The World Trade Organization (WTO) is an intergovernmental organization

which regulates international trade. The WTO officially commenced on 1

January 1995 under the Marrakesh Agreement, signed by 123 nations on 15
April 1994, replacing the General Agreement on Tariffs and Trade (GATT),
which commenced in 1948.[5] The WTO deals with regulation of trade between
participating countries by providing a framework for negotiating trade
agreements and a dispute resolution process aimed at enforcing participants'
adherence to WTO agreements, which are signed by representatives of member
governments[6]:fol.910 and ratified by their parliaments.[7] Most of the issues
that the WTO focuses on derive from previous trade negotiations, especially
from the Uruguay Round (19861994).

Among the various functions of the WTO, these are regarded by analysts as the
most important:

It oversees the implementation, administration and operation of the

covered agreements.[38][39]
It provides a forum for negotiations and for settling disputes

Arbitration
Members may seek arbitration within the WTO as an alternative means of
dispute settlement "to facilitate the solution of certain disputes that concern
issues that are clearly defined by both parties."(54) Those parties must reach
mutual agreement to arbitration and the procedures to be followed. Agreed
arbitration must be notified to all members prior to the beginning of the
arbitration process. Third parties may become party to the arbitration "only
upon the agreement of the parties that have agreed to have recourse to
arbitration."(55) The parties to the proceeding must agree to abide by the
arbitration award. "Arbitration awards shall be notified to the DSB and the
Council or Committee of any relevant agreement where any member may raise
any point relating thereto."

As an alternative to adjudication by panels and the Appellate Body, the parties

to a dispute can resort to arbitration (Article 25.1 of the DSU). The parties
must agree on the arbitration as well as the procedures to be followed (Article
25.2 of the DSU). The parties to the dispute are thus free to depart from the
standard procedures of the DSU and to agree on the rules and procedures they
deem appropriate for the arbitration, including the selection of the arbitrators.
The parties must also clearly define the issues in dispute.

Before the beginning of the arbitration, the parties must notify their agreement
to resort to arbitration to all (WTO) Members. Other Members may become
party to an arbitration only with the agreement of the parties engaged in the
arbitration. The parties to the arbitration must agree to abide by the arbitration
award, which, once issued, must be notified to the DSB and the relevant
Councils and Committees overseeing the agreement(s) in question (Articles 25.2
and 25.3 of the DSU). The provisions of Articles 21 and 22 of the DSU on
remedies and on the surveillance of implementation of a decision apply to the
arbitration award (Article 25.4 of the DSU).

To date, in only one dispute, have the parties resorted to arbitration under
Article 25 of the DSU. The procedure was not used as an alternative to the
panel and Appellate Body procedure, but at the stage of implementation, when
the panel report had already been adopted. The parties asked the arbitrators to
determine the level of nullification or impairment of benefits caused by the
violation established in the panel report. Under the standard procedures of the
DSU, parties can obtain a binding determination of the level of nullification or
impairment by recourse to arbitration under Article 22.6 of the DSU. A
prerequisite for such arbitration is that the complainant has requested the
DSBs authorization for the suspension of obligations and that the respondent
disagrees with the proposed level of retaliation. In the case where the parties
resorted to arbitration under Article 25 of the DSU, they agreed that the award
of the arbitrators would be final. Recourse to Articles 21 and 22 of the DSU is
available to implement and enforce the conclusions of these arbitration awards.

Arbitrations under Article 21.3(c) of the DSU

Article 21.3 of the DSU provides that a Member found to be in violation of its
WTO obligations must comply with the rulings and recommendations of the
Dispute Settlement Body (DSB) immediately. When immediate compliance is
impracticable, however, the Member shall have a reasonable period of time to
implement the DSB's rulings and recommendations. The reasonable period of
time may be the period of time proposed by the Member concerned, provided
that such period is approved by the DSB or a period of time mutually agreed
by the parties to the dispute. If neither of these two options is possible, Article
21.3(c) provides that the reasonable period of time shall be a period of time
determined through binding arbitration. Arbitrators are selected by the parties
to the arbitration or, if they cannot agree on an arbitrator, the Director-General
appoints the arbitrator. Thus far, every arbitration under Article 21.3(c) has
been conducted by an Appellate Body Member acting in his individual capacity.

The Dispute Settlement Body (DSB) of the World Trade Organization (WTO)
makes decisions on trade disputes between governments that are adjudicated
by the Organization. Its decisions generally match those of the Dispute Panel.

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Parties often prefer arbitration to traditional court proceedings for a variety of
reasons. Arbitration is frequently viewed as quicker, less expensive, and less
disruptive. The discreet nature of arbitration is highly valued, especially by
corporations who often wish to protect themselves from bad publicity or the
dissemination of trade secrets. International arbitration, while benefiting from

all the above-listed characteristics, is favored over court proceedings primarily

for an entirely unrelated reason. Various issues regarding jurisdiction,
neutrality and enforcement give international arbitration a virtual monopoly in
transnational dispute resolution.1
While each party likely would prefer to settle disputes in its own court system,
both would prefer neutral arbitration to settling the dispute in the opposing
partys court system.
In the World Trade Organization (WTO), under the GATT/WTO agreements,
all disputes are international by default. There is no private right of action.
Only national governments have standing to bring claims under the
GATT/WTO agreements and actions may only be brought against other
national governments.6
Furthermore the Dispute Settlement Understanding (DSU) embraces
arbitration of disputes to various degrees.8
But in spite of the necessarily transnational character of arbitration under the
WTO, it is not international arbitration. Dispute settlement in the WTO is a
process that might best be described as a tribunal that combines a strange
form of arbitration with an institutional judicial review.
Decisions and recommendations of the WTO Dispute Settlement Body (DSB)
are not enforceable by national courts. Considering the phenomenal success of
the New York Convention, it seems natural that WTO member states would
make use of that treaty to give structure and force to its dispute settlement
mechanism. Why reinvent the wheel when a highly effective international
dispute settlement structure is already in place? But, on the contrary,
arbitration within the WTO is designed to be international arbitration that is
decidedly not international arbitration. The NY Convention does not apply to
arbitral decisions rendered under WTO agreements.

