WTO proves its worth in settling trade disputes

Date: 29/05/1997

By Tim Jones

TWO years into its life, the World Trade Organisation's disputes settlement procedure is proving a highly effective and - for some - highly irritating commercial tool.

Nobody, not even the most zealous proponents of the procedure, would have expected the successes which have been notched up by this simplest of instruments.

The disputes settlement body is proving the busiest part of the Geneva-based organisation, with governments increasingly happy to use it rather than resort to the unilateral trade weapons of the past.

“The benefit of a disputes settlement procedure is not just because it makes a ruling saying who is right and who is wrong,” said WTO Director-General Renato Ruggiero recently. “Since its beginning, many big bilateral problems between members have been solved before the findings of the panel or a ruling of the appellate body were made.”

The main attraction of filing complaints through the disputes panels is that it is cheap, says Mick May, a partner at Cameron May trade law publishers, which has convened a conference of diplomats and trade lawyers in Geneva tomorrow (30 May) to examine the role and effectiveness of the procedure.

“The best thing about it is that the Americans are using it so much and that is because it is an incredibly costeffective way of settling disputes,” he said.

During the US-Japan argument over automobile parts and car imports, Washington threatened Tokyo with sanctions against imported luxury cars only weeks after the new WTO system came into effect. But since then, the US has come round to using the new procedure.

The EU has been one of the main targets of American complaints, particularly in the field of agricultural trade where it stands on its weakest leg.

Two weeks ago, a WTO panel, acting in response to complaints filed by the US, Ecuador, Guatemala, Honduras and Mexico, found the EU's banana import regime to be protectionist and in violation of its rules on 16 counts.

The most serious of these were the practice of distributing import licences for Latin American bananas to French and British companies, so undermining distribution businesses developed by US companies over several years; the imposition of tougher licensing requirements for imports from Latin America than for other countries; and discriminatory allocation of access to the EU market into shares not based on past levels of trade.

The Union's banana import regime dates back to the advent of the single market, when the UK and France demanded protection for former colonies in the Caribbean through the maintenance of quotas for the whole Union.

Although this was fiercely opposed by some, particularly by the banana-eating Germans, it was pushed through by majority vote.

Following the WTO finding, some Caribbean leaders argued that democracy could be at risk if their banana producers lost their preferential trade terms with the EU.

Last week, the Commission made it clear that it would appeal against the panel decision at the next meeting of the WTO appellate body, which is due to convene between 11 and 25 June and report back in September. The Commission is adamant that the WTO panel has overstepped its powers and made findings which challenge principles of the Common Agricultural Policy.

Although the Caribbean states cannot appeal jointly with the EU, they can come in on the appeal once it has been lodged.

The most worrying aspect for the Union itself was the remarks made by US

Trade Representative Charlene Barshefsky welcoming the result.

“This final report sets an important precedent for all US exporters of services and agricultural goods,” she said. “I am gratified that the WTO has denounced a variety of egregious non-tariff barriers that impede US exports.”

The same has been said of the EU's ban on imports of hormone-treated beef from the US.

The Union, which is studying the confidential report by a WTO disputes panel, is under pressure from the French government - supported by Germany, Austria, Belgium and Italy - to contest the ruling, but Agriculture Commissioner Franz Fischler has yet to commit himself. If he does chose to challenge the findings, the next step would be a request for an interim review next week.

The threat of a disputes panel hearing on the Union's grain import regime was enough to persuade the EU to compensate the US for the changes it made to the regime in the wake of the Uruguay Round world trade talks.

This will become increasingly important as the second major round of agricultural trade reforms gets under way after 1999. Already, farmers' groups are considering a partial decoupling of direct cereals aid payments from production to help prepare for the next session.

It has not been unknown for the Union itself to use the disputes procedures even when the complaint was more obviously the concern of another WTO member.

Last week, the EU filed a request for the establishment of a panel to investigate whether the Indonesian 'national' car made by Timor Putra Nasional - a company controlled by President Suharto's youngest son - infringes global trading rules.

Although the panel system is working well, it has been the forum for spats between diplomats and trade lawyers.

Appointments to the panels are highly politicised, with the EU and the US in particular competing for influence and even smaller countries getting in on the act.

“There is a lot of infighting over representation on both the disputes and appeals body which is essentially settled by horse-trading,” said a Geneva-based diplomat.

Mick May laments the absence of oral arguments in cases heard by the panels, with lawyers instead making written submissions. There is thus no truly adversarial element to the proceedings.

“Basically, the diplomats do not want the trade lawyers muscling their way in,” said May, who stressed: “This would not add to the WTO's costs if they did because the costs would be borne by the defendants and the plaintiffs.”

The US administration already retains high-powered lawyers to advise it and the developing countries need private sector help just to get them past the first stages of negotiations.

A recent new member, Sierra Leone, managed to benefit from lawyers working pro bono publico with the non-governmental organisation FIELD (Foundation for International Environmental Law and Development) based at the University of London.