Tangible and concrete proposals for improving small State participation the context of the reform of the WTO’s Dispute Settlement System and Investor-State Dispute Settlement

Executive Summary

(Full Report available here)

 

International dispute settlement outlines the scope of a litigating party’s rights and obligations in line with the object and purpose of the agreement at hand, in a given context. Dispute settlement also allows States to enforce rights and seek remedies when they are breached. For small States, this twin purpose of dispute settlement – clarifying the scope of rights and obligations as well as providing recourse against breaches of rules – assumes paramount importance.

 

The purpose of this memorandum is to provide small States involved in dispute settlement at the World Trade Organization (WTO) and in Investor State Dispute Settlement (ISDS) with concrete and tangible proposals to improve their effective participation in these systems. To this end, the memorandum will analytically review these two sets of dispute settlement mechanisms with a view to appraising the existing reform proposals submitted by various States, investors, and academic scholars, and ultimately proposing  new ones aimed at assisting small States  to overcome  major constraints and promote their unique interests.

 

The first chapter defines a small State and sets the scope of the memorandum by grouping the most common characteristics used by international organisations to categorize them. To provide clarity and consistency in this memorandum, the WTO and ISDS systems are thereafter discussed in separate chapters (Chapters 2 and 3 respectively). However, they are organized similarly, each covering the background and characteristics of small State participation in the specific regime, existing reform proposals and recommended reforms. The final chapter (Chapter 4) concludes with the authors’ findings and recommendations.

 

For the purposes of this memorandum, the four main characteristics used to identify small States are: population (that is 1.5 million or less); limited resources; Gross Domestic Product (GDP) volatility; and vulnerability to natural and manmade disasters. All of these characteristics are linked to the physical/geographical small size of the States and place them in a uniquely disadvantaged position in the WTO dispute settlement and ISDS systems.

 

The memorandum also explores the main features of each of the dispute settlement system.  The WTO dispute settlement mechanism comprises a multi-stage, rules-based system created to secure the predictability and the balance of rights and obligations in the multilateral trading system. In theory, the system was set up to preserve the rights of all WTO members, providing equal benefits and standing before the Dispute Settlement Body. In practice however, as per this memorandum, due to lacklustre remedies, uneven trade flows and larger more developed States having more economic clout, the participation of smaller States in WTO DS is generally limited. For ISDS, the rationale behind it is two pronged: it protects investors on one hand and promotes investment in the host State on the other. This memorandum demonstrates that the benefits of ISDS to the host State are largely theoretical, and that ISDS has manifested itself as an investor-centred regime whose effects on small States are exacerbated because of their characteristics.

 

Trends and statistics of small State participation in both WTO dispute settlement and ISDS is comparatively low with small States usually appearing as the respondent, or third-party. Barriers to small State participation in WTO dispute settlement are largely due to capacity and power constraints, which limits its value to them. While deficiencies in the ISDS system such as its one sided and automatic nature, high costs, and overall investor centric focus, as well as the characterisation of small States, impair their ability to adequately participate in the disputes and improve their investment climate.

 

Full Report available here.

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