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Arbitration in WTO disputes : the forgotten alternative Jacyk, David William 2007

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ARBITRATION IN W T O DISPUTES: THE FORGOTTEN ALTERNATIVE  by DAVID WILLIAM JACYK L L . B . , The University o f Manitoba, 1993 B . A . , The University o f Manitoba, 2003  A THESIS S U B M I T T E D IN P A R T I A L F U L F I L L M E N T OF T H E R E Q U I R E M E N T S FOR T H E D E G R E E OF M A S T E R OF L A W S  in  T H E F A C U L T Y OF G R A D U A T E STUDIES  (Law)  T H E U N I V E R S I T Y OF BRITISH C O L U M B I A August 2007 © David W i l l i a m Jacyk 2007  ABSTRACT  The creation o f a binding adjudication system under the Dispute Settlement Understanding ( " D S U " ) is one o f the major successes o f the W T O . However, while the Dispute Settlement Body ( " D S B " ) has experienced a high level o f compliance with its rulings, there have been enough failures to raise concerns about compliance with W T O rulings. This in turn endangers the long term viability and legitimacy o f the W T O as a decision-making body. This thesis explores the possibility o f more effective integration o f arbitration as a means o f dealing with a small number o f problematic cases where compliance with a ruling is doubtful. It considers arbitration as an alternative to what has effectively become an institutionalized litigation system involving panels and the Appellate Body, and as an adjunct to the diplomatic resolution o f disputes, particularly for policy driven cases where compliance with W T O rulings is more doubtful. While proposals for the use o f arbitration made during the Uruguay Round o f negotiations leading to the creation o f the W T O have been realized i n the provisions o f the D S U , arbitration has never been effectively tested as a true alternative. Further, arbitration as an alternative to the litigation system has been almost entirely ignored in the context o f the current debate over reform o f the W T O dispute settlement system. After over a decade o f W T O decision making, it is now an opportune point to consider meaningful institutional reform that more fully incorporates arbitration as an alternative form o f dispute settlement at the W T O in politically difficult cases, and that builds on the existing but underused arbitration provision in Article 25 o f the D S U . This thesis challenges the predominant bias towards the litigation system involving panels and the Appellate Body as a one-size-fits-all solution. It explores the potential role of arbitration, in the context o f compliance theories, a historical review o f the negotiations during the Uruguay Round, and an analysis o f the shortcomings o f the current D S U that contribute to the problems o f non-compliance.  ii  T A B L E OF CONTENTS ABSTRACT T A B L E OF CONTENTS ACKNOWLEDGEMENTS DEDICATION C H A P T E R I: T H E S I S O U T L I N E , O B J E C T I V E S A N D C O N C E P T S 1.1 1.2 1.3 1.4  Introduction Methodology & Objectives Reconsidering the Legalism o f the D S U Working Concepts 1.4.1 Compliance and Implementation o f Policy Change 1.4.2 Distinguishing Arbitration From Judicial Settlement in the W T O 1.4.3 Features o f Arbitration Generally and in the W T O Context 1.5 Finality o f Decisions and Party Control as Distinguishing Features 1.6 Chapter Description  ii iii v vi 1 1 3 6 9 9 10 12 15 19  C H A P T E R II: C O M P L I A N C E T H E O R I E S : P O W E R , R U L E S A N D R E P U T A T I O N ..22 2.1 Introduction 2.2 International Relations Theory and the Elements o f Power and Rules 2.2.1 Traditional Realism & Jackson's Power vs. Rules Paradigm 2.2.2 Keohane's Institutionalist Regime Theory 2.3 International L a w Theory 2.3.1 Societal Theories o f Franck and the Chayes 2.3.2 K o h ' s Transnational Legal Process 2.3.3 Contextualism - Jackson's Power vs. Rules Paradigm Revisited 2.4 Conclusion  22 24 25 29 33 33 46 49 54  C H A P T E R III: T H E D E V E L O P M E N T O F T H E D S B I N T H E U R U G U A Y R O U N D . . 5 7 3.1 Introduction 3.2 History o f G A T T Prior to the Uruguay Round 3.3 The Beginnings o f the Uruguay Round 3.4 The Initial Proposals and the Arbitration Alternative 3.5 The Impact o f U . S . Unilateralism on Uruguay Round Negotiations 3.6 Proposals on Arbitration, Adoption and Appellate Review 3.7 Arbitration Proposals Stall 3.8 Arbitration Under the D S U 3.9 Lessons from The History o f G A T T and the Uruguay Round 3.10 Conclusion  57 58 66 68 77 80 83 89 90 94  C H A P T E R IV: J U D I C I A L S E T T L E M E N T A N D A R B I T R A T I O N I N T H E CURRENT DSU  96  4.1 Introduction 4.2 The Judicial Settlement System 4.3 The Objectives o f the D S U 4.4 The Limited Effectiveness o f Remedies Under the D S U 4.5 Non-Compliance and Shortcomings o f the Judicial Settlement System 4.6 A n Over Enthusiasm for the Judicial Settlement System 4.7 Specific Arbitration Provisions in the D S U 4.7.1 Timeframe Arbitration 4.7.2 Concessions Arbitration 4.7.3 Issue Arbitration 4.8 Conclusion  96 97 100 105 Ill 113 116 117 125 130 135  CHAPTER V: REFORM 5.1 Introduction 5.2 Surveying the Debate on D S U Reform 5.2.1 Fixation on Compensation and Remedies 5.2.2 Procedural Legalism 5.2.3 Direction o f Sutherland Report 5.2.4 Recommendations for Reform o f Consultations 5.3 The Potential Utility o f Arbitration - A Framework for the Future 5.4 Integration o f Arbitration Through Dispute Diversion 5.5 A Politicization o f the D S U and Return To G A T T ? 5.6 The Feasibility o f Diversion - De-Politicizing Judicial Settlement 5.7 Policy-Charged Cases in the Judicial Settlement System 5.8 Identifying the Risk Cases 5.9 Further Considerations and Refinements 5.10 Thesis Conclusion and Further Research BIBLIOGRAPHY  139 139 141 142 144 146 149 150 154 156 158 161 164 168 ..171 176  iv  ACKNOWLEDGEMENTS  I would like to take this opportunity to acknowledge those persons who have provided their assistance, enabling me to complete this thesis and the L L . M . program at the University o f British Columbia. I would like to thank Dr. Janis Sarra for her guidance and patience as my thesis supervisor. I would also like to thank Professor Ljiljana Biukovic as my second reader, who provided her time and insight i n her review o f the draft, and who oversaw the research relating to Chapter 3 . I thank Valerie Hughes, o f the Department o f Finance, Canada, and Professor Michael Hahn, University o f Waikato for their general comments and encouragement in pursuing the topic o f this thesis. Finally, I would like to thank Professor Wesley Pue and Joanne Chung, Graduate Secretary for their patience and tolerance in assisting me in completing the L L . M . program on a part-time basis.  v  DEDICATION  This thesis is dedicated solely to my lovely wife Nicola. Completion o f this work would not have been possible without your continuous encouragement, patience and support.  C H A P T E R I - THESIS OUTLINE, OBJECTIVES A N D CONCEPTS  1.1  Introduction  The international trade system has been regulated for decades by two distinct forms o f process - the legalistic and the political or diplomatic. The trade system established by the General Agreement on Trade and Tarriffs in 1947 ("the G A T T system"), which predated the W o r l d Trade Organization ( " W T O " ) , was often criticized as being too political, and in its later years, largely ineffective for dispute resolution. One o f the touted accomplishments o f the W T O was the creation o f a binding adjudication system under the Dispute Settlement Understanding ( " D S U " )  1  resulting in the legalization of the  dispute settlement mechanism.  This legalized system has been used frequently and with great success. B y the end o f 2006, over 260 disputes had been subject to the W T O dispute settlement process, resulting in 108 circulated panel decisions and 67 circulated Appellate Body decisions. 4  5  The Dispute Settlement Body ("DSB") has experienced a significant rate o f success with respect to compliance with its rulings - experts generally suggest that 80 per cent o f cases  1 The Understanding On Rules And Procedures Governing The Settlement Of Disputes, Annex 2 to Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations and Marrakech Agreement Establishing the World Trade Organization, April 15, 1994. Also known as the Dispute Settlement Understanding ("the DSU"). 2 Richard H . Steinberg, "Judicial Lawmaking at the W T O : Discursive, Constitutional and Political Constraints" (2004) 98 Am. J. Int'l L . 247 at 247. 3 Kara Leitner & Simon Lester, " W T O Dispute Settlement 1995-2006—A Statistical Analysis" (2007) 10 J. Int'l Econ. L . 165 at 172.  4 Ibid, at 172. 5 Ibid, at 173. 1  are implemented within a reasonable period o f time , though it has been suggested that it 6  could be as high as 90 per cent.  The relatively high rate o f compliance with D S B  decisions is high water mark for the international trading system, and for international law generally.  Although this new system has resulted in the automatic right to  adjudication o f disputes and the virtually automatic adoption o f rulings by the D S B , it has still not resulted in automatic compliance in every case. While it is generally recognized 9  that the compliance rate with D S B rulings has been high, there has been a steady problem with compliance in cases involving politically sensitive matters. enough failures with respect to implementation o f rulings,  11  10  There have been  particularly i n a handful o f  high profile disputes, to warrant some concern about long term compliance as expressed in W T O rulings. In short, there is room for improvement, and there is good reason to consider it now.  Because the D S B has been relatively effective to date, there have been increasingly high expectations o f its capacity to resolve all trade disputes through the issuance o f binding decisions. The balance between the legalism o f the current system, and the flexibility and consensus building o f the diplomatic system continues to be a source o f discussion.  6 William J. Davey, "The W T O Dispute Settlement System: The First Ten Years" (2005) 8 J. Int'l Econ. L.17, at 47 [Davey, "First Ten Years"]; Debra P. Steger, " W T O Dispute Settlement: Systemic Issues" in John M . Curtis & Dan Curiak, eds., Trade Policy Research 2005 (Ottawa: Minister of Public Works and Government Services, 2006), 51 at 67 [Steger, "Systemic Issues"]. 7 Bruce Wilson, "Compliance by W T O Members with Adverse W T O Dispute Settlement Rulings: The Record To Date" (2007) 10 J. Int'l Econ. L . 397. 8 Eric A . Posner & John C. Yoo, "Judicial Independence in International Tribunals" (2005) 93:1 Cal. L . Rev. 1 9 Brendan P. McGivern, "Seeking Compliance with W T O Rulings: Theory, Practice and Alternatives" (2002):36 Int'l Law. 141 at 157. 10 Steger, "Systemic Issues" supra note 6 at 67. 11 William J. Davey, "Looking Forwards" (2006) J. Int'l Econ. L . 17 at 11 [Davey, "Looking Forwards"].  2  Proposals range between two extremes. There are those that would see a virtual return to the blocking system o f rulings in the G A T T system, while others seek the further legalization o f the W T O system by changing voting rules to facilitate more legislation, 12  though it is unlikely that either is politically feasible.  *  Overall, the current discourse over  reforms has focused disproportionately on the legalistic means rather than the political means for resolving trade disputes. The tendency has been towards an overly legalistic view o f the role o f the W T O - a form o f juridification  focusing too much on the  function o f litigation within the W T O .  This thesis explores the possibility o f more effective integration o f arbitration as a means o f improving implementation in the "handful o f major, politically sensitive cases that test the limits o f the system".  14  It considers arbitration as an alternative within the current  dispute settlement system for specific cases, and as a possible middle ground between the extremes o f a power based system and rules based system.  1.2  Methodology & Objectives  Ultimately this thesis works towards two broad conclusions. First, it suggests that through the development o f a bias for the judicial resolution o f disputes, the W T O system has, at least in a practical sense, inappropriately excluded arbitration as a truly alternative form o f dispute resolution. Second, it proposes that arbitration may be a more appropriate form  12 Steinberg, supra note 2 at 249. 13 Joseph H . H . Weiler, "The Rule of Lawyers and the Ethos of Diplomats" (2001) 35 J. World Trade 191, at 198-200. 14 Steger, "Systemic Issues", supra note 6 at 67.  3  o f dispute resolution in politically difficult cases where implementation o f policy change is more doubtful.  This thesis uses several contexts to consider arbitration as an alternative mechanism for dispute settlement within the W T O . It considers the major compliance theories, to determine i f the current bias towards judicial settlement over arbitration is justified from a compliance perspective. Next it reviews the historical development o f the G A T T system and the creation o f the W T O , focusing on the negotiations during the Uruguay Round, in order to determine i f there are any historical reasons for the limited integration of arbitration as an alternative means o f dispute settlement. It then considers the dispute system within the current D S U for two reasons: first, to analyze the shortcomings o f the legalized system o f dispute settlement directed at remedies; and second, to analyze the limited use o f arbitration provisions within the D S U to demonstrate the potential o f arbitration as a true alternative. Last, it considers the current discourse o f reform o f the dispute settlement system focusing on improving remedies and procedure, over creating more space for negotiations in difficult cases. I demonstrate that arbitration has been neglected as an alternative dispute settlement mechanism, not because o f any particular shortcoming, but rather by virtue o f inertia o f legalism that began during the Uruguay Round.  This thesis ultimately proposes that the arbitration provided for in Article 25 o f the D S U , but to date used only once, is uniquely suited to constitute a middle ground between the diplomatic and legalistic means o f dispute resolution. It ultimately proposes a vetting  4  system within the dispute resolution system that would force disputes down one o f two separate tracks: one for "ordinary" trade disputes, and another for politically sensitive cases where implementation o f change in accordance with underlying obligations is unlikely to result. It thus proposes forcing a small number o f politically difficult disputes down an Article 25 arbitration track as an alternative to the predominant system o f litigation in the W T O , described in this thesis as the "judicial settlement system".  15  The purpose o f replacing the current system with Article 25 arbitration in such cases is to obtain an objective ruling that would inform the discourse around treaty obligations and push the disputing parties towards negotiation. This is distinct from the judicial system, where the objective seems more and more, to establish a legally impenetrable declaration of obligations that is intended to be enforced to its letter. I suggest that this is an inappropriate approach for the small amount  of politically difficult  cases where  compliance with such a ruling is unlikely to occur. This thesis therefore challenges the predominant bias towards the system o f judicial settlement involving panels and the Appellate Body as a one-size-fits-all form o f dispute resolution in all cases. M y ultimate objective is to encourage the member states to reconsider the concept o f arbitration as part o f the current discourse over reform o f the D S U .  15 A term used by the G A T T Secretariat during the Uruguay Round to distinguish arbitration from the process of resolution though court like litigation. See G A T T , Negotiating Group on Dispute Settlement, Concepts, Forms and Effects of Arbitration, Note by the Secretariat, G A T T Doc. No. MTN.GNG/NG13/W/20, (22 February, 1988) at 3.  5  1.3  R e c o n s i d e r i n g the L e g a l i s m of the D S U  While proposals for the use o f arbitration made during the Uruguay Round have been realized in the provisions o f the D S U , arbitration has never been effectively tested as a true alternative within the W T O . M a n y proposals have been made over the best way to reform  dispute settlement  at the  W T O in the last few years. Negotiations for  improvements were originally scheduled to be finished by 2003, but have yet to be completed.  16  In June 2003, then W T O Director-General Supachai Panitchpakdi attempted  to address systemic reform by establishing a Consultative Board to identify  the  institutional challenges o f the W T O and to make recommendations for its improvement. 17  The Consultative Board released the "Sutherland Report" i n January o f 2005,  and  amongst other topics, sets out proposed reforms for the dispute settlement system. While it has been almost two years since its release, no outcomes for dispute settlement have materialized. Negotiations have focused on reforms that would further legalize the 18  judicial settlement system - third party rights, remand authority o f the Appellate Body,  16 A full review of the dispute settlement rules and procedures was to be completed within four years of the creation of the W T O . The process commenced in 1998, and a reform package was to be approved at the Seattle Ministerial Conference in 1999, before it collapsed. See The Sutherland Report, infra note 17 at 51. At the Doha Ministerial Conference in 2001, the Ministers provided a new mandate in the Doha Ministerial Declaration, setting a deadline of May 2003 for the completion of negotiations. In that year the Chairman of the negotiating committee presented two separate drafts, but consensus could not be reached on either. W T O , Dispute Settlement Body Special Session, Minutes Of Meeting (held on 22 February 2006), W T O Doc. TN/DS/M/30, para.4. The deadline for completion was extended to May 2004 and again to August 24, 2004 without result or further deadline. See "Hong Kong Ministerial: Briefing Notes", online: W T O <http://www.wto.org/english/thewto e/minist e/min05 e/brief e/brieflO_e.htm> (last accessed 15 August, 2007). 17 Peter Sutherland at al, "The Future of the W T O : Addressing Institutional Challenges in the New Millennium", Report by the Consultative Board to the Former Director-General Supachai Panitchpakdi (2004), online: W T O <http://www.wto.org/english/thewto e/lOanniv e/future wto e.htm> ["The "Sutherland Report"]. The Consultative Board was chaired by Peter Sutherland, a former G A T T director general who was materially involved in the creation of the W T O . 18 Davey, "Looking Forwards", supra note 11 at 19.  6  sequencing o f procedural steps and time periods for dealing with implementation o f rulings and more regulation o f panels.  19  A l l o f these suggested reforms would lead the  W T O down a path o f even more formal legalism. Arbitration has been almost entirely ignored in the context o f the current debate over reform o f the W T O dispute settlement system.  The proposals in the Sutherland Report illustrate a bias towards a legalistic form o f dispute resolution. The direction o f reform illustrates a belief that the G A T T system was an inept tool that has only been improved over time, without considering any o f its merit. This approach to reform assumes that progress in the area o f dispute settlement in international trade is linear. B y this logic, because the system has been improved by the legalism o f the current system, further improvement can be achieved by increasing rules and adopting more legalistic measures. However, as one scholar has suggested, the evolution o f dispute settlement may be more like a pendulum, swinging between the extremes o f a power oriented system and a rule oriented system. This thesis contests the direction o f reform taken in the Sutherland Report, with the notion that a form o f arbitration may represent a midpoint o f sorts between the two extremes o f legalism, and the political side o f the W T O , and that would be more suitable for the most politically difficult cases.  19 "Hong Kong W T O Ministerial 2005: Briefing Notes", online: W T O <http://www.wto.org/english/thewto e/minist e/min05 e/brief e/brieflO e.htm> (last accessed 15 August, 2007).  From a North American perspective, the recent settlement o f the softwood lumber dispute between Canada and U . S .  2 0  has illustrated the need to reconsider the role o f the dispute  settlement system. There are many who might consider the outcome an example o f failure - focusing on the refusal o f the only economic hegemon to comply with the rulings o f the W T O , and the use o f economic power to override international obligations established under  the  rules based  system. Conversely, it might be considered a  monumental success - a situation where the D S B fulfilled its role in bringing to an end a difficult and policy charged dispute that had raged for over two decades, and aiding the disputing parties in overcoming the internal domestic politics within their own respective boundaries. This example forces certain questions. H o w should failure and success be defined? Is compliance with a formal ruling the ultimate objective? If not, then what is the significance o f a D S B ruling, and what should the expectations o f compliance be? Should those expectations be the same irrespective o f the nature o f the dispute and the parties involved? These issues logically require a consideration o f the best mechanism for resolving individual'disputes.  20 Canada was largely successful in a series of W T O and N A F T A decisions in their ongoing dispute with the U.S. over softwood lumber. Despite Canada's success in establishing that the U.S. were not justified in applying anti-dumping and countervailing duties on Canadian imports, the U.S. position appeared to be intransigent on the idea of returning all of the duties, resulting in ongoing references to the W T O . Finally, Canada and the U.S. entered into the Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America, executed 12 September 2006 and amended 12 October 2006, under which Canada agreed to forego the return of $1 billion of the $5 billion of U.S. imposed duties. The softwood lumber treaty was quickly implemented into Canadian domestic law as the Softwood Lumber Products Export Charge Act, 2006, receiving Royal Assent on December 14, 2006. Full descriptions of the W T O disputes WT/DS236, WT/DS247, WT/DS257, WT/DS264, WT/DS277 and WT/DS311 can be found online: W T O < http://www.wto.org/english/tratop e/dispue/dispu subjects index e,htm#lumber>.  8  1.4  Working Concepts  1.4.1  Compliance and Implementation o f Policy Change  Before embarking on those specific tasks, it is first important to establish a working concept o f compliance and implementation o f policy change. In essence, this thesis follows the lead o f Robert Hudec, who viewed the dispute settlement system in a political 21  way, as a mechanism to lead governments to concessions i n wake o f rulings.  A s such,  one can draw a distinction between perfect compliance with a D S B ruling and compliance with the primary obligation o f a member state under the W T O agreements. In the case o f the latter, one may have compliance under the surface brought on by the 22  dispute settlement system.  The compliance theories o f international law and the objectives o f the D S U support such an approach. In the most difficult, politically sensitive cases, where non-compliance is likely, a flexible approach to the nature of D S B rulings could be crucial for the long term survival o f the W T O . A settlement negotiated by the disputing parties, that has been informed or guided by an arbitration decision, even i f not i n conformity to the letter o f that ruling, is superior to a legal ruling that has withstood appeal, but that is never  21 Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System. (Salem, New Hampshire: Butterworth Legal Publishers, 1993) at 360 [Hudec, "Enforcing International Trade Law "]; Marc L . Busch & Eric Reinhardt, "Testing International Trade Law: Empirical Studies of G A T T / W T O Dispute Settlement" (2004), in Daniel M Kennedy and James D Southwick, (eds.), The  Political Economy of International Trade Law: Essays in Honour of Robert Hudec (New York and Cambridge: Cambridge University Press, 2002) 457 at 458 [Busch & Reinhardt, "Testing International Trade Law"]. 22 Carlos Vazquez & John H . Jackson, "Some Reflections on Compliance with W T O Dispute Settlement Decisions" (2002) 33 Law & Pol'y Int'l Bus. 555 at 566.  9  implemented. However, it is also important that any form o f reform does not dilute the absolute binding effect o f D S B rulings in most cases, so as not to undo the relative success o f the dispute settlement.  1.4.2  Distinguishing Arbitration from Judicial Settlement in the W T O  H o w does one distinguish the main dispute mechanism under the D S U from arbitration? This is an obvious starting point before trying to compare the mainstream dispute settlement system to "arbitration" under the D S U . Some observers might consider that the main dispute mechanism under the D S U is itself a form o f arbitration.  24  The  assumption likely emanates from the fact that panels under the G A T T system were more 25  similar to a form o f arbitration.  Furthermore, the panel system is now formally overseen  by the D S B , a political body which is comprised o f representatives o f all o f the members of the W T O . The decisions o f panels appointed to hear disputes result only in recommendations that require adoption by the D S B . In practice however, both panels and the Appellate B o d y are the decision-makers in the mainstream dispute resolution process and are "judicial tribunals in the international law sense".  26  23 Steger, "Systemic Issues", supra note 6 at 67-72; Davey, "First Ten Years", supra note 6. 24 Dora Marta Gruner, "Accounting for the Public Interest in International Arbitration: The Need for Procedural and Structural Reform", Col. Journal of Transnational Law 41 (2002-03) at 92. 25 Posner & Yoo, supra note 8 at 44.  26 Joost Pauwelyn, Conflict Of Norms In Public International Law: How WTO Law Relates To Other Rules Of International Law (Cambridge: Cambridge University Press, 2003) at 442 [Pauwelyn, "Conflict Of Norms"]; Weiler, supra note 13 at 201-202.  10  The main dispute settlement system has therefore been compared to a system o f litigation 27  by those who refer to the "court like aspects o f the dispute settlement in the W T O " . Comparatively, arbitration in the context o f international disputes has been described as "an  alternative to the dispute settlement by diplomatic means or by recourse to  international courts."  28  The D S U itself distinguishes the mainstream litigation process  from the secondary processes o f arbitration by including processes under Articles 21.3, 29  22.6 and 25 referred to as "arbitration".  This thesis therefore departs from the premise  that the main form o f dispute resolution under the D S U is a form o f judicial process or court litigation, or "judicial settlement" that is distinguishable from arbitration. I use the 30  term "judicial settlement" as a means o f describing the legalized dispute settlement system in the W T O , as it was described by the G A T T Secretariat in a report prepared during the Uruguay Round  negotiations.  31  In that report, the  GATT  Secretariat  distinguished "arbitration" from "judicial settlement", the latter being a process that 32  involved the reference o f a dispute to an international standing tribunal.  27 Amelia Porges, "Settling W T O Disputes: What do Litigation Models Tell Us?" (2003-2004) 19:1 Ohio St. J. Disp. Resol.141 at 141. 28 Ernst Ulrich Petersmann & Meinard Hilf, "Strengthening the G A T T Dispute Settlement System: On the Use of Arbitration in G A T T " , in Ernst Ulrich Petersmann & Meinard Hilf, eds., The New GATT Round of Multilateral Trade Negotiations (Deventer & Boston: Kluwer Law and Taxation Publishers, 1988) 323 at 337. 29 There are other forms of Arbitrations provided for under other W T O agreements such as the General Agreement on Trade in Services to resolve the amount of compensation if a state wishes to withdraw from  commitment entirely, and under the Agreement on Subsidies and Countervailing Measures regarding prohibited subsidies, in Article 4.7. See David Palmeter and Petros C. Mavroidis. Dispute Settlement in the  World Trade Organization: Law, Practice and Procedure. (Oxford ; New York: Cambridge University Press, 2004) at 208-209. 30 Weiler, supra note 3 at 203. See also, Posner & Yoo, supra note 8 at 10 & 45, referring to the more "court-like" dispute settlement mechanism of the W T O , and refer to it as one of several "global" courts. 31 G A T T , Negotiating Group on Dispute Settlement, Concepts, Forms and Effects of Arbitration, Note by the Secretariat, G A T T Doc. No. MTN.GNG/NG13/W/20, (22 February, 1988).  32 Ibid, at 3.  11  1.4.3  Features o f Arbitration Generally and in the W T O Context  In the world o f private law, commercial arbitration is a form o f adjudication, for which authority is derived from the agreement o f the disputing parties.  33  It has been succinctly  described as an alternative form o f dispute settlement which is "based on the consent o f the parties and not the coercive force o f the formal adjudication system".  34  Arbitration in  both domestic and international arenas has evolved from a level o f dissatisfaction from 35  the dominant legal system.  In essence, arbitration in any context must keep a reasonable  distance from the litigation process in order to retain its value as a desirable alternative.  36  The reasons for, and the advantages of, arbitration can vary depending on the parties i n dispute, the system(s) within which the parties operate and the nature o f the dispute. Traditionally, private law arbitration provides parties with an informal forum facilitating speedy resolution, protection o f the confidentiality o f information within the proceedings, and greater opportunity for effective enforcement o f international awards i n foreign •  37  courts.  A l l o f these factors provide rationale for selecting arbitration i n a private  commercial setting, particularly i n complex cases involving international trade issues. In order for arbitration within the W T O to remain a suitable option for dispute settlement, it must offer some form o f significant advantage over the main adjudication option 33 Gus Van Harten, "Judicial Supervision of N A F T A Chapter 11 Arbitration: Public or Private Law?" (2005) 21 Arb. Int'l 493 at 497; Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration (London: Sweet & Maxwell, 1999), at 7. 34 Catherine A . Rogers, "Emerging Dilemmas In International Economic Arbitration: The Vocation O f The International Arbitrator" (2005) 20 A m . U . Int'l L . Rev. 986 at 1017. 35 Francisco Orrego Vicuna, "Arbitration in a New International Alternative Dispute Resolution System" (2002) 57:2 Disp. Resol. J. 64. at 64-65.  36 Ibid, at 64. 37 Redfern & Hunter, supra note 33 at 8-11, 15, 26-30.  12  available to disputants.  However, the advantages o f arbitration in the W T O w i l l  necessarily be different than the advantages o f private law arbitration, given the different contexts.  The dispute settlement mechanisms adopted by the W T O in the D S U are distinct from international arbitration involving private interests, as they deal with international dispute resolution between states o n l y . A n analysis o f the advantages o f arbitration in the W T O 38  context must therefore look more specifically at the features o f state to state arbitration. According to Meinard H i l f and Ernst U l r i c h Petersmann, former secretary for the G A T T Secretariat and legal advisor to the W T O , international arbitration between states is distinguished from the modes o f dispute resolution including judicial settlement, or what they describe as "judicial resolution", by the following features:  39  the parties determine the arbitrator's jurisdiction; the dispute is resolved by a binding decision o f the arbitral tribunal, and not a negotiated settlement; the arbitral body is constituted to hear the particular case only; the decision maker is chosen by or on behalf o f the parties; the parties have control over the procedure to be followed in the arbitration; the arbitration award is final, and not subject to appeal.  38 Frank W. Swacker, Kenneth R. Redden & Larry B. Wenger, " W T O & A D R " (2000) 55:3 Disp. Resol. J. 36. 39 Petersmann & Hilf, supra note 28 at 337.  13  It is only the last four features on which this thesis w i l l focus, in distinguishing between arbitration and judicial settlement in the W T O . The first feature is not applicable as there is little room for party control over the choice o f law under the provisions o f the D S U . In all cases, arbitrators are required to apply the principles o f the underlying agreements. Article 3.2 o f the D S U clarifies that rulings o f the D S B cannot enhance or diminish the rights under the agreement, and is applicable to arbitration.  40  Indeed, the failure to apply  W T O law would defeat the purpose o f a multilateral rules based trading system. A s such, the arbitrators have no jurisdiction outside o f the substantive law found within the scheme o f W T O agreements and obligations.  41  W i t h respect to the second feature - the resolution by a binding decision o f the arbitral tribunal - there is no distinction between judicial settlement and arbitration.  However,  one premise o f this thesis is that the issuance o f an arbitral ruling ought to be directed at fostering ongoing negotiation towards resolution. Indeed, I suggest that the possibility o f negotiations around a single arbitrator ruling, rather than a decision which has passed through a formal legal appeal system, is more suitable for politically difficult cases. A n arbitration ruling provides an analysis o f obligations that can inform further discussions, but does not provide the parties with a continuing appeal process designed to obtain a "legally correct" interpretation, which can eviscerate any room for further negotiations or practical resolution. In other words, the more legalized the procedure, the less there is any reason or political ability for a successful party to make any form o f concessions towards a resolution that w i l l be willingly implemented by the losing party.  40 Boisson de Chazournes, Laurence. "L'Arbitrage A L ' O M C " (2003) Revue de l'arbirtage, 949 at 956.  41 Ibid, at 955-6.  14  The third, fourth and fifth features listed by H i l f and Petersmann are interrelated. T w o o f them, party choice over the decision-maker and control over the procedure o f the arbitration are forms o f party control. The third feature - the overall objective o f resolving the particular case only - is also a function o f the party's ability to choose the decisionmaker. The decision-maker is chosen i n the interest o f the parties to resolve the dispute, and not necessarily to create or develop principles o f general application. These three features can therefore be conflated into one feature - party control over procedure and the decision-maker. In examining the question o f the potential advantages o f arbitration, I therefore consider two main criteria o f differentiation i n the W T O dispute settlement context: first, the principle o f finality, or expressed differently, the limitation o f appeal avenues; second, the element o f party control over process and the decision-maker. These are arguably the two basic principles underlying arbitration.  42  This thesis ultimately  suggests that although arbitration has not been effectively utilized i n the current D S U , arbitration may nevertheless be more suitable for certain types o f disputes within the W T O because o f these two features distinguishing it from judicial settlement.  1.5  The Finality of Decisions and Party Control as Distinguishing Features  The first point o f distinction is the limitation o f rights o f appeal or judicial review in arbitration proceedings. The creation o f the Appellate B o d y and legal review o f panel decision is the most definitive move towards U . S . legalism.  43  In the case o f private law,  42 George Zekos, "An Examination of G A T T / W T O Arbitration Procedures." (1999) 54:4 Disp. Resol. J. 72 [Zekos, "An Examination of G A T T / W T O " ] . 43 Michael K. Young, "Dispute Resolution in the Uruguay Round: Lawyers Triumph Over Diplomats" (1995)29 Int'l. Law 401 at 403.  15  it has been suggested that the liberation o f arbitration involves limiting the judicial scrutiny o f awards.  44  For the purpose o f this thesis, the arbitration proposed would not  include a right to an appeal o f the arbitrator's decision, and the decision o f the arbitrator would be final, as it currently is under the D S U .  4 5  There are two main disadvantages o f the right o f appeal in cases involving politically charged issues. First, they do not encourage settlements, and indeed may serve to entrench the position o f the parties factions.  46  and foster inflexibility within domestic political  Some proposals for reform o f W T O dispute settlement in fact seek to reduce  access to the Appellate B o d y .  47  Second, the added stages o f appeal and various aspects o f  compliance review also compounds the problem o f an extended delay before the provision o f a definitive legal statement o f the rights and obligations o f the disputing 48  parties, and may serve only to prolong the dispute.  Conversely, eliminating the right o f  appeal in politically difficult cases would put the parties back on a negotiating track, with the benefit o f an objective interpretation around which further discussions can develop. The thesis thus draws a distinction between a ruling resulting from the judicial settlement 44 Thomas E . Carbonneau, "Diversity Or Cacophony?: New Sources O f Norms In International Law Symposium: Article: Arbitral Law-Making" (2004) 25 Mich. J. Int'l L . 1206. 45 Article 25(4) of the D S U . 46 Porges, supra note 27 at 182 - where it is noted that the chances of any settlement during Appellate Body proceedings are unlikely. See also Joost Pauwelyn, "The Limits of Litigation: 'Americanization' and Negotiation in the Settlement of W T O Disputes" (2003-2004) 19:1 Ohio St. J. Disp. Resol. 121 at 124-128. [Pauwelyn, "Americanization"]. Pauwelyn discusses the general effects of legalization "spurred on" by the creation of the Appellate Body. 47 See e.g. Claude Barfield, Free Trade, Sovereignty, Democracy: The Future of the World Trade Organization. (Washington D.C.: American Enterprise Institute, 2001). 48 Busch & Reinhardt, "Testing International Trade Law", supra note 21 at 478; Yuka Fukunaga, "Securing Compliance Through The W T O Dispute Settlement System: Implementation of DSB Recommendations" (2006) 9 J. Int'l Econ. L . 383 at 385. See also Porges, supra note 27 at 145, who recognizes the practice of states to delay to protect obviously illegal measures by insisting on "the full extent of time-consuming procedural niceties".  16  system intended to be followed to its letter, and an arbitration ruling which, while still final, is intended to force the parties into a negotiated resolution, but without the same systemic delay of, or strain on, the judicial settlement system. In the case o f the arbitration track, compliance, or implementation, is more i n keeping with Robert Hudec's outlook on W T O dispute settlement.  Given that a legal appeal was introduced into the W T O dispute settlement system as a means o f ensuring the legitimacy o f rulings, removal o f the appeal logically would require an adjustment to preserve the legitimacy o f decisions. This would be balanced by the parties' ability to choose procedure and the decision-maker within the arbitration. When compared to judicial settlement, arbitration generally limits the involvement o f the third party decision-maker, as the particular panel is established only to settle the one dispute, and w i l l follow procedures agreed to by the parties who retain control over procedure, and in some instances other than the W T O , the substantive law to be applied.  49  This presents a significant advantage in politically difficult cases, as it allows  parties to select parties who may be more familiar with political situations within the disputing states. Based on the component o f choice and consent, the current panel system is much closer to a court than arbitration. The D S U provide the disputants with only limited involvement in the choice o f a panel  50  and none over the Appellate Body  51  members hearing an appeal from a panel decision,  52  which has occurred i n most cases.  49 Posner & Yoo, supra note 8 at 9. 50 Articles 8(5) (6) & (7) of the DSU. 51 Other than the original appointment of individuals to the permanent Appellate Body, which requires unanimity amongst the member states. 52 Over 70 per cent of panel decisions have been appealed. See Leitner & Lester, supra note 3 at 173.  