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I. Introduction and General Topics



Dispute Settlement

J. Haddock and R. Sharma
Commodities and Trade Division



The purpose of this module is to provide a basic understanding of the rules and procedures governing the initiation and conduct of the dispute settlement.


5.1 Introduction

5.2 The WTO Dispute Settlement Mechanism

5.3 Highlights of recent disputes involving agricultural products

5.4 Provisions for enhancing developing countries' participation in the system



New dispute settlement mechanism introduced in Uruguay Round

A rules-based system works effectively only when there is a means for settling disputes. Thus, a dispute settlement mechanism is an essential component of the multilateral trading system in order to provide security and predictability to trade. The GATT 1947 provided this in its Articles XXII and XXIII. Over time, certain deficiencies of the mechanism became apparent and the need was felt for a more effective system. The result was the Uruguay Round's Understanding on Rules and Procedures Governing the Settlement of Disputes which brought about many new rules and procedures.

The new DSU is 30 pages in length and has 27 articles and four appendices, with detailed coverage of the procedures governing the initiation and conduct of the dispute settlement mechanism. Space would not allow introduction to all these features for which the references given at the end of this module need to be consulted. The purpose of this module is to provide a basic understanding of the topic and covers the following:


5.2.1 Dispute settlement mechanism in GATT 1947

Two articles of GATT 1947 dealt with dispute settlement. Article XXII - consultation - established a right to consultations between individual contracting parties (members) while Article XXIII - nullification or impairment - applied this right to situations in which a member considered that it was not receiving benefits to which it was entitled under the GATT because of actions by another member. The primary emphasis has always been on finding a mutually satisfactory solution through the process of consultations. Where this failed, the collective GATT membership was called on to examine the matter, issue rulings or recommendations as appropriate and, if necessary authorize retaliatory action. The system of appointing a panel of three (sometimes five) independent experts was a standard practice. The panel recommendation became binding when adopted by the GATT Council of Representatives. Over 120 such panels were established between 1948 and 1994.

Deficiencies in GATT mechanism

Two deficiencies in particular were noted with the GATT mechanism. First, it was a consensus-based system. The Council made decisions on the basis of consensus of the members throughout the process, e.g. in establishing the panel, setting terms of reference, selecting panelists and in accepting the panel recommendations. As a result, any one member could block the process. Second, the situation worsened after 1979 when a number of limited-membership agreements on non-tariff measures - the so-called "codes" negotiated in the Tokyo Round - entered into force. Seven of these had their own dispute settlement procedures and the code obligations differed from those of the GATT, leading to a real risk of inconsistent results. As a result, the system was characterized by delays, inconsistencies, uncertainty and inadequacy of enforcement.

This experience, combined with the introduction of wholly new obligations under the GATS (services) and TRIPS (intellectual property) agreements led to a decision to give the WTO a single set of dispute settlement procedures that would apply to all areas of trade relations covered by the new organization, and whose progress could not be blocked by the need for consensus-based decision.

5.2.2 The new dispute settlement procedure of the Uruguay Round

This is contained in the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "Dispute Settlement Understanding" or DSU). In order to administer these rules and procedures, Article 2 of the DSU established a Dispute Settlement Body (DSB) and listed its functions. The DSB is given the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under the covered agreements. The DSB informs the relevant WTO Councils and Committees of any developments in disputes related to the provisions of the respective covered agreements. The DSB would meet as often as necessary to carry out its functions.

The concept of "consensus" is important in the DSB. Where the rules and procedures of the DSU provide for the DSB to take a decision, it shall do so by consensus. It is defined in a footnote to Article 2.4 as "The DSB shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting of the DSB when the decision is taken, formally objects to the proposed decision".

Dispute settlement process

The formal process to be followed in settling disputes and its various stages and time table is shown in Box 1. One important point to note on this matter is that the parties in dispute are encouraged, at all stages, to consult with each other to settle the dispute "out of court".


Briefly, the first stage is for parties in the dispute to attempt to resolve the dispute between themselves through consultations. Failing this, the panel process begins, which consists of three stages: initiation, operation and adoption. In the initiation stage, a decision is made to establish a panel, the terms of reference agreed and the composition of the panel determined.

