How Does the WTO Resolve Trade Disputes?

Trade cargo ships
Singapore, Keppel Harbour, PSA cargo container handling facility and Singapore skyline. Singapore is one of the world's busiest container ports. Photo: Moment Open/Getty Images

One of the World Trade Organization's functions is to resolve international trade problems. Fortunately, any member can file a complaint with the WTO against another member they believe is dumping, unfairly subsidizing or violating any other trade agreement. If the WTO decides the case is valid, it has the authority to levy sanctions on the offending country.

The staff will then investigate to see if a violation of any multilateral agreements has taken place.

The WTO staff first try to settle disputes through consultations. Members had filed 513 dispute cases as of October 13, 2016, 513. Only about a third needed to be reviewed by a panel before being resolved. Most of them were settled “out of court” or are still in the consultation process. For a detailed description of every case filed, see Chronological List of Dispute Cases.

Not surprisingly, the United States has been either a complainant or defendant in about half the WTO disputes. The Office of the United States Trade Representative (USTR) represents the United States in these cases. As China's economy grows, it is involved in more trade disputes.

The benefit of the WTO process is it prevents the damaging consequences of trade protectionism. That's when countries retaliate against offending country's dumping, tariffs or subsidies by doing the same or worse. That creates a downward spiral which hurts both countries' economic growth.

Trade protectionism helped extend the Great Depression, where global trade fell by 25%. Nations can apply to the WTO to resolve their dispute instead of raising tariffs.

Examples

 In July 2016, the United States filed a dispute with China. It claimed China was taxing exports of high-demand raw materials.

These include antimony, graphite, and magnesia. China mines more than two-thirds of the world's supply of each of these metals. The export tax increased the prices of these exports between 5% to 20%.  That put U.S. high-tech companies, such as

Qualcomm and DJO Global, at a disadvantage. They must pay more for these essential raw materials than Chinese-based companies. That makes their prices higher on the global market. Their only solution is to open Chinese-based manufacturing plants. That takes jobs away from American workers. 

The European Union nearly the same case at the same time. The United States won similar cases against different raw materials in 2009 and rare earth metals in 2012.  As a result, the chances of winning are good. That will keep these manufacturing jobs in the United States. But it may take years since the dispute process is thorough and lengthy. That's why almost 70% of cases a settled by negotiation.  (Source: "The U.S. Filed a WTO Dispute to Save U.S. Jobs -- by Increasing Imports From China. Here's Why," The Washington Post, July 26, 2016. "When Partners Attack," The Economist, February 11, 2010.)

Formal Dispute Timetable

A typical dispute process takes a year if there's no appeal, and 15 months if the defendant appeals.

That happens with about half the decisions. The WTO will shorten the resolution time if perishable goods are involved. On the other hand, some disputes have been ongoing since 1995. Here are the steps and timetable in a typical dispute resolution case.  (Source: WTO, Settling Disputes

Steps and Length of Time

  1. Consultations: Initial complaint filed. WTO Director tries to mediate a resolution. 60 days.
  2. Review panel set up. Both sides submit their cases in writing. 45 days
  3. Panel reports to disputing parties. Six months.
  4. Panel reports to all members. Three weeks.
  5. Report adopted by dispute settlement body if no appeals. 60 days.
  6. Appeal. 60-90 days.
  7. Settlement body adopts appeals report. 30 days.
  8. If found guilty, defendant states its intention to comply. 30 days.
  9. If the defendant doesn't comply, it must compensate the plaintiff. 20 days.
  1. If it doesn't, the plaintiff can ask the WTO to impose trade sanctions. 30 days.

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