Chapter 2

THE GATT DISPUTE SETTLEMENT MECHANISM

2.1 The International Trade Organisation (ITO)

The International Trade Organisation (ITO) envisaged in the Havana Charter was

still- born, for the Charter failed to attract the requisite ratification by United States

Congress. Apart from the establishment of ITO, the Charter also contained clauses

that dealt with employment and economic activity, economic development and

reconstruction, trade policy, restrictive trade practices and intergovernmental

commodity agreements. The focus of our attention will be the dispute settlement

procedure envisaged by ITO, the predecessor of GATTIWTO.'

The Charter enumerated innumerable procedures for dispute settlement that stretched

from consultation and arbitration to recourse to the International Court of Justice for

advisory opinion on legal questions that sprout within the ambit of 1~0 . ' Even the

very inclusion of such procedures manifested greater political dexterity among

draftsmen of IT0 Charter.

The negotiations over ITO-disputes procedure were a delicate effort to create a "law"

that would fit the political shortcomings of the postwar design for trade policy. The

law was to have a new greater authority, but it also had to allow room to maneuver in

difficult situation.'

The result was a rare blend of legalism and pragmatism. There was no threat of direct

judicial decree. There was not even the possibility of "genuinely punitive economic

sanctions". Even its orders were couched in a "language of polite diplomacy".4

I The IT0 (Havunu) ('hurtc~r. 72x1 of the Charterfor an International Trade Orgnnisnfion (hereinafter Havana Charter) reproduced in Raj Bhala, International Trade Law Handbook (Massachusetts: Lexis, 2001) pp.83-182. ' Id.. Articles 92.97~

Hudec , The GATT I.~.gul Sysfen~ and World Trade Diplomacy (New York: Praeger Publishers, 1975) p.30.

Id.

Still it was not bereft of the basic ingredients of an authoritative conventional legal

system.' It has had its own rules enumerated precisely, to conduct international trade

among members. It did have a solid structural framework intended to carry well-

defined functions." It had its own procedure to determine and declare the fact of

violation in specific cases. And thirdly, its power to issue "requests" were almost

equivalent to judicial decrees that bring the violator's actions into conformity with the

community's and would give "formal shape to community's desire for correction."

And finally there were articles that dealt with economic retaliation as well, as a

'.symbolic form of punishment".7

The first working draft of the I T 0 Charter suggested a three-step procedure for

dealing with legal question.8

1. Complaints were to be investigated and ruled upon by the 18-member

Executive Board.

2. Rulings of the Executive Board could be appealed to the Plenary

Conference.

3 . Rulings of the Conference in turn could be appealed to the International

Court of Justice (ICJ) hut with one limitation - appeals were allowed only

if the "Conference Consents".

But the delegations led by Netherlands, France and Belgium objected to such moves

for they feared that since international trade is decisively influenced by the "sterling

and dollar empires", the legal rulings by the Executive Board and the Conference

might well be "political". They demanded that the right to appeal to the ICJ be made a

matter of right and "consent requirement" to be deleted. ' ~ e n c e the inclusion of

Article 96. "'

Finally the Havana Conference completed the draft charter on 24th March 1948. But

the IT0 never came into being, because the US Congress failed to approve it. The US

Id., pp.9-43, for a detailed analysis. " Havana Charter, Chapter VII, supra note 1 , pp. 148-157.

Irl, Articles 94.3 and 95.1. Hudec , p.23 (Also see Suggested Charter for an International Trade Organisation of the United

Vations, Department of State Publications 2598, Commercial Policy Series 93, Washington D.C., 1946).

' Hudec, id, pp.23-25 10 See infru text 35

President submitted the Havana Charter ( IT0 draft) to the Congress on 1948, but the

Congress did not approve it. And in 1951, the President announced that he would no

longer seek approval." Still it is worthwhile to analyse its constitutional provisions

that dealt with its framework and dispute settlement procedures briefly.

The 1TO (Havana Charter) contained 106 articles spread in nine chapters. It contained

provisions that dealt with economic development and reconstruction,I2 commercial

policy,13 restrictive business practices,14 inter-governmental commodity agreements,''

the structure and functions of intemational trade organisation,I6 settlement of

differences," etc. The purposes and objectives of the Charter categorically state that it

intends to create conditions of stability and well being for peaceful coexistence among

nations. It also aspires to attain higher standards of living, full employment and

conditions of economic and social progress and development envisaged in Article 55

of U.N. charter.lx For achieving this end the "Parties" to this Charter pledge

themselves, individually and collectively, to promote national and intemational action

designed to attain the following objectives:I9

1. To assure a large and steadily growing volume of real income and effective

demand, to increase the production, consumption and exchange of goods, and

thus to contribute to a balanced and expanding world economy.

2. To foster and assist industrial and general economic development particularly

of those countries wh~ch are still in the early stages of industrial development,

and to encourage the international flow of capital for productive investment.

3. To further the enjoyment by all countries, on equal terms of access to the

markets, products and productive facilities which are needed for their

economic prosperity and development.

I, John H. Jackson. Res.sr~-rtcrurrng the GATT Systenr (London: Royal Institute of International Affairs, 1990) p.12.

Havana Charrer Chapter 111, sfipru note 1 " Id.,Chapter IV l 4 icl..Cha~ter V .

l6 I(!., ~ G p t e r V I ~ . 17 Id., Chapter Vlll I 8 Id., Article 1

4. To promote on a reciprocal and mutually advantageous basis the reduction of

tariffs and other barriers to trade and elimination of discriminatory treatment

in international commerce.

5. To enable countries, by increasing the opportunities for their trade and

economic development, to abstain from measures, which would disrupt world

commerce. reduce productive employment or retard economic progress.

6. To facilitate through the promotion of mutual understanding, consultation and

cooperation the solution of problems relating to intemational trade in the fields

of employment, economic development, commercial policy, business practices

and commodity policy.

Accordingly, [TO was established.

2.1.1 The International Trade Organisation: Its Structure and Functions

Chapter ~ 1 1 ~ ' of the Havana Charter at length deals with the structure and functions of

[TO. The Organisation shall have a Conference, an Executive Board, Commissions

and other organs as may be required. There would also be a Director-General and

Staff.

'The Conference, which comprises of all the Members of the ~ r ~ a n i s a t i o n , ~ ' shall

have the final authority to determine the policies of the ~ r ~ a n i s a t i o n . ~ ' It may also

prepare or sponsor agreements regarding any matter in the Charter by a two-third

majority present and voting. It shall also determine the budget of the Organisation.

The Executive Board " consists of eighteen members of the Organisation and it shall

be representative of the broad geographical areas to which the Members of the

Organisation belong. The Board is selected by the Conference. Each member of the

Board shall have one v~te.~"he decisions of the Board shall be made by a majority

of the votes. The Board shall execute the policies of the Organisation.

