Proposals For WTO Dispute Settlement Reform – A First Step But Not Enough

11/29/2018

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Terence P. Stewart | Stewart and Stewart

On November 23, 2018, two documents were circulated to WTO members for consideration at the December 12, 2018 General Council meeting proposing amendments to the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) with the intention of addressing the concerns raised by other WTO members about the functioning of the WTO’s dispute settlement system.[1] The first document was submitted by the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico and addresses a number of issues that the United States has raised in Dispute Settlement Body meetings as deviating from existing WTO Dispute Settlement Understanding obligations. The second, filed by the European Union, China and India addresses other issues that the EU has raised on the operation of the Appellate Body.

The proposals from the EU and other countries follow up from earlier papers issued by the EU[2] and by Canada[3]putting out ideas to reform and modernize the WTO, as well as from a meeting convened by Canada of 13 like-minded countries to discuss ideas for WTO reform, held in Ottawa in October 2018. The proposals also are “part of a broader effort that includes the recently submitted proposal on notification and transparency rules within the WTO that was co-sponsored among others by US and Japan.”[4] The proposals for WTO dispute settlement reform are a positive development both because they represent ongoing outreach by countries who met in Ottawa in October to expand discussion of an interest in reform and because there are now at least some initial concrete proposals to address at least some of the concerns that the United States (and others) have had over time. But, as currently composed, the proposals may, unfortunately, prove to be “dead on arrival” at the General Council because they appear to fall short in some respects of resolving the most serious complaints about the dispute settlement system which have been repeatedly voiced by the United States. Foremost, the proposals do not, at all, address a problem cited by the US for many years – that of Appellate Body overreach. The US, as well as other countries, has complained over many years that the Appellate Body has repeatedly overreached its authority in some manner, such as by filling gaps or construing silences in the covered texts, and has thereby, in violation of the DSU,[5] added to or diminished members’ rights or obligations in a range of areas (e.g., subsidies, antidumping (AD) and countervailing duties (CVD), standards, and safeguards). That the EU proposal says nothing about AB overreach is a glaring omission, though consistent with its September paper where it suggested addressing procedural issues ahead of substantive issues. It is hard to imagine the US agreeing to changes to the Dispute Settlement Understanding that don’t include addressing this core substantive issue.[6] In addition, some of the proposals fail to effectively deal with other longtime concerns of the US, or only partially addresses them. For instance, the proposal to hold an annual meeting of the DSB and AB to allow any member to express views on adopted AB reports is designed to address concerns that AB reports have been and are being treated as precedent. However, the proposal would do nothing to substantively address the US view that the treatment of AB reports as precedent has no basis in the DSU and is not consistent with WTO rules.[7] If the pending proposals are intended to push WTO members to accept the transformation of the DSU into a precedential decision-making body, that is an unacceptable approach. The US wants the DSU to return to the original intent of speedy resolution of disputes between members. Over many years, the US has raised a number of concerns with the function of the Appellate Body, both substantively and procedurally. These include: AB overreach; failure of the AB to meet the 90-day deadline for completing appeals; AB members continuing to serve on appeals after their terms have expired; advisory opinions in AB reports on issues not necessary to resolve the dispute; AB undertaking to review, as a matter of law rather than fact, the meaning of a member’s domestic (municipal) law; and AB assertions that its reports effectively serve as precedent that panels are required to follow. The first proposal (WT/GC/W/752)[8] attempts to address all of the concerns raised by the US except for the problem of AB overreach. The proposal states that it “aim[s] at improving the DSU while addressing the concerns that have been raised on these issues.” The proposal addresses the following five issues:
  • Transitional rules for outgoing Appellate Body (AB) members
    Proposes to amend DSU 17.2 to permit an outgoing AB member to complete the disposition of a pending appeal in which a hearing has already taken place during that member’s term.
  • The issue of 90 days
    Proposes to amend DSU 17.5 to permit the parties to agree to exceeding the 90-day timeframe. If the parties do not agree, and the AB does not believe it can meet the 90-day deadline, the proposal permits the AB, after consultation, to propose specific procedures or working arrangements that would allow the AB to submit its report within 90 days. Such arrangements could include focusing the appeal, or page limits on briefs and the AB report.
