WORLD TRADE
ORGANIZATIONTN/DS/W/23
4 November 2002
(02-6058)
Dispute Settlement Body
Special SessionOriginal:  Spanish
NEGOTIATIONS ON IMPROVEMENTS AND CLARIFICATIONS OF
THE DISPUTE SETTLEMENT UNDERSTANDING
Proposal by Mexico
The following communication, dated 31 October 2002, has been received from the Permanent
Mission of Mexico.
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IMPROVEMENTS AND CLARIFICATIONS OF THE DISPUTE
SETTLEMENT UNDERSTANDING
Proposal by Mexico
I. DESCRIPTION OF THE PROBLEM AND PROPOSAL
Mexico believes that the current DSU represents a highly significant step forward in the
settlement of trade disputes, particularly in comparison with the rules applied in the GATT days.  Inour opinion, there are two types of improvements and clarifications that can be made to this
Agreement:  (i) structural improvements, which require amendments to the text;  and (ii) accessory
improvements, which ought to be achieved either through interpretations, through DSB decisions, or
simply by improving current practice.  Bearing this in mind, we propose focusing on the first of these
categories by addressing what, in our opinion, is the central problem in the functioning of the DSU.
Mexico considers that the fundamental problem of the WTO dispute settlement system
lies in the period of time during which a WTO-in consistent measure can be in place without the
slightest consequence.
On 1 January 1995, all original WTO Members undertook to ensure the conformity of their
laws, regulations and administrative procedures with their obligations as provided in the covered
Agreements.
1  Every time an illegal measure is unilaterally introduced, or as long as it is maintained
in force, this principle is violated and the delicate balance of concessions or other obligations
achieved in the Uruguay Round is upset.
There is currently no mechanism available for a Member challenging a WTO-inconsistent
measure to recover the losses resulting from that m easure.  Illegal measures may be in place for more
                                                     
1 Article XVI:4 of the Marrakesh Agreement Establishing the WTO.TN/DS/W/23
Page 2
than three years  before a complaining party can obtain compensation or suspend concessions or
other obligations.2
Furthermore, based on past experience, we estimate the average amount lost by the
complaining party from the establishment of the Panel to the date on which it can obtaincompensation or suspend concessions or other obligations at close to 370 million US dollars per
case.
3
This amounts to a de facto  waiver  in which a Member can maintain a WTO-inconsistent
measure which unduly harms exporters, service suppliers or holders of intellectual property rights of
other Members and seriously undermines the objectives of security and predictability that the DSU
seeks to pursue.
In this unilateral circumvention of WTO obligations, it is not uncommon for the illegitimate
benefits obtained by the Member imposing the illega l measure to far surpass the costs incurred in the
litigation itself, thereby eliminating any incentive for reaching swift solutions.
Mexico believes that the best way to improve the DSU is to address this central problem.
It therefore proposes that Members resolve it in these negotiations.
II. APPLICATION
In order to help with the discussions, Mexico would like to share some ideas which, in our
opinion, would help to achieve the objective stated in the previous paragraph.
(a) Early determination and application of nullification and impairment
The current text of the DSU provides for arbitration to determine the level of nullification or
impairment after the expiry of the reasonable period of time (and, presumably, after completion of theproceedings under Article 21.5 of the DSU).
4  We believe that it would benefit the system to have this
determination, as well as the right to request compensation or authorization to suspend benefits, take
place at the earliest stage possible.
One way of achieving this goal would be to “i ncorporate” the Article 22.7 procedure into the
original Panel process.  The arbitration proceedings could then start after the interim Panel report has
been transmitted to the parties and be conducted on the basis of the Panel's interim findings andconclusions.
In this scenario, the level of nullification or impairment as determined by the Panel/arbitrator:(a) Could be upheld, modified or reversed by the Appellate Body;  or(b) could remain confidential until the circulation of the Appellate Body report, in which
case, the Panel/arbitrator could modify its estimates on the basis of that report.
                                                     
