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Latin American Experience in Wto Dispute Settlement: Recommendations for Russia

Working paper by St. Petersburg State University, 2013

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The article analyses the experience of Latin American countries (LAC) with regards to their participation in various economic dispute settlement mechanisms. On the basis of this analysis, the paper makes some recommendations for the Russian Federation as a new member of the organization that may use the World Trade Organization dispute settlement mechanism in order to defend its economic interests.

Sergey F. Sutyrin, Professor

Olga Y. Trofimenko, Associate Professor

Alexandra G. Koval, Associate Professor

Department of World Economy, Faculty of Economics,

St. Petersburg State University

62 Chaikovskogo st., 191123, St. Petersburg, Russia

Phone/Fax: +7 812 2720330

E-mail: sutyrin@hotmail.com, olgatrofimenko@yandex.ru, a.koval@econ.pu.ru


Latin American Experience in WTO Dispute Settlement: Recommendations for Russia


Abstract


The article analyses the experience of Latin American countries (LAC) with regards to their participation in various economic dispute settlement mechanisms. Despite the existence of multilateral bodies and rules for dispute resolution, countries creating regional trade blocs usually try to develop their own dispute settlement systems for the defense of national economic interests. Latin America and the Caribbean are not an exception. The Andean Community, CACM, CARICOM, MERCOSUR, and NAFTA all have more or less comprehensive dispute settlement bodies. One could expect that these bodies would be used for “internal” disputes and that the multilateral framework would serve to deal with “outsiders”. However, the WTO dispute settlement system is very important for solving both disputes with countries that are not members of the blocs and “internal” ones. On the basis of an analysis of the LACs’ participation in the various dispute settlement systems, the authors make some recommendations for the Russian Federation as a new member of the organization that would probably use the WTO dispute settlement mechanism in order to defend its economic interests.


Keywords: WTO Dispute Settlement, Latin American Countries, RTAs, Russian Federation.


  1. Introduction


The World Trade Organization (WTO) has, for more than 17 years, provided the opportunity for both developed and developing countries to defend their national interests in trade disputes. One could argue that the WTO dispute settlement (DS) system is the most efficient DS procedure of any international body (Biggs, 2005). The WTO DS is nowadays proven to be the most comprehensive one as it, based on the rules, does not allow the losing party to block the decision and has an efficient enforcement mechanism. Up to now, 462 cases were brought to the WTO. Countries at all levels of development are users of the system.

At the same time, the number of regional trade agreements (RTAs) has been growing and introducing a prominent challenge to the multilateral trading system. RTAs both compete and complement the WTO from the perspective of nations’ trade policy. In particular, the main regional trade blocs provide their members with alternative mechanisms for the resolution of economic disputes. The ‘forum-shopping” as a choice between regional and multilateral DS systems has become a central issue for countries searching opportunities to defend their national interests in international trade.

A number of studies focus on RTAs and WTO DS procedures from different perspectives. In recent years, there has been an increasing interest in the impact of the WTO DS system on the bargaining position of developing countries (Abbott, 2007; Bown, 2004a; Shaffer, 2006, 2010). Several studies have revealed that one of the constraints on developing countries participation in the WTO DS is their interests in trade under RTAs with a greater scope of regulation (Nottage, 2009; Bohanes and Garza, 2012). Moreover, it is difficult to ignore the overlapping jurisdictions of regional and multilateral DS systems (WTO, 2011).

Therefore, the research to date has tended to focus on the forum-shopping in the DS. The majority of studies in this field are conducted from legal or political perspectives (Busch, 2007; Henckels, 2008; Marceau and Wyatt, 2010). Capling, Low, et al. (2010) investigated the influence of state and non-state actors on the forum choice. So far, however, there has been little discussion on DS forum-shopping from an economic perspective.

The economic investigations on DS system could be conducted in the following manner. Several economic studies have applied a quantitative analysis to legal questions in WTO DS (Horn et al. 1999; WTO, 2005). The economists have estimated the costs of DS initiations and outcomes or effects of trade disputes (Breuss, 2001; Bown, 2004b).

The other economic approach is to analyze disputes as institutions. New institutional economics allows examining international arrangements from the perspective of contractual enforcement. In contrast to states, which have a comparative advantage in violence over its territory (North, 1981), international organizations obtain a limited power and represent incomplete contracts. Prior to the GATT/WTO, international trade was controlled by informal rules and practices (Keohane, 1999). Multilateral trade agreement was admitted by nations to reduce both the uncertainty by providing information and transaction costs (Keohane, 1984). The transaction costs of making and enforcing international arrangements were lower than the transaction costs incurred by states without such arrangements. Thus, governments, business, nongovernmental organizations (NGOs) have developed multilateral trading system introducing the GATT/WTO as formal rules but with a lack of the enforcement power (North, 1990). The reciprocity and reputation of states have ensured the maintenance of commitments under international agreements (Milgrom, North, and Weingast, 1990).

Conceptually then, the WTO is an incomplete contract and its DS system contributes to self-enforcement of the multilateral trade agreement (Bagwell and Staiger 2004; Maggi and Staiger, 2008; Keck and Schropp, 2007; Schropp, 2009). Concerns have been raised by recent studies about opportunities of developing countries to enforce the WTO commitments (Bown and Hoekman, 2007; Bown, 2009). Developing countries with weaker bargaining position have less capacity to use WTO DS despite the contemporary diffusion of power within the organization (Barton et al., 2006).

Nevertheless, far too little attention has been paid to the comparison of regional and multilateral dispute institutions and their enforceable capacity for developing countries. Maggi (1999) argued that the WTO can offer a distinct advantage over RTAs by verifying violations of agreements, informing third parties, and facilitating multilateral reputation mechanisms. To date it is a critical assertion; therefore, the authors consider the DS forum-shopping from a perspective of the institutional analysis on the example of Latin America and the Caribbean.

The purpose of the paper is to ascertain the relevance of the various forums of dispute settlement for this region and indicate consequently recommendations for Russia and its neighbors. The statistical analysis and interviews with representatives of the WTO, ACWL, and Latin American governments’ officials will play a significant role in the research development. The paper is divided into three paragraphs. The first part focuses on distinguishing features of Latin American and Caribbean countries (LACs) participation in WTO DS institution. The next paragraph will compare LACs’ RTAs dispute settlement with the WTO. Finally, the authors will suggest some attitudes for Russia to the DS systems.