17  One potential disadvantage o f the element o f party control over selection o f an arbitrator is that arbitration may not have the same effect in developing broadly applicable principles, and thus may not promote predictability to the same degree as the judicial settlement system. Ultimately, I suggest that this does not present a problem in the context o f dispute settlement in the W T O , and might be seen as an advantage o f arbitration. First, since the arbitration track contemplated in this thesis would be used for only a limited amount o f disputes, it would not disrupt the creation o f principles even though it may complicate the consistent application o f those principles. There would continue to be a body o f developed principles, and a precedent for reference to those principles, to the extent it is appropriate for the resolution o f the individual dispute. Second, as w i l l be discussed in Chapter 4 , the overriding objective o f the D S U is not the creation and development o f legal principles but rather the resolution o f specific disputes. A s w i l l be seen later i n that chapter, W T O arbitrations have already diverged from developed principles in the context o f arbitrations in the W T O , in order to resolve the issue between the parties.  18  1.6  Chapter Description  In reviewing the possible utility o f arbitration i n the D S U , each chapter that follows considers a different aspect. Chapter 2 reviews the main theoretical perspectives on compliance i n international law. A review o f these theories provides only an entry point, but a necessary building block, for a discussion o f reform o f the W T O dispute settlement. Ultimately, this thesis suggests that within these paradigms, the system o f arbitration is more appropriate in politically difficult cases than the judicial settlement system now in place within the D S B . Admittedly this is the most that can be accomplished here. Compliance theories o f course are unlikely to provide specific proof for establishing when a particular form o f dispute resolution would prove to be superior to another. However, it would be pointless to propose the function o f one form o f dispute settlement over another without addressing how compliance arises in international law. More importantly, this exercise discounts the possibility that arbitration as a system has been disregarded on any theoretical perspective o f compliance. I w i l l leave it for the following chapters to elaborate on how arbitration has been virtually excluded as an alternative dispute settlement mechanism.  Chapter 3 w i l l track the history o f dispute resolution through the transformation from the G A T T system to the W T O . It focuses largely on the negotiations during the Uruguay Round. A review o f the development o f the G A T T system and the evolution towards the W T O demonstrates that the negotiating parties saw a potential for the use o f arbitration as an alternative to the legalized panel system that had developed within G A T T system.  19  However, the discussion o f this option ended somewhat prematurely in the Uruguay Round, when the focus o f the negotiating parties turned to the need to create a more structured system of judicial settlement with a full appeal system.  Chapter 4 w i l l examine the forms o f arbitration formalized by in the D S U as part o f the creation o f the W T O under the Marrakech Agreement Establishing the World Trade 53  Organization.  It considers the present place o f arbitration within the D S U , against that  o f the judicial settlement system, and is divided into two parts. The first part considers the current judicial settlement system, its objectives, and the limitation o f its legal remedies. The second part o f Chapter 4 then looks at the three provisions in the D S U that refer to "arbitration" - Articles 21.3, 22.6 and 25 o f the D S U . The first two arise only after a dispute has been adjudicated, and where the remaining issue is compliance with a panel or Appellate Body ruling. In this sense, arbitrations under Articles 22.6 and 21.3 operate only as adjuncts to the judicial settlement system and are not in that sense pure forms o f arbitration. However, they do at least provide an increased form o f party control over procedure and the decision-maker. Further, they set a precedent for the use o f arbitration to resolve political matters that are immune from appeal. Lastly, Chapter 4considers arbitration under Article 25, which does create a true alternative to the judicial settlement process, but one that is currently underused. It is this process that the W T O can further integrate to exploit the benefits o f arbitration within the D S B . 53 The " W T O Agreement" is in fact a package comprised of a web of 30 interconnected agreements. The main underlying agreements setting out the substantive obligations of the member states are the General  Agreement on Trade and Tariff 1994, (the "GATT"), the General Agreement on Trade in Services ("GATS") and the Agreement on Trade-Related Intellectual Property Rights ("TRIPS"), all of which provide for the primary obligations of the member states in respect of the overall duty of nondiscrimination in trade. Disputes arising under these governing agreements are generally regulated by the DSU.  20  Finally,  Chapter  5  considers  the  current  discourse  for  reform,  including  the  predominantly legalistic reforms proposed in the Sutherland Report. It considers the solutions for encouraging negotiated settlement, which is in fact the original intention o f the G A T T system, and the primary objective o f the D S U .  5 4  It then proposes the possible  uses o f arbitration despite the current institutional bias towards judicial settlement within the W T O . Here, I hope to illustrate the unexplored potential o f arbitration within the D S B and thus to demonstrate why the alternative o f arbitration should not be excluded from the current discourse over the reform o f the W T O dispute settlement framework.  While maintaining many aspects o f the D S U to build on the successful record, Chapter 5 proposes the creation o f a two tiered system for dispute resolution that involves a vetting process o f disputes at the consultations stage by the Secretariat, based on the political nature o f the dispute. It is suggested that an experiment with such concepts may well promote a realistic balance between member state compliance with their international obligations, and the necessity o f maneuvering through domestic pressures. The next set o f reforms o f the dispute settlement system may well determine the long term viability o f the W T O and the preservation o f the rules based trade system. I conclude that the possibility o f utility o f arbitration should not be excluded from this important discourse.  54 "The Sutherland Report", supra note 17 at 50 (para. 223).  21  CHAPTER  II:  COMPLIANCE  THEORIES:  POWER,  RULES  AND  REPUTATION  2.1  Introduction  Given that compliance is the goal o f any discussion over reforming the D S B , the question of the role o f arbitration in the W T O cannot be explored without fully canvassing the underlying theoretical perspectives o f compliance in international law. This chapter therefore  proceeds to consider the relevant theoretical perspectives  o f compliance,  particularly addressing the elements o f power, rules, institutions, reputation and the ultimate objective o f compliance.  Theories o f compliance in international law usually consider two binary elements: the role o f power and the modifying effect o f legal rules and institutions. This chapter considers a wide sampling o f the theories o f compliance, as each theory tends to offer a useful perspective on the relevant concepts or factors o f compliance within international law. Before considering international law compliance theories in detail, I w i l l briefly address two theories o f international relations: traditional realism and institutionalist regime theory. Notwithstanding a traditional rift between the two factions,  55  they are  useful in informing the discourse over the use and role o f rules in the D S B , and in laying a contextual foundation for the more legal based compliance theories. Indeed, these  55 Robert O. Keohane, Power and Governance in a Partially Globalized World (London & New York: Routledge, 2002) at 7 [Keohane, "Power and Governance"]. Keohane suggests at the extent of the animosity between the two by warning that academic disagreement should never deteriorate to "conflicting schools of warring scholars", which could hinder progress of understanding. Keohane seems almost apologetic about this development - suggesting that there is much that can be drawn from both realism and institutionalism.  22  theories o f international relations reinforce the continuing significance o f power in what has undoubtedly become a rules oriented system o f litigation.  A consideration o f all the theories helps to provide numerous explanations for noncompliance that inform the discussion o f reform o f the D S U for the purpose o f enhancing compliance. Such a review enables a better conceptualization o f the different reasons why a state may not comply with a ruling interpreting its obligations:  1) It does not need to (realist perspective) or it is not in its best interests to comply (institutionalist regime theory); 2) The process o f determining the obligation was illegitimate or unfair (Franck). Here, as has been observed by others, constituents are more likely to accept an adverse political decision i f it is made through legitimate political institutions, although the procedures for resolution must be seen as fair.  56  3) It is incapable o f complying (Chayes); 4 ) It is politically difficult to comply because the government o f the day is unable to manage factions o f domestic pressures ( K o h and van den Broek). Conversely a binding ruling can sometimes give the government the ability to 57  make a credible claim that its hands are tied,  making concessions more  58  politically palatable;  56 Young, supra note 43 at 408. 57 Busch & Reinhardt, "Testing International Trade Law", supra note 21 at 474. 58 Marc L . Busch & Eric Reinhardt, "Bargaining in the Shadow of the Law: Early Settlement in G A T T / W T O Disputes" (2000-1) 24 Fordham Int'l L . J. 158 at 165 [Busch & Reinhardt, "Bargaining in the Shadow"].  23  A review o f these theories also helps to establish some basic premises for this thesis. First, while power can o f course be moderated to a large degree by a rules based system, it w i l l continue to have a role i n the resolution o f international trade disputes irrespective of the existence o f a legalized system. A s such, not every international dispute can be resolved through a legal mechanism. A n effective system must recognize this reality in order to be effective. Second, reputation necessarily remains a major coercive force towards compliance. It is therefore important to find the right balance between power and rules, where the element o f reputation as a pressure towards compliance is engaged. Last, the current discourse o f reform directed mostly towards further legalism is not justified by the prevalent theories o f compliance in international law. Compliance theories do not provide a convincing basis for excluding the use o f arbitration within the D S B system, but conversely, provide reasons to further integrate it for appropriate cases.  2.2  I n t e r n a t i o n a l Relations T h e o r y a n d the Elements of P o w e r a n d Rules  The two perspectives o f traditional realism and institutionalist regime theory provide a logical entry point. While somewhat one-dimensional, traditional realism's emphasis on power reminds us that the political element pervades every aspect o f the trade law system, including compliance with W T O rulings. Furthermore, critique o f realist theory is indeed the starting point o f certain compliance theories o f international law. O n the other hand, institutionalist regime theory emphasizes the role o f reputation as a force towards compliance, while focusing on the role o f institution in regulating principles, norms, rules and decision-making procedures. In considering reform o f the dispute  24  settlement system, it is important to recognize to what extent power continues to affect compliance, and at the same time, to recognize the importance of reputation as a coercive force that can overcome power imbalances. One cannot assume that more legalistic rules will translate to better compliance in each and very case. Disputes involving policy issues which go beyond mere commercial or trade concerns are more likely to result in implementation problems.  59  In these cases in particular, it is important not to view  litigation as the only course for resolution.  2.2.1  Traditional Realism & Jackson's Power vs. Rules Paradigm  Traditional realism is a good starting point for this analysis, as it represents "a first cut" at understanding  international  politics,  60  and is the  predominant  paradigm  within  international relations. Traditional realism is based on several longstanding principles 61  6 2  It focuses on the sovereignty of the state as the only relevant player. States make decisions solely on the basis of self interest. Cooperation with other states is explained by the idea that cooperation is often in the interest of the dominant states. States seek increases in power and wealth as a zero sum gain - any increase in wealth or power results in an equivalent decrease in the wealth or power of others. States thus seek to increase relative gains.  59 McGivern, supra note 9 at 156. 60 Robert O. Keohane, "Power and Governance", supra note 55 at 6. 61 Abram & Antonia Chayes, The New Sovereignty: Compliance with Agreements (Cambridge: Harvard University Press, 1995) at 9-10.  International Regulatory  62 See generally Hans Morgenthau, Politics Among Nations: The Struggle for Power and Peace (New York: A A Knopf, 1948), and subsequent editions.  25  Realism is a power based theory that suggests that more powerful states are able to impose their will, and will do so out of self interest. It is thus for the most powerful state(s), or hegemonic entity(ies), to maintain the international order. The hegemon will do so only when its own self interest dictates the maintenance of that system. Ultimately, some realists question the existence of any system of "law" where compliance is entirely dependent on the interests of the powerful states, and not supported by enforcement mechanisms. Applying this theory rigidly, the WTO judicial system and underlying agreements do not constitute a legal system. This is an extreme view that would likely not find much support today from either international relations experts or international lawyers.  The significance of the realist power based theory is illustrated in the writing of John Jackson on the "crumbling institutions of the liberal trade system". In this seminal 63  work, Jackson identifies the two main guiding forces of the international system: power orientation and rule orientation. The role of rules in an international system is to overcome the influence of power, a primary purpose of any legal system. It is this basic 64  paradigm that necessarily underlies any discussion considering how to best enhance compliance in international law.  63 John H. Jackson, "The Crumbling Institutions of the Liberal Trade System", (1978) 12 J. World Trade L . 93 at 103 [Jackson, "The Crumbling Institutions"]. 64 Vazquez & Jackson, supra note 22 at 567.  26  It is possible to extract three underlying tenets from Jackson's dichotomous model. First, power orientation and rule orientation are mutually exclusive. Second, a power oriented system o f international order is maintained by the self interest o f the powerful states. Jackson contrasts this with a rule oriented system in which the institutional regime eliminates the influence o f power, and thus allows disputes to be resolved by the norms which are reflected in the creation o f an objective rule structure. Finally, Jackson suggests that the movement from a power oriented system to a rule oriented system in international law has occurred by gradual evolution. A system based on rule orientation 66  however eliminates the influence o f power through an objective rule structure.  Jackson's power orientation extreme falls more in line with the realist perspective. However, treating rule orientation and power orientation to be mutually exclusive is at best an oversimplification. It has been suggested that Jackson's model has been distorted by the realist perspective, by its injection o f a very narrow definition o f power.  67  In fact,  68  Jackson did not give a clear definition o f power. approach with relatively simplistic terms:  This realist revision results in a binary  the international system is either power  oriented and thus decisions are determined by structural power, or it is rule oriented, where power has no influence on the final outcome o f a dispute.  69  The obvious difficulty  with applying Jackson's analysis this way is that it is incapable o f explaining any 65 Matthew S. Dunne, "Redefining Power Orientation: A Reassessment of Jackson's Paradigm in Light of Asymmetries of Power, Negotiation, and Compliance in the GATT/WTO Dispute Settlement System" (2002) 34 Law & Pol'y Int'l Bus. 277 at 283.  66 Ibid, at 283. 67 Ibid, at 280. 68 Ibid, at 286. 69 Jackson, "The Crumbling Institutions", supra note 63 at 103. Jackson himself recognizes the possibility that many would consider the legal system in terms of an all or nothing approach, where rules are either useless, or alternatively, bind the hands of nations in all cases.  27  anomalies in the overly simplistic assumption that more power equals victory. If power could be viewed in static and absolute terms only, then one could predict the outcome of any trade dispute by merely determining which party held the balance of power. With the development of the GATT system and eventually the WTO, the prospect of doing so has become increasingly problematic. As one example, both the U.S. and the European Union (the "E.U.") have stronger records of compliance in relation to smaller nations than they do with each other.  70  Therefore, while traditional realism theory may to some degree explain the disintegration of the GATT system in the 1970's (explored more in the next chapter), it is inadequate in explaining compliance in the context of the WTO. It is doubtful that even the most evolved rule based trading system, or any form of international law for that matter, would satisfy a pure realist of its status as a true legal system. Thus even the current dispute settlement, in all of its legalistic glory of binding rulings, legal appeals and retaliation measures, would still have a fundamental defect in the eyes of the realist - the inability of any member states to truly enforce the binding rulings of the DSB against the successful members state. Traditional realism would therefore not classify it as a legal system. The development of the highly successful dispute settlement regime of the WTO and its good 71  record of resolution and compliance thus belies the power theories of compliance.  70 Naboth van den Broek, "Power Paradoxes in Enforcement and Implementation of World Trade Organization Dispute Settlement Reports: Interdisciplinary Approaches and New Proposals" (2003) 37 J. World Trade 127 at 148. 71 Ibid, at 142-148; Dunne, supra note 65 at 289.  28  Nevertheless most theories o f compliance i n international law would, to some degree, acknowledge some o f the tenets o f realism, particularly the significance o f power within any system o f international law. Indeed, the fact that the implementation o f rulings continues to be a major focus o f the D S B and the ongoing discussion o f reform, testifies to the practicality o f traditional realist theory. The push towards further legalization within the D S B might well be characterized as an ongoing and continuous backlash against traditional realism - an aversion against any function or influence for economic power within the dispute settlement. The realist perspective thus still has some relevance, given that the W T O dispute settlement system continues to have an element o f power 72  orientation where disputes are resolved by negotiations and consent.  It is therefore more  useful to consider the presence o f power in the context o f Jackson's power oriented vs. rule oriented paradigm as explained by Matthew Dunne, which is explored i n further detail later in this chapter.  2.2.2  Keohane's Institutionalist Regime Theory  The elements o f rules and power are more carefully balanced within the institutionalist 73  regime theory, o f which Robert Keohane is one o f the authoritative voices.  A s such it  provides a logical intersection between traditional realism and the theories o f compliance in international law, i n its focus on institutions which create, maintain and enforce principles, norms, rules and decision making procedures.  It is a rationalist theory that  acknowledges the world view o f realism by assuming that the international system is 72 Meinhard Hilf, "Power, Rules and Principles - Which Orientation for W T O / G A T T Law?" (2001) 4 J. Int'l Econ. L . I l l at 115. 73 Harold H . Koh, "Why do Nations Obey International Law" (1997) 106 Yale L . J. 2599 at 2625.  29  generally anarchic, and that the State seeks to further it own interests.  States, guided by  rationality, nevertheless pursue regimes of cooperation, as it is in their best interests to 75  seek absolute gains rather than relative gains.  International regimes are manifestations  of the necessary international cooperation for this common objective of economic prosperity and development. As such, this fundamental theory addresses the function of rules, and provides some insight, from an international relations perspective, into the function of institutions such as the WTO in enforcing those rules. As institutionalist regime theory is based primarily on a critique of hegemonic stability theory, it has been criticized as minimizing the impact of power within international regimes, seemingly denying what to realists, is an irrefutable notion. Keohane takes issue with this "silliest" of criticisms, suggesting that power still pays a role in his theory.  76  While institutionalist regime theory rejects the theories of hegemonic stability of the realist camp, it acknowledges that the hegemon may have a role in setting up a regime, 77  but eventually loses its influence.  Indeed, institutionalist regime theory ultimately  denies the notion of international lawyers that law can affect outcomes irrespective of politics. The regime theorist suggests however that is difficult for states to obtain their 78  objectives through the mere exercise of power, because of the increasing interdependence of states.  As the international community has now reached a high level of  74 van Den Broek, supra note 70 at 132. 75 Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy. (Princeton, New Jersey: Princeton University Press, 1984) [Keohane, "After Hegemony"].  76 Keohane, "Power and Governance", supra note 55 at 6. 77 Keohane, "After Hegemony", supra note 75. 78 Keohane,  "Power and Governance", supra  note 55 at 29-30.  30  interdependence, international regimes reduce the transaction costs o f creating, regulating and enforcing rules.  79  Institutionalist regime theory offers a more nuanced outlook when compared to realism, and is therefore more useful as a critique o f the level o f legalism that now pervades the W T O system. It also offers some explanation for compliance under the W T O regime by establishing the function o f rules in overcoming power differentials, and in defining the role o f the institution in resolving that tension. A natural question for the theory is what promotes compliance with rules where self interest may dictate non-compliance? Here regime theory is helpful in introducing the element o f reputation as a coercive force towards compliance. The maintenance o f reputation is o f significant importance, as others w i l l be reluctant to cooperate with states whose actions challenge the integrity o f 80  underlying norms and rules.  Reputation can thus impact the development o f the  institutions that help to set and enforce norms and monitor their implementation, and, which reduce "information asymmetries".  81  International institutions provide the other  actors with the forum through which they can establish the parameters o f the underlying principles, and monitor the behaviour o f other states.  82  In considering dispute settlement in the W T O , there are a few other lessons to be learned from institutionalist regime theory. Regime theory would suggest that the creation o f the W T O itself represents a consensual negotiated regime that has resulted from the exercise 79 Ibid, at 4 & 30. 80 van den Broek, supra note 70 at 135. 81 Men Honghua, "Critiques of the Theories of International Regimes: The Viewpoint of Main Western Schools of Thought", at 5 online <http://www.irchina.org/en/pdf/mhhl.pdf.>. 82 Ibid. 31  of self interest by its individual members.  Further, Keohane's view on the significance  of the hegemon i n creating the system is equally insightful. A s w i l l be seen i n the next chapter,  the domestic  interests  o f the U . S . eventually changed the direction o f  negotiations over dispute settlement in a dramatic fashion. However, while the creation o f the judicial settlement system that now includes a full right o f legal appeal to a standing appellate body was a staple o f the negotiation i n the creation o f the W T O , the influence of the U . S . within a newly stabilized, rules based system has declined. This leaves room 84  to now fully revisit the value o f arbitration as an alternative to judicial settlement for certain disputes, an option whose potential has never been explored fully.  The theory also provides some explanation for the occurrences o f the failure o f retaliation as an effective mechanism for inducing compliance with W T O ruling. Although the rule orientation o f the D S B has resulted i n forms o f retaliation approved by the D S B , the underlying trade interdependence between disputing states has rendered the imposition o f the full brunt o f the sanctions impossible. In this way, retaliation as a remedy is very 85  limited in terms o f improving the overall regime.  Institutionalist regime theory is increasingly valuable i n informing the international law theories o f compliance. While regime theorists do not typically refer to law in explaining the international system i n rationalistic terms, others have noted that the classical  83 Gail E . Evans, Lawmaking Under the Trade Constitution: A Study in Legislating by the World Trade Organization (The Hague; Boston: Kluwer Law International, 2001) at 55; Robert Keohane, "After  Hegemony, supra note 75. 84 van den Broek, supra note 70 at 131. 85 van den Broek, supra note 70 at 147, referring to the dispute between the U.S. and the E . U . in relation to the "Foreign Sales Corporations" dispute. See infra note 335.  32  definition o f regimes as "principles, norms, rules and decision making procedures" is what international law is all about.  86  It has been argued that the work o f regime theorists  such as Keohane has created the "theoretical space for international law within 87  international relations theory".  2.3  International Law Theory  2.3.1  Societal Theories o f Franck and the Chaves  A s mentioned earlier, it is widely accepted that the D S B has been largely successful i n resolving a majority o f disputes resulting i n full or partial implementation. The societal theories o f Thomas Frank and Abram and Antonia Chayes provide some explanation o f the relative success o f the D S B by emphasizing the importance o f process. They also assist i n identifying weaknesses and shortfalls i n the current system. The ability to reconcile international law theory to institutionalist regime theory is most obvious i n Franck's work.  The main tenet o f Franck's theory is that the presence o f a sophisticated system o f rules, in and o f itself, creates a "compliance p u l l " on parties belonging to that system.  88  Members develop a sense o f obligation from the presence o f a fair process and coherent  86 Chayes & Chayes, supra note 61 at 1 (footnote 3).  87 Koh, supra note 73 at 2625.  The Power of Legitimacy Amongst Nations 16 [Franck, "Power of Legitimacy"].  88 Thomas Franck,  (Oxford: Oxford University Press, 1990), at  33  sense o f principles.  This line o f thought rejects the notion that compliance is dependent  solely on power. Indeed such a theory has proven to be inadequate in the context o f the W T O , given that both the U . S . and the E . U . have stronger records o f compliance in relation to smaller nations than they do with each other.  90  The sophisticated rules based  system under the W T O has therefore, as Franck might argue, exerted a compliance pull on participating states by fostering a belief that the institution has been created and operated based on generally accepted rules.  91  This in turn has granted the D S B a level o f  legitimacy.  The key elements that pervade Franck's work are the concepts o f legitimacy, fairness and communitarian peer pressure.  92  Legitimacy has its own influence in instilling obedience,  and is defined by Franck as "a property o f a rule or rulemaking institution which itself exerts a pull towards compliance on those addressed normatively" because o f a belief that the rule or institution has been created and "operates in accordance with generally accepted principles o f right process."  H i s general answer to the question o f why nations  93  obey the rules is that states perceive that the rules and institutions have a high degree o f legitimacy, where the institution has been created, and operated in accordance with principles to which parties have consented. legitimacy itself has a varying degree.  95  94  The compliance pull varies widely and thus  The higher the perceived level o f legitimacy, the  89 Americo Beviglia Zampetti, "Democratic Legitimacy in the World Trade Organization: The Justice Dimension" (2003) 37 J. World Trade 105 at 107.  90 van den Broek, supra note 70 at 148.  "Power of Legitimacy", supra note 92 Ibid, at 40. 93 Ibid, at 24. 94 Ibid. 95 Ibid, at 26. 91 Franck,  88 at 19.  34  greater the compliance pull. In order to ensure the level o f legitimacy, one must consider not only the policy results or "outputs", but also the "inputs" o f due process and fairness.  96  Franck offers four factors that determine the varying level o f legitimacy: determinacy; 97  symbolic validation; conceptual coherence; and adherence.  Determinacy is the level o f  clarity with which rules are expressed and understood, and ultimately the level o f transparency. It includes the malleability o f express terms in treaties, and the extent to 98  which they can be manipulated. Where the context can be determined with relative ease and certainty, there w i l l be higher degree o f legitimacy. Clarity therefore refers not only 99  to the inherent simplicity o f principles, but also the ease with which the precise meaning can be established through legitimate process, either by third party adjudication, or by the parties themselves. The second factor o f legitimacy is symbolic validation through rituals and processes that serve to express the accepted methods o f enforcing the authenticity o f the r u l e ,  100  thus legitimizing the system itself.  101  Franck's third factor o f legitimacy is conceptual coherence between the rules and the underlying principles to the decision-making process. coherence  is not  synonymous with  Here Frank clarifies that  consistency. Coherence can actually endure  96 Debra P. Steger, "The Struggle for Legitimacy in the WTO", Trade Policy Research 2003 (Ottawa: Minister of Public Works and Government Services, 2003) at 2 [ Steger, "Struggle for Legitimacy"]. 97 Franck, "Power of Legitimacy", supra note 88 at 40.  98 Ibid, at 50-90.  99 Ibid, at 64. 100 Ibid, at 91-134.  101 Ibid, at 93-4. \02 Ibid, at 135-182.  35  inconsistency o f treatment, as long as the distinctions which are made are justifiable on a 103 principled basis.  Coherence thus relates to the connection between the rules and the  rationale or principle underlying those rules.  The fourth factor is adherence - the nexus between the primary rule o f obligation and the secondary rule o f process.  104  Here, Franck draws on the conclusion o f H . L . A . Hart that in  form, the international system is primitive in that it lacks "secondary rules".  105  Hart  suggests that a system o f law requires a hierarchy o f rules. The primary rules are the primary obligations that can often be determined from the text o f treaties itself. In the case o f the W T O , this would be principles such as the overriding rule o f nondiscrimination. Secondary rules are those that define the process for developing or changing the primary rules. For the W T O , this would include the procedural rules in the D S U . The secondary rules thus create the manner by which rules are formalized through a valid exercise o f power, and provide the facility within which those primary rules are legitimized, such as a court.  In Hart's hierarchy, there is an overall recognition that rules are binding. However, because the international system did not always have secondary rules, international rules were merely respected out o f a sense o f obligation, but were not o b e y e d .  106  Franck agrees  that the compliance pull o f rules w i l l be much more forceful when the primary rules are supported  with  secondary  rules,  though  this  does  necessarily  mandate  the  103 Ibid. 104 Franck, "Power of Legitimacy", supra note 88 at 183-194. 105 See H . L . A . Hart, The Concept of Law (Oxford: Claredon Press, 1961). 106 Ibid; see also Koh, supra note 73 at 2616, describing the "theoretical critique of the obligatory force of international law".  36  overdevelopment o f rules. Franck recognized that the international system had changed since Hart's writings, suggesting that there were stronger obligations which arose by virtue o f states' memberships within international institutions.  107  In looking at the four factors, it is difficult to detect where judicial settlement has a 108  significant advantage over arbitration that is now institutionalized under the D S U , assuming that the latter provides the parties with a greater deal o f control over the decision maker and the process. The element o f "clarity" reflects the ease with which primary rules can be interpreted. The necessity o f an appeal within the judicial settlement process would itself illustrate a problem with interpretation. Furthermore, while an appeal process may be justified on the basis o f promoting consistency, it is possible that such consistency does not reflect the true meaning o f the obligation, or worse, that it merely promotes what is broadly perceived as a biased interpretation. The third and fourth factors o f coherence and adherence both deal with the relationship between the principles and the process, important for both arbitration and judicial settlement. The aspect o f symbolic validation is likely much more consistent with the creation o f a regular court rather than a system o f arbitration. However a fully matured W T O may invoke this symbolic validation in a general sense, while arbitration under the auspices o f that institution may provide only slightly less value as a symbol than does the judicial settlement system.  107 Franck, "Power of Legitimacy", supra note 88 at 185-186. 108 This process of the institutionalization of arbitration by virtue of Article 25 of the D S U is more fully discussed in Chapter 3 below.  37  In his later work, Franck refers more to fairness than legitimacy.  He suggests that  nations have little incentive to obey rules that are not perceived to be fair, and that the level o f fairness is determined by the process o f discourse. A s such, the system as a whole is more so a process than a system o f rules. The obedience to rules arises from a cost benefit analysis, but the ultimate compliance pull emanates from communitarian peer pressure.  110  Overall Franck still views legitimacy as the link to compliance, a significant  point o f contention with Keohane's institutionalist regime theory.  111  The work o f Thomas Franck is therefore useful i n explaining the relative success o f the D S B . The sophisticated rules based system under the W T O has, as Franck might argue, exerted a compliance pull on participating states by fostering a belief that the institution has been created and operated based on generally accepted rules.  The success o f the  D S B can o f course be partially attributed to the creation o f primary rules during the Uruguay Round - the W T O treaties, i n which the founding members participated. The well developed legal framework o f the W T O has resolved a majority o f disputes resulting in full or partial implementation, largely due to the development o f secondary rules. This in turn has granted the D S B a level o f legitimacy. The existence o f a set o f primary rules, and a sophisticated process for regulation would exist whether or not a particular dispute is resolved by adjudication through a standing judicial body, or an arbitrator who applies primary rules through secondary rules chosen by the disputing parties, as secondary rules need not be sedentary. However, secondary rules ensure the process is fair and thus Fairness & International Law and Institutions 1995) [Franck, "Fairness & International Law "]. 109 Thomas Franck,  (Oxford: Oxford University Press,  110 Koh, supra note 73 at 2642. 111 Robert Keohane, "Power and Governance", supra note 55 at 121. 112 Franck, "Fairness & International Law", supra note 109 at 19.  38  legitimate, and are designed to foster the consensus building process within the W T O . Arbitration that is already incorporated into the D S U simply provides an alternative form of secondary rules.  It is not evident that the use o f a developed arbitration process for specific disputes that allows individual disputants more control over process or secondary rules, would be any less beneficial from the judicial settlement system i n this respect. Some might argue that outside parties may have less confidence in such a system, though it is the disputant parties that either w i l l or w i l l not comply with a specific rulings or award i n a specific case. It is i n fact arguable that the opposite is true - that the disputing parties would be more confident i n the legitimacy or fairness o f the secondary rules that they helped design in respect o f the specific dispute at issue. This may be even more true for many o f the developing and least-developed nations that have joined the W T O after the Uruguay Round, or who may have felt pressured into more rigid form o f "one size fits a l l " dispute settlement during the Uruguay Round by the threat o f U . S . unilateralism. A s discussed i n the next chapter, the actual participation o f other states i n the creation o f the W T O dispute resolution system was marginalized by this factor.  B y itself, the compliance pull theory fails to explain all incidents o f non-compliance i n cases of judicial settlement. One example is the dispute between Canada and Brazil over 113 the regional aircraft industry.  Canada has generally demonstrated a high regard for the  principles o f the W T O . Its leaders have referred to the importance o f the binding nature 113 See e.g. Canada - Export Credits and Loan Guarantees for Regional Aircraft - Recourse to Arbitration by Brazil under Article 22.6 of the DSU, WT/DS222/ARB, 17 February, 2003 online: W T O <http://www.wto.org/english/tratop e/dispu e/cases_e/ds222 e.htm >.  39  of such decisions o f international bodies in the context o f the U . S . refusal to adhere to decisions relating to N A F T A complaints relating to softwood lumber products.  114  Canada  has been one o f the primary users o f the D S B , yet has failed to implement the D S B ruling i n favour o f Brazil. If Canada perception's o f the W T O is one o f a high level of legitimacy, why has it failed to fully implement its decision in even a single case? Franck's theory is limited in this respect, unless fairness or legitimacy can be seen as varying from case to case - where the same set o f rules and process are seen as less fair or legitimate depending on the context, or perhaps importance, o f the case at issue.  Franck's work is often logically compared to that o f Abram and Antonia Chayes. A common feature between the two theorists is that they provide convincing explanations o f the important role o f fairness in explaining compliance in international l a w .  115  The  Chayes propose a cooperative mode o f compliance similar to that o f Franck, but emphasize the role o f discourse in their "managerial model". Their theory begins with a critique o f r e a l i s m .  116  L i k e Franck, the Chayes challenge the realist tradition, contending  that it is through treaty regimes that states comply, and not through the threat o f any form of sanction.  