The WTO and the Dispute Settlement Understanding

The Uruguay Round was launched in 1986.52 The volume of commitments

being negotiated was staggering, and it quickly became clear that the existing
dispute settlement regime would be inadequate.53 A new, more robust system
was implemented with the advent of the WTO (which incorporates the GATT
1947 agreement in whole) and DSU in 1994.
The DSU A to Z
Dispute resolution under the WTO typically divides into three stages,
1)consultation, 2) panel and Appellate Body proceedings, and 3) if an
inconsistency with a covered agreement was found, implementation of the
report by the losing party.54 Failure to abide by the panel/Appellate Body
recommendations can trigger a 4th stage consultation between parties and
possible arbitration to determine appropriately responsive suspension of
concession measures.

This mechanism resembles international arbitration in many ways, but is in

many ways very different. Panels are established by parties in much the same
way as tribunals in many arbitrations.56 Panel members are chosen by parties
with an eye toward professional, technically competent panelists.57 If
agreement on panelists cannot be had between the parties, the WTO Director
General will fill any vacancies.58 On the other hand, unlike arbitration, which
is triggered automatically when a dispute arises under a contract with an
arbitration clause, WTO dispute settlement panels must be preceded by
consultation and good-faith attempts of conciliation.59 In traditional
arbitration, if no exhaustion-of-other-available-remedies provisions are
specified within the arbitration agreement itself, no such prerequisite will bar
bringing a claim to arbitration.

Panels then examine the claim and there is an interim review stage in which
parties are allowed to comment.60 The panel issues a report which can be
appealed to the Appellate Body.61 The final report is then adopted by the
Dispute Settlement Body (which consists of WTO Members)62 unless there is
consensus not to adopt the report.63

Unchallenged panel decisions, and all Appellate Body decisions, are legally
binding.64
Finally, in cases of non-implementationwhere a losing party fails to bring its
practices and laws into compliance with GATT obligationsthere is a
possibility of arbitration on the narrow issue of how much, if any, retaliation
(suspension of tradebarrier concessions) is appropriate.65 Compensation to the
complaining party is also possible, but only upon agreement by both parties.66
Note that retaliatory measures are meant to be temporary. Their purpose is to
put domestic pressure on the offending nation to bring its practices into
compliance with its WTO obligations.

Arbitration Under the DSU

The typical dispute settlement measures outlined in the DSU share some
similarities with arbitration, e.g., the selection of panels. But the DSU also
contains several explicit provisions for the use of arbitration to various extents.
In 1989 the Contracting Parties agreed to "The 1989 Improvements" to the
GATT Dispute Settlement rules. The 1989 Improvements explicitly added
arbitration as an alternate form of dispute settlement in certain
circumstances.82 Importantly, under this agreement, arbitration awards were
to be "consistent with the General Agreement," and could not "nullify or impair
benefits accruing to any contracting party."83
Between 1989 and April 1994 (when the GATT 1994 and the accompanying
DSU went into effect), resort to arbitration under the 1989 Improvements was
uncommon.
First, the 1989 Improvements did not function like a binding arbitration clause
in a contract. So the first attempt at employing arbitration under these rules
failed. In 1988 and 1989, when the European Community proposed arbitration
with the United States, the proposal was quashed when the United States
simply rejected it. Over the next few years arbitration was used or proposed in
only a few instances.

Although member states showed a distinct reluctance to resort to arbitration

to resolve trade disputes, arbitration still found its way into Article 25 of the
DSU, largely unchanged from the 1989 Improvements.84 Like arbitration under
the 1989 Improvements, arbitration awards under the DSU must be consistent
with the GATT they must not nullify or impair benefits accruing to any
Contracting Party, or impede the attainment of any objective of the GATT.85
Additionally, Article 25.3 requires notification of awards "to the DSB and the
Council or Committee of any relevant agreement where any Member may raise
any point relating thereto."
If resort to Arbitration under the 1989 Improvements was sparse, use of
Arbitration for dispute resolution under the DSU has been positively scant.
Since the end of the Uruguay rounds, when the DSU was adopted in 1994
there has been only one arbitration under Article 25, United States Section
110(5) of the US Copyright Act.
86
While Article 25 of the DSU offers a more or less complete (if rarely used)
alternative to the typical dispute settlement procedures in the WTO, there are
some other, more limited (and more successful) references to arbitration in the
agreement. Article 21.3(c) of the DSU provides for mandatory, binding
arbitration of the reasonable period of time for compliance with DSB
recommendations and rulings. Arbitration under Article 21.3 is not subject to
mutual agreement between the partiesit is automatic upon the failure to
agree on a reasonable period of time for compliance.