By Peter Ungphakorn
POSTED DECEMBER 11, 2019 | UPDATED NOVEMBER 14, 2021
A very short summary and graphic:
Dispute settlement is not essential (but it helps)
The public discussion of the Appellate Body crisis in the World Trade Organization (WTO) has revealed some fundamental misunderstandings about how governments’ actions on trade are handled in the organisation.
This is important. The WTO is now a quarter of a century old. Its real achievements are hardly noticed. They never hit the headlines.
Instead, the impression we get is that it’s all about the dispute settlement crisis (and previously the struggle to conclude negotiations).
The Appellate Body has been unable to function since December 11, 2019. This has crippled WTO dispute settlement, we’re told, ultimately jeopardising a trading system that’s supposed to be based on rules — rules that can no longer be “enforced” as a result of the crisis.
We’re going to be left with the law of the jungle instead of the rule of law. Just watch and wait. It could be the end of the WTO, we’re told.
We might have to wait an awfully long time, because keeping international trade within agreed rules relies on much more than dispute settlement. In fact a key purpose of the WTO is to keep formal disputes to a minimum, and it does a pretty good job at that.
• Complying — 98% uncontroversial, job done
• Let’s talk about it — 2% raised as concerns in meetings
— Box: Aflatoxin, a 6-year concern
• Still unhappy? See you in court — 0.07% of measures
• Compliance: the importance of being a good citizen
• What about enforcement?
• In sum
• Short explanation: By Christmas the WTO will be dead — or will it?
• Long read: A bit of bother down at the WTO court — Why? And is it a killer?
• The WTO is surprisingly busy — considering it’s supposed to be dead
So long as countries have faith in those other mechanisms, they will continue to be active within the WTO, keeping it alive and relevant. So long as they have confidence in the system, that is, despite the problems in dispute settlement.
It’s important to be clear here. The crisis in the Appellate Body is serious. Dispute settlement is important, particularly in big politically sensitive cases such as on aircraft subsidies (EU v. US or US v. EU), or the large number of cases about anti-dumping, subsidies and safeguards, or on recent unilateral tariffs on metal products.
But they are not the whole story. Appeals are not everything in dispute settlement, and the WTO was created deliberately to have many other ways of defusing tension without ever going to dispute settlement at all.
At the same time WTO dispute settlement does not always settle disputes, certainly not quickly and easily.
Some major conflicts remain unresolved within the system for years. Trade experts will remember bananas, and endless disputes over dumping and safeguards, and, yes, aircraft subsidies. In a few cases, countries simply don’t comply with dispute rulings (see below).
Complying — 98% uncontroversial, job done
Many people are familiar with flow charts for WTO disputes such as the one in this technical note.
Much rarer are flow charts and explanations of how potential controversies are handled in the WTO before they become disputes.
So, here goes.
This is what the WTO is supposed to do, to allow trade to flow smoothly with a minimum of glitches. … Perhaps we should pay more attention to it
This is about a range of possible actions on trade, generally called trade “measures”.
They could be anything from a policy — for example for governments to restrict their procurement only to locally-created goods and services — to detailed criteria — such as how much residue of clethodim (a pesticide) can be tolerated in cabbages, if any at all (the US has a limit of 0.2 parts per million).
On the right is a chart with the stages a trade measure may go through in the WTO. It shows just how much stays unremarked right at the beginning. By the time we get to disputes, the 71,000 trade measures in the first stage has dwindled to just 49 (see updated figures below).
This is what the WTO is supposed to do, to allow trade to flow smoothly with a minimum of glitches.
It’s the achievement of the WTO system and of WTO members’ commitment to play by the rules — almost all the time.
We never hear about it precisely because it works well. Perhaps we should pay more attention to it.
So, the vast majority of trade measures are uncontroversial. We know this because WTO rules require member governments to share information about their measures by notifying each other through the organisation, where possible in advance.
The measures are then open to scrutiny by the membership in various committees.
Take non-tariff barriers in the form of standards, regulations and labelling. These are either on food safety and animal or plant health (sanitary and phytosanitary measures or SPS), or all other standards, relevant regulations and labelling (technical barriers to trade or TBT).
The 71,000 figure is the number of SPS and TBT non-tariff measures notified to the WTO by member governments since it was created in 1995. (All the figures here are heavily rounded numbers to keep it simple. See updated figures below)
Of these, around 70,000 (over 98%) have attracted no attention at all. They are uncontroversial. The governments clearly designed them to comply with the rules; and fellow-members had no quarrel with that.
In other words, in the bulk of cases, WTO rules are working silently, almost unnoticed.
For 98% of the measures, that’s it. Job done.
Let’s talk about it — 2% raised as concerns in meetings
About 1,200 measures (less than 2%) have aroused comment, in the SPS and TBT committees under agenda items called “specific trade concerns”.
