WTO Appellate Body Prepares for Reduced Slate of Judges By Month's End

13 September 2018

The WTO’s highest court is set to have only three judges on its roster by the end of this month, after the US formally objected in late August to the reappointment of a current Appellate Body member for a second term. 

During a late August meeting of the Dispute Settlement Body (DSB), the US said that its objection to Shree Baboo Chekitan Servansing’s reappointment was “no reflection of any one individual but reflects our principled concerns,” namely regarding the Appellate Body’s alleged “disregard for the rules set by WTO members.” 

According to a Geneva trade official, WTO members debated several procedural and substantive aspects of the Appellate Body’s past work at the meeting, and various members asked the US to submit detailed proposals for members’ consideration on how to unblock the selection process. 

With Servansing’s term now due to end on 30 September, the Appellate Body will be down to the minimum number of judges to sign off on any dispute report, even as appeals continue to pile up. The WTO’s highest adjudicative body is designed to have a roster of seven judges, each serving a four-year term that is renewable once. 

According to the organisation’s dispute settlement rules, WTO members shall fill empty slots on the Appellate Body “as they arise,” which requires consensus. The US has been blocking proposals to resume selecting judges to fill these vacancies since August 2017, citing “systemic” issues with the court’s functioning, even with 67 WTO members now backing a proposal to start choosing new Appellate Body members. 

Appellate Body Chair Ujal Singh Bhatia warned earlier this year that a continued impasse would leave the organisation’s dispute settlement arm “profoundly” altered. “Any losing party could prevent the adoption of the panel report by appealing it to a paralysed Appellate Body,” he said at the time, essentially turning the WTO’s dispute settlement mechanism into a non-binding system. (See Bridges Weekly, 28 June 2018

US expresses additional concerns

At the August DSB meeting, the US outlined a series of concerns with how the WTO’s dispute settlement arm functions, reiterating some past claims while also outlining some other issues in further detail. 

For example, Washington has previously criticised the Appellate Body for allowing judges whose terms have expired finish their work on cases they were already serving on, which is something that is not part of the WTO’s established law, but instead part of the Appellate Body’s Working Procedures. The US has also alleged that the Appellate Body had continuously disregarded the 90-day mandatory deadline for appeals. The US argues instead that the Appellate Body should consult dispute parties over extending the timeframe for reviewing and ruling on an appeal, rather than just informing them that the Appellate Body will not be able to stick to the 90-day timeframe envisioned in WTO rules. 

The United States has also faulted the Appellate Body for allegedly making advisory opinions which Washington says are not needed to resolve the case at hand, along with criticising the Appellate Body’s approach to reviewing facts in a dispute and treating its reports as setting precedent for adjudicating future cases. 

At the latest DSB meeting, Washington gave an extensive description of its views on how the Appellate Body should treat the scope of its work. Under WTO law, the Appellate Body generally reviews questions relating to law or legal interpretation and not the factual findings of a previous panel ruling. However, the US claims that “the Appellate Body has consistently reviewed and event reversed panel fact-finding” and has “done so under different legal standards it has had to invent.” 

“The invention of an authority to review panel fact-finding, contrary to the DSU, has added complexity, duplication, and delay to every WTO dispute. Second, we explain that the Appellate Body has compounded the error by asserting that it can review panel findings concerning the meaning of a member’s municipal law which is the key fact to be demonstrated in any dispute,” the US said. 

In previous appeals, parties have often claimed that relevant panels had failed to make an objective assessment of the matter at hand in the disputes – including “an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements” – as required by WTO dispute settlement rules, and have sought an Appellate Body review. 

According to the WTO Analytical Index, the Appellate Body has held repeatedly that “it will not ‘interfere lightly’ with a panel’s fact-finding authority,” and it would not just disagree with a panel’s findings solely because the Appellate Body “might have reached a different factual finding from the one the panel reached.” Therefore, the panel would be faulted only when it “has exceeded its authority as the trier of the facts,” according to the Analytical Index’s report, which quoted the Appellate Body’s ruling in the Airbus subsidy dispute.

During the DSB meeting, while some members noted that the Appellate Body’s role is limited to legal matters and the Appellate Body should be careful in how it addresses factual reviews, others indicated that the distinction could be hard to make. The European Union also took the floor and said the Appellate Body had fully respected WTO law, according to a Geneva trade official. 

The US has also argued that some of the Appellate Body’s substantive interpretations in certain disputes have had the effect of “adding or diminishing rights and obligations” of WTO members. 

Any solutions? 

While experts and some WTO members have questioned the link the US has made between the selection process for Appellate Body judges and the concerns over how the dispute system operates, there is an ongoing debate in trade circles over possible options that could resolve the US’ concerns and simultaneously improve the WTO dispute settlement system, while preserving its main features and principles.  

Any changes to WTO dispute settlement rules require consensus among the membership, and the Appellate Body issue is expected to remain a subject of debate both at DSB meetings as well as in working groups outside the WTO among certain groups of members. 

For instance, a background note prepared by the European Commission for the European Council’s consideration and published by Bloomberg BNA contains a package of suggestions. For example, the note suggests revising the WTO’s dispute settlement rules to make sure dispute parties are consulted should the Appellate Body need to extend an appeals review timeframe, along with suggesting that members create rules on how to deal with situations where a judge’s term is due to expire while still working on a case. Other suggestions include giving Appellate Body members a single, longer term, along with having further talks on some of the US’ “substantive” complaints, such as on whether to update other WTO rules. 

The larger context

How the Appellate Body impasse may play into other global trade issues is a subject of intense discussion in trade circles, given the proliferation of unilateral measures by some major economies, as well as the criticisms that the White House has lobbed at the global trade clubs. 

For example, President Donald Trump has reiterated his frustration with WTO in recent weeks, claiming that Washington has received unfair treatment despite being one of the organisation’s founding members. Trump told Bloomberg News last month that “if they don’t shape up, I would withdraw from the WTO,” a claim he has made in the past. 

However, various domestic legal analysts have pointed out that Section 125(b)(1) of the Uruguay Round Agreements Act (URAA), which enshrined WTO rules into US domestic law, says as a “General Rule” that “the approval of the Congress, provided under section 101(a), of the WTO Agreement shall cease to be effective if, and only if, a joint resolution described in subsection (c) is enacted into law,” in line with certain “procedural provisions” outlined in the following paragraph. That resolution would need to be passed by Congress. 

ICTSD reporting; “Trump Threatens to Pull U.S. Out of WTO If It Doesn’t ‘Shape Up’,” BLOOMBERG, 30 August 2018.

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