between the earliest days of the GATT and ITO drafts on the one hand and the new DSU procedure under the WTO on the other, one finds a gradual and very cautious evolution of the dispute settlement system from a rather diplomacy-oriented towards a more adjudication-oriented mechanism. That evolution, however, has not been free of setbacks.
Initially, the failure of the ambitious ITO with its ultimately legal procedures highlighted an unwillingness of governments fully to subordinate their trade policies to an international organisation in general and to third party adjudication in particular as both remained outside their control. Sovereignty concerns and power considerations stood in the way of the establishment of a powerful organisation with strong and explicit adjudicating powers. Consequently, parties chose a cautious, pragmatic and rather gradual evolution from political negotiations towards third party adjudication. The strong prevalence of negotiatory and diplomatic instruments with characteristic vagueness and rather implicit than explicit statements in earlier stages needs, however, not be interpreted as a sign of weakness. At least initially, the early GATT was more like a ‘club’ of like-minded nations and country representatives that basically followed common goals of freer trade. The system lived from normative pressures and strong political will.
Moreover, one may assume that all parties were aware of the crucial role that safeguarding reciprocity in trade relations would have for the stability of the system and that, therefore, negotiated outcomes might be closer to the objective of safeguarding a ‘balance of rights and obligations’ than the outcome of pure adjudication.
The foundations of the system were shaken with the consolidation of the EC that was anxious to build a politically coherent block and a counterweight to the so-far dominant US, as well as with the entry of many developing countries in the 1960s. The latter believed more in political interventionism and import-substitution policies than in the benefits of free trade. As the objectives of the multilateral trading system had become less obvious, an erosion of GATT discipline took place which also affected dispute settlement activity that consequently broke down.
It was only restored by the addition of new treaty text, first (albeit incompletely and on a fragmented basis) in the Tokyo Round and later (in a consolidated, single-package approach) in the Uruguay Round.
Throughout this evolution, one constant feature seems to be that WTO dispute settlement evolved positively whenever there was political
convergence between members on the substance of the multilateral trade provisions and their mutually beneficial nature. It was blocked, however, whenever members pursued strongly diverging views on what the world trade order should look like, or when important countries or country groups were dissatisfied with the outcome achieved by the mechanism.
This finding is in line with the basic rationale of reciprocity that underlies the logic of international trade agreements and (through the nullification and impairment clause) dispute settlement practice.
A second common denominator seems to be a certain pendulous movement. Periods of law-abidance and legal enthusiasm alternated with periods of resignation and a dominance of political power-play.
Efforts to reform or further develop the mechanism were the answer of members to the latter, sometimes with certain delays. Strong rules on dispute settlement in the ITO had raised fears of sovereignty loss in the US and contributed to the demise of the ITO. Later on, the rapid and positive evolution of the dispute settlement system in the 1950s caused an anti-legalist backlash in the 1960s with governments growing tired of having their hands tied by a too rigid system as they wished to adapt to new political realities. However, whenever the system threatened to degenerate into insignificance, members reunited their efforts to bring it back on track. Yet, more radical efforts to strengthen the system (such as those undertaken by Denmark in the 1950s or that by Uruguay in the 1960s) never materialised. Clearly, governments always wished to keep their hands on the system.
In sum, the evolution reflects the concerns of a membership that is torn between its desire for an effective, rules-based dispute settlement system and its desire for trade policy flexibility. We will see that many of these elements are still present today in the DSU review discussions.
U
NDERTHEDSU
According to Article III.3 WTO agreement, dispute settlement is one of the key functions of the WTO.1 The rules are laid down in the Dispute Settlement Understanding (DSU).2 In this chapter, the various stages in the technique of WTO Dispute Settlement will be presented to the extent that is necessary to allow readers to understand the nature and scope of the reform proposals discussed in Part II. As a detailed discussion of the procedure and its reception in literature is beyond the scope of this study, readers are invited to consult the rich body of literature on this topic.3 Certain aspects will also be considered more deeply in the context of the proposals on the DSU review in Chapters 6 and 7.