AFLATOXIN: A SIX-YEAR CONCERN
Aflatoxin can cause cancer. It’s associated with fungi found in badly stored products.
New EU regulations were proposed in early 1998. They would set lower maximum permitted levels for nuts, dried fruit, cereals and milk, on their own or in processed food.
From 1998 to 2004, concerns were raised 13 times in the SPS Committee by 22 countries, who said the new regulations were unjustifiably stringent and that developing country exporters would struggle to meet the requirements.
In June 1998 the EU said it was going to revise the original proposal, allow more time for comment and postpone implementation. As comment continued, the chair of the SPS Committee was also involved in some mediation talks.
Eventually in 2004, the last remaining concern was reported settled following agreement between the EU and Bolivia (a major exporter of Brazil nuts), which included technical assistance from the EU.
(The WTO has general databases and some on specific subjects such as SPS, TBT and agriculture. They contain all these figures as well as the details, based on processes in the “regular” committees — for the committees, see the WTO organisation chart.)
Some of the comments simply ask for more information or explanations. Many challenge whether the measures comply with WTO rules: for example are they based on scientific assessment of risk or on recognised international standards? Or are they excessive —an unjustifiable excuse to be protectionist?
Measures are often amended in response to concerns raised either openly in the committee meetings, or in consultations between the countries concerned on the sidelines of the meetings.
Sometimes the concern is dropped following an explanation or an offer (to a developing country) of technical assistance to meet the new standard.
Sometimes the same concern is just repeated endlessly in further meetings, without necessarily becoming a formal dispute.
It’s all about negotiation and peer pressure. When concerns are raised in a committee, the governments are forced to defend their actions. Most of the time governments don’t like to be seen as rule-breakers. Most of the time, but not always.
So as a result of committee work, one way or another, WTO rules are also respected. Legal challenges are mostly averted.
Job done for most of another 1,200 SPS and TBT measures. That’s how almost all of the $20 trillion per year of international trade in goods and services works, more or less silently.
These are more up-to-date figures; the story is unchanged (see also this technical note):
Still unhappy? See you in court — 0.07% of measures
That leaves around 100 measures from the original 71,000, and if we look closely the true figure is less than half of that.
Since 1995, about 100 WTO disputes have been about violations of the SPS or TBT agreements, or both. Only a tiny number, if any at all, went straight to dispute settlement. So most, if not all, were raised as concerns in the committees first.
This is now miniscule. Over 90% of concerns raised in the committees were resolved there, meaning 99.8% of the 71,000 notified measures never became disputes — less than 0.2% did.
But that’s not all. Over half of the disputes involving SPS and TBT never even reached the stage of a panel ruling. They were withdrawn, or settled out of court with a “mutually agreed solutions”, or just left hanging with no further action and no explanation. Some have been stuck in the pre-panel stage since the 1990s. In other words, only about 49 or 0.07% of all SPS and TBT measures have become full-blown disputes. That’s 0.07%. Seven in every ten thousand.
Yes some full blown disputes are big, such as the one about the EU’s ban on beef from cattle given supplementary hormones via implants or other methods. But they are rare exceptions.
Another major TBT measure that did become a full-blown dispute is Australia’s law on plain packaging for tobacco products, which is partly about labelling. It was raised in the TBT Committee in consecutive meetings in June and November 2011 and March and June 2012. (It also featured in the intellectual property council — “TRIPS” — because it affects trademarks and geographical indications.)
Formal disputes were launched by different countries in March, April and July 2012. Since then, the complaining countries have left the issue to the dispute process, although they continued to comment on similar policies in other countries — New Zealand, France, Ireland and the UK.
This case was still going through appeal when the Appellate Body was left without a quorum on December 11. Almost immediately a letter was circulated confirming that the work on this near-completed appeal (and two others) would continue.
The appeal report was published on June 9, 2020. It upheld the panel ruling (with some minor differences over legal interpretation), confirming that Australia’s plain packaging was fully legal under WTO agreements. All that was left was for the membership to adopt the ruling, more or less a formality.
At the end of a dispute settlement case, if a country is judged to be violating the rules or its commitments, it usually complies. Is this because of the threat of retaliation? Or is peer pressure at play again? Probably a mixture of both.
Compliance: the importance of being a good citizen
What do the figures tell us? In particular, what do they tell us about the importance of legal rulings in dispute settlement in ensuring trade flows within the negotiated and agreed rules? We have to make an educated guess.
The high number of measures that more or less automatically comply with the rules suggests this is not really about fear of litigation and retaliation.
Rambod Behboodi, a Geneva-based partner of law firm King and Spalding who previously worked for the Canadian government, wrote that legal challenge was not really relevant in designing a Canadian trade measure.
