Table of Contents
History of the WTO
The foundational basis of the World Trade Organization is a long and a consistent one. However, in its developmental stages the organisation faced legal and moral obstacles raised by countries that were involved in its creation. The need for a world trade body became heightened immediately after World War II. The war's aftermath provided the right environment for the international trade cooperation and liberalization (Becroft 2012, p. 47). The emergence of the United States as the strongest economic power enabled it to push for a global system that would ensure multilateralism. Further, there was general consensus that matters of international trade and the limited market base fuelled the war in the first place. The allied powers, therefore, were committed to ensuring that financial instability and trade block rivalry would be avoided.
The allied powers initial vision was reflected in 1944 at Bretton Woods Conference that aimed to create three institutions for the purpose of controlling finance and development. The conference proposed the establishment of the World Bank, IMF, and the ITO (International Trade Organization). The ITO goal was to enhance fair trade among nations. However, the World Bank and the IMF was ultimately rejected (Narlikar, Daunton & Stern 2012, p. 85). The main reason for this was a grievance raised by the United States, which believed that the inception of the ITO would compromise the sovereignty of the country as dictated in the U.S. Constitution (Narlikar, Daunton & Stern 2012, p. 95). The countries decided to use the GATT agreement that had been signed by twenty-three contracting parties in 1947. The United States' reluctance was partially fuelled by a disagreement between it and Britain. There was a dispute over how to reconcile the existing region arrangement with the envisioned body. However, the parties agreed that the body should concentrate on the lowering tariffs and disciplining discriminatory practices among member countries.
GATT negations became the basis upon which WTO was formed in 1995. In the Uruguay Round, which spanned from 1986 through to 1994, member nations finally agreed to establish the body. WTO is one of the youngest international bodies and it effectively succeeded the GATT. Although WTO did not come into existence until 1995, the rules and policies for trade liberalization had already been into existence from a long time (Narlikar, Daunton, & Stern 2012, p. 131).
The paper discusses the benefits of WTO in promoting global trade system. It also provides a concise synopsis of the benefits that the organization has brought to the trading system. In view of the institutions, the paper offers the nature of the institutions created under the WTO law. It emphasizes the judicial system of the WTO by analysing the efficacy of the dispute resolution system under the WTO. The paper also offers recommendations for steps that should be undertaken to ensure innovative development of the justice system.
Benefits of WTO
The WTO is the only global body that is concerned with international law on trade between countries and has the core mission of ensuring a smooth flow of trade. Through this mission, WTO offers the international community a guaranteed result of quality products. The consumers are presented with a variety of products to choose from thus making the price of goods more equitable. There is stability in regards to the continuous supply of goods, component, and raw materials. Further, it creates certainty on the availability of the external market.
The engagements through trade assure of international peace and economic prosperity since WTO creates a system in which every country relies on each other.
Functions of WTO
The Preface of the Marrakesh Agreement sets out in general terms the mandate of the WTO as agreed upon during the Uruguay round. It borrows most of its objectives from the GATT. The driving WTO objective is to raise the standard of living by ensuring expansion of trade and production. It also fosters optimal use of the available resources. The Marrakesh Agreement deals with services. It commits to the sustainable development principle by seeking to preserve the environment. When it is about trade, the WTO seeks to create a level field to accommodate the developing countries by recognising that developing countries deserve a share in the international trade. The Marrakesh Agreement proposes the principle of reciprocity and mutually advantageous arrangements and non-discrimination as the means of achieving the above-mentioned goals.
Article III of the Marrakesh Agreement offers more specific functions of the WTO. It defines five important functions of the WTO. The first function of the body is to implement the agreements. The WTO is an avenue where structure for the implementation, execution and operation of Plurilateral Trade Agreements discussed. Plurilateral agreements are under the WTO umbrella but have not received the same measure of support as the Multilateral Agreements.
The second WTO function is to offer a negotiating forum. The goal of the body was to give member countries an avenue where plurilateral trade agreements are negotiated. Member countries are required to negotiate in good faith with the lone drive of opening their market for trade. WTO is mandated to settle trade disputes between member countries. In achieving the mandate, WTO offers policy and dispute reviews. It cooperates with the IMF and the World Bank to promote coherence in economic policy making.
The Marrakesh Agreement provides clear structures, political guidance, proper staff and appropriate financial provisions that enable the smooth functioning of the body. One of the core pillars of the WTO is its dispute settlement system. It is, therefore, vital to classify ways in which the dispute settlement scheme of the WTO has enhanced its objectives and principles. Further, it is imperative to ascertain the adequacy of the Dispute Settlement System in terms of staffing, finance, and judicial power.
