Providing a release valve: the U.S.-China experience with the WTO dispute settlement system.

• Author: Castel-Fodor, Kennan J.

ABSTRACT

Ever-expanding global trade relations have spawned highly contentious disputes between the United States and the People's Republic of China, two of the world's most powerful economic juggernauts. These trade frictions have sparked an increased utilization of the World Trade Organization's (WTO) dispute settlement system. Has the WTO become a forum for proxy trade battles to play out between the United States and China? Or does the increase in trade disputes portend a more serious deterioration of economic relations that could devolve into an outright trade war?

This Note addresses this trend toward resorting to WTO dispute settlement through the lens of the legal, cultural, and social aspects of the Sino-American trade relationship. the discussion demonstrates that both the United States and China exhibit a willingness to comply with WTO rulings for myriad reasons. These reasons are presented using a framework that analyzes the impact of the institutional structure of the WTO's dispute settlement system and the indirect benefits accrued through participation. While the WTO dispute settlement system provides both countries with a mechanism for resolving contentious trade issues, this Note attempts to advance a practical discourse about responsible management of WTO litigation. The United States and China have much to gain from the usage of the WTO's dispute settlement system to resolve trade frictions and would do well to maintain such an advantageous system.

CONTENTS INTRODUCTION I. CONTEXT AND HISTORICAL PERSPECTIVE A. Rule-Oriented Dispute Settlement in the International System B. Role of the Dispute Settlement Body C. China's Accession to the WTO D. U.S.-China Interaction Within the Dispute Settlement Body II. DOES INCREASED LITIGATION PORTEND THE ONSET OF A TRADE WAR? III. CHARACTERISTICS MAKING THE DISPUTE SETTLEMENT BODY APPEALING A. Dispute Settlement Body's Institutional Impact B. Indirect Benefits that Induce Usage of the Dispute Settlement Body. C. Compliance as an Indicator of Acceptance: U.S. Poultry and China Intellectual Property Rights D. Less Appealing Alternatives to the Dispute Settlement System IV. LIMITATIONS TO THE THEORY CONCLUSION INTRODUCTION

The sounds of saber rattling seem to emanate from the delicate relationship between the United States and China. Observers' and media

(2) alike have proclaimed the possibility of a trade war looming on the horizon. While trade frictions between Washington and Beijing occur in nearly every facet of the relationship, (3) the latest trends in World Trade Organization (WTO) litigation have garnered intense scrutiny. In recent years, both countries have initiated an increasingly higher volume of cases against one other. While many view this trend as a harbinger of a potential trade war, this Note will present an alternative interpretation of this trend in U.S.-Chinese WTO litigation. The litigation-intensive focus between the United States and China within the WTO's Dispute Settlement Body (DSB) evidences the efficacy of the institution and the willingness of both countries to utilize the DSB as a viable trade-friction intermediary.

Part I analyzes the role of international dispute settlement in general, specifically those systems predicated on a rule orientation. This Part then introduces the process and operation of the DSB, the unique historical context of China's accession to the WTO, and the early interactions between the United States and the People's Republic in the DSB. Part I provides the necessary framework within which to analyze the relational developments between the two parties in the DSB as a rule-oriented international dispute settlement system.

Part II addresses the argument that U.S. and Chinese decisions to resort to increased WTO litigation foreshadow the onset of a trade war. The components of the DSB that make it both a suitable forum for resolving contentious U.S.-Sino disputes are presented in Part III. These components will be analyzed through the characteristics that induce both China and the United States to utilize the DSB as a legal forum. Parts III.A and III.B introduce the direct institutional benefits and indirect benefits, respectively, that members are able to accrue. The accuracy of this Note's contention is demonstrated in Part III.C, which analyzes two DSB cases between the United States and China: U.S.--Poultry (4) and China Intellectual Property Rights. (5) These cases illustrate the willingness of both countries to submit important issues to the DSB. Furthermore, Part III.C discusses the importance of compliance by the losing parties and the implications of compliance as acceptance of the DSB's legitimacy. Part III.D addresses the alternative mechanisms for resolving trade disputes that ultimately can be less appealing than engaging the DSB. Part IV identifies several limitations on this Note's contention as to the long-term ability of the DSB to mitigate U.S.-Sino trade frictions.