Box 1: The various stages a dispute can go through1

At all stages, countries in disputes are encouraged to consult each other in order to settle "out of court"
60 days Consultations, mediation, etc.  
by 2nd DSB meeting Panel established by DSB  
0-20 days 20 days (+10 if the D-G asked to pick panel) Terms of referenceComposition  
  Panel examination (normally 2 meetings with parties; 1 meeting with third parties). Expert review group
  Interim review stage (descriptive part of report sent to parties for comment. Interim report sent to parties for comment). Review meeting with panel, upon request
6 months from panel's composition; 3 months if urgent Panel report issued to parties.  
Up to 9 months from panel's establishment Panel report circulated to DSB Appellate review
60 days for panel report, unless appealed DSB adopts panel/appellate report(s) including any changes to panel report made by appellate report 30 days for appellate report
"Reasonable period of time" determined by: member proposes, DSB agrees; or parties in dispute agree; or arbitrator (approx. 15 months if by arbitrator)

Implementation, report by losing party of proposed implementation within "reasonable period of time"

In cases of non-implementation parties negotiate compensation pending full implementation

Dispute over implementation: proceedings possible; including referral to initial panel on implementation
30 days after "reasonable period" expires Retaliation, if no agreement on compensation, DSB authorizes retaliation, pending full implementation

Cross-retaliation, same sector, other sectors, other agreements

Possibility of arbitration, on level of suspension procedures and principles of retaliation

1 On the durations, some of the times are maximums, some are minimums, some are binding and some not. In general, the agreement is flexible.

Source: Copied from WTO web site available also in WTO (1999), page 29.


The operational stage includes the process of panel examination and review, with the panel report issued to involved parties first and then submitted to the DSB1. The function of the panel is outlined in Article 11 of the DSU and consists of:

Adoption of report

The final phase of the process is the adoption of the report. The panel can recommend that a party brings its behavior into conformity with the WTO agreement, and can suggest ways by which this may be done. The panel report will be adopted within 60 days of its circulation to WTO members, unless appealed.

Appeal process

The appeal process starts when there is an objection to the findings by a party to the dispute. The dispute is referred to the Appellate Body, a standing body established by the DSB. The appeal proceeding itself shall not exceed 60 days. An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel. The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel. The appellate report is automatically adopted by the DSB unless the DSB decides by consensus to reject it within 30 days following its circulation to WTO members. An adopted report is unconditionally accepted by the parties.

The DSB oversees the implementation of recommendations made by the panel or appeal body, requiring the losing party to notify it of its intentions with respect to implementation. If immediate compliance with recommendations is not possible, the losing party will be given an agreed period of time - up to 15 months - to implement the changes. If the changes do not take place in the agreed timescales, the affected party may request retaliation or arbitration. The level of retaliation acceptable to WTO will usually be equivalent to the level of nullification and impairment suffered by the complaining party. If the losing party does not agree that the retaliation is fair, i.e. that it is greater than the level of nullification and impairment, it can seek arbitration.

Third party rights

One interesting feature of the WTO dispute settlement system is third-party rights. Article 10 of the DSU provisions that any Member having a substantial interest in a matter before a panel and having notified its interest to the DSB (referred to as a third party) shall have an opportunity to be heard by the panel and to make written submissions to the panel. These submissions shall also be given to the parties to the dispute and shall be reflected in the panel report.

There are also some special dispute settlement provisions for some agreements, presumably drawn so to fit the special requirements of these agreements. Examples are provisions for the use of qualified experts as panelists or advisors under some agreements (e.g. SPS, TBT) and particularly rapid procedures called for in disputes under the Subsidies Agreement. Special provisions are also made in the Agreements on Anti-dumping, Textiles, Customs Valuation, TRIPS and Services.



Box 2 presents summaries of some selected recent disputes involving agricultural products. One important point to note in these cases is that although the commodity concerned is agricultural, the disputes nearly always cite inconsistencies with other Agreements and GATT articles - some of the cases do not even mention the Agreement on Agriculture (AoA). This means that in order to understand the disputes, it is also necessary to be acquainted with other Agreements and GATT 1994.