'0 Chapter VII, which 1s d~vided into six sections, contains 21 Articles (Article 71 to article 91). See Havana Churtrr. supvn notc I , pp. 148-157. ' I Id., Article 74. '' Id., Article 77.1 " Id., Article 78 " Id., Article 79

Commissions shall he established by the Conference for performing the functions of

the ~rganisation." Their functions are decided by the Conference. Each Commission

shall elect a Chairman. The Organisation shall arrange for the representatives of the

United Nations and other intergovernmental organisations having special competence

in the field of activity of any of the Commissions to participate in the work of such

c om mission.^"

The D~rector Ckneral is the chief administrative officer of the Organisation. The

Conference appoints him upon the recommendations of the Executive Board.

Although he does not have voting power, he could participate in all meetings of any

organ of the Organlsation. He shall present to the Conference an annual report on the

work of the Organisation and the annual budget estimates and financial statements of

the ~rganis t~on."

2.1.2 Dispute Settlement under I T 0

Chapter VlIl of the Havana Charter contains six articlesz8 that deal with the

"settlement of differences". As per the provisions of the Chapter, the Members are

supposed to rely on the procedures envisaged in the Charter for complaints and the

settlement of disputes, instead of having recourse to unilateral economic measures.z9

Article 93 calls for "consultation and arbitration". It states that if any benefit accruing

to any Member is being nullified or impaired as a result of

(a) a breach by a Member of an obligation under this Charter by action or

failure to act. or

(b) the application by a Member of a measure not conflicting with the

provisions of this Charter, or

(c) the existence of any other situations, 30

the concerned Member make written representations to such other Member for a

sympathetic constderatlon of the measure at stake. The disputants could also submit

'' I r l . , Article 82 l6 Id., Article 83 " I d . , Article 84. '' Ill., Articles 92 to 97 '9 I < L . Article 92. '' 111.. Article 93

the matter for arbitration; but the arbitrator's decision is not binding. However they are

supposed to apprise the Organisation of the progress and outcome of any discussion,

consultation, or arbitration undertaken under this Charter.

If the matter is not satisfactorily settled through consultation, the concerned Member

could refer the matter to the Executive Board. The Executive Board shall investigate

the matter and shall decide whether there exists any nu~lification.~' However, the

Executive Board shall refer the matter for review of its own decision by the

Conference upon the request of the Member concemed within thirty days.

The Conference, wh~ch comprises of all the Members of the Organisation, shall have

the final authority to determine the policies of the Organisation. It also may prepare or

sponsor agreements regarding any matter in the Charter by a two-third majority

present and voting. It shall also determine the budget of the Organisation.

If the matter is not satisfactorily settled through consultation, the concemed Member

could refer the matter to the Executive Board. The Executive Board shall investigate

the matter and shall decide whether there exists any nullification. The Board shall

follow through the following procedural steps3'

a) decide that the matter does not call for any actions;

b) recommend f~trther consultations;

c) request the member to conform to the provisions of the Charter, if it

breached an obligation under the paragraph l(a) of Article 93 i.e. violation

complaints;

d) request the member to come to a satisfactory adjustment, if the matter is

concerned with the provisions under sub-paragraph (b) or (c) of paragraph 1

of Article 93 i.e. non-violation or situation complaints.

And if the concemed Member does not take appropriate steps, the aggrieved member

shall be able to take "appropriate and compensatory" action with regard to the benefit,

which has been nullified or impaired.33 This action includes the suspension of the

performance orany obl~gation or grant of any concession.

" Id., Article 94 l 2 id., para 2. '' Id. para 3.

The Board could also refer the matter for review of its own decision by the

conference" upon the request of the member concerned. The Conference shall also

follow the procedural steps of the Executive Board and it has the power to confirm,

modify or reverse rules actions, decisions or recommendations. However, pursuant to

paragraph 2 of Article 96 of the Charter ofthe United Nations, the Organisation could

seek advisory oplnlon from International Court of Justice (ICJ) on legal questions.35

If we make a close perusal of the constitutional provisions that constitute the ITO's

dispute settlement apparatus, we could come to the conclusion that the WTO's

conflict resolution mechanism has much in semblance with that of ITO. Like the

WTO, dispute resolution starts with the consultations, goes through the Executive

Board and the Conference, which may he treated at par with the panel and the AB

respectively. There were provisions for compensation and retaliation. However, I T 0

has got a provision to refer the matter to ICJ as well, provided the Conference

consents.

More important is the attempt to conceive a "multilateral approach" to international

trade questions. As Hudec observed:

Dispute settlement under the old bilateral trade agreements had been eventually a

negotiating affalr in which government had felt free to insist on "right" and "fair"

answers whether or not they were legally binding.. . The existence of the ITO, of

course made a radical difference in this old-fashioned trade agreement jurisprudence,

for now there was an organization capable of issuing third-party decision about what

was "r~ght" and "fair" and of exerting some community pressures behind the

judgments."'

2.2 General Agreement of Tariff and Trade (GATT)

The history of GATT could be traced back to 1945- the year in which the draft charter

for IT0 was created,'. which we have already dealt with. The conference held at

34 Id., Article 95 '' Id., Article 96.1 36 Hudec, supra note 3 . 37 For a detailed study of 1'1 0-GATT history, see &chard N.Gardner, Sterling-Dollar Diplomacy in Current Perspective The Origin and Prospects of Our International Economic Order (New York: Columbia University Press, 1980); C.Wilcox, A Charter for World Trade (New York: Macmillan, 1949) pp.3-52; and Jackson. .,upra note 11, pp.9-17.

Geneva in 1947': covered three major parts39 - one dealing with the negotiation of

ITO's Charter preparation, the other with the negotiation of a multilateral agreement

to reduce tariffs and the third one dealt with drafting the general clauses of obligations

relating to tariff obligation. The last two parts together would constitute GATT,

which was never intended to be an independent international organization. Instead, it

was presumed that it would be submerged under the umbrella of the ITO, which was

never formed.

