Dispute Settlement at the WTO: Litigation Costs as a Barrier to Access

In 1994, the members of the World Trade Organisation (“WTO”) agreed on the Understanding on Rules and Procedures Governing the Settlement of Disputes, which sets out the rules and procedures concerning the settlement of disputes arising out of the Marrakesh Agreement. The WTO considers its dispute settlement mechanism to be the cornerstone of the multilateral trading system, and perhaps its “unique contribution to [ensuring] the stability of the global economy.” The mechanism is particularly important for developing countries because it is a rule-based system that is purposed to provide an equal footing to all members for solving international trade disputes. It is, ideally, supposed to be irrelevant as to which country possesses the most economic clout, since it is only the country with the soundest legal argument that will prevail. However, although the Dispute Settlement Body (“DSB”) provides a unique opportunity for members to seek remedies for their complaints, it also faces a not-so-unique problem that haunts most national and supranational legal systems — ensuring access and effective participation. 

Although the WTO’s DSB is perhaps one of the busiest and most successful adjudicatory bodies in the international sphere, its use seems to be rather disproportionate. This creates a significant problem for the previously-mentioned goals of the Organisation since, for it to be effective, it needs to be able to provide not just equal but also equitable and easy access to all of its members, particularly the most vulnerable. 

Thus far, there have been 625 complaints before the DSB, involving 108 Member-States as either a complainant, respondent, or third-party. The top 10 most active users — United States, European Union, China, Canada, India, Brazil, Japan, Argentina, Mexico and South Korea — of the mechanism are all either high-income or upper-middle-income economies, except for India which is a lower-middle-income economy. The US and EU, combined, have been a complainant or respondent in more disputes than the remainder of the eight countries combined

The disproportionality of the system becomes starkly visible when we consider the use of the DSB not by any country individually but on the basis of the World Bank classifications. Although only 42 high-income countries, which is approximately 39%, have been involved in disputes, they have collectively been responsible for 390 (62%) of all the complaints initiated so far. When we combine this statistic with that of the upper-middle-income economies, we see, more clearly, that 75 countries (69%) are responsible for 551 of the total 625 complaints (88%). The 50 low-income and lower-middle-income countries, on the other hand, only account for the remainder of the 74 complaints, with all of those complaints being filed by only the lower-middle economies since the low-income ones have not filed a single complaint in the history of the WTO. It is accepted that low-income and lower-middle-income countries are small economies with a lower share of trade as compared to their counterparts. However, the share in world-trade of least-developed and developing economies, which roughly match up with low-income and lower-middle-income economies, is approximately 1% and 41%, respectively. So, their share in world trade is still much higher than that in the dispute settlement, which is non-existent in the case of low-income economies. 

Therefore, despite its noble goal of creating an adjudicatory system that can provide an equal footing to all countries in the global economy, the WTO does seem to be facing serious issues regarding barriers to access. The economic clout of countries seems to skew access to this rule-based system in favour of high-income countries, due to the presence of inhibitive legal and administrative costs. Undoubtedly, there are other, internal and external, barriers that may also be responsible for such disproportionality, but this analysis shall only be focusing on the aspect of litigation costs.

Most often, developing countries would have to hire external, possibly foreign, law firms to best represent them in their complaints before the WTO. This is primarily because most members, except the superpowers, are unlikely to have the in-house expertise to file the complaint and efficiently litigate. As opposed to being lower for vulnerable countries, costs are ordinarily higher due to them not being repeat-players. Economies such as the US and EU, which frequently approach the DSB, are likely to benefit from economies of scale since they would have practitioners on a retainer and make use of their services repeatedly. So, the costs for a low-income country pursuing a single case are likely to be significantly higher. It is estimated that in the case of Indonesia — Certain Measures Affecting the Automobile Industry, Indonesia’s legal fees amounted to about $1,000,000 till just the Panel-stage. Similarly, in United States — Subsidies on Upland Cotton, Brazil’s cotton trade association spent approximately $2,000,000 on legal fees; at the end of this case, however, the US did not even remove its domestic subsidies, but only entered into a settlement with Brazil, to the exclusion of other countries affected by the offending measure, in order to dissuade it from continuing the claim. Developed countries and their multinational firms are likely to also drive up the prices of such legal resources since they are willing and able to pay substantially more; in United States — Measures Affecting Trade in Large Civil Aircraft, it is estimated that Boeing and Airbus paid about $1,000,000 per month. Finally, in addition to hiring such external assistance, countries would also need to be willing to commit their governmental counsel and other officials to assist them, often at the cost of their other, internal or external, concerns. 

These countries are, then, forced to make their decision on whether to pursue a complaint based on these opportunity costs, rather than on the legal standing of their position. As the cost of litigation rises, so does the threshold at which pursuing litigation becomes worthwhile. In most cases, particularly those involving low-income and lower-middle-income countries, they are likely to forego bringing a case since the litigation costs exceed any benefits that might make it worthwhile. However, this possibly places them in an even worse situation, wherein, they are unable to remedy the nullification or impairment of their benefits that are already taking a toll on their economy.

Siddharth Saxena is a fourth-year law student of the B.A., LL.B. (Hons.) programme at the Jindal Global Law School, O.P. Jindal Global University.

Image: AFP via Getty Images

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