How do WTO disputes work?

 

EXPLAINERS: Concepts in 300 Words or Less

The United States recently won a significant trade dispute against China over price supports for Chinese rice, wheat, and corn producers. It was a significant victory for a Trump administration that has heavily criticized the World Trade Organization’s dispute procedures.

What is a trade dispute? And how does the WTO process work?

Disputes arise when one country claims that a trade partner’s policies are discriminatory. Discriminatory polices include tariffs as well as a wide set of non-tariff barriers. In WTO parlance, discrimination is anything that may “nullify or impair” the benefits of membership.

 
 

The dispute process begins with a mandatory consultation period. The WTO encourages countries to work out their differences before convening a panel of trade experts—i.e., before “going to court.”

Importantly, any bargains struck during consultations—called “mutually agreeable solutions”—are private. The idea is that privacy promotes compromise. Just like out-of-court settlement in many domestic legal settings, disputants can strike a deal without publishing the terms of that deal (or admitting guilt).

If consultations fail, then a panel is convened. Panels are composed of trade experts who hear the details of the dispute and issue a formal decision (a “panel report”).

 
 
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Depending on how one measures outcomes, defendants almost always lose at the panel stage (92 percent).

Given the high rate of losing, it is no coincidence that many cases are then sent up to the WTO’s Appellate Body (AB).

The AB almost always upholds the panel decision. However, it exercises a great degree of “judicial economy.” That means the AB only rules on issues viewed as absolutely central to the case, often leaving many issues without a formal determination.

 
 

The AB report is typically the WTO’s final decision. However, countries are sometimes slow to implement the terms of an adverse ruling. If plaintiffs feel that a defendant has failed to comply, they can push the dispute into implementation proceedings—a legal process by which the WTO reviews whether the defendant dismantled discriminatory barriers.

The entire process can take anywhere from a few months to many years. About 25 percent of cases are settled early, about 50 percent are ruled on, and the remaining 25 percent as essentially “dropped” without a formal conclusion.

 

The above description contains several simplifications in the interest of brevity. The WTO’s fuller, more technical explanation of the dispute process is available here. An analysis of Trump’s argument about the US at the WTO can be found here.