Context: India has appealed against the ruling made by dispute settlement body of WTO against the Indian government decision of imposition of tariff on mobile phones and electronic components. The case was filed against India by Japan highlighting that India has violated global trading rules under the Information technology agreement (ITA).
It is to understand that resolving trade disputes is one of the core activities of the WTO.
A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
GRIEVANCE REDRESSAL MECHANISM UNDER WTO
- Dispute settlement is a central pillar of Multilateral Trading System and essential for stability and rule of law global economy.
- Dispute Settlement Body: Settling disputes is the responsibility of Dispute Settlement Body, which consists of all WTO members. Dispute Settlement Body has sole authority to establish ‘Panels’ of experts to consider the case and to accept or reject the panel’s findings or results of an appeal. It monitors implementation of rulings and recommendations and has power to authorize retaliation when a country does not comply with a ruling.
- First Stage – Consultation: Before taking any other action, countries in dispute talk to each other to see if they can settle their differences by themselves. However, if talks fail, they can ask WTO Director-General to mediate or try to help.
- Second Stage – Panel: If consultations fail, complaining countries can ask for a panel to be appointed. The country ‘in the dock’ can block the creation of a panel once, but when Dispute Settlement Body meets for a second time, the panel must be constituted unless there is a consensus against it. The Panel helps the Dispute Settlement Body makes rulings or recommendations. Since the panel’s report can only be rejected by consensus in the Dispute Settlement Body, its conclusions are difficult to overturn. The final report of the panel is the ruling or recommendation of Dispute Settlement Body unless a consensus rejects it. Both sides can appeal the report.
- Appeals to Appellate Body: Appeals must be based on points of law such as legal interpretation. 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. Members of Appellate Body have four-year terms. Members of Appellate Body are individuals with recognised standing in law and international trade, they are not affiliated with any government. An appeal can uphold, modify or reverse the panel’s legal findings. Dispute Settlement Body must accept or reject the appeals report and rejection is possible only by consensus.
Enforcement of decisions: Priority for enforcement actions brings the policies of losing the country in line with the final ruling of WTO Dispute Settlement Body (DSB) and in a reasonable time. If it fails to act within a period of 30 days, the losing side must enter negotiations with the complaining country to determine a mutually acceptable solution. However, if after 20 days, no satisfactory compensation is agreed upon, the winning side may ask DSB to retaliate. Retaliation is a temporary measure, focused on encouraging the losing country to comply. Ex. Winning side can block imports from the losing country. In principle, the retaliation should be in the same sector as the dispute. However, if this is not effective or practical, it can be in a different sector of the same agreement. However, in serious issues, actions can be taken under another agreement also.
MULTI-PARTY INTERIM APPEAL ARBITRATION ARRANGEMENT (MPIA)
- It is an interim, alternative mechanism for resolving WTO disputes that are appealed by a Member by arbitrations in the absence of a functioning and staffed WTO Appellate Body.
- WTO Appellate Body has been dysfunctional since 2019 due to USA blockage of appointments of members to the Appellate Body of WTO.
- Article 25 of Understanding on Rules and Procedures Governing the Settlement of Disputes allows for parties to resolve disputes in the implementation of WTO Rules by arbitration as an alternative to adjudication by panels and the Appellate Body. Under the Article, parties must agree on arbitration and procedures to be followed.
- MPIA provides that the participating members will resolve disputes by using arbitrations, instead of appealing to the non-functional Appellate Body, when they are unable to accept the adoption of the panel decisions.
- Countries participating: Currently, 52 countries and regions, including EU, Australia, Brazil, Canada, China, Singapore, Japan & New Zealand are prominent countries participating in MPIA.