At the moment the Russian Federation is one of the newest WTO members, but it is the center of gravity for integration processes in the post-Soviet area. Like other trade blocks, regional trade arrangements with the participation of the Russian Federation refer to articles allowing the settlement of economic disputes at the regional level. At the same time, after joining the WTO Russia has an access to another DS body that could be very useful. Like LACs, the Russian Federation is able to be brought either to the WTO for dispute resolution or has an opportunity to undertake some “forum shopping” in the case that it initiates the dispute. Analysis of the LACs’ experiences could be useful in forecasting the level of Russian participation in the WTO DS system.

  1. WTO Dispute Settlement: Pro & Contra for Latin America and the Caribbean


Nowadays LACs are active participants in WTO disputes. Argentina, Brazil and Mexico have taken places in the top-10 of complainants and respondents in the WTO (Table 1). It is worth emphasizing that Brazil and Mexico have opposed unfair trade regulation much more often than they had to defend themselves. This is a case for the majority of Latin American countries. However, Argentina has participated in 22 disputes as a respondent and 19 as a complainant. Such results are impressive enough if we compare them with the share of these countries in world trade: Brazil, Mexico and Argentina in total have initiated 68 disputes (about 15% of all disputes in the WTO), but their export accounts for 3.9% of world export in 2012.

LACs started to defend their national interests using the DS system that existed under the GATT. All in all, they participated in 25 of 101 disputes, but in most of them they were as respondents in comparison with the WTO or third parties (Koval and Trofimenko, 2012). Moreover, during the Uruguay round some LACs made proposals for the improvement of the DS, though not all of them were implemented (Delich and Weston, 2003).

Table 1

Top-10 complainants and respondents in WTO Disputes, January 1995 – June 2013

Country as a complainant

Number of disputes

Ranking

Country as a respondent

Number of disputes

Ranking

USA

105

1

USA

119

1

EU

88

2

EU

74

2

Canada

33

3

China

31

3

Brazil

26

4

India

22

4-5

Mexico

23

5

Argentina

22

4-5

India

21

6

Canada

17

6

Argentina

19

7

Japan

15

7

Japan

17

8

Brazil

14

8-9-10

Republic of Korea

15

9

Mexico

14

8-9-10

Thailand

13

10

Republic of Korea

14

8-9-10

Source: WTO


In the WTO LACs have initiated 125 disputes – a figure that accounts for 25.5% of all initiated disputes in the organization and 56% of disputes initiated by developing countries. The peak of their activities was reached in 2001 just when the Doha round had started. Figure 1 shows the accumulated disputes between countries. The decrease in the number of disputes initiated by LACs in 1998 and 2002 could be explained by the crisis in Brazil and Argentina and internal problems that came to the top of the political agenda, rather than international issues. Partly this decreasing tendency at the beginning of 2000s could be explained by the deeper involvement of LACs in the Doha round.

Figure 1 Disputes initiated in the WTO in total and by Latin American and Caribbean Countries (LAC), 1995 – January-June 2013

Source: WTO


One of the biggest falls in complaints occurred in 2004 and may be explained by the failure of the Ministerial Conference in Cancun which was followed by a decrease of interest in the WTO and the search for a new trade strategy, especially within the framework of RTAs although some experts argue, that countries applied to the WTO DS when they could not achieve their goals during the Ministerial Conferences (Almeida, 2006). The trends show that DS is considered as a part of the WTO system and could not be examined independently. Nevertheless, RTAs could not have substituted the WTO and this precipitated the rise in disputes from LACs in 2005.

After 2006 the number of disputes initiated by LACs within the WTO decreased even further. This drop continued during the global economic crisis, because, first of all, countries were more involved with their national, domestic problems. Secondly, both developing and developed countries have been trying to protect their markets, resorting to different trade measures (Evenett, 2009), and the disputes could cause retaliations. Moreover, protectionism has become more “murky” or invisible (Baldwin and Evenett, 2009), and this makes the initiation of a dispute more complicated. Finally, the number of disputes increased in 2012, which shows the recovery of national economies and the return of member countries to WTO issues including the DS system.

In comparison with the 90s, nowadays Latin American participation in disputes is more significant, and in 2005 half of disputes were initiated by countries from this region. On the whole, there is a correlation between two trends: disputes initiated in the WTO in total and by LACs in the WTO. The only wide discrepancy that was seen in 2001 reflects different assessments of the Doha round by developing and developed countries.

However, not all LACs are active enough in bringing their cases to the WTO. Table 2 shows the involvement of countries under investigation in the WTO DS process. Some members prefer not to use the long-lasting and rather expensive procedures and try to find other solutions to their problems. Since the WTO was established, such countries as Cuba, Uruguay, Venezuela, and Nicaragua used to have one case each. LAСs which are not represented in Table 2 have never used the WTO DS process, except Trinidad and Tobago was a respondent only in 2 intraregional cases. In addition, it is worth noting that seven countries - Chile, Columbia, Costa Rica, El Salvador, Guatemala, Nicaragua, and Panama - submitted most of their claims in the WTO against their neighbours.

Among the main challenges that some LACs face in the multilateral DS system are the following: lack of expertise and local specialists who are able to conduct the WTO DS cases; lack of financial resources to bring the case to Geneva and participate in all necessary procedures; low level of government efficiency and lack of communication between the government and business as well as between various entities of the national business community. Yet another problem for LACs is the fact that the working language of the disputes is usually English, even though French and Spanish are the working languages of the WTO. Nevertheless, English predominates and this can lead to several challenges for most LACs (Delich and Tussie, 2005).

One could argue that improvements in aforementioned directions would lead to the greater use of the WTO DS system by developing countries. For instance, during the litigation process LACs might count on some assistance from the WTO Secretariat. Such support is important, but in the case that two developing countries are the parties of the dispute they both should expect equal treatment. The WTO itself cannot help member states directly to improve the efficiency of their governments. Some training could be provided through the technical assistance programs, but it is up to the country itself to develop a proper institutional body that should be able to deal with international disputes.