Three of the disputes summarized in the box relate more closely to the Agreement on Agriculture. The dispute - Canada: Measures Affecting the Importation of Milk and the Exportation of Dairy Products - cites inconsistencies with export subsidy rules of the AoA and Canada's commitments on export subsidies (plus some rules on tariff quotas). The second - Canada: Measures Affecting Dairy Products - also cites articles on export competition, in addition to GATT Article XI on quantitative restrictions. The third - Hungary: Export Subsidies in Respect of Agricultural Products - cites Article 3.3 and Part V of the AoA (on export subsidies) contending that Hungary provided export subsidies not specified in its Schedule, as well as in excess of its commitment levels.

Several other disputes included in the box also cite one or more articles of the AoA, but the main concern seemed to be with other agreements and GATT 1994. The GATT Article XI - general elimination of quantitative restrictions - has come up frequently in disputes involving agricultural products, presumably because it provided some justification for implementing quantitative import restrictions on agricultural products. Likewise, the administration of tariff quotas (notably GATT Article XIII) has been at the core of several disputes involving agricultural products. This is also easy to understand as import regimes based on tariff quotas are widespread in agriculture. The Agreement on Import Licensing is almost always cited together with complaints on tariff quotas, as quotas are usually administered with license (e.g. in the bananas dispute).

Box 2: Selected WTO disputes involving agricultural products

European Communities - Regime for the Importation, Sale and Distribution of Bananas, complaints by Ecuador, Guatemala, Honduras, Mexico and the United States. The complainants allege that the EC's regime for importation, sale and distribution of bananas is inconsistent with GATT Articles I, II, III, X, XI and XIII as well as provisions of the Import Licensing Agreement, the Agreement on Agriculture, the TRIMs Agreement and the GATS. A panel was established on 8 May 1996. The Panel found that the EC's banana import regime, and the licensing procedures for the importation of bananas in this regime, were inconsistent with the GATT. The Panel further found that the Lomé waiver waives the inconsistency with GATT Article XIII, but not inconsistencies arising from the licensing system. Following an appeal by the EC, the Appellate Body mostly upheld the Panel's findings, but reversed the Panel's findings that the inconsistency with GATT Article XIII is waived by the Lomé waiver, and that certain aspects of the licensing regime violated Article X of GATT and the Import Licensing Agreement. In September 1997, the Appellate Body report and the modified Panel report were adopted by the DSB. Subsequently, the Arbitrator settled the reasonable period for implementation to be the period from 25 September 1997 to 1 January 1999.

The dispute entered another phase when the complainants questioned the WTO-consistency of the measures introduced by the EC. On 15 December 1998, the EC requested the establishment of a panel to determine that its implementing measures must be presumed to conform to WTO rules unless challenged. About the same time, Ecuador also requested the re-establishment of the original panel to examine whether the EC measures are WTO-consistent. The DSB agreed on 12 January 1999 to reconvene the original panel to examine both Ecuador's and the EC's requests. On 14 January 1999, the United States, pursuant to Article 22.2 of the DSU, requested authorization from the DSB for suspension of concessions to the EC in an amount of US$520 million. At the same time, the original panel determined that the EC bananas regime was still not fully WTO-compatible. On the question of concessions, the arbitrators determined the level of nullification suffered by the United States to be $191.4 million, which was authorized by the DSB on 19 April 1999.

India - Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, complaint by the United States. The US contended that quantitative restrictions maintained by India on the importation of a large number of agricultural, textile and industrial products, including over 2,700 agricultural and industrial product tariff lines notified to the WTO, are inconsistent with India's obligations under Articles XI:1 and XVIII:11 of GATT 1994, Article 4.2 of the Agreement on Agriculture, and Article 3 of the Agreement on Import Licensing Procedures. The panel, established on 18 November 1997, found that the measures at issue were inconsistent with India's obligations under Articles XI and XVIII:11 of GATT 1994, and to the extent that the measures apply to products subject to the Agreement on Agriculture, are inconsistent with Article 4.2 of the Agreement on Agriculture. India has appealed the case.

Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products, complaint by the United States. The US contended that export subsidies allegedly granted by Canada on dairy products and the administration by Canada of the tariff-rate quota on milk distort markets for dairy products and adversely affect US sales of dairy products. The US alleges violations of Article II, X and X1 of GATT 1994, Articles 3, 4, 8, 9 and 10 of the Agreement on Agriculture, Article 3 of the Subsidies Agreement, and Articles 1, 2 and 3 of the Import Licensing Agreement.

A panel was established on 25 March 1998. The Panel found that the measures complained against were inconsistent with Canada's obligations under Article II:1(b) of GATT 1994, and Articles 9.1(a) and (c) of the Agreement on Agriculture. The panel report has been circulated on 17 May 1999.

Canada - Measures Affecting Dairy Products, complaint by New Zealand in respect of an alleged dairy export subsidy scheme commonly referred to as the "special milk classes" scheme. New Zealand contended that the Canadian "special milk classes" scheme is inconsistent with Article XI of GATT, and Articles 3, 8, 9 and 10 of the Agreement on Agriculture. In 25 March 1998, it was decided that the same panel established above (Canada ... dairy products) should also examine this dispute.

Republic of Korea - Measures Affecting Imports of Fresh, Chilled, and Frozen Beef, complaint by the United States. This dispute, dated February 1999, is in respect of an alleged Korean regulatory scheme that discriminates against imported beef by, inter alia, confining sales of imported beef to specialized stores, limiting the manner of its display, and otherwise constraining the opportunities for the sale of imported beef. It was also alleged that Rep. of Korea imposes a mark-up on sales of imported beef, limits import authority to certain so-called "super-groups" and the Livestock Producers Marketing Organization ("LPMO"), and provides domestic support to the cattle industry in amounts which cause it to exceed the aggregate measure of support as reflected in the country Schedule. The United States contended that these restrictions apply only to imported beef, thereby denying national treatment to beef imports, and that the support to the domestic industry amounts to domestic subsidies that contravene the Agreement on Agriculture. The United States alleges violations of Articles II, III, XI, and XVII of GATT 1994; Articles 3, 4, 6, and 7 of the Agreement on Agriculture; and Articles 1 and 3 of the Import Licensing Agreement. A panel was established in May 1999. Australia, Canada and New Zealand reserved their third-party rights.

Philippines - Measures Affecting Pork and Poultry, complaint by the United States. The US contended that the Philippines' implementation of its tariff-rate quotas for pork and poultry, in particular the delays in permitting access to the in-quota quantities and the licensing system used to administer access to the in-quota quantities, appears to be inconsistent with the obligations of the Philippines under Articles III, X, and XI of GATT 1994, Article 4 of the Agreement on Agriculture, Articles 1 and 3 of the Agreement on Import Licensing Procedures, and Articles 2 and 5 of TRIMs. The US further contended that these measures appear to nullify or impair benefits accruing to it directly or indirectly under cited agreements. On 12 March 1998, the parties communicated a mutually agreed solution to their dispute.

Hungary - Export Subsidies in Respect of Agricultural Products, complaint by Argentina, Australia, Canada, New Zealand, Thailand and the United States in March 1996 claimed that Hungary violated the Agreement on Agriculture (Article 3.3 and Part V) by providing export subsidies in respect of agricultural products not specified in its Schedule, as well as by providing agricultural export subsidies in excess of its commitment levels. A panel was established in February 1997, but in July 1997, Australia, on behalf of all the complainants, notified the DSB that the parties to the dispute had reached a mutually agreed solution, which required Hungary to seek a waiver of certain of its WTO obligations. Pending adoption of the waiver, the complaint was not formally withdrawn.

Source: WTO web site: Overview of the-state-of-play of WTO disputes, updated 27 May 1999.

Finally, the number of disputes involving agricultural and fishery products that cite violations of one or more articles of the Agreements on Sanitary and Phytosanitary Measures and Technical Barriers to Trade is on the rise. One reason could be that trade in processed products, where standards are more important, is growing rapidly.


