Analysing WTO-Arbitration under Article 25 of the DSU Agreement and proposing recommendations to incentivize it as a Dispute Resolution Mechanism (PART-I)

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I. INTRODUCTION

The possibility of Arbitration as an alternative form of dispute settlement was presented early in the Uruguay Round as a proposal by the USA for improvement of the existing Panel system under the General Agreement on Tariffs and Trade 1994 (GATT).^[1] In 1987, the European Communities (EC) also proposed institutionalizing the arbitration process, however, it expressed concerns over the category of disputes which should be submitted to arbitration. It was, thus, suggested that arbitration should be limited to factual issues only and not to those involving questions of interpretation.^[2]

The general sentiment borne out of the deliberations and negotiations between the member States at the time envisioned a much broader conception of the utility of arbitration than the one found in the initial proposals of the USA and the EC, and it is so reflected in the eventual wording of Article 25 of the DSU.^[3] The DSU, formally known as the ‘Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization’,^[4] constitutes Annex 2 of the WTO Agreement^[5] and sets out the procedures and rules for the WTO’s dispute settlement system.

The thrust of the Uruguay Round negotiations was essentially on developing an appellate mechanism against Panel Reports, yet the member states saw the utility of arbitration by deciding to retain it as an alternative dispute resolution method in the form of Article 25. The present article aims to understand that mechanism in detail.

As a preliminary, we analyse the key features of Article 25 as an arbitration mechanism (Section II). Second, we discuss the only case where Article 25 arbitration was used in order to ascertain the underlying legal principles (Section III). Third, we present certain proposals to incentivize the use of arbitration for member States under Article 25, particularly from the standpoint of the crisis in the Appellate Body appointment process (Section IV), followed by the concluding remarks (Section V).

II. ARBITRATION UNDER ARTICLE 25 OF THE DSU: KEY FEATURES

WTO members, who are frustrated with lengthy litigations, current backlogs and soaring legal costs, should turn to arbitration to resolve their disagreements.^[6] The subject-matter (ratione materiae) of Article 25 is “certain disputes that concern issues that are clearly defined by both parties.”^[7] The provision is clearly couched in a broad language^[8] and, thus, a dispute of any nature is capable of being submitted to arbitration by the desirous member States. There are two important prerequisites of Article 25 arbitration: first, that the original proceedings must be brought by two parties; and second, that those parties must be at dispute with each other on certain issues clearly defined by them.

A dispute under the DSU is initiated by way of consultations between the parties^[9] and in the event of failure of such consultations in resolving the dispute, those parties can always mutually agree on resorting to arbitration proceedings instead of a panel procedure. Article 25 gives them the latitude to specifically define the issues they wish to resolve through arbitration. Thus, as long as the parties can mutually agree with certainty on the issues they wish to settle through arbitration, there is no bar under Article 25 on arbitrability of those issues (i.e. whether such issues pertain to legal, factual or political disputes). The arbitration mechanism under Article 25 does not depend on any action by the Dispute Settlement Body (DSB).^[10]

Article 25 arbitration, like any other provision of the DSU, is open only to Members of the WTO.^[11] The other WTO members may become a party to an arbitration proceeding only upon the agreement of the parties that have originally agreed to settle their dispute through Article 25 arbitration.^[12] Thus, there is some degree of flexibility within the language of Article 25 insofar as the ratione personae element of arbitration is concerned. Article 25.2 ensures due process in the WTO system by mandating that “agreements to resort to arbitration shall be notified to all Members sufficiently in advance of the actual commencement of the arbitration process.”^[13] This affords a fair opportunity to all the member States to intervene in the proceedings, subject to agreement by the original parties to arbitration.

Article 25.3, in our view, strikes a systematic balance between party autonomy and preservation of a multilateral dispute settlement system, which is the backbone of the WTO Agreement. This is because it grants the original parties to arbitration the freedom to decide whether or not any third (or more) Member State(s) may be included as party(ies) to their arbitration proceedings. It also mandates that “arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto.”

This consequentially ensures that the expeditious nature of arbitration proceedings as envisaged under Article 25.1 is respected in its spirit by preventing unnecessary submissions from third-parties. It further provides an opportunity to the non-participating member States to raise their points in relation to the arbitration awards, thereby, maintaining sufficient checks-and-balances in the overall decision-making process.

Article 25.2 further safeguards party autonomy by allowing the parties to agree on the procedures to be followed during arbitration. The parties can select their arbitrators, the place of arbitration and the rules to be followed.^[14] The applicable substantive and procedural laws in an Article 25 arbitration are the covered agreements, which include the DSU.^[15] This is also evident from Article 25.4 which states that provisions of Articles 21 and 22 of the DSU shall be applicable mutatis mutandis to arbitration awards. Accordingly, awards under Article 25 are subject to the usual DSU procedures governing the surveillance and monitoring of implementation, as well as compensation and suspension of concessions in the event of non-compliance.^[16]

Arbitration awards under Article 25 are automatically binding on the parties to the dispute^[17] and their binding nature does not depend on their adoption or approval by the DSB.^[18]  The arbitration awards are also final inasmuch as Article 17 of the DSU, which deals with ‘Appellate Review’ and is applicable only to appeals against panel reports, does not apply to Article 25 proceedings. However, for enforcement purposes, the provisions of Articles 21 and 22 of the DSU, that are applicable to panel or Appellate Body reports, are equally applicable to arbitration awards made under Article 25.

 

(This post has been authored by Subhiksh Vasudev and Rodrigo Castillo de la Cerda. Subhiksh and Rodrigo are 2018 MIDS LLM graduates.)