Consequently, GATT was devoid of an organizational structure. Still it specified that

all of the contracting parties would meet in certain circumstances to take actions.4o

The contracting parties met towards the end of every year. GATT Council was

established to deal with the issues arising between those annual meetings. The

contracting parties delegated all their powers, except the power to grant waivers to the

Council. But its decision could be appealed to the Contracting Parties, acting as a

sroup.4' There was no provision for a Secretariat in the General Agreement; still a

GATT Secretariat existed and it consisted of several hundred persons. A Director

General headed it . Technically, the Interim Commission of the defunct I T 0 employed

this staff.42

The General Agreement is attached to the Final Act of the United Nation Conference

on Trade and Employment. This was signed in Geneva, Switzerland on October 30,

1947. And it was in force by virtue of the Protocol of Provisional ~ ~ ~ l i c a t i o n . ~ ~

The basic objective of GATT was to liberate international trade by reducing tariff

rates and dismantling trade barriers. The major principles that guided GATT's

operation were the most favoured nation principle, and the principle of non-

18 The General Agreement was agreed during 1946-47 and was provisionally applied since 1 January 1947.See WTO, Anulytrcal Index: Guide to GATT Law and Practice [hereinafter Analytical Index], Vo1.I (Geneva: W'TO. 1995). p.3. j9 Jackson , suprn note l I . p. . 60 Id., Chapter 2 for a good treatment. * ' GATT BISD, 9'h Supp. 1961, p.9. J2 Davey. 'Dispute Settlement LII GATT', Fordham International Law Journal, Vol.11, 1987, pp.51- 109. A3 Id., p.52.

discrimination." In GATT history, there have been eight sets of multilateral trade

negotiations aimed at reducing trade barriers.45 They are:

I. The originul GATT negotiations in Geneva held during the mid and late

1940s. It involved 23 original contracting parties as participants.46 About

45,000 tariff concessions covering $10 billion of trade were negotiated.

2. The A n n e q Round, 1948-1949, which took place in Annecy, France

involved 33 countries. About 5000 tariff concessions were exchanged.

3. The Torquay Round, 1950-51 was held in Torquay, England. 34 countries

participated and the negotiations covered roughly 8,700 concessions

resulting in tariff reductions of 25 percent compared to the 1948 level.

4 . The Gerrevu Round, 1955-1956, covered $2.5 billion of trade. It involved 22

countries,

5 . The Dillon Round conducted in Geneva, was named after the former Under

Secretary of State, Douglas Dillon. It covered about 4,400 tariff concessions

and involved 45 countries.

6. The Kennedv Round, 1964-1967, which took place in Geneva, was named

after the late President Kennedy. It involved 48 countries and covered $40

billion of trade.

7. The Tokyo Round, 1973-1979, which was launched in Tokyo but took place

in Geneva involved 102 countries and covered $300 billion of trade.

8. The Ilruguuy Round, 1986-1994 was launched in Punta del Este, Uruguay

was the most ambitious of all rounds involving 118 countries and $3.7

trillion of trade. Most of the negotiations took place in Geneva.

Since the dispute settlement mechanism has been focused here, a detailed analysis of

the last two rounds, i.e.. the Tokyo Round and the Uruguay Round are significant for

this study. This is provided elsewhere.

'4 Joan Edelman Spero. The Politics uf International Economic Relations (Great Britain: Routledge, 1996) p.70. 15 Raj Bhala, Inlwnononul Trude Law: Theory andpractice (Massachusetts: Lexis, 2001) pp. 132-139. I6 The 23 original contracting parties were: Australia, Belgium, Brazil, Burma (Myanmar), Canada, Ceylon (Sri Lanka), Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia (Zimbabwe), Syia, South Africa, United Kingdom and the United States.

Now ~t IS t ~ m e to explaln the GATT dispute settlement mechanism, represented by

Articles XXll and Article XXIII of GATT.

2.2.1 Dispute Settlement Procedures

The dispute settlement apparatus of GATT is contained in Article ~ ~ 1 1 1 , ~ ' which was

"copied almost verbatim" from the general draft of 1 ~ 0 . ~ ' Taken in broader terms, it

could be rightly held that the dispute settlement under the WTO agreement including

dispute settlement under GATS, TRIPS and the side agreements is based on the

fundamentals of GATT Article X X I I I . ~ ~ The provisions have been supplemented by a

number of dec~sions and understandings agreed by the Contracting Parties in 1966,

1979, 1982, 1984, and 1989:

the Decision of April 1966 on Procedures under Article XI11 applying to

disputes between developing countries and developed countries.50

- the "Understanding Regarding Notification, Consultation, Dispute Settlement

and Surveillance" of 28 November 1979 and its annexed "Agreed Description

of the Customary Practice of the GATT in the Field of Dispute Settlement"

which werc agreed in the Tokyo ~ o u n d . "

- The Decis~on on "Dispute Settlement Procedures" of 29 November 1982,

adopted at the Thirty Eighth Session, which was held at Ministerial level in

November 1982."

~p

.; i However, there 1s one more Article, which is related to dispute settlement i.e., Article XXII that calls for 'consultations. It states that:

(i) Each party shall accord sympathetic consideration to and shall afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of this Agreement. (ii) The Contracting parties may, at the request of a contracting party, consult with any contracting party or parties in respect of any matter for which it has not been possible to find a satisfactory solution through consultations under paragraph 1.

48 Davey in Pescatore, Davey and Lowenfield, Handbook of WTOIGATT Dispufe Settlement, Vol.1 (The Hague: Kluwer Law International, 1995) p.71. 49 See infro text 56 to 59. 5 0 GATT, Drcisrun on Procedures under Article XXIN [hereinafter 1966 Decision], adopted on April 5, 1966, GATT BISD ( 1 4 ' ~ Suppl.). I , GATT, Underxtrrnding Regurding Notification, (:onsultation, Dispute Seltlement and Surveillance [hereinafter 1979 lhdersrrrnding] adopted on 28 November 1979, Ll4907, GATT, BISD, 26 Sl210-18. Reprinted in GAI'T, The Texts of the Tokyo Round Agreements [hereinafter Tokyo Round .4greements](Geneva: GATT, 1980) pp.200-08. '' GATT, Decjsion on Dlvpute Settlement Procedures [hereinafter 1982 Decision] adopted on 29 November 1982. L.5424. Sl9.13-16.

- The Decision on "Dispute Settlement Procedures" of 30 November 1984,

adopted at the Fortieth ~ession."

- The Decision on "Improvements to the GATT Dispute Settlement Rules and

Procedures" negotiated at the meeting of the Trade Negotiations Committee of

the Uruguay Round on December 1988 and adopted on 12 April 1 9 8 9 . ~ ~

The 1989 improvements were put into effect on 22 February 1994 by the contracting

parties and i t continued until the entry into force of the "Understanding on Rules and

Procedures Governing the Settlement of Disputes", contained in Annex of the

"Agreement Establishing the World Trade Organisation". This is discussed at length

in the next chapter.

Despite these additions and improvements, the essence of Article XXIII remained the

same as those agreed in Geneva in 1 9 4 7 . ~ ~

Article XXII1- Nullification or Impairment.

Article XXIlI provides that the dispute settlement process could be invoked if any

contracting party considers that any benefit accruing to it under the General

Agreement is nullified or impaired by another or that the attainment of any objective

of the Agreement is impeded as a result of 57

(a) the failure of another contracting party to carry out its obligations under this

Agreement. or

(b) the application by another contracting party of any measure, whether or not it

conflicts with the provisions of this Agreement, or

(c) the existence of any other situation.

