Updating the WTO Dispute Settlement Mechanism is Critical for Canadian Business

Bennett Jones LLP

Bennett Jones LLP

The World Trade Organization (WTO) dispute settlement system has been a remarkably good tool for resolving disputes, but it is not perfect and like any mechanism that has been in use for some time, it needs updating. The last 23 years have shown that a well-functioning WTO dispute settlement mechanism is critically important to Canadian business.

On October 24–25, 2018, Canadian International Trade Diversification Minister Jim Carr hosted a meeting in Ottawa of 13 trade ministers from around the globe to discuss strengthening and modernizing the WTO. Trade experts applauded the initiative, and the WTO Director-General praised Canada for its leadership. Updating the WTO is vitally important for Canadian business because Canada is a trade-dependent country and the rules-based system of the WTO has served Canadian business very well.

Canada has of course entered into many free trade agreements with its trading partners, but the dispute settlement mechanisms under those agreements have not been effective to protect Canadian trade interests. The state-to-state dispute settlement chapter under NAFTA is flawed because a defending party can block composition of an adjudicative panel, holding up resolution of the case. Unfortunately, the USMCA, should it come into effect, would not remedy this defect. Dispute settlement mechanisms in other free trade agreements also have flaws and therefore have not been used for a variety of reasons. Only the WTO dispute settlement system has proven to be an effective dispute resolution tool for Canada.

Canadian business, through the Canadian government, has actively utilized the WTO dispute settlement process. Of the WTO’s 164 members, Canada stands third in terms of number of disputes brought to the WTO for resolution, behind only the United States and the European Union, the economies of which are much larger. So far, Canada has brought 39 cases to the WTO for resolution, covering a wide variety of products and challenging measures taken by many countries. For example, Canada has brought challenges to protect exports of Canadian lumber, automobile parts, beef, salmon, scallops, seal products, canola and other agricultural products. It has challenged subsidies provided to foreign aircraft industries, discriminatory labelling requirements on Canadian pork and beef, discriminatory taxes applied to Canadian alcoholic beverages, and illegal trade remedy duties applied to Canadian cellulose pulp and coated paper. Canada is currently pursuing challenges against the United States’ invocation of tariffs imposed under section 232 of the U.S. Trade Expansion Act against imports of steel and aluminum. Canada’s challenges have covered measures taken by Australia, Brazil, China, the European Union, Japan, Korea, and the United States.

Canada's record of success with these challenges has been remarkably good. Although Canada has not succeeded on every claim, it has achieved at least a measure of success in most of its challenges. (The only case where Canada entirely failed was a challenge to the European Union ban on asbestos-containing products.) To be sure, Canada has faced WTO challenges of its own measures, but they have been fewer in number. Canada has been the respondent in 23 cases so far, but not all have proceeded to the adversarial phase. Of those that have, Canada lost cases pertaining to dairy exports, U.S.-produced magazines, imported grain, patent protection, aircraft subsidies, the Auto Pact, steel pipe, and renewable energy.

The WTO dispute settlement mechanism was established in 1995 and for most of the last 23 years had been widely praised as an effective and reliable means of resolving trade disputes between and among WTO members. Both developed and developing countries turned to WTO panels and the Appellate Body to resolve significant trade issues, many of which involved considerable economic consequences. To date, WTO members have filed 570 disputes, a remarkable number when compared with only 148 filed with the International Court of Justice since its creation in 1946, and the three state-to-state disputes filed under the NAFTA since 1994. And members continue to file disputes with the WTO (35 new cases so far in 2018).

However, over the last few years, the WTO dispute resolution system has had difficulty keeping up with demand, not only in terms of overall numbers of disputes, but also in terms of the sheer size (legally and factually) of the individual disputes. The relative efficiency of the WTO dispute settlement mechanism has become a thing of the past. In addition, some members have become increasingly dissatisfied with certain flaws in the system that have come to light over the years, such as the rules related to retaliation, transparency, and the inability of the Appellate Body to return a case to a panel for additional consideration (referred to as remand). The United States has been especially critical of the Appellate Body for what it considers over-reaching in its decisions and operating without regard to the rules of procedure. This dissatisfaction has led the United States to block appointments to the Appellate Body, bringing the entire dispute settlement mechanism perilously close to a halt.

In a joint communiqué issued at the close of the Ottawa meeting, WTO ministers stressed the “indispensable role that the WTO plays in facilitating and safeguarding trade” and undertook to “advance ideas to safeguard and strengthen the dispute settlement system.” (Joint Communiqué of the Ottawa Ministerial on WTO Reform, news-nouvelles@international.gc.ca).

Given this common resolve, Canadian corporations and business councils can and should continue to rely on the WTO system to facilitate and safeguard their trading interests. Corporate Canada can also usefully contribute ideas on how the WTO dispute settlement system could be reformed so that it can continue to function and support Canadian business interests.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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