The World Trade Organization (WTO) deals with dispute settlement problems among member countries by referring cases to a series of internal panels established under an international trade agreement called the Dispute Settlement Understanding (or, by its full name, the Understanding on Rules and Procedures Governing the Settlement of Disputes).
The WTO is a multilateral organization established by member countries of the Global Agreement on Tariffs and Trade (GATT) as part of their Uruguay Round of negotiations (1986-1994). At the time, member countries – of which there are now over 150 – agreed that when two or more governments disagree about their obligations under international trade law, the dispute can be brought to certain offices of the WTO for resolution. The WTO’s dispute resolution system hears only disputes relating to covered agreements, which include the GATT itself, the General Agreement on Trade in Services, the Agreement on Trade-Related Aspects of Intellectual Property Rights, and the Agreement on Trade-Related Investment Measures.
Some international trade regimes, like the North American Free Trade Agreement (NAFTA), also include their own separate dispute resolution procedures pertaining to disputes specific to the terms of those treaties. In general, it is expected that countries will pursue all available means of resolving the contract diplomatically or through these alternative procedures before turning to the dispute resolution systems of the WTO. However, there are no specific rules on this subject except that no member is allowed to outright refuse to engage in “consultations” when it is alleged of wrongdoing. If these consultations fail to provide a satisfactory settlement within two months, either party can then bring it to the WTO for resolution.
The next step in the WTO dispute settlement proceedings is called the Dispute Panel. This panel consists of a committee – usually three officials – accepted by both of the disputing countries. The panel hears written and oral submissions in much the same way as a court of law would, although the actual rules of procedure are quite different than typical criminal or civil court cases. (In particular, the proceedings are always confidential.) The panel’s final report may be appealed by one or both of the countries, in which case a second panel is formed by the Appellate Body to review the evidence and either uphold or amend the original report from the Dispute Panel.
Once the report process is complete (either with or without an appeal), the panel report passes back to the Dispute Settlement Body (DSB), which consists of representatives appointed by WTO member countries. If the ruling went against a particular country, they are required to inform the DSB how they will change their regulations to come into compliance with the ruling. As a final measure, if the guilty country fails to come into compliance, the DSB can authorize the victim country to apply retaliatory sanctions. In practice, the effect of the retaliation procedure depends upon the economic strength of the victim. A small developing country which wins a trade case against the European Union or the United States, for example, may not in practice be able to inflict any meaningful degree of punishment through sanctions.
The full dispute settlement procedure does not have to be completed if parties come to an agreement and decide to drop the case in the meantime. According to the WTO, almost two-thirds of cases are settled informally by the parties before the formal dispute resolution process reaches a conclusion.