  • The meaning of municipal law as an issue of fact
    Proposes to add a footnote to DSU 17.6 to provide “for greater certainty” that issues of law covered in the panel report and legal interpretations developed by the panel do not include the meaning itself of a party’s municipal measures, but do include panel findings regarding their legal characterisation under the covered agreements.
  • Findings unnecessary for the resolution of the dispute
    Proposes to amend DSU 17.12 to provide that the AB shall address each of the issues raised on appeal but need do so only “to the extent necessary for the resolution of the dispute.”
  • The issue of precedent
    Proposes to add a new DSU 17.15, which would require an annual meeting of the AB and the Dispute Settlement Body (DSB) at which any WTO “member may express its views on adopted AB reports.” The communication notes that this would provide an additional channel for members to voice concerns regarding AB approaches, systemic issues, or jurisprudential trends.
Yet, the US has been of the view that amendments to the DSU are not needed to address these issues. Rather the existing DSU is clear on these matters. What is needed is adherence by the AB to the provisions of the DSU as agreed by the membership in establishing the WTO. From 1995 to 2010, 95% of appeals were completed within 90 days and those that weren’t were extended with the agreement of the parties to the dispute. The collapse of the AB adherence to the requirement of completing an appeal in 90 days is a problem of the last eight years. This is the result of a change of approach by Appellate Body members, coupled with addressing issues not necessary to resolution. And if AB members were completing work within 60-90 days, there would be no need for transitional rules.  Thus, one would expect the US to find most of the proposed solutions to be unnecessary or unacceptable as undermining the original purpose of the DSU to promote prompt resolution of disputes. The second proposal (WT/GC/W/753)[9] “aim[s] at strengthening the independence and impartiality of the Appellate Body, improving efficiency so as to enable it to meet the required timeframes, and ensuring an orderly transition as well as an orderly launch of selection procedures.” The proposal addresses four procedural or institutional issues:
  • Independence of Appellate Body members
    • Proposes to amend DSU 17.2 to extend the term of an AB member from 4 years to 6 or 8 years, but to limit service to one term.
  • Efficiency and capacity to deliver
    • Proposes to amend DSU 17.1 to increase the number of AB members from 7 to 9. The communication argues that this would improve the AB’s efficiency and internal organization while also improving its geographical balance.
    • Proposes to amend DSU 17.3 to require that AB members “shall not engage in any other occupation of a professional nature.”
    • Proposes to amend DSU 17.8 to provide that the “employment conditions” of AB members “shall reflect their full-time employment.”
    • Proposes that the resources of the AB Secretariat providing administrative and legal support to the AB be expanded. This is already permitted under DSU 17.7 and would not require any DSU amendment. The communication states that expanded resources would “facilitate the prompt circulation of Appellate Body reports while safeguarding the quality of the reports.”
  • Transitional rules for outgoing Appellate Body members
    • Proposes to amend DSU 17.2 to provide that an outgoing AB member “shall continue to discharge his or her duties until he or she has been replaced but not longer than for a period of two years following the expiry of the term of office.”
  • The launch of the Appellate Body selection process
    • Proposes to amend DSU 17.2 to provide that, in order to fill AB vacancies, “the Chairman of the DSB shall launch the selection process no later than X [e.g. 6] months before the expiry of the term of office.” The communication states that this provision would clarify that the selection process to replace outgoing AB members “shall be automatically launched.”
It would seem likely that the US will not be agreeable to any of these proposals as currently submitted. The US views the Appellate Body as exceeding its authority in a wide array of areas and views oversight by the WTO membership (through the Dispute Settlement Body) as critical to seeing that the AB stays within its zone of authority. Therefore, the US has previously expressed disagreement with extending the term of Appellate Body members.[10] It is not clear that the US will agree with expanding the number of Appellate Body members, making them full time, or expanding the resources of the Appellate Body Secretariat as much of the challenge for the Appellate Body is the work taken on that isn’t necessary to the resolution of disputes. Finally, the US will almost certainly not agree to make the launch of the selection process for Appellate Body members automatic without the correction of the substantive and procedural issues and the inclusion of checks to ensure future problems do not arise. The following table identifies the US’s concerns with the Appellate Body and the WTO dispute settlement system and the proposals intended to address the concern (WT/GC/W/752).

