the GATT developed a system of adjudication by panels of judges chosen by the parties to the dispute through formalised procedures7. This shift in GATT from a committee or working party procedure to a panel procedure, with its connotations of impartial third-party findings, shows that the practice evolved in the direction of ‘rule integrity’. It has also been argued that the fact that a number of panel reports during the first several decades of GATT contained reasoning that resembled that of an opinion of a court of law also indicated rule integrity.

The key to invoking the GATT dispute settlement mechanism was ‘nullification or impairment’. In The Australian Subsidy On Ammonium Sulphate case, the definition of ‘nullification or impairment’ was attempted, wherein it said that:
‘… [this] includes actions by contracting parties that harmed the trade of another and that could not have been reasonably anticipated… by the other at the time 
of negotiation’8.
Therefore, inclusion of reasonable expectations (which is almost a 
contract-like concept) and later practices in GATT enumerating certain situations in which the contracting parties or the panel might find ‘prima facie impairment or nullification of rights’ further pointed in the direction of a system based on rules9.

Moreover, the shift from semi-annual meetings to, eventually, the panel procedure, represented a shift from a negotiating atmosphere to a more arbitrational and judicial procedure.

GATT AND ITS FLAWS

It can be said that despite the numerous attempts to improve, the GATT dispute settlement had some very fundamental flaws, most of which resulted from the premise that dispute settlement in the GATT was essentially a process of decision making, rather than adversarial adjudication. As Jackson noted, Article XXIII reflects less the traditional judicial notion of adjudication of rights, than diplomatic notions of the necessity of consultation among contracting parties and the overall maintenance of ‘continued reciprocity and the balance of concessions in the light of possibly changing circumstances’10.

Under the GATT system, any contracting party could ‘block’ the creation of a panel by not agreeing to its formation. Similarly, even where a panel had been formed and the parties had litigated the dispute before the panel, a single contracting party could ‘block’ the adoption of the panel report, which gave the losing party the ability to veto an adverse ruling. Again, the underlying notion was that all GATT actions, even the adoption of a panel report, had to be done by consensus11.

One other anomaly that has been highlighted was that dispute panels were not necessarily obliged to make a decision12. Panels could, if they wished, simply hold that they did not know how to interpret a particular provision of the GATT, or how to apply a particular provision in the circumstances presented. The panel could avoid deciding whether the complainant was right or wrong in its assertion of rights and simply conclude that it could not decide. This, of course, seriously undermined confidence in the dispute settlement system and in the GATT agreements themselves13.

CONCLUSION

The GATT dispute settlement mechanism was perhaps doomed to fail, as different states had different power equations and interests. However, the GATT experience prompted initiatives for improvement 
during the Tokyo round negotiations. The GATT practice, entwined with some semblances of rule integrity, not only highlighted the need for an institutional process that would effectively solve disputes and enforce rule integrity but actually paved the way for the Dispute Settlement Understanding under the WTO, to its credit.

By Ajoy Roy, partner and 
Tamal Mandal, associate, 
Amarchand Mangaldas.

E-mail: ajoy.roy@amarchand.com; 
tamal.mandal@amarchand.com.

Notes

  1. Richard H Steinberg & Jonathan M Zasloff, Power and International Law, 100 AJIL 64 (2006).
  2. It has to be borne in mind that the original intention was for GATT to be placed in the international setting of the international trade organisation, the draft charter of which contained ‘arbitration’ as its main mechanism for dispute settlement.
  3. John H Jackson The World Trading System (2nd ed, 1997).
  4. Robert E Hudec, GATT or GABB? The Future Design of the General Agreement on Tariffs and Trade, 80 Yale LJ 1299.
  5. The term ‘CONTRACTING PARTIES’ written in capital letters was meant to signify all of the GATT contracting parties acting together and by consensus.
  6. Ibid Note 3.
  7. NVD Broek Power Paradoxies in Enforcement and Implementation of WTO Dispute Settlement Reports – Interdisciplinary Approaches and New Proposals, 37(1) Journal of World Trade 129.
  8. GATT, BISD Vol II 188 (1952).
  9. Ibid Note 3 at page 115.
  10. B Hoekman and M Kostecki, The Political Economy of the World Trading System: From GATT to WTO, (Oxford University Press, 1995) at page 47.
  11. EEC-Production Aid Granted on Canned Peaches, Canned Pears, Canned Fruit Cocktail and Dried Grapes, [L/5778].
  12. EEC – Subsidies on Export of Wheat Flour. When the United States marshalled a challenge to the EU wheat flour subsidies in 1983, the panel effectively concluded that it could not determine what the phrase ‘equitable share’ meant.
  13. Ernst-Ulrich Peterson, The Dispute Settlement System of the World Trade System and Evolution of GATT since 1948, 31 Common Market Law Review 1157 (1994).