114 Peter O'Neill & Stewart Bell, The Vancouver Sun 1 October, 2005. In response to the U.S. reaction after a NAFTA panel decision favouring Canada in the longstanding softwood lumber dispute, Paul Martin, then Prime Minister of Canada was quoted as saying: "Free trade depends on a dispute settlement procedure that is respected by all parties in letter and in spirit, and unfortunately the reaction to ("of) the U.S. in the face of the latest NAFTA panel decision on softwood lumber mocks that principle, and in so doing it sends the wrong message to the world." 115 Marco Bronckers & Naboth Van den Broek. "Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement" (2005) 8 J. Int'l Econ. L. 101 at 111. 116 Chayes & Chayes, supra note 61 at 9-10. 40  According to the Chayes, the natural propensity to comply with international obligations is founded on three main factors. First, they argue that it is more efficient for states driven 117  by bureaucratic decision making machines to comply.  •  The investment o f time and  resources into the initial development o f the obligation is substantial. This is surely no truer than in the case o f the obligations under the W T O underlying agreements, which were the subject o f complex negotiations for over seven years during the Uruguay Round. The Chayes reason that it is too costly to revisit such decisions by choosing not to follow the course o f conduct to which a state has committed. Secondly, the Chayes point out that the decision to incur the obligation is subjected to a wide and complex process at both the 118  domestic and the international levels.  The rigorous processes provide some assurance  that the end result is representative o f the interests o f the state as a whole, as the policy has been exposed to high level o f scrutiny. Third, the Chayes point to the development o f "binding" principles o f international law such as pacta  sunt servanda,  119  the obligation o f  states to follow the clear wording o f treaty obligations in good faith. Here the Chayes cross paths with the regime theorists. Regime theory would also focus on the cooperative efforts that occur within the web o f norms and rules, although it would deny the Chayes' 120  contention that they would often centre around the treaty itself.  The Chayes' critique o f realism next engages the question o f why nations do not always comply.  While  they  acknowledge  the  most  obvious  examples  o f breaches o f  international law as cases o f bare defiance, they consider these to be the exception rather  Ul Ibid, at A. 118 Ibid, at 4-7.  \\9Ibid. at 8-9. \20 Ibid, at 1.  41  than the rule.  In explaining the majority o f cases o f non-compliance, they identify  three main factors: first, determinacy and ambiguity; second, the limitation o f capacity o f state; and last, the variable time lag that naturally arises after commitments are formalized.  122  The first factor is similar to Franck's concept o f determinacy, as the Chayes identify the fine balance that must be struck within the specific wording o f treaty obligations. While ambiguity in treaty wording may arise from the inability to foresee all possible conflicts, it may also result from the deliberate design o f two parties who are unable to resolve a 123  difference.  In the case o f the latter, ambiguous language is used to create the  obligation, and then it is left for the parties to propose their respective interpretations, when and i f the occasion arises. A s such, the Chayes' theory can be used to question the pursuit o f an objective, legally correct interpretation o f obligations in the wording o f the W T O underlying agreements.  This point is significant in considering a second factor for non-compliance: the time lag between a state's commitment and its ultimate compliance.  124  The Chayes acknowledge  that transitional periods are required for many treaties, particularly ones involving matters such as human rights, where the level o f adaptation may be great for certain states.  125  They emphasize however that initiating the process though an express  121 Ibid, at 10. 122/to', at 10-17.  123 Ibid, at 10-11. 124 Ibid, at 14-15. 125 Ibid, at 16-17.  42  commitment should be viewed as a significant step i n and o f itself, and ought not be 126  dismissed as "aspirational" only.  The third factor is the limitation o f capacity. Here the Chayes's focus on a state's economic inability to meet an obligation. The inability to comply may also arise from the limited resources o f developing countries, or the inability o f government to fully control 127  the conduct o f individuals who are the actual targets o f certain treaties.  Naboth van  den Broek expands on this factor, suggesting that in policy driven cases, there can be too 128  much pressure from domestic interests to permit the state to comply with the ruling.  While the Chayes might agree with Franck that compliance is not elicited through the threat o f sanction, they emphasize the "iterative process o f discourse" rather than Franck's touchstones compliance.  o f legitimacy or fairness, as that main thrust for inducing  A s in the case o f institutionalist regime theorists, reputation plays a  prominent role as a pressure towards  conformity to rules. However where  the  institutionalist regime theorist views the regime as encompassing a set o f prohibitive norms, the Chayes see the institution as constituting the forum for management o f i• 130 discourse.  The Chayes advocate for softer forms o f law designed to engage reputation. Thus, for example, transparency is necessary, as it facilitates a system o f monitoring behavior and 126 Ibid, at 17. Ml Ibid, at 13-14. 128 van den Broek, supra note 70 at 149.  129 Koh, supra note 73 at 2601. 130 Chayes & Chayes, supra note 61 at 228; Koh, supra note 73 at 2638.  43  reporting on specific instances o f non-compliance. The institution's role is to ensure transparency  and to provide a form o f dispute settlement  that can generate an  authoritative interpretation o f obligations. In this regard, the Chayes are unimpressed by the  international  lawyer's "obsession" with binding adjudication,  and are  more  131  favourably disposed to compulsory conciliation.  This softer form o f dispute settlement  fosters the iterative process o f discourse, making space for the underused methods o f 132  persuasion, or "jawboning".  This iterative process o f discourse takes place on several  levels: amongst the parties, within the organization and before the p u b l i c .  133  The Chayes' managerial approach, like Franck's compliance pull, thus focuses on process. Using the concepts o f H L A Hart, the Chayes' and Franck focus more on secondary obligations rather than primary obligations. The role o f the institution is to manage the process o f discourse and provide the forum for a discussion which converges around treaty n o r m s .  134  This process fosters an environment where any deviation from  norms require explanation and justification.  135  This process o f discourse and justification  itself reinforces those norms, and ultimately engenders a bias towards compliance. N o n compliance is explained not as a failure o f the system, but as attributable to a state's lack of capacity to implement decisions considered to be binding.  136  131 Ibid, at 24-25.  Ml Ibid, at 25. 133 Ibid, at 25. 134 Ibid, at 340. 135 Ibid, at 118-123. 136 van den Broek,  supra note  70 at 14, 151-152.  44  The managerial approach can thus be used to challenge the notion that non-compliance with the letter o f a D S B ruling should be considered a failure. Rather, the ruling should foster further discourse around the ruling that leads to a negotiated result, whether or not the ultimate resolution conforms to the letter o f the ruling. The managerial model o f the Chayes, like the contextualist approach o f Matthew Dunne discussed later, is thus helpful in drawing the parameters o f an appropriate role for the D S B .  A s for the explanation for compliance, there seems to be little difference as between a judicial settlement  system and an institutional arbitration system. The underlying  principles do not  necessarily prefer  a decision with  a process  before  a  fully  institutionalized standing body with legal appeal avenues over a single decision o f an arbitrator. The theory o f the Chayes emphasizes the process as a means to an end, not an end itself. The key element is the establishment o f a process around which treaty norms are discussed, thus facilitating the iterative discourse. The treaty combined with the third party's interpretation o f the obligation under the treaty forms the basis around which negotiations can converge. The purpose is thus not to produce an elusive, objective interpretation that may not exist, but rather to provide guidance as to the merits o f each party's position on the interpretation o f the obligations. A system o f judicial settlement may provide this forum in a formal sense, but institutional arbitration w i l l facilitate the discourse around treaty norms between the parties as well.  One main distinction with the judicial settlement system is that in an arbitration system, the discourse may occur in fewer stages when there is no appeal right. This does not  45  necessarily detract from the quality o f that discourse, or the extent to which deviation from that ruling requires explanation and modification. Conversely, ongoing appeal rights tend to overemphasize the "correctness" o f the ruling, and thus leave less room for any further negotiation.  2.3.2  K o h ' s Transnational Legal Process  Harold K o h praises what he terms the societal theories o f Franck and the Chayes, but finds that they fail to address an important aspect: the manner i n which global norms 137  become internalized as domestic law.  According to K o h , the important linkages with  domestic systems and the process o f norm internalization forms part o f a "transnational 138  legal process".  H e observes that while both Franck and the Chayes correctly conclude  that compliance is based partially on the perception o f legitimacy and fairness or on reputation, that there is another compelling motivation: the internalization o f norms into domestic systems.  139  This process o f internalization is initiated by an actor who provokes an interaction, ultimately forcing the issue toward an authoritative interpretation that generates a legal rule.  140  The actor who has initiated the process seeks to have the opposing party  internalize the determinative interpretation. Domestic institutions establish proceedings  137 Koh, supra note 73 at 2646.  \3SIbid. at 2646. 139 Ibid, at 2646-9. UOIbid. at 2649.  46  which then induce and maintain regular conformity.  The repetition o f this process is  important i n broadcasting and reinforcing the norm. The involvement o f additional actors such as international governmental organizations (IGOs) like the W T O enhances this process, as the I G O provides the forum for norm enunciation and elaboration.  142  This  transnational process ultimately enmeshes the norm into the domestic legal system. The norm first becomes widespread and is embedded i n the social fabric. This leads to a formal policy that embeds it politically. Finally it is embedded legally by way o f formal incarnation into domestic l a w ,  143  and thus becomes enforceable.  K o h ' s theory is insightful i n addressing the role o f domestic systems i n relation to compliance and enforcement. Naboth van den Broek builds on this i n his combined theory o f compliance, which considers the process o f norm internalization. In so doing, van den Broek relies on empirical data from the first ten years o f decisions from the W T O . Indeed, one o f his explanations for non-compliance is the conflicting norms o f international and domestic arena and the slow rate o f internalization o f the "higher" norms o f international l a w .  144  The transnational legal process provides a framework for understanding how the dynamics o f domestic politics fits within the issue o f compliance with W T O rulings, emphasizing the limitations o f a self-standing international law system. Without the internalization process described by K o h , the ability to enforce a ruling is limited. Yet the  141 Ibid, at 2654.  Wllbid. at 2650. 143 Ibid, at 2651. 144 van den Broek, supra note 70 at 148-151.  47  internalization process he describes is an inherently political process that is affected by pressures from domestic constituents. This is often a major hurdle to implementing change in politically difficult cases. A ruling by the D S B i n effect creates external pressures on the state government,  145  which can be used as tool for justifying negotiation  on an issue that is resisted by the domestic constituents. Indeed, while D S B rulings are said to be binding, the W T O still lacks an autonomous enforcement power. A s such, state governments can only credibly claim to its constituency that it is bound by the ruling when there is a lack o f information about the consequences o f non-compliance.  146  This is  an extremely tenuous basis on which to manage domestic pressures, and it is suggested, unrealistic on a long term basis in democracies with effective opposition parties.  In this respect, an arbitration ruling that is rendered by an arbitrator mutually agreed upon by the parties, as distinct from a ruling from a permanent judicial body, should be equally useful i n manoeuvring through the domestic politics to justify a negotiated resolution. The enforceability o f rulings from each are equally impaired. The result from either is the same - an objective assessment o f primary obligations has clarified the breach. Within the domestic sphere o f that state, a change i n policy can be justified on the basis that to do otherwise would be to breach an international obligation under a treaty, and jeopardize its reputation and the benefits that state enjoys under that treaty, unless an alternative resolution can be negotiated. Both a judicial settlement system and an arbitration system can lead to this result.  145 McGivern, supra note 9 at 153-4. 146 Bush and Reinhardt, "Testing International Trade Law", supra note 21 at 474.  48  2.3.3  Contextualism - Jackson's Power vs. Rules Paradigm Revisited  A s can be seen by the previous discussion, the compliance theories consistently look at the binary elements o f power and rules, generally include a critique o f the realist's obsession with power. The work o f legal scholar Matthew Dunne takes the fundamentals of Jackson's paradigm o f power orientation vs. rule orientation, and revisits its concepts as applied by the realist perspective, while incorporating many concepts from the compliance theories o f international law. Dunne proposes an alternative perspective to the realist view that power orientation and rule orientation are mutually exclusive categories. He advocates for "contextualism" and "flexible rule orientation", concepts which produce a more nuanced view o f the nature o f institutions and states.  147  This  synthesis o f power orientation with the rule structure is reminiscent o f institutionalist regime theory, as Dunne suggests that rules do not constrain the exercise o f power, but 148  rather serve to legitimate some behaviour while illegitimating other behaviours.  In the  end, the more powerful nations are still able to resist the application o f norms that run contrary to its own interests, but pressures by other mechanisms induce compliance in the majority o f cases.  B y this theory, compliance is not enforced exclusively by hard law measures such as sanctions, but rather more effectively by a mixture o f hard law, and forms o f soft law such as monitoring o f conduct. Maintaining transparency is important as it exposes the  147 Dunne, supra note 65 at 310-332 & 336-340. US Ibid, at 329.  49  non-compliance o f any particular state to a W T O ruling. The utility o f soft law is thus similar to its place in the managerial model proposed by Chayes.  More importantly, Dunne's contextualism refines the notion o f power within the W T O , suggesting that outcomes o f disputes are determined by a number o f factors: the nature o f the issue; the behaviour o f the parties in question; and the context within which the dispute arises and is contested.  149  While it is likely that the state with more power w i l l be  successful in a given dispute, power cannot be defined in static terms. To Dunne, power must be considered in the context o f the particular issue in question, not overall structural power. Dunne uses the example o f the level o f commitment as an independent variable o f power.  150  While larger countries may have less time to devote to one o f many concerns or  interests, a smaller, less powerful country may be much more devoted to a favourable outcome on an issue that is its primary concern.  151  This serves to refine the definition of  power within the W T O system. It is neither an absolute concept, nor one that is based only on economic power in the classical sense. Power can, as international lawyers would hope, be derived from the rules based system. In the case o f W T O , this explains how developing countries can indeed exercise a form o f power.  Secondly, Dunne proposes that the behaviour o f the parties within the dispute, which cannot always be predicted, is itself a factor on the outcome.  152  Here, economic power is  149 Ibid, at 317-321. 150 Ibid, at 317-319. 151 Ibid. Here Dunne, uses the  example of Ecuador in the Bananas dispute with the E . C . . Ecuador would have been much more concerned about the banana industry, a staple of its economy, while the E . C . would have undoubtedly had numerous other trade matters of much higher concern. \52 Ibid, at 317-321.  50  subservient to the elements o f reputation and perceived reality. While a more powerful country may be able to draw on its broader economic influence, a smaller party may be able to engage tactics such as public conformation to "shame" the more powerful ,  party.  153  Dunne considers the context o f the dispute as the third factor affecting the outcome o f disputes.  154  The available rules, such as the provisions authorizing a party to exercise  retaliation, combined with the surrounding circumstances, may give the smaller, weaker country a form o f leverage. While negotiations on a particular trade dispute may be bilateral, it is resolved i n a multilateral context. Again, using the E.C. dispute  155  Bananas III  as an example, Dunne points out that Ecuador, a developing state, was able to  obtain the D S B ' s authorization for a form o f "cross retaliation". This allowed Ecuador to impose sanctions against the European Community (the " E . C " ) i n the area o f intellectual property, a pressure point for the E . C .  1 5 6  Ecuador's action ultimately contributed to the  settlement o f the case. The concept o f power has also been used to include other contextual components: the ability to influence the decision-making o f other states through  "communicative  measures";  the ability  to  influence  the formation o f  internalization consensus and the creation o f an international law; and a state's ability to •  157  insulate itself from the influence o f other states i n determining its own policies.  153 Ibid, at 318-319. 154 lb id. at 320-321.  155 See infra note 410. 156 Dunne, supra note 65 at 320-321. 157 van den Broek, supra note 70 at 134.  51  Dunne's concept o f contextualism thus suggests that outcomes in trade disputes w i l l always be uncertain and unpredictable to a degree, because the behaviour o f the parties and the reaction o f the international community can never be predicted with total 158  accuracy.  He rejects the simplistic equation o f "economic power equals victory".  Dunne further suggests that the shift toward rule orientation is neither absolute, nor evolutionary. It is more akin to a pendulum, which swings from one end to the next, while never reaching either extreme.  159  One might therefore conclude that where the  system has swung too far in favour o f rule orientation, there w i l l eventually be a backlash towards the influence o f power.  The flexible rule orientation model, while recognizing the use o f sanctions as incentives for  compliance, also considers the tactics and tools o f parties within international  institutions. Dunne's approach therefore  intersects with the interests o f the societal  theorists: Franck's focus on issues o f legitimacy, and the role o f the institutions in the managerial approach o f the Chayes. The international institution becomes the instrument for channeling political pressures, engaging the element identified by Thomas Franck, Harold K o h and Robert Hudec as communitarian pressure.  160  Jackson himself recognizes  that rules that are negotiated may often have little meaning, but at a minimum, create a system in which disputes can be resolved by a combination o f rule application and  158 Dunne, supra note 65 at 332-335. 159 Ibid, at 332-335. 160 Koh, supra note 73 at 2642; Robert Hudec, "Broadening the Scope of Remedies Under the W T O " in Freidl Weiss, ed., Improving W T O Dispute Settlement Procedures: Issues and Lessons from the Practice of Other International Courts & Tribunals (London: Cameron May Ltd., 2000) 369 at 400 [Hudec, "Broadening the Scope"].  52  negotiation.  161  T h e negotiations take place w i t h i n the context o f rules, a n d b y reference to  the l i k e l y interpretation o f the o b l i g a t i o n s o f the transgressor.  162  T h e rule o r i e n t a t i o n c o n t e m p l a t e d b y J a c k s o n , as r e v i s e d b y D u n n e , also p r o v i d e s a basis to observe  h o w the j u d i c i a l settlement  system has been u s e d e x c e s s i v e l y .  Dunne's  a n a l o g y o f the p e n d u l u m p r o v i d e s a counterpoint to the a s s u m p t i o n that e v o l u t i o n o f dispute settlement i n G A T T a n d the W T O is linear. U s i n g the p e n d u l u m analogy, perhaps it has s w u n g too far, or has at least reached its l i m i t , before r e a c h i n g the extreme o f total l e g a l i s m . T h e trend towards o v e r - l e g a l i s m t h r o u g h extensive rules a n d procedures fosters a false  sense o f c o n f i d e n c e  a n d expectation  i n a one-size-fits-all f o r m o f dispute  resolution.  D u n n e ' s adaptation o f J a c k s o n ' s p a r a d i g m is a n important u n d e r l y i n g f r a m e w o r k f r o m w h i c h to c o n s i d e r a n d c o n c e p t u a l i z e effective  r e f o r m . W h i l e D u n n e ' s refinement o f  J a c k s o n ' s p a r a d i g m w o u l d not support r e v e r s i o n to a p o l i t i c a l or p o w e r based system, it helps c o n c e p t u a l i z e r e f o r m as the search f o r the i d e a l balance b e t w e e n rule orientation and p o w e r orientation. T h i s balance c a n be best a c h i e v e d i n a n alternative system o f dispute settlement for the s m a l l e r n u m b e r o f disputes for w h i c h the l e g a l i s t i c means w i l l not result i n i m p l e m e n t a t i o n o f p o l i c y change. D i s p u t e s i n v o l v i n g p o l i c y i m p l i c a t i o n s w h i c h go b e y o n d the issue o f trade are less l i k e l y to result i n i m p l e m e n t a t i o n based o n the a p p l i c a t i o n o f rules o n l y .  1 6 3  161 Jackson, "The Crumbling Institutions", supra note 63 at 103.  162 Ibid, at 99. 163 McGivern, supra note 9 at 156.  53  2.4  Conclusion  Records o f compliance within G A T T and W T O cannot be explained exclusively by the power  based  theories  international l a w .  164  o f realism, economic  rationalism, or compliance  pull o f  A s such it is important to canvass a spectrum o f theories. The  common element o f these theories is an emphasis on process as a means o f facilitating a discourse amongst states, as opposed to a system for obtaining an objectively correct interpretation o f the primary obligations. In all o f these theories, the role o f the institution is not to provide top down objective interpretation o f obligations, but rather to provide a forum and process for resolution. The rules provide guidance, which promote a legitimacy and sense o f fairness thus promoting compliance.  Secondly, they collectively emphasize the importance o f reputation i n the process, an element which does not necessitate a fully legalized system o f judicial settlement for every case, irrespective o f its nature. A n arbitration ruling that provides an objective interpretation o f obligations equally requires the unsuccessful party to contend with damage to reputation that necessarily flows from non-compliance. The ultimate role o f the D S B is to create the framework and a process o f secondary rules that focuses discourse around the interpretation o f the primary rules - the obligations o f the parties. While a judicial settlement system is useful for this process, it has not worked i n every case. A n arbitration system that injects more party autonomy over the decision-making and the retention o f the process might be one way o f addressing cases where non-  164 van den Broek, supra note 70 at 141-2.  54  compliance is more likely due to a variety o f factors - economic feasibility, overhaul o f fundamental values, or management o f domestic factions.  The importance o f reputation is a recurring theme in this thesis, as it contends that any structure o f the current D S B must leave room for, and engage, the element o f reputation into the dispute settlement process. The utility o f arbitration is in creating an alternative rule framework, as contemplated by compliance theorists such as Thomas Franck and Abram and Antonia Chayes. In difficult cases, arbitration could be just as effective as the system of judicial settlement in providing a ruling against which an offending state must measure its own behaviour. It has been argued that the goal o f high level panels o f the judicial settlement system is to obtain an objective analysis o f high profile dispute to unlock a political stalemate.  165  If that is indeed the main purpose, it would seem that an  arbitration ruling, without the necessity o f a permanent judicial institution with full legal appeals, could well fulfill that objective, and in some cases, more efficiently. While this may not necessarily result in a negotiated resolution in all difficult cases, it would at least not compound the damage on the judicial settlement system where states fail to comply after an extended appeal process.  The very presence o f the arbitration ruling would thus set the stage for further discourse as to how the losing party w i l l respond, while at the same time, engaging scrutiny and communitarian pressure o f the W T O member states. While arbitration under the D S U takes place outside the formal judicial settlement process, and is not subject to appellate 165 Joost Pauwelyn, "The Sutherland Report - A Missed Opportunity For Genuine Debate On Trade, Globalization And Reforming The W T O " (2005) 8 J. Int'l Econ. L . 329 [Pauwelyn, " A Missed Opportunity"].  55  review, the parties must notify the D S B o f the outcome, and any D S B member may raise any point relating thereto.  166  There is thus an institutional process o f discourse, taking  place in the context o f the D S B , which scrutinizes the conduct o f the disputing parties and reinforces the norms o f the W T O , and creates a greater force towards compliance. The elimination o f an appeal in a few politically difficult cases would reinforce the notion of the negotiated resolution. This is explored i n more detail in Chapter 5, after the review of arbitration proposals i n the Uruguay Round in Chapter 3, and the discussion o f the current judicial settlement system and arbitration provisions i n the D S U in Chapter 4.  166 Article 25.3 of the D S U .  56  CHAPTER III: THE DEVELOPMENT OF THE DSB IN THE URUGUAY ROUND 3.1  Introduction  The purpose o f this chapter is to consider the arbitration alternative in the context o f the historical development o f the judicial settlement system within the G A T T system and the W T O . In order to consider the potential and utility o f arbitration as an alternative, this chapter necessarily looks at the development o f the panel and appeal system, which is now the primary means o f dispute resolution firmly entrenched in the W T O . In tracking the development o f arbitration i n the context o f the historical development o f G A T T and W T O dispute settlement, I make the following points:  1) Arbitration in the context o f the G A T T system and the W T O has been conceived as an alternative to the system of judicial settlement now in place. 2) Throughout the existence o f the G A T T system and the negotiations in the Uruguay Round, arbitration as an alternative to judicial settlement  has  received widespread recognition. A s such, there has been the political w i l l to consider arbitration in the context o f the G A T T system and the W T O dispute settlement process. 3) The circumstances surrounding the development o f the D S U were such that the concept o f arbitration, while seriously considered as an alternative to the dominant mechanism o f judicial settlement, was not fully developed in the Uruguay Round.  57  In making these points, I demonstrate that the process o f arbitration has a place in the W T O and indeed untapped potential, while having historical support as an alternative to the predominant judicial settlement model. Further, this historical review would suggest that the development o f the dispute settlement system, in terms o f use and records o f compliance, has been pendulum-like and not linear. The history o f dispute settlement in G A T T has established that there have been periods o f high compliance, following the strengthening o f the rule system, followed by an eventual trailing off o f utility, thus necessitating new reform. This pendulum-like nature o f development necessitates a consideration o f the direction o f reform, and challenges the assumption that a more legalistic approach o f the judicial system is what is needed for effective reform o f the dispute settlement system. In so arguing, I suggest in later chapters that arbitration may well be a suitable model to strike a middle ground between a rules based orientation and a power based orientation, in particular cases.  3.2  History of GATT Prior to the Uruguay Round  The creation o f the current dispute settlement system was a long evolutionary process beginning in 1947 with the creation o f the G A T T system as a by product o f the failure o f the International Trade Organization (the "ITO"). The I T O was conceived in the Bretton Woods Conference o f 1947, and was meant to fall within the framework o f the United Nations. The Conference sought to address the world wide problem o f economic nationalism leading up to W o r l d War II, and ultimately led to the creation o f the  58  International Monetary Fund and the World Bank. The Havana Charter proposing the creation o f the ITO sought to monitor and regulate economic activity, including the problem o f escalating tariffs that had reached unprecedented levels in the 1920's and 167  1930's.  ,D/  It was a well developed and comprehensive document that included explicit  obligations based on the principles o f non-discrimination. The Havana Charter was not only a trade agreement, but included areas such as competition and labour.  The Havana Charter demonstrated a widespread desire to incorporate several forms o f dispute settlement, including both judicial settlement and arbitration. Chapter 8 o f the Charter contained the provisions for adjudication and arbitration o f trade disputes. Article 93 contained a specific provision that the executive could refer disputes to arbitration "upon such terms as may be agreed between the Executive Board and the Members concerned". Article 94 replicated this wording for a determination o f the presence o f any nullification or impairment o f benefits. In addition, Article 96 provided a form o f judicial settlement, by creating a reference for an advisory opinion to the International Court o f Justice. Dispute settlement under the Havana Charter was thus conceived as a multitiered system, with the benefits o f two alternative forms o f dispute settlement processes involving decisions from third parties, though without clear guidelines as to how each would apply in any particular case. The difficulty o f integrating these two forms o f dispute settlement was therefore not resolved by the text.  167 Par Hallstrom, The GATT Panels Jurisfdrlaget, 1994) at 22.  and The Formation of International Trade Law.  (Stockholm:  59  The Havana Charter was ultimately rejected by the U . S . Congress over concerns that the 168  other members did not share the U.S. vision o f free markets.  Consequently, the Havana  Charter was never ratified, and the ITO was relegated to "still-born" status.  169  While the  negotiating parties failed to create an institutional structure for a trade agreement, the parties did manage to salvage the remnants o f the trade agreement itself. However, i n order to circumvent the scrutiny o f the U.S. Congress, the agreement was limited to trade i  170  issues only.  On October 30, 1947, the 23 Contracting Parties, as they were referred to i n the treaty, 171  signed the General Agreement on Trade and Tariffs ("the G A T T " )  and the Protocol of  Provisional Application putting the G A T T into force on a provisional basis - where the 172  legal basis was accepted without actual ratification.  While it remained a provisional  agreement with a tentative legal basis, it nevertheless established a reduction o f tariffs 173  and fixed binding tariff rates.  The dispute settlement provisions were contained i n Articles X X I I and X X I I I o f the G A T T , which set out only a vague framework. Article X X I I required the Contracting Parties to give "sympathetic consideration" to the matters affecting the operation o f the  168 Ibid, at 23. 169 G A T T , Negotiating Group on Dispute Settlement, Concepts, Forms and Effects of Arbitration, Note by the Secretariat, G A T T Doc. No. MTN.GNG/NG13/W/20, (22 February 1988). 170 Hallstrom, supra note 167 at 25. 171 U N Doc E/PC/T/214 October 13, 1947, entered into force Jan.l 1948, 61 Stat. A5, 55 U.N.T.S. 187. 172 Hallstrom, supra note 167 at 25-6. 173 The obligations and customary practices were later more formally set out in the G A T T , Understanding  Regarding Notification Consultation, Dispute Settlement and Surveillance, 3 December 1979, G A T T Doc. No. L/4907 (the "Tokyo Understanding"), signed by 99 Contracting Parties at the conclusion of the Tokyo Round of G A T T negotiations in 1979.  60  G A T T , and provided a vague process for consultations, thus reinforcing the political element o f the organization. Article X X I I I provided the process for legal complaints and represented the only teeth to the dispute settlement system. However, it constituted a basis for the eventual development o f the panel system o f the G A T T system (hereinafter referred to simply as " G A T T " ) and, indirectly, the more formalized judicial settlement system o f the W T O .  Article X X I I I allowed the Contracting Parties to rule on governmental action alleged to have violated obligations under the G A T T , to make recommendations, and to authorize an aggrieved state to withdraw concessions. For the first few years, disputes were addressed through the formation o f "working parties", which were to investigate complaints, resolutions.  guide 174  disputants  towards  solutions and  make  recommendations  for  Overall, the two dispute settlement articles provided very little in terms o f  a procedural framework, and have been best described as "a diplomat's concept o f legal order".  Interestingly, while Article X X I I I tracked much o f the language o f the Article  93 o f the Havana Charter, it omitted any reference to an arbitration alternative. This has led to the conclusion that it may have been deliberately e x c l u d e d .  176  If true, this would  only reinforce the significance o f the specific discussion o f an arbitration alternative in the Uruguay Round and the eventual inclusion in the W T O dispute settlement process. 174 Young, supra note 43 at 393. See also Porges, supra note 27 at 148-149. 175 Hudec, "Enforcing International Trade Law ", supra note 21 at 7. 176 Valerie Hughes, "Arbitration Within the W T O " in F. Ortino & E . - U . Petersmann, eds., The WTO Dispute Settlement System 1995-2003 (The Hague: Kluwer Law International, 2004) 75 at 76. Notably, while a report prepared by the G A T T Secretariat during the Uruguay Round notes the exclusion of arbitration from the text, it does not suggest that the exclusion was deliberate, and goes on to refer to the fact that many G A T T parties had already included ad hoc arbitration in bilateral agreements. Supra note 15. The fact that some G A T T members felt that arbitration was always available notwithstanding its exclusion from the text may suggest that the drafting parties did not feel it was necessary to include any explicit reference to mutually agreed arbitration.  61  Despite the uncertain and fragile basis for the legal order in Article X X I I I , the panel system was used frequently and with great success in the first 12 years.  Even with the  absence o f details in Article X X I I I , the panel system o f adjudication had developed as a 178  practice by 1955.  Article X X I I I provided no specific rules entitling a Contracting Party  to a panel, nor did it provide any guidance as to the adoption o f panel decisions by the Contracting Parties. B y practice, panel decisions would only be adopted by consensus. This left room for any Contracting Party, particularly the losing party in the dispute, to block the adoption o f the panel report. Nevertheless, in the period between 1948 and 1959, approximately 40 complaints were made within the dispute settlement provisions, and approximately 80 per cent o f the complaints were successfully resolved.  179  A l l o f this  was achieved despite the fact that no complaint was ever referred to the International Court o f Justice for an opinion. The first 12 years thus laid the foundation for G A T T as an independent quasi-institution based primarily on a political or diplomatic framework. It maintained its own self-standing dispute settlement apparatus within a structure that was based primarily on customary practice.  From these early successes resulting i n the rudimentary rule formation in G A T T , the development o f dispute settlement was very much akin to a pendulum swinging back and  177 Robert E. Hudec, Adjudication of International Trade Disputes. (Trade Policy Research Centre, London: Ditchling Press Limited 1978) at 8 [Hudec, "Adjudication of International Trade Disputes"]. 178 The first dispute referred to a Panel of experts was a dispute between Norway and Germany in 1952, however it became a practice by 1955. See Terence P. Stewart, (ed.) The GATT Uruguay Round: A Negotiating History (1986-1992) (Volume II: A Commentary) (Deventer & Boston: Kluwer Law and Taxation Publishers, 1993) at 2676; Hudec, "Adjudication of International Trade Disputes", supra note 177  at 8; Jackson, John H. The World Trading System: Law and Policy of International Economic Relation.(Cambridge, Massachusetts & London, England: The MIT Press, 1989) at 95 [Jackson, "The  World Trading System "]. 179 Hudec, Adjudication of International Trade Disputes", supra note  177 at 8-9.  62  forth. Indeed, the pendulum swung back in the next fifteen years, which proved to be an 180  unproductive period o f decline for G A T T .  Far fewer complaints were filed, most o f  181  which were initiated by the U . S .  Only ten were filed in the period between 1960 and  182  1969.  The infrequency o f recourse to the panel system has been attributed to the loss 183  of the confidence in the system.  Indeed, by the 1970's, it was clear that there was  changing landscape for several reasons. The breakdown in the consensus was tempered by a change in the overall balance o f economic power. The development o f the European Economic Community, (the " E E C " ) and the emergence o f Japan created two new 184  economic powers as a counterbalance  to U . S . hegemonic power.  A period o f  protectionism set in, characterized by the development o f voting blocs within the expanding membership o f G A T T , and the proliferation o f new tariffs and non-tariff barriers.  185  Tensions mounted, and reference to the dispute system was perceived as  hostile. The disputes were often lengthened considerably by disputes over procedure. The need for changes set the agenda for the Tokyo Round o f negotiations commencing i n 1973. The objectives o f the Tokyo Round were to develop clearer rules on the disputes, and  marked  negotiations.  the 186  first  time  that dispute  settlement  was  the  subject  o f formal  In essence, the Understanding Regarding Notification Consultation,  Dispute Settlement and Surveillance finalized by the Contracting Parties in 1979 (the 180 Porges, supra note 27 at 149. Porges refers to a 17 year period of decline.  181 Hudec, "Adjudication of International Trade Disputes", supra note 177 at 13. 182 Stewart, supra note 178 at 2679.  183 Hudec, "Adjudication of International Trade Disputes", supra note 177 at 13; Stewart, supra note 178 at 2680.  184 Hudec, "Adjudication of International Trade Disputes", supra note 177 at 22; van den Broek, supra note 70 at 131. 