Table 2

Intra- and interregional disputes initiated by Latin America and the Caribbean
in the WTO, January 1995 – June 2013*

Country

Cases to other LAC

Cases to non-LAC

Total

Antigua and Barbuda

0

1

1

Argentina

8

11

19

Brazil

4

22

26

Chile

6

4

10

Colombia

3

2

5

Costa Rica

4

1

5

Cuba

0

1

1

Dominican Republic

0

1

1

Ecuador

0

3

3

El Salvador

1

0

1

Guatemala

5

4

9

Honduras

4

4

8

Mexico

7

16

23

Nicaragua

1

0

1

Panama

4

3

7

Peru

1

2

3

Uruguay

0

1

1

Venezuela

0

1

1

LAC

48

77

125

Developing countries incl. LAC

54

169

223

Developed countries

38

228

266

The World

92

397

489

Source: WTO

*The number of disputes reflects the number of countries involved in the disputes. So if the dispute was initiated by the group of countries (LACs have such experience), the authors count the number of complainants.


The WTO does not have a mandate to work on the establishment of proper links between the governments and the businesses community. The governments themselves have to introduce an understandable and transparent institutional framework that would allow business entities to submit complaints. They should also facilitate the development of educational programmes on international trade and international trade law. All of the above measures might help LACs to increase the extent of the utilization of the WTO DS system in the long run. At the same time, improvement of governmental efficiency is a tough, long-lasting and a very sensitive political process. Some LACs have achieved a significant progress in building such an institutional framework.

Table 2 indicates that larger countries like Brazil, Argentina and Mexico use the DS mechanism much more often than their smaller LAC neighbors. These countries have more financial resources and specialists available for the DS process. Their volume of trade is high and there are many local companies that are powerful enough to force their governments to initiate the DS process on the international level. Some developing countries have also adapted to the WTO system by creating specialized trade bureaucracies, coordinating interagency trade policy processes in home capitals, and maintaining specialized trade units in Geneva (Shaffer, 2003). For example, in Brazil within the Ministry of Foreign Affairs the General Office for the Coordination of Disputes was created (Barral, 2007).

As the incentives for launching disputes should come from business, the bigger companies have more potential for lobbying their interests. Thus, the Mexican company Cemex initiated 5 disputes regarding the regulation of cement imports. Moreover, business associations could be quite strong. For example, the Brazilian Business Coalition, which brought together 166 Brazilian associations and enterprises in order to coordinate their positions concerning discriminatory trade policy measures (Rosenberg, Sanchez and Schaffer, 2006). And finally, the other important issue for improving national positions in disputes is the need to develop educational and training programmes on WTO issues, such as the Brazilian International Trade Scholars (ABCI) Institute (Barral, 2007). In many cases the teamwork of all three major players: Government, Business and the scientific community, helps countries to study the peculiarities of the WTO legal system in more depth and to participate in the WTO DS process.

Finally, it should be noted that 38.4% of all disputes initiated by LACs and 52.2 percent of all disputes initiated against LACs were intraregional. The number of cases brought by developed countries against LACs is significantly smaller than the number of intraregional disputes. Nevertheless, LACs initiated more disputes against the USA and the EU than they answered from them. Moreover, there were several cases with Canada, China and Turkey where LACs were complainants. More developing countries initiated disputes against LACs than vice versa, but most of them were with the participation of Brazil. Indeed, the share of intraregional disputes in all cases initiated by developing countries against LACs is quite high (89 percent).

The majority of disputes in the WTO - both intra- and interregional - in which LACs participated were dedicated to agriculture. Many cases on agricultural products were initiated by LACs against the developed countries; this fact is expected as these markets are very important for LACs. But it is also interesting that LACs themselves were respondents in interregional disputes on food and agriculture. Many cases were dedicated to the countervailing duties applied by LACs and also the food industry. Moreover, the significant share of all interregional disputes against LACs related to the chemical and machinery industries. These subjects of disputes reflect the structure of LAC trade.

It is interesting to compare figures mentioned above not only with the LACs’ share in the world trade (Torres, 2012) but also with the volume of LACs’ foreign trade with partners. One could argue that no disputes might appear in the case that two or more countries do not have trade relations; there would be no reason for such a dispute. The same is true if the trade turnover between the countries is quite small; in the case of the absence of a substantial trade interest the government will probably not grant its protection to the complaining industry. In contrast to that, in the case of regular trade and huge volumes of it one could expect to see an increase in WTO DS initiations. There are many reasons for such claims. Some countries might try to use certain measures in order to provide support to their national producers and to cause foreign importers certain difficulties with market access. Another reason could be the poor application of the rules agreed upon, e.g. standardization, sanitary and phytosanitary measures, the protection of intellectual property rights or investment legislation. The problems might appear during calculations of anti-dumping duties, etc.

Table 3 contains the comparison between the structure of LACs’ trade by main partner and the share of LACs’ disputes with these partners in total. One might argue that this comparison is not obvious, because the disputes have taken place for more than 17 years, but the trade balance presented is only for 2012. However, the figures show the main trends, and over the WTO’s 17 year existence intraregional trade in Latin America has accounted for about 20 percent of all LAC’s trade (calculated by the authors), and this is much lower than the share of intraregional disputes initiated and especially responded by them. This leads us to ask the question, why, despite the small volumes of intraregional trade (in comparison to other partners), have LAC countries participated in such a significant number of disputes.

The search for the answer leads to the examination of the regional DS system; this will be tackled in the next paragraph. Although the majority of intraregional cases examined were between LACs belonging to different integration blocks, only Brazil and Argentina as members of MERCOSUR and Honduras and Nicaragua as members of CACM, have had disputes between each other. However, it is noting that many other intraregional disputes involving LACs appeared within the framework of LACs’ bilateral free trade agreements and economic cooperation groups, and only 7 intraregional disputes involved LACs which have no bilateral agreements between each other (Heidrich and Tussie, 2010).