Paragraph 2 of Art~cle XXIII stipulates that if bilateral consultation does not produce

agreement between the parties, the dispute may be referred to the contracting parties

" GATT, Decision on Dispute Settlement Procedures [hereinafter 1984 Decision] adopted on 30 November 1984, 1.i5752. GATT, BISD, 31 Sl9-10. '' GATT, Improvrmetits to the GATT Dispute Settlement Rules and Procedures [hereinafter 1989 Improvements] adopted on 12 April 1989, L16489, GAlT, BISD, 36 S161 " WTO, 'Understanding on Rules and Procedures Cioveming the Settlement of Disputes' (hereinafter DSU) in the Results ofthi, L'nrguay Round of Multilateral Trade Negotiations: the Legal Texts (Geneva: WTO, 1995). "' GATT, Analyricol 1mli.1: Guide to GATT Law and Practice [hereinafter GATT Analytical Index] (Geneva: GATT, 1994) p. 507. 5- Id., Article XXIII ( I )

as a group. This clause empowers the complaining contracting party to approach the

dispute settlement body for the investigation of the complaint, followed by

recommendations. ~ncluding the possible suspension of concessions or other

obligations, as they deem appropriate.58

Majority of the compla~nts brought before the GATT dispute settlement mechanism

were "violation" complaints i.e., complaints that have alleged a violation of the

General Agreement under Article XI11 (1) (a).59

But there have been a number of complaints under Article XXIII (l)(b) which are

known as non-violation cases. However, no panels have decided a case on the

grounds of paragraph 1 (c) of Article XXIII so far.

2.2.2 Development of Panel System

GATT's pursuit for settlement of disputes began "as soon as it opened its door".60 And

it started the business with a winning note as well. The Chairman's ruling on

Netherlands' complaint regarding violation of Article I (the most favoured nation

obligation) by Cuba was immediately re~tif ied.~ '

The cho~ce of a "Chairman's ruling" as the procedure for resolving issue was typical

of the Preparatoly Committee format ofthe first GATT meeting. In this very tenuous

per~od, the organization needed the Chairman's personnel prestige as a source of

collect~\:e author~ty. Reliance on this procedure proved short-lived.62

By the Third Session, GATT developed the practice of representing legal disputes to

working groups of members (including parties to the dispute). The major advantages

of working group were the advantages of limited numbers (earlier, a complaint would

he heard and considered by the entire body of contracting in-depth-analysis

of referred d~sputes, and informal-face-to-face bargaining. The thrust of these

'' Id., Article XXlll (21 si Davey, suprn notc 48, p.71 681 Hudec, suprit note 3. pp.66-67. 6 I GATT, Cubuw Ci~rrsulnr Tuxes Cbmplainanf: Nefkerlands, CP 219 (July 19, 1948). 2 BISD 12 (Aug. 24, 1948) Result: Discrimmat~on terminated, CPI4 (Dec. 1, 1948). '' Hudec, supru notc 3. pp.66-67. 6' Id., p.69. (Also scc Ronald A. Brand, 'Competing Philosophies of GATT Dispute Resolution in the Oilseeds Case and the Draft Understanding on Dispute Settlement', Journal of World Trade, Vo1.27, 1993, p.119).

negotiations was an ageenlent among the disputants. And if they could not agree,

"the working party has no answer".64

Thus during GATT's earlier times, a complaint would be judged by the entire body of

contracting partles or a working Gradually, the practice of referring a dispute

to a panel of three experts evolved.66 The 1979 Tokyo Round Agreement and the

1989 mid-tern1 Uruguay Round Agreement streamlined the existing procedures

further.67

Article XXV confers power on the representatives of the contracting parties to take

joint action to facilitate the operation of the GATT.('' And this includes the power to

establish panels whose function is to assist the Contracting Parties in resolving

disputes by recommending appropriate GATT-consistent s o ~ u t i o n s . ~ ~ The Council of

Representatives ("the Council") was established in 1960 by the Contracting

Its responsibilities ~ncluded examining panel reports and making recommendations on

their adoption to the Contracting Parties. The Council's authority was expanded

further in 1968 to cover the adoption of panel reports.71

' Id, Hudec cltcs L3ru:iliun k x e ~ Working Party (WP) as the typical working group model. See id. p.69. (Also see Brirzillrm Internal Taxes (Working Party Report), GATT, BISD, 181 (2'd supp.), 1950. In this case France noted a complaint against Brazil for imposing excessive internal taxes upon ~mported articles than on domestic products. Member of the WP were Britain, France, the US, the UK, China, Cuba and India. WP report declared the rates invalid. After long time Brazil adopted uniform taxation as per GATT ruling. 1.5 GATT dispute settlement mechanism has relied on panels of three individuals to hear disputes and this panel issued reports that the contracting parties usually adopt as their own. (Pescatore, The GATT Dispute Settlement Mechanism: The Present Situation and Prospects', Journal of World Trade, Vo1.27, 1993, pp.5-20.

i,,, 1979 Undersronding .rup,-(r note 51 c.7 1989 lmprovernmo. supnl note 54. '* GATT Article XXV states:

Representat~ves of the ('ontracting Parties shall meet from time to time for the purpose of giving effect to those provisions of this Agreement which involve joint action and, generally, with a view to facilitating the operation and furthering the objectives of this Agreement.(See GATT,'The General Agreement on Tariffs and Trade (30 October 1947)' in Bhala, supra note 1).

6') 1966 Decision. supru note 50, p. 18; 1979 Understanding, supra note 51; DSU, Articles 3, 6 and l l . l , supranote55.

i t , Decision of the Contracting Parties establishing the Council of Representatives, June 4, 1960, GATT, BISD (91h supp.) p. 8. 7 1 Decision of the Contracting Parties adopted at the twenty-fifth session in 1968,2519, pp.176-177.

2.2.3 Dispute Adjudication by GATT: How the Panel works"

We have noted that the dispute settlement mechanism of GATT is contained in

Article XXII and Art~cle XXIII. A contracting party normally invoked these articles

when it felt that a v~olat~on of GATT commitment had impaired its trade benefits.

Despite the absence of proper institutional machinery for dispute adjudication, the

panel process that evolved over the years passed through the following principal -,

stages to settle d~sputes '

a) bilateral consultations and negotiations;

b) a request for the appointment of a panel by the complaining party;

c) establishment of a panel by the GATT Council;

d) receipt of written and oral submissions by the panel, followed by deliberations

and the preparation of the report to the GATT Council;

e) adoption of the report by the GATT Council.