Structure of the WTO
The WTO structure is stipulated under Article IV of the Marrakesh Agreement. WTO has the Ministerial that is a conference. It is made up of representatives from the WTO member countries. The Ministerial Conference's mandate is to carry out all functions of the WTO and ensure that the objects and purpose of the WTO are fully met and adhered to by the member countries. The MC can be requested by a member country to render a finding on an existing Multilateral Trade Agreement. The second WTO limb is the General Council. The GC has representation from all member states. The GC conducts the functions of the MC in the interval meetings of the MC. The GC establishes its own operating rules and also approves the rules of operations of the committees. The GC plays a significant role in the judicial system of the WTO by convening in suitable times to discharge the responsibilities of the DSB. The GC can convene to discharge such responsibilities as accorded to it by the Trade Policy Review Body (TPRB). However, the GC cannot set rules of operation for the DSB since the DSB has its own chairperson. Like the DSB, the TPRB sets its own rules of operation for the accomplishment of its duties.
The Marrakesh Agreement establishes three councils that deal with different trade aspects. Part 5 of Article IV establishes the Council for Trade in Goods that oversees the Multilateral Trade Agreements aimed at dealing with goods. Such Agreements are annexed in the Marrakesh Agreement as Annex 1A. The second council is the Council for Trade in Services, referred to as the “GATS”, and it deals with trade in relation to services. The last body is the council for Trade-Related Aspects of Intellectual Property rights that deal with matters of intellectual property rights. This council is referred to as “TRIPS” within the WTO ranks. The three councils have agreements that explicitly state their functions. They can undertake any other function referred to them by the GC.
Nature of WTO’S Dispute Settlement System
The WTO offers a unique system for settling differences between member states (Jackson 2000, p. 168). Dispute Settlement Understanding (DSU) has a Dispute Settlement Body (DSB) under its umbrella that consist of dispute panels and an appellate body that adjudicates trade disputes between parties. A WTO member can invoke the compulsory prerogative of the DSB by requesting for the establishment of a panel. The right of appeal exists when the matter has been heard and determined by the panel. However, at the appellate level the matters that are up for consideration are legal matters only (Martin 2013, p. 95).
The increase of economic factors in the reaction between countries has resulted in a shift from the power-oriented diplomatic approaches of dispute settlement to a rule-oriented approach and impartial dispute settlement. In essence, the DSU provides a forum of rules and judicial principles that aim to expediently solve the disputes. It offers developing countries an opportunity to air their economic grievances against more economically and politically influential countries (World Trade Organization 2004, p. 11). In other words, the DSB provides fair and reliable judicial rules and principles.
The DSU provides an equitable dispute resolution mechanism that has legitimized the WTO and given member countries incentive to comply with the trading obligations required at the international level. Further, the advent of the DSU shows that countries were committed to judicializing the process of settling international trade disputes.
Although it acts as a judicial system in terms of its physical setting and procedures, the DSU still promotes diplomacy and non-legal arguments within its ranks. For instance, its dispute resolution authority accommodates other members from fields apart from the legal field. The creation of a permanent appellate tribunal has enabled the DSU to enhance the role that legal resolutions play at the global level. It is worth noting that any decisions rendered by the appellate tribunal cannot be contested by other international court bodies such as the International Court of Justice (ICJ).
The DSU operates independently from the principle of decision making of the WTO that require consensus of all member countries (Ezeani 2010, p. 3). In this sense, in their reports, the panels, and the appellate body is free from political pressure and can issue reports without creating a conflict of interest. This allows the panels and the appellate body to concentrate on the actual case merits in making decision rather than the wants of the disputing parties. The appellate body’s reports are automatically binding unless they receive a negative vote from the parties to the dispute. In reality, however, it is unusual to have both or all disputing parties veto the reports.
The system is set to expeditiously handle the trading dispute. The nature of international commerce and trade cannot allow for a case to drag for more than one year as this would severely inhibit global trade. The panels are required by law to resolve the cases within a time frame of six to nine months. The rulings of the panel must be implemented within one year of its establishment. Appeals usually take two to three months to hear and make a determination. The process of the panel establishment to the date of the DSB's recommended implementation cannot exceed 18 months. However, the parties can mutually agree to certain exceptional circumstances to push the time frame forward (Zimmermann 2006, p. 178).
The WTO dispute correction mechanisms allow for imposing sanctions when a country fails or is unwilling to engage in trade activities that are in compliance with WTO regulations (Zimmermann 2006, p. 179). Members whose measures contravenes the WTO rules are granted a reasonable period to conform. Failure to conform leads to consolations between the concerned parties with the hope that the dispute is expediently solved in a period of twenty (20) days.
