Dispute Settlement Mechanism in WTO



  • GS Mains Paper-2
  • International Organizations, Bilateral Relations

Why in news?

  • The World Trade Organisation is in news because of the crisis WTO is in for ensuring a legitimate dispute settlement mechanism.
  • The changes in the global trade regime and the multilateral institutions necessitate a greater role for the developing world.

Why trade organization?

  • With the coming of Bretton Woods institutions (World Bank and IMF) came new financial trade order which demanded a trade organisation at the international level.
  • It became necessary for the regulation of the international monetary system.
  • It was also needed to establish multilateral rules for the settlement of trade disputes.
  • Adherence to the rules was expected to serve as an important domestic incentive for governments.
  • It would allow them to resist protectionist demands and provide for greater legal certainty.
  • The World Trade Organisation (WTO) was created primarily to address these demands.

What has been the role of US with respect to WTO?

  • The US’s push for the creation of WTO was mainly to pursue its own commercial interests.
  • The U.S. has never truly embraced the idea of a multilateral system in which its leadership could be contested.
  • Evidently the US is isolating itself from NAFTA, TPP, NATO and UNESCO in the recent times.
  • In the trade negotiations too, the U.S. put forward excessive demands that countries are unprepared to meet.
  • So the current crisis with the WTO dispute settlement system largely follows this unequal power formula.

Why the crisis with WTO?

  • The nature of the trade disputes is now increasingly getting hyper technical.
  • Despite this, the WTO currently faces a trade dispute settlement crisis.
  • The U.S. has systematically blocked the appointment of new Appellate Body members (judges).
  • This has impeded the work of the WTO appeal mechanism.
  • It is under great stress with only four working members out of seven normally serving office.
  • If no appointment is made, the mechanism would be destroyed by December 2019.
  • It would be left with only one remaining member to tackle a massive number of disputes.
  • But the Appellate Body requires a core of three members to decide a dispute.

What are the other causes of concern?

  • It is to be noted that the WTO dispute settlement mechanism is not a world trade court. So logically, the process remains political and diplomatic.
  • WTO members are thus concerned over the politicisation of the Appellate Body appointment and reappointment process.
  • There is also a concern with the quasi-attribution of permanent Appellate Body seats to the U.S. and the European Union (EU).
  • Besides, there is concern over the possibility of China finding its way to have a permanent seat.
  • Cases – Some Appellate Body members continue to hear cases which have been assigned to them during their tenure.
  • The U.S. has persistently attacked this practice.
  • However, the blame lies on the U.S. itself, for delay in filling up of vacancies and reappointment of members.
  • This is indicative of the fact that the US is deliberately pushing the WTO legal mechanism for deterioration.

What is China’s prospect?

  • Despite limitations ensured by US and EU, China has largely benefited from the rules-based WTO system.
  • It might well be the new WTO leader in the coming future.
  • China’s growing assertiveness, in fact, may be the reason for the U.S.’s hard measures.
  • Its emerging power and the impact of its commercial domination on other economies are evident.
  • But how far will China’s legitimacy be, among other trading members, remains largely uncertain.

What is the way forward?

  • The world has changed and multilateral institutions now have to embed these changes.
  • The current WTO crisis could be a battle to retain control over a Western-centric organisation.
  • It is high time for emerging economies and the developing world to have a greater say.
  • They should establish their role in shaping the much needed multilateralism and its institutions.
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