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Restoring the WTO’s dispute settlement system

GS Paper 2

 Syllabus: Important International Institutions, agencies and fora – their Structure, Mandate


Source: TH

 Context: Since 2019, the WTO’s two-tiered dispute settlement system (DSS) remains paralysed.


About World Trade Organization (WTO):

  • It is an (“member-driven”, “consensus-based”) intergovernmental organisation that regulates and facilitates international trade between nations.
  • It is the world’s largest international economic organisation (HQ – Geneva, Switzerland), with 164 member states representing over 98% of global trade and global GDP.
  • It officially began operations on January 1, 1995, in accordance with the 1994 Marrakesh Agreement (marking the culmination of the 8-year-long Uruguay Round), thus replacing the 1948 General Agreement on Tariffs and Trade (GATT).


The mandate of WTO:

  • It facilitates trade in goods, services and intellectual property by providing a framework for negotiating trade agreements that typically aim to reduce or eliminate tariffs, quotas and other restrictions.
  • It oversees independent dispute resolution to ensure that participants follow trade agreements and resolve trade-related disputes.
  • It forbids trading partners from discriminating against one another, but it makes exceptions for environmental protection, national security and other important goals.


The organisational structure of WTO: 

The Dispute Settlement Body (DSB):

  • The General Council convenes as the DSB to deal with disputes between WTO members.
  • Such disputes may arise with respect to any agreement contained in the Final Act of the Uruguay Round.
  • The DSB has the authority to establish dispute settlement panels and decides the outcome of a trade dispute on the recommendation of such panels and possibly on a report from the Appellate Body (hear appeals from reports issued by panels).

Significance of the DSS of the WTO: It is a central element in providing security and predictability to the multilateral trading system.

 Issues faced by the DSS: The appellate body, which is the 2nd tier of the WTO’s DSS, is non-functional.


Why has the appellate body remained non-functional?

  • From 1995-2019, it upheld the international rule of law by holding powerful countries such as the US and the EU accountable for international law breaches.
  • As a result, its one-time supporter, the US, has become its biggest critic, blocking the appointment of its members.


The USA’s argument:

  • It is incumbent on the appellate body to ensure that there is consistency in the interpretation and application of the WTO agreements without creating a binding precedent.
  • Creating binding precedents through its decisions leads to judicial overreach – exceeding its assigned institutional mandate.
  • The appellate body rulings can neither add nor diminish the rights and obligations of WTO member countries.
  • Hence, there is a need to define precisely the appellate body’s role.


The larger game plan of the US – De-judicialisation of trade multilateralism:

  • In a neoliberal economic system, the ‘invisible hand’ of market competition should be complemented by the ‘visible hand’ of the law.
  • The WTO (not the national actors) became this ‘visible hand’ of the law to regulate global trade. This erodes the sovereignty of nations as they lose control over critical decision-making.
  • De-judicialisation is the reverse phenomenon where countries weaken international courts to take back decision-making power.


What lies behind this game plan?

Given the emerging geo-economic challenges posed by a rising China, the U.S. wants to exercise full power over its trade policies.


Recent efforts to keep trade multilateralism alive:

  • At the Geneva ministerial conference (June 2022), WTO member countries hammer out a face-saving deal (India played a vital role).
  • An important part of the deal was resurrecting the WTO’s DSS, also called WTO’s ‘crown jewel’, by 2024.


Way ahead: Other countries can opt for electing the appellate body members by resorting to voting at the WTO’s General Council meeting.


Insta Links:

WTO panel rules against India



What are the key areas of reform if the WTO has to survive in the present context of the ‘Trade War’, especially keeping in mind the interest of India? (UPSC 2018)