MEXICO PRESENTS PROPOSAL ON WTO DISPUTE SETTLEMENT REVIEW

At a 13 November meeting of the special session of the WTO's Dispute Settlement Body (DSB), Mexico presented a proposal for the review of the Dispute Settlement Understanding (DSU), the WTO agreement outlining procedures for settlement of disputes between Members. The proposal addresses what Mexico says is the "fundamental problem" of the WTO dispute settlement system, namely the "period of time which a WTO- inconsistent measure can be in place without the slightest consequences" to the offending party. Inter alia, Mexico advocates for a significant acceleration of proceedings for obtaining WTO authorisation to retaliate against countries that maintain trade measures deemed WTO-inconsistent. It also urges retroactive application of panel/Appellate Body rulings and a change in DSU provisions to allow countries to take preventive measures against an alleged illegal measure while dispute proceedings take place.

Mexico's proposal states that the value of the amount of trade lost while a complainant's case makes its way through the dispute settlement process averages close to USD 370 million per case, a figure that would be much greater if the EU complaint against US foreign sales corporation tax benefits were taken into account. According to Mexico, "This amounts to a de-facto waiver in which a Member can maintain a WTO-inconsistent measure which unduly harms exporters, service suppliers or holders of intellectual property rights of other Members and seriously undermines the objectives of security and predictability that the DSU seeks to pursue."

Mexico further proposed that WTO panels be given the authority to determine the level of retaliation that may be imposed on a Member for noncompliance once it has issued an interim ruling determining that the measure in question is in violation of WTO rules. The retaliation could then be applied once the ruling was formally adopted by the DSB.

Reactions to the Mexican proposal at the special session were decidedly mixed. US officials said that what Mexico was proposing amounted to a "radical transformation" of the DSU that needed "thorough consideration". Canada said that while it shared Mexico's concerns regarding the underlying problems related to noncompliance with WTO rulings, the focus should be on getting Members to comply rather than on bolstering mechanisms for retaliation. Brazil said the Mexican proposal stood out because "it brought to the centre issues which are difficult, complex and debatable," but nevertheless important.

Other developing countries expressed various degrees of support for the ideas outlined in the Mexican proposal, although Chile said it "raised more questions than answers." Uruguay said the ideas outlined by Mexico were so far-reaching that they should not be considered within the context of the current negotiations on dispute reform, which are due to conclude by next May.

Under current rules, arbitration proceedings on possible retaliation can only be initiated after a ruling is issued and after the "reasonable period of time" for complying with a ruling (usually up to 15 months) has expired.

Retroactivity

The Mexican submission also suggested that WTO rulings be made retroactive to the date when the illegal measure in question was adopted or when dispute proceedings against the measure were initiated. Such a proposal would prevent measures from delaying proceedings through tactics such as blocking the establishment of panels on first request, Mexico said. Canada objected to this proposal as well, noting that the notion of retroactivity was widely condemned by Members when a panel applied it in the US-Australian dispute over Australian automotive leather subsidies (Australia-Subsidies Provided to Producers and Exporters of Automotive Leather, WT/DS126, available at http://docsonline.wto.org).

Mexico said that if a measure targeted in a dispute was "causing or threatening to cause damage which it would be difficult to repair," the complaining Member should have the right to request that the panel ask the defendant country to suspend the measure while the proceedings take place. If the defendant refuses refused to do so, the panel should, under "exceptional circumstances," allow the complainant to "take measures to prevent the damage." Mexico said this idea was consistent with numerous WTO agreements (including those on antidumping, safeguards and textiles) that contain provisions on the application of preventive measures. On this point also Canada voiced its objections, arguing that allowing the imposition of preventive measures in dispute proceedings was "close to permitting a unilateral determination" of noncompliance by the complaining Member.

Japanese proposal

Japan also presented its proposal (TN/DS/W/22) on the same day. The proposal revisits a number of issues including the issue of sequencing of retaliation procedures between Articles 21.5 and 22 of the DSU (see BRIDGES WEEKLY, 24 July 2002). With regard to an earlier -- and somewhat contentious -- Japanese proposal to increase the number of panellists and Appellate Body members, Japan recommended flexibility in the rules "so that the number of the Appellate Body members could be modified as required, by a decision of the DSB or the General Council."

ICTSD Reporting; "Mexico Presents Radical Proposal for DSU Reform," WTO REPORTER, 14 November 2002.