5.4.1 Special and Differential Treatment provisions

Rights of developing countries

A number of provisions in the DSU establish special procedures or time-frames which apply when a developing country is a party to a dispute. One of these is the right to have at least one member of a panel drawn from a developing country. A second one is the availability of good offices, which is asking a third party to offer to play a conciliation or mediation role. The Director-General may offer good offices, ex officio. During consultations, Members are called on to give special attention to developing country problems and interests, and extra time may be allowed. Panel procedures call for sufficient time to be given to a developing country party to prepare its case, and for the panel's report to state how special and differential provisions for developing countries have been taken into account. In implementation, the DSB is to pay particular attention to developing country interests and, if a case has been brought by a developing country, must consider what further action beyond normal surveillance may be required, taking into account not only the trade coverage of the measures complained of, but also their impact on the economy of developing country concerned. Developing countries can also draw on the Secretariat for legal help (see below).

Article 24 of the DSU makes some special provisions in the case of least developed countries (LDCs)2. One is that at all stages of the dispute settlement procedures particular consideration is to be given to the special situation of the LDCs (e.g. exercising due restraint in raising matters, in asking for compensation or in seeking authorization to suspend concessions). A second point in this Article is that in disputes involving a LDC, and where a satisfactory solution has not been reached through consultations, the LDC may request for the good offices of the Director-General or the Chairman of the DSB for conciliation and mediation with a view to assisting the parties to settle the dispute, before a request for a panel is made.

5.4.2 Technical and legal assistance to the developing countries

WTO technical assistance

The provision of technical and legal assistance to the developing countries is addressed by Article 27.2 of the DSU as follows:

While the WTO Secretariat assists Members in respect of dispute settlement at their request, there may also be a need to provide additional legal advice and assistance in respect of dispute settlement to developing country Members. To this end, the Secretariat must make available a qualified legal expert from the WTO technical cooperation services to any developing country Member which so requests. This expert must assist the developing country Member in a manner ensuring the continued impartiality of the Secretariat.

WTO's Technical Cooperation and Training Division (TCTD) is entrusted to provide legal assistance to the developing countries, as per this Article.

5.4.3 Some proposals for legal assistance

Proposals to pursue in the new round

Some WTO Members have made proposals to strengthen the provision of legal assistance - either through the TCDT or by establishing a separate, independent Unit that directly reports to the Director-General. The Unit would be funded by trust funds provided specifically for this purpose.

A WTO Law Advisory Unit. One European Union proposal is to establish such a Unit with the following functions:

The function of the Unit, however, would not extend to actually representing the member in panel hearings etc. - it would be limited to providing research and legal advice outside the formal process.

Internship programme in Geneva or in capitals of the donor countries. This is also a EU proposal. Under this programme, lawyers from the developing countries would be fully funded to work for one year with legal experts in the EU Delegation in Geneva (or delegations of other countries willing to host them, or even in their capitals). Some 30-50 lawyers could be trained this way over a period of three years. At the end of the internship, these lawyers would not only have a first-hand knowledge of how the system works, but would also develop personal contacts with the community of trade lawyers which would be useful for them later.

Creating legal expertise in the developing country itself. This of course is highly desirable and should be the ultimate aim. There is a provision in Article 27.3 of the DSU where it is said that "the Secretariat shall conduct special training courses for interested Members concerning these dispute settlement procedures and practices so as to enable Members' experts to be better informed in this regard". These training courses may be held in Geneva and/or in the countries themselves.

Information on WTO disputes settlement procedures and disputes

Further information

The WTO web site provides comprehensive information on this subject. Under the WTO Disputes Settlement page, the following information has been provided:



Kohona, P.T.B. 1994. Dispute Resolution under the WTO. Journal of World Trade, 28(2): 23-47.

Vermulst E. & Driessen, B. 1995. An overview of the WTO dispute settlement system and its relationship with the Uruguay agreements. Journal of World Trade 29(2): 131-161.

WTO web site, Dispute Settlement. (

WTO. 1999. Guide to the Uruguay Round Agreements. WTO Secretariat and Kluwer Law International.

WTO. 1995. The WTO Dispute Settlement Procedures: A Collection of Legal Texts. Geneva.

WTO. 1994. The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts. Geneva.


1 There is an interim review step within this stage where the panel consults the parties at dispute and submits to them only an interim report on findings and conclusions.

2 As a matter of information, no LDC member has been as yet involved in WTO disputes involving agricultural products.

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