Appellate Body – Substantive Issues

US Concern Proposal Comment

Appellate Body overreach

Through persistent overreaching, the AB has added to or diminished rights or obligations, which were never agreed by the US and other WTO members, in a range of areas (e.g., subsidies, antidumping and countervailing duties, standards, and safeguards).

Not addressed in either W/752 or W/753.

This is an important issue to the US. Its absence from the EU’s proposed amendments is likely to be fatal to the possibility of US support for the proposals.

90-day deadline for completing appeals

AB reports are not completed within the 90-day deadline set out in DSU 17.5. The AB fails to consult the parties when the 90-day timeframe is exceeded. Lack of transparency.

Addressed in W/752.

Parties could agree to exceed 90-day timeframe. Otherwise, the AB, after consultation, could propose specific procedures or working arrangements in order to submit its report within 90 days (e.g., focusing the appeal, or page limits).

Likely to be viewed as unnecessary in light of actual experience from 1995-2010.

AB members continuing to serve after their terms have expired

The AB does not have the authority to deem someone who is not an AB member to be a member.

Addressed in W/752 and W/753.

An outgoing AB member may complete the disposition of a pending appeal in which a hearing has already taken place during that member’s term. Outgoing AB members shall continue to discharge their duties until replacement, but not for longer than 2 years after their term expires.

Likely to be objected to as not needed if AB conforms to agreed time limits.

Advisory opinions on issues not necessary to resolve a dispute

The AB has a tendency to make findings on issues not necessary to resolve a dispute.

Addressed in W/752.

The AB shall address all issues raised on appeal but need do so only to the extent necessary to resolve the dispute.

Likely acceptable.

AB review of facts and domestic law

The AB has reviewed panel fact-findings as an issue of law. The AB has reviewed, de novo, panel findings on the meaning of a member’s domestic legislation.

Addressed in W/752.

Add footnote to clarify that issues of law covered in the panel report and legal interpretations by the panel do not include the meaning itself of a party’s municipal measures, but do include panel findings as to their legal characterisation under the covered agreements.

The proposal addresses the issue of AB review of a member’s municipal law, but does not address the concern that the AB has reviewed panel fact-findings as an issue of law.

AB reports as precedent

The AB treats its own reports effectively as precedent that panels must follow absent “cogent reasons.”

Addressed in W/752.

Require an annual meeting of the AB and DSB at which any member could express views on adopted AB reports.

Proposal fails to substantively address or correct the concern that the treatment of AB reports as precedent has no basis in the DSU and is not consistent with WTO rules.

The following table identifies the AB procedural and institutional issues addressed in the second proposal (WT/GC/W/753).

Appellate Body – Procedural and Institutional Issues

Issue Proposal Comment

Term of AB members

Addressed in W/753.

Extends the term of an AB member from 4 years to 6 or 8 years, and limits service to one term.

U.S. has stated previously that this is not acceptable.

Number of AB members

Addressed in W/753.

Increases the number of AB members from 7 to 9.

Not clear this is necessary if AB limited itself to its actual role under the DSU.

AB member employment conditions

Addressed in W/753.

Requires that AB membership is a full-time occupation. Employment conditions of AB members shall reflect their full-time employment.

Not clear this is necessary if AB limited itself to its actual role under the DSU.

AB Secretariat resources

Addressed in W/753.

Recommends expanding AB Secretariat resources providing administrative and legal support to the AB.