Table 3

LAC Trade and Disputes in the WTO by Country

Countries and regions of the world

Export from LAC to main partners, % of total,

2012

LAC as complainants in the WTO DS, % of all disputes, January 1995 – June 2013

Import to LAC from main partners, % of total, 2012

LAC as respondents in the WTO DS, % of all disputes,

January 1995 – June 2013

LAC

19.2

38.4

18.6

52.2

EU

12.2

24.8

13.8

19.6

USA

40.3

24.8

30.2

18.5

Canada

2.2

2.4

1.7

1.1

Japan

2.3

0

4.5

2.2

China

9

4

15.2

0

India

2.4

0

1.4

2.2

Others

12.4

5.6

14.6

4.2

World

100

100

100

100

Sources: ITC, WTO.


In addition, the large number of intraregional disputes shows that LAC economies are more competitive than complementary, and this explains the low figures for intraregional trade and the interest in new market entry. Another explanation could be that the USA and the EU used to bring their complaints against LACs to the WTO less frequently, because they could achieve their goals by means of bilateral negotiations; something that LACs could not do and therefore they opted for the multilateral choice.

Moreover, table 3 reveals that the share of disputes between LACs and the EU exceeds their trade volume, while for the USA it is the opposite picture. This could reflect the changing commercial interests between regions. In addition, China, despite its growing position on the Latin American market, did not submit complaints against LACs. This could be explained by the later accession of China to the WTO and, thus the lack of the Chinese experience in the WTO DS process at the initial stage of its participation in the organization. LACs have started initiating disputes against China since 2007.

One could observe the consistency in that LACs, who frequently participate in the disputes as third parties, are also the most significant complainants (Table 4). Moreover, many smaller LACs have adopted the strategy of being only third parties and not to initiate disputes. Thus, Paraguay, Cuba participated in 15 disputes, El Salvador - in 14, Jamaica - in 8, etc.


Table 4

Top 10 complainants, respondents and third parties from Latin America and the Caribbean in WTO Disputes, January 1995 – June 2013


Country as complainant

Number of disputes

Country as respondent

Number of disputes

Country as third party

Number of disputes

1

Brazil

26

1

Argentina

22

1

Brazil

75

2

Mexico

23

2-3

Brazil,

Mexico

14


2

Mexico

67

3

Argentina

19

3

Argentina

45

4

Chile

10

4

Chile

13

4

Colombia

40

5

Guatemala

9

5

Dominican Republic

7


5

Chile

34

6

Honduras

8

6

Peru

5

6

Guatemala

27

7

Panama

7

7

Colombia,

4

7

Ecuador

24

8-9

Colombia, Costa Rica

5

8

Ecuador

3

8

Honduras

20

10-11

Peru,

Ecuador

3

9-12

Guatemala Nicaragua, Trinidad and Tobago, Venezuela

2

9

Venezuela

16

10-11


Paraguay

Costa Rica

Cuba

15


Source: WTO.


On the one hand, this strategy of “free riding” has its benefits and to a certain extent improves conditions of access to significant markets. For instance, when Brazil won the dispute on sugar subsidies against the EU, this represented an important step for many LACs, and furthermore some states went on to establish the special LAC Association for the Defense of Sugar Industry (Klochkovskiy, 2008). In addition, the same strategy prevents retaliations of the sort that occurred between Argentina and Chile.

On the other hand, third parties cannot comprehensively defend their own national interests; they follow the concessions of the main players. In whole the unwillingness to initiate disputes could be a result of many factors. For instance, the benefits of a win under the WTO DS process for smaller economies could be invisible, taking into account the low volumes of exports and the necessity to cover the litigation costs (Bown and Hoekman, 2005). Here is also worth to notice that acting as a third party also requires some expenses, although smaller ones. Finally, if more and more countries choose to participate as third parties and submit oral statements, the WTO DS system will need to respond somehow to these challenges (McRae, 2004).

Anyway, for LACs the practice of third parties is very reasonable, because, on the one hand, they are able to apply learning-by-doing strategy and gather experience which could then be used to launch their own disputes. The same applies when a WTO member at first initiates the case not on its own, but with a group of countries. On the other hand, the third party also has the right to comment on the dispute and the panel could take this into consideration, especially if it is in the case of a developed country supporting a developing one. All of these examples can be clearly noted if we consider the participation of Peru in the WTO DS, because at first Peru participated as a third party in the dispute initiated by Canada against the EU trade description of scallops (DS7) and then went on to join this dispute (DS12). Afterwards Peru initiated its own case on the EU labeling policy for sardines (DS231) and in this dispute the USA presented the oral statement that supported Peruvian arguments (Davis, 2006).

The cost of initiating disputes and the lack of legal expertise are not unique problems just for the LACs. One of the ways out is to receive support from the Advisory Centre on WTO Law (ACWL), which was established in 2001. Nowadays, of all LACs initiating the disputes only the most experienced members such as Argentina, Brazil, Chile, Mexico (and also Antigua and Barbuda initiated only one case) are not members of the ACWL. Moreover, the ACWL provides legal assistance for third parties. From 2001 to 2012 the ACWL supported developing countries in 41 cases, and more than half of them were with the participation of LACs. The challenge which has arisen for the ACWL is that about a half of all cases which they had supported were between developing countries, and both parties to the dispute could refer to the ACWL. In this situation the ACWL works with the first country to approach them, and the opponent could chose the private company of the External Legal Counsel organized by the ACWL, but the fee will be increased by 20 percent. On the one hand, regular use of the ACWL’s services by some its clients from LACs such as Colombia, Guatemala, Panama, Costa Rica, Ecuador, and Peru as complainants or as third parties shows the advantages of the ACWL (ACWL, 2012). On the other hand, the availability of the ACWL’s services has not been enough to expand the set of developing countries that initiate disputes under the WTO (Bown and McCulloch, 2010).

Thus, LACs participation in the WTO DS system isn’t homogeneous. Countries with bigger economies use much more often the WTO in order to resolve trade disputes, and vice versa. Among the main advantages of the multilateral DS system which are frequently mentioned by them are the following:

    • the opportunity to solve the problem on the basis of rules, rather than economic and political power. This means that developing countries can rely on the impartial nature of the dispute settlement and if their claims are reasonable, they should win from their stronger partners applying restrictive measures;

    • the comprehensive enforcement mechanism that leads to the fact that all losing parties (again, including those with greater power) will implement the decision taken by the Dispute Settlement Body;

    • the opportunity to improve the international image of the country and ensure/improve market access for local companies on foreign markets.