2 A review of all cases involving procedures under Article 21.5 shows an average duration of
1067 days between the date of establishment of the Panel and the date of adoption of the Panel/Appellate Body
report pursuant to Article 21.5.  This calculation does not take account, however, of the period preceding thedate of the establishment of the original Panel or the time taken between such adoption and the date on whichthe DSB has actually granted the complaining party authorization to suspend concessions or other obligations.
3 Our calculation is based on a three-year estimate per case.  We deliberately excluded the case ' US –
FSC' (DS108).  However, if we took it into account, the figure would go up to 2,049 million US dollars per case.
4 Article 22.6 of the DSU.TN/DS/W/23
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The DSB could authorize the suspension of benefits upon adoption of the Panel/Appellate
Body report(s).
BENEFITS
• Prompt compliance:  this approach would create incentives for the Members
concerned to comply “immediately” or “in the shortest period possible within its legal
system”, since they would be subject to  payment of compensation or suspension of
benefits from the date of adoption of the Panel/AB report. Furthermore, fewer
arbitrations for the determination of the reasonable period of time would be needed.
• Satisfactory solutions:  If the Member concerned were to bring its measure into
conformity, compensation or suspension would be automatically terminated.
However, where there was disagreement as to the existence or consistency with a
covered agreement of the measures taken to comply with the recommendations and
ratings, the “lifting” of suspension might have to await the Article 21.5 termination of
proceedings.
• Negotiations:  the approach would foster and facilitate negotiations, since Members
would be aware of the level of nullification and impairment even before  the original
Panel/AB report was adopted.
• Lightening of the burden on the dispute settlement system:  Members might assess
the real value of a case before submitting to the dispute settlement system and, if it
turns out not to be substantial, they might be  inclined to negotiate rather than litigate.
• Fairer allocation of benefits:  The time during which an illegal measure could be
maintained without consequences would be greatly reduced.
• Time saving:  More efficient use could be made of the time following the issuance of
the interim Panel report.  Furthermore, there would be no need to look for the
members of the original panel or to appoint new ones.
(b) Retroactive determination and application of nullification or impairment
Under current practice, Members are only compensated or only exercise their right to suspend
benefits prospectively.  This means that an illegal measure will have been maintained “for free”
throughout the dispute settlement proceedings at least. If we introduce the notion of “retroactivity”,Members will be able to benefit fully from the concessions and rights obtained as a result of the
Uruguay Round, and the effects of this de facto  waiver will be eradicated.
International law already incorporates the concept of “retroactivity”.
5  Customary rules of
State responsibility and the general principles of law enshrined in the ICJ Statute require theelimination, as far as possible, of all of the consequences of the illegal act, and the restoration of the
situation which would, in all probability, have existed had the act not been committed.
                                                     
5 See for example, Statute of the International Court of Justice, Article 36(2)(d).TN/DS/W/23
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In fact, the WTO Anti-Dumping and SCM Agreements also include the notion of
“retroactivity” as part of investigations6;  and many judicial systems of the WTO Members
incorporate the notion of retroactivity to help balance the rights of complainants and defendants.
Retroactive determination would require that nullification or impairment be calculated for a
period which could start at any of the following moments:
(a) The date of imposition of the measure;(b) the date of the request for consultations;  or(c) the date of establishment of the Panel.This calculation could include lawyer’s fees and litigation expenses.
7
To further enhance these benefits, it would be advisable to agree on the criteria for
determining the level of nullification or impairment.
BENEFITS
• Fairer allocation of benefits:  This approach would ensure that the balance of
concessions and rights granted under the Uruguay Round was fully respected, since
the complaining party would have a right to negotiate compensation and recover alllosses incurred as a result of the illegal measure, or to suspend benefits for an amount
equivalent to those losses.
• Time saving:  There would no longer be any incentive for a Member complained
against to delay proceedings artificially (for example, by requiring the panel to be
established at the second DSB meeting), since all the time gained would potentiallycount towards compensation/suspension.
• Negotiations:  Negotiations would be facilitated by the removal of incentives to
prolong proceedings.
(c) Preventive measures
Under the current system, there is no recourse for Members to deal with the situations in
which the challenged measure is causing damage that would be difficult to repair.  In practice, some
Members might feel tempted to take WTO-inconsistent measures to address those problems.  Mexico
believes that the system would benefit from the introduction of a right to request suspension of the
challenged measure or to take preventive measures in those exceptional situations.
The right to take provisional measures to address emergency situations is well established in
the WTO law. For example, Article 7 of the Anti-Dumping Agreement and Article 17.1 of the
SCM Agreement provide for the application of provisional measures when “the authorities concerned
judge such measures necessary to prevent inju ry being caused during the investigation”.  The
                                                     