185 HallstrOm, supra note 167 at 37; Stewart, supra note 178 at 2680. 186 Porges, supra note 27 at 150.  63  "Tokyo Understanding") also codified the customary practices relating to the panel process that had developed over the previous 25 years. A t this point the resolution o f the individual dispute was the primary objective over the development  o f enduring  principles. This bias towards the resolution o f individual disputes can be seen in the dispute settlement system. Separate dispute settlement processes were developed within nine different areas, or "codes", creating a patchwork o f processes for different areas o f trade. The Tokyo Understanding also emphasized the conciliatory role o f G A T T as well as the resort to arbitration and to the panel system. It addressed the use o f non tariff barriers, the improvement o f the panel process and the process o f surveillance o f the implementation o f panel  reports.  It clarified  that recommendations  were  to  be  implemented, preferably through the withdrawal o f measures; then, i f not forthcoming, through the provision o f compensation, and as a last resort, through retaliation.  While the legal status o f the Tokyo Understanding was uncertain, the crystallization o f the framework now formalized in a written text seemed to increase the confidence o f the Contracting Parties in the panel system. Recourse to panels increased after the Tokyo 187  Understanding.  In 1982, the Contracting Parties issued a Ministerial Declaration  stating that while there was no need for major changes from the Tokyo Understanding, improvements were needed in the areas o f consultations, the establishment o f panels, the • •  188  procedural framework o f the panel process and the enforcement o f panel decisions. The declaration also affirmed the role o f the G A T T Secretariat in assisting panels with 187 Though the frequency may have equally represented the increased tension, the fact that parties increasingly sought fit to address that tension by referring complaints to the panel system surely suggests that the process presented a viable option. ,h 188 G A T T , Ministerial Declaration, Contracting Parties 38 Session, G A T T Doc. No. L/5424, (29 November 1982) at 6-8.  64  the "legal, historical and procedural matters dealt with".  189  In the eyes o f some observers,  G A T T ' s transformation to legalism can be traced back to this period o f time - this change in direction laid the foundation for the eventual establishment o f the legalistic dispute settlement system within the institutional framework o f the W T O .  1 9 0  The transformation o f G A T T in the mid-eighties is undeniable. Between 1985 and 1989, 69 complaints were filed. Once again, approximately 80 per cent o f the cases were successfully resolved.  191  However, G A T T ' s improvement was not limited to the quantity  of complaints made or resolved - the improvement transcended to the quality o f the decision-making. Robert Hudec has noted that in this period, G A T T produced higher 192  quality decision makers, and dealt with much more difficult or sensitive issues.  The success o f G A T T in this period o f time can likely be attributed to the increased involvement o f the G A T T Secretariat contemplated in the 1982 Ministerial Declaration. The involvement o f officers o f G A T T ' s Secretariat as independent legal researchers and advisors led to a more legalistic approach to panel decision-making, resulting in a more 193  cohesive body o f law and analysis o f the obligations.  G A T T had therefore shifted from  a diplomatic institution to a rule oriented, legalistic system where procedures were more  mibid.  at 7.  190 Robert E . Hudec, "The New W T O Dispute Settlement Procedure: An Overview of the First Three Years", (1999) 8 Minn. J. Global Trade 1 at 4 [Hudec, "The New W T O Dispute Settlement Procedure"]; Jackson, "The World Trading System ", supra note 178 at 98, who refers to the 1982 ministerial meeting as resulting in considerable stress in the direction of "rule integrity". 191 Hudec, "The New W T O Dispute Settlement Procedure", supra note 190 at 8-9. 192 Hudec, "EnforcingInternational Trade Law", supra note 21 at 199 & 206-208. 193 Hallstrom, supra note 167 at 19-20.  65  clearly defined, and where panels sought to interpret the obligations under the G A T T with more precision and consistency.  However, another noticeable development during this period was the practical limitations of G A T T .  While the legal framework had become more cohesive, the political  commitment o f the Contracting Parties in the face o f the consequences o f this renewed legalism was more doubtful.  194  were blocked from adoption.  195  In the period o f 1985 and 1986, five o f six panel reports The disputes typically involved the U . S . and the E . C ,  and covered more sensitive issues such as agricultural products. Retaliation proved to be very limited as a coercive force towards compliance. B y 1988, there had been only one case where the Contracting Parties used Article X X I I I to authorize the suspension o f concessions as a result o f a failure to implement panel recommendations, and the authorization was never acted u p o n .  3.3  196  The Beginnings of the Uruguay Round  A t the time o f the commencement o f the Uruguay Round, G A T T still had a fairly good 197  compliance record.  194 Hudec,  Nevertheless, with the growing sensitivity o f disputes and the  "EnforcingInternational Trade Law", supra note 21  at 201-203.  195 ibid. 196 Jackson, "The World Trading System ", supra note 178 at 96; Hudec, "New W T O Dispute Settlement Procedure", supra note 190 at 5. The Contracting Parties approved the suspension of concessions by Netherlands against the U.S. in its dispute over the barrier on importation of grain, however Netherlands never implemented any suspension. See also John Croome, Reshaping the World Trading System: A History of the Uruguay Round. (The Hague: Kluwer Law International, 1999) at 279. 197 By 1988, 233 complaints had been made, and 73 reports completed, most of which were adopted and implemented by the losing parties. See Jackson, "The World Trading System ", supra note 178 at 98-99.  66  increasing problem o f non-compliance with panel recommendations, the Contracting Parties agreed to include dispute settlement i n the new round o f negotiations. The Uruguay Round was launched i n Punta del Este i n September o f 1986. The Ministerial Declaration from Punta del Este included both general and specific objectives - to "improve and strengthen the rules and procedures o f the dispute settlement process", and to develop arrangements for the "monitoring o f the procedures that would facilitate compliance with adopted recommendations".  198  The Uruguay Round was an extremely ambitious undertaking. Not only did it involve newer obligations and commitments i n contentious areas such as agriculture, it looked to expand into entirely different  sectors  such as services and intellectual property.  Negotiations were broken down into fifteen separate negotiating groups, including the Negotiating Group on Dispute Settlement. Despite the breadth o f areas of trade that were covered, the negotiations were conducted on a "single undertaking" basis - members were required to consent on all agreements simultaneously.  199  The negotiations were  further complicated by the growth in membership. B y the beginning o f the Uruguay Round, 86 states were members throughout the r o u n d .  200  o f G A T T , with membership steadily increasing  Given the unprecedented magnitude o f these negotiations, it is  198 G A T T , Ministerial Declaration on the Uruguay Round, September 20, 1986, 33 G A T T / B I S D 19 (1987). 199 Peter Sutherland, "Concluding the Uruguay Round - Creating the New Architecture of Trade for the Global Economy" (2000-1) 24 Fordham Int'l L.J. 20. 200 Ibid, at 20. Membership started at 86 at beginning of the round, increased to 100 by the end of 1990, and then to 125 by the end of the Uruguay Round. Many of the states who joined during the Uruguay Round did so in anticipation of the creation of a new institutional body for which they could be founding members.  67  not surprising that the Uruguay Round eventually spanned eight years, despite the fact that the initial deadline for completing negotiations was the end o f 1990.  The Negotiating Group on Dispute Settlement (the "Negotiating Group") focused on the birth defects o f the original G A T T dispute system:  the need for stricter deadlines for  the completion o f the panel process; the potential o f an appeal process for review panel decision; the need for a new system for the adoption to address the problem o f blocking; the  need  for measures requiring implementation o f reports  after  adoption  and  surveillance; and the need to clarify the roles o f conciliation, arbitration and retaliation. The Negotiating Group also sought to create a unified system o f dispute settlement for all areas o f dispute, to reverse the fragmentation o f the dispute settlement resulting from the Tokyo Round. In addition, several Contracting Parties made a push to bring these new legal rules within an institutional setting, a concept that was still met by much resistance from the U . S .  The Round did ultimately achieve the important symbolic effect o f  clarifying, once and for all, the legal status o f the formal decisions resulting from the  panel process,  3.4  but the road to that point was a long and rocky one.  The Initial Proposals and the Arbitration Alternative  The tension between the political or diplomatic characteristics o f G A T T and the legal aspects were apparent from the outset o f the Uruguay Round. The negotiations relating to  201 John H . Jackson, The Uruguay Round, World Trading Organization and Problem of Regulating International Economic Behaviour. (Carleton University, Ottawa: Graphic Services, 1995) at 9 [Jackson, "The Uruguay Round"]  202 Ibid, at 9.  68  the dispute settlement mechanism revealed divergent perspectives i n the philosophical approaches amongst the U . S . , Canada, the E . C . and Japan, the so called "quad members". While the U . S . and Canada viewed the objective o f the dispute system as establishing the correct and objective legal interpretation o f treaty obligations, the E . C . and Japan saw the system geared towards settlement, confidential negotiations, and obtaining solutions to 203  the specific disputes i n question, irrespective o f the specific legality o f the obligations. While these divergent views o f dispute settlement have often been associated with the political and the legal dichotomy, it is also a distinction between judicial settlement and arbitration. A s suggested earlier, the primary goal o f arbitration is the settlement o f the dispute as between the affected parties, and less so the creation o f any form o f legal precedent.  Early i n the Round, it became clear that the concerns o f the U . S . would drive the direction o f the discussions on the dispute settlement system. In mid-1987, the U . S . submitted a proposal for the improvement o f the dispute settlement system.  204  The  proposal included practical changes, such as tighter timeframes for resolution o f disputes. Most importantly, it addressed the major problem o f report-blocking, proposing that panel reports become binding automatically, and subject to retaliation measures i f the offending measures were not withdrawn and compensation not provided. The U . S . acknowledged there could be the problem o f legally flawed reports, and suggested that reports be made binding unless there was a consensus against adoption. The U . S . alternatively proposed that adoption o f the report exclude the parties involved i n the 203 Mora, infra note 247, at 128-136; Young, supra note 43 at 389-390; Croome, supra note 196 at 125.  204 Improved Dispute Settlement: Elements for Consideration. Discussion Paper Prepared by United States Delegation, G A T T Doc. No. MTN.GNG/NG13/W/6 (25 June, 1987). 69  dispute process. The proposal concluded by suggesting that the dispute settlement system could only function successfully i f the Contracting Parties "come to view dispute settlement not as a contest o f wills but as an essential element in the management o f the world trading systems".  205  The possibility o f arbitration as an alternative to a system o f judicial settlement was presented early on during the Uruguay Round. The U . S . proposal suggested that the Contracting Parties should consider a system for binding arbitration as an alternative means o f resolution that would co-exist with the panel system. The U . S . noted that arbitration was a "widespread and common form o f dispute settlement i n international trade" and could be used in lieu o f the normal panel process in certain classes o f disputes, 206  for simple issues that were taking "too long and becoming too political".  The  arbitration system proposed would exclude any approval process, but would require the consent o f both parties to the dispute. A failure to implement recommendations would 207  automatically give the aggrieved party a right to compensation or retaliation.  The  proposal thus conceived o f a two-tiered system providing more than one form o f dispute settlement for different types o f cases. A s w i l l be seen later, arbitration was conceived within subsequent proposals as a true alternative to other possible means o f dispute settlement.  205 Ibid, at 6. 206 Ibid, at 2. 207 G A T T , Negotiating Group on Dispute Settlement, Summary and Comparative Analysis of Proposals Revision G A T T Doc. No. MTN.GNG/NG13/W/14/Rev.l, (26 February 1988), at 30, para. 81. But see Hughes, supra note 176 at 77 where she describes the U.S. proposal as intending that a party would not be "compelled" to implement, leaving compensation or retaliation as options.  for Negotiations, Note by the Secretariat,  70  Other members however did not embrace the U . S preference for legalistic means o f dispute settlement. In September o f 1987, the E . C . submitted its own proposal, asserting its underlying philosophy that the primary goal o f dispute resolution should be a negotiated settlement. The proposal further asserted that the legal aspects ought not •  208  become  the  "key element".  While  the  proposal made  many  suggestions  for  improvement, it confirmed a fundamental disagreement on the principle o f consensus and the adoption o f panel reports. O n the issue o f panel reports, the E . C . recommended maintaining the consensus principle for both the adoption o f the panel report, suggesting that the quality o f panel reports should simply be i m p r o v e d .  209  The implementation o f  recommendations would be subject to time deadlines, after which the successful party would be entitled to compensation or retaliation.  The E . C . proposal also grappled with the idea o f arbitration having utility for specific disputes. The E . C . observed that a mandatory arbitration process did not require the approval o f G A T T Council (the "Council"), and had always been available to the Contracting Parties. arbitration process.  211  210  Nevertheless, the E . C . favoured the institutionalization o f the The proposal noted however that it would be difficult to define the  categories o f disputes where arbitration should be prescribed in place o f the panel process, but suggested that it should be limited to factual issues only and not to situations 212  involving questions for interpretation that could a constitute a legal precedent.  Once  208 Communication From The EEC, G A T T Doc. No. MTN.GNG/NG13/W/12 (24 September 1987) at 2.  209 Ibid, at 4. 210 Ibid, at 3. 2\\ Ibid. at3. 212 lb id. at 3.  71  again, the issue o f how to categorize disputes as more suitable for arbitration as opposed to the judicial settlement system was identified, though this did not lead to much discussion. Such a discussion may well have been useful, as both U . S and E . C . proposals suggested that arbitration would be useful in only limited situations, where the issues were relatively easy to settle or factual.  A t this point, arbitration began to be considered as a possible solution for the shortcomings o f the panel system. The exchange o f proposals by the U . S . and the E . C demonstrated that the issues o f adoption o f panel reports and arbitration were linked. The U . S . position seemed to assume that any panel system might retain some inefficiency and thus strongly advocated for a more efficient alternative system o f binding arbitration. The link between these issues was reinforced by a Swiss proposal made on September 18, 1987 that suggested an arbitration process in the event that the Council failed to adopt a panel report.  214  215  A letter proposal by Japan  incorporating suggestions on arbitration demonstrated that it  shared the recognition o f the other quad members that an alternative process for binding dispute settlement for specific types o f disputes could be useful, despite the difficulty o f identifying the types o f disputes that would be suitable for such a regime. The proposals 213 Hughes, supra 176 at 78. 214 Communication From Switzerland, G A T T Doc. No. MTN.GNG/NG13/W/8 (18 September, 1987) at 3. 215 Communication From Japan, G A T T Doc. No. MTN.GNG/NG13/W/21 (1 March, 1988) at 7-9. In March of 1988, Japan included the possibility of arbitration as an alternative in its supplementary proposal, conditional on the neutrality of the arbitral body and the consistency and transparency of the process. Notably, a third condition was that any decision must be discrete to the specific dispute, and binding only on the parties to this dispute, so that it would not establish any principle of general application or interpretation of G A T T .  72  of other Contracting Parties appeared to accept this, but raised a variety o f concerns. It was suggested that the Council should necessarily play a role in defining the scope o f the arbitration and approving the resolution, in order to ensure coherence with G A T T 216  principles,  217  and to protect third party interests that might otherwise be affected.  Other  proposals suggested that the Council have the ability to monitor and reject the arbitration 218  based on the grounds defined by the parties.  The next stage o f discussions revealed two things - first a commitment to exploring arbitration within an institutional context, and second, an uncertainty as to how arbitration was distinguishable from the panel system, and thus about its place within G A T T . In fact the members o f the Negotiating Group themselves appear to have diverging perspectives on the basic concept o f arbitration within the G A T T , as there was almost no point o f reference. Despite the E . C . contention that arbitration had always been available under G A T T , it had been rarely used. In 1963, the Netherlands and the U . S . agreed to refer a dispute to arbitration. The terms o f reference required the tribunal to determine the value o f certain U . S . exports o f poultry to Germany. A s a precondition to the arbitration, both parties agreed to be bound by the decision, and the award was indeed implemented.  219  This was a rare example o f the use o f arbitration in a G A T T dispute.  220  216 See Communication From The Nordic Countries, G A T T Doc. No. M T N . G N G / N G 13/W/l0 (18 September, 1987) at 2. The communication was submitted by Norway on behalf of the Nordic Countries. 217 Communication From Canada, G A T T Doc. No. M T N . G N G / N G 13/W/l 3 (24 September, 1987) at 10; Communication From Korea, G A T T Doc. No. M T N . G N G / N G 1 3 / W / l 9 (20 November, 1987) at 3. 218 Communication From Switzerland, G A T T Doc. No. M T N . G N G / N G 13/W/8 (18 September, 1987) at 3-4; Communication From Canada, supra note 217, at 10. 219 The terms of reference of the "Chicken Wars" arbitration are described by the Secretariat in its report G A T T , Negotiating Group on Dispute Settlement, Concepts, Forms and Effects ofArbitration, Note by the Secretariat, G A T T Doc. No. M T N . G N G / N G 13/W/20, (22 February, 1988) at 9. See also Mora, infra note 247 at 140.  73  Despite all o f the uncertainty surrounding the issue, the Negotiating Group was clearly intrigued about the arbitration alternative. In early 1988, the Negotiating Group requested the Secretariat to prepare a background paper on the concepts, forms and effect o f 221  arbitration.  The paper attempted a few tasks: to clarify the different concepts, forms  and features o f arbitration; to outline issues that should be addressed i n the context o f the 222 negotiations; and to summarize the proposals to date on the use o f arbitration.  The report started by reinforcing the two main branches o f G A T T , the legal means o f 223 dispute settlement and the diplomatic means,  the latter characterized by the flexibility  of procedures, the control over disputes and avoidance o f binding decisions. While the draft identified arbitration as a form o f legal means, it distinguished it from judicial settlement by referring to the ability to choose the decision-maker, to define the scope o f the dispute and the jurisdiction o f the tribunal, and to choose the applicable rules and procedures.  224  Arbitration thus shared some o f the flexibility and benefits o f the  diplomatic means o f dispute settlement.  The report o f the Secretariat did not entirely accept that arbitration was indeed properly available under the previous G A T T regime.  225  In particular, the report suggested that the  220 However, a few Contracting Parties had agreed to refer their G A T T disputes to arbitration pursuant to clauses under their bilateral agreements. See Hallstrom, supra note 167 at 15.  221 G A T T , Concepts, Forms and Effects of Arbitration, Note by the Secretariat, G A T T Doc. No. M T N . G N G / N G 13/W/20, (22 February, 1988).  222 Ibid, at 1. 223 Ibid, at 3. 224 Ibid, at 3. 225 Ibid. See paragraph 21 of the Report where the Secretariat writes "The need for additional G A T T rules on arbitration depends on the prevailing views on the availability of arbitration under the current G A T T rules."  74  Negotiating Group consider whether or not an arbitral award binding on the parties would require the approval o f the Council. The Secretariat also set out two questions that went to the heart o f the future o f arbitration in the dispute settlement process o f G A T T and any superseding institution: first, it asked whether or not the Contracting Parties should recognize a right to request an ad hoc panel with an arbitration mandate; second, whether or not there was a need for additional G A T T rules recognizing the availability and 226  promoting the use o f arbitration amongst the Contracting Parties.  A s can be seen later,  given the inclusion o f certain provisions in the D S U , it would appear that the answer o f the Negotiating Group to both questions was "yes".  While the utility o f arbitration as an alternative gained momentum, the shape and scope of the arbitration option remained unclear. Nevertheless, the option for arbitration found its place in the Negotiating Group's draft o f December 9, 1988 completed shortly after 227  the mid-term review meeting in Montreal in December o f 1988. arbitration in the draft demonstrated  •  The three articles on  a broadly conceived notion o f the utility o f  arbitration within the G A T T .  The first article confirmed the utility o f "expeditious arbitration" as an alternative means 228  of dispute settlement for issues that were "clearly defined".  The second article left the  specifics o f arbitration largely up to the disputing parties, establishing that resort to arbitration would be based only on the mutual agreement o f the parties, and not the 226 Ibid, at 10. 227 The draft was put on hold until the meeting in April 1989, although the text in the arbitration provisions that resulted from the Ministerial meeting was the same. G A T T , Trade Negotiations Committee, Meeting at Ministerial Level, G A T T Doc. No. MTN.TNC/7(MIN), (9 December, 1988). 228 Ibid, at 28, para. E l .  75  approval o f the Council. The second article also required notification o f the arbitration to all Contracting Parties, thus providing any third party rights with a chance to seek participation rights. Most importantly, the third article required that the parties agree to abide by the arbitration award. The draft made no mention o f many other aspects that had been previously discussed: an arbitration clause; a classification o f disputes eligible for arbitration, the application o f G A T T principles or law, or the Council's involvement in the process. The broad wording o f the draft appeared to allow for the determination o f any issue, including an issue o f law or interpretation o f the provisions o f G A T T . This represented a much broader concept o f the utility o f arbitration than that envisioned by the initial proposals o f the U . S . and the E . C .  The draft was comparatively more problematic with respect to the judicial settlement process. The draft still did not confirm a right to establish a panel, and merely left the 229 decision to the Council upon a party's request for a panel.  Another controversial  feature o f the draft was the preservation o f the practice o f adoption o f panel reports by a consensus decision that included the losing party. The only proposed solution for the problem o f report blocking was found in a portion o f the text that stated that delays in the 230 dispute settlement process were to "be avoided".  229 Ibid, at 32. 230 Ibid, at 32, para. G.3; Croome, supra note 196, at 129.  76  3.5  The Impact of U.S. Unilateralism on Uruguay Round Negotiations  While the draft presented at Montreal left much unanswered in respect o f the panel system, the next stage o f negotiations became much more focused on judicial settlement, to the detriment o f the development o f the arbitration alternative. The absence o f an agreement on the consensus issue was a focal point at the mid-term review meeting in Montreal. The draft reflected the fact that the majority o f members sought to retain the consensus requirement, including the ability to block adoption o f reports and retaliation measures. The U . S disaffection with those proposals was a factor in propelling the development o f its infamous domestic 301 laws in the period leading up to the mid-term review in Montreal.  These laws originated with the U.S. Trade Act of 1974, which was designed to provide 231  some form o f diplomatic protection to citizens who were unprotected under international 232  law from the effect o f unfair or distortive trade practices.  *  The A c t gave a right o f  redress to U . S . citizens, as any complaints would require an investigation. If the complaint was shown to be valid, the legislation required government action, including the possibility o f retaliation measures against the offending state. The 301 laws permitted complaints to be referred to G A T T i f appropriate, but also allowed the executive branch to act unilaterally i f necessary. The 301 legislation therefore purported to permit the U . S . to impose a system o f unilateral reprisal in response to international trade law violations.  231 19U.S.C. § 2 4 1 1 (1990), as amended. 232 Hudec, "Enforcing International Trade  Law, supra note  21.  77  The  U . S . justified the 301 law by noting that the G A T T process was slow and  ineffective.  233  Prior to the Montreal mid-term, the U . S . enacted the of 1988,  Omnibus Trade and Competition Act  which was designed to enhance the 301 laws. The amendment delegated the  power to enforce the 301 laws from the executive down to the U . S . trade representative, •  *  •  235  removing the executive's discretion and making the process mandatory.  The new  "Super 301" law was also more proactive. It required the government to conduct a survey of restrictions on a world-wide scale to identify trade distorting practices and create a list of the worst trade offenders for investigation. It required the government to implement 236  unilateral action against those offenders so identified.  The amendment also added a  "Special 301" law, which extended the responsibilities o f the U . S . government into the 237  area o f intellectual property.  The nature o f the U . S . legislative changes became a true challenge to the direction o f the negotiations on dispute settlement. The 301 laws were particularly antagonistic to the principles o f G A T T , as the legislation adopted its own definition o f unreasonable trade  233 Hudec, "Enforcing International Trade Law, supra note 21 at 193. 234 19 U.S.C. § 2901 (2000). 235 Jean Heilman Grier, "Section 301 of the 1974 Trade Act", online: United States of America Department of Commerce <http://www.osec.doc.gov/ogc/occic/301 .html >: Stewart, supra note 178 at 2760. 236 Jean Heilman Grier, "Section 301 of the 1974 Trade Act", online: United States of America Department of Commerce <http://www.osec.doc.gov/ogc/occic/301.html >; Stewart, supra note 178 at 2760. 237 Jean Heilman Grier, "Section 301 of the 1974 Trade Act", online: United States of America Department of Commerce <http://www.osec.doc.gov/ogc/occic/301 .html >; Stewart, supra note 178 at 2761.  78  practices, and was not bound to the concepts i n international law.  Further, the  legislation made retaliatory responses mandatory i n certain cases, and indeed resulted i n 239  retaliatory action by the U . S . i n several instances.  While the 301 laws unquestionably  represented a form o f unilateralism and undermined the principles o f G A T T , the U . S justified the measures on the basis that the practice o f blocking G A T T reports was itself a form o f unilateralism.  240  The U . S . suggested that it would not be required to resort to its  301 laws as long as the G A T T dealt more effectively with disputes.  241  Its status as the  world hegemonic power can therefore be seen as a major influence on the shaping o f the DSB.  W i t h the new 301 amendments  aggressively challenging a rules-based multilateral  trading system, the U . S . actions became a focus for discussion at the Montreal meeting. A t a G A T T Council meeting held a few months in advance o f the Montreal meeting, the E . C . expressed its "grave concern" with the laws, while several other members including Japan  expressed  their own dissatisfaction.  242  A t this point, the danger  unilateralism was taken much more seriously by the G A T T Contracting Parties, prohibition o f unilateral action became a priority for the negotiations.  244  of U.S. 243  and the  The E . C . in  particular viewed the ongoing prospect o f unilateral action as a threat, and was concerned  "Enforcing International Trade Law, supra note 21. 239 Jackson, "The World Trading System", supra note 178 at 106. 238 Hudec,  240 Croome, supra note 196 at 228. 241 Croome, supra note 196 at 225; Stewart, supra note 178 at 2762. 242 G A T T , Negotiating Group on Dispute Settlement, Minutes of Meeting (held on 22 September, 1988), G A T T Doc. No. C/M/224, (17 October, 1988) at 28-34. See also Croome, supra note 196 at 225. 243 Hudec, "EnforcingInternational Trade.Law", supra note 21 at 234.  244 Croome, supra note 196 at 225.  79  that such unilateral action could risk the disintegration o f the G A T T system.  While the  U . S . maintained its position on the 301 laws, it was also resistant to the idea o f the creation o f a formal institution to oversee the rules-based trading system.  3.6  Proposals on Arbitration, Adoption and Appellate Review  The next stage o f negotiations demonstrated the linkage between the Negotiating Group's consideration o f arbitration, and the introduction o f the concept o f an appeal mechanism. The option for arbitration and the treatment o f the adoption process were replicated in the negotiations party's Improvements 1989"). GATT.  246  2 4 7  Decision o f A p r i l 12, 1989 ("Improvements  of  This was the first attempt at regulating the resort to binding arbitration within It has been suggested that the purpose was to include a form o f resolution that  was more adjudicative than what already existed, to resolve clear-cut, non-political issues.  248  Indeed, this theory may find some support in the fact that it was the U . S .  proposal o f 1987 that raised the idea o f arbitration early in the Uruguay Round. However, as w i l l be seen later, arbitration was eventually included in the final act despite the development o f a much stronger adjudication system in the D S U . Despite the discussion o f the use o f arbitration for only particular types o f disputes, the form o f arbitration introduced on a trial basis, pending the completion o f the Round, was  245 Porges, supra note 27 at 153-154; Hudec, "EnforcingInternational Trade Law", supra note 21 at 228. 246 G A T T , Negotiating Group on Dispute Settlement, Improvements to the GATT Dispute Settlement Rules and Procedures, (Decision of 12 April 1989), G A T T Doc. No. L/6489. Known as the "Improvements of 1989". 247 Miquel Montana I. Mora, " G A T T with Teeth: Law Wins over Politics in the Resolution of International Trade Disputes" (1993-1994) 31 Colum. J. of Transnat'l L . 103 at 139. 248 Ibid, at 139. Mora also suggests that provisions for arbitration were specifically included despite its previous availability under the G A T T scheme, in order to encourage its use.  80  relatively open-ended. The Improvements o f 1989 reproduced the three paragraphs on arbitration in the draft approved in Montreal: the first paragraph set out arbitration as an alternative process for any issues that were "clearly defined"; the second confirmed that arbitration,, and the procedure to be followed, were subject to the mutual agreement o f the disputing parties; and the third provided that the disputing parties alone would agree to be bound by the award, and that third parties were permitted to participate, but only with the consent o f the parties. The notion o f broad based use o f arbitration was apparent in the text. The use o f arbitration was not restricted to factual disputes, but could indeed be used for the interpretation of legal principles.  The broad conception o f arbitration was not only apparent from the text, but also from the context o f negotiations leading up to the final version. The language adopted during the Ministerial meeting i n Montreal, and formalized in the Improvements o f 1989, was in fact very similar to the wording and conceptual underpinnings o f a proposal submitted by M e x i c o in June o f 1988, and revised in October 198 8 .  249  The one key difference was that  the Mexican proposal contained a fourth paragraph that provided " I f arbitration works 250  and proves useful in practice, its use could subsequently be extended".  These words  were obviously not intended for inclusion in a formal treaty, and indeed, they were not incorporated into the Improvements o f 1989. Nevertheless, the fact that the text drew heavily from the Mexican proposal suggested that the Contracting Parties had indeed contemplated the possibility o f expanding the use o f arbitration, i f it proved successful.  249 Communication From Mexico, G A T T Doc. No. MTN.GNG/NG13/W/26 (23 June, 1988), revised in Communication From Mexico, G A T T Doc. No. MTN.GNG/NG13/W/26/Rev.l (10 October, 1988).  250 ibid.  81  The progress with respect to the judicial settlement system was comparatively slower up to A p r i l o f 1989. While the Improvements o f 1989 specifically maintained the practice o f adopting panel reports by consensus,  they also, for the first time, ensured the creation 252  of panel as a matter o f right by eliminating the right to veto,  a monumental change.  Nevertheless, the draft lacked two key elements that would become priorities for negotiation: a change in the consensus process for adoption that preoccupied the U . S . ; and recognition o f an appellate review process. In addition, the Improvements o f 1989 did not address implementation o f reports in great detail. It provided neither a specific timeframe within which a losing party would be required to comply with a panel recommendation, nor any provision on retaliation.  Despite the fact that the Improvements o f 1989 did not include an appellate procedure, the draft undoubtedly had a major effect on the ultimate creation o f a judicial settlement system. The research o f March Busch and Eric Reinhardt has found that the U . S relied more heavily on G A T T / W T O dispute resolution as opposed to unilateralism after 1989.  253  Further, the formalization o f the arbitration alternative also correlated with the  creation o f a right to a panel, which disputing parties were undoubtedly more willing to utilize, given the development o f that system within G A T T . While the arbitration alternative still required consent o f the parties like the previous panel system, the panel system had opened up with the Improvements o f 1989. It has been suggested that the inclusion o f arbitration took a step towards support for a formal system o f adjudication  251 Ibid, at 4, para. G l . 252 Posner & Yoo, supra note 8 at 45. 253 Busch & Reinhardt, "Testing International Trade Law", supra note 21 at 475.  82  for dispute resolution.  The arbitration provisions i n the text may have indeed acted as a  catalyst for the development o f a more judicial system. Ironically, i f this was the effect, it was at the expense o f the development o f arbitration as a truly independent form o f dispute resolution.  3.7  Arbitration Proposals Stall  The next stage o f negotiations demonstrated a shift i n focus by the Negotiating Group from arbitration to a legalized process o f judicial settlement that included an appeal process. After this point, the proposals developing the concept o f arbitration stalled completely. After the Improvements o f 1989, the only significant development in the arbitration proposal during the spring and summer o f 1989 was a Swiss proposal that sought to strengthen the arbitration provisions. The objective o f the proposal was to ensure that arbitration procedures became "a harmonious part o f G A T T ' s multilateral 255  framework without calling into question the principle that a final award is binding". The Swiss proposal alerted the Negotiating Group that the Improvements o f 1989 only had the barebones o f an arbitration system, and that the system needed to be "moulded to 256  the multilateral content o f the G A T T dispute settlement".  Indeed, the content o f the  draft itself supported the Swiss perspective - it was a proposal that had not matured through the negotiation process o f the Uruguay Round.  254 Young, supra note 43 at 398. 255 Communication From Switzerland, G A T T Doc. No. M T N . G N G / N G 13/W/33 (19 July, 1989). 256 G A T T , Negotiating Group on Dispute Settlement, Minutes of Meeting (held on 28 September, 1989): G A T T Doc. No. MTN.GNG/NG13/16 (13 November, 1989) at 7.  83  The reaction o f the Negotiating Group to the Swiss proposal confirmed that arbitration was no longer a focus o f negotiations, given the other major issues such as panel procedure, adoption and appellate review. Certain delegates questioned the need to elaborate on the process o f arbitration, while others expressed the concern that the proposal may "inappropriately encourage resort to arbitration at the expense o f the more 257  traditional forms o f dispute settlement". period between September  Over the next several meetings held i n the  1989 and September  1990, little else was said about  arbitration as an independent form o f dispute settlement. A t the February 1990 meeting, one delegate advocated a wait and see approach, suggesting that the use o f arbitration 258  should be considered by its degree o f effectiveness.  *  •  Meanwhile, the arbitration  259  alternative was put to little use.  The attention shift o f the negotiating parties was apparent in the meeting in A p r i l o f 1990. A t this meeting, both the U . S . and the E . C . presented their respective proposals for change. Each addressed a form o f appellate review, and the use o f compensation and retaliation.  260  The content o f the E . C . proposal highlighted the major tension in the  negotiations - the commitment against unilateral measures. In its proposal, the E . C . indicated that an "unequivocal and irreversible" commitment against the use o f unilateral  257 ibid. 258 G A T T , Negotiating Group on Dispute Settlement, Minutes of Meeting (held on 7 February, 1990): Note by the Secretariat, G A T T Doc. No. M T N . G N G / N G 13/18 (21 March, 1990) at 3. There were also further discussions of conflicts that would affect the binding nature of arbitration awards, see Stewart,  supra note 178 at 2773. 259 Hughes, supra note 176 at 79.  260 Statement by the Spokesman of the European Community at the Meeting on 5-6 April, G A T T Doc. No. M T N . G N G / N G 13/W/39 (5 April, 1990); Communication From the U.S., G A T T Doc. No. M T N . G N G / N G 13/W/40 (6 April, 1990).  84  measures was a key precondition to strengthening the dispute settlement,  an obvious  reference to the U . S . position. The E . C . ' s insistence on a commitment against unilateral 262  retaliation outside o f G A T T was supported by many o f the delegates.  