The Dispute Settlement Understanding (DSU) that sets out rules and procedures for the settlement of disputes was agreed on in the Uruguay Round and is seen as the key element of the multilateral trading system. The DSU aims to make the multilateral trading system more secure and predictable. Unlike the earlier GATT dispute settlement system, the DSU approach covers all WTO agreements and is the world’s first mandatory intergovernmental procedure.

The dispute settlement takes place in the Dispute Settlement Body (DSB), which is provided by the WTO’s General Council (i.e. the totality of the WTO members).

The process of a dispute settlement procedure commences with bilateral consultations between the parties to the dispute, in order ideally to bring about an amicable solution. If the consultations fail, the complainant applies for an independent dispute settlement body, a “panel”, to be convened and produce a final report after six months. This report is not a ruling, but contains recommendations which are adopted by the DSB and thus become binding.

If a party appeals, an Appellate Body hears the appeal. The Appellate Body reviews the panel’s decision in terms of legal issues, and is to present its report within 60 days. This report must again be adopted by the DSB. The WTO provides detailed information about how a WTO dispute settlement procedure works.

If the losing party does not comply with the recommendations made by the panel / the Appellate Body and talks on compensation fail, the winning party can be authorised by the DSB to impose trade sanctions (e.g. U.S. countervailing duties in the banana and hormone dispute).

However, the Appellate Body became inquorate at the end of 2019, since it now has fewer than the three members required to take decisions. The appointment of a new member requires the consent of all WTO members, which is currently lacking. For this reason, none of the pending appeals can be processed at the moment.

In 2020, given the importance of the WTO dispute settlement mechanism for the rules-based trade order, the European Union agreed with (now) 25 other WTO members to create an interim arbitral second instance for trade disputes (the Multi-party interim appeal arbitration arrangement, MPIA). Even though the agreement only serves dispute settlement amongst those WTO members that have joined the arrangement, WTO law does open up the possibility to conclude such an agreement on the resolution of trade disputes on the basis of relevant WTO rules. All other WTO members can also join the arrangement.

In the case of disputes between states that have not joined the MPIA, the amended Enforcement Regulation (Regulation No. 654/2014, amended by Regulation 167/2021) allows countermeasures to be taken against violations by third countries even if a binding dispute settlement decision cannot be reached in the appellate instance. This ensures the EU’s ability to act in these cases too.

At the 12th Ministerial Conference in Geneva (12-17 June 2022), the 164 WTO member states agreed to restore a fully functioning dispute settlement system “by 2024”.

Intensive use is made of dispute settlement procedures, increasingly also by developing countries. Numerous special rules and relaxations apply to these countries, which can be viewed in detail on the WTO pages on rules for developing countries.