WORLD TRADE  
ORGANIZATION  TN/DS/W/91 
16 July 2007 
 
 (07-2997) 
Dispute Settlement Body 
Special Session Original:   English 
 
 
 
IMPROVEMENTS AND CLARIFICATIONS OF THE 
DISPUTE SETTLEMENT UNDERSTANDING 
 
Proposal by Mexico  
 
  The following communication, dated 13 July 2007, is circulated at the request of the delegation of Mexico.  
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I. DESCRIPTION OF THE PROBLEM AND PROPOSAL 
 As the dispute settlement mech anism has evolved, disputes have become more sophisticated, 
by covering subject matters falling under more than one covered agreement, or requiring analysis of 
"grey-area zones", or simply requiring analysis of ever increasing amounts of evidence. This has 
resulted in longer procedures, in terms of consu ltations, panel process and implementation. At the 
same time, all of this makes compliance more diffi cult. In any event, longer procedures mean more 
time with an illegal measure in pl ace and its negative consequences. 
 
 On 1st January 1995, all original WTO Member s 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 de licate balance of concessi ons or other obligations 
achieved in the Uruguay Round is upset. The longe r it takes to secure compliance, the longer 
nullification or impairment will remain in place,  to the detriment of the complaining party. 
 
 However, the current rules of the Dispute Settlement Understanding that address this matter 
are, at best, imperfect. There is currently no mechanism available for a Member challenging a WTO-inconsistent measure to recover the losses resulting from that measure, even after Panel or Appellate 
Body reports have ruled its inconsistency. This  allows illegal measures to remain in place for more 
than three years  before a complaining party may obtain  compensation or suspend concessions or 
other obligations.
2 In some cases, losses amount to millions of dollars each day an illegal measure is 
maintained. This has prompted Members to recognise that the i ssue of compliance needs to be 
addressed.3 
 
                                                      
1 Article XVI:4 of the Marrakesh Agreement Establishing the WTO. 
2 An estimated average from the composition of a panel up to the authorization to suspend benefits 
could take from 3 years up to 4 years. (In the Byrd Amendment case it took 3 years and 1 month for a country 
like Mexico to obtain such an authorization. (with information taken from www.worldtradelaw.net  statistics). 
3 See for example, minutes of the Special Session Meeting of the Dispute Settlement Body, 
13-15 November 2002 (TN/DS/M/6). TN/DS/W/91 
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   We consider that the fundamental problem of the WTO dispute settlement system lies in 
the period of time during which a WTO-inconsistent measure can be in place without the slightest consequence. 
 
 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 enshrined in the 
DSU.   At the same time, proposals to substantially st reamline Members' right to suspend benefits 
have not enjoyed consensus so far. Some believe  that only a handful of Members might be in a 
position to effectively enforce this right, while others emphasize the usefulness of improving rules 
allowing Members to obtain compensation. Some pr oposals have already been presented in this 
respect.  II. PROPOSAL – CONCEPT AND TEXT 
Bearing in mind the above, we propose to im prove the incentives for effective compliance 
which would reduce the time in which a WTO-incons istent measure might be maintained "for free", 
while at the same time would not constitute a radical departure from the current system.   In this respect, we believe that the most viab le way –at this stage- to achieve these objectives 
is to improve Members' opportunities to obtain timely and effective compensation. In fact, although it 
has rarely been used, this is already provided for in Article 3.7 of the DSU, which states: 
 
"(…) The provision of compensation should be resorted to only if the immediate 
withdrawal of the measure is impracticable and as a temporary measure pending 
the withdrawal of the measure which is  in consistent with a cove red agreement. (…)" 
[Emphasis added] 
 Additionally, it has been recognised that a means to meaningfully allow Members – 
especially developing country Members – to effec tively enjoy compensation, is to encourage (not 
force) that compensation for developing countries be made in cash. It should be borne in mind that the 
reasonable period of time is one of the longest stag es of a dispute settlement procedure, counting for 
11.8 months in average.
4 
  To give effect to this provision, we would need to amend Article 22 in the following manner: 
 
1. Compensation and the suspension of concessions or other obligations are 
temporary measures available in the event that the recommendations and rulings are 
not implemented immediately in the case of compensation or
 within a reasonable 
period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full impl ementation of a recommendation to bring a 
measure into conformity with the cove red agreements. Compensation is voluntary 
and, if granted, shall be consis tent with the covered agreements. Compensation to 
developing country Members will be  monetary unless otherwise agreed5.  
                                                      