1 Bilateral Consu1tution.s

Before invoking Article XXllI to settle a dispute, a contracting party had to consult

the matter bilaterally with the other. Only if the concerned parties failed to reach a

mutually satisfactory solution, recourse to dispute settlement procedures were called

for. This preference for bilateral consultations was attributed to the GATT's insistence

on diplomacy as a tool to resolve disputes. Thus if a matter was forwarded to the

GATT Council under Article XXIII: 1 or Article XXIII: 2, the disputants had to make

it clear that consultations took place under Article XXII: 1 or Article XXII: 2.

Failure to yleld any positive result during the consultation phase might force a party to

seek good offices of the Director General to mediate on the differences between the

parties. Develop~ng countries were encouraged to use the good offices of Director

General to settle d ~ s ~ u t e s . ' ~ If the conciliatory efforts too failed, the dispute would go

" This part w~ l l be dealing with the evolution of panel process before the commencement of Uruguay Round 1986 and will be citing only those cases lodged before 1986. 73 Brand, supra note 63, pp.119-120. '"bus three matters were referred to the Director General till 1986 - Chile's complaint on its exports of barley malt to European Community; complaint against Japan on imports of leather by India (see GATT Doc., 1982 BISD 2YSl91); and Mexican complaint on US taxes on petroleum (see GATT Doc., L/6093).(Adopted panel reports of GATT could be downloaded from <http://www.sice.oas,org/dispute/gan>).

to the panel stage. The complainant had to send a written communication to the

Director General indicating the subject, the Articles to be involved, and also state

whether it required the establishment of a working party or a The Council at

its next meeting decided on the establishment of a panel.

The Council, Sollowing the GATT practice, emphasised on diplomacy. But if the

complainant insisted, a panel was normally formed in the next ~ession. '~ The

Chairman of the Council, in consultation with the disputants, decided on the

composition of the panel. A panel consisted of three or five members, usually

selected from permanent governmental delegations in Geneva. Members were

expected to be impartial. At least one member from a developing country was selected

for dispute between a developing and a developed country. A panel was normally

constituted within thirty days from the decision to establish the panel.

A panel consisted of a chairman and two or four other members; but the opinion and

conclusion of each member counted equally. There were also moves to

"professionalise" panels by bringing neutral technical experts from outside as panel

members. But never had a panel been constituted entirely of outside experts. The

panel proceedings were confidential in nature. However, contracting parties having

substantial interest in the issue at stake had a right to be heard by the panel. For its

proper functioning, the panel could seek advice or assistance from the Secretariat.

And the panel secretary from Secretariat played a crucial role by doing all the

research and analysis necessary to help the panel understand the economic facts and

arguments of the case.

3. Exuminutiorr qfArguments by the Panel

'I A panel is a body constituted to investigate matters raised in the complaint under Article XXIII; and working party is established under Article XXII. It is the Council that is supposed to decide, which body is to be constituted to settle the issue. However, the practice hitherto existed show that if a complainant insists on the creation of a panel, it is normally granted. 76 But there were instances in which the panel formation was procrastinated. For e.g, the request to establish a panel to investigate EC's agreements with Mediterranean countries took four council sessions. (See EEC-Tur@ Treutmenl of Citrus Products from certain Mediferranean Countries,GATT Doc., Ll5776, 1985).

After the first organisational meeting of panel, it expected to receive written

submission by the parties. These submissions were kept confidential. The

complainant had the burden of proving the case. After receipt of written submission,

panel conducted a hearing with the parties to the dispute to receive their oral

arguments. A panel might also listen to the arguments of third parties. After the

receipt of written and oral submissions, the panel examined the case and was said to

prepare a report based on the findings and conclusions on the case. (However, it might

not issue a report, if' the complainant withdrew from the case.'?) The panel submitted

the report to the parties of the conflict. The report should continue to be kept

confidential and panel would continue to encourage the parties to reach a mutually

satisfactory solution. When the deadline for a bilateral dispute settlement elapsed, the

panel submitted its report to the Council for adoption.

The Council decided on the basis of consensus. However, the parties to the dispute

could block the Council's adoption of a panel report. But the Council should never

establish a new panel to re-examine the matter; nor did there exist an appellate body.

If a panel report was not adopted, it would not be regarded as a precedent by ' X subsequent panels. And if the recommendations were not implemented within a

reasonable period of t~me, the Council could authorise the suspension of c o n c e ~ s i o n . ~ ~

This panel system evolved over four decades during the GATT history was codified

as Understanding on the Rules and Procedures Governing the Settlement of Disputes

incorporated as Annex 2 of the WTO Agreement. This will be discussed in the next

chapter in detail.

2.2.4 GATT Dispute Settlement System: Analytical History

Despite the absence of effective political patronage, GATT survived due to the

existence of a general desire to devise an effective international regulation of national

~

- 7 In U.S-Prohihitlon r,f i,nports (6 Tuna Products, an agreement was reached with the complainant,

Canada during the panel process. The L.S. insisted on dissolving the panel because conciliation was already reached; hut Canada sought a comprehensive report from the panel. Consequently, the panel issued its report (sre GATT Iloc. , BISD 29 391, 1982). 71 For instance, the panel rcport on Canadian Discriminatory Application ofRetail Sales Tax on Gold (bins, GATT Doc., 1,:5863(L985) was not adopted; similarly, the U.S. blocked the adoption of panel rcport on EC-Producliofi .4i(i.v grantedon Canned Pears, Canned Fruit Cocktail and Direct Grapes, GATT Doc., Ll5778. 1985

trade policies Of course, it was upon the edifice of pragmatism that GATT was built

up in the early days; but the same pragmatism consequently resulted in GATT's

insistence upon "flexible" application of rules that would "'permit law to be used as a

diplomatic instrument". The result was the evolution of "creative jurisprudence"

based on "truth" and "well developed consensus" and diplomacy in international trade

law.'"

Thus within first ten years or so, GATT has seen its dispute settlement procedures

invoked 54 t~mes. But this initial zeal gradually waned. Between 1960 and 1970 only

ten cases were filed. This was due to the operation of a number of reasons."

Firstly, it was due to the structural metamorphosis in GATT's membership after the

Treaty of Rome. The Treaty resulted in the formation of EEC and consequently five

major industrial nations ceased to participate in GATT as direct members.

Secondly, massive industnalisation and the stupendous economic strides it has

undergone forced Japan to join as a GATT member in 1955; but its participation

brought forth new problems with newer directions. For e.g. Article XXXV, which

allows a member to refuse to enter into GATT commitments with a new member were

frequently invoked by members from Europe against Japan, forcing Japan to restrain

exports voluntarily many times.'"

