Arbitration of Trade Disputes Between States

Trade disputes between countries are mostly settled by the World Trade Organisation. (WTO). It is an international trade organization formed under the General Agreements on Tariffs and Trade (GAAT) to replace the GAAT. (Martin and Law, 2006; Bermann, 2007). The dispute settlement procedures of the WTO is embodied in the Dispute Settlement Understanding (DSU). (Bremann, 2007). The DSU performs two important functions: firstly, it operates to complete WTO substantive contract, giving content to areas left vague or silent in the relevant agreements; secondly, it adjudicates and resolves trade disputes brought pursuant to WTO agreements.

(Bremann, 2007). According to Bremann (2007). The dispute settlement understanding (DSU) provides a well defined procerdure for initiating and resolving disputes. By so doing, the DSU achieves compliance with the WTO agreement through multilateral action. (Bremann, 2007). The DSU constitutes four judicial actors including: the Dispute Settlement Body (BSB), the panel, the Appellete Body, and the Arbitrator. (Bremann, 2007). The DSB has the broadest mandate among these actors.

It oversees the proper functioning of the WTO rules and procedures and establishes, panels, adopts panel and Appellate Body reports, and athorises the suspension of concessions and other obligations. (Bremann, 2007). When a case of violation of any of the WTO treaties is tabled before the DSB, the parties are given a 60-day consultation period within which to settle their disagreement. (Bremann, 2007). Should the consultation fail, then the DSB may establish a panel upon the request of the complaining party. (Bremann, 2007).

The panel memebers who usually range between 3 to 5 memebers make initial findings and at the close of consultations and hearings, issue a final report that announces recommendations if the need arises. (Bremann, 2007). The panel’s rulling can be appealed to the Appellate Body by any party to the dispute. (Bremann, 2007). Three members of the Appellate Body, then review issues of law and legal interpretation and if the Appellate body fines that a member has indeed violated one or more covenants of the WTO, it will then issue a recommendation that the offending member bring its measures into compliance with the WTO agreement.

(Bremann, 2007). During this issuing time, the parties may choose to negotiate “mutually acceptable compensation”, allowing the offending member to retain its existing measures. (Bremann, 2007). Should such a settlement fail to resolve the differences, the defendant must bring its measures into compliance with the relevant WTO agreement. (Bremann, 2007). The defendant is usually given a reasonable time to do so during which if it fails to comply with the WTO agreement, the complaining member may request DSB authorisation to suspend conscessions or other obligations.

(Bremann, 2007). This authorisation is otherwise referred to as allowing countermeasures and enables the plaintiff (Complaining member) to institute trade restrictive measures in response to those the defendant fails to phase out. (Bremann, 2007). In the event where the propriety of the “level of nullification or impairment” (the economic injury caused by the continuation of offending measures) is challenged, the case is referred to arbitration so as to determine whether the level of suspensions authorised is appropriate.

(Bremann, 2007). Some of the cases that have been tried by the Dispute settlement body include the bananas case in which the United States of Amerca, Honduras and Mexico filed a complaint against the European Communities (EC) (Ludema, 2001), The EC Hormones Case in which the United States of America filed a case to the Dispute Settelment Body (DSB) following a ban by the European Union in 1989 banned the importation of beef produced with growth prooting hormones and dramatically reduced US access to an important international market.

(Pawsey and katsner, 2002; Bremann, 2007). In the bananas case, the dispute settlement panel ruled against the EC. Although the EC later modified the banana regime. (Ludema, 2001). The United States requested the authorization from the WTO to apply sanctions, in the form of tariffs on EC imports valued at 250 million US dollars. (Ludema, 2001). The US was however authorized to apply sanctions of 191million US dollars following an objection by the EC. (Ludema, 2001). Ecuador was also authorized to apply sanctions. (Ludema, 2001).

The EC hormones case however remains unresolved to date. This study was aimed at examining the role of International Law on settling business disputes. after a careful analysis, we can conclude that International law plays a major role in resolving international business disputes for both individual and between states. However, because of the costly and lengthy nature of resolving these disputes, parties often tend to conciliation before deciding to carry the matter to an arbitration court if the fail to reach an agreement.


Bermann S. (2007). Ec-Hormones and the Case For an Express WTO Postretaliation Procedure. Culumbia Law Review. Vol. 107, pp 131-168. Boyer P. S. (2001). International Law. The Oxford Companion to United States History. Oxford University Press. Oxford Reference Online Calhoun C. (2002). International Law. Dictionary of the School of Sciences. Oxford University Press. Oxford Reference Online.