4 Arbitrations to determine the reasonable period of time have granted an average of 11.82 months. 
However, when the reasonable period of time has been agreed to, this average is 9.22 months. Source: 
www.worldtradelaw.net  statistics. 
5 This is without prejudice of  the possibility for developed Members to obtain monetary 
compensation, if so agreed.   TN/DS/W/91 
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  2. If the Member concerned fails to bri ng the measure found to be inconsistent 
with a covered agreement into compliance therewith or otherwise comply with the 
recommendations and rulings immediately  within the reasonable period of time 
determined pursuant to paragraph 3 of  Article 21 , such Member shall, if a 
complaining party  so request s ed, and no later than the expiry of the reasonable 
period of time,  enter into negotiations with [any party having invoked the dispute 
settlement procedures ] [a complaining party] , with a view to developing mutually 
acceptable compensation.  If no satisfactory compensation has been agreed within 
20 days after the date of expiry of the reasonable period of time, any party having 
invoked the dispute settlement procedures ma y request authorization from the DSB to 
suspend the application to the Member concerned of concessions or other obligations 
under the covered agreements. 
(…) 7. The arbitrator acting pursuant to para graph 6 shall not examine the nature of 
the concessions or other obligations to be suspended but shall determine whether the 
level of such suspension is equivalent to  the level of nullification or impairment , and 
if no compensation has been granted or  has not been granted as agreed, the 
arbitrator shall, if so requested, additionally determine the level of nullification 
or impairment suffered during the reasonable period of time.  The arbitrator may 
also determine if the proposed suspensi on of concessions or other obligations is 
allowed under the covered agreement.  Howeve r, if the matter referred to arbitration 
includes a claim that the principles and procedures set forth in paragraph 3 have not 
been followed, the arbitrator shall examine that claim.  In the event the arbitrator 
determines that those principles and pr ocedures have not been followed, the 
complaining party shall apply them consiste nt with paragraph 3.  The parties shall 
accept the arbitrator's decision as final and the parties concerned shall not seek a 
second arbitration6. The DSB shall be informed promptly of the decision of the 
arbitrator and shall upon request, grant aut horization to suspend concessions or other 
obligations where the request is consistent with the decision of the arbitrator, unless 
the DSB decides by consensu s to reject the request. 
8. The suspension of concessions or othe r obligations shall be temporary and 
shall only be applied until such time as the measure found to be inconsistent with a 
covered agreement has been removed, or the Member that must implement 
recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached.  However, in  those cases 
where the level of nullification or impairment includes the level of suspension or 
impairment suffered during the reasonabl e period of time as described in 
paragraph 7, the suspension of concessions or other obligations may remain in 
force thereafter until such time at which the effect of suspension is equivalent to 
the level of nullification or impairment su ffered during the reasonable period of 
time . In accordance with paragraph 6 of Artic le 21, the DSB shall continue to keep 
under surveillance the implementation of adopted recommendations or rulings, 
including those cases where compensation h as been provided or concessions or other 
obligations have been suspended but the recommendations to bring a measure into 
conformity with the covered agreem ents have not been implemented.  In such cases, 
Members which have been granted the right to suspend concessions or other 
                                                      
6 However if the level of nullification or impairment ch anges after it is set, in order to conform to 
this change, any party may request the DSB to modify its authorization or a new arbitration may be 
sought. Such an arbitration may not be sought more frequently than [annually].  TN/DS/W/91 
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  obligations shall notify the DSB and the relevant WTO bodies of all the 
measures taken as suspension of concessions or other obligations within three 
months after the DSB has granted such authorization and thereafter every six 
months, until such time as the suspension ceases to be applied . 
  [Footnote omitted] 
  Allowing Members to negotiate and obtain comp ensation as from the date of adoption of the 
Panel or Appellate Body reports re presents a fairer allocation of burdens and benefits between the 
parties. Furthermore, by expressly mentioning the possibility of obtaining compensation in "cash", 
developing countries – and particularly LDC's – may be encouraged to discuss compensations. 
Moreover, by providing a retrospective element in the authorisation to suspend concessions or other 
obligations if no compensation was agreed to or if the terms of such compensation were not respected, 
the Member concerned would also have incentives to provide and respect the terms of the compensation. The calculation will include a prospectiv e and retrospective element, the first of which 
can be applied immediately, subject to other prov isions of the DSU, in particular Article 22.8. 
 
III. BENEFITS 
 
• Greater confidence in the dispute settlement system
:  Members would perceive the 
processes after the adoption of the Panel and Appellate Body reports as effective procedural stages, as they would know that the Member concerned would not be 
obtaining additional time to maintain its me asure without consequences if it is not 
eliminated within the RPT. 
 
• Fairer allocation of benefits
:  This approach would ensure that the balance of 
concessions and rights granted under the Ur uguay Round was better served, since the 
complaining party would have a right to ne gotiate compensation and recover part or 
all losses incurred as a result of the illegal measure 
 
• Encourages 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 from the date of adoption of the Panel/AB  report. This would also reduce the "de 
facto waiver" to a greater extent. 
 
• Satisfactory solutions
:  The Member concerned has no incentives to explore "grey 
area" compliance measures, since non-compliance would be followed by retrospective suspension of concessions , unless compensation is provided.   
 
• 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. 
 
• Time saving:   If a Member concerned grants compensation during the reasonable 
period of time, it will have no incentives to extend it artificially, since all the time gained would potentially count towards compensation. Time savings will follow 
naturally, without affecting Members' due process rights during the procedure. 
 
• Facilitating negotiations:
  By eliminating the incentives to artificially extend the 
reasonable period of time, the Member con cerned would be more inclined to propose 
a realistic period.  TN/DS/W/91 
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• Harmony:   By avoiding radical changes to the current text and structure of the DSU, 
this text could easily be incorporated in to an improved DSU. Furthermore, this 
proposal does not conflict with any other proposal submitted so far [and contributes 
to the objectives of other proposals (such as time savings)]. 
 
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