It was thus clear  that the focus was now on the strengthening o f the judicial settlement system in exchange for a commitment from the U . S . not to resort to its 301 laws. A s one delegate suggested, it was also apparent that the creation o f an appellate review producing binding decisions could affect the Contracting Parties view's on the utility o f an alternative arbitration 263  system.  It was equally apparent that between A p r i l 1989 and September o f 1990, the arbitration option was simply not a major source o f discussion, despite the fact that it had not been particularly well defined i n the Improvements o f 1989. Rather, the focus o f the group became the strengthening o f this system through a new adoption process and the creation of an appellate review system, in order to appease the concerns o f the U . S . In September 1990, the Negotiating Group instructed the Secretariat to summarize the discussions regarding improvements in a memorandum, in preparation for the Ministerial meeting in Brussels in December o f 1990.  264  After making informal revisions to the draft, the  Chairman o f the Negotiating Group would submit the "Chairman's Text on Dispute  261 Statement by the Spokesman of the European Community at the Meeting on 5-6 April, supra note 260 at 1.  262 G A T T , Negotiating Group on Dispute Settlement, Minutes of Meeting (held on 5 April, 1990): Note by the Secretariat, G A T T Doc. No. M T N . G N G / N G 13/19 (28 May, 1990) at 3.  263 Ibid, at 5. 264 G A T T , Negotiating Group on Dispute Settlement, Draft Text on Dispute Settlement, G A T T Doc. No. M T N . G N G / N G 13/W/45 (21 September, 1989).  85  Settlement"  (the "Chairman's Text") to Arthur Dunkel, Chairman o f the Trade 266  Negotiating Committee and Director General o f G A T T .  If approved by the Trade  Negotiating Committee, the Chairman's Text was to be incorporated into an omnibus draft covering all o f the round's negotiations, to be presented at the Brussels meeting.  Although  the  Secretariat  memorandum  contained  several  suggestions  for  the  improvement on the use o f arbitration, most sought only to clarify the G A T T Council's role i n the process. However, there is some indication o f a desire to maintain some distance between the arbitration alternative and the judicial settlement system. One recommendation was that the arbitration body was to follow standard panel procedure 267  unless it otherwise decided.  This suggestion was not incorporated into the Chairman's  Text, which preserved a completely open-ended procedure for arbitration. The only guideposts on procedure for arbitration remained whatever was mutually agreed upon by the disputing parties.  A t the same time, the notion o f the integration o f arbitration into an institutional context took on a newer direction. The Secretariat memorandum also referred to two separate and specific forms o f arbitration as a last resort for resolving disputes relating to the implementation o f rulings. First, it provided for arbitration regarding the "reasonable period o f time" within which the losing party was required to implement the Chairman's Text on Dispute Settlement, G A T T Doc. No. CGT/807-14 NG13 (19 October, 1989) ("Chairman's Text"). 266 G A T T , Negotiating Group on Dispute Settlement, Minutes of Meeting for 24 September to 11 October 1989, Note by the Secretariat, G A T T Doc. No. M T N . G N G / N G 13/23, (24 October, 1989). The covering  265 G A T T ,  letter to the Chairman of the Negotiating Group clarified that the document was a Chairman's text because it did not necessarily represent the consensus of the Negotiating Group.  267 Supra, note 264 at 9.  86  recommendations or ruling. Second, in cases where retaliation was proposed in response to non-compliance, it set out an arbitration process to determine i f the level o f the proposed retaliation was excessive.  268  The Secretariat also summarized the proposal to  add the concepts o f compensation and retaliation as measures available to encourage prompt  implementation.  These  proposals  were  eventually  incorporated  into  the  Chairman's Text, though as it w i l l be discussed in the next chapter, these forms do not represent a form o f alternative within the D S U , and it is perhaps a misnomer to refer to them as arbitration at all.  Otherwise the main arbitration provisions in the Chairman's Text remained mostly unchanged from the A p r i l 1989 draft. The Chairman's Text followed the wording from the Negotiating Group draft and added a requirement for arbitration awards to be "notified to the Council where any Contracting Party may raise any point relating thereto".  269  In considering the importance o f reputation as a coercive force towards  compliance, this was an important development for the process o f arbitration. The requirement would mean that this dispute settlement mechanism would engage the element o f reputation as much as any process o f judicial settlement.  The Chairman's  Text also added wording to clarify that implementation and surveillance provisions for panel and appellate review reports would apply  mutatis mutandis to arbitration awards.  268 These were in fact proposals made by Canada 3 months earlier. After the Montreal Meeting, the Negotiating Group on Dispute Settlement met ten times after the April 1989 draft, up to October 1990. Though a similar proposal was made by Mexico in the same timeframe, it did not recommend arbitration in these situations. Canada's suggestions for arbitration with respect to the reasonable timeframe and the level of retaliation were eventually incorporated into the Secretariat's memorandum, and then into the draft presented in Brussels. See Communication From Canada, G A T T Doc. No. M T N . G N G / N G 13/W/41 (28 June, 1990) at 6 & 7. 269  Chairman's Text, supra note 265  at 16, para. E.3.  87  The amended text of this draft marked a turning point in the Uruguay Round negotiations, where efforts were redirected towards the judicial settlement system. While the arbitration provisions stayed virtually the same, the Secretariat's memorandum contained two monumental changes to the panel system from the previous year: first, the creation of formal appellate review process; and second, four separate options for the adoption of panel and appellate review decisions, only one of which maintained the traditional consensus approach.  On the issue of adoption, the Chairman's Text specifically deleted the portion of the Improvements of 1989 that provided for the maintenance of the consensus rule for adoption. This language was surrounded by square brackets, indicating that it had not been finally resolved. The new provisional language thus proposed that panel reports:  shall be adopted at a council meeting unless one of the parties formally notifies the Council of its decision to appeal or the Council decides [otherwise] [by 270  consensus] [not to adopt the report].  (Bold added) The provision for the adoption of appeal decisions was worded similarly:  A n appellate report shall be adopted at a council meeting and unconditionally accepted by the parties to the dispute unless the Council decides [otherwise] [by  consensus] [not to adopt the appellate report].  271  (Bold added)  270 Ibid, at 9. 271 Ibid, at 11.  88  While the draft language on adoption and automaticity had been "square-bracketed", the disposal of the wording maintaining the consensus rule coupled with the updated wording clearly favoured a reverse consensus rule. This sudden reversal on the issue of automaticity did not represent the political will of the majority, but was rather the product 272  of the pressure by the U.S. and its 301 laws.  The Chairman's Text was essentially approved in the same form at the Trade Negotiating Committee meeting of November 26, 1990. It was then incorporated into the four 273  hundred page omnibus Draft Final Act  presented for consideration at the Ministerial  meeting in Brussels. Although, the Draft Final Act was never approved at the Brussels meeting as a result of a stalemate regarding the agricultural issues,  274  the dispute  settlement provisions were reproduced in another draft in December of 1991. The Understanding on Rules and Procedure Governing the Settlement of Disputes that 275  formed part of the package signed in Marrakech in April of 1994,  essentially replicated 276  the text that had been agreed to in December of 1991 with only slight modifications.  3.8  Arbitration Under the DSU  The Uruguay Round had thus succeeded in creating a new dispute settlement process. Despite the presence of the judicial settlement system as the primary method of dispute 272 Hudec, "New W T O Dispute Settlement Procedure", supra note 190 at 14.  273 Draft Final Act Embodying The Results of the Uruguay Round of Multilateral Trade Negotiations, G A T T Doc. No. MTN.TNC/W/35/Rev.l, (3 December, 1990). 274 Stewart, supra note 178 at 2786. 275 Annex 2 to Final Act Embodying the Results of the Uruguay  Round of Multilateral Trade Negotiations and Marrakech Agreement Establishing the World Trade Organization.  276 Young, supra note 43 at 399.  89  settlement, three separate procedures that are referred to as "arbitration" survived into the 277  DSU.  The two that were introduced after the Improvements o f 1989 however are really  only adjuncts to the panel process regarding implementation issues. First, Article 21.3 o f the D S U provides for arbitration to determine the "reasonable" period o f time to comply with a panel or Appellate ruling, failing other methods. Second, Article 22.6 o f the D S U provides for an arbitration regarding the level o f concessions that can be suspended by an aggrieved state should the offending state fail to comply or provide compensation. However, the last example, Article 25 o f the D S U , provides a much broader form o f arbitration. These provisions w i l l be discussed in more detail in the next chapter.  3.9  Lessons From the History of GATT and the Uruguay Round  There are several points that can be drawn from the historical review o f the discourse regarding the concept o f arbitration within the G A T T and W T O systems. First, there has long been a widely shared belief in the utility o f arbitration within the multilateral trade system. The option o f arbitration in Article 93 o f the original Havana Charter eventually found a new form in the D S U . A s has been seen, it is arguable that the ability to refer to arbitration within the G A T T system has always existed. While Article 25 was specifically added to the D S U , this may have been rendered necessary by the provisions precluding 278  use o f dispute settlement processes outside o f the D S U .  277 There are still other forms of arbitrations provided for under other W T O agreements. Supra note 29.  278 Young, supra note 43 at 401.  90  Second, arbitration has mostly been conceived as an alternative to, and not as a complete replacement for, judicial settlement within G A T T . Invariably, the proposals made within the Negotiating Group during the Uruguay Round contemplated a two tiered system where arbitration could be resorted to as an alternative form o f dispute settlement.  A  variety o f members have expounded on the virtue o f arbitration as an alternative form o f dispute settlement. It has been described as: " a n effective means o f resolving disputes" 279  and a "useful tool in trade policy";  as an "instrument properly adjusted to G A T T  working parties could - i n clearly defined cases - be available to parties in a dispute";  280  and as a system that "might facilitate resolution o f certain disputes basically o f a factual .  ,, 281  nature .  One member o f the Negotiating Group seemed to have captured the idea that the dispute settlement system should not seek to impose a "one-size-fits-all" approach to disputes:  Experience shows that disputes brought before the G A T T are multifarious and often comprise trade problems that have not been fully addressed in the past for which no precedents exist. The dispute settlement system in G A T T should therefore be designed so as to respond adequately to the different nature o f dispute cases. This suggests that the parties to a dispute should have the choice between a number o f alternative and/or complementary techniques and mechanisms.  282  Third, there is still room for, and at least a historical recognition of, the utility o f arbitration within the current system. If it has any future i n the W T O , it is o f course  279 Communication From Canada, supra note 217 at 10. 280 Communication From The Nordic Countries, supra note 216 at 2. 281 Communication From Korea, supra note 217 at 3. 282 Communication From The Nordic Countries, supra note 216 at 1.  91  important that there is a political w i l l to retain arbitration as an alternative form o f dispute resolution. Although the Uruguay Round resulted in the creation o f an effective judicial settlement  system  that includes a form  o f legalized appellate  implementation measures and a reverse consensus  review,  stronger  rule, the arbitration alternative  conceived in the Improvements o f 1989 nevertheless survived into the text o f the D S U . This strongly suggests that the member states still saw the utility i n having arbitration available as an alternative i n certain cases. While there were discussions about limiting arbitration to specific types o f disputes, the final text o f Article 25 is not so restrictive. Indeed, the arbitration contemplated within the D S U has maintained much flexibility.  Fourth, the dynamics o f the Uruguay Round made it difficult for the Contracting Parties to focus much attention on developing the proposals for arbitration made after December of 1988. B y that time, the energies o f the parties were focused on creating a new and effective binding judicial settlement system in order to appease the U . S . and to avert the potential disintegration o f the G A T T system. There was a new urgency to address issues such as appellate review and the modification o f the consensus rule. It is apparent from the evolution o f the negotiations that while arbitration was generally recognized as a useful and desirable alternative, it was never fully developed or explored. B y 1989, while the Swiss delegation recognized that the arbitration system could be much more developed, there seemed to be no desire to entertain further discussions in light o f these other more pressing issues. The discussions for developing that system were effectively ended fairly early into the Uruguay Round. A s such, the rather vague text that became Article 25 remained largely unchanged from the Improvements o f 1989.  92  Fifth, it is an appropriate time to consider an amendment to enhance the use o f arbitration as an alternative. A g a i n it is worth considering the institutionalist regime theory o f Robert Keohane as it relates to the role o f the hegemon in creating the system. While the U . S , undoubtedly had a major influence in diverting negotiations on dispute settlement from arbitration to a fully legalized system o f judicial settlement with a standing appellate body, its position o f power and influence is necessarily reduced by the authority o f the D S B as an institution. This rather predictable result may well explain the U.S.'s reluctance to agree to a formal institution during the Uruguay Round. N o w that the judicial settlement system has some traction and a reasonably good record o f compliance, it is unlikely that new proposals for improvement would jeopardize the entire multilateral trading system. In building in a requirement o f a review o f the D S U every four years, 283  there was in fact a collective recognition o f the limits o f litigation to resolve disputes. Given the fact that experience has shed light on some o f the weaknesses o f the judicial settlement system, the prospect o f an alternative mechanism may become more attractive to all members states.  Further to this last point, while arbitration was clearly treated as a viable alternative during the Uruguay Round, the Contracting Parties at the time did not have benefit o f measuring the success o f the judicial settlement system that they were creating. They could only predict where it might be successful, and it where it may fail. Indeed, there have been some failures. There has now been over twelve years o f decisions, and a solid history that would assist in determining what types o f amendments would strengthen the  283 Porges, supra note 27 at 153-4.  93  dispute settlement system. The history of the development of G A T T also demonstrates a pendulum-like evolution - a period of stability and effectiveness (1948-1960), followed by a period of stagnation (1960-early 1970s') followed by reform (Tokyo Round agreement by 1979) and new found stability and effectiveness (1980's), followed by stagnation (late 1980's and the problems with report blocking) and again reform (the creation of the WTO and the DSU in 1994). The effectiveness of the institutions naturally shift reliance away from a power based system, until they prove to be less effective. As Dunne might suggest, these shifts resemble swings of the pendulum, where the G A T T has vacillated between the extremes of power orientation and rule orientation.  3.10 Conclusion  The history of negotiations during the Uruguay Round reinforces the concept of a system with a third option for alternative dispute settlement, other than consultations and judicial settlement. Arbitration in the context of WTO dispute settlement has been conceived as different from the judicial system now in place. The proposals made in the Uruguay Round indicate that arbitration had received widespread recognition as an available alternative, and that alternative even materialized as Article 25 of the DSU, although as discussed in the next chapter, it has never been truly tested. However, because of the political dynamics of the Uruguay Round and the fear of U.S. unilateralism, the arbitration alternative became a neglected part of the multifaceted and politically charged negotiations. Nevertheless, the goal of the negotiators of the Uruguay Round was not to  94  create expansive judicial lawmaking,  a fact reflected in the objectives o f the D S U  considered in the following chapter.  For these reasons, it is appropriate to now consider the possibility o f this alternative in the present context. To do so, it is necessary to next analyze the current structure o f the D S U , the successes and shortcomings o f a D S B that is oriented almost exclusively towards the judicial settlement system, and both the current and potential role o f arbitration within the DSB.  284 Steinberg, supra note 2 at 250.  95  CHAPTER IV: JUDICIAL SETTLEMENT AND ARBITRATION IN THE CURRENT DSU 4.1  Introduction  The D S U may have struck a reasonably good balance between rules and power resulting in the success o f the W T O over the first twelve years. This seems to have led to an assumption that because the W T O is more effective than G A T T , that more legalistic procedures w i l l continue to improve compliance rates. This chapter w i l l consider that bias, in the context o f the D S U , which now includes three forms o f arbitration.  This chapter is split into two parts. The first part considers the present judicial settlement and enforcement system under the D S U , looking at the current procedural and remedial provisions against the objectives o f the D S U . It w i l l consider the limitations o f seeking a binding decision that is to be enforced as the ultimate objective o f the judicial settlement system, and the limitation o f remedies as the ultimate enforcement tool within this system. The second part o f the chapter analyzes the use o f three provisions in the D S B that refer to "arbitration": Articles 21.3, 22.6 and 25 o f the D S U . I w i l l identify the useful developments in these three forms o f arbitration that illustrate the potential benefit o f a more general use o f arbitration as a means to resolve difficult political disputes. A s w i l l be seen, Article 22.6 and 21.3 arbitrations arise only after a dispute has been adjudicated, and where the remaining matter is compliance, and are barely distinct from the process o f judicial settlement. However, while they do not create a true alternative to judicial settlement, they do demonstrate two interesting points. First, a process that at least  96  resembles an arbitration process, and for which there is no appeal, can be used to resolve political issues. A s such arbitration within the D S U has not been restricted to factual disputes only. Second, these weaker forms o f arbitration may in some ways demonstrate the potential benefit o f Article 25 arbitration upon the application o f compliance theories.  4.2  The Judicial Settlement System  In formalizing the panel system, the member parties have in effect created a court with 285  compulsory jurisdiction.  Overall, the main goal o f the W T O underlying agreements is  to ensure access to markets. Where a party alleges a breach o f the obligations under one o f these agreements, that party may initiate a complaint with a request for consultations under Article 4.3 o f the D S U . Should the dispute not resolve through these preliminary steps, the member can request the establishment o f a dispute panel. B y litigation 286  standards, the panel dispute settlement process is swift.  The D S U contemplates that all  disputes w i l l be resolved within 15 months after the filing o f the complaint. The litigation can still involve complicating features, including the filing o f expert reports and third  party intervention by way of amicus curiae briefs. The panel ultimately hears evidence and argument to determine i f there are any breaches o f the principles o f the underlying agreements. Where it is determined that a responding state has failed to meet an obligation i n one o f the underlying agreements, the panel then makes a general recommendation that the offending party bring its law or measures into  285 Posner & Yoo, supra note 8 at 45-46. 286 Zekos, " A n Examination of GATT/WTO", supra note 42 at 73.  97  conformity with the specific provisions that have been breached. The reports o f the panel 287  must be adopted by the D S B within 60 days o f circulation  and routinely are, due to the  reverse consensus rule. Decisions can be appealed to the Appellate Body on grounds o f 288  error in law.  Appellate panels are typically composed o f three members from the 289  permanent  standing body who are selected randomly.  While decisions are not  technically binding in other cases, previous decisions are frequently cited in support o f the existence o f legal principles, thus creating a form o f defacto system o f stare ,  . . 290  decisis.  The disputants within the judicial system usually have little choice over procedure and the decision-maker. Article 8 o f the D S U provides a top down system for the panel selection. Article 8(4) provides for the establishment  o f an indicative list that is  maintained by the Secretariat for panel selection. While the panel system is referred to as an ad hoc system, there is only minimal party input into panel selection. Article 8(6) sets out that the Secretariat proposes nominations, and provides that the parties shall not oppose that selection absent "compelling" reasons. The ultimate decision is not that o f the parties, as Article 8(7) provides that absent an agreement within 20 days, the panel shall be determined by the Director General. It is thus the Secretariat who, as under the  287 Article 16(4) of the D S U . 288 Article 17(6) of the D S U . 289 Article 17(1), (2) & (3) of the D S U ; Posner & Yoo, supra note 8 at 45. 290 Hilf, supra note 72 at 116 & 129. While decisions of the Appellate Body do not formally have precedential effect, as Hilf says they tend to "create expectations", and indeed the system has evolved to a system based on principles developed in previous decisions. Reports of the Appellate Body thus tend to "verify" the principles; Pauwelyn, "Americanization", supra note 46 at 125.  98  previous G A T T system, continues to have defacto control over the selection o f the , 291  panel.  More importantly, the appeal process to the Appellate Body largely mitigates any choice over the decision-maker that does exist at the panel level. B y virtue o f Articles 17.6 & 17.13, the Appellate Body can effectively overturn panel decisions on issues o f law. Further, many o f the proposals regarding the reform o f the dispute settlement process advocate for a fully institutionalized panel system, which would reduce even further a state's ability to participate in the choice o f the decision-maker.  292  Conversely, Article 25  provides for a form o f arbitration o f any matter that is "clearly defined by the parties", on the basis o f mutual agreement, thus permitting an element o f party control.  With respect to control over procedure in panel proceedings, Article 12 provides that panels shall follow the working procedures established by Appendix 3 o f the agreement unless the panels decide otherwise, after consulting with the disputing parties. While Article 12(2) provides that procedures should be sufficiently  flexible,  this does not  enshrine the ability o f the disputing parties to choose.  291 Weiler, supra note 13 at 202. 292 The debate is fully expounded upon in a series of commentary in the Journal of International Economic Law. See William J. Davey, "The Case for a W T O Permanent Panel Body" (2003) 6 J. Int'l Econ. L . 177. Thomas Cottier, "The W T O Permanent Panel Body: A Bridge too Far?", 6 J. Int'l Econ. L . 187. Andrew W. Shoyer, "Panel Selection in W T O Dispute Settlement Proceedings", (2003) 6 J. Int'l Econ. L . 203 ; Jacques H . J. Bourgeois, "Comment on a W T O Permanent Panel Body" (2003). 6 J. Int'l Econ. L . 211 Michael Cartland, "Comment on a W T O Permanent Panel Body" (2003) 6 J. Int'l Econ. L 214; Seung Wha Chang, "Comment on a W T O Permanent Panel Body" (2003) 6 J. Int'l Econ. L . 219; Luzius Wasescha, "Comment on a W T O Permanent Panel Body" (2003)6 J. Int'l Econ. L . 224; Julio Lacarte, "Comment on a W T O Permanent Panel Body" (2003) 6 J. Int'l Econ. L. 227. Frieder Roessler, "Comment on a W T O Permanent Panel Body: The Cobra Effects of the W T O Panel Selection Procedures" (2003) 6 J. Int'l Econ. L. 230.  99  W i t h respect to the issue o f compliance with D S B rulings, the D S U demonstrates a true mixture o f the legal and political aspects o f the W T O . While Article 19 o f the D S U permits the panel or Appellate Body to make recommendations as to how the states could bring the measure within conformity with their obligations, i n practice this has rarely • •  293  been done.  The manner by which States comply with a ruling, and the decision  whether the required fix is administrative, regulatory or legislative, is effectively left to the offending State to determine after the adoption o f the panel or Appellate Body report. In practice, specific recommendations are rarely made and panels have usually rejected requests to make such recommendations.  294  There is therefore an obvious sensitivity to  the prerogative o f the state to determine how it w i l l address the failure to meet its obligations under the W T O agreements - a preference i n the current system for less forceful means for encouraging compliance. Nevertheless, full implementation is the 295  preferred method under s. 22.1 o f the D S U .  4.3  The Objectives of the DSU  While there has been a preponderance o f writing regarding reforms o f the D S B , most observers agree that the level o f compliance engendered by the D S B has marked an unqualified success. The rates o f dispute resolution and compliance with decisions o f the D S B have been h i g h ,  296  and mark a significant improvement over the previous G A T T  293 See Porges, supra note 27 at 146. 294 Fukunaga, supra note 48 at 399. 295 Vazquez & Jackson, supra note 22 at 558. 296 Wilson, supra note 7; Donald McRae, "What is the Future of W T O Dispute Settlement?" (2004) 7 J. Int'l Econ. L . 3 at 5; Davey, "The First Ten Years", supra note 6; McGivern, supra note 9 at 156.  100  system/*' This has been a remarkable achievement in international law, which has generally struggled with compliance with the decisions o f international tribunals.  298  Are the current processes and remedies under the D S U consistent with the objectives o f the system? In order to answer that, one must consider the objectives explicitly set out in the D S U . Article 3.2 confirms the principles o f security and predictability in the multilateral trade system, while clarifying that the D S B cannot add to or diminish rights in the underlying agreements. settlement system,  299  This appears to promote a certain efficacy in the dispute  through the development o f rules for other disputes. However  Articles 3.3 and 3.4 promote the prompt settlement o f disputes, and establish that the recommendations made by the D S B are aimed at achieving a satisfactory settlement, in individual disputes.  300  This seems particularly clear from Article 3.4 o f the D S U , which  provides that:  Recommendations and rulings made by the D S B shall be aimed at achieving a satisfactory settlement o f the matter in accordance with the rights and obligations under this Understanding and under the covered agreements.  297 Marc L . Busch & Eric Reinhardt, "The Evolution of G A T T / W T O Dispute Settlement" Trade Policy Research 2003 (Ottawa: Minister of Public Works and Government Services, 2003) 143 at 157. [Busch & Reinhardt, "The Evolution of G A T T / W T O " ] . For the period between 1980 and 2000, compliance levels for developed states increased from 40% under G A T T to 74% under the W T O DSB regime. Though the results for developing countries are far less impressive, they also improved substantially, increasing from 36 % to 50%. Contra see Posner & Yoo, supra note 8. 298 Contra see Posner & Yoo supra note 8. 299 Vazquez & Jackson supra note 22 at 563.  300 Ibid. 101  The U . S . itself has recently confirmed that the settlement o f disputes is primary over the creation o f legal principles, despite its role i n establishing the Appellate Body and the legalistic direction o f the D S B :  ..the purpose o f the dispute settlement system is not to produce reports or to "make law," but rather to help Members resolve trade disputes among them. W T O adjudicative bodies should avoid making findings that are not aimed at resolving the dispute. It is useful to bear i n mind that such bodies are not permitted to render authoritative interpretations o f the covered agreements.  301  The objective o f positive resolution o f dispute is further emphasized by Article 3.10, which provides that members engage i n dispute resolution procedure i n good faith, in an effort to resolve the dispute. Therefore, as much as Article 3.2 promotes predictability through a developing body o f law and decisions, the comments o f the U . S . would seem to detract from any notion that the D S B ' s role is the creation o f a body o f authoritative law. There is therefore good reason to conclude that the overall primary purpose o f the dispute settlement system is to settle the specific dispute and remedy any injury, and not simply to secure compliance irrespective o f the i n j u r y .  302  The D S U attempts to capitalize on the element o f reputation, as is the role o f an institution according to compliance theorists such as the Chayes. The D S U contributes to the creation o f norms against which the conduct o f disputing parting can be measured, by providing additional pressure for the parties to resolve issues through negotiations  301 Communication From The United States, W T O Doc. No. TN/DS/W/82/Add.2 (17 March, 2006). 302 Fukunaga, supra note 48 at 386; Marc L. Busch & Eric Reinhardt. "Fixing What 'Ain't Broke' ?: Third Party Rights, Consultations and the D S U " online: Georgetown University <http://www9.georgetown.edu/facultv/mlb66/DSU.pdf> [Busch & Reinhardt, "Fixing What Ain't Broke"];  Contra Hilf, supra note 72 at 116.  102  towards the settlement o f the dispute. This pressure takes several forms. Article 19 o f the D S U provides that the panel w i l l ultimately make "recommendations", even though they are still considered to be legally b i n d i n g .  303  Article 21.6 o f the D S U provides a further  political tool o f pressure, as it allows any party to raise the issue o f compliance at any time. This permits any member to address the matter within the D S B , putting public light and attention on the delinquent state's inaction.  The notion o f political resolution therefore permeates the D S U and is a dominant theme of the rules themselves, and to some extent, the practices o f the D S B . The D S B ' s reluctance to make specific recommendations for an offending party to bring their measures within compliance, leaves the parties to attempt to agree on an appropriate resolution. Enforcement mechanisms are still largely dependent on the involvement o f the parties themselves, as demonstrated by softer mechanisms such as monitoring, reporting and ministerial meetings, which seek to encourage compliance,  304  even where retaliation  is approved. However, while the D S U remedies are somewhat softer, they do not contemplate that the member state has a choice to provide compensation or to endure retaliation in the place o f elimination o f the offending measure, contrary to the belief o f some.  305  The nature o f compensation is meant to be temporary, and cannot be used to  replace compliance. Indeed, it is telling that the Sutherland Report itself has sought fit to  303 Hudec, "Broadening the Scope", supra note 160 at 372-373. 304 Christopher Arup, "The State of Play of Dispute Settlement 'Law'at the World Trade Organization" (2003) 37 J. World Trade 897 at 902. 305 The Sutherland Report, supra note 17 at 54.  103  clarify this point.  The express reference to such a trite point is a good indicator that the  perceptions o f many have gone far adrift o f the original objectives o f the D S U .  There is thus some ambivalence surrounding the nature o f the D S B and its system o f 307  remedies,  as there seems to be constant tension between the creation o f legal principles  and the resolution o f the specific dispute. One observer has noted that although the practical availability o f remedies has marked an improvement over G A T T , these 308  improvements are i n fact less than what one expects from an "effective" legal system. It has even been suggested that while the W T O system appears to be a stronger legal system, the responsibility for breaching an obligation is actually more limited than under general international l a w .  309  Good examples o f this growing problem are decisions  involving the U . S and the E . C . Both the decision respecting the European ban on beef  hormones in European Communities - Measures Concerning Meat and Meat Products ("Beef H o r m o n e s " )  310  and the ruling i n U.S. Tax Treatment for  Corporations ("Foreign Sales Corporations")  311  Foreign Sales  failed to result i n compliance with  adopted rulings, despite the approval o f retaliation measures. They are examples o f disputes that encompass much more than ordinary commercial concerns. The fact that 306 ibid. 307 McRae, supra note 296 at 7. 308 Hudec, "Broadening the Scope", supra note 160 at 399. 309 Vazquez & Jackson, supra note 22 at 560.  310 European Communities - Measures Concerning Meat and Meat Products (Hormones, Report of the Appellate Body, WT/DS26/AB/R, WT/DS48/AB/R, 16 January 1998; and see European Communities Measures Concerning Meat and Meat Products (Hormones)- Original Complaint by the United States Recourse to Arbitration by the European Communities under Article 22.6(c) of the DSU, Decision By the Arbitrators, WT/DS26/ARB, 12 July 1999.  311 United States Tax Treatmentfor Foreign Sales Corporations, Report of the Appellate Body, WT/DS108/ASB/RW, 24 February 2000; and see United States - Tax Treatment for 'Foreign Sales Corporations' - Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, WT/DS 108/ARB, 30 August 2002. 104  such disputes go into areas such as health concerns or control over the tax base, put them 312  into the category o f disputes that are "deep-rooted in political complexities"  where  non-compliance is more likely.  Given the objectives o f the D S U , it is more appropriate to consider the political and legal aspects o f dispute settlement as two extremes o f a continuum, and not as a dichotomy where the system is either one or the other. The system is geared towards the resolution o f specific disputes, though should, to the extent possible, develop legal principles to assist in avoiding disputes on the same issues.  4.4  The Limited Effectiveness of Remedies Under the DSU  There is an inherent contradiction in the legalized judicial settlement system that is based on remedies such as retaliation, as economic power continues to act as an overriding factor. Ultimately, the enforcement o f an award under the D S U depends on the economic strengths o f the aggrieved state and not any applicable rules or principles o f international commercial arbitration.  313  The weaknesses in the system o f remedies suggest that the  coercive force o f reputation might better address the implementation o f changes in politically difficult cases.  The remedies provided for under Article 3.7 o f the D S U include compensation, and the suspension o f concessions or obligations to the losing party, a remnant o f the former 312 Sungoon Cho, "The Nature of Remedies in International Trade Law" (2004) 65 U . Pitt. L . Rev. 763 at 784. 313 Zekos, "An Examination of G A T T / W T O " , supra note 42 at 74-5.  105  Article X X I I L 2 o f the G A T T . Although the W T O prefers the term "counter-measures",  314  retaliation is an apt term. While retaliation already existed as a remedy i n international law, the formal inclusion o f retaliation i n the W T O agreement fulfilled the purpose o f 315  "taming retaliation", first,  by controlling its use by requiring parties to obtain authorization  thus proscribing unilateral  action. The D S U contemplates  countermeasures  equivalent to the level o f nullification or impairment o f benefits o f the state under the underlying agreements. The inclusion o f retaliation and other specific mechanisms has been touted as an innovation that recognizes the problem o f compliance, and which at 316  least attempts to address those problems within the treaty itself.  In many ways, the remedies o f compensation and retaliation are "deeply flawed" and "dysfunctional".  The pecking order o f preference i n Article 3.7 confirms that these  two remedies are included only to provide incentives for the state to withdraw the 318  offending measure and comply with obligations.  Article 3.7 provides first for a  mutually acceptable solution in accordance with the agreements, and the withdrawal o f the  impugned  measures. Entitlement  to compensation  arises only i f immediate  withdrawal is impracticable, and then only as a temporary measure. However it requires the mutual agreement o f the disputing parties, and thus has been criticized as solution i n theory o n l y .  319  One argument for the preference for compensation is that this does not  314 Fukunaga, supra note 48 at 418. 315 McGivern, supra note 9 at 143. 316 Joost Pauwelyn, "Enforcement and Countermeasures in the W T O : Rules are Rules - Towards a More Collective Approach" (2000) 94 A.J.I.L. 335 at 339. [Pauwelyn, "Countermeasures in the WTO"]. 317 John H . Jackson, "International Law Status of W T O Dispute Settlement Reports: Obligation to Comply Or Option To Buy Out" (2004) 98 Am. J. Int'l L . 109 at 123. 318 See also McGivern, supra note 9 at 144. 319 Bronckers & van den Broek, supra note 115 at 103.  106  c o m p o u n d the p r o b l e m o f trade d i s t o r t i o n l i k e retaliation.  O f course it is e q u a l l y  arguable that c o m p e n s a t i o n facilitates trade d i s t o r t i o n , as c o m p e n s a t i o n is t y p i c a l l y 321  •  understood as trade concessions a n d not actual m o n e t a r y c o m p e n s a t i o n .  Further, e v e n  f i n a n c i a l c o m p e n s a t i o n c a n be trade distortive, at least i n d i r e c t l y , i f v i e w e d as a means o f 322  b u y i n g out r e s p o n s i b i l i t y to c o m p l y w i t h o b l i g a t i o n s .  C o m p e n s a t i o n has i n a n y event  p r o v e n to have l i m i t e d p r a c t i c a l effect i n the W T O context. Similarly,  retaliation is p e r m i t t e d  only  as a last  resort,  where  compensation  is  unsuccessful. T h e scheme is therefore not intended to be r e m e d i a l , but is rather directed at i n d u c i n g c o m p l i a n c e .  3 2 4  W h i l e retaliation is directed towards this purpose, it is  nevertheless antithetical to the p r i n c i p l e s u n d e r l y i n g the W T O agreements, as it results i n an increase, rather than a r e d u c t i o n , i n trade barriers. It u l t i m a t e l y benefits groups i n  f a v o u r o f p r o t e c t i o n i s m a n d does not enhance the l i b e r a l i z a t i o n o f trade.  325  Indeed it has  been suggested that the o v e r a l l objective o f retaliation i n the W T O is unclear.  326  320 Fukunaga, supra note 48 at 412.  321 ibid.  322 The Sutherland Report, supra note 17 at 54. 