Thirdly, this period witnessed the strenuous participation of the developing countries

strong enough to influence the GATT policy formulation. The formation of a

permanent United Nations Conference on Trade and Development (UNCTAD) in

1964 strengthened their campaign further, as a result of which a new section, Part IV

of the GATT Agreements, was adopted to deal with developmental issues.83

Fourthly, several of the original GATT rules, written in 1947, were becoming

~utdated. '~ Besides these, the radical effects of post-war agricultural programmes,

- -- .- 79 Thus Netherlands was authorised to retaliate against the US by imposing a quota on imports of wheat flour from the I!.S (But it was not imposed). See U.S. lmport resh.ictions on d a i v products, GATT Doc.. BISD IS,51. 1952. ' O Hudec, supru note 3. p p 185-186. '' /d.,p.234. nz Id.. 0.230. , , " Id. p.209 '' R.Hudec, 'GAT1 Dispute Settlement after the Tokyo Round: an Unfinished Business', CorneN In~ernat~onal LUM Journul . Vol 13, 1980, p.152.

emerging industrial competition from the non-western world and the worsening trade

position of the developing countries put severe stress and strains on the legal system.

The initial phase of 1970s witnessed a sudden upheaval of GATT dispute settlement

activity. During the first three years (1970-73) eleven cases were filed, out of which

nine were filed by United States, one by 1sraelS5 and the last one by EEC." This

sudden spurt in the invocation of Article XXIII by the U.S. is attributed to its political

strategy, which it followed in the early 1960, as This was intended to see the

passage of the Trade Act of 1974, whch authorised the legislation for the Tokyo

Round negotiations.

But if one makes a perusal of the complaints filed between 1976 and 1980, it could he

easily concluded that other members equally started to use GATT as a forum to settle

trade disputes. Thus there were only 8 U.S. complaints against 13 filed by others

(Australia 3, Canada 3, Brazil 2, Chile 2, European Community 1, Hong Kong 1 and

Korea 1 ).

This stimulus to initiate complaints under Article XXIII by other GATT member

could be credited to the Tokyo Round negotiations, which was started in 1973 and

was concluded in 1979. The Round strengthened the members' awareness of GATT

dispute settlement procedures.

1970-79: Revrval of' Legalism: Tokyo-Round and After

After the initial enthusiasm in the 1950s, the 1960s witnessed a downward slide in the

invocation of GATT dispute settlement mechanism. Accordingly, "consultation-style

diplomacy" started to dominate GATT's adjudicative mechanism. Behind this anti-

legalist ideology wcre two reasons:

- governments' urge to dampen GATT's regulatory impact on domestic trade

policy:

- the downswing of compliance with GATT decisions and rules.

Y i Hudec, supm note 3. p.71 '" Id., p.75. x ' Id. pp.155-6.

But two participants struggled hard to resist this downward slide in GATT's legal

buoyancy - develop~ng country bloc and the United States. The United States in its

resolve to demonstrate the effectiveness of GATT frequently invoked Article ~ ~ 1 1 1 . ~ ~

A similar strategy was initiated by the US in the early 1960s as well. The Trade Act of

1974 passed by the U.S. Congress listed institutional reforms in GATT as negotiating

objective. The listlng of dispute settlement procedures as an object of reform in 1974

Act ensured that the matter would be taken up for discussion in the Tokyo Round.

Article XXIll did not appear on the formal negotiating agenda until November

1 9 7 6 . ~ ~ But Brazil's insistence backed by the developing countries bloc, on raising

the issue of Article XXIII reform as one of the "framework" reforms of interest paid

off. They called for an increment in powers of coercion against developed countries,

including massive retaliation by the entire GATT membership and monetary damages

to developing countries for non-compliance with GATT rules.y0

The Toltyo Round Reforms

The institutional Infirmities of GATT forced parties to launch an ambitious round,

known as Tokyo Round. This was intended to strengthen the dispute resolution

mechanism further. The Tokyo Round of multilateral trade negotiations took place

between 1973 and 1979. The Round apart Born succeeding in reducing tariff levels

also secured agreement on SDC codes.

They are as follows (articles in bracket deal with the dispute settlement procedures of

each code):

(i) Technical barriers of trade, often referred to as the 'standards code' (Article

14);

(ii) Government Procurement (Article VII);

'in See Greek Tur~ffPr<terrn~.es, GATT Doc. Ll3384 (1970). EEC - Association with Tunesia and Morocco, GATT Doc. C!M/62 (1970); Danish Import Restrictions on Grains, GATT Doc Ll3436 (1970); Jamaica Margrns oj Preference, GATT Doc. BISD (18" Supp.) 183 (1970); EEC - Compensataly Taxes, (;AT7 Doc. L13715 (1972); Netherlands Antilles Tar~ff Schedule, GATT Doc. L13726 (1972); French lmporr Restrictions, GATT 'Doc. L13744 (1972); United Kingdom Dollar Area Quota, BISD (20 '~ supp) 230 (1973). w Hudec, supru note 84. p. i 56. 'lo Id., pp.157-158.

(iii)lnterpretation and Application of Articles VI, XVI and XXIII also known as

'subsidies code' (Articles 12 and 13);

(iv)lmplernentation of Article VII i.e. Customs Evaluation (Article 19 and 20);

(v) Import licensing Procedures (Article 4);

(vi)Implementation of Article VI or Anti-Dumping Code (Article 15).

And there were three sectoral agreements on:

(a) bovine mcet:

(b) dairy products; and

(c) civll ancraft (Artlcle 8)

It also reached foul- "Understandings" known as "framework agreements" on

participation of developing countries; trade measures taken for balance of payment

purposes; safeguard action for developmental purposes; and an understanding on

consultation, dispute settlement and s~rveillance.~'

Consequently, there were two streams for dispute adjudication - one under Articles

XXlI and XXIll of GATT 1947; the others presented by respective NTB codes. The

first one is a long process, which is explained elsewhere and the other one is a much

shorter process, intended to see the speedy expedition of matters at stake. For e.g. the

dispute settlement procedure under the Anti-dumping code is only a four stage

process (see figure 2.1 ): whereas dispute settlement process would go through a nine

stage process.

However, it should be noted that invoking dispute settlement procedures under one

mechanism would forfeit such a claim under another.92

But the proliferation oSUmini GATTS"~~ created by the Tokyo Round brought forth

the following problen~s."4

Tokyo Round Agrecmerrr~. ~ u p m note 51. (Also see Gilbert R. Winham, international Trade and the Tokyo Round Nrgoriatrons (Princeton, N.J.: Princeton University Press, 1986.) 9: For instance, Japan's request for consultation under Article 15.3 o f the Anti Dumping Code with EC was rejected, because the dispute had already resulted in the formation o f a panel under Article XXIII. (See Norio Komuro, 'The WTO Dispute Settlement Mechanism: Coverage and Procedures of the WTO Cnderstanding'. Journrri qt lr~rernational Arbitration, Vol. 12, 1995, p.102.

