As such, the WTO provides a forum for its members to negotiate trade agreements and reduce the obstacles to trade, so that goods can flow as smoothly and predictably as possible around the world.
A non-discriminatory trading system is one of the key values of the organisation, whereby each nation is guaranteed that its exports are treated fairly and consistently in other members’ markets.
In turn, each member promises to do the same for goods entering its import market.
However, trade relations often involve conflicting interests, and members can differ in their interpretation of WTO agreements.
A dispute arises when one member believes that another member is violating an agreement or a commitment that has been made within the WTO.
Since 1995, 610 disputes have been brought to the WTO, and over 350 rulings have been issued.
The WTO’s dispute resolution process
Dispute settlement is a central pillar of the multilateral trading system and the WTO’s unique contribution to the stability of the global economy.
In order to ensure its rules-based system is enforced, the WTO has established a Dispute Settlement Body.
The Dispute Settlement Body is the General Council in another guise, and it consists of all WTO members.
The Dispute Settlement Body has the sole authority to establish “panels” of experts to consider each case, and to accept or reject a panel’s findings or the results of an appeal.
It monitors the implementation of the rulings and recommendations, and has the power to authorise penalties when a country does not comply with a ruling.
The procedure conducted is underscored by a court of law. For the WTO, this was outlined in the Uruguay Round negotiations of 1986–94, which was signed by every member in the Marrakesh Agreement of 1994.
The agreement has an annex on dispute resolution which makes the trading system more secure and more predictable. The system is based on clearly-defined rules, with timetables for completing a case.
The three stages of a WTO dispute
First stage: Consultation
Firstly, countries see if they can settle disputes bilaterally. If that fails, they can ask the WTO director-general to mediate or try to help in any other way.
These efforts are rarely successful, and so the dispute usually progresses to the second stage. This first stage can take up to 60 days.
Second stage: The panel
The plaintiff country asks for a panel to conclude the dispute. It can take up to 45 days for the panel to be appointed, plus six months for the panel to conclude.
Panels are like tribunals. But unlike in a normal tribunal, the panelists are usually chosen in consultation with the countries in dispute.
Only if the two sides cannot agree does the WTO director-general appoint them. Panelists serve in their individual capacities: they cannot receive instructions from any government.
Panels normally consist of three (but up to five) experts from different countries who examine the evidence and decide who is right and who is wrong.
The panel’s report is passed to the Dispute Settlement Body, which can only reject the report by consensus.
Third stage: The ruling
If both sides agree with the ruling, it will be implemented. This includes possible countermeasures if the ruling fails to be implemented by both parties.
Optional stage four: Appeals
Both sides can appeal the ruling. Appeals have to be based on points of law such as legal interpretation: they cannot reexamine existing evidence or examine new issues.
Each appeal is heard by three members of a permanent seven-member Appellate Body set up by the Dispute Settlement Body and broadly representing the range of WTO membership.
The appeal can uphold, modify, or reverse the panel’s legal findings and conclusions.
Normally, appeals should not last more than 60 days, with an absolute maximum of 90 days.
The Dispute Settlement Body has to accept or reject the appeals report within 30 days, and rejection is only possible by consensus.
Recent trading disputes you should know about
China and anti-dumping
If a company exports a product at a lower price than what it normally charges in its own domestic market, this is known as “dumping” the product.
Although the WTO agreement does not pass judgment on dumping, many countries believe that the practice promotes unfair competition with their domestic industries.
The WTO instead focuses on how governments can or cannot react to dumping, often called the “Anti-Dumping Agreement”.
The WTO allows governments to act against dumping where there is genuine injury to competing domestic industries, but in order to do so, a government has to be able to show how much dumping is taking place, calculate the impact of the dumping, and show evidence that it is causing damage.
From 14 April 2014, Australia has imposed anti-dumping duties on imports of wind towers, stainless steel sinks, and certain railway wheels from China, on the grounds that the dumping and subsidisation of such products has caused material injury Australian industry.
Subsequently, on 24 June 2021, China submitted its first request for the establishment of a WTO dispute panel to examine this decision.
A first-stage consultation failed to resolve the dispute, so China requested a panel to intervene.
Accordingly, Australia does not support China’s request to establish a panel.
Australia said it has engaged in consultations with China in good faith, and that it remains ready to resolve the dispute through further discussions.
India and sugar subsidies
In December 2021, a WTO panel ruled that India violated international trade rules when it offered excessive subsidies for the production and export of sugar and sugarcane from 2014 to 2019, according to a report filed by Australia, Brazil, and Guatemala.
India’s policies were inconsistent with WTO rules that govern the levels at which nations can subsidise domestic agricultural production.
The WTO said India must remove its illegal subsidies within 120 days of the adoption of the report, which was published on December 14 2021.
India filed an appeal in the WTO’s Appellate Body, which is the final authority on trade disputes.
India claims the panel’s findings lack logic and rationale. If the appellate body also passes a ruling against India’s support measures, New Delhi has to abide by that ruling and make appropriate changes in the way it provides those measures.