323 Fukunaga, supra note 48 at 412, where it is noted that up to February 2006, compensation had been agreed to in only three cases - in two cases it took the form of tariff reduction, and in one case an actual monetary amount of compensation agreed upon. 324 van den Broek, supra note 70 at 139. 325 McGivern, supra note 9 at 152. 326 Holger Spamann, "The Myth of "Rebalancing" Retaliation in W T O Dispute Settlement Practice" (2006) 9 J. Int'l Econ. L . 31 at 60.  107  Furthermore, retaliation as a sanction has been criticized as the weakest part o f the D S U 327  and as bad policy, as it requires member states to effectively punish its own citizens.  A  decision to retaliate w i l l necessarily have a negative effect on the consumer citizens o f the complaining state, as trade barriers w i l l tend to create higher prices in that particular sector. Conversely, retaliation may not even provide relief to the industry in the 328  complaining states.  The complaining state is put it in a position to choose its own  poison - allow the discriminatory practice to continue, thus adversely impacting the exporters, or implement countermeasures on other imported products and hurt its own consumers.  It can only hope that the proper choice w i l l enhance the prospect o f  inducing compliance, or the development o f a politically acceptable solution. Developing states have a more fundamental problem, as the effect on domestic factions tends to affect smaller economies even more outweighed by the cost o f litigation alone.  331  330  and the benefits o f retaliation can be  Attempts at retaliation may have even more 332  devastating consequences, such as the reduction o f development aid.  Overall, for either  developed states or developing states, the difficulty is thus not establishing the legal authority for retaliation, but rather the political w i l l to implement it.  333  327 Mitsuo Matsushita, Thomas J. Schoenbaum, and Petros C. Mavroidis. The World Trade Organization: (Oxford ; New York: Oxford University Press, 2003) at 92-93; McGivern,  Law, Practice, and Policy. supra note 9 at 153.  328 McGivern, supra note 9 at 152; Bronckers & van den Broek, supra note 115 at 103.  329 McGivern, supra note 9 at 153. 330 331 332 333  Steger, "Systemic Issues", supra note 6 at 69. Bronckers & van den Broek, supra note 115 at 106. Joost Pauwelyn, "Enforcement and Countermeasures", supra note 316 at 338. Busch & Reinhardt, "The Evolution of G A T T / W T O " , supra note 297 at 159-160.  108  The inclusion o f retaliation has been less successful than anticipated by the drafters o f the DSU  3 3 4  and has proven to have limited impact. In the Foreign Sales Corporations dispute,  the E . C . was provided with the authority to impose over $4 billion in retaliation in 335  response to the sustained non-compliance o f the U . S . .  This was the largest retaliation *  336  request in international law,  and thus represented a milestone i n the use o f retaliation  as a measure to induce compliance. However, the underlying trade interdependence with the U . S . and a resistance from the European industry made it impossible for the E . C . to 337  impose the full extent o f the sanctions approved by the D S B .  Some have wondered  what such outcomes have achieved other than simply awarding huge retaliation 338  authorization for its own sake.  Similarly in the case o f the E.C.'s ban on imports o f beef raised with growth-promoting hormones in the Beef Hormones dispute, both Canada and the U . S . obtained D S B authorization to retaliate in 1 9 9 9 .  339  Both parties implemented retaliation measures o f 100  per cent duty on particular agricultural products.  340  Despite having applied a "fairly  334 McGivern, supra note 9 at 157.  335 United States -Tax Treatment for 'Foreign Sales Corporations' - Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, WT/DS108/ARB, 30 August 2002.  336 Spamann, supra note 326 at 74; Steinberg, supra note 2 at 272. 337 van den Broek, supra note 70 at 147. See also Bronkers and van den Broek, supra note 115 at 104. 338 Spamann, supra note 326 at 74. It should be noted however that U.S. Congress has made two sets of legislative changes in response. See Wilson supra note 7 at 430; online: W T O <http://www.wto.org/english/tratop e/dispu e/cases e/dsl08 e,htm> (last accessed 25 August, 2007).  339 European Communities - Measures Concerning Meat and Meat Products (Hormones)- Original Complaint by the United States - Recourse to Arbitration by the European Communities under Article 22.6(c) of the DSU, Decision By the Arbitrators, WT/DS26/ARB, 12 July 1999; European Communities Measures Concerning Meat and Meat Products (Hormones) - Original Complaint by Canada - Recourse to Arbitration by the European Communities under Article 22.6(c) of the DSU, Decision By the Arbitrators, WT/DS48/ARB, 12 July 1999.  340 McGivern, supra note 9 at 145.  109  calibrated retaliation strategy",  this failed to result in proven compliance by the E . C .  and the dispute has carried on for several years.  342  While the D S B certainly marks an  improvement over the dispute resolution under the G A T T system, initial results under the W T O as compared to the G A T T system have suggested it is no better at inducing compliance for adverse decisions in cases involving the E . C . and the U . S .  3 4 3  Further, one  observer has postulated that the arbitrariness o f authorizations for suspension o f concessions such as this one have in fact merely represented a diplomatic solution rather than a reasoned calculation based on the D S U measure o f equivalence.  344  suggested than there is in fact no evidence that retaliation actually w o r k s .  It has been 345  For these  type or reasons, it has been suggested that direct retaliation may be far less important i n enforcing international law than the effect o f reputation.  346  It ought not be surprising that the D S U had not included stronger remedies. A s some have observed, the limitation o f remedies was effectively a tradeoff for establishing the institutional context o f the W T O .  3 4 7  There has now been a movement toward a preference  341 Jidi Nzelibe, "Credibility Imperative - Political Dynamics of Retaliation" (2005) 6:1 Theor. Inq. L. 215 at 227. 342 In late 2005 a hearing of the E.U.'s request to review the retaliation measures of both the U.S. and Canada commenced. The E . U . has claimed that it has now brought its measures within compliance, and have sought an end to the authorization of continued retaliation measures. The Panel report was expected in June of 2007. See online: W T O < http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds321_e.htm> (last accessed 15 August 2007). See also Wilson, supra note 7, at 402. 343 Busch & Reinhardt, "Bargaining in the Shadow", supra note 58 at 166 & 171. Contra see Wilson, supra note 7 at 397 who suggests the E . C and the U.S. have "generally succeeded in bringing themselves in compliance...except for some residual compliance difficulties in a small number of cases." 344 Spamann, supra note 326 at 58, although Spamann suggests that it is difficult to conclude that the E . C . Hormones award "was as wrong as other Article 22.6 decisions were". 345 Steger," Systemic Issues", supra note 6 at 71, where she suggests that even economic modeling has proven to be far too speculative in establishing the effectiveness of retaliation. See also McGivern, supra note 9 at 152-153. 346 Spamann, supra note 326 at 78. 347 Vazquez & Jackson, supra note 22 at 562.  110  for forms o f compensation over retaliation as a means o f enforcing.  Given the  recognized shortcomings o f compensation and retaliation as a means o f inducing compliance with trade obligations, there are gaps i n the current D S U as to the means o f enforcing  rulings, particularly i n politically  difficult  cases.  Perhaps  a form o f  compensation is suitable for cases where developing countries are the complainants. However, most o f the difficult political cases that have resulted i n retaliation awards are cases where developed countries have failed to comply with D S B rulings over complaints brought by other developed countries.  4.5  349  Non-Compliance and Shortcomings of the Judicial Settlement System  The tightening o f the legal procedures and even the inclusion o f enforcement mechanisms have undoubtedly contributed something to the success o f the D S B . It is therefore easy to understand why discussions regarding reform focus on developing other remedies and increasing the authority o f the panels or the Appellate Body. However, this dialogue ought not drift too far from the context o f the actual objectives o f the D S U . Compliance based on coercion is neither a realistic objective, nor one which is contemplated by the D S U . N o r is the provision o f compensation for transgressions an overriding goal. Had it been so, the D S U would have likely included more severe penalties and punitive measures for past breaches.  350  348 Bronckers & van den Broek, supra note 115; Steger, "Systemic Issues", supra note 6; McGivern,  supra note 9 at 157. 349 See generally Wilson, supra note 7. 350 Vazquez & Jackson, supra note 22 at 565.  Ill  Given this retreat to legalism, it is increasingly important to critically assess precisely why countries have failed to comply with specific rulings, even i f this has occurred only in a minority o f cases. It has been argued while parties use the processes available to them, jthey make pragmatic decisions that are guided as much by political and economic 351  decisions as legal conclusions.  If this is so, then one has to consider the assumption  that better compliance w i l l result from better litigation system with more rules and remedies, and increased Appellate Body authority. In reviewing the recent decisions o f the W T O , Naboth van den Broek has described 352  several possibilities for non-compliance.  One o f the factors he identifies is the political  inability o f a member state to comply. In policy driven cases, there can be too much pressure from domestic interests to permit the state to comply with the r u l i n g .  353  A  second but related reason is the conflicting norms o f international and domestic arena and the slow rate o f internalization o f the higher norms o f international law. He also notes that the role o f non-state actors creates additional political pressures, noting that the E . U . and the U . S . are the members who are most highly influenced by non-governmental organizations ( " N G O s " ) . 354  Given these political pressures, it is therefore important to recognize that not all disputes can be resolved in the context o f the legalistic mechanisms o f W T O dispute resolution. Despite the current prevalent ambition to have disputes resolved by binding and  351 Arup, supra note 304 at 919. 352 van den Broek, supra note 70 at 148-151.  353 Ibid, at 149. 354 Ibid, at 150.  112  enforceable decisions, the "engine" o f dispute settlement has always been the early settlement o f cases.  355  The research o f Marc Busch and Eric Reinhardt suggests that the  advent o f the D S U under the W T O has not led to a significant increase in early 356  settlements.  This research furthermore underlines why negotiations can be so important. The research has shown that cases involving disputes between the E . C . / E . U . and the U . S . , the likelihood o f concessions is reduced dramatically where the parties fail to settle before a 35T  panel ruling, regardless o f the ultimate decision by the D S B .  The Beef Hormones and  Foreign Sales Corporations disputes can be distinguished from other cases by virtue o f the non-commercial interests at stake: the health risks surrounding the use o f hormones i n U . S . cattle; and domestic income tax policy, an integral aspect o f economic sovereignty. The fact that such disputes involve non-trade concerns makes non-compliance more 358  likely,  4.6  JJO  and more predictable.  An Over Enthusiasm for the Judicial Settlement System  While the D S U has incorporated forms o f arbitration in the final text, it has undoubtedly established a predominant framework for the resolution o f disputes that resembles a sophisticated judicial system. Despite the D S B ' s less than stellar record o f resolving disputes between the U . S . and the E . U . , the overall high level o f compliance under the  355 Busch & Reinhardt, "Evolution of G A T T / W T O " , supra note 297 at 176.  356 Ibid, at 165. 357 Ibid, at 160-1 & 164. 358 McGivern, supra note 9 at 156.  113  D S U regime has made attractive the notion o f increasing the power o f panels and the Appellate Body. The logic is simple - increasing the power o f the decision-maker w i l l engender even better compliance with it decisions. Using a similar logic, such reform 359  focuses on "improving" the remedies for breaches,  rather than focusing on encouraging  settlement. This line o f thinking ultimately hinges on the effective use o f retaliation or compensation as the main tool o f the W T O against non-compliance, over the element o f reputation or the "ultimate remedy" o f community pressure.  360  The review o f compliance  records o f member states however has suggested that compliance is more likely in cases 361  resolved by a negotiated settlement rather than a decision o f the D S B .  The limitations  of the system addressed above represent the reason why the W T O should look more toward a means o f dispute settlement that enhances negotiations for the resolution o f politically difficult cases. Although compliance theories might support maintaining a detailed framework for dispute resolution to create the compliance pull, the legalistic model has instilled a single minded approach to adjudication o f disputes. The D S B has been resorted to much more frequently than was ever anticipated.  362  Indeed, the growth can also be attributed to the 363  ability o f states to litigate cases involving political sensitivities.  •*  •  But the ability to bring  such cases does not mean that the system w i l l adequately resolve such cases. I agree with  359 See e.g. The Sutherland Report, supra note 17. 360 Hudec, "Broadening the Scope", supra note 160 at 399-400. 361 Busch & Reinhardt, "Evolution of G A T T / W T O " , supra note 297 at 145. 362 McRae supra note 296 at 4; The Sutherland Report, supra note 17 at para. 22. See also Leitner & Lester, supra note 3 at 166, who report that as of January 1, 2007, 356 complaints have been made, though there has been a noticeable decline in the last 3 years. 363 Pauwelyn, "Enforcement and Countermeasures", supra note 316 at 338.  114  the proposition that the frequency o f use o f the judicial settlement system is not appropriate for the level o f political aspects and diplomacy that should be maintained.  364  Robert Hudec has noted that although the practical availability o f remedies has marked an improvement over G A T T , these improvements are in fact less than what one expects • •  365  from an "effective" legal system.  He concludes that it is best to leave room to  maneuver for politically acceptable solutions. This is important for at least two reasons. First, the legal system cannot resolve also disputes. Second, caution should be exercised to ensure that expectations o f the current dispute settlement do not exceed what can be reasonably delivered. The legitimacy o f the W T O is somewhat fragile,  366  and failing to  meet expectations w i l l serve only to further detract from the body's moral authority. While arbitration might be considered a legalistic method o f dispute settlement, it is nevertheless a softer form o f third party resolution that is more amenable to ongoing negotiations. Unfortunately, as can be seen in the second part o f this chapter, it has not yet been integrated or utilized to its full potential.  364 McRae, supra note 296 at 5. 365 Hudec, "Broadening the Scope", supra note 160 at 399. 366 See e.g. Robert Howse & Kalypso Nicolaidas. "Enhancing W T O Legitimacy - Constistutionalization or Subsidiarity" in Marco Verweij & Tim Josling (eds.),  Deliberately Democratizing Multilateral  Organization, special issue of Governance (2003)  online: University of Michigan  <http://facultv.law.umich.edu/rhowse/>.  115  4.7  Specific Arbitration Provisions in the DSU  The three separate forms o f arbitration fall into two categories. Article 21.3 o f the D S U , provides for arbitration for the timeframe for compliance, and Article 22.6 o f the D S U provides arbitration over the level o f concessions that can be suspended by an aggrieved state should the offending state fail to comply or provide. These were introduced in the 367  Secretariat draft following a Canadian proposal,  and have been aptly characterized as  368  "sui generis''' forms o f arbitration,  as they are unique adaptations o f the concept o f  arbitration. They are effectively mandatory forms o f dispute settlement that merely pick up where the panel dispute settlement system ends, and do not provide an alternative process. In all likelihood, they might have been included as part o f the panel system, but for the fact that the shape o f the panel system was still uncertain at the time that these arbitration provisions were included in the Chairman's Text. However they do provide two key distinctions from the process for panel decisions: first, there is no appeal from determinations o f the arbitrator; and second, arbitration gives the disputing parties better control over procedure and the arbitrator, although in the case o f latter, not as much as appears on its face.  Conversely, Article 25 maintains the broad language included i n the Improvements o f 1989 draft, with only minor adjustments and permits arbitration for any clearly defined issue. Unlike the "sui generis" forms o f arbitration, it does not require a previous decision from a panel or the Appellate Body. Article 25 arbitration provides a purer form o f party  367 Supra note 268. 368 Boisson de Chazournes, supra note 40 at 953.  116  control, though the parties are still bound by the substantive law o f the underlying W T O agreements. The arbitrator arguably exercises relative independence, as the award does not require any adoption or approval by the D S B . While this is the only form o f arbitration that exists as an alternative to the judicial settlement process before panels and 369  the Appellate Body, it has so far only been used in one case.  4.7.1  Timeframe Arbitration  Though not an alternative form o f dispute settlement within the D S U , Article 21.3 provides an interesting study in the use o f arbitration in the D S U . While it is referred to as "arbitration", as it was when it was introduced into the Negotiating Group draft in September 1990, it functions as an adjunct to the judicial system, as it operates only after a D S B ruling has been adopted. Yet it could not have been clear precisely how it would fit in with the system o f judicial settlement in 1990, as the Uruguay Round negotiations had still not developed many o f the staples o f the dispute settlement system including the automatic adoption o f D S B rulings, and the appellate system. Today, the utility o f article 21.3 begins precisely where that o f the panel and Appellate Body has ended.  370  The D S U requires prompt compliance with the D S B recommendations and rulings. Once a panel or Appellate Body decision is adopted by the D S B , the offending state is required to report to the D S B at a meeting within 30 days after the adoption o f the report  369 United States - Section 110(5) of the U.S. Copyright Act - Recourse to the Arbitration under Article 25 o / ^ e D S V , WT/DS 160/ARB25/1, 9 November 2001 ["U.S. Copyright']. 370 Article 21.1 of the DSU.  117  as to its intentions to comply.  The offending state w i l l often claim that immediate  compliance is not possible and w i l l ask for a "reasonable" period o f to implement the necessary change, as provided for in Article 21.1. The different possible changes are often categorized into three categories: administrative changes, regulatory changes and 372  legislative changes.  The reasonable period o f time can be determined in three ways: first, the offending state can propose a period with the approval o f the D S B ; second, the offending state can make an agreement with the aggrieved state within 45 days; or, third, i f these first two methods are unsuccessful, through binding arbitration to take place within 90 days o f the adoption of the report.  373  Timeframe arbitration is therefore a course o f last resort - a default  provision where all else f a i l s .  374  Given that it is initiated by only one party as a default  measure, a referral to arbitration does not require the consent o f both parties.  Article 21.3 does not provide for any specific working procedures and unlike other arbitrations, there is usually no organizational meeting and the arbitrator draws up a working schedule.  375  While the disputing parties are permitted to agree on an arbitrator, in  the absence o f an agreement with 10 days, an arbitrator is appointed by the W T O  371 Article 21.3 of the D S U .  372 Hughes, supra note 176 at 84. 373 Article 21.3 of the D S U .  374 Hughes, supra note 176 at 82. 375 Pierre Monnier, "Working Procedures Before Panels, the Appellate Body and Other Adjudicating Bodies of the W T O " (2002) 1 Law & Prac. Int'l Courts & Trib. 481 at 517 [Monnier, "Working Procedures"].  118  Director General.  In most cases, a single arbitrator is appointed, usually one from the 377  permanent Appellate Body.  This practice is not required by the rules, and has likely  developed not only for the sake o f efficiency o f appointment, but also due to member preference for Appellate Body experience and the maintenance o f consistency and 378  coherence i n awards.  These latter interests are simply not as important with respect to  the use o f arbitration that I propose. I w i l l later suggest that the practice o f reliance on Appellate Body experience out o f a sense o f familiarity, or to promote consistency, ought not be continued in the context o f Article 25 arbitration, in order to maintain distance with the mainstream judicial settlement process. The extent o f the jurisdiction o f the arbitrator is brought into question by a peculiar reference to the appropriate timeframe in Article 21.3, which provides:  .. .a guideline for the arbitrator should be that the reasonable period o f time to implement a panel or Appellate Body recommendation should not exceed 15 months from the date o f the adoption... However that time may be shorter or longer depending upon the particular circumstances.  There has been much debate i n the awards as to whether the 15 months constitutes a default period o f time, where a party would have to provide a reason to deviate from that 379  norm either way,  380  or an outer limit.  However, it has generally been accepted that the  376 Ibid. See also Hughes, supra note 176 who points out that of the first 15 cases, 10 resulted in agreement by the parties. 377 Palmeter & Mavroidis, supra note 29 at 272. See also Hughes, supra note 176 at 83, where she suggests it is difficult to say why parties have preferred Appellate Body members.  378 Hughes, supra note 176 at 83.  379 Japan — Taxes on Alcoholic Beverages, Award of the Arbitrator under Article 21.3(c) of the DSU, WT/DS8/15, WT/DS10/15, WTVDS11/13, 14 February 1997 at para. 27;  119  arbitrator has relative discretion to determine the period based on a consideration o f the impact o f the "particular circumstances". This is always governed by the overriding principles o f reasonableness and prompt compliance, but nevertheless gives the arbitrator 381  a fair amount o f discretion to consider the individual circumstances.  The arbitrator is  ultimately guided by the principle that the reasonable period o f time should be the 382  shortest period possible in considering the offending state's legal system.  A trend  toward progressively shorter periods in the awards demonstrates that this principle has gradually crystallized. Effectively, while 15 months had been treated as the standard until mid 1998, by 2000, the average reasonable period was eight months for a case requiring administrative change and twelve months for cases requiring legislative changes.  383  The arbitrator has no jurisdiction to make recommendations as to the means by which the offending state should implement the suspension, or whether or not a particular countermeasure  actually  conforms  to  the  principles  o f the  agreement  or  the  384  recommendations and rulings o f the panel decision.  The choice o f method o f  implementation is that o f the offending state, subject to review by the normal dispute European Communities - Regime for the Importation, Sale and Distribution of Bananas Award of the Arbitrator under Article 21.3(c) of the DSU, WT/DS27/15, 7 January 1998 at para. 19. 380 EC Measures Concerning Meat and Meat Products (Hormones) Award of the Arbitrator under Article 21.3(c) of the DSU, WT/DS26/15, WT/DS48/13, 29 May 1998 at para. 48. 3 81 United States - Measures Affecting The Cross-Border Supply Of Gambling and Betting Services Award of the Arbitrator Under Article 21.3(C) of DSU, WT/DS285/13, 19 August 2005 Arb-2005-2/19, ("U.S. Gambling") at para. 44. 382 Canada - Term of Patent Protection, Award of the Arbitrator under Article 21.3(c) of the DSU, WT/DS170/10 28 February, 2001 at para. 39 ["Canada - Term of Patent Protection"]. Also U.S. Gambling, supra note 381 at para. 33. See also Article 3.3 & Article 21.1 of the D S U , which set out the principles of the necessity of prompt settlement of disputes & prompt compliance with decisions. 383 Pierre Monnier, "Time to Comply with W T O Rulings" (2001) 35 J. World Trade 825 at 831 [Monnier, "Time to Comply"].  384 U.S. Gambling, supra note 381 at para. 33.  120  settlement process.  This gives rise to an unusual situation - it is possible that the  measure proposed by the offending state to implement is totally inadequate, or is unresponsive to the recommendations made by the panel. A s such an arbitrator could be called upon to determine the period for which the state must comply, even i f the proposed measure does not conform to the general principles o f the D S U that ultimately governs the arbitration. Article 26.1 allows the arbitrator, upon the request o f one o f the parties, to determine the amount o f benefits nullified or impaired by the offending measure, and to suggest ways that the matter can otherwise be resolved. However, these suggestions are 386  not binding, and arbitrators are i n any event reluctant to do so.  A s o f January 2007, there have been 21 arbitration awards circulated pursuant to Article 21.3.  387  While I would suggest that this form o f arbitration lacks a true element o f party  control, one remarkable aspect o f this procedure is the ability o f an arbitrator to issue a ruling that considers the legislative function o f the member state. Timeframe arbitration often centers on what "particular circumstances" would justify extending the period for compliance. This is where the scope o f the arbitrator's role is most obvious and broad. Indeed, the arbitrator arguably exercises a quasi-supervisory role over a state's legislative or regulatory process. This is illustrated by the case o f the U . S . complaint against Canada 388  in Canada - Term of Patent Protection.  385 Article 21.5 of the D S U ; Palmeter & Mavroidis, supra note 29 at 248; Fukunaga, supra note 48 at 401.  386 Hughes, supra note 176 at 83. 387 Leitner and Lester, supra note 3 at 174. 388 Canada - Term of Patent Protection, supra note 382.  121  In the  Canada - Term of Patent Protection arbitration, the arbitrator was to determine the  reasonable period o f time for Canada to comply with a panel ruling requiring Canada to bring its patent legislation into conformity with its obligations under the Agreement on 389  Trade-Related Aspects of Intellectual Property Rights ("TRIPS").  The panel had found  that Canada's compulsory licensing scheme allowing generic pharmaceutical producers to manufacture patented drugs did not provide the minimal 20 year period o f patent protection for the original producer as required under T R I P S . Canada argued that the reasonable  period  o f time to comply  was almost  15 months  because  o f the  "contentiousness" o f the measure. The arbitrator considered that Canada's proposed timeline for amending the legislation appeared to depend upon the priority given by the Canadian government.  390  The arbitrator further determined that the contentiousness o f the  measure for reform and the likelihood o f strong opposition was irrelevant.  391  The timeframe arbitration review o f the parliamentary process delves into the area o f state sovereignty. Though the arbitrator i n  Canada - Term of Patent Protection was 392  reluctant to accept all o f the legislative restraints as factors,  •  an arbitrator w i l l generally,  on a case by case basis, consider the nature o f the changes and the legislative process to some degree. While the contentiousness o f legislation is not a relevant factor, the 393  complexity o f legislation can be a factor.  Whether or not the Parliamentary schedule o f  389 Annex 1C to Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations and Marrakech Agreement Establishing the World Trade Organization, April 15, 1994. 390 Canada - Term of Patent Protection supra note 382 at para. 64.  391 Ibid, at para. 60; See also Hughes, supra note 176 at 84. 392 393 58.  Canada - Term of Patent Protection, supra note 382 at paras. 52- 60. U.S. Gambling, supra note 381 at para. 48; Canada - Term of Patent Protection supra note 382  at para.  122  a particular state w i l l be relevant w i l l depend on the circumstances. arbitrator  also must  take  into account  the  special circumstances  Further the o f developing  395  countries.  A developing country found to have breached its obligations may be given 396  extra time to comply when its needs justify that extra consideration.  In most cases, the  result has been either implementation or an agreement between the parties as to the ultimate resolution.  397  It is telling that during the Uruguay Round, the Negotiating Group on Dispute Settlement had saw fit to engage a process referred to as an arbitration in order to deal with what is in essence, an issue o f enforcement. Further, while timeframe arbitration addresses an issue that is very narrow, it is hardly the purely factual types o f issues contemplated by the proposals  in the  Uruguay Round. O n the  contrary, it engages fairly  lofty  responsibilities for an arbitrator, despite reluctance to make recommendations on the method o f implementation. Despite the apparent exclusion o f "political factors" as a 398  consideration,  timeframe arbitration indeed involves political considerations relating  to the feasibility o f policy changes with the offending party's domestic system. A s a further example o f this, the D S B recently agreed to an amendment to Article 21.3(c) obliging the arbitrator determining the reasonable prior o f time to "take into account the particular problems and interests o f developing-country Members in interpreting the  394 U.S. Gambling, supra note 381, para. 52 and Canada Patent Term, supra note 382 at paras. 65-66. 395 Article 21.2 of the D S U . 396 However, it is still unclear whether this principle could affect the determination of a reasonable period of time when the aggrieved state is a developing country. See U.S. Gambling, supra note 381 at para. 63. 397 Fukunaga, supra note 48 at footnote 77. 398 Canada - Term of Patent Protection, supra note 382 at para. 60.  123  particular circumstances" that determine the reasonable period o f time pursuant to the principle o f special and differential treatment.  399  A s previously set out, not all cases o f implementation require legislative changes, but possibly only administrative or regulatory changes. However, while arbitrators have avoided making recommendations  on the means o f implementation,  they  400  must  necessarily assume a method o f implementation. Further, it has been noted that in the result, arbitrators have provided a period o f time without any explanation for the period u  401  chosen.  In short, arbitration under Article 21.3 establishes a precedent for a form o f political decision-making through arbitration, even though the decision is not subject to appeal. Given that such a process has been adopted with little controversy,  402  it is therefore  possible to envision a system in which politically difficult cases that are unlikely to be resolved by a binding ruling by a panel and by the Appellate Body, might be systematically diverted out o f the litigation track, to an arbitration track. Arbitration would be directed at bolstering the efforts for prompt implementation and therefore ought not be rigid, but should merely facilitate interactions between parties.  403  The D S B  acknowledges that the timeframe order by the arbitrator can be modified upon the  399 W T O , Minutes Of Meeting Special Session W T O Doc. TN/DS/M/34, para. 10.  of the Dispute Settlement Body (held  on 13 July 2006),  400 Hughes, supra note 176 at 83.  401 Ibid, at 84. 402 Ibid, at 86. 403 See Fukunaga, supra note 48 at 403.  124  agreement o f the disputing parties.  The main purpose o f arbitration would therefore be  to facilitate the iterative discourse towards resolution. The same principle could apply with respect to Article 25 arbitrations that involve the main dispute itself.  4.7.2  Concessions Arbitration  It is equally telling that during the Uruguay Round, the Negotiating Group on Dispute Settlement agreed upon a second form o f "sui generis" arbitration that arises after the D S B ' s adoption o f the report o f a panel or Appellate Body, and that is directed at the enforcement o f the D S U r u l i n g .  405  Once the reasonable period for implementation has  been established, the offending state now has a timeframe for making the necessary administrative, regulatory or legislative changes in order to bring its offending measures within conformity to its obligations under the W T O agreements. Where that has not happened within the timeframe prescribed by the Article 21.3 award, the aggrieved state is entitled to mutually acceptable compensation. If the parties do not agree to a form o f compensation within 20 days o f the expiry o f the reasonable period, the aggrieved state can seek D S B approval for a suspension o f concessions  4 0 6  The concessions subject to  suspension are those benefits that the offending state otherwise enjoys pursuant to the underlying agreements, generally a form o f guaranteed and equal access to markets.  404 ibid. 405 It should however be recalled that at the time that both of these provisions were proposed by Canada in June of 1990, the Negotiating Group on Dispute Settlement had not settled on the current panel/Appellate Body litigation system. Nevertheless, it is telling that for enforcement, the Negotiating Group gravitated towards arbitration, and those provisions remained even after negotiations evolved to include automatic adoption of panel decisions, and the creation of appeals to the Appellate Body. 406 Article 22.2 of the D S U .  125  Article 22.3 o f the D S U sets out the principles for priorizing the different forms o f retaliation. Article 22.4 o f the D S U establishes that the proper measure o f retaliation is that o f equivalence to the level o f nullification or impairment, a concept that is different than proportionality.  407  A s such the measure for retaliation is not purely quantitative,  408  but to some degree, qualitative. The level o f retaliation must be measured against a notional effect on the damaged market. The arbitration under s. 22.6 is thus more complicated and delicate than a mere number crunching exercise. However, it has been suggested that this form o f arbitration has utterly failed at determining a reasonable measure o f equivalence, or striking any form o f rebalance after the trade distorting effects of the breach, due to political considerations.  409  In determining what concessions w i l l be suspended, the state must comply with the principles i n Article 22.3. First, it must consider a suspension o f concessions within the same sector. For example, i f the offending measure affected services under the  General  Agreement on Trade in Services ( " G A T S " ) , the concessions suspended would be within the same division o f services, such as financial services within G A T S . Second, where this is not practicable, the aggrieved state must consider a suspension in another sector within the same agreement. Where the first two options are impractical, the aggrieved state can consider suspension i n respect o f concessions i n an entirely different agreement from that under which the initial breach arose (in this example, T R I P S ) , or "cross retaliation".  410  407 Fukunaga, supra note 48 at 419.  Am Ibid, at 423. 409 Spamann, supra note 326. 410 For an example where cross retaliation was approved, see European Communities Regime for the Importation, Sale and Distribution of Bananas. Recourse to the Arbitrator by the European Communities under Article 22.6 of the DSU, W T / D S 2 7 / A R B / E C U , 24 March 2000. ( " £ C Bananas ///"). In that case,  126  The arbitration under Article 22.6 arises where the offending state disagrees with the proposed level o f retaliation. If the offending party objects to the level o f suspension proposed (as distinct from the form o f suspension), it can then seek to have the matter referred to arbitration. The arbitration under Article 22.6 determines only whether or not the proposed suspension goes beyond the level o f nullification and impairment o f benefits resulting from  the original offending  measure. The arbitrator can therefore  only  determine i f the level o f suspension is appropriate, and not the "nature" o f concessions or obligations to be suspended.  411  However, where the arbitrator determines that the  selection procedure and principles in Article 22.3 have not been followed, the arbitrator is required to give an estimate as to the level o f suspension considered to be equivalent to nullification or i m p a i r m e n t  412  In one arbitration decision, the arbitrators went so far as to  find that they could make a determination referred to in Article 23.2(a) as to the consistency with the W T O agreements o f new measures implemented by the offending states to comply with the panel or Appellate Body report, though that was in exceptional circumstances.  413  while the violation by the E . C related to goods under G A T T and services under G A T S , Ecuador proposed a suspension of concessions under TRIPS, an entirely different agreement. The arbitration accepted the proposal, while expressing some concerns in respect of Ecuador's choice of TRIPS sectors within which suspensions would apply. 411 Article 22.7 of the D S U . 412 Palmeter & Mavroidis, supra note 29 at 270;  "EC Bananas HF, supra note 410. 413 European Communities Regime for the Importation, Sale and Distribution of Bananas. Recourse to the Arbitrator by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB, 6 April 1999. See however Freidl Weiss, ed. Improving WTO Dispute Settlement Procedures - Issues and Lessons from the Practice of Other International Courts & Tribunals (London: Cameron May Ltd., 2000) at 86, where it is suggested that the decision of the arbitrator was influenced by the fact that one of the parties had refused to appear before the panel, and that the finding was ultimately, ultra viries. Thus the position that the arbitrator had the jurisdiction to determine the W T O consistency of the new measures appears to be in some doubt.  127  The offending party's request for arbitration under s. 22.6 would preempt the aggrieved party's request for approval o f the D S B under Article 2 2 . 2 .  414  The arbitrator therefore  proceeds without a decision from the D S B with respect to the nature o f the proposed suspension. Article 22.6 does not set out any specific procedures for arbitration, other than requiring that the arbitrators shall consist o f the original panel members hearing the substantive dispute,  415  thus removing any party control over the decision-maker. The  concessions arbitration must be done within 60 days after the expiry o f the reasonable period.  The fact that the D S U dictates that the arbitrators shall be the same as those hearing the substantive dispute demonstrates how this form o f arbitration is currently an extension o f the judicial settlement track. Since the arbitrators are generally members o f the original panel, the procedures are typically similar to those o f the panel process.  416  For example,  the burden o f proof for a concessions arbitration is the same that exists in any other D S B proceeding. This burden follows the assumption that parties act i n conformity with their obligations and it is therefore for the alleging party to prove a breach.  417  In concessions  arbitration, it is the offending state that must therefore prove that the proposed retaliation is disproportionate. The adoption o f this principle o f onus proves awkward, as it means that the offending state must prove that the suspension o f concessions proposed by the aggrieved state is disproportionate to the nullification or impairment, without information as to the effect on the aggrieved state. Arbitrators have resolved this issue by requiring 414 Palmeter & Mavroidis, supra note 29 at 271. 