Figure 2.1 : Pre-WTO Dispute Settlement Procedures

1 Procedures under Arrlcle XXIII 1 Procedures under the Anti-Dumping Code I

Consultat~ons (under Article XX11: 1 or XX111:I)

I

4 No satisfactory adlustmeni

Establishment of panel

I Repon circulated

Report adopted by the Contracting Parties and recommendations 1 Suve~llance ol lmplementdtlon of recommendattons

( Authorisation for retaliation

Withdrawal

Consultations

1 Conciliation by the Anti-Dumping Committee (three months)

Panel established

Report adopted by the Committee

L -~ ~ I

Source: Nono Komuro. iwfra note 9 1 , p . 10 I.

Inefficiency: This was because of the strong incentive for bureaucracies to assert

their independence due to the existence of multiple mechanisms. Each one tried to

' I3 R. Michael Ciadbaw, "The Outlook for GATT as an institution" in and Thomas R.. Graham and Seymoure J. Rubun (eds.), Managing Trade Relations in the 1980s Issues Involved in the GATT Ministerial Meeting 1982 (New York: Rowman and Littlefield, 1994), p.39. 91 See John H. Jackson, "MTN and the Legal Institutions of International Trade", MTN Studies, No.4, Committee on Flnance. U.S. Senate, 1979.

preserve the autonomy in their respective sphere and this had led to duplication of

efforts.

Conflicting Oblirations: The provisions enumerated in these codes have much in

common and arc based on the provision of the original GATT agreement. This

created a "kind of duality" which harmed the effectiveness of GATT.

Inflexibility: GATT history has always seen the evolution of rules to deal with the

changing character of government policies. But the proliferation of codes thwarted

such an evolution. Attempts to negotiate new code would be "balkanizing" the system

further.

This existence of multiple dispute settlement systems has paved the way for an

integrated dispute settlement mechanism under WTO later.

2.2.5 Defects of GATT

After making a perusal of the chequered history of GATT's dispute settlement

mechanism marked by frequent ups and downs, we are now in a position to explain

the reasons for its failure, which are enumerated as follows:

1. Absence of Institutional Machinery: Envisaged as a temporary treaty to serve until

the creation of International Trade Organization, it was "by default"95 that GATT

became the world's trading organisation. As the former GATT Director General

Oliver Long said: "The GATT is a contract. It has no member, only contracting

parties".9%nd the absence of this institutional mechanism reflected in its legacy is

represented in the absence of an institutional tool for dispute adjudication too. Even

though the International Trade Organisation conceived in the Havana Charter did

contain dispute settlement institutions like Executive Board, Conference and a

provision to appeal the matter before International Court of Justice as the last resort,

the GATT's conflict resolution was kept confined to two Articles - Article XXII (that

emphasised on "consultation") and Article XXIII (that enumerated procedures for

95 Joan Spero. "Ioternat~onal Trade and Domestic Politics" in C. Roe Goddard, John T Parse-Smith and John G.Conklin (ed.). International Political Economy: State-Market Relations in the Changing Global Order. (Colorado: Kienner, 1996), p.354. y6 Quoted in Gadbaw, .sup~.n note 93.

dispute settlement). And GATT legacy made it manifest that it preferred to rely on

Article XXI1, 1.e. consultation and neg~tiation.~'

In the initial years of GATT, Cuba suggested that GATT submit the legal aspects in a

dispute to an lnternational Court. But the Chairman responded that the GATT was not

an organisation authorised by the United Nations to request advisory opinion from the

ICJ. Only the United Nations and the specialized agencies authorised to do so by the

Assembly of the United Nations could seek advisory opinion from the ~ o u r t . ~ '

Thus, the non-existence of an institutional mechanism turned out to be a handicap in

dispute resolution too.

2 Emphasis on Negotiutions: Unlike the IMF or the World Bank, the GATT was

neither the economists' nor the lawyers' creation. To quote Professor Hudec, it was

based on "diplomat's jurisprudence"99 with a greater leniency to negotiations for the

adjudication of disputes - a factor that may explain GATT's legal malaise. Even

though, GATT was able to develop a dispute settlement system that "resembled a

judicial system" with neutral rule interpreters, critics insisted on negotiated

settlements of trade disputes, bringing forth an interesting philosophical debate on

"legalism vs. pragmatism" in the GATT circles. The legalists stressed adjudication,

whereas the pragmatists emphasised negotiation and c o n s e n s ~ s . ' ~ ~ GATT preferred

the "pragmatic" or "anti legalistic" model, for it perceived that a contentious,

adjudicative approach would poison the atmosphere for negotiation and undermine

the system ultimately.''''

The United States was generally considered to subscribe to the legalistic position,

while the European Communities and Japan were considered as supporters of

antilegalistic position."" Developing nations preferred a legalistic approach to

97 Gadbaw, id., p.43. GATTAnalj~tlcul Indrr, u p r a note 56, p.813.

99 Hudec, supra note 3. pp. 267-68. I00 Davey, suprfr note 42. p.66. $01 I d . '" US International Trade ('ommission, Review of the Effectiveness of Trade Dispute Settlement Under thr GATT and the Tokyo Round Agreements 47 (Report to the Committee on Finance, U.S. Senate, On Investigation No.332-212 under Section 332 (g) of the Tariff Act of 1930, 1985), Publication No.1793, p.68.

insulate themselves from the threat of power-oriented diplomatic tools employed by

economic superpowers. I I)?

But GATT's Insistence to rely on "pragmatism" made the dispute settlement

mechanism ineffect~ve. And this ineffectiveness has subsequently paved the way for

a legalistic approach, wh~ch is reflected in WTO's dispute settlement mechanism.

3 Misuse of ' GATT Syslem: In its history, GATT was not only "used" by invoking

dispute settlement measures frequently in the early days; but also "disused"'04 by

relying on unilateral measures and even misused by bringing political disputes to the

GATT fora, although these disputes had effects on trade, political considerations

pred~minated.'~"ases related to imposition of trade restrictions on Argentina by the

EEC, Australia and Canada at the time of Falklands-Malvinas conflict in 1982;

suspension of MFN treatment of Poland by the United States in 1982; US imposition

of trade embargo on Nicaragua etc. fall in this category.

Another insistence of misuse of GATT's judicial machinery was the unnecessary

initiation of litigation by a nation against a country for filing a complaint against it.

