Issue with WTO’s Dispute Settlement Mechanism (DSM)

Source: This post on Issues with WTO’s dispute settlement mechanism (DSM) has been created based on the article “How to restore WTO’s authority” published in “Indian Express” on 5th February 2024.   

UPSC Syllabus Topic: GS Paper 2 International Relations – Important International institutions, agencies and fora- their structure, mandate. 

News: Issue with WTO’s Dispute Settlement Mechanism (DSM),The article discusses the issues with WTO’s dispute settlement mechanism (DSM) and the possible options available in front of developing countries. 

A detailed article on the Dispute Settlement Mechanism of the WTO can be read here. 

A detailed article on WTO reforms and India can be read here. 

What is WTO’s Dispute Settlement Mechanism (DSM)?

WTO’s DSM comprises a binding two-tiered process with a panel and an appellate body (AB). 

The AB hears appeals from the decisions rendered by WTO panels and is a permanent judicial body of 7 independent members with compulsory jurisdiction over all WTO members.  

What are The Issues with WTO’s DSM?

Since the end of 2019, this mechanism stands non-functional because the US, which lost several critical disputes before it, has blocked the appointment of new members. 

This has made the WTO toothless. Countries are avoiding complying with the WTO panel rulings.  

At the 12th WTO ministerial meeting, countries resolved to create a fully functioning DSM by 2024. India and several developing countries have rightly demanded the body’s restoration.  

What are The Options Available with The Developing Countries?

Since the US is unlikely to change its stance, developing countries have three options to maintain a two-tiered DSM at the WTO: 

1. Join the European Union-led multi-party Interim Appeal Arbitration Arrangement (MPIA): It formalises the mechanism for arbitration already available under the WTO to provide the appellate review for panel reports.
2. An AB with Diluted Powers: US may consider an AB with limited powers (such as stating that AB rulings will not have a persuasive value).
   However, a diluted AB will be antithetical to the role that WTO law expects the DSM to play.
3. Voluntary Compliance to the AB: In this scenario, countries will have the option to opt out of AB’s compulsory jurisdiction. A country opting out cannot participate in an appellate process either as a complainant or as a respondent.  

What Should be The Way Forward for India?

India and other developing countries should continue striving for the restoration of the AB in the form it existed till 2019. However, if this doesn’t happen, India should prefer an AB for only willing countries, as per the author. 

Question for practice: 

What is WTO’s dispute settlement mechanism (DSM)? Why has it become non-functional since 2019? Suggest reforms to bring it back on track.