Dispute Settlement under GATT, and Why It Had to Change

In one line

Under GATT the party that lost a case could stop the case, and the entire 1994 reform consists of taking that power away.

In exam wording: dispute settlement under GATT 1947 rested on Articles XXII and XXIII, was elaborated by practice rather than by text, and required positive consensus at every stage, so that the responding party could block the establishment of a panel, the adoption of its report and any authorisation to retaliate.

What the text provided

Two articles, and neither mentions a panel.

Article XXII obliges each contracting party to accord sympathetic consideration to, and afford adequate opportunity for consultation regarding, representations made by another with respect to any matter affecting the operation of the Agreement.

Article XXIII is the cause of action. A contracting party may make written representations where it considers that any benefit accruing to it directly or indirectly under the Agreement is being nullified or impaired, or that the attainment of any objective is being impeded, as the result of the failure of another to carry out its obligations, the application of any measure whether or not it conflicts with the Agreement, or the existence of any other situation.

Article XXIII:2 provides that if no satisfactory adjustment is effected, the matter may be referred to the CONTRACTING PARTIES, who shall investigate, make appropriate recommendations or give a ruling, and, in serious enough circumstances, authorise a contracting party to suspend the application of concessions or other obligations.

Notice what is not there. No panel, no timetable, no appeal, no compliance procedure, and no rule about how the CONTRACTING PARTIES decide.

What practice built

Working parties first, then panels. In the early years a complaint went to a working party of interested governments, which negotiated an outcome. From 1955 the practice shifted to panels of three or five individuals sitting in their personal capacity, which was the decisive move towards adjudication.

A secretariat legal division grew up to service them, and a body of reasoning accumulated in the adopted reports.

And the practice was codified three times: in the Understanding of 1979 annexed to the Tokyo Round results, in the 1982 Ministerial Declaration, and in the 1989 Improvements, which introduced a right to a panel, standard terms of reference and time limits, without touching the consensus rule.

The defect, stated exactly

Every decisive step required consensus of all contracting parties, and the losing party was one of them.

Three vetoes followed. The respondent could block the establishment of a panel. It could block the adoption of an unfavourable report, so that the report had no legal effect. And it could block the authorisation to retaliate.