Consequently, a nation was afraid to lodge a complaint, lest it become the target of

countersuits.'"" This was because the filing of a complaint was treated as a

contentious act that could worsen relations.lo7 For instance, when the EC filed a

complaint challenging the U.S. DISC tax provisions, the United States responded by

challenging three European tax systems. The original EC challenge might be the

result of prior U.S. complaints against EC practices. No wonder, in the Tokyo Round,

the nations asserted that the filinglo8 of a case would not to be considered a

contentious act.'""

lo' In the Tokyo Round, Brazil advocated strengthening of dispute settlement by making the developed nations subject for monetary compensation for illegal trade actions against the developing nations (See The Tokyo Round Agr~ement.~, supra note 5 1 .) 1114 A major critic~sm prior to Tokyo Round was that GATT dispute settlement system was irrelevant because few nations. except occasionally by the United States, made use of it. Davey .supra note 42, . ~

p.81. 105 Oliver Long, Lob, unci l t ~ L~mitations in the GATT Multilateral Trade System (London: Kluwer Law International, 1987) pp.81-82. 106 Gadbaw, supru note 93. p.42. 117 Davey, supro not? 42. p.71 Ion Hudec, supru note 3, p.238. 0 9 1979 U~zdersrirnd~ng. rlrprrr note 51, para 9.

4 Delay: One of the major weaknesses attributed to the settlement of disputes was the

excess amount of time, a panel required to expedite a dispute pending before it.

Absence of time-limit and excessive obsession of GATT panels for negotiated

settlement caused delay in adjudication. This was manifested at every stage of the

dispute settlement process - bilateral consultations, setting the terms of reference of

the panel, panel formation, and examination to adoption of report.'I0 The DISC case

is an example. In this case the disputants took almost three years to agree on the

composition of panel and it took another five years for the Council to adopt the final

reports. And even after going through this time-consuming panel process, its decision

could be blocked by a losing party.

5 Blockage: GATT's traditional reliance on consensus as its modus operandi had

sometimes resulted in parties blocking adoption of a panel report. During the first

thirty five years, panel rulings under Article XXIII: 2'" have been blocked five times.

Three of the cases had the United States as complainant - complaint against Spanish

restrictions on domestic sale of soya bean oil;"* against EC's subsidies on canned

fruit and dried grapes;'I3 as well as on EC's tariff preferences to Mediterranean

I I0 Rosine Plank. who served as a Counselor, GATT Secretariat, Geneva has succinctly summarized this delay at every stage as follows:

- It took several months for the other government to agree to bilateral consultation. - Good offices sponsored by the GATT Director General did not lead to a settlement. - The Council discussed a country's request for a panel during four sessions before approving it. - It took a few months for the parties and other interested parties to agree on terms of reference

for the panrl. - The other party rejected all nominations of panelists that their government could accept when

the former re-considered the candidates referred to serve anyway. The panel took several months to he composed.

- A panel member left Geneva and had to be replaced. - A panel member became sick and the work of the panel was suspended for several weeks. - The other party exercised pressures on some panelists to decide in its favour. - After one year the panel gave the parties its findings and conclusion. - Adding to contradictory case law on an ambiguous GATT provision, the panel offered an

equally unintelligible thereto and could not conclude that it was sure the other party was doing something wrong. It did suggest that the party cooperate better with the plaintiff. The council adopted the report but the other party never complied with the commendations. Or

- In a very narrow sense, the other party was found to be nullifying and impairing plaintiffs trade rlghts. The other party blocked consensus in the council and the report was never adopted. (See Rosine Plank, 'An Unofficial Description of How a Panel Works and Does Not', Jourt~al of !fnternational Arbitration, Vol. 4, December 1997, pp.92-93 )

111 There were blocked panel reports other than these five, but they were not brought under Article XXIII: 2 but under the Subsides Code. For example, see the panel reports on two U.S. complaints against EC subsides on wheat and flour respectively (Id., pp.88-92). ' I 2 Spanish resrri<rions on Domestic Sale of Soya bean oil, GATT Doc., Ll5188, 1981. 113 EC Producrlon ul[Is o n Canned Peaches, Canned Pears, Canned Fruit Cocktail, and Dried Grapes, GATT Doc.. L5778. I985

countries on citrus."" The other complaints related to a South African complaint

against Canada's discrin~inatory application of retail sales tax on gold ~ o i n s ; " ~ and

Nicaragua's complaint against U.S. trade embargo.'"

Some writers like S. Hogg regard lack of enforcement measures with blocking and

delay as the principal defects of the GATT-47 system.

The CiA.rl' 1947 dlspute resolution process was an example of the weaknesses of the

consensus approach adopted by that "quasi-institution". Under this approach, a

defending party was able to prevent the establishment of a GATT dispute resolution

panel. Moreover, the unsuccessful party in a panel report (or indeed any party) could

block the adoption of the report. Even if a panel report was adopted, the unsuccessful

party could refuse to comply with impunity, blocking any request for retaliation by

the working party. 'fie GATT 1947 procedures for dispute settlement had, in short,

no teeth. ln contrast, the new rules on dispute resolution embodied within the WTO

have supplled the system with a credible set of incisors .'I7

(6 ) Absence vf Sufficient Enforcement Measures: Because of its emphasis on

diplomatic methods, the GATT rules had a bias against enforcement. Admittedly,

there was a provision for retaliation by suspending concessions, if a party was

reluctant to correct its GATT-inconsistent measures. Since promotion of friendly

relations among members was given precedence over the achievement of compliance

with GATT rules, GATT was never harsh on violators. Historically, GATT has not ,r 118 supported retaliation, with one "ancient exception .

Thus in Netherlands - Measures of Suspension of Obligations to the United ~ t a t e s , " ~

the Council authorised Netherlands to retaliate. And Netherlands' weak attempts of

retaliation did not change the agricultural quotas of the United States. This proved that

retaliation by a small power (the Netherlands) against the larger one (the United

States) would be ineffective.

I 4 EC Treatme?~f 01 lmputr, of Cltrus Productsfrom Certain Medrterranean Countries, GATT Doc , ~ ~

L:5776, 1985. ' I 5 (hnadiun DUcr~minator\ .Application of Retail Sales Tax on Gold Coins, GATT Doc., Ll5863, 1985. ~ ~

I l h U S . Trade Mt.a.\ut-ea Aff,cting Nlcarugurr, Ll6053, 1986. I l i James Cameron and Karen Campbell(eds.), Dispute Resolution in the World Trade Organisation (London: Cameron May. 1998). p.59. I I X Davey, supra note 42. p.99. 1 , ) Nethrrlands. suoro notc 7 8

As a consequence to these institutional infirmities, an eighth round popularly known

as the 'Uruguay Round' was held in Punta del Este, Uruguay in 1986. The Round

which was concluded in 1994 was the most ambitious one which led to the creation of

World Trade Organisation. Apart from addressing innumerable things and bringing

new areas under its purview, the new WTO charter has framed specific and elaborate

rules for dispute settlement in Annex 2 which, in fact, forms the constitutional

framework of WTO's dispute settlement mechanism. This is enumerated in the next

chapter.