Acting as a third-party monitor, the World Trade Organization manages global trade disputes and other trade-related issues on an international level. The organization aims to uphold free trade through the reduction of trade barriers; it is also responsible for ensuring that nations abide by the regulations outlined in such agreements. Previously monitored by the General Agreement on Tariffs and Trade (GATT), global trade issues are now governed by a broader set of regulations under the WTO. Multiple decision-making bodies and panels comprise the WTO, and they convene to reach conclusions on global trade disputes. Recent events such as the China-US trade war and COVID-19 pandemic call into question the efficacy of the dispute settlement mechanism; the WTO may need to readjust its processes in an effort to maintain legitimacy.
The dispute settlement mechanism (DSM) of the WTO is an essential element that facilitates the resolution of trade disputes between countries. It is a paragon of multilateralism and operates in agreement with the perspective that international cooperation produces mutually beneficial outcomes. This system involves a comprehensive series of stages that involve decision-makers at various levels. Although the DSM is the primary method for settling disputes, it is also considered a sort of last resort. For all parties involved, it is usually preferable for a dispute to be discussed and resolved “out of court” rather than through the bureaucratic and often lengthy process of the DSM. If a dispute does, however, enter the DSM process, it follows a very clear timeline in terms of how long it will spend being discussed in each stage. Under the GATT, there were no such time restrictions for the dispute settlement. The Uruguay Round was instrumental in the creation of time restrictions in the process; making time a priority in dispute settlement helped to increase efficiency.
The specific process behind the WTO’s dispute settlement mechanism involves multiple stages wherein the dispute is introduced, deliberated, and eventually resolved. After a WTO member state is accused of breaching a free trade agreement and is unable to reach an “out of court” settlement during a preliminary consultation stage, the case enters a panel stage. This stage is quite lengthy; it can take close to 45 days for panel appointments to be complete and following that, the panel can convene for up to six months. An important distinction is between the role of the panel and the Dispute Settlement Body. The panel simply creates recommendations for the Dispute Settlement Body; the consensus of the Body enforces decisions. Reports created by the panel are evidence-driven documents that draw from legal evidence in the free trade agreements relevant to a certain case. There are also multiple stages within the panel process. Prior to an initial hearing, the panel receives case presentations from both sides in a dispute. Following this, there is a stage of hearings and rebuttals. Throughout this period, the panel can appoint experts to fact-check claims raised by the parties. After a stage of review, the panel finalizes its final report, which moves to the Dispute Settlement Body for its consideration. The Dispute Settlement body has sixty days to either reach or fail to reach a consensus on the report.
The WTO’s dispute settlement mechanism is effective in many ways, but the system also has its weaknesses. Having clear time restrictions in place facilitates proceedings to a certain extent, but it has been argued that the windows allowed for decision-making are often too wide. It is possible that the months that pass over the course of decision-making can counteract the urgency of a certain dispute. Power dynamics on the global trade stage are ever-changing, so it is possible that the conditions of disputes change immensely by the time the Dispute Settlement Body reaches a consensus on the initial statements. The Uruguay Round, however, set an important precedent for dispute settlement by adding some urgency to the resolution process, even if that urgency is insufficient in some cases. Another weakness to the dispute settlement mechanism is a lack of interim procedures for countries to rely on. From the time the dispute is presented to the resolution of the dispute, there is no system in place to provide third-party mediation or monitoring of conflict. This poses a serious threat in terms of the possibility of escalated conflicts; countries may be impatient to await the lengthy decision-making process and attempt to take action themselves. There is also a lack of compensation to parties suffering damage throughout the entire process. If one country is violating certain free trade protocols even after being contested and continues to do so throughout the decision-making process, there is no compensation to the other party for the sustained damages. If the DSM continues to lack urgency in its proceedings and fails to provide deserved compensation to violated parties, member countries will lose confidence in the system. If this occurs, the system risks facing delegitimization. As a result, countries that defect may do so more openly and ambitiously than before.
Despite issues posed by the DSM process in terms of efficiency and effectiveness, the process is still a major improvement in comparison to previous systems. Prior to the WTO DSM, the GATT was used to monitor and enforce compliance with free trade agreements on an international level. This system was devoid of time restrictions and often resulted in even lengthier negotiations. Also, the WTO incorporates a broader and more diverse set of decision-makers spread across a variety of levels; this increases the scope of cases the DSM can effectively handle. An additional strength of the DSM is that it has mechanisms in place for the screening of factual information. After each party introduces its case, the information is fact-checked and processed through multiple bodies before the finalization of a report by the panel. By including an initial consultation period prior to the case entering the court, the DSM process effectively ensures that only those conflicts that cannot be resolved otherwise enter the system. This increases the efficacy of the system because it ensures that the system is only being used where it is needed.
The future of the WTO and its dispute settlement mechanism seems uncertain as trade relations between the world’s major trading powers continue to evolve. Also, the COVID-19 pandemic has transformed the flow of global supply chains and international trade. In recent years, Donald Trump criticized the WTO’s response to Chinese trade activities; according to him, the WTO and its DSM were too lenient in handling China’s trade violations. The WTO’s DSM is arguably now more than ever an essential tool with the emergence of these new challenges. As trade-related tensions between the US and China continue to escalate, the DSM may need to adapt its timeline to involve a greater degree of urgency; a quick, decisive system can help minimize the risk of a unilateral attack. Due to the COVID-19 pandemic, global supply chains have been fragmented, disrupting the flow of free trade. In response, the DSM must be aware of how these disruptions can create incentives for certain countries to violate trade agreements. By acting as the key arbitrator in overseeing conflict between member states, the WTO must maintain its legitimacy and power. The organization, however, must adapt its processes to fit a globalized, post-pandemic world with a greater sense of urgency and accountability than ever before.