Saturday, January 21, 2012

Non-compliance in WTO Disputes

The role of the Dispute Settlement mechanism has been debated in the overall context of the efficacy of the world trading system. Zimmermann's article titled "Temporary Non-compliance in WTO Dispute Settlement" on the nature of the obligations of WTO members vis a vis WTO Agreements as well as the decisions of the Dispute Settlement Bodies is an interesting read.

Since the WTO Agreements allow for the "breach and pay" principle (a WTO member may not comply with a rule or decision subject to bearing the cost of the countermeasure), why do we see such high compliance in the dispute settlement mechanism? Is temporary non-compliance sufficient? Is the cost of the permanent non-compliance greater than compliance?

The article explains-

"It is important to stress at this point that the cost of remaining in non-compliance with WTO law is not limited to the value of compensation or of proportional countermeasures as determined under the rules of the DSU. The reputational cost of persisting in non-compliance in a legal system characterized by an overall strong compliance record is generally regarded as a powerful incentive to comply. As succinctly phrased by Guzman, “[a] reputation for compliance with international law is valuable because it  allows states to make more credible promises to other states. This allows the state to extract greater concessions when it negotiates an international agreement”.  This reputational cost can be expected to increase with the duration of non-compliance. Article 21.6 of the DSU plays an important role in this respect since it stipulates that the issue of implementation of the DSB’s recommendations or rulings shall be placed on the agenda of DSB meetings after six months following the date of establishment of the reasonable period of time according to Article 21.3 of the DSU, and shall remain on the agenda of DSB meetings until the issue is resolved. The final sentence of Article 21.6 of the DSU obliges all WTO members concerned to provide a written status report on their progress with respect  to the implementation of the DSB’s recommendations and rulings ahead of each such DSB meeting, and every other WTO member can comment on this report at the meeting.  This rule has certainly not prevented some WTO members in the past from presenting dozens of status reports containing little news on progress with the implementation.  It seems obvious, however, that in a legal system with permanently on-going negotiations at various levels, being perceived as a notorious rule-breaker comes at a considerable present and future cost for any member, including the most powerful ones. Article 21.6 of the DSU is certainly a significant factor in this dynamic."
Terming the temporary non-compliance as a safety valve, the article concludes
" It appears convincing to conclude from the excellent compliance record of the WTO’s dispute settlement mechanism, as presented in the introduction, that the seemingly weak back-up enforcement under the rules of the DSU, as strengthened by powerful informal remedies such as reputational concerns operate as a reasonably balanced and very effective incentive for WTO members to comply. It is reassuring for WTO Members to know that they will neither be expelled from the WTO altogether nor have to face massive trade retaliation or face an order to pay punitive ‘damages’ in the event that they find it temporarily impossible to comply with, for whatever reason, the DSB’s recommendations and rulings. This temporary toleration of non-compliance constitutes a valuable systemic safety valve in the absence of which the international community may be faced with a less liberalized global trading system. Here again, the system’s excellent compliance record seems to indicate that WTO Members do not make excessive use of this safety valve, but that they rely on it only under truly exceptional circumstances."
A thumbs up for the Dispute Settlement mechanism!

1 comment:

Mediation Experts said...

Indeed a Great Dispute settlement Mechanism.