This is a guest post by Mauritius Nagelmueller:
Access to justice continues to be an issue within the WTO Dispute Settlement Body (DSB) today, especially for developing countries. To keep the promise of a fairer trading system, developing country participation in the DSB needs to be improved, since the relationships between WTO members are still based on power rather than rules.
Dispute Finance (also referred to as Litigation Funding/Finance, Third Party Funding/Finance) has been helpful in providing access to justice for claimants with meritorious claims but limited financial capacity in the private sector, as well as in investor-state disputes. It is also capable of leveling the playing field in the DSB, as it can be utilized by developing countries to finance a WTO dispute.
In Dispute Finance, a third party to a dispute, unrelated to its subject matter, finances a meritorious claim at its own risk. The financing entity treats the claim as an asset, and provides all necessary financing required for procedure, lawyers, external experts, sometimes enforcement. The investment is secured by the value of the claim, and in the case of a successful outcome, the financer receives a percentage.
The Dispute Finance industry is subject to censure from various sources. Critics allege that it takes advantage of plaintiffs, and also the defendant community, for obvious reasons, challenges the model. Financers, in supporting investors in investor-state disputes, particularly before the ICSID, have been criticized for pressing large sums of compensation on the back of taxpayers.
States, however, could also take advantage of Dispute Finance. An expansion of the financing business to financing sovereigns in WTO disputes would create a win-win situation. It can allow developing countries to bring claims which they otherwise could not bring; it can give dispute financers the opportunity to take a more neutral stand, and provide their services not only in cases against sovereigns, but also in their support.
The demand for such a service might be significant, since most obstacles to developing country participation in the DSB are related to costs: A lack of expertise leads to an increased need for hiring expensive external experts. There is fear of economic pressure from the opposing state. Lengthy proceedings place a strain on a developing country’s resources, not only because experts are compensated according to complexity, but also because it takes time until the DSB’s recommendations and rulings are implemented.
The costs of initiating a dispute of medium complexity in the WTO are in the region of $ 500,000, but legal fees can quickly exceed $ 10,000,000. In many cases, developing countries have to resort to the financial support of local industries affected by the dispute, and thereby rely on private sources of capital already.
While the DSB recognizes the essentialness of quick proceedings (e.g. Art. 3.3 of the DSU), member states estimate 15 months from the request for consultations to the report of the Appellate Body. A period of at least 6 to 14 months should be added to this, as a reasonable period of time for the implementation of recommendations. Although this time frame is rather short in comparison to other international procedures, the financial hardship for developing countries can be fatal.
Existing models to face this financial burden include the designation of a qualified legal expert from the WTO (Art. 27.2 of the DSU), and the Advisory Centre on WTO Law (ACWL), with the purpose of helping developing countries get the maximum benefit from being a WTO member. Yet, the expert has to remain just as impartial as the WTO Secretariat itself. The ACWL’s support has empowered developing countries, but a key problem is conflict of interests: if both parties are ACWL members, the ACWL has to refer the case to external counsels.
It has been proposed to install a dispute settlement fund, similar to the ICJ Trust Fund, which already shows international legal aid in practice, but such fund does not exist at the moment.
Dispute finance can be a viable alternative for WTO members seeking support.
Besides the above-mentioned controversies, the typical remedies in WTO disputes can be an issue. WTO disputes will regularly not lead to a direct financial compensation, which the financer could benefit from. Still, complainants seek monetary benefits, be it through concessions (the losing country compensates the winning country with additional concessions equal to the original breach) or retaliation (the winning country withdraws concessions in that amount). The winning party can provide a share of those benefits for the funder.
Due to the youth and flexibility of the Dispute Finance industry, a bespoke contractual structure can be found for any kind of remedy. The financer can get a cut of the financial benefit, be it from the winning country, or affected industries.
One possibility is to assess the level of harm that is caused by the illegal measure challenged in the dispute, and take that as a basis for the compensation of the financer. If the WTO Panel decisions are implemented, and the disputed measures that were found to be inconsistent with the WTO, are withdrawn, a certain value of trade is not affected by those measures anymore, and can be realized again. Affected industries, or the affected country, can set aside part of the gain, and compensate the funder. In the case of compensation or the suspension of concessions, the complainant gains from increased tariff revenue, and is able to compensate the financing entity from a portion of the same. In any event, financial benefits of a winning party can be measured, and any compensation for the funder will represent only a minor percentage of the gained value of trade.
The financer is not impartial like the expert provided by the WTO, there are no conflicts with the ACWL, nor is there the need for other sovereigns supporting a dispute settlement fund. Financing can also be combined with the existing services.
Dispute Finance can bring a flexible, independent and powerful alternative for developing countries to increase access to justice, but also a way for developed countries to “outsource the risk” of a WTO dispute.
