Since the beginning of its operation on January 1, 1995, the World Trade Organization relies on a mechanism for the resolution of commercial disputes.
Over the years the WTO Dispute Settlement System (DSS) has enabled the definition of the scope of the Agreements that make up the WTO's legal framework, thus providing for greater security and transparency to the Organization's operations.
The competent body of the WTO to manage the Dispute Settlement System is the Dispute Settlement Body (DSB). Only WTO Members – that is, States, autonomous customs territories and certain international organizations (in this case, the European Union) – may participate in this mechanism. This instrument is forbidden to other actors, such as companies, individuals and non-governmental organizations.
The WTO Dispute Settlement System has the following characteristics:
(i) scope: the procedures provided for in the mechanism apply to all disputes presented based on the so-called “covered agreements” of the WTO, that is: a) the Marrakesh Agreement; b) multilateral agreements covering trade in goods, trade in services and aspects of trade-related intellectual property rights (Annex 1 to the Marrakesh Agreement); c) the Dispute Settlement Understanding itself (Annex 2 of the Marrakesh Agreement); and d) plurilateral agreements (Annex 4 to the Marrakesh Agreement), in disputes in which both the requesting Member and the respondent are signatories to the respective plurilateral agreement;
(ii) automaticity: an “almost compulsory” jurisdiction was established, based on the negative consensus rule, which provides that a panel will not be established unless all Members vote against the establishment, including the plaintiff. Likewise, a report will only not be adopted unless everyone votes against it, including the winning Member in the dispute;
(iii) dual degree of jurisdiction: creation of a permanent review body for panel reports, called the Appellate Body (“AB”), which represents the existence of a dual degree of jurisdiction within the scope of the WTO Dispute Settlement System;
(iv) feasibility: existence of specific means to encourage compliance with the recommendations of the reports adopted by the Dispute Settlement Body. In this context, of particular notice is the “retaliation" whereby the winning Member is authorized to “suspend concessions or other obligations” in relation to the losing Member, as well as the possibility of offering compensation by the losing Member until full implementation of what was stipulated in the adopted report.
The main objective of the system is to reinforce compliance with multilateral trade rules and the adoption of practices compatible with the negotiated agreements. This objective prevails over the purpose of punishing Members for the adoption of practices considered incompatible with WTO rules. Thus, the system allows, at any time, the solution of the conflict through an agreement between the parties to the dispute.
Phases and procedures of the WTO dispute settlement system
WTO disputes take place in four main phases: (i) consultations; (ii) panel; (iii) appeal; and (iv) implementation.
(i) Consultations: initial phase of litigation, when the complaining party asks the respondent for information about its legislation and commercial practices, and requires alterations to the disputed measures, in accordance with the WTO agreements. The respondent party has 10 days to respond to the complaining party, and consultations must take place within 30 days. If consultations do not resolve the dispute within 60 days upon the respondent’s receiving the request, the complaining party may request the establishment of a panel.
(ii) Panel: the panels are made up of three members, who must be chosen by common agreement between the parties. The parties submit written petitions to the panel and participate in hearings, when they can present and defend their arguments orally. At the end of its work, the panel issues a report on the compatibility of the measures questioned in relation to the WTO agreements. In theory, the deadline for submitting this report is up to 6 months, extendable for another three. In practice, the panel phase has been lasting about 12 months, except in cases of greater complexity, such as, for example, the cotton case (DS267), which lasted almost two years, and the Boeing-Airbus case (DS353), which exceeded five years.
(iii) Appeal: any appeals from the reports of the panels must be submitted to the Appellate Body, a permanent body that has the function of reviewing the legal aspects of the reports issued by the panels. The Appellate Body is composed of seven permanent members, with a 4-year term, which can be renewed once. Only 3 of these 7 members participate in each dispute. The Appellate Body report must be adopted by the Dispute Settlement Body and unconditionally obeyed by the parties, unless the Dispute Settlement Body decides, by consensus, not to adopt this report.