“Canada sought, to the extent possible (knowable) to conform to its international legal obligations. The normative force of negotiated rules had to do with the rules and the forum [the WTO], not the dispute resolution mechanism of given instruments.”
He suggested other countries could be using the same approach.
“It would, in my view, be a monumental mistake to equate one element [the Appellate Body] of one function [dispute settlement] of the WTO to the WTO itself, or to argue that the temporary non-functioning of one organ spells the doom of the order itself.
“If it does, I mean, not much of an order.”
What about enforcement?
It’s difficult to imagine that 98% of trade measures automatically comply with WTO rules simply because governments are afraid of the stick of WTO dispute settlement.
It’s more about being a good citizen and being seen to be one. Countries want to trade. They want to be seen as reliable and attractive trading partners. Playing by the rules is important for achieving a good reputation. And if we want others to play by the rules we’d better do it ourselves.
Unilateralism by a large and powerful United States undermines this to some extent, but generally the principle applies, for now at least.
The same principle also applies to the minority of cases when a concern is raised in a committee — countries adjust their measures in response to comments or explain away the concern. Or they offer technical assistance so developing countries can meet their new standards.
The principle may even count in the response to a ruling in a dispute. The decision has clarified whether a rule has been broken — an important function of dispute settlement is to clarify what the rules mean in practice, not to punish infringing countries.
Good citizens then change what they are doing to avoid being seen as rule-breakers as well as to avoid retaliation.
The exceptions are when the issues are particularly sensitive. Fear of falling foul of a dispute settlement ruling could be a deterrent but it would mostly come into consideration if the government is under pressure to bend or break a rule.
Even then, the WTO and its dispute settlement system has no power to force countries to comply with rulings.
The EU lost the “beef hormone” case and continued to be in violation for several years even after the US imposed sanctions. Eventually, a negotiated solution was found, involving additional market access, but the ban on “hormone beef” remains even though it breaks WTO rules.
The US, meanwhile has still failed to implement rulings in two disputes from 1999 — on anti-dumping measures on Japanese steel (non-implementation since 2005), and on royalties for broadcast music played in bars (since 2004).
That’s why WTO dispute settlement is not about enforcement. The WTO has no power to enforce.
All of this shows that there is a lot more going on to encourage countries to comply with WTO rules than dispute settlement. It’s highly unlikely that a dispute system that handles 49 SPS and TBT cases is a major reason why 68,000 measures stay on the straight and narrow.
Dispute settlement helps to clarify the rules, and to avoid conflict in the most contentious areas, but not the bulk of trade policy, and even then it cannot enforce the rules.
Governments know that. And so long as they cherish everything else that keeps trade policy honest, they will continue to value the WTO and to use it. For the next few years at least.
See also this Twitter thread.
UPDATE: 47 WTO members (counting the EU and its 27 member states as 28) have proposed strengthening the ability to discuss and resolve specific trade concerns across all relevant committees. Their proposal is here.
It envisages streamlining the Q&A process, making it easier for countries to talk bilaterally, making all relevant committees equally effective, cutting repetitive exchanges in meetings, putting all relevant information in improved WTO public databases, giving committee chairs a clearer role in mediating difficult issues.
See also this working paper by Robert Wolfe — Reforming WTO Conflict Management: Why and How to Improve the Use of “Specific Trade Concerns” — and this Twitter thread.
Note on the data: the numbers of notified measures, specific trade concerns and disputes include a number of anomalies, but they are minor, so the big picture is unaffected. The notifications include a handful of corrections, which do not represent new measures. On this, the details in the SPS and TBT databases are inconsistent, except for total notifications, which are the numbers used here. The count of disputes also contains anomalies: for example a single issue could be several separate cases, as with the plain packaging disputes.
November 14, 2021 — updating data and charts on SPS, TBT notifications, concerns and disputes from Jaunary 1, 1995;
February 11, 2021 — adding bubble chart
October 15, 2020 — adding the 47-member paper on reforming discussion of trade concerns
June 18, 2020 — adding the final appeal ruling in the dispute over Australia’s plain packaging for tobacco
May 16, 2020 — adding the graphic on “How the WTO works”
January 1, 2020 — updating data on SPS and TBT measures to January 1, 2020; plus minor text edits particularly to tie in with the WTO’s 25th anniversary.
December 16, 2019 — for “enforcement”, adding two long-standing unimplemented cases against the US; plus minor text edits and new or improved links to disputes lists by subject.
December 13, 2019 — adding the box on aflatoxin regulations raised as a concern in the SPS Committee, a link to the WTO organisation chart and confirmation that work on the the plain packaging appeal would continue; plus minor text edits
Graphics | the author CC BY-SA 2.0
Snowy lake | Thomas Glas on Unsplash (CC0)
SPS Committee meeting July 12–13, 2018 | WTO