CHAPTER 19 REVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING

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1 CHAPTER 19 REVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING 1. General background The 1994 Marrakesh Ministerial Decision called for the Dispute Settlement Understanding ( DSU ) review to be completed by 1998, with the first Ministerial Meeting held after the completion of the review to decide whether to continue, modify, or terminate the DSU 1 Members began the work of reviewing the DSU in early 1998, but it became clear that the review would not be finished by the end of the year. The General Council therefore decided in December 1998 to extend the deadline until the end of July With the conflict between the US and the EC over Banana case reaching a head (see "Relationship between WTO Disputes Settlement Procedures and US Section 301"), the highest priority in the DSU review after January 1999 was the question of implementation of Dispute Settlement Body ( DSB ) recommendations, and particularly the relationship between Article 21.5 and Article 22. However, Members' opinions remain divided, and the July deadline passed without reaching a conclusion. A General Council decision will be needed to re-extend the review period, but this has not been possible because of the opposition of Mexico, Malaysia, Indonesia, and some other developing countries. However, interested Members have continued to work on the review in unofficial meetings chaired by Mr. Suzuki of the Permanent Mission of Japan to the International Organizations in Geneva (on behalf of Ambassador Akao who was then head of the DSB). All of the major members have participated in the meetings, and the work has in fact continued since September. On November 18, 1999, a draft of DSU modifications prepared by Mr. Suzuki was submitted to General Council Chairman Mchumo as a joint proposal from 15 Members, including Japan, Canada, the EU, and New Zealand. Modifications were initially to be decided upon at the Seattle Ministerial Meeting, but the Ministerial Meeting itself failed to produce results, so there was no decision forthcoming on the DSU review. Some Members are of the opinion that it is urgent to adopt the joint proposal on DSU modifications and that this need for a decision should be a separate issue from the start-up of the new round. Several developing country Members are strongly opposed, however, so the situation remains fluid. 1 Decision on the Application and Review of the Understanding on Rules and Procedures Governing the Settlement of Disputes 363

2 2. Main points in the joint proposal on DSU modifications (1) Precedence of Articles 21 and 22 The current treaty text does not specify the relationship between Article 21:5 (judgement of the original panel on implementation of DSB recommendations) and Article 22 (authorization of sanctions because of non-implementation of recommendations). This raises the potential for the Member winning the suit to seek authorization for sanctions while the panel proceedings are still in progress, which is exactly what happened in the Bananas case. To resolve this issue, the proposal would create a new "Article 21 bis" that would fundamentally enhance the Article 21.5 provisions. If there is a difference of opinion between the complainant Member (the winner) and implementing Member (the loser) over whether steps have been taken to implement DSB recommendations and arbitration over the adequate agreement-conformance of the measures, a compliance body (panel) will be established to examine the case (paragraph 1 of Article 21 bis). This compliance body will be the original panel if the case has not been appealed, or the relevant division of the Appellate Body if it has been appealed (Paragraph 6). The complainant Member cannot seek DSB authorization for sanctions while panel proceedings are in progress. This amendment clarifies that Article 21 bis (the current Article 21.5) comes before Article 22, and will provide one solution to the issue of DSB recommendations that has been debated since the Bananas case. (For reference, the proposed wording for Article 21 bis has been excerpted from the text of the joint proposal at the end of this chapter.) (2) Shorter time frame The obligation to complete compliance body proceedings before going to sanctions will lengthen the time between the filing of the complaint with the WTO and the authorization of sanctions. To compensate for this, the proposal would shorten the first half of the proceedings, thereby reducing the overall time frame. The consultation period would be shortened from 60 to 30 days (Article 4.7). The establishment of the panel would be decided at the first subsequent DSB meeting. Under current rules, the defendant Member can veto the establishment of a panel at the first DSB meeting, so most panels are established in the second meeting (Article 6.1). The descriptive part of the panel report would be omitted and submissions from the relevant Members attached to the report in their place (deletion of Article 15.1). The interim review meeting would be omitted (Article 15.3). These modifications would reduce panel proceedings by up to 47 days compared to current practice. (3) Stronger rights for third parties Current practice allows third parties participating in panel and Appellate Body proceedings only to make submissions, give oral statements, and receive submissions from the disputing Members at the 364