These characteristics tend to demonstrate that the WTO even being an incomplete contract has a self-enforcement mechanism through the DS system. This mechanism is based on reputation of nations and reciprocity (equal rules for all members). The credibility of the WTO DS is also proved by the fact that most of recommendations adopted by the Dispute Settlement Body were implemented by Member states. Only in 5 cases complainants suspended concessions or other obligations (retaliations) because respondents didn’t meet requirements of the DS Body. All these disputes were initiated by LACs alone or with other nations on behalf of a group. So far, retaliations represent economic sanctions in response to violations of WTO commitments. Hence, the DS system provides the transparency and stability of multilateral trade agreements.

However, a weaker participation of smaller LACs in the WTO DS system could be explained not only by internal institutional challenges faced by these states (low links between government and business, lack of specialists, etc.) but also by an imperfection of an incomplete contract. Firstly, there is no doubt that WTO DS is based on legal rules, nevertheless, the role of politics is still under consideration. Less powerful nations often try to avoid initiating a dispute in the WTO against developed countries. There are exceptions, for instance, the USA-Antigua and Barbuda case. On one hand, this dispute was a good example of an equal approach to nations with different bargaining power. Finally, the DS Body upheld Antigua and Barbuda’s claim against the USA. However, the USA failed to comply with the WTO DS Body’s recommendations. So far, Antigua and Barbuda was authorized to apply economic sanctions. One may argue that this case demonstrates that the self-enforcement mechanism works at the WTO. On the other hand, Antigua and Barbuda didn’t implement sanctions against the USA, but was engaged in process of reaching the agreement with its bigger partner. The reason for such actions was a fear of possible countermeasures applied by the USA (Mendel, 2010).

Thus, secondly, retaliations seem to be not so effective enforcement mechanism according to the above mentioned example and other cases, especially for developing countries (Bown and Pauwelyn, 2010). Moreover, as the WTO DS process is time-consuming, governments could violate trade rules for several years without facing any sanctions until the end of disputes, that leads to so called remedy gap (Brewster, 2010).

Finally, a participation of third parties and amicus curiae, providing the transparency and credibility for WTO DS, is still very limited. That’s why, one of the LACs proposals during the prominent Doha Round is to expand rights of third parties (Albashar and Maniruzzaman, 2010). The other idea to develop rules for amicus curiae briefs could not be perceived as being blatantly in favor of developing countries. NGOs from developed countries are usually better organized and stronger than those from the developing countries. Only in some LACs are NGOs quite strong (for example, the Association of Argentine Edible Oil Industries) and well organized but for smaller countries the participation of their NGOs in the DS process could be a problem. The prominent proposals at the Doha Round, which include toughening DS time frames, forcing financial compensation from countries that delay implementation of the rules, applying monetary compensation as sanctions and bringing small claims (Deere-Birkbeck and Monagle, 2009), could strengthen an enforcement mechanism of multilateral trading agreements.

Thus, LACs’ participation in WTO DS proves the great need for such a multilateral instrument of peaceful and impartial dispute resolution as was developed in the WTO, although some reforms could improve the litigation process. At the same time, most of the LACs are members of regional trade blocs which have developed their regional dispute settlement systems. Here there are two main questions: (1) in what kind of cases would regional settings be more appropriate forums for dispute resolution and (2) what are institutional differences of the DS process between the WTO and RTAs?


  1. RTAs versus the WTO: the impact for dispute settlement for Latin America


Almost all Latin American countries are members of some regional trade blocks, except Chile and Panama, although they have preferential trade agreements (PTAs) with LACs as well as other countries. In comparison to PTAs, within regional integration one can observe deeper provisions for settling trade disputes as well as a special DS body like the Andean Tribunal of Justice (Helfer and Alter, 2009).

Table 5

Number of disputes initiated in the RTAs in Latin America and Caribbean

Regional trade blocks and their most active members

Number of initiated disputes (from the moment of RTA establishment until 2009)

MERCOSUR

575

Argentina

260 (71% against Brazil)

Brazil

182 (69% against Argentina)

Andean Community

462

Colombia

61

Peru

25

CACM (Central American Common Market)

18

Nicaragua

8

Guatemala

4

CARICOM (Caribbean Community)

2

Mexico (in NAFTA)

45 (from 129)

TOTAL

1102

Source: ECLAC Integrated Database of Trade Disputes for Latin America and the Caribbean (IDATD)


The Andean Community’s dispute settlement system is one of the oldest in the region and has such distinguishing features as the ability for individuals to directly submit complaints against Andean Community member countries (Saez, 2007). In the WTO DS system complaints can be initiated only by governments and that is why the development of coordination between government and business is very important for efficient dispute resolution. However, the total number of claims submitted to its General Secretariat and Court is 462, which is less than in MERCOSUR (575 submitted claims) (Table 5). Here, we should also note that in MERCOSUR private individuals could also initiate the cases but they have not yet used this right; this is in comparison with Andean Community where more than 50 cases have been submitted by individuals. Moreover, in the Andean Community the General Court itself can initiate disputes, and its share in all RTA disputes is more than 40% (238), which again is a significant difference with the WTO.

In CARICOM and CACM there were 2 and 18 trade disputes respectively. In CARICOM these two disputes were initiated by one cement producing company from Trinidad and Tobago at first against all CARICOM countries on the issue of the common external tariff, and afterwards against Guyana. In NAFTA, all in all 129 disputes were submitted and Mexico participated in only 63 of them (as a complainant in 45 and as a respondent in 18).


Figure 2. Disputes initiated by LACs in RTAs and the WTO, 1995-2009

Source: IDATD


Such figures could be explained in the following way: firstly, intraregional trade is more intensive in the Andean Community and MERCOSUR than in CARICOM and CACM. Secondly, most of the disputes in MERCOSUR appeared in 1995 when the customs union was established. Moreover, the rise of disputes in the Andean Community during the 90s could be explained by the development of free trade area during these years (Figure 2).

Overall, disregarding aforementioned MERCOSUR and Andean Community cases, we could see that from 1995 till 2009 the process of initiating disputes under RTAs follows the same trend as for LACs in the WTO. The DS system of RTAs couldn’t accordingly be perceived to replace WTO DS. The only exception may be observed with NAFTA at the beginning of the 21st century. As was assumed in the previous paragraph, a different approach of developing and developed countries to Doha negotiations could explain such a trend. It is worth to underline that NAFTA is the only examined RTAs including states at various levels of economic development. Nowadays in RTAs and the WTO the same trend regarding a decrease in the number of disputes is being forecast.


