The Appellate Body is an important element of the Dispute Settlement System of the World Trade Organization (WTO), hearing appeals against the findings of the panel established by the Dispute Settlement Body (DSB). The Appellate Body (AB) ideally consists of seven members including the Chairman. But on 10th December 2019, this body went into crisis as two out of its three remaining members’ four-year terms came to an end. In this article, the authors dive into this crisis and try to analyze what led to such an impasse, and what political, economic, or social factors have influenced what is happening now in the dispute settlement mechanism. Also, how much the current administration of the President of the United States, Donald Trump, is responsible for this crisis shall be addressed. Further, the authors will consider what steps forward should be taken towards an amicable solution so that the Appellate Body can operate as a functional and fair part of the WTO’s Dispute Settlement System.
Uncle Sam’s Bayonet Charge: Frontal role of the US in the crisis
The United States of America and the protectionist agenda-driven regime under President Trump is to blame for the crisis in the Dispute Settlement System (DSS) given the Appellate Body not having an adequate number of members. The United States is blocking the appointment of new members to the Appellate Body (AB). The US Ambassador to the WTO stated that the US does not approve the appointment of new persons to the vacant Appellate Body seats. However, this is not the first time this has happened. The Obama administration, blocked the appointment of Jennifer Hillman for a second term in 2011, claiming the WTO has failed to protect American interests. Again in 2016, the US blocked the reappointment of Seung Wha Chang. Thereafter, in 2018, the Trump administration blocked the reappointment of Shri Baboo Chekitan Servasing.
Shockingly, the United States has played such a central role in dismantling the DSS and plunging it into paralysis but simultaneously promotes itself as the primary advocate of the multilateral trading system. The US claims that the Appellate Body functions in a manner that is actively unfair and detrimental to its interests.
US Objections: What is wrong with the Appellate Body?
Judicial Activism by the Appellate Body
One of the United States’ main accusations against the Appellate Body is that it has overstepped its jurisdiction time and again, creating law and indulging in “Judicial Activism”. According to the US, the AB is creating new rules, which cannot be done, as the recommendations and rulings “cannot add to or diminish the rights and obligations provided in the covered agreements”, as per Article 3.2 of the DSU.
According to the US, there has been a disregard for the role of the Appellate Body in its approach towards the adjudication of the disputes and have an analysis which is mostly obiter dicta. For example, the US said that in Argentina – Financial Services, AB’s analysis was nothing but obiter dicta. It reversed the findings of the Panel and unnecessarily added to their analysis by clarifying on other provisions of the General Agreement on Trade in Services (GATS). According to the United States, the AB cannot behave like academia and deviate from the issues and give different analysis altogether, and that “it is not the role of the panels or the Appellate Body to ‘make law’ outside of the context of the resolving dispute”. The US has, again and again, stated that any attempt by AB to fix the lacuna in the WTO agreements violates Article 3.2 of the DSU, which accords the “exclusive authority to adopt interpretations” of Multilateral Trade Agreements to the Ministerial Conference and the General Council.AB Article - JWT
Problem with precedents
Another problem observed by the US against the Appellate Body is that it creates persuasive precedents. But that is problematic on many levels because having a persuasive value is very different from having a “binding” value, which is not the case in the WTO DSS. The reports adopted are not a binding precedent on subsequent cases in the future, unlike other areas of disputes in international law. If the reasoning of the past report is persuasive for the Appellate Body in a present case, the Appellate Body will add it to the DSS to improve the security and predictability of the multilateral trading system under Article 3.2 of the DSU. Further, the Appellate Body in US-Stainless Steel (Mexico) said that the reports are only binding on the parties between whom the particular dispute is to be resolved. But this does not amount to legal interpretations of such reports being worthless or disregarded by the DSB, as the panels should follow previously adopted AB reports for the “development of a coherent and predictable body of jurisprudence”. However, analysis is only relevant for the cases where the issues are similar. Moreover, it does not create any legal obligation for the DSS to use that interpretation despite its persuasive value. Thus, this common law trend, though visible, does not create much of the concern that the US claims.
