Context:

In June 2022, the member-countries of the World Trade Organization (WTO) managed to reached a deal at the Geneva ministerial Conference to revive the WTO’s dispute settlement system (DSS), also called WTO’s ‘crown jewel’, by 2024. 

About The World Trade Organization (WTO):

• WTO is the only international organization that deals with the rules of trade between countries. It provides a forum for countries to negotiate trade rules and settle economic disputes between them.
• Formation: Founded in 1995, the WTO is run by its 164 members, and according to its rules, all decisions are taken through consensus and any member can exercise a veto.
• Aim: To promote free trade, which is done through trade agreements that are discussed and signed by the member states. 

WTO’s Ministerial Conference:

• Top Decision-Making Body: The Ministerial Conference is the WTO’s top decision-making body and usually meets every two years. 
  • All members of the WTO are involved in the MC and they can take decisions on all matters covered under any multilateral trade agreements.

Dispute Settlement System (DSS):

• Central Pillar: Dispute Settlement is the central pillar of the multilateral trading system.
• Importance: Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. 
• Authority of The DSB:
  • To establish Dispute Settlement Panels
  • Refer matters to Arbitration
  • Refer matters to Appellate Body
  • Keep check over the implementation of recommendations and rulings 
  • Suspension over non-compliance

Earlier DSS & Associated Issues:

• Dragging of Cases: A procedure for settling disputes existed under the old GATT, but it had no fixed timetables, rulings were easier to block, and many cases dragged on for a long time inconclusively. 

The Uruguay Round Agreement: 

• The General Agreement on Tariffs and Trade (GATT) had its last round in 1986 and it lasted till 1994, which came to be known as the Uruguay Round and it led to the formulation of the World Trade Organization (WTO).
• It introduced greater discipline for the length of time a case should take to be settled, with flexible deadlines set in various stages of the procedure. 
• Emphasis of the Agreement: 
  • Effectiveness: The agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. 
  • Procedure & Timetable: It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes. 
    • If a case runs its full course to a first ruling, it should not normally take more than about one year — 15 months if the case is appealed. 
    • The agreed time limits are flexible, and if the case is considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible.
  • No Blocking: The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. 

The Appellate Body:

• Second Tier of the WTO: It is the second tier of the WTO’s DSS that hears appeals from WTO panels.
• Formed: It was set up in 1995, a standing committee of seven members with a limited four-year term that presides over appeals against judgments passed in trade-related disputes brought by WTO members.
• Upholding of the International Rule of Law: The appellate body, from 1995-2019, has upheld the international rule of law by holding powerful countries such as the U.S. and the European Union accountable for international law breaches. 
• Issues Faced: It is non-functional because the United States, single-handedly, has blocked the appointment of its members. 

Challenges With the Appellate Body:

• Presiding Members: At least three people are required to preside over an appeal, and if new members are not appointed to replace the two retiring ones, the body will cease to be relevant.
• Less Efficiency: Over 600 cases reached the body since its formation in 1995 and rulings were issued in some 350.
• Overreach: The U.S. reproaches the appellate body for judicial overreach and exceeding its assigned institutional mandate. 
• Time Lagging: It has even been blamed that it has failed to issue rulings within the 90-day deadline.
• Precedent Decisions: One major problem that the U.S. identifies is that the appellate body, contrary to the text of the WTO’s dispute settlement understanding (DSU), has been creating binding precedents through its decisions.
  • It is well-established that there is no rule of stare decisis — i.e., no rule of precedent in international law. 
• De-judicialization of Trade Multilateralism: De-judicialization is the phenomenon where countries weaken international courts to take back decision-making power. 
  • Example: Given the emerging geo-economic challenges posed by a rising China, the U.S. wants to exercise full power over its trade policies, throwing off the shackles of the appellate body’s judicial review. 

Article 3.2- Rulings of the Appellate Body:

• Article 3.2 of the WTO’s DSS states that the appellate body rulings can neither add nor diminish the rights and obligations of WTO member-countries. 
• Security & Predictability: The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system, as mentioned in the same article. 
• Consistency: The appellate body is responsible for maintaining  consistency in the interpretation and application of the WTO agreements without creating a binding precedent. 

Reason of Departure from Previous Rulings:

• Cogent Reasons: The appellate body has clarified that a departure can be made from the previous rulings and reasoning if there are “cogent reasons” i.e., strong and convincing reasons. 

Way Forward:

• Reformative Approach: The WTO can consider reforming the Appellate Body to ensure its effectiveness and legitimacy.
• Regular Meeting of the Members: To ensure effective communication and immediate redressal mechanism, regular discussion and deliberations are must.
• Efficiency: It can be achieved by reducing the time taken for panel appointments, ensuring the availability of resources and expertise, and improving the transparency of the process.
• Encouraging Mutual Agreement: To come to the best conclusion mutual agreement is must and also time and resource efficient process too.
• Effective Implementation: Effective legislation with effective implementation is a key to achieve the required goal.
  • Provision of punishment should be strict for effective implementation.

News Source: The Hindu