Table 6

Number of disputes by subject initiated by Latin America in RTAs and the WTO, 1995-2009


MERCOSUR

Andean Community

NAFTA

CACM

WTO (initiated by LAC)

WTO (intraregional disputes )

GATT

0

0

0

0

79

32

Tariffs

90

77

1

0

0

0

Taxes

97

100

0

0

0

0

Agriculture

1

0

0

0

15

4

Anti-dumping

22

26

81

0

27

14

Customs Valuation

17

9

0

0

4

3

Intellectual Property

0

25

0

0

1

0

Investment

0

0

0

0

4

0

Licensing

29

16

0

0

9

1

Other nontariff measures and injury

122

46

16

5

0

0

Rules of Origin

24

6

0

3

2

0

Safeguards

3

52

1

0

13

10

Sanitary and Phytosanitary Measures

61

47

0

7

4

1

Services

1

0

0

1

7

4

Subsidies and Countervailing Measures

18

4

20

0

15

1

Technical Barriers to Trade

69

3

0

0

10

1

Textiles

0

0

0

0

2

1

Total

554

411

119

16

192

72

Source: IDATD


Table 6 indicates that the main disputes under RTAs concerned tariffs and non-tariff barriers. In the Andean Community the most significant issue was tax regulation as well as in MERCOSUR. In NAFTA most of the cases had to do with anti-dumping and countervailing measures which are the core issues in the regulating chapters. At the same time, in the WTO the majority of cases initiated by LACs were on GATT articles and anti-dumping measures.

Examining Table 6 it is necessary to take into account that there is a different methodology for agreements and references to trade measures in each organization. Moreover, in comparison to the regional trade blocks, disputes in the WTO could be the subject of different multilateral agreements and that is why the total number of disputes is so high (in many disputes articles from GATT were cited). There is no special agreement for taxes in the WTO; the disputes on taxes are referred only to GATT. Even considering these differences the figures are very diverse for RTAs and the WTO on the subject of taxes and tariffs. The data was analyzed for 1995-2009 so that it would be comparable.

Table 7

Share of disputes by subject initiated by Latin America in RTAs and WTO, 1995-2009


MERCOSUR

Andean Community

NAFTA

CACM

WTO (initiated by LAC)

WTO (LAC intraregional disputes)

WTO (LAC interregional disputes)

Agriculture

0.4

0

0

0

13.3

10

15.1

Anti-dumping

9

13.8

79.2

0

23.9

35

17.8

Customs Valuation

6.9

4.8

0

0

3.5

7.5

1.4

Intellectual Property

0

13.3

0

0

0.9

0

1.4

Investment

0

0

0

0

3.5

0

5.5

Licensing

11.8

8.5

0

0

8

2.5

11

Rules of Origin

9.8

3.2

0

27.3

1.8

0

2.7

Safeguards

1.2

27.7

0.7

0

11.5

25

4.1

Sanitary and Phytosanitary Measures

24.9

25

0

63.6

3.5

2.5

4.1

Services

0.4

0

0.7

9.1

6.2

10

4.1

Subsidies and Countervailing Measures

7.3

2.1

19.4

0

13.3

2.5

19.2

Technical Barriers to Trade

28.2

1.6

0

0

8.8

2.5

12.3

Textiles

0

0

0

0

1.8

2.5

1.4

Total

100

100

100

100

100

100

100

Source: IDATD


Let us try to avoid the differences in the methodologies and see what issues were more frequently examined in RTAs and the WTO. Table 7 shows the share of disputes by subject initiated by LACs on the regional and multilateral levels. Antidumping is the core problem raised in NAFTA (79.4 percent), while in MERCOSUR it was technical barriers to trade (28.2 percent), in the Andean Community it was safeguards (27.7 percent), and in CACM it was sanitary and phytosanitary measures (63.6 percent). In the WTO as in NAFTA the main subjects of disputes initiated by LACs were anti-dumping measures (23.9 percent) as well as for intraregional disputes (35 percent). In intraregional disputes we can also note the interest of LACs in the regulation of safeguards, as in the Andean Community.

However, subsidies and countervailing measures take first place in interregional disputes (19.2 percent) and the share of anti-dumping disputes is very close (17.8 percent), so the case in NAFTA is likely to be very similar to the situation on LAC interregional disputes under the WTO. However, the only exception is disputes on agriculture. Here, of course, we could again see the difference in methodologies, because disputes on agricultural products could also be initiated on countervailing measures, etc. Yet one could argue that the methodology is not the only reason. Trade in agriculture is a stumbling block in WTO negotiations between developed and developing countries. Moreover, the majority of PTAs between nations at different levels of economic development don’t contain clauses on regulation and trade in agriculture or these articles have limited jurisdiction.

Overall, non-tariff measures such as sanitary and phytosanitary measures, technical barriers to trade, etc. have more often been a central issue of disputes at the regional level. Disputes on trade remedies: anti-dumping and countervailing measures, safeguards, were both resolved in the framework of regional and multilateral DS systems. Reasons for a forum-choice could be divided in two major groups: internal institutional factors and characteristics of enforcement mechanism while both RTAs and the WTO are incomplete contracts and have their specificity.

One should also take into account that RTAs represent “WTO-plus” agreements and include issues that can be solved only by a regional DS body. Nevertheless, there is no doubt about overlapping jurisdictions of RTAs and the WTO provide an opportunity for a forum-shopping and the same dispute could be initiated at both regional and multilateral levels (Lavranos and Vielliard, 2008; Huerta-Goldman, 2010a). Moreover, conflicting decisions could be approved by RTA’ and WTO DS bodies (Sá Cabral and Lucarelli de Salvio, 2008). In addition, the proliferation of RTAs could lead to judicial confusion in the resolution of disputes whereby different resolutions are adopted against one country as a member of RTAs with different dispute settlement procedures (Salazar-Xirinachs, 2004).