Finally, this Note presents some concluding suggestions about the future of the DSB as a viable mechanism for addressing burgeoning trade frictions between Beijing and Washington. This Part further reiterates the necessity of altering the discourse on U.S.-China WTO litigation from one of trade-war implications to one geared toward the responsible management of the DSB as a trade-friction intermediary, providing a beneficial legal forum for venting frustrations.

1. CONTEXT AND HISTORICAL PERSPECTIVE

   1. Rule-Oriented Dispute Settlement in the International System

      While a discussion of the entirety of the vast body of international dispute settlement is beyond the scope of this Note, it is important to examine certain aspects pertaining to the operation of the WTO's dispute settlement mechanism in order to understand the broader role of the DSB within the international system. International dispute settlement takes myriad forms including negotiations, (6) good offices, mediation, conciliation, arbitration, (7) judicial settlement by permanent courts, and resort to regional agencies or arrangements. (8) Unlike domestic courts, international dispute settlement uniquely involves the interaction of states as the frequent actors. International dispute settlement mechanisms are structured upon various theoretical foundations-including power-oriented structures and rule-oriented structures--under which the members interact. (9) A power-oriented structure is reliant on an "explicit or implicit reference to [a state's] relative power and 'bargaining chips."' (10) International dispute settlement based on power-orientation is characterized by "unilateral retortions [sic] and reprisals," which run the risk of provoking retaliatory countermeasures. (11) Such a structure differs immensely when juxtaposed with a rule-oriented system that is predicated on the "enforcement of rules that were previously agreed by both parties." (12) Within a rule-oriented structure, dispute settlement operates as the mechanism for enforcing the previously agreed upon rules between the various states. (13) Although the power-oriented structure of international dispute settlement provides for an interesting discourse, this Note will focus on the proliferation of rule orientation as a viable international dispute settlement mechanism, specifically with regard to the WTO's dispute settlement system.

      A rule-oriented structure provides all members of the system with a plethora of benefits that induce acceptance and a willingness to resort to dispute settlement in order to preserve expected benefits from the rules. For one, the existence of a viable dispute settlement system bolsters the value of the commitments made within an international agreement through an assurance of the agreement's enforcement. (14) Credible commitments in turn promote stability and consistency within the international order, particularly within the international economic system. (15) In addition, the basis for the system provides states with an incentive, and in some systems a requirement, (16) to utilize the dispute settlement system rather than resort to potentially more deleterious alternative dispute settlement measures. (17) With pre-determined rules instead of power politics as the foundation of the system, states are provided an opportunity to raise disputes from a position of equality. (18) As such, rule-oriented international dispute settlement mitigates the power dynamics that can often damage international relations between states and the associated international organizations. the rule-based structure "helps to prevent the detrimental effects of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the basis of rules rather than having power determine the outcome." (19) Furthermore, dispute settlement within the context of a comprehensive international organization provides a forum in which members can effectively negotiate and resolve discrepancies. The forum benefits the parties through a reduction in both transaction costs and asymmetric information. (20) Finally, under rule-oriented structures, dispute settlement mechanisms can provide the benefit of clarifying the rules and obligations enumerated under the various covered agreements. (21) Clarification of the rules through dispute settlement offers a consistency and clarity throughout the international order by removing ambiguities and uncertainties pertaining to the agreed rights and obligations.

   2. Role of the Dispute Settlement Body

      The DSB stands as one of the achievements of the Uruguay Round of Negotiations in 1995 that resulted in the creation of the World Trade Organization (22) the DSB was designed to remedy a number of the weaknesses (23) and failures of its predecessor, the General Agreement on Tariffs and Trade's (GATT) dispute settlement system. (24) The efficacy of the GATT dispute settlement system was...