(iv) Implementation: if the report of the panel or Appellate Body adopted by the Dispute Settlement Body concludes that a Member's measures are incompatible with WTO rules, the respondent must modify that measure in order to restore the balance between rights and obligations under the multilateral trading system. The losing Member shall inform how it will implement the recommendations and indicate, if necessary, a reasonable period of time to do so.
After a reasonable period of time has passed, without compliance with the recommendations contained in the adopted report, the parties may agree on a possible compensation from the unsuccessful party to the winning party, if the latter is the plaintiff, until the report is fully complied with. If there is no agreement on compensation, the winning party may ask the Dispute Settlement Body for authorization to suspend concessions or obligations in relation to the losing party. The suspension of concessions or obligations may undergo an arbitration assessment in which will be examined how and in what amount the suspension will apply. This mechanism aims to make the WTO dispute settlement system and, consequently, the multilateral trading system more effective.
Brazil in the WTO Dispute Settlement System
The Dispute Settlement System is one of the central axes of Brazil's action in the commercial area. With 33 cases as a plaintiff, 16 as a defendant and 147 participations as a third party in litigations on the most varied topics, Brazil is among the six main users of the system, behind only the USA, the European Union, Canada, China and India. Currently, Brazil is a main party in 5 litigations as a plaintiff (see summary of the main cases of Brazil as a plaintiff). This intense performance has given the country an increasing influence in defining several of the commitments assumed in the scope of the WTO, having proved to be instrumental in eliminating barriers to Brazilian exports and to the national development strategy.
Since 2001, the Brazilian Ministry of Foreign Affairs has had a team dedicated exclusively to the preparation and monitoring of disputes at the WTO, with the aim of facilitating Brazil's participation in the Dispute Settlement System. Working closely with the Brazilian private sector and other areas of the Government, the Commercial Litigation Division (DCCOM) is responsible, among others, for the permanent monitoring of ongoing cases (drafting petitions, participating in consultations and hearings, research and analysis of jurisprudence), as well as for conducting pre-litigation discussions (receiving the considerations of affected sectors, drafting legal opinions, coordinating with the sectors and government agencies involved) and, last but not least, monitoring the implementation of litigations.
The decision to initiate litigation at the WTO is taken by the Chamber of Foreign Trade (“CAMEX”), based on a preliminary analysis of the legal feasibility of the case and the opinion of several areas of the Government on the economic and political interests at stake.
Current system context: challenges
Since 2017 disagreements between countries about the functioning of the DSS have led to the blocking of the appointment of new members to the Appellate Body. For this reason, since December 2019 the activities of the latter have been paralyzed, which will leave the disputes in a “limbo”, with no prospect of resolution if appeals are presented in the “void” of panel reports. With a view to overcoming the impasse, Brazil has acted in favor of a long-term multilateral solution, which meets the concerns of all WTO Members, in strict compliance with the Dispute Settlement Understanding and with the objective of preserving the rights and obligations agreed upon in the Marrakesh Agreement, which created the World Trade Organization.
In parallel with the multilateral efforts for a long-term solution, a group of 21 WTO Members (including Brazil) agreed on a plurilateral interim arrangement (“Multi-Party Interim Arbitration Arrangement” – MPIA), whereby they signal the commitment to (i) not “appealing to the void” in disputes among MPIA participants; and, (ii) in the event that one of the parties to a dispute wishes to appeal the panel's findings, resorting to Article 25 of the DSU to effect an “arbitration-appeal”, while the Appellate Body crisis lasts. The Arrangement is open to participation by all WTO Members.
In order to promote transparency about Brazilian action in the WTO dispute settlement mechanism, the Ministry of Foreign Affairs will seek to make available the petitions presented by Brazil as the main part in litigation. Initially petitions related to the panel phases and, when applicable, to appeals in litigation that started in 2008 will be published.
- Brazil's First Petition