The integration of article 25 arbitration in WTO dispute settlement: the past, present and future.

• Author: Jacyk, David

Abstract

The adjudication system under the Dispute Settlement Understanding ("DSU") is one of the major successes of the WTO. However, while the Dispute Settlement Body ("DSB") has experienced a high level of compliance with its rulings, there have been enough failures to raise concerns about compliance. This article explores the possibility of more effective integration of the existing but underused form of arbitration under article 25 of the DSU as a means of dealing with a small number of politically difficult cases where compliance with a DSB ruling is doubtful. It challenges the predominant bias towards the WTO's institutionalized litigation system as a one-size-fits-all solution, in the context of a review of compliance theories and historical developments during the Uruguay Round, and an analysis of the three forms of arbitration under the DSU. It ultimately explores the potential of institutionalised diversion of certain types of DSB disputes to article 25 arbitration.

Introduction

The international trade system has been regulated for many years by two distinct processes--the legal and the political or diplomatic. The trade system established by the General Agreement on Tariffs and Trade in 1947 ("GATT"), which predated the World Trade Organization ('WTO'), was often criticised as being too political, and in its later years, largely ineffective for dispute resolution. One of the touted accomplishments of the WTO was the creation of a binding adjudication system under the Dispute Settlement Understanding ('DSU') (1) resulting in the legalisation or judicialisation of the dispute settlement mechanism. (2) This legalised system has been used frequently and with great success. By the end of 2007, over 270 disputes had been subject to the WTO dispute settlement process, (3) resulting in 114 circulated panel decisions (4) and 70 circulated Appellate Body decisions. (5)

The Dispute Settlement Body ('DSB') has further experienced a significant rate of compliance with its rulings--experts generally suggest that 80 per cent of cases are implemented within a reasonable period of time, (6) and some suggest it may be as high as 90 per cent. (7) However, while it is generally recognised that the compliance rate with DSB rulings under this legalised system has been high, there have been enough failures with respect to implementation, (8) particularly in a few high profile disputes involving politically sensitive matters, (9) to warrant some concern. Examples of this problem are cases involving the European Communities ('EC) and the United States ('US') respecting the European ban on beef hormones in European Communities--Measures Concerning Meat and Meat Products ('Beef Hormones') (10) and the ruling in US Tax Treatment for Foreign Sales Corporations ('Foreign Sales Corporations'), (11) both of which failed to result in timely compliance with adopted rulings, despite the approval of retaliation measures. (12) The fact that such disputes go into areas such as health concerns or control over the tax base puts them into the category of disputes that can be described as 'deep-rooted in political complexities', (13) where non-compliance is more likely.

This article explores the possibility of more effective integration of arbitration as an alternative means of handling the 'handful of major, politically sensitive cases that test the limits of the system'. (14) It considers arbitration as an alternative for specific cases within the current dispute settlement system and as a possible middle ground between the extremes of a power-based system and a rules-based system. It considers the merit of the diversion of a small number of 'politically difficult' (15) disputes down an arbitration track. This would be somewhat similar to proposals designed to better incorporate more diplomatic solutions such as mediation and arbitration (16) but would operate as a mandatory substitute to the predominant system of litigation in the WTO described in this article as the 'judicial settlement system'. (17) The purpose of better integrating arbitration under article 25 of the DSU in such cases would be to direct the dispute towards a timely, objective ruling that would inform the discourse around treaty obligations and push the disputing parties towards a negotiated resolution. Comparatively, the objective of the judicial settlement system seems more and more to establish a legally unimpeachable declaration of obligations to be enforced through remedies. In so doing, it potentially reduces the capacity and incentive for the parties to negotiate a mutually acceptable resolution.

In assessing the potential role of article 25 arbitration in the current system, this article suggests that the full rigour of the judicial settlement system is inappropriate for the small number of politically difficult cases in which the implementation of change is unlikely to result. The article incorporates a broad spectrum of well-developed observations about WTO dispute settlement in order to support a different direction for the reform of dispute settlement to address concerns over implementation. My ultimate objective is to contribute to the reintroduction of the broad--based form of arbitration under article 25 into the discussion over reform of the DSU. This would mark a real departure from the current discourse. Consequently, throughout the article, I necessarily address the plausibility of a new integration of the use of article 25 arbitration.

I start by distinguishing the arbitration process from the predominant system of judicial settlement, focusing mostly on the absence of an appeal process. Next, I set out the theoretical considerations that support utilising less legalistic techniques for dispute resolution and that emphasise process over the quest for legally enforceable decisions that withstand the scrutiny of the appeal process that is so central to the judicial settlement system. Third, I consider the Uruguay Round negotiations to demonstrate that arbitration was conceived as a flexible and alternative dispute mechanism and that discussions to develop it simply ended prematurely due to certain time specific pressures that are no longer relevant. Consequently, the concept of arbitration formalised in the DSU is somewhat incoherent--article 25 provides an alternative to judicial settlement, while the other two forms of 'arbitration' constitute a mandatory part of the judicial settlement process. This incoherency may provide some explanation for the under-use of article 25 arbitration in the current system, which is considered in the next part.

I then consider the more regular use of two forms of mandatory 'arbitration' under the current DSU to demonstrate how a process from which there is no appeal has already been used in a political and diplomatic manner and yet is still accepted by the WTO members. Last, 1 attempt to briefly outline the case for reform of the dispute settlement that would integrate article 25 arbitration as a means of dealing with these types of dispute. This would mean some form of institutional diversion--a mechanism that would force politically difficult cases down an arbitration track, effectively removing the right of appeal. In effect, this conceptual approach is an attempt to challenge the current bias towards judicial settlement as a one-size-fits-all form of dispute resolution in all cases.

1. Distinguishing WTO Arbitration from Judicial Settlement

The DSU itself distinguishes the predominant judicial settlement system from the secondary mechanisms of third party dispute settlement by the inclusion of 'arbitration' processes under articles 21.3, 22.6 and 25. (18) The main form of dispute resolution under the DSU is a form of 'judicial process' (19) or 'judicial settlement' (20) that is distinguishable from arbitration.

International arbitration between States can be distinguished from judicial settlement by several features, including: (21) the arbitral body is constituted to hear one particular case only; the decision-maker is chosen by or on behalf of the parties; the parties have control over the procedure to be followed in the arbitration; (22) and the arbitration award is final and not subject to appeal. In examing the question of the potential advantages of arbitration, I suggest that there are two main criteria of differentiation in the WTO dispute settlement context: firstly, the principle of finality, or expressed differently, the absence of an appeal avenue; and secondly, the element of party control over process and the decision-maker. These are arguably the two basic principles underlying arbitration. (23) For the purpose of this article I will focus primarily on the finality of the decision while suggesting that party control can enhance the legitimacy of the decision by compensating for the absence of the scrutiny of judicial review.

It has been said that the creation of the Appellate Body and legal review of panel decisions is the 'most definitive move in the direction of legalism'. (24) There are two main disadvantages of the right of appeal, and thus judicial settlement, in cases involving politically charged issues. First, they may serve to entrench the position of the parties (25) and foster inflexibility within domestic political factions, creating potential hurdles to a negotiated resolution. Some proposals for reform of WTO dispute settlement in fact seek to reduce access to panels and the Appellate Body in cases where the dispute involves 'highly divisive political content'. (26) Second, the added stages of appeal and various aspects of compliance review also compound the problem of an extended delay before the provision of a definitive statement of the rights and obligations of the disputing parties, (27) and may serve only to prolong the dispute. Conversely, eliminating the right of appeal in politically difficult cases would put the parties back on a negotiating track with the...