Objections to the Working Procedures
During Ministerial Conferences, the US has raised a separate concern about Rule 15 of the Appellate Body Working Procedures. This rule mentions that an Appellate Body member, upon AB’s authorization and with notification to the DSB, may complete disposal of any appeal and for that purpose will be deemed to be a member of the AB. The Working Procedures are drawn up by the AB in consultation with the Director-General of the WTO and the Chairman of the DSB, as per Article 3.9 of the DSU. The objection relates to the point that the members should not take any new cases as there might be a backlog which they would have to clear. This sometimes inevitably leads to the delay in reports more than the stipulated time of 60 days, under Article 17.5.
In the words of Deborah Elms, Executive Director at the Asian Trade Centre, ‘Titanic has hit the iceberg and is now slowly sinking.’ Major improvements are required at WTO right away. Keeping in mind the commotion that the Appellate Body has been subjected to it is quite evident now that saving just the Appellate Body would not suffice. It is apposite to save the Dispute Settlement Understanding in its entirety. And to break this impasse, the concerns of the United States must be met so that it can unblock the appointment process of the members of the Appellate Body. Keeping the same in mind, the authors would suggest certain reforms that they believe can help break this Appellate Body impasse. These include:
To adopt the Walker Principles- David Walker, New Zealand’s Ambassador to WTO, was appointed in February 2019 by the General Council Chair as a facilitator and was given the task of improving the functioning of the Appellate Body. The principles that he put forth were designed in such a manner to address all the concerns that the US has with Appellate Body. These include mandating the Appellate Body to make decisions in 90 days, members of the Appellate Body to leave the office at the end of their second term, Appellate Body to address only those issues that have been raised specifically by the parties at dispute and to take panel reports in the account as is necessary and not as precedents. These Walker Principles would help in make the Appellate Body more efficient and help the body stick to the rules as was determined in 1995.
To increase reliance on economics and statistics to decide a dispute between two parties- It is no hidden fact that the task of the Appellate Body is limited to matters of law by establishing and verifying the facts presented to them by the parties. When it comes to the interpretation of various technical terms like ‘less favorable treatment’ (read discrimination), they have discretion on how to interpret them. Since they have not been defined properly anywhere, their employment in the final decision along with economics and statistics will be welcomed by the parties and difficult to question. This shift of using economics and statistics gains traction from the Supreme Court decision which shifted its view on resale price maintenance from the per se rule to the rule of reasoned standard which is to be backed by economic arguments.
To establish a compliance committee to audit and overlook the functioning of Appellate Body- To ensure that the fellow members of WTO have faith in the functioning of the Appellate Body, WTO may and should establish a compliance committee every year to audit the working of the Appellate Body. The committee would comprise of the chairs of all the major WTO committees, which include General Council, Council for Trade in Goods, and the Dispute Settlement Body, etc. The committee would be tasked with the job of assessing whether the Appellate Body is performing its principles and if not then what due course to take.
The authors want to highlight that the problem in the World Trade Organization is not only with their Dispute Settlement Understanding but also in a deeper crisis that looms within WTO. WTO members will lose their right to appeal against the decisions of the WTO panels if this crisis is not resolved immediately and this will endanger the future of the organization. If the US keeps blocking appointments of members to the Appellate Body, then this would result in member countries of WTO opting for alternative means. This includes adopting panel reports and appointing another body to resolve their disputes for them. Members can opt not to appeal the decision at all or they might seek to resolve the issue by adopting panel reports, similarly to Canada and the EU. On the surface, this looks sufficient but if you look deeper the problem is very concerning. The WTO was formed to help trade flow as freely as possible and to help settle disputes between member countries. However, if member countries start to look for other methods to resolve their disputes then this defeats the very purpose of WTO.
With this crisis left unresolved, the US has already moved further away from multilateral trade to negotiating bilateral trade deals with some of its neighbors and trading partners like Mexico, Canada, and China. Other countries have also started to give more attention to regional or multiregional trading blocs like OBOR, SCO, ASEAN, and CPTPP. This does not bode well for the future of the WTO as it will sink and with it the dream of a free and fair global multilateral trading system.
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