6 Article 10 of the AD Agreement and Article 20 of ASCM.
7 See, for example, Article 64 of the Statute of the ICJ.TN/DS/W/23
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Agreement on Textiles and Clothing, the SPS Agreement, the TBT Agreement, the TRIPS Agreement
and the Agreement on Safeguards also contain preventive measures.8
Preventive measures also play an important role in the domestic judicial and administrative
systems of most, if not all, WTO Members;  and they are present in the international courts as well.9
They prevent damage to the complainant which it would be difficult to repair, thus ensuring the
effectiveness of the proceedings.
In the context of the DSU, if a complaining party considers that the challenged measure is
causing or threatening to cause damage which it would be difficult to repair, it should have the right to
ask the Panel to request the defending Member to suspend the application of the challenged measure
(or rather, its harmful effects) for a certain period.  If the defending Member does not suspend themeasure or its application within a short period (f or example, one month), then the Panel would, in
exceptional circumstances, be able to authorize the co mplaining party to take measures to prevent the
damage that it would be difficult to repair.  Preventive measures could be maintained for the duration
of the dispute settlement proceedings and must not affect the rights of third parties.
If the final level of nullification or impairment turns out to be lower than that of the
preventive measures authorized (either because the measure is considered not to be WTO-inconsistent
or because the level of a certain inconsistency is less than what was originally expected), the party
complained against should be entitled to compen sation for such excessive application of preventive
measures, which would restore the original balance of rights and concessions.
Members with small and vulnerable industries might find these measures particularly helpful,
since their industries are more likely to suffer damage which the current WTO proceedings are unable
to remedy.
BENEFITS
• Adequate level of protection during the proceedings:  Members facing damage which
it is difficult to repair would have the opportunity to have the challenged measure
suspended or otherwise to prevent the damage.
• Safeguarding the balance of rights and obligations:  The proposed change would
eliminate all “temptations” on the part of Members to respond to the challenged
measure by imposing other measures which could, in their turn, adversely affect third
country Members.
(d) Negotiable remedies
The suspension of concessions phase poses a practical problem for the Member seeking to
apply such suspension.  That Member may not be able to find a trade sector or agreement in respect ofwhich the suspension of concessions would brin g about compliance without affecting its own
interests.
10  There may be other Members, however, with the capacity to effectively suspend
concessions to the infringing Member.
                                                     
8 See Article 6.11 of the Textiles Agreement;  Annex B of the SPS Agreement;  Articles 2.10, 2.12, 5.7,
5.9 and Annex 3 of the TBT Agreement;  Article 31(b) and Part III, Section 3 of the TRIPS Agreement andArticle 6 of the Agreement on Safeguards.
9 See, for example, Statute of the International Court of Justice, Article 41.
10 While the problem is even more evident for developing countries and least-developed countries, it
also greatly affects small countries whose industry is concentrated in one or only a few sectors and whose main
imports are primary goods.TN/DS/W/23
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Members should be allowed to “negotiate” the right to suspend concessions or other
obligations towards another Member. In other words, if the infringing Member has not negotiated
acceptable compensation, the complainant may agree with  a third Member the transfer of the right to
suspend concessions in exchange for a negotiated benefit (i.e., “A” may agree with “B” the transfer ofthe right to suspend concessions or obligations to “C ” in exchange of a mutually agreed benefit, which
may even take the form of cash).
“Negotiable rights” are an economic concept, and should be tradeable.  Furthermore, many
domestic legislations, in recognition of the need to provide effective remedies for complaining parties,
allow them to “negotiate” their rights with third parties.  In Mexico’s opinion, this concept might help
address the specific problem facing Members that are unable to suspend concessions effectively.
BENEFITS
• Incentive for compliance:  Facing a more realistic possibility of being the subject of
suspended concessions, the infringing Member will be more inclined to bring its
measure into conformity.
• Better readjustment of concessions, since the affected Member would be able to
obtain a tangible benefit in exchange for its right to suspend.
III. MODALITIES
Mexico considers that in order to achieve the objective contained in this proposal, Articles 6,
7, 11, 12, 19 and 22 of the DSU would have to be amended.
IV. CONCLUSION
The problem identified by Mexico is of great importance and needs to be addressed on an
urgent basis.  Every case brought before the DSB implies losses of millions of dollars for theindustries damaged by the illegal measures.  We are proposing a system that ensures greater fairness
in finding more effective ways of solving disputes and, more importantly, a system which will create
incentives for Members to comply with their obligations or to seek mutually agreed solutions.  If
implemented, this proposal will benefit all WTO Members and will improve the dispute settlement
system by focusing attention on the truly significant disputes and producing results that are clearer toall.
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