3 first panel meeting. The modifications would give them the right to obtain all submissions and attend all meetings (as auditors) except when confidential information was involved (Article 10.3). (4) Special measures for developing countries Members The modifications would substitute the word "shall" for "should" in Article 4.10 and Article 21.2 so that the current wording "Members should give special attention to the particular problems and interests of developing country members" would read "shall give special attention." Special understanding will be given to requests from developing country Members for extensions of consultation periods (Article 4.7). 3. Current problems Immediate Issues (1) Note to Article 22.7 For cases in which the level of sanctions is referred to arbitration, the EU has sought provisions that would require the complainant Member to submit a list of items subject to sanctions when requesting sanctions authorization. After the DSB authorizes sanctions, this list could not be changed except with the agreement of both Members or when modifications of a technical nature were required. The US, on the other hand, has argued for the right to change the items subject to sanctions at will. The EU says the US proposal is "like a carrousel" and would undermine the balance between violations and sanctions. The Chairman proposed a compromise (allowing items to be replaced if determined by a arbitrator), but the EU has opposed this approach as well. It went on to declare that it would be unable to sign on to the joint proposal if the EU proposal were not included without modification, so the chairman's text contains both the chairman's proposal and the EU proposal. The US has said that it cannot accept either proposal. (For reference, the proposed wording for the note to Article 22.7 has been excerpted from the text of the joint proposal at the end of this chapter.) (2) Relationship to time frame Developing country Members have expressed concern and dissatisfaction with the proposal to shorten the time frame. The leading Members made some concessions in this regard during the unofficial meetings at the end of , but Mexico and others still find it difficult to participate as joint sponsors of the current draft. 2 For example, including in the note expressions that reflect developing country Members' concerns over the number of DSB meetings required to establish panels. 365

4 Medium-term Issues (3) Transparency issues Under the leadership of the US and Canada, efforts to improve transparency with early derestriction of WTO documents, open panel proceedings, and opinion statements from outsiders (amicus briefs) have been discussed as the focal points in the DSU review. This was omitted from the proposed amendments, however, because of strong opposition from developing country Members and many other Members at the time of the October 1999 unofficial meeting. The US has argued for early improvements in the transparency of the DSU and announced that it would raise this issue again in another high-level forum. Malaysia and other developing country Members continue to be strongly opposed. The EU has reserved its stance, arguing that the issue should be discussed after professional, standing panels have been created (discussed below).japan is in favor of the early derestriction of documents, but is opposed to open panel proceedings because the WTO is an inter-governmental organization. We think amicus briefs should be allowed on an exceptional basis as long as certain conditions 3 aremet. Longer-term Issues (4) Improving panel skills The EU has sought the establishment of a standing panel body to improve panel skills and guarantee neutrality. It has not provided any specific proposals on this as yet, but it will be an issue to study over the longer term. (5) Remands and provisional relief Japan has proposed that the Appellate Body be allowed to remand cases to a panel (this would probably require the establishment of a standing panel body,, and that new provisional relief orders be established. These proposals have not been sufficiently discussed and are unlikely to be included in any amendments at this time. < Text of Joint Proposal Discussion of Compliance Issues> Article 21 bis Determination of Compliance 1. Where there is disagreement between a complaining party and the Member concerned as to the existence or consistency with a covered agreement of measures taken to comply with the 3 There are four conditions: no panelists' obligation to respond to questions, page limits on briefs, acceptance period limited to a set portion of the initial stage, and no translations done by the Secretariat, etc. 366

5 recommendations or rulings of the DSB, such disagreement shall be resolved through recourse to the dispute settlement procedures provided for in this Article A complaining party may request the establishment of a compliance panel referred to in paragraph 6 of this Article at any time after: 5 (i) the Member concerned states that it does not need a reasonable period of time for compliance pursuant to paragraph 3 of Article 21; (ii) (iii) the Member concerned has submitted a notification pursuant to paragraph 6(c) of Article 21 that it has complied with the recommendations or rulings of the DSB; or ten days before the date of expiry of the reasonable period of time; whichever is the earlier. Such request shall be made in writing. 3. While consultations between the Member concerned and the complaining party are desirable, they are not required prior to a request for a compliance panel under paragraph When requesting the establishment of a compliance panel, the complaining party shall identify the specific measures at issue and provide a brief summary of the legal basis of the complaint, sufficient to present the problem clearly. Unless the parties to the compliance panel proceeding agree on special terms of reference within 5 days from the establishment of the compliance panel, standard terms of reference in accordance with Article 7 shall apply to the compliance panel. 5. The DSB shall meet 10 days after such a request unless the complaining party requests that the meeting be held at a later date. At that meeting, 6 the DSB shall establish a compliance panel, unless the DSB decides by consensus not to establish such a panel. 6. (a) The compliance panel shall consist of: (i) the members of the original panel, where the report of the original panel had not been appealed, 7 or 4 This is without prejudice to the right of the parties to have recourse to normal dispute settlement procedures under this Understanding or to the procedures under Article 5 or Article A compliance panel may also be established pursuant to paragraph 9 of Article In the case of a compliance panel established pursuant to paragraph 9 of Article 22, the DSB shall establish the compliance panel at the meeting requested by the Member concerned pursuant to that paragraph. 7 In the case of a compliance panel established pursuant to paragraph 9 of Article 22, the DSB shall establish the compliance panel at the meeting requested by the Member concerned pursuant to that paragraph. 367