The analysis of interviews with the WTO, ACWL, Latin American governmental officials (Interviews, 2011) identifies the following internal factors of forum-shopping. One of the main challenges is time and resource constraints. The WTO DS is usually more resource- and time-consuming than regional DS. For business it is very essential to resolve disputes as faster as possible. Nevertheless, not all RTAs have a long-lasting and good experience of DS resolutions while the WTO has precedents on different issues.

At the WTO DS only governments could initiate and participate in disputes, some RTAs, as it was already mentioned, have a possibility for individuals to start a litigation process on several issues. For instance, according to Article 19 of NAFTA, disputes on anti-dumping measures could be initiated by the industry either by rules of domestic law or through the establishment of a bi-national panel. That’s why, Mexico prefers to follow NAFTA DS process in case of anti-dumping (Huerta-Goldman, 2010b), but when governmental officials are supposed to negotiate, the forum-choice isn’t so obvious.

So far, the role of government and its links with business play an important role in country versus country disputes. The private companies are not directly involved in a litigation process, but they usually provide required information and in practice hire private lawyers assisting the governmental work. Such kind of help is very essential because especially in smaller countries one-two officials couldn’t deal with all disputes at any levels. As the WTO is a more open forum, this constraint has a more evident impact. Furthermore, in smaller states business couldn’t always resort to law firms due to scarce resources. However, under these circumstances the ACWL could help to a certain extent as well as WTO technical assistance programmes.

In the majority of LACs, personal ties between government and business and a strong lobby influence significantly initiations of trade disputes. One could mention that under the pressure of the industry governments sometimes start obviously losing cases at any DS system. Such disputes could be also the decision of officials in order to develop bargaining power especially at the multilateral level. In comparison with regional disputes, WTO DS cases gain publicity around the world and have a big impact on national image. In a manner, participation in WTO DS favours better positions to conduct multilateral negotiations. Although in order to avoid publicity, LACs would prefer the regional DS system.

While comparing enforcement mechanism of the WTO and RTAs, international agreements has a global legitimacy as well as transparency and political determinants are much stronger in regional trade blocks. The regional DS process tends to be oriented more on diplomatic solutions than on legal principles. In this sense, for smaller countries with weaker bargaining power the WTO would give better opportunities to resolve dispute with more powerful partner. However, the country choosing an international forum needs to remember that in legal terms the initiated case may turns against it then.

Moreover, in RTAs it is easier to block decisions, more difficult to establish an independent DS body and equal regulation for all members. Hence, the enforcement mechanism of RTAs seems to be weaker than one of the WTO. Certainly, there are also RTAs and PTAs with very broad and not working DS clauses. But it is not so obvious while analyzing deeper regional agreements of LACs with comprehensive legal practice.

Members of MERCOSUR, Andean Community, and NAFTA could prefer regional DS because negotiations on disputes are faster, diplomatic ties could be not only constraints, but even foster solutions (especially for trade blocks of nations with the similar bargaining power), and third parties as well as amicus curiae don’t significantly influence decisions. There is no doubt that third parties adjudication process in the WTO seems preferable than party-oriented panel in NAFTA (Loungnarath and Stehly, 2000). Even if third parties participate for systematic reasons, they ensure transparency and credibility of the WTO. As was discussed before, the role of amicus curiae is critical enough. Nevertheless, most WTO members suspend disputes and reach mutual solution before the panel report because of not willing to notify concessions between the complainant and respondent and having new international commitments. Practically, countries tend to have bilateral negotiations at the WTO as in the framework of RTAs. Finally, retaliations as economic sanctions are used both by the WTO and RTAs. According to interviews, implementation of retaliation measures is easier at the regional level.

Therefore, both the WTO and RTAs have institutional constraints influencing forum-choice. Under RTAs, countries are usually able to choose either regional or the WTO DS system for disputes regarding the same matter. Some RTAs have an exclusion clause regulating a forum-choice. For instance, MERCOSUR Protocol of Olivos or Article 20 of NAFTA prevents forum-shopping when it isn’t possible to use both regional and multilateral DS process.

In practice, however, if a solution between parties isn’t reached within the framework of RTAs, the country could go further to the WTO. Mexico, for example, used this opportunity several times. The WTO couldn’t refuse the complainant in a dispute initiation because of the RTA exclusion clause as only WTO agreements are taken under consideration. Thus, on the one hand, some disputes can be solved on the regional level, and the WTO could represent the final appeal institution. The WTO DS is very important for several LACs in order to defend their interests when all other options for negotiations have been exhausted. For example, for Ecuador the US-EU banana dispute was the reason to speed up the process of its accession to the WTO (Smith, 2006). On the other hand, depending on a case the WTO would be preferable from an institutional perspective.

To sum up, one could argue that the WTO DS system for LACs under investigation is successfully complemented by several regional ones that exist in parallel. At the moment some of the regional bodies are less in demand than others. But the growing number of cases solved on the intraregional level proves the great need for the future development of these organizations. Moreover, the current regional DS system could be improved in order to prevent the initiation of intraregional disputes under the WTO. At the same time, the WTO having more legitimacy would continue to play an important role in dispute resolutions and could be more attractive improving its enforcement mechanism.

The WTO with its rules on the DS system should remain in existence as the “final” international body for settling trade disputes among LACs. One might argue that the WTO could even extend its functions by considering disputes in RTAs and thereby become a useful addition to the work of these organizations, but this would be a challenge for the WTO DS (Gao and Lim, 2010). The WTO DS should definitely be used in trade disputes with other countries which do not belong to the Latin American region. Therefore those countries that actively use the WTO dispute settlement mechanism should finance it and pay great attention to the negotiations on the improvement of the DS procedure within the Doha round.


  1. Some remarks for Russia


It is obvious that the existence and development of various rules-based systems (regional and multilateral) for trade dispute settlement would require a better understanding of forum-shopping. LACs, depending on their needs and the nature of the conflict, have the opportunity to use several of them. Some countries use these options more actively to defend essential national interests; some of them prefer other roles (third parties). In some cases countries prefer to bring the case either to the regional or to the international DS body.

At the same time, it is always good to know that a country can initiate a case if necessary. It is up to the country to decide the appropriate body for this action. However the opportunities to participate in the impartial dispute settlement of trade conflicts are limited for countries that are not members of the WTO.