415 Under Article 22.6 of the D S U , the Director-General would designate replacements for any of the original panel members that are unavailable. 416 Monnier, "Working Procedures", supra note 375 at 514-515. 417 Palmeter & Mavroidis, supra note 29 at 272.  128  parties to submit a preliminary argument outlining the methodology for the aggrieved 418  state's calculation o f the concessions.  A s o f March 2007, there have been 9 awards circulated in respect o f Article 22.6 arbitrations,  419  eight of which resulted in approval o f retaliation  4 2 0  In one respect, the  concessions arbitration sets an example for one feature that might distinguish arbitration from litigation i n a proposed two-tiered dispute settlement system. L i k e the process under Article 21.3, there is no provision for any appeal from this decision, and the parties are required to accept the decision as final, and cannot seek a second arbitration  4 2 1  The D S B  must be promptly informed o f the results o f the arbitration, but while there is no adoption process for the D S B , the aggrieved party must still seek the D S B approval o f suspension in the amount approved by the arbitrator. Article 22.6 thus sets another precedent for a system where a right to appeal does not attach to every W T O dispute, even where the arbitration may not have all the advantages attendant on arbitrations in the traditional sense, such as choice o f the arbitrator.  A review o f the use o f concessions arbitration however reveals a second important point. Arbitrators hearing Article 22.6 arbitrations may not have applied the wholly legal analysis suggested by the formal principles that have purportedly developed. It has been suggested that the decisions under this form o f arbitration have typically sought a middle  418 See e.g. European Communities Regime for the Importation, Sale and Distribution of Bananas. Recourse to the Arbitrator by the European Communities under Article 22.6 of the DSU, supra note 413. 419 Leitner and Lester, supra note 3 at 174-175.  420 Wilson, supra note 7 at 399. 421 Article 22.7 of the DSU. Some have suggested consideration of making awards subject to review by the Appellate Body. See e.g. Steger, "Systemic Issues" supra note 6 at 73.  129  ground between solutions.  422  the parties'  positions, and thus consistently present diplomatic  I do not view this as a negative aspect o f this form o f arbitration. Robert  Hudec has suggested that where an award has the effect o f providing a reasonably objective ruling, it may well "persuade the relevant audiences i n both countries that a neutral tribunal had made an objective judgment o f equivalence".  423  While speaking  particularly o f the potential political benefits o f the use o f arbitrary measures i n Article 22.6 arbitration, Hudec's observation speaks volumes about the potential use o f arbitration for establishing a single unappealable ruling, within the W T O context generally. Therefore, while concessions arbitration has been criticized i n cases o f noncompliance as merely prolonging the dispute,  424  i f it has been used in this manner, it may  well set an example for the use o f arbitration o f the underlying dispute i n the more politically difficult cases.  4.7.3  Issue Arbitration  The third form o f arbitration i n the D S U is found under Article 25, which provides for arbitration for any issue that is clearly defined by both parties. A s discussed in the previous chapter, some G A T T members believed that it was always open to G A T T parties to agree to a form o f arbitration for the settlement o f particular disputes, given the absence o f any unifying and mandatory dispute settlement system.  425  B y this perspective,  the option presented in Article 25 only became necessary by the inclusion o f Article 23 o f  422 Spamann, supra note 326 at 75-76. 423 Hudec, "Broadening the Scope", supra note 160 at 391.  424 Fukunaga, supra note 48 at 385. 425 Young, supra note 43 at 401.  130  the D S U , requiring the parties to submit any allegation o f a violation giving rise to a dispute in accordance with the D S U procedures.  426  Nevertheless the formal recognition o f  a procedure that acts as an alternative to the mainstream judicial system is a significant step, irrespective o f the manner o f its introduction into the D S U . In effect, arbitration as a true alternative has been integrated into the institutional context. While it is a separate procedure, it proceeds within the general auspices o f the D S B and has a degree o f institutional support. This is unlike the previous G A T T system, where there was not even a consensus amongst members as to the availability o f arbitration.  Issue arbitration under Article 25 more closely resembles arbitration in the classical sense. It can be used to resolve any issue, and does not require a previous decision from a panel or the Appellate Body like arbitration under Articles 21.3 or 22.6. The arbitrator arguably exercises relative independence, as the award does not require any formal adoption or approval by the D S B .  4 2 7  Indeed its flexibility has left it open to criticism from  legalists who have wondered what contribution arbitration can make to the overall 428  development o f a consistent and cogent body o f law.  While this is the only form o f arbitration that exists as a true alternative to the litigation processes before panels and the Appellate Body, it has so far only been used in one case.  The case of United States-Section 110(5) of the U.S. Copyright Act {"U.S. Copyright")  429  involved an E . C . complaint that the United States Copyright A c t failed to protect the  426 ibid. 427 Article 25(3) of D S U only provides that awards must be notified to the DSB. 428 Young, supra note 43 at footnote 57.  429 U.S. Copyright, supra note 369. 131  exclusive copyrights o f the E . C right holders o f music, thus causing a loss o f royalties. Ultimately, the Appellate Body found that section 110(5) o f the United States Copyright A c t breached Article 13 o f T R I P S , and therefore recommended that the D S B request the U . S . to bring its law into conformity with its obligations under T R I P S .  Ironically, the case used the Article 25 procedure for resolving the level o f nullification and impairment, and thus did not stray far from the parameters o f subject matter o f concessions arbitration. The arbitrator was asked to calculate the level o f E . C . benefits that had been nullified or impaired as o f the date o f the arbitration, and thus involved a very factual issue, though not completely divorced from the application o f legal principles. The particular issue was whether or not it was reasonable for the E . C . to calculate its losses for all potentially realizable income. The U . S . argued that it would be impossible to implement and enforce a licensing system for collecting royalties for every conceivable rights user (i.e. use o f copyrighted music in restaurants and bars) and that any calculations had to recognize the practicalities and costs for collecting license fees i n respect o f any potential u s e .  430  The arbitrator ultimately determined that the level o f  impairment was the amount that could have reasonably been collected through licensed users only, thus rejecting the E . C . methodology o f calculating the potentially realizable income without regard to the practicalities o f licensing and collection.  431  The ultimate  calculation based on lost profits marked a lack o f consistency with decisions i n s. 22.6 arbitration, which have typically used the measure o f trade effects, or lost trade.  430  U.S. Copyright, supra  432  note 369 at paras. 3.6-3.35.  431 Ibid, at para. 3.33. 432 Spamann, supra note 326 at 40-41.  132  Whereas Article 25 seems to be broad enough to cover almost any issue, this was not the most inventive use o f issue arbitration. The issue defined by the parties could have been determined by an arbitrator without a request under Article 25, under Article 22.6. Article 26.1(c) would have also permitted the timeframe arbitration to address such a matter, upon the request o f one o f the parties.  433  There are no specific procedures set out in Article 25. Article 25.2 explicitly provides that the parties must agree to the procedures and to the arbitrator. Here again, the parties involved in the  U.S. Copyright case did not demonstrate a great deal o f creativity and  elected to have the original panel that decided the substantive dispute. A s such, it did not demonstrate the full potential or breadth o f choice over the decision-maker. When it was determined that two members o f the original panel were unavailable, the Director General appointed replacements, in accordance with a set o f specific working procedures circulated ahead o f time  4 3 4  The arbitrator in U.S. Copyright determined that it could  consider the question o f its own jurisdiction  4 3 5  In finding that it had the jurisdiction to  resolve the dispute, the arbitrator made particular note o f the fact that the dispute did not affect the rights o f any other members.  436  433 Monnier, "Time to Comply", supra note 383 at 842.  434 Hughes, supra note 176 at 81. 435  U.S. Copyright, supra note 369  at paras. 2.1 - 2.7.  436 Ibid, at paras. 2.6 - 2.7.  133  The parties requested the use o f principles adopted in arbitration for Article 22.6, which was not surprising given that the substantive issue resembled one for concessions 438  arbitration.  The specific working procedures adopted in the arbitration largely followed  those used under previous concessions arbitration,  439  and required the U . S . to submit a  preliminary paper outlining the methodology used to calculate the benefit and impairment to the E . C . The parties then submitted concurrent written submissions and concurrent rebuttals.  440  The procedures ultimately adopted bore a substantial resemblance to those  used within panel proceedings, with some modification.  441  The arbitration i n this case demonstrates the potential o f the arbitration process, as it had the effect o f providing guidance to the parties for an agreement as to compensation.  442  While the award may have not provided the precise objective solution, the parties eventually reached an agreement on the appropriate amount o f compensation based on the a w a r d .  443  Indeed it has been noted that the manner i n which the arbitration facilitated  negotiation on the issue was "an interesting and constructive precedent, likely to be followed i n the future."  4 4 4  While I share this enthusiasm for the prospect opened up by  this experiment, unfortunately it has not been followed as a precedent.  437 Ibid, at para. 4.4; See also Spamann, supra note 326 at 71. 438 Hughes, supra note 176 at 81. 439 Pierre Monnier, "Working Procedures", supra note 375 at 512-3. 440 U.S. Copyright, supra note 369 at para. 1.7. 441 Pierre Monnier, "Working Procedures", supra note 375 at 513.  442 Fukunaga, supra note 48 at 412. 443 Ibid, at 414; Communication from the U.S. WTVDS160/23,26 June 2003; Spamann, supra note 326 at 79. 444 McGivern, supra note 9 at 157; see generally Bronckers & van den Broek, supra note 115.  134  4.8  Conclusion  There are a number o f aspects o f the current use o f arbitration under the D S U that may inform the discussion o f the further integration o f arbitration. First, there is still an incoherency in the integration o f arbitration as an alternative with the D S U . Indeed, two of three forms o f arbitration in the D S U are merely extensions o f the judicial settlement system and hardly arbitration at all. O n the other hand, arbitration under Article 25 is more o f a self-contained alternative dispute mechanism, even though it has been used only once. This incoherency reinforces the notion that the shaping o f the arbitration alternative was not fully developed i n the Uruguay Round.  This is not a striking revelation. Cleary the creation o f the W T O and an effective dispute settlement system involving over 100 member states is itself remarkable. It was surely a first cut at the creation o f a system that was designed to be refined over time and after experience. This o f course does not mean that arbitration cannot be integrated more effectively into the D S U or that it cannot have some utility. It ought not be forgotten as an alternative to the more legalistic system o f judicial settlement.  However, this  incoherence may have obscured the true benefits o f arbitration as a possible alternative for specific disputes. It is difficult to view it as a true alternative when it is not carefully defined conceptually, or i f it is not clearly distinguished from the judicial settlement system o f dispute, at least in practice.  135  Second, the current structure o f the D S U suggests that there is nevertheless a belief that arbitration, in some form, has a role to play, perhaps an important role, particularly in respect o f the ultimate resolution o f the dispute and implementation o f some form o f change in the event o f a violation o f W T O principles. The two forms o f mandatory arbitration at least add an extra and distinct layer to the judicial settlement system. The arbitration provisions may well be ideal as a useful tool within the D S U as an example o f a modified rule system designed to promote the discourse necessary to facilitate a resolution.  The strength o f the arbitration provisions is not to create a formal system o f enforcement that mirrors the private commercial arbitration system but rather in fostering further iterative discourse that converges around treaty principles, as contemplated by the Chayes managerial model. They can do so by fostering a discourse on how and when the offending party w i l l alter its conduct to conform to its obligations, and by providing some objective measures for the value or cost o f non-compliance. These forms o f arbitration do not overreach by providing an appeal right on legal issues. Furthermore,  where  compliance does not follow a D S B ruling, the arbitration process provides another process to determine the empirical value to non-compliance.  A s such, the secondary rules creating the arbitration process provide the framework for enhancing the legitimacy o f the D S B rulings in and o f itself, and for reinforcing the idea of objective standards, thus engaging the element o f reputation as a pressure towards compliance with rulings. Section 21.3 and 22.6 can be seen as forms o f expression that  136  advise the parties clearly that they must ultimately comply with the finding o f the DSB.  4 4 5  This provides an example o f the potential benefits o f using Article 25 arbitration  to resolve more politically difficult cases.  Third, while some o f the discussions in the Uruguay Round suggested that arbitration ought to be limited to only factual disputes, the use o f processes under Articles 21.3 and 22.6 demonstrates that arbitration can, and has been used as a means o f resolving political issues, without causing great concerns. Even though these  sui generis forms o f arbitration  may not be true forms o f arbitration, they have set a precedent for member states to accept a system o f dispute resolution that does not provide for a right o f appeal in every instance.  This last point leads to the contention in the next chapter - that arbitration might be seen as a mechanism that falls somewhere between the extremes o f diplomatic means and legalistic means o f dispute settlement, and thus worthy o f consideration as part o f the solution o f addressing the most politically difficult disputes. The creation o f a distinct arbitration system that is independent o f the judicial system, and that gives the parties some measure o f control over the procedure may well provide the requisite legitimacy, while promoting negotiated resolution. From the perspective o f the offending party, it w i l l have been provided with an opportunity to fully argue the merits o f its case before an independent  third party, thus promoting Franck's key elements o f legitimacy and  445 Young, supra note 43 at 405.  137  fairness. That process would also allow an arbitrator, chosen by the parties, to consider the reasons required for a certain period to implement a ruling.  The idea o f using arbitration as a middle ground between the diplomatic and legalistic means o f resolving disputes is premised on the simple notion that judicial settlement w i l l be incapable o f inducing compliance in every case. While arbitration could clearly not lay such a claim, it may be a more suitable form o f dispute settlement over the judicial settlement system in difficult cases, as explored in the next chapter.  138  CHAPTER V: REFORM 5.1  Introduction  While the commencement appropriate  o f the Uruguay Round in 1986 may have marked an  time to strengthen  the  dispute  settlement  system, the pendulum-like  movement o f G A T T between rules orientation and power orientation may suggest that this is now a time to consider "weakening" the system in some small measure, in order to strike a better balance for politically difficult cases. The question o f reform must therefore be considered in light o f the delicate balance that the D S U attempts to strike between the legalization o f the system with its emphasis on "enforceable" remedies, and the purpose o f engaging political pressures. Compliance theories suggest that the utility of objective decisions is primarily as a force toward normative condemnation and mutual resolution, and not to obtain enforceable judgments. This is a major difference between compliance in international law and compliance in domestic law. A s the court without a bailiff, the D S B is unable to truly oversee the actual enforcement o f monetary judgments or retaliation.  446  Arbitration, as distinct from judicial settlement may be uniquely positioned to achieve the right blend o f these elements in a few, select cases. In this chapter, I first consider the current direction o f reform, and then propose a vetting system that seeks to identify the 446 It has been said that W T O rulings are not binding in the "traditional" sense since there are no traditional enforcement powers such as a police force or injunctive relief. See Judith Hippler Bello, "The W T O Dispute Settlement Understanding: Less is More" (1996) 90 A m . J. Int'l L. 416, though further explained in (2001) 95 A m . J. Int'l L . 984 at 986-987. See also John H . Jackson, "International Law Status of W T O Dispute Settlement Reports: Obligation to Comply or Option to Buy Out" (2004) 98 Am. J. Int'l L. 109 at 123. As Jackson concedes, the remedies of compensation and suspension are in some ways "deeply flawed" and "dysfunctional".  139  politically difficult cases, and that diverts them outside the judicial settlement system and directs them down an arbitration track. Given the relatively good record o f dispute resolution, it is anticipated that this would be a minority o f cases, which could generally involve disputes between developed states, particularly the superpowers.  One might naturally ask how an arbitration ruling would induce better compliance than a ruling in the judicial settlement system? After all, the judicial system was created around an appeal system. From the U . S . perspective, the appeal system was intended to foster compliance with the new obligations negotiated in the Uruguay Round, whereas from the E . C . perspective, it was hoped that it would curb U . S . unilateralism.  447  Ultimately, I do  not suggest that an arbitration award w i l l have any additional coercive force than a D S B ruling. However, I would suggest that for the purposes o f politically charged cases, it would not have any less.  Second, I do not suggest that that such a system would result in better compliance with the strict letter o f the award or ruling. However, it would have the advantage o f diverting a dispute where compliance with a ruling is unlikely i n any event, putting it more quickly on a negotiation track, after the benefit o f an objective third ruling around which the iterative discourse can take place. Rather than just a binding decision, the judicial settlement produces a decision which is a purportedly objective statement o f obligations, and legally unimpeachable, leaving little room for any further bargaining or discussion. This can be counterproductive in a dispute that is politically charged. Conversely, there is  447 Steinberg, supra note 2 at 250.  140  more negotiation room after a single arbitration ruling, as opposed to a decision within the  institutionalized panel system with legal appeals  that further  entrenches the  negotiating position o f the disputing parties. The proposal is thus intended to prescribe a more appropriate form o f dispute settlement  based on the nature o f the  dispute,  considering the theories o f compliance and the objectives o f the D S U .  5.2  Surveying the Debate on DSU Reform  The current debate regarding reform o f W T O dispute settlement  illustrates three  important points. First, the discourse over reform demonstrates a bias towards increasing the legalism o f the system, despite a recognition o f the limitations o f that system. Secondly, after 12 years since the creation o f this formal legal system o f dispute settlement, there continues to be some ambivalence as to the ultimate objective o f the dispute settlement system. Reform proposals tend to be directed at either creating more rules for governing litigation and remedies, or to negotiations. None seem to attempt to blend these two objectives. The use o f the arbitration may be the logical intersection. Third, a discussion on the potential for arbitration has been virtually absent from this debate. This is despite the fact that arbitration has been historically identified as an alternative means o f resolving disputes, and is more suitable for certain types o f disputes.  141  5.2.1  Fixation on Compensation and Remedies  Almost two years after the passing o f the original deadline for negotiations on dispute settlement reform in M a y o f 2003, the Consultative Board appointed by the W T O Director-General Supachai Panitchpakdi released the Sutherland R e p o r t .  448  The issue o f  effective reform o f the D S U has continued to be a source o f debate. This discourse has focused mostly on procedural "improvements" and broader enforcement mechanisms, usually centering on compensation to the complaining party.  449  A s a whole, the reforms  that are generally proposed are directed at making the dispute settlement system more judicial-like.  450  The reforms  proposed by the  Sutherland Report included a recommendation o f  experimentation with damage awards where the offending state had failed to comply with a D S B ruling.  451  The primary argument for the use o f damage awards is that it is a more  accessible form o f remedy for developing countries that have less economic ability to exercise any rights o f retaliation.  452  For this reason, some have proposed that developing  countries should be able to choose monetary compensation.  448 449 450 451 452  453  It has been suggested that  The Sutherland Report, supra note 17. See e.g. Fukunaga, supra note 48 at 413-414. Davey, "Looking Forwards", supra note 11 at 19. The Sutherland Report, supra note 17 at 50 (para. 223). Steger, "Systemic Issues", supra note 6 at 69.  453 William J. Davey, "The Sutherland Report on Dispute Settlement - A Comment" (2005) 8 J. Int'l Econ. L . 321 at 321-3 [Davey, "The Sutherland Report"].  142  specific compensation for the affected sector o f the complaining state is in any event more consistent with the goals o f the W T O .  4 5 4  The current dialogue o f reform has also touched on the more specific concept o f retroactive damages. This remedy is supported on the basis that it would discourage the "hit and run" form o f discrimination - designed to affect the exporting country for a short period o f time i n a peak season. Conceptually the tactic protects the domestic market during a high season. B y the time the complaint proceeds, it has become a moot issue. While retroactive damages might provide some disincentive for the "hit and run" tactic, it can also provide more incentive for a complaining party to pursue the matter to a final decision, rather than considering negotiation.  455  Another recommendation that has been proposed is a form o f fine that would escalate over the passage o f time. The escalating fine could be i n accord with the size o f the economy o f the particular party.  456  Another suggestion has been that o f collective and  punitive retaliation - retaliation i n which all o f the members would participate. However this form o f retaliation would only compound the commercial impact on a broader group of innocent bystanders.  457  However these solutions suffer from the same limitations as  proposals for compensation. Enforcement measures are unlikely to improve a situation  454 Nzelibe, supra note 341 at 242. 455 See Porges, supra note 27 at 178. 456 Matsushita, supra note 327 at 94. See also Davey, "Looking Forwards", supra note 11 at 22-23.  457 McGivern, supra note 9 at 156.  143  where they have no effect on politicians,  or where responding party has failed to  implement a recommendation for political reasons.  459  While recognizing the emerging problem o f compliance, the Sutherland Report itself focused on the alternatives o f monetary compensation and the potential o f cost awards. In doing so, it acknowledged the obvious danger that the use o f monetary compensation would allow developed countries to simply "buy out" o f their obligations, contrary to the principles found in Article 3.7 o f the D S U . Nevertheless, it concludes with a recommendation for "experimentation" by allowing the complaining party to substitute monetary compensation with compensatory market access, while proposing that the D S B  should exercise great care to ensure it is only used as a temporary fallback.  5.2.2  460  Procedural Legalism  The Sutherland Report's predisposition to legalism in the D S B goes beyond the discussion o f compensation and other monetary measures. It is also apparent in the procedural recommendations, such as a permanent expertise on procedural and evidentiary issues  461  roster o f panel members  with  and increasing the authority o f the  458 Nzelibe, supra note 144 at 229. 459 Cho, supra note 312 at 787-788; see also Benjamin L . Brimeyer, "Bananas, Beef and Compliance in the World Trade Organization: The Inability of the W T O Dispute Settlement Process to Achieve Compliance from the Superpower Nations", (2001) 10 Minn. J. Global Trade 133 at 162 for discussion on the role of politics in W T O compliance. 460 The Sutherland Report, supra note 17 at 54. 461 Davey, "Looking Forwards", supra note 11 at 21.  144  Appellate B o d y .  4 0 2  In the most difficult cases these reforms could simply increase  procedural wranglings, compound the possibility o f endless appeals, and prioritize the quest for the objectively correct decision, on the assumption that this w i l l induce compliance. While a decision that is "objectively" and legally correct may be very useful in most cases, it has limited benefit where political considerations would mean that the unsuccessful party fails to implement D S B recommendations. While such a decision may well create a precedent for the interpretation o f the specific W T O obligation for other situations in future cases, a party's failure to implement the ruling would likewise create a precedent and justification for the non-observance o f obligations in other cases.  A s Joost Pauwelyn points out, the commentary in the Sutherland Report, also reveals a partiality  towards  judicial  activism  over  consensus  building.  463  This  qualified  endorsement o f judicial activism appears to confirm the institutional inertia towards legalism and a preference for a de facto system o f stare decisis. The Report itself demonstrates an interesting ambivalence with respect to the issue o f the precedential value o f the decisions o f the Appellate Body. While acknowledging that the principle o f  stare decisis does not apply, the Report trumpets the virtues o f jurisprudence o f the Appellate Body as being "extraordinarily rich and detailed for a body in existence only ten years".  464  It thus provides a qualified approval o f the creation o f a body o f law to  provide authoritative interpretations that w i l l resolve or obviate disputes between parties in future matters. 462 See e.g. Steger, "Systemic Issues", supra note 6 at 68-69; Davey, "Looking Forwards", supra note 11 at 23, for discussions regarding the power to remand dispute back to the Panel system and thus elongate the litigation even more. 463 Pauwelyn, " A Missed Opportunity" supra note 165 at 344-5. 464 The Sutherland Report, supra note 17 at 51.  145  The Report also refers to a "gap-filling"  responsibility with respect to the law. While  the Report notes that it might not be an appropriate role for the D S B , it alludes to the lack o f successful negotiation at the W T O , and to the hope that the Doha Round w i l l "correct the imbalance between law-making and any tendency toward creative law enforcement through the dispute settlement system."  466  This suggests that i n the absence o f sufficient  negotiated change within the diplomatic realm, that the D S B might continue the practice o f gap-filling. The Report ironically suggests that such improvements may provide a disincentive to the over use o f the D S B .  4 6 7  This approach, taken to certain lengths, would  violate the principle under Article 3.2 o f the D S U that D S B rulings cannot add to or detract from the rights or obligations provided in the underlying W T O agreements.  5.2.3  Direction o f Sutherland Report  The proposals i n the Sutherland Report and the surrounding debate on reform fail to adequately address the political reasons for non-compliance. It also forgets or ignores that weaker remedies were used as a precondition for a stronger dispute resolution system,  468  and thus departs from the delicate balance struck between the political and legal aspects of the W T O  4 6 9  The limitation o f remedies may be the price o f the legalized institution, as  465 See e.g. Steinberg, supra note 2 at 251-252, for discussion of the practice of gap-filling. 466 The Sutherland Report, supra note 17 at 55.  467 ibid. 468 Pauwelyn, "A Missed Opportunity", supra note 165 at 344-345.  469 Ibid, at 338.  146  it was contemplated that more onerous remedies were not necessary because o f high level of procedural development in the D S B .  4 7 0  The Sutherland Report does however concede that compliance may ultimately depend on the attitudes o f members and not improved remedies  4 7 1  While this may be considered by  some to be an unsatisfactory commentary, it is perhaps one o f its more realistic observations, as the question o f reform and the use o f intrusive remedies has become as much a political question as a legal o n e .  472  It acknowledges that further legalism and  "improved" remedies may not be the answers.  473  Remarkably, the Sutherland Report  does not go any further i n analyzing the use o f the negotiation provisions already i n the D S U in order to enhance the framework within which attitude change may be realized. This is all the more ironic in light o f the explicit content o f Article 4.1 that affirms the members resolve to improve the effectiveness of the consultations procedures.  The utility o f arbitration under Article 25 is not addressed i n the Sutherland Report, and has been all but ignored within the negotiations over reform within the Dispute Settlement Negotiation Committee o f the W T O . A proposal o f Australia from 2003 contemplated the use o f a mandatory form o f expedited arbitration under Article 25 upon the request o f a third party that would "serve to determine the right o f a third party to negotiate compensation, as well as the level o f that compensation."  474  Others have  suggested the use o f Article 25 for the purpose o f determining compensation, following  470 471 472 473 474  Vazquez & Jackson, supra note 22 at 562. The Sutherland Report, supra note 17 at 54-55. Vazquez & Jackson, supra note 22 at 565. Davey, "The Sutherland Report", supra note 453 at 324. Communication From Australia, W T O Doc. No. TN/DS/W/34 (15 January 2003).  147  the precedent of the  U.S. Copyright c a s e .  40  While these o f course are worth considering,  there does not seem to be any consensus on the appropriateness o f compensation. While text enhancing compensation was included in the Chairman's draft o f 16 M a y 2003, it does not appear to be a priority in current negotiations. Establishing a level o f compensation as a form o f remedy for developing countries in politically difficult cases may be a useful suggestion. However, as mentioned from the outset o f this chapter, the vetting system with the arbitration track would be directed at the politically difficult cases, most o f which have involved developed countries.  This  overall approach  o f the  Sutherland  Report  fails  to  recognize  that while  improvements in procedural rules can indeed develop the general framework that w i l l assist in bringing issues to a head and contribute to the resolution o f disputes, rules cannot cover everything, particularly in international law. A t best, it can be hoped that they w i l l induce the preferred behaviour.  476  None o f the reforms discussed directly  address the problem o f compliance in the context o f the changing political pressures in the international arena. Where there are no direct political implications, reforms cannot lead to any significant changes to a level o f compliance.  477  The failure to account for  political sensitivities w i l l inevitably lead to more decisions where compliance is simply not forthcoming. The absence o f any recognition i n the Sutherland Report o f this problem is perilous, as it ignores the inherent fragility o f the D S B .  475 See e.g. Hughes, supra note 176. 476 Zampetti, supra note 89 at 123. 477 van den Broek, supra note 70 at 155-6.  148  5.2.4  Recommendations for Reform o f Consultations  Others have suggested that formal remedies are only one aspect o f the legal enforcement o f W T O decisions. In the face o f the growing legalism o f the W T O system, some have emphasized that consultations and negotiations are still the "bedrock" o f the system despite remaining relatively unchanged since the transformation from the G A T T system 478  to the W T O .  B y this perspective, effective reform measures must serve to induce the  participation o f both disputants in the actual resolution. The backlash against unilaterally legalistic reform emphasizes the incentives or pressures for early settlement. This is a positive development i f one accepts the research that indicate that early settlement results in the better policy outcomes o v e r a l l .  479  A negotiated  settlement before hearing can be more beneficial than a decision with perfect compliance with a legal ruling, as it provides each o f the parties more control over the specific outcome.  480  One suggestion for improving negotiations is to allow any state to  unilaterally engage mediation facilities referred to under Article 5 o f the D S U as a matter 481  of right.  Another suggestion that has been made is to improve participation o f the  parties at the consultations stage. While the consultations stage is a mandatory process for initiating any dispute resolution within the W T O , it has largely become a pro forma 478 Busch & Reinhardt, "Fixing What Ain't Broke", supra note 302 at 9. 479 Though this is not necessarily so for disputes involving developing countries. See Busch & Reinhardt, "Evolution of G A T T / W T O " , supra note 297 at 144.  480 Cf. Porges, supra note 27 at 174. 481 See Pauwelyn, "Americanization" supra note 46 at 135, where Pauwelyn suggests that Article 24.2 of the D S U that provides the least developed states with a right to unilaterally engage the mediation and good offices facilities ought to be extended to all developing states. Pauwelyn does not mention developed states, but there appears to be little reason why a developed state should not be able to engage the process unilaterally against another developed state.  149  exercise, in some cases, lasting no more than an h o u r .  w  Yet this initial process can be a  very useful tool. It provides an opportunity for parties to reconsider initial positions, before too much time and political effort is invested in a litigation process, thereby embedding their positions.  5.3  The Potential Utility of Arbitration - A Framework for the Future  While the recommendations and efforts for bolstering the consultations process is a positive development, it nevertheless represents a current thinking to consider reform along two poles - diplomatic resolution on one side and the legal on the other. Indeed it is difficult to attempt a blend o f these aspects. O n the one hand, the judicial system has worked relatively well  in most cases.  Injecting the  legal system with  political  considerations could well undermine the legitimacy o f the entire system. O n the other hand,  as  emphasized throughout  this  thesis,  obtaining an  objectively "correct"  interpretation w i l l not assist where political considerations make such a resolution unrealistic. More importantly, effective reform must find way o f maintaining the ultimate 483  tool for enforcement o f international rulings - community pressure.  I propose that  arbitration is a form o f dispute settlement that may fall somewhere between the extremes of Jackson's rule orientation and legal orientation, thus representing a third option that deserves to be explored.  482 McRae, supra note 296 at 9; Porges supra note 27 at 160. 483 Hudec, "Broadening the Scope", supra note 160 at 400.  150  Given the current bias towards the judicial settlement system and the underuse o f Article 25 arbitration, the integration o f arbitration would require a vetting process to identify the policy charged cases where compliance problems are more likely to arise. Once identified, these difficult cases could be automatically diverted to the arbitration track. The arbitration track would exploit the main advantages o f arbitration within the W T O the lack o f a legal appeal, and the control over procedure and decision-maker.  Although lacking any appeal, arbitration nevertheless creates a process for obtaining an objective ruling with legitimacy, but which also gets the disputing parties more quickly back on track for negotiations in the shadow o f concerns over reputation. A s discussed i n Chapter T w o , this institutional process o f discourse need not revolve around a process that seeks incessantly to produce legally impenetrable declarations o f legal obligations. The presence o f a ruling itself can set the stage for further discourse as to how the losing party w i l l respond, while at the same time, engaging the scrutiny and communitarian pressure o f the W T O member states. While arbitration takes place outside the formal litigation process, and is not subject to appellate review, the parties must notify the D S B of the outcome, and any D S B member may raise any point relating thereto.  484  One limitation with the judicial settlement system is that it encourages parties to think solely in terms o f obtaining an enforceable ruling. If a panel's decision is perceived as "wrong", it encourages further appeal for a more favourable judgment to secure or avoid a remedy o f compensation or retaliation, as the case may be. Conversely, an arbitration,  484 Article 25.3 of the D S U .  151  while purporting to give an objective answer, gives limited protection against a decision that is "wrong". The pressures to comply with the exact letter o f the decision are lessened somewhat where there is no appellate review, and where the correctness o f the decision might still be the source o f some discussion after the award. Even a decision that does not withstand the analytical scrutiny o f an appeal gives the losing state a justification to its domestic constituencies for considering difficult policy change. Ultimately an arbitration i n specific cases would simply seek to "broaden the space for political debate" 485  within the dispute settlement system in these difficult cases.  Decisions through  arbitration would  still  provide the benefit  o f a third party  interpretation, a further basis for iterative discourse, and the engagement o f domestic political factions. Diverting select cases from the judicial settlement system would have the further benefit o f directing that discourse towards negotiated resolution much more quickly, precluding parties i n such politically charged cases from using the legal system 486  to delay the inevitable discussion around treaty norms.  It would thus reduce the  protracted legal maneuvering and potentially endless litigation, which has its role in cases where compliance is a possible or likely outcome, can be counterproductive where implementation is unlikely for political reasons. A t that point, the offending state may 487  have entrenched its position o f non-compliance with its domestic audience  by fighting  each fight after its original non-compliance, investing both time and expense, and making  485 Pauwelyn, "A Missed Opportunity", supra note 165 at 340.  