 

Click here for PART II

 

References

1. DAVID JACYK, ‘The Integration of Article 25 Arbitration in WTO Dispute Settlement: The Past, Present and Future’, (2008) 15 Australian International Law Journal 235 at p. 245. ↑

2. DAVID JACYK, ‘The Integration of Article 25 Arbitration in WTO Dispute Settlement: The Past, Present and Future’, (2008) 15 Australian International Law Journal 235 at p.246. See also: Communication from The EEC, GATT Doc No. MTN.GNG/NG13/W/12 (24 September 1987) at p. 2. ↑

3. DAVID JACYK, ‘The Integration of Article 25 Arbitration in WTO Dispute Settlement: The Past, Present and Future’, (2008) 15 Australian International Law Journal 235 at pp. 247 and 250. ↑

4. 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994). ↑

5. Marrakesh Agreement Establishing the World Trade Organization, 15 April 1994, 1867 U.N.T.S. 154, 33 I.L.M. 1144 (1994). ↑

6. BASHAR MALKAWI, ‘Arbitration and the World Trade Organization — The Forgotten Provisions of Article 25 of the Dispute Settlement Understanding’, (2007) 24 Journal of International Arbitration, Issue 2, pp. 173–188 at p. 182. ↑

7. Article 25.1 of the DSU. (“Expeditious arbitration within the WTO as an alternative means of dispute settlement can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.”). ↑

8. DAVID JACYK, ‘The Integration of Article 25 Arbitration in WTO Dispute Settlement: The Past, Present and Future’, (2008) 15 Australian International Law Journal 235 at p. 237; SCOTT ANDERSEN, TODD FRIEDBACHER, CHRISTIAN LAU, NICOLAS LOCKHART, JAN YVES REMY and IAIN SANDFORD, ‘Using Arbitration under Article 25 of the DSU to ensure the availability of appeals’, CTEI Working Paper CTEI-2017-17 (Centre for Trade and Economic Integration) at p. 1 (para. 3) (available at: <http://repository.graduateinstitute.ch/record/295745/files/CTEI-2017-17-.pdf> and accessed on 21 May 2020). ↑

9. Article 4 of the DSU. ↑

10. SCOTT ANDERSEN, TODD FRIEDBACHER, CHRISTIAN LAU, NICOLAS LOCKHART, JAN YVES REMY and IAIN SANDFORD, ‘Using Arbitration under Article 25 of the DSU to ensure the availability of appeals’, CTEI Working Paper CTEI-2017-17 (Centre for Trade and Economic Integration) at p. 2 (para. 6) (available at: <http://repository.graduateinstitute.ch/record/295745/files/CTEI-2017-17-.pdf> and accessed on 21 May 2020). ↑

11. Article 1.1 of the DSU. ↑

12. Article 25.3 of the DSU. ↑

13. BASHAR MALKAWI, ‘Arbitration and the World Trade Organization — The Forgotten Provisions of Article 25 of the Dispute Settlement Understanding’, (2007) 24 Journal of International Arbitration, Issue 2, pp. 173–188 at p. 184. ↑

14. BASHAR MALKAWI, ‘Arbitration and the World Trade Organization — The Forgotten Provisions of Article 25 of the Dispute Settlement Understanding’, (2007) 24 Journal of International Arbitration, Issue 2, pp. 173–188 at p.184. ↑

15. SCOTT ANDERSEN, TODD FRIEDBACHER, CHRISTIAN LAU, NICOLAS LOCKHART, JAN YVES REMY and IAIN SANDFORD, ‘Using Arbitration under Article 25 of the DSU to ensure the availability of appeals’, CTEI Working Paper CTEI-2017-17 (Centre for Trade and Economic Integration) at p. 3 (para. 9) (available at: <http://repository.graduateinstitute.ch/record/295745/files/CTEI-2017-17-.pdf> and accessed on 21 May 2020). ↑

16. SCOTT ANDERSEN, TODD FRIEDBACHER, CHRISTIAN LAU, NICOLAS LOCKHART, JAN YVES REMY and IAIN SANDFORD, ‘Using Arbitration under Article 25 of the DSU to ensure the availability of appeals’, CTEI Working Paper CTEI-2017-17 (Centre for Trade and Economic Integration) at p. 3 (para. 10) (available at: <http://repository.graduateinstitute.ch/record/295745/files/CTEI-2017-17-.pdf> and accessed on 21 May 2020). ↑

17. Article 25.3 of the DSU. ↑

18. SCOTT ANDERSEN, TODD FRIEDBACHER, CHRISTIAN LAU, NICOLAS LOCKHART, JAN YVES REMY and IAIN SANDFORD, ‘Using Arbitration under Article 25 of the DSU to ensure the availability of appeals’, CTEI Working Paper CTEI-2017-17 (Centre for Trade and Economic Integration) at p. 2 (para. 7) (available at: <http://repository.graduateinstitute.ch/record/295745/files/CTEI-2017-17-.pdf> and accessed on 21 May 2020). ↑

Cite as: Subhiksh Vasudev and Rodrigo Castillo, ‘Analysing WTO-Arbitration under Article 25 of the DSU Agreement and proposing recommendations to incentivize it as a Dispute Resolution Mechanism (PART-I)’ (The Contemporary Law Forum, 23 May 2020) <https://tclf.in/2020/05/23/analysing-wto-arbitration-under-article-25-of-the-dsu-agreement-and-proposing-recommendations-to-incentivize-it-as-a-dispute-resolution-mechanism-(part-i)> date of access.