This was absolutely true for the Russian Federation. One of the significant disadvantages of Russia not being in the WTO was the inaccessibility of the WTO DS mechanism for Russia. For instance, more than 100 anti-dumping measures were applied against Russian companies, and the country was not able to use the unified DS rules to prove that many of them were imposed in a discriminatory manner. During the investigation process Russian companies had to adapt themselves to the legislation of the importing country every time rather than relying on multilateral norms.

However, the WTO DS procedures necessitate large financial and administrative costs, even in a dispute with a smaller country; this should be taken into consideration. Russian companies that suffer from the unfair anti-dumping duties are normally rich enough to bear some of the costs of the disputes. What is more important in the case of the Russian Federation is the lack of experience of participation in such disputes as the country has acceded to the WTO in August 2012.

Another important problem for Russia is the weakness of the institutions responsible for the defense of the country’s commercial interests on the international arena. This problem falls into three parts. First of all, there is a lack of Russian national law allowing Russian companies to pursue lawsuits in international trade disputes. Secondly, one can notice a lack of communication between the business society and the government of the Russian Federation, which would initiate such cases. In this sense the Brazilian experience could be interesting (Schaffer et. al 2010). Finally, we must mention the lack of knowledge among the Russian business society of the opportunities and procedures of the WTO DS process. The latter is worsened by the fact that managers of some companies do not even want to know more about it and are not willing to participate in business associations (something that could be important at the preliminary stages, when the case is initiated domestically).

The authors do not believe that Russia’s WTO membership would lead to the extensive utilization of the WTO DS system in the short term. Like other countries, Russia will have to take part in some disputes as a third party before it would be able to conduct the disputes properly. At the same time one could expect that the Russian Federation will have to participate in such disputes as a respondent before achieving the proper level of expertise. Up to date, Russia has joined 8 cases as a third party and on July 9, 2013, the EU has initiated a dispute against the Russian Federation.

Of course, the WTO DS system is not the only multilateral body dealing with economic issues. The Russian Federation, for example, might bring the case to the International Court of Justice. Moreover, as we have observed the experience of LACs in the regional DS mechanisms it would be fair to discuss the future of the DS systems created within the key trade blocs with participation of the Russian Federation: the Commonwealth of Independent States (CIS), the Union State of the Russian Federation and Republic of Belarus, the EurAzEC, and the Customs Union of Russia, Belarus and Kazakhstan. Especially since Russia’s WTO accession, the choice of regional and multilateral determinants in Russian trade policy is a critical issue for policy makers (Koval, Sutyrin, Trofimenko, 2013).

One of the DS bodies in the post-Soviet arena is the Economic Court of the CIS that was established in 1992. It is located in the capital of Belarus. Since the beginning of its operations in 1994, it has dealt with more than 100 cases, mainly on the interpretation of economic agreements between member states. The Court was called for by the governments of Belarus, Kazakhstan, Russia, Moldova, and Tajikistan. At the moment there are 27 agreements signed by CIS countries that refer to the Court as a body for dispute settlement among them. It is interesting to mention that referring a case to the Court does not require any payments by the complainants. All the legal expenses must be covered by the party that violates the agreement or the party that unreasonably initiated the dispute.

In addition to its main activities, since 2010 the Economic Court of the CIS has taken over the responsibilities of the Economic Court of EurAsEC. According to the Charter of the Union State of Russia and Belarus the countries had to establish the Court for the settlement of disagreements that cannot be solved by the negotiation and consultation process. But in practice the member states have used the Economic Court of the CIS for their own needs. In addition to that, it was decided by three members of the Customs Union of Russia, Belarus and Kazakhstan that the same forum would be used for the settlement of economic disputes among them.

Thus, despite the existence of various trade blocs in the region the members authorize just one body for DS purposes. On the one hand, this could lead to some problems due to discrepancies in the applicable law. On the other hand, the appointment of a body that has already managed to build positive reputation could be a very good idea. In addition, such a decision saves a lot of resources, including financial and human resources.

Discussing the role of the Court, it is worth mentioning the share of CIS countries in the external trade of Russia. According to Goskomstat of the Russian Federation, this is about 15 per cent only (gks.ru). This figure is less than the share of intraregional trade among LACs. Russia’s main trade partners (around 85 per cent of trade turnover) are members of the WTO and participation in the WTO DS reflects the country’s long-term economic interests. At the same time, there are different proposals of building RTAs between Customs Union of Russia, Belarus and Kazakhstan and other states. The DS should certainly play an important role in development and credibility of new RTAs. In this sense, LACs cases provide an essential experience of interrelations between regional and multilateral DS processes.

In conclusion, the opportunity to peacefully resolve trade disputes is a key issue for the modern, international trading system. Developed countries are the main users of the WTO DS mechanism. At the same time, developing countries have started to use it more actively. Latin American countries, especially Brazil, Mexico and Argentina quite often turn to this tool to achieve their trade policy goals. The WTO, with its rules on the DS system, should remain in existence as the “final” international body for settling trade disputes among LACs and the rest of the world. Yet some peculiarities of the WTO DS process (e.g. high costs for participating countries) would still be a barrier to greater use of the system. However, the most important and politically sensitive issues would be addressed to the WTO.

At the same time one should not underestimate the importance of regional DS bodies for dispute resolution between LAC countries, regardless of their modest enforcement mechanism than the WTO DS ensures. Advantages of regional bodies (lower costs of participation, better understanding of the process, an opportunity not to bring global attention) make them very important and useful for solving regional trade disputes. All in all, both regional and multilateral DS systems create the framework for the better defence of national interests in a peaceful way.

The Russian Federation (regardless of the fact that it is a new WTO member) has to examine the existing rules and reform proposals for the WTO DS system. After accession, the country might not aspire to use the WTO DS mechanism immediately. In order to build expertise in the WTO DS process it might use the experience of LACs. But there is a fear that other WTO members would bring Russia to Geneva as a respondent quite rapidly following the EU initiation. Complainants could appear both from some CIS countries that are also members of the WTO and from other WTO members. CIS countries might not wish to use the regional DS bodies for dispute resolution with Russia (the examples of disputes in the WTO initiated by Ukraine against Armenia and Moldova and Moldova against Ukraine allow us to expect this), and the Russian Federation should be prepared for such a scenario.


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