486 See supra note 48. 487 See Pauwelyn, "Americanization", supra note 46 at 125 & 127; See also Cho, supra note 312 at 787788.  152  policy reversal less likely.'*  68  This is o f course the danger o f a litigation track with full  appeal rights, when there are political pressures internal to the state party that mitigate against compliance. Further in many cases, the impact o f the decision itself may impel a government to appeal.  489  Rather, it would be important to provide the parties with only  limited access to third party decision-making, and proceed more quickly to negotiations that reflect on the objective ruling o f an arbitrator.  Some might question the legitimacy o f a decision o f arbitrators that does not withstand analytical scrutiny,  490  particularly that o f an appeal process. However, assuming Franck's  legitimacy o f the dispute resolution system is a key influence on the compliance pull, preserving a right o f appeal is not the only way o f ensuring legitimacy or procedural fairness. The control over procedure provides a form o f legitimacy to compensate for the absence o f any appeal. Article 25 provides the parties with an extra element o f consent over the decision-maker and the procedures to be followed. A s a general principle, the prospect o f compliance may be greater where the parties have greater control over the process.  491  In these politically difficult cases, the scrutiny o f an appeal process to ensure  the correctness o f the decision can be unhelpful.  The dimension o f control over the decision-maker and the arbitral procedure provides states with more reason to both accept and defend the legitimacy o f the process, even where it more dramatically affects internal policy i n sensitive areas. The parties' ability to  488 Porges, supra note 27 at 168.  489 Ibid, at 169. 490 McGivern, supra note 9 at 151. 491 Cf. Porges, supra note 27 at 174-5, in relation to the prospect of compliance after settlement.  153  select the arbitrator would have some advantages over the current panel system. First, the D S B could adopt a form o f arbitration where each party is entitled to select one o f the board members, who would then be require to appoint a third party by agreement within a short designated period o f time. This system could allow the parties to select an arbitrator from its own jurisdiction, who may have a deeper understanding o f the political challenges within that particular legal system. This is an advantage that cannot be met within the panel system, as it does not permit the appointment o f individuals from either o f the disputing states. The type o f experience that is useful i n the most politically difficult cases may not be extensive knowledge o f treaty obligations, D S U procedures or the application o f principles developed from previous decision. Rather, experience i n the political system o f the disputing parties may be the most important form o f experience.  5.4  Integration of Arbitration Through Dispute Diversion  In order to improve compliance for politically sensitive cases, it is important to provide different procedures to identify and deal with those cases differently. However, even i f one accepts that arbitration can be the middle ground between political negotiations and judicial settlement, there is another important question: why would diversion to Article 25 arbitration be accepted by the W T O members, given that its infrequent use suggests that they do want to use it?  The logical explanations for the infrequency o f use do not suggest at any insurmountable hurdle to the further integration o f Article 25 arbitration i n politically difficult cases.  154  Valerie Hughes, a former Director o f the Appellate Body Secretariat has described the member state's failure to take advantage o f the flexibility o f Article 25 arbitration as "curious".  492  In offering possible explanations,  493  she first suggests that matters that are  distinct or narrow bilateral issues, "for which arbitration is best suited", are few and far between. However, the notion that arbitration may be suitable for other types o f disputes may not have been ever fully considered by the member parties o f G A T T or the W T O . Secondly, she refers to the fact that awards may not be grounded in legal principles. Last, she refers to the lack o f appeal process.  494  There may have been little incentive for  responding parties to agree to arbitration for these reasons, and thus no prospect for mutual agreement to arbitration.  These explanations for the member states' lack o f motivation to utilize Article 25 arbitration undoubtedly ring true, likely arising from the momentum o f bias towards the judicial settlement system. However, i f there is indeed any widespread vision o f the utility o f arbitration restricting it to simple "factual" disputes, this limited vision developed at a time before the experiment with a fully developed, institutionalized system for judicial settlement proved to be inadequate for certain disputes. There is no reason to restrict arbitration to purely factual disputes as contemplated by some states in the Uruguay Round. A s a recent review o f international arbitrations has noted, state to state arbitrations have addressed "a wide range o f disputes, from controversies over border and damage to property during wars to collision between ships at sea".  495  492 Hughes, supra note 176 at 85.  493 ibid. 494 ibid; see also Pauwelyn, "Americanization", supra note 46 at 138. 495 Posner & Yoo, supra note 8 at 9.  155  Further, the widespread acceptance o f the timeframe arbitration process under Article 21.3 suggests that member states recognize the legitimacy o f the arbitrator's role, despite the inevitable intrusion into political sovereignty. A s has been seen by the use o f arbitration processes under Articles 21.3 and 22.6, member states have accepted these proceedings despite the absence o f an appeal process. It may now be recognized that in politically difficult cases, a formal legal framework with a protracted legal appeal process but no formal coercive force is unlikely to result in a resolution that w i l l be willingly implemented by a losing party.  5.5  A Politicization of the DSU and Return To GATT?  This proposal leads to an obvious question - how would the arbitration track be any different than G A T T , and thus affect a re-politicization o f the D S U ? While this is natural question, it should first be recognized that G A T T was fairly successful in terms o f international tribunals, and indeed, according to some research, just as successful as the WTO.  4 9 6  A s suggested in Chapter 3, the G A T T system was able to deal with more and  more politically sensitive cases, and had some success.  497  O f course, the number and  diversity o f interests o f member states has changed dramatically since its period o f success. More importantly, amongst its deficiencies, was a problem that it shared with the current system - it represented a one-size fits-all form o f dispute settlement.  496 ibid. 497 Ibid, at 48. In their review of the differences in compliance rates between G A T T on the one hand, and the W T O between 1995 & 2000 on the other, Posner and Yoo conclude that the differences are not statistically significant.  156  While the arbitration track directed at a negotiated resolution proposed would in some ways resemble the old G A T T panel system, I do not propose a return to the G A T T system for any class o f dispute. First, irrespective o f the decision o f the Secretariat as to the appropriate track for dispute, parties could not block the establishment o f a panel or arbitrator, and thus avoid the issuance o f an objective ruling by a third party, as it could before 1989. Where a settlement is not reached i n the consultations stage, the parties would have, as a matter o f right, access to a proceeding for obtaining a ruling o f a third party, either through judicial settlement or through a form o f arbitration.  Second, while the nature o f an arbitration ruling would be more directed at generating a negotiated settlement,  it would nevertheless be issued in the context o f a  fully  institutionalized setting. It would thus be distinct from the ad hoc form o f arbitration which was arguably available i n the previous G A T T system. The institutionalization o f arbitration as a method o f dispute settlement was a component o f both o f the initial proposals from the E . C and the U . S . in the Uruguay R o u n d  498  and indeed was realized by  the Improvements o f 1989, even though arbitration was rarely used afterwards. The formal institutionalization o f the process is itself, a component for increasing the compliance p u l l .  4 9 9  498 Supra notes 204 & 208. See also Hughes, supra note 176 at 77, where it is noted that in their 1987 proposals, while the E . C . used the phrase "institutionalized", the U.S. refers to it as a "formally available technique". 499 See generally Franck, "Power of Legitimacy", supra note 185-186. I believe that this is an appropriate and reasonable application of Franck's general notion of compliance pull. I note that in a critique of Franck's theory, Posner & Yoo {supra note 8 at 72) note that Franck theorizes that "adjudication by authentic international courts contributes to the legitimacy of international law" (Franck, "Legitimacy", supra note at 88 at 29-33). While this may be true, I suggest that the compliance pull described in Franck's theory would apply as well to a formalized system of arbitration within the institutionalized setting of the W T O , given Franck's observations suggesting that in the past, stronger obligations arose as a function of membership in international institutions. See supra note 88.  157  Thus the pressures towards a resolution with all disputing parties w i l l be higher, and the ability to justify any required changes to the domestic factions would be notionally stronger. While disputes would proceed down one o f two tracks, they would nevertheless be connected within the same agreement, and serve to maintain the same principles. Indeed they may in some ways serve to maintain one another. For example, the connection between the two tracks could prove useful in considering other forms o f sanctions, such as a form o f suspension o f rights o f access to the judicial settlement track in the event o f any unresolved cases in the arbitration track.  Finally, this would not represent a retreat to a power oriented system to the disadvantage of developing countries. While there have been some criticisms o f developing countries concerning the influence o f power in arbitration, based on the history o f the W T O , most of the politically difficult cases are disputes involving developed countries, and in particular, transatlantic disputes between the super powers.  5.6  500  The Feasibility of Diversion - De-Politicizing Judicial Settlement  The D S B ought not encourage the use of judicial settlement where there is little prospect o f implementation o f that ruling. A system o f institutional diversion o f politically difficult cases is both logical and feasible. O f course, widespread recognition o f the utility o f arbitration amongst member states would be an important first step in establishing the legitimacy o f the process. However it is clear that influential member  500 Brimeyer, supra note 459 at 167: Steinberg, supra note 2 at 267 & 275; see also Wilson, supra note 7.  158  states have identified the process o f arbitration as a distinctly beneficial system. A s discussed, several proposals i n the Uruguay Round included arbitration as an alternative, and even suggested its use i n a specific class o f disputes. Such a proposal may presently garner widespread consideration for a few reasons.  First, the system is no longer under a realistic threat o f U . S . withdrawal from the system,  501  as it was when the Appellate Body was created during the Uruguay Round.  Although the U . S . today is likely still the only single nation superpower, the emergence of other potential economic superpowers such as India and China would likely mean that 502  a rules based system w i l l continue to be i n the best interests o f the U . S .  Indeed, given  the recent U . S . admonition against any tendency o f the Appellate Body towards lawmaking,  503  it is far from clear that the U . S . would necessarily oppose a proposal to end  appeals in particular cases.  Second, Article 21.3 and 22.6 establish two forms o f arbitration that are not consensual, but are rather mandatory, upon the request o f one party. In effect, this illustrates how cases where compliance becomes an issue are already being shifted to arbitration when parties disagree as to the reasonable period for compliance, or when the successful party is forced to consider suspension o f concessions. Concessions arbitration, despite acting as an adjunct to the judicial settlement  process, has arguably been guided more by  diplomatic considerations than any rationale legal calculation o f the appropriate measure  501 Steinberg, supra note 2 at 267. 502 Davey, "Looking Forwards", supra note 11 at 17. 503 Communication From The United States, W T O Doc. No. TN/DS/W/82/Add.2 (17 March, 2006).  159  for countermeasures.  This demonstrates that the reality o f the limitation o f the legal  process is not lost on W T O decision makers. To the extent that such considerations remain in subterfuge, the dispute settlement system cannot meet its full potential. Worse, any surreptitious recognition o f such political considerations w i l l ultimately undermine the overall integrity o f the entire dispute settlement process. In light o f this, weakening the independence o f the decision-maker in the politically difficult cases may well better enhance the chance o f the long-term survival o f the overall system o f dispute settlement.  505  A s some observers have already noted, there is a similar selection process that is already exercised by the Appellate Body. When presented with political issues, the Appellate Body has sometimes taken on the issue, while other times it refuses to address it squarely,  506  a practice known as "issue avoidance".  507  Furthermore, the Appellate Body  may have already engaged i n a form o f conciliatory behaviour, to minimize the risks o f 508  institutional damage arising from non-compliance.  *  These observations emphasize two  points. First, even advocates o f the legal system have recognized its limitations, and the danger o f trying to resolve political cases within that system, at the risk o f adversely affecting its overall legitimacy. Indeed, the Appellate Body is likely not suited for  504 See generally Spamann, supra note 326.  505 Posner & Yoo, supra note 8 at 74. 506 Steger, "Systemic Issues", supra note 6 at 65-6. 507 See e.g. William J. Davey, "Has the W T O Dispute Settlement System Exceeded its Jurisdiction." (2001)4 J. Int'l Econ. L . 79. 508 Geoffrey Garrett & James McCall Smith, The Politics of Dispute Settlement. Online: Yale University <http://www.vale.edu/leitner/pdf/1999-05.pdf>.  160  making "difficult political calculations".  3uy  Second, there is already an unspoken vetting  system taking place within the legalized system.  In order for the Appellate Body to maintain support from its members, particularly the more powerful ones, it must necessarily operate within its "political constraints".  510  The  legal system should be as immunized as possible from political influence lest its credibility as a legally objective decision-maker be seriously undermined.  511  A two tiered  system involving arbitration o f politically difficult cases would assist in maintaining some transparent separation o f the purely legal mechanisms o f the judicial settlement system, and the arbitration track proceedings that apply legal mechanisms to political considerations, where practically required.  5.7  Policy-Charged Cases in the Judicial Settlement System  Ultimately the judicial settlement system has not coped well with politicized disputes, as demonstrated by the high profile cases between the superpowers that remain unresolved. It might be suggested that the softwood lumber agreement recently struck by the U . S . and *  512  Canada  '  might in fact prove the effectiveness o f judicial settlement system, based on  the model I have proposed. In other words, the series o f W T O rulings while not implemented to the letter, set the parameters for a negotiated settlement to a longstanding 509 Steinberg, supra note 2 at 274. 510 Steinberg, supra note 2 at 268-270. 511 Weiler, supra note 13 at 195. Weiler refers to the danger of persistence of diplomatic practices within the legal context that may undermine the rule of law and the benefits arising from the judicial settlement system.  512 Softwood Lumber Agreement between the Government of Canada and the Government of the United States of America, executed 12 September 2006 and amended 12 October 2006. 161  dispute between the two parties.  It may be that the extensive litigation has allowed  both countries to implement a palatable settlement, and the U . S . to manage its influential domestic pressure groups.  However, one must wonder - what is the attendant cost to the integrity o f the W T O o f the series o f unimplemented decisions? There can be no question that other members have a general systemic interest i n such outcomes, a reflection o f the inherent reciprocal nature o f rights and obligations.  514  Viewed this way, the judicial settlement system has failed, as  the outcome has failed to accord with the objective legal obligations as pronounced though the full rigour o f the legalized appeal system. While the ultimate result o f a negotiated settlement in a longstanding and complex trade dispute is a favourable outcome, one cannot underestimate the toll taken on the judicial settlement system.  Further, it is clear that the dispute settlement has not always worked this way in light o f other disputes, such as the regional aircraft disputes between Brazil and Canada.  515  At  different points, both states had demonstrated that the government programs o f the other constituted breaches o f W T O obligations, each obtaining D S B authorization for the suspension o f concessions against the other. After a panel ruling confirming Canada's breach, the Canadian Trade Minister stated that Brazil needed a victory before they could 513 Online: Foreign Affairs and International Trade, Canada, <http://w01.international.gc.ca/minpub/Publication.aspx?isRedirect=True&publication id=384690&langua ge=E&docnumber=l 57> (last accessed 25 August, 2007). There were other panel rulings under the provisions of the North American Free Trade Agreement. 514 Fukunaga, supra note 48at 388&391. 515 Online: W T O <http://www.wto.org/english/tratop e/dispu e/cases_e/ds222_e.htm >. <http://www.wto.org/english/tratop e/dispu e/cases_e/ds70 e.htm> & <http://www.wto.org/english/tratop_e/dispu e/cases e/ds46 e.htm>. See generally Helen Sullivan, "Regional Jet Trade Wars: Politics and Compliance in W T O Dispute Resolution", (2003) 12 Minn. J. Global Trade 71 for full description of the disputes.  162  sit down and negotiate a settlement,  an interesting juxtaposition with a later statement  of Canada's Prime Minister regarding the U.S. failure to implement WTO and NAFTA 517  rulings regarding the softwood lumber dispute.  A press release posted on the website  of the Department of Foreign Affairs and International Trade after the arbitration award approving Brazil's suspension of concessions, reinforced this notion: The award marks an end to all current proceedings at the WTO surrounding the aircraft financing dispute between Canada and Brazil, enabling the two countries to concentrate on negotiating an end to this dispute. ... This award will not affect the financing of the Air Wisconsin, Air Nostrum and Comair purchases. The award could allow Brazil to raise tariffs on Canadian exports to Brazil but it is not expected that Brazil will impose the countermeasures, given the reciprocal 518  damage this could cause to bilateral trade.  Brazil's success has not proven beneficial to any negotiations, as suggested by the Minister's statement. Despite the many decisions of panels and the Appellate Body, and Canada's claim in December 2002 that negotiations with Brazil had progressed, no 519  agreement has resulted.  520  It appears that the WTO decisions have had the opposite  effect, creating a perception that each party was successful, and thus entrenching domestic resistance towards making any concessions. If anything, the various tides and  516 Steven Chase, "Pettigrew Sees Silver Lining in WTO Loss" Globe and Mail (28 January 2002), B l . See also Sullivan, supra note 515 at 102. 517 See supra note at 114. 518 Online: Foreign Affairs and International Trade, Canada, <http://w01.international.gc.ca/minpub/Publication.aspx?isRedirect=True&FileSpec=/Min Pub Docs/1058 Q8.htm&Language=E> (last accessed 25 August, 2007). (Posted on December 23, 2002).  519 Ibid. 520 As of March 1, 2007, see Wilson, supra note 7 at 403. There is no publicly available information of any agreement reported to the WTO as of 20 August, 2007. See online: WTO <http://www.wto.org/english/tratop e/dispu_e/cases e/ds222 e.htm >. <http://www.wto.org/english/tratop e/dispu e/cases e/ds70 e.htm> & <http://www.wto.org/english/tratop e/dispu e/cases e/ds46_e.htm>.  163  turns o f an acrimonious dispute that was protracted by the judicial settlement^' may well have realized a recognized danger o f the judicial settlement system - increasing domestic pressures against any negotiated resolution, thus locking-in the adversarial positions o f 522  the disputing parties.  5.8  Identifying the Risk Cases  If the W T O was to use a process o f vetting disputes, it requires a way for identifying policy charged, problematic or high risk cases. It has been argued that trade decisions 523  themselves are inherently political,  thus raising a key question: how can one determine  i f a case is politically charged or difficult? The history o f the W T O dispute settlement has demonstrated that certain disputes can be distinguished over others as "politically charged".  524  A m e l i a Porges, a former legal officer o f the G A T T Secretariat, has identified  policy cases as ones that are brought for reasons o f principle, with " l o w stakeholder involvement or with overwhelmingly strong governmental direction, where the stakes are 525  sometimes symbolic".  I propose that these cases should be identified by a vetting process engaged at the consultations stage. There are a few reasons for this. First, one o f the practical purposes  521 See generally Sullivan, supra note 515. 522 See Pauwelyn, "Americanization", supra note 46 at 126-7.  523 Young, supra note 43 at 408. 524 Busch & Reinhardt, "Fixing What Ain't Broke" supra note 302 at 13; se also McGivern supra note 9 at 141, who refers to the "highly politicized" disputes where there is non-compliance.  525 Porges, supra note 27 at 155.  164  of the consultations stage is to identify the impugned measure and the issues.  A recent  proposal has suggested the expansion o f the consultations process for better information 527  exchange,  while others have encouraged a more active role for the Secretariat i n the  consultations process. A n increased involvement o f the Secretariat i n the consultations process would create an opportunity to more carefully assess the parties' positions. This would allow the Secretariat to gain full knowledge o f the respective positions o f the disputants, and to identify and promote common ground. The Secretariat would exercise the authority to refuse judicial settlement, placing the political dispute on the arbitration track. The exercise o f such a power would involve a tacit admission that the D S B is unable to effectively resolve cases with all o f the entanglements o f multilateral public interests o f modern disputes. While somewhat heretical i n this golden age o f legalism at the W T O , this is not an overreach in the context o f the current system.  During the consultations process, the Secretariat would require briefs describing the main issue, the complaining party's proposal for possible resolutions, as well as the defending state's recitation o f any political challenges to comply. Introduction at this stage has the advantage o f identifying both the breach and the potential solutions as administrative, legislative or regulatory, as they are categorized at the compliance review stage. This process would require the responding party to make a written proposal as to how it w i l l change the impugned policies should it be unsuccessful after a hearing. In this context, the information gathering at the consultations stage would require the responding party to, amongst other things, answer certain questions such as:  526 Ibid, at 157. 527 Porges supra note 27 at 147, 171-174, 180-181.  165  - I f the complaint is successful, how would it affect your economic and political system? - What steps could be taken to implement that decision?  Once again this approach is not without some precedent i n the W T O . Article 21.3 requires losing parties to inform the D S B o f its intentions for implementation within 30 days after the adoption o f the ruling. This is obviously a time period within which a state in unlikely to be able to navigate the potential o f legislative changes. If a member state is expected to do so after a decision, it is equally plausible that it can put forward some form o f plan at the consultations stage. This step would assist i n assessing the political aspects o f the dispute and permit a meaningful assessment o f the risk o f non-compliance.  A requirement to provide extensive positions in writing would produce a frank discussion around such issues, expose the risk o f the dispute, and facilitate a reasoned decision as to the risk o f non-compliance. The system would likely require the level o f confidentiality 528  already suggested by others,  i n order to ensure a candid discussion, and avoid the  creation o f any appearance o f admissions. This is not difficult, as Article 4.6 o f the D S U already provides that consultations are to be confidential and are conducted on a without prejudice basis. Indeed there is support for the notion that confidentiality still has a place 529  within the consultations process.  528 See e.g. Busch & Reinhardt, "Fixing What Ain't Broke" supra note 302 at 16. 529 Weiler, supra note 13 at 202; Bush & Reinhardt, "Fixing What Ain't Broke" supra note 302 at 16.  166  T h e process o f i d e n t i f y i n g h i g h r i s k disputes m a y not be as d i f f i c u l t as it w o u l d appear.  first  T h e observations o f H e l e n S u l l i v a n o n the case o f the C a n a d a - B r a z i l dispute  o v e r r e g i o n a l aircraft are i n s i g h t f u l :  T o g a i n insight into the importance o f the aerospace i n d u s t r y to B r a z i l , it is desirable to understand Sao Jose dos C a m p o s , a n d an area N o r t h e a s t o f  San  Paulo... . . . T o B r a z i l i a n s , E m b r a e r is m o r e that a c o r p o r a t i o n , it is a s y m b o l o f B r a z i l i a n success i n a F i r s t W o r l d Industry, thus representing their hope for the future."  530  In d e s c r i b i n g the dispute, S u l l i v a n aptly identifies the p o l i t i c a l baggage a n d indicators o f p o l i t i c a l issues w i t h i n the dispute. T o B r a z i l , the r e g i o n a l aircraft i n d u s t r y represented the hope  of developing  its e c o n o m y  to i n c l u d e trade  in technologically  sophisticated  531  goods.  D u r i n g the bitter dispute, C a n a d a was p e r c e i v e d as a d e v e l o p e d c o u n t r y w h o  s i m p l y sought to prevent a d e v e l o p i n g c o u n t r y f r o m e n g a g i n g i n trade b e y o n d basic sectors.  C a n a d a became an e n e m y i n the eye o f B r a z i l i a n s , as its p o s i t i o n i n c i t e d 533  w i d e s p r e a d p u b l i c anger that went b e y o n d the p o l i t i c i a n s .  T h i s type o f domestic  p o l i t i c a l d y n a m i c w o u l d have h a d a major effect o n B r a z i l ' s a b i l i t y to i m p l e m e n t the adverse d e c i s i o n s against it. G a i n i n g a f u l l e r understanding b y e l i c i t i n g that i n f o r m a t i o n d u r i n g the consultations w o u l d i n a l l l i k e l i h o o d u n c o v e r the p o l i t i c a l l y c h a r g e d tensions u n d e r l y i n g the dispute. T h i s process m a y w e l l have e x p o s e d the d i f f i c u l t i e s w i t h any r u l i n g that was adverse to B r a z i l , the potential o f increased a c r i m o n y d u r i n g the dispute,  530 531 532 533  Sullivan, supra note 515 at 75. Ibid, at 75, see discussion at footnote 37. Ibid, at 94. Ibid, at 97. 167  and the corresponding effect this could have on the compliance o f either party with the ultimate ruling.  5.9  Further Considerations and Refinements  A s mentioned, an important aspect o f the arbitration alternative is ensuring that the procedure is perceived as legitimate, a key to the ultimate acceptance o f any r u l i n g .  534  In  order to ensure that the arbitration process is viewed as legitimate by domestic political constituencies, the actual decision stage o f the process would need to be transparent, in contrast to the exchange at the consultations stage. This is a relatively minor obstacle. In a recent proposal to the Dispute Settlement Negotiating Committee, the U . S . has already suggested increasing the transparency o f arbitration, proposing amongst other things, that Article 18 o f the D S U be amended to include a reference to arbitrations.  535  Undoubtedly, a diversion to arbitration would also raise a concern about the protection o f the interests  o f other states. Arbitration does not necessarily exclude third party  participation, and more specific rules could be developed to provide third parties with a form o f access. In fact, there are already certain protections, given that parties to an arbitration are required to notify the D S B o f the arbitration award, and members are  534 Young, supra note 43 at 408-9. 535 Communication From The United States, W T O Doc. No. TN/DS/W/86 (20 April, 2006). Indeed, one could argue that the fact that the proposal specifies inclusion of Article 25 arbitrations necessarily recognizes the continued utility of the proceeding.  168  permitted to raise any concerns before the Council or Committee o f the relevant . 536  agreement.  Another question is whether or not the compliance process under Article 21.3 and 22.6 would apply to a ruling by an arbitrator in the main dispute. Article 25.4 currently provides that Articles 21 and 22 are equally applicable to arbitration awards, meaning that these arbitration proceedings are currently available after a ruling under Article 25. Should these processes continue to be available in cases diverted to the arbitration track? A n Article 21.3 arbitration would continue to have some use, as the original arbitrator 537  could be used to resolve the issue o f the reasonable implementation period.  The  investigation by the same arbitrator into the political system o f the losing party indeed fits logically with the review o f the political aspects o f the original dispute. Further, arbitration under Article 21.3 has the advantage o f extending negotiations around the original ruling, so that negotiations continue around when and how, and not if, the offending state w i l l implement an outcome acceptable to the complainant.  Conversely, given the limitations o f retaliation and the difficulties surrounding the calculation and implementation o f countermeasures, it is questionable whether or not a s.22.6 arbitration would have any purpose under the arbitration track proceedings. However the arbitration track could be used as a means o f establishing compensation, as it could provide another step in encouraging the offending state in coming to a negotiated settlement to bring its measures in line with its W T O obligations.  536 Article 25.3 of the D S U .  537 Hughes, supra note 176 at 80.  169  Ultimately, I have made a broad proposal for change, and there is much potential for refinement and discussion over the precise ways o f structuring such a system. This might include the possibility o f a non binding opinion on the merits o f the dispute rather than a binding arbitration ruling. It may also include the possibility o f implementing financial compensation in politically difficult cases, as a mandatory form o f remedy as has been 538  suggested by others.  This option could be particularly useful i n the rare occasion where  a developing state is involved in case diverted to the arbitration track. In such a case, where the complainant is a developing state, the possibility o f obtaining a tangible compensation award where implementing retaliation would be impossible might act as a counterbalance to any perception or complaint about the influence o f power i n the arbitration proceedings.  538 See e.g. Bronckers & van den Broek, supra note 115.  170  5.10  Thesis Conclusion and Further Research  While the dispute settlement system under the W T O and the G A T T has been relatively successful in the field o f international adjudication, history has proven that neither the political solutions o f the previous G A T T system nor the legalistic mechanisms o f the W T O can resolve the myriad o f issues that could be potentially addressed within the W T O . Arbitration may be the best suited instrument to supplement the D S U and enhance compliance with W T O rulings in a few politically difficult cases. A s a result o f the multifaceted nature o f the Uruguay Round negotiations, while arbitration was seen as a useful alternative to the litigation system, the concept did not fully develop and has since fallen off the radar screen. However, the time is ripe to truly explore the arbitration alternative as one possibility o f dealing with the most difficult disputes.  The creation o f the W T O represents a shift from the traditional international dispute 539  resolution model o f alternative dispute resolution  toward a system o f binding  decisions. This process has seen the legalistic effectively replace the d i p l o m a t i c .  540  While  the high level o f compliance with W T O rulings is a remarkable achievement, it is neither reasonable nor prudent to seek perfect compliance, an artificial goal that was never intended.  541  It is important to maintain realistic expectations o f the D S B and to resist the  urge to allow inertia push the W T O system more towards overly legalistic mechanisms. It is simply not reasonable to expect that as state to state trade disputes become more 539 McRae, supra note 296 at 9. 540 Steger, "The Struggle for Legitimacy", supra note 96 at 121. 541 Vazquez & Jackson, supra note 22 at 565.  171  multifaceted and policy-charged, that they can still all be resolved by way o f a one sizefits-all system o f binding decision-making by a supranational court.  542  Based on the  history o f negotiations leading to the creation o f the D S B and the stated objectives i n the D S U , the dispute settlement system was not designed for that purpose. Further, the quest for perfect compliance may not promote the long term stability o f the W T O .  5 4 3  The growing collective compulsion to expand the range o f available remedies and increase the power o f the D S B to address compliance issues, rather than promoting negotiations that are informed by objective rulings can be counterproductive. In considering reform to the D S B , one cannot assume that stricter rules for improved remedies w i l l result i n greater compliance. Proposal for measures that are directed at enhancing a system o f compensation and retaliation seem to be disconnected from the objectives o f the D S U . The current discourse o f D S B reform too often incorporates these approaches,  while  seemingly  overlooking that  i n international  condemnation represents a significant incentive for compliance.  law, normative  544  Some have proposed that judicial minimization giving more deference to the position o f member states would allow the D S B to better account for the political sensitivities that drive the more policy oriented disputes.  545  A system vetting the most politicized disputes  to a gentler and more consensual form o f decision-making would have the same effect. That is not to recommend a return to the previous G A T T system. However it means a  542 543 544 545  Pauwelyn, "Americanization", supra note 46 at 140. Fukunaga, supra note 48 at 426. Bush & Reinhardt, "Evolution of G A T T / W T O " , supra note 297 at 147. Pauwelyn, "A Missed Opportunity", supra note 165 at 346.  172  candid recognition by international lawyers o f the limitations o f compensation and retaliation, and the importance o f normative condemnation  546  as the primary pressure  towards compliance in the international trading system. It is therefore important to understand the limitations o f adopting measures from domestic systems that are based on different objectives and on a different basis for enforcement.  Arbitration may offer an effective alternative rule framework for specific cases, one that lies somewhere between the fragile diplomatic basis on which G A T T was originally based, and the unbridled legalism following the creation o f the W T O . In this middle ground, the component o f the reputation of member states is still engaged, but with a lesser risk o f damaging the reputation o f the judicial settlement system achieved through the relative successes o f the last twelve years. Every instance o f non-compliance from WTO  rulings undermines the legitimacy o f the adjudication system as w h o l e ,  547  particularly when that ruling purports to provide an objectively correct interpretation o f W T O obligations through a legal appeal system. The history o f G A T T has demonstrated that a crisis o f confidence i n the dispute settlement process can risk the disintegration o f the entire system, or at least, render it o f limited use, as was the case for G A T T during distinct periods. O n the other hand, it may be that certain policy driven disputes cannot reasonably be resolved through the simple application o f legal principles. A s such, a vetting system that redirects the politically difficult cases away from the judicial settlement system may serve to "protect the judicial integrity"  548  o f the W T O dispute  546 Busch & Reinhardt, "Evolution of G A T T / W T O " , supra note 297 at 147.  547 Jackson, "The World Trading System", supra note 178 at 85. 548 Cho, supra note 312 at 784.  173  system. When confronted with policy driven disputes that may be difficult to resolve, the preservation o f the integrity o f the adjudication system alone is a worthy objective.  The proposal o f this thesis may well appear to be heretical to those proponents o f the legalized dispute settlement system o f the W T O , or those who have witnessed first hand the successes o f that system. Further, there are many challenges for the vetting system proposed, not the least o f which is the danger that such a proposal goes much further than mere "fine-tuning". A n y undertaking to make improvements to the current system should be taken with caution.  549  Indeed, it is important to ensure that any reform does not  overreach and jeopardize the legitimacy o f the system as a whole. In particular, the vetting system would require some protections to minimize any bias, or perception o f bias,  towards  developed  states  over  developing  countries  states,  or  to  states  demonstrating a weaker respect for panel or Appellate Body rulings over those who are more compliant.  There is much research that would be required in this and other respects before moving this proposal beyond its current fledgling state. Should the W T O adapt a body o f institutional arbitration rules, and i f so which ones, and which elements? Should arbitration be used to determine a form o f compensation in politically difficult cases involving complaints from developing states? Could the arbitration system be used to generate non-binding advisory opinions that would be effective in engaging normative condemnation in these cases? I suspect that to the extent that the proposal i n this thesis is 549 Jaqueline Krikorian, "Plane, Trains and Automobiles: The Impact of the W T O "Court" on Canada in the First Ten Years" (2005) 8 J. Int'l Econ. L . 921 at 967; Busch & Reinhardt, "Fixing what Ain't Broke".  supra note 302.  174  considered by experts in this area, that it would generate much criticism, debate and hopefully, further research for this and many other reasons. I would welcome this attention, and would suggest that the current discourse for reforming and improving the dispute settlement system would only benefit from any consideration or discussion o f this option.  175  BIBLIOGRAPHY Monographs  Barfield, Claude. Free Trade, Sovereignty, Democracy: The Future of Organization. (Washington D . 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