Last week on May 12, 2022, the Bipartisan Policy Center presented a program on the Future of the World Trade Organization. See https://bipartisanpolicy.org/event/the-future-of-the-world-trade-organization/. The program was structured with two segments. The opening segment was a discussion between the moderator of the program, Amb. Dennis Shea (former U.S. Ambassador to the WTO in the Trump Administration) and Roberto Azevedo (former Director-General of the WTO and a former Brazilian Ambassador to the WTO). The second segment was a panel discussion consisting of Thomas Graham (a former WTO Appellate Body member and former Chair of the Appellate Body), William Reinsch (currently a Senior Advisor and Scholl Chair in International Business at the Center for Strategic and International Studies), and Nazak Nikakhar (former Assistant Secretary for Industry and Analysis, U.S. Department of Commerce during the Trump Administration).
The discussion with the former DG of the WTO was wide ranging and pointed up the near impossibility of achieving consensus among the 164 WTO Members as there is no common vision of the organization’s mission and a widely split view of Members on whether reform is needed and even whether some Members prefer a non-functioning organization. Much of the discussion with former DG Azevedo is summarized in an Inside U.S. Trade article from May 13. Inside U.S. Trade’s World Trade Online, Former WTO director-general: Finding consensus largely ‘impossible’, May 13, 2022, https://insidetrade.com/daily-news/former-wto-director-general-finding-consensus-largely-%E2%80%98impossible%E2%80%99.
The moderator asked Azevedo about the Appellate Body and the topic of dispute settlement reform was taken up in the second segment with the lead being taken by the former AB member Thomas Graham.
Today’s post looks at the discussion of dispute settlement and what implications the views presented may have for meaningful progress at the 12th Ministerial Conference in terms of agreeing on a work program for dispute settlement reform.
In the discussion with former Director-General Roberto Azevedo, the topic of dispute settlement came up in two contexts. The first had to do with a discussion of the need for reform including the U.S. perceived need for tools to address Chinese distortions from their economic system . Azevedo noted that reform would be difficult on a consensus basis in general and dealing with China’s practices specifically. Azevedo mentioned the Appellate Body had complicated the operation of the WTO as they had “legislated too much” in his view. He noted that the Appellate Body should have had “greater circumspection” and limited their decision to the minimum needed. In his view, the actions of the Appellate Body did not facilitate the ability of Members to achieve a political bargain.
The second context in which dispute settlement arose was in the discussion of the 12th Ministerial Conference which starts in Geneva on June 12th. While Mr. Azevedo didn’t view the outcome of the 12th Ministerial as a “make or break” moment for the WTO, he did view whether dispute settlement is addressed meaningfully as suggesting “success” or continued problems. For him, getting dispute settlement moving was the important element regardless of the specifics that are to be worked out by Members.
I have in prior posts noted the likelihood that if there is a WTO reform work program, it is likely that the U.S. would agree to having dispute settlement included in such a work program even though the lack of movement by other Members to address underlying U.S. concerns raised questions about the likelihood of a successful process. April 28, 2022: WTO Reform and the 12th Ministerial Conference — What Is likely on Dispute Settlement?, https://currentthoughtsontrade.com/2022/04/28/wto-reform-and-the-12th-ministerialconference-what-is-likely-on dispute-settlement/. As I stated in that post,
“The Biden Administration, like the Trump Administration, believes that the operation of the dispute settlement system is in need of significant reform. The Trump Administration characterized the challenge as getting Members to explore why the Appellate Body felt at liberty to disregard the clear limitations on its authority in the Dispute Settlement Understanding and why Members had not moved earlier to ensure the limited role for the Appellate Body was respected. The Trump Administration also expressed concern that the dispute settlement system was not permitting Members to address the massive distortions caused to the global trading system from state-directed economies such as China. The Trump Administration was also not committed to a two-tier review system in light of the problems with the Appellate Body
“The Biden Administration has expressed similar concerns although Amb. Pagán’s comments appear to change the focus from why did the Appellate Body view itself as permitted to deviate from its limited role to a review of what Members “real interests” are. It is unclear if the different language reflects a change in focus or just a rearticulation of the need to find reforms that will deliver a dispute settlement system that is limited to and achieves the objectives Members have articulated.”
In last week’s program, Thomas Graham gave a forceful argument for why blocking appointment of new Appellate Body members was correct in both 2017 and in 2022. As he notes, “the blockage was meant to force a discussion among Members of the U.S. critique that has been building for 20 years and is deeply bipartisan and, at a minimum, solidly sound on the text and the negotiating history. The discussion was badly needed and it still hasn’t occurred.”
Mr. Graham views the critique provided by the U.S. as not widely understood. Basically it is that “the Appellate Body was negotiated and authorized only to be a modest check on occasional egregious errors by panels in applying the specific rules. And it made itself into an international court issuing broad interpretations and requiring adherence to precedence. That coincides incidentally with what former Director-General Azevedo said in his critique which I wanted to applaud of the Appellate Body. By doing this, the Appellate Body altered the rights and obligations negotiated by Member governments and expressed in the Agreements without any way to check or reign them in.”
“As an aside, there is all the talk about restarting the dispute settlement system. There is a dispute settlement system – panels. And if people don’t like it, they can go to arbitration under Article 25, or they can go to other arbitration, or they can use the good offices of the Director-General which is within the Dispute Settlement Understanding. So there is a live question which Dennis you’ve raised yourself on several occasions on whether a second tier is actually even needed.”
Mr. Graham reviewed that during 2019, the last year of the Appellate Body’s operation, at each monthly Dispute Settlement Body meeting, Amb. Shea sought to have Members discuss the how and why of the Appellate Body deviating so much from its limited role. The only response was the Amb. Walker (NZ; Chair of the DSB) process. “The only thing that could be agreed upon by most but not all Members, still not even unanimous, were procedural things (conclude cases in 90 days and hortatory words (don’t overreach). That simply demonstrated actually the accuracy of the U.S. critique. That is consistent with what I observed inside the Appellate Body as well. The U.S. critique, for lack of a better way to put it, was treated with disdain and dismissed. It was frequently said they’re just mad about zeroing; they’re just mad about a few cases. To which I would reply, you are right that they are mad about that and other things because of what it shows about how the Appellate Body is operating. Real reform of the dispute settlement system would require starting from scratch and confronting the kinds of questions that Dennis and the U.S. and a few others have been asking. Does the WTO really need a second tier of dispute settlement? And if so, what should be the purpose and what should it be? And until those discussions start, nothing is going to happen. I am not even optimistic that some path to dispute settlement can come out of the Ministerial because if one is not going to go to those fundamentals on the dispute settlement system, then the rules become important and need to be more express because you can’t stand on the dispute settlement system to interpret the rules as they are correctly. They are going to have to be done together.”
William Reinsch expressed the view that it was important to restart the appointment of Appellate Body members on the theory that the problem with the AB was one of personnel which arguably the U.S. could handle through the appointment process versus structural and hence requiring reexamination of the dispute settlement process. In the alternative, he would support a system where panel decisions are binding. The key in his view is a binding system of dispute settlement. Nazak Nikakhar took the position that a second tier of review was needed because of the possibility of erroneously decided panel cases citing a panel decision involving Russia and Ukraine and limiting the authority of Members to take action for national security reasons without WTO review.
With less than four weeks to the start of the WTO’s 12th Ministerial, WTO Members are struggling to see what deliverables are possible. WTO reform is one of the core topics needing some definition. While dispute settlement reform will likely be part of the reform package (if one is agreed) what that means and whether a meaningful work program can be envisioned and developed are open questions.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.