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Dispute Settlement Summary

The power to settle international disputes with binding authority distinguishes the World Trade Organization from most other intergovernmental institutions. The Understanding on Rules and Procedures Governing the Settlement of Disputes gives the WTO unprecedented power to resolve trade-related conflicts between nations and assign penalties and compensation to the parties involved.

Dispute settlement is administered by a Dispute Settlement Body (DSB) that consists of the WTO's General Council. The DSB has the authority to "establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations." The Dispute Settlement system aims to resolve disputes by clarifying the rules of the multilateral trading system; it cannot legislate or promulgate new rules.

When a Member believes that another party has taken an action that impairs “benefits accruing to it directly or indirectly” under the Uruguay Round Agreements, it may request consultations to resolve the conflict through informal negotiations. If consultations fail to yield mutually acceptable outcomes after 60 days, Members may request the establishment of a panel to resolve the dispute. Panels typically consist of three individuals with expertise in international trade law and policy; these panelists hear the evidence and present a report to the DSB recommending a course of action within six months. The panel can solicit information and technical advice from any relevant source, though it is not required to do so. Only submissions from Members are guaranteed to be heard, although in rare cases, panels have consulted submissions from interested non-governmental organizations. Third-party member nations may also involve themselves in the dispute settlement process. All deliberations and communications are confidential, and only the final panel reports become part of the public record.

Once panel reports have been prepared, they are presented to the Dispute Settlement Body, which either adopts the report or decides by consensus not to accept it. Alternatively, if one of the parties involved decides to appeal the decision, the report will not be considered for adoption until the completion of the appeal.

In the case of an appeal, a three-person Appellate Body chosen from a standing pool of seven persons will assess the soundness of the panel report’s legal reasoning and procedure. An Appellate Body report is adopted unconditionally unless the DSB votes by consensus not to accept its findings within 30 days of circulation to the membership.

The primary goal of dispute settlement is to ensure national compliance with multilateral trade rules. Accordingly, the Dispute Settlement Body encourages Members to their make best possible efforts to bring legislation into compliance with the panel ruling within a “reasonable period of time” established by the parties to the dispute. If a Member does not comply with rulings, the DSB can authorize the complainant to suspend commitments and concessions to the violating Member. In general, complainants are encouraged to suspend concessions with respect to the same sector as the subject of the dispute; however, if complainants find this ineffective or impracticable, they may suspend concessions in other sectors of the same Agreement or even under separate Agreements. Ecuador, for example, suspended its TRIPs commitments to the European Union in retaliation against the EU’s non-compliance with panel rulings in the goods-based Banana dispute.

Some groups, such as the Center for International Environmental Law, have criticized the dispute settlement process for its lack of transparency and democratic accountability, as well as for a perceived insensitivity to environmental and social standards. The increasing use of the system by developing countries, however, is one indicator of its institutional success. Ultimately, the dispute settlement system is a significant milestone in the development of a rules-based multilateral trading system.