6 (ii) (b) the members of the Appellate Body that considered the appeal, where the report of the original panel had been appealed. 8 A compliance panel composed pursuant to paragraph 6 (a)(ii) may seek information or advice from the original panel concerning the facts of the case, the procedural history of the case, or legal issues that were not appealed. The compliance panel shall provide the parties to the compliance panel proceeding the opportunity to review and comment on any such information or advice. 7. The compliance panel shall circulate its report to the Members within 90 days of the date of its establishment. 8. The party requesting the establishment of a compliance panel shall not request authorization to suspend concessions or other obligations under paragraph 9 of this Article until the compliance panel has circulated its report to the Members (a) On or after the date of circulation of the report of the compliance panel, any party to the compliance panel proceeding may request a meeting of the DSB to adopt the report, and the DSB shall meet 10 days after such a request unless the party requesting the meeting requests that the meeting be held at a later date. At that meeting, the compliance panel report shall be adopted by the DSB and unconditionally accepted by the parties to the compliance panel proceeding unless the DSB decides by consensus not to adopt the report. A report of a compliance panel pursuant to this Article is not subject to appeal. This adoption procedure is without prejudice to the right of Members to express their views on a compliance panel report. (b) If the compliance panel report finds that the Member concerned has failed to bring the measure found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations or rulings of the DSB in the dispute within the reasonable period of time, then: (i) (ii) The Member concerned shall not be entitled to any further period of time for implementation following adoption by the DSB of the compliance panel s report; and After circulation of the compliance panel report, a complaining party that was a party to the compliance panel proceeding may request authorization from the DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements pursuant to Article 22. The DSB shall grant authorization to such request only after the adoption of the report of the compliance panel. 8 If any member of the compliance panel composed pursuant to paragraph 6(a)(i) is not available, the Director-General shall appoint a replacement within 5 days after the date of establishment of the compliance panel, unless the Director-General has been requested not to do so by the parties to the compliance panel proceeding. 9 This paragraph does not apply in the case of a compliance panel established pursuant to paragraph 9 of Article

7 10. The compliance panel shall establish its own working procedures. The provisions of Articles 1 through 3, 8 through 14 (other than paragraph 5 of Article 8), 18, 19, 21.1, 21.2, 21.7, 21.8, 23, 24, 26 and 27.1 of the DSU shall apply to compliance panel proceedings except to the extent that (i) such provisions are incompatible with the time frame provided in this Article, or (ii) this Article provides more specific provisions. < Text of Joint Proposal Affirmatives on Retaliation > * To this end, the arbitrator shall first determine the level of nullification and impairment. The complaining party shall provide sufficient trade information and data to enable the arbitrator to determine such level. The complaining party shall then, with due respect to paragraph 3 of Article 22, identify the concessions or other obligations it intends to suspend and shall submit a detailed proposal to the arbitrator consistent with the level of nullification and impairment determined by the arbitrator. The arbitrator shall examine and decide whether the proposed level of suspension is equivalent to the level of nullification and impairment determined by the arbitrator. The detailed proposal shall serve as the basis of the authorization by the DSB. Any time after the authorization by the DSB, upon request from the complaining party, the arbitrator shall examine the consistency with the arbitration of any modification the complaining party intends to make on the suspension of concessions or other obligations authorized by the DSB and inform promptly the DSB of its views. Then, the DSB shall upon request, grant authorization to modify the suspension of concessions or other obligations where the request is consistent with the initial decision of the arbitrator, unless the DSB decides by consensus to reject the request. OR * To this end, the arbitrator shall first determine the level of nullification and impairment. The complaining party shall provide sufficient trade information and data to enable the arbitrator to determine such level. The complaining party shall then, with due respect to paragraph 3 of Article 22, identify the concessions or other obligations it intends to suspend and shall submit a detail proposal to the arbitrator consistent with the level of nullification and impairment determined by the arbitrator. The arbitrator shall examine and decide whether the level of suspension reflected by the detailed proposal is equivalent with the level of nullification and impairment determined by the arbitrator. The determination by the arbitrator shall serve as the basis of the authorisation by the DSB. The complaining party s request for DSB authorisation shall be accompanied by a list of concessions or other obligations it seeks to suspend. After authorisation by the DSB, the complaining party shall not depart from the list of concessions or other obligations on which authorisation was granted unless both parties agree or except in the case of adaptations of a technical nature. Any time after the authorisation by the DSB, upon request from a party to the dispute, the arbitrator shall examine the consistency with the initial determination of the arbitrator of any intended adaptation of a technical nature to the list of suspension of concessions or other obligations authorised by the DSB and inform promptly the DSB of its decision. The DSB shall then upon request, grant authorisation to adapt the list of suspension of concessions or other obligations where the request is consistent with the decision of the arbitrator, unless the DSB decides by consensus to reject the request". 369

8 * Two different versions of this footnote are proposed. Some of the delegations are able to support either of the two versions and some others are only able to support one of these versions. *Boldfaced is the difference between two versions 370

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