Despite being a judicial bod, the DSB does not operate as a means of passing judgment on a party. The dispute settlement system is intended to resolve disputes through consultations so as to keep the volatile trading system intact. For example, at the end of 2008, a mere 136 out of the 369 total cases advanced to the full panel procedure. Most of the cases were settled out of court or were in the consultation phase.
In terms of the trust, the DSU is the most successful structure of the WTO considering the number of cases it has successfully handled and the high degree of compliance to its recommendations (Yerxa & Wilson 2005, p. 233). This has enabled the DSB to develop jurisprudence in the field of global business law by contributing the needed predictability and security to the multilateral trading system. The interpretation of the trading laws by the DSB enhances the development of customary international law and the tenets of international law (Damme 2009, p. 69). Interpreting WTO laws is the most fundamental and sensitive issue that the DSB conducts. The interpretation of these laws must be clearly demarcated to point to the relevant law interpreted and give clearly articulate findings considering the volatile nature of international trade engagements. In this respect, the paper shall look into the interpretive work of the DSB; the WTO settlement system; and the general principles of law.
Principles Governing Resolution of Disputes in WTO
The position of the Dispute Settlement System cannot be understated when it comes to global trade. The rule-based approach that has been developed by the WTO is easier to implement due to the dispute resolution system. The system has clear rules and laid out timelines for adjudication of cases and consultations between member countries in dispute. In this respect, the dispute settlement system is cushioned by principles that govern the whole process of settling disputes. The principles are as discussed below.
The settling of a dispute in the WTO must be equitable in nature. The principle demands equal access and treatment before the law for all parties to the dispute. Further, the parties must be involved in equal capacity when it comes to choosing the dispute resolution panel members. The essence of the principle is to ensure that no party feels left out or aggrieved by the panel composition.
The next principle demands that the cases must be decided in an expedient manner to facilitate trading engagement between members that is not compromised, prolonged or protracted during legal proceedings. Further, the nature of commercial engagement demands that for the smooth continuance of global commerce, the cases must be dealt with fast and conclusively. The operating principle is expediency.
In interpreting multilateral and bilateral agreements, the dispute settlement system is required to offer meaning to the interpretation. The principle of effectiveness operates to ensure that the system is guarded against adopting a meaning that would render the whole system redundant (Yang, Li & Mercurio 2005, p. 21). The principle of effectiveness offers direction in situations where the treaty or multilateral agreement or a bilateral agreement interpretation has two possible interpretations. The system requires the analysis of the agreements to be contextually for the adoption of the best form of interpretation.
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In the Reformed Gasoline case, the Appellate panel held that the interpretation of a provision should be such that it does not reduce the whole clauses or paragraphs of the agreements to redundancy or in utility. In its view, the purpose of interpretation is to give effect and significance to the provisions and terms of the agreements (Yang, Li & Mercurio 2005, p. 22). The principle of effectiveness enables the members to understand how the agreements work in cohesion and not in isolation. It is thus imperative for the WTO since the agreements under WTO constitute a comprehensive legal system governing international trade. A holistic approach should thus provide the connection among the Agreements. Further, the appellate body reaffirmed their position of the effectiveness tenet in the EC Banana case, in which they insisted on a harmonious reading of the WTO Agreement to reach the most effective meaning. Accordingly, the most effective meaning is the core in advancing the purpose and objects of the WTO.
The principle of “good faith” that is the prevailing principle of law or a principle of customary international law also guides the WTO operation in almost every aspect of engagement. It starts from the negotiating process throughout to the carrying out the ruling of the DSB by member countries. The good faith principle demands that the parties must commit to seeing that their obligations are met in practice to avoid frustrating the agreement before its ratification. When there is disagreement, the parties must ensure that the dispute is settled in good faith so that the agreement may operate normally as was intended at the time of its signing (Mitchell 2011, p. 13).
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Like other international institutions, WTO is a product of international law (Mitchell 2011, p. 13). The treaty establishing the WTO binds due to the underlying norm of “pactasuntservanda”. The norm denotes that every treaty is legally binding to all parties who must perform it in good faith (Damme 2009, p. 66). The appellate body has referred to the treaty as underlying the WTO agreements. The principle has been incorporated in the dispute settlement system by the DSU Article 4.3 and Article 3.10. The former requires that members engage the dispute settlement procedures in good faith and with the aim of solving the dispute to a conclusive end. The later article speaks of transparency in relation to negotiations during conflict resolution. The article requires that if a party is requested to join a mediating team in dispute resolution, it must do so in good faith and with the aim of reaching an amicable solution.