Dispute Settlement in The World Trade Organization - Compensation and Retaliation

Compensation and Retaliation

If all else fails, two more possibilities are set out in the DSU:

• If a member fails within the "reasonable period" to carry out the recommendations and rulings, it may negotiate with the complaining state for a mutually acceptable compensation. Compensation is not defined, but may be expected to consist of the grant of a concession by the respondent state on a product or service of interest to the complainant state.
• If no agreement on compensation is reached within twenty days of the expiry of the "reasonable period", the prevailing state may request authorization from the DSB to suspend application to the member concerned of concessions or other obligations under the covered agreements. The DSU makes clear that retaliation is not favored, and sets the criteria for retaliation. In contrast to prior GATT practice, authorization to suspend concessions in this context is semi-automatic, in that the DSB "shall grant the authorization within thirty days of the expiry of the reasonable period", unless it decides by consensus to reject the request. Any suspension or concession or other obligation is to be temporary. If the respondent state objects to the level of suspension proposed or to the consistency of the proposed suspension with the DSU principles, still another arbitration is provided for, if possible by the original panel members or by an arbitrator or arbitrators appointed by the Director-General, to be completed within sixty days from expiration of the reasonable period.

While such "retaliatory measures" are a strong mechanism when applied by economically powerful countries like the United States or the European Union, when applied by economically weak countries against stronger ones, they can often be ignored. Whether or not the complainant has taken a measure of retaliation, surveillance by the DSB is to continue, to see whether the recommendations of the panel or the Appellate Body have been implemented.