Not clear this is necessary if AB limited itself to its actual role under the DSU. Other concerns about role of AB Secretariat not addressed.

Launch of AB member selection process

Addressed in W/753.

The DSB Chairman shall launch the selection process no later than X [e.g. 6] months before an AB member’s term expires.

The proposal would introduce an automatic start to the AB member selection process. The US will almost certainly oppose this proposal where substantive concerns are not addressed and checks on the AB are not included.

So the two submissions from earlier this week are a useful contribution to the matters needing to be considered on WTO reform but will need revision and additions to cover core substantive issues (like correcting overreach) and to ensure the proper functioning of the Dispute Settlement process going forward if they are to be the path to forward movement. Ottawa indicated that at least some WTO members recognize that WTO reform is urgent and is the responsibility of all. The risk of the presentation of proposals like those submitted this week, is that they will be used not to advance the resolution of core concerns but simply to let WTO members engage in finger pointing at the upcoming General Council meeting. What is clear is that however well intentioned, the proposals don’t address longstanding core concerns of the United States. It is hard to imagine a resolution of the current WTO impasse without members being willing to finally address those concerns.

[1] See Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico to the General Council, WT/GC/W/752 (Nov. 26, 2018) and Communication from the European Union, China and India to the General Council, WT/GC/W/753 (Nov. 26, 2018). Both proposals are available at http://trade.ec.europa.eu/doclib/docs/2018/november/tradoc_157514.pdf.

[2] See EU Concept Paper, Sept. 18, 2018; http://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157331.pdf.

[3] See Strengthening and Modernizing the WTO: Discussion Paper, JOB/GC/201 (Sept. 24, 2018).
[4] See European Commission press release, WTO reform: EU proposes way forward on the functioning of the Appellate Body (Nov. 26, 2018); http://europa.eu/rapid/press-release_IP-18-6529_en.htm. The EC press release refers to the following proposal: Procedures to Enhance Transparency and Strengthen Notification Requirements Under WTO Agreements, Communication from Argentina, Costa Rica, the European Union, Japan, and the United States, JOB/GC/204, JOB/CTG/14 (Nov. 1, 2018).
[5] See DSU 3.2: “Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”; DSU 19.2: “… the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements.”
[6] It should be noted that the EU may have intentionally omitted the issue of AB overreach. One news article noted that “the new proposals aimed to comprehensively address all the U.S. concerns, although the focus was on the procedural issues rather than questions about judicial over-reach, which would require U.S. input.” Reuters, EU Sends WTO Reform Proposals to Break US Deadlock, Nov. 26, 2018; https://www.voanews.com/a/eu-sends-wto-reform-proposals-to-break-us-deadlock/4674150.html. An EU official was quoted: “We now expect the United States to do their part, to engage with these formal proposals that are aimed at squarely addressing their concerns.” Id.
[7] The Appellate Body has stated that adopted panel reports “are not binding, except with respect to resolving the particular dispute between the parties to that dispute.” Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (Nov. 1, 1996), at 14. “WTO Members established one and only one means for adopting binding interpretations of the obligations that they agreed to: Article IX: 2 of the WTO Agreement.” USTR 2018 Trade Policy Agenda at 28; https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf.
[8] In addition to the EU, the first communication (“W/752”) was also submitted by 11 other members: China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore, and Mexico.
[9] In addition to the EU, the second communication (“W/753”) is also submitted by 2 other members: China and India.

[10] See, e.g., the following US statement at a DSB meeting: “With respect to the proposal to amend the terms of Appellate Body members by making it a single, longer term with no reappointment, this would seem to be making the problem worse rather than better, and we would strongly oppose this.” Statement by the United States at the WTO Dispute Settlement Body’s First “Dedicated Session” on the Issue of Reappointments of Appellate Body Members, Geneva, September 26, 2016, at 5; https://geneva.usmission.gov/wp-content/uploads/sites/290/US.Stmt_.DSB_.Dedicated.Session.26Sep16.pdf.

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