Taniguchi Talk – Does the WTO Really Settle International Trade Disputes?

Professor Yasuhei Taniguchi presented a public lecture on this topic on 30 July at Sydney Law School, as part of the 2009 Distinguished Speakers series commemorating the inauguration of its new building in February. Drawing on his experience as a world-renowned civil law professor, arbitrator and WTO adjudicator, Taniguchi-sensei focused mainly on points of similarity and difference between the WTO dispute resolution system and national courts. His conclusion was a qualified “yes”, despite the main challenges still afflicting trade law litigation among states through the WTO system – the topic of a one-day symposium on 14 August, also at Sydney Law School.


By Professor Yasuhei Taniguchi (former Chair of the WTO Appellate Body; Of Counsel, Matsuo and Kosugi; Emeritus Professor, Kyoto University):
The WTO dispute settlement system has been acclaimed as having brought a true “judiciary” into international society, where power had often prevailed over justice. In modern states like Australia and Japan, individuals and small firms now often succeed in litigation against large firms or the government. Similar situations sometimes arise nowadays under the WTO dispute settlement system, underway since 1995. Examples of small countries (and small industries) succeeding against much larger interests include Antigua v US (internet gambling) and Peru v EC (sardines). Such outcomes would have been inconceivable under the previous regime, centred on diplomatic settlement of disputes.
The WTO system does share many characteristics with a national judiciary. It has compulsory jurisdiction, lacking even in the International Court of Justice (despite the latter’s grandiose name and appearance). It involves full adversarial hearings and fact finding by a Panel. The “reverse consensus” rule means that in practice a Panel’s report is as final as a national court’s judgment (despite the formality of its adoption by the DSB, an assembly of all WTO member states). There is review on points of law by the Appellate Body, whose report is similarly final. There are also certain mechanisms for enforcement of an adopted report. All these features indicate “judicialisiation” of international trade dispute settlement through the WTO.
It is true, however, that the weakest aspect of the WTO system lies in the enforcement phase. The WTO has no supranational authority, and the system lacks means for direct coercion against a sovereign member state. Nevertheless, compliance by losing states is reasonably high (eg 83% over 1995-2004, compared to 68% in the ICJ – even without compulsory jurisdiction).
These are all positive elements in WTO dispute settlement. But there remain many challenges. The vast majority of (over 150) member states, especially developing countries, have never used the system because of lack of resources – human, material and otherwise. Business-government relationships can also affect the use of WTO dispute settlement as only a state can initiate action against another, even though the real party in interest may be certain businesses in both states. Expertise in WTO law is still limited to a narrow group. Transparency in public affairs also leads to a paradox: the more transparent a government strives to be overall, the more vulnerable it can become when subject to a specific WTO claim. And there are also certain in-built problems in the system. These involve the lack of retroactive effect for recommendations and rulings, difficulties in compliance panel proceedings, cumbersome and ineffective retaliation mechanisms, and so on.
Dispute settlement is also limited by WTO agreements’ scope (although a non-violation claim is possible, as in the Kodak-Fuji dispute). For example, there is no WTO agreement on investment in general, after it was dropped during the Uruguay Round. So bilateral (and now regional) investment treaties, or chapters in Free Trade Agreements, are increasingly relied upon. These often now allow a private investor to claim directly against the host state, usually through ICSID arbitration. Although current developments in investment arbitration are extremely interesting, the whole emerging field would be dramatically changed if a WTO investment agreement were realised in the present Doha Round.
Generally, despite its many current shortcomings, WTO dispute settlement has proved remarkably significant. It has provided the first permanent transnational mechanism helping considerably in bringing about the rule of law in economic affairs, while underpinning rapid growth in the world economy. Both Australia and Japan have been major beneficiaries of this system, and share responsibility to keep improving it.
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Professor Taniguchi is renowned in Japan and world-wide – particularly throughout the US, Europe and China – for his expertise in insolvency law, civil procedure, arbitration and the World Trade Organization. He taught mainly at Kyoto University, advising on major law reform initiatives in Japan. He has arbitrated dozens of cross-border commercial disputes (especially under ICC Rules), was a judge on the WTO Appellate Body over 2000-7, and is Of Counsel in Matsuo & Kosugi (Tokyo). Professor Taniguchi is an ICCA Council member, president of the Japan Association of Arbitrators, and a former Vice-President of the International Association of Procedural Law. He has been a Visiting Professor at numerous leading universities in four countries, advises the Sydney Centre of International Law, and is the ANJeL/CAPLUS Research Visitor at Sydney Law School over July-August 2009. His other speaking engagements include keynote presentations at the ANZSIL conference in July, the symposium of the Australasian Forum for International Arbitration on 7 August, and the one-day symposium reviewing the WTO’s Dispute Settlement Understanding on 14 August.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.

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