WTO Members Intensify Debate Over Resolving Appellate Body Impasse

28 June 2018

Trade delegates in Geneva had an intensive agenda last Friday during a meeting of the WTO’s Dispute Settlement Body (DSB) at the organisation’s headquarters. Notably, members debated how to resolve an impasse over filling vacancies at the top global trade court, particularly given that a fourth slot on the seven-member body may become vacant this autumn unless the situation is fixed. 

According to a Geneva trade official, much of the debate last week centred on a US suggestion to treat Appellate Body reports issued after the established 90-day deadline as non-binding unless all members endorse them, which drew pushback from many other delegations. 

The discussions on 22 June mark the latest episode in an evolving debate over how to lessen the strains on the highest global trade court, particularly in a time of growing geopolitical tensions on trade. 

Going back to the GATT era? 

The Appellate Body is a seven-member group that functions as the WTO’s highest adjudicative body. Each member serves a four-year term, with the possibility of a one-time renewal.  

The group has not been able to work with its full capacity for over a year now, given that three seats are currently vacant. The number may increase to four in this coming September if Shree Baboo Chekitan Servansing, currently an Appellate Body member and previously Mauritius’ WTO Ambassador, is not endorsed for a second term. 

Experts warn that without a prompt selection process, the court will not have enough judges needed to sign off on any Appellate Body rulings after December 2019. Under WTO rules, a minimum of three judges must sign off on any ruling. 

The organisation’s rules on dispute settlement say that the appointment of Appellate Body members requires consensus among the WTO membership. Essentially, this means that WTO members need to formally object to block an appointment, otherwise consent is implied. 

Conversely, for other steps such as the establishment of dispute panels, the adoption of dispute reports, and the authorisation of retaliation, decisions are made by “negative” consensus. WTO rules provide that “the DSB must automatically decide to take the action ahead, unless there is a consensus not to do so,” according to a summary of these provisions published by the global trade club. 

Since last August, the US has objected to the launch of multiple processes to begin selecting new judges to fill the current vacancies. Washington has argued that it cannot approve new judges given that various other “systemic” issues in the Appellate Body’s functioning remain unresolved. Among its complaints are the continued participation of some former Appellate Body members in cases that those judges were already working on when their term expired, which has long been established practice, though not WTO law, under the Appellate Body’s Working Procedures. (Bridges Weekly, 14 September 2017

The US move has drawn pushback from across the membership, with well over 60 members endorsing proposals to launch the selection processes and fill the vacant slots. Some delegations have publicly said that they need more clarity from Washington on how to address its concerns. 

Similar concerns have been raised at past WTO meetings, including at the General Council, which is the organisation’s highest-level gathering outside of its biennial ministerial conferences. At the last General Council meeting in early May, sources say that several ambassadors publicly warned about wider ramifications of the Appellate Body impasse for the whole multilateral trading system. (Bridges Weekly, 9 May 2018

Also last month, Appellate Body Chair Ujal Singh Bhatia commented about the “profound implications” of a paralysed Appellate Body, given that “any losing party could prevent the adoption of the panel report by appealing it to a paralysed Appellate Body.” Such a result, he said, would “warp us back to the GATT era,” referring to the General Agreement on Tariffs and Trade (GATT), which governed the pre-WTO trading system. 

Under the GATT system, the “contracting parties” operated under a very different approach to dispute adjudication, including through the use of “positive consensus,” where parties had the option of vetoing report adoptions, dispute panel establishments, or certain other steps in these legal proceedings. 

US raises 90-day deadline, other concerns 

Last week, the US complained that since 2011, the Appellate Body has “frequently and increasingly” issued its rulings beyond the 90-day deadline as mandated by the WTO rules, specifically under the Dispute Settlement Understanding (DSU). Furthermore, the US delegate noted, this practice has occurred without the Appellate Body first consulting with dispute parties to see whether they agree. 

“For too long, the Appellate Body has ignored the clear text of the DSU. We want Members to read that rule together and to decide: do the words in the WTO Agreement matter? Or is the Appellate Body free to disregard and effectively re-write those words whenever it thinks that is necessary or appropriate?” the US said, according to a copy of their statement published by the country’s mission to the WTO. 

According to a Geneva trade official, several other WTO members spoke last week, recognising the importance of having the Appellate Body meet the 90-day deadline for issuing reports. Many noted, for example, that this would speed up the process for resolving trade cases, and referred to the need to improve transparency in communications between the Appellate Body and dispute parties, while saying that they did not want this 90-day deadline to lead to lesser quality as a result of time pressure. 

Some also referred to some growing challenges that the Appellate Body faces in reviewing cases, such as increasingly complex disputes and limited resources for conducting their work. However, various members noted that the impasse over Appellate Body judge vacancies is exacerbating the problem, rather than ameliorating it, and adhering to the 90-day deadline is not currently a realistic goal. 

The US also faulted the Appellate Body for allegedly failing to limit its appeal review only to those issues “necessary to resolve” the dispute at hand, thus causing the delays. The US cited a series of disputes where this was purportedly the case, and argued that this issue is grounds for making late reports non-binding. Many other WTO members intervened on this point, however, and disagreed with this line of argument. 

This is not the first time that US officials have criticised or questioned procedural and substantive aspects of the Appellate Body’s practices. Earlier this year, the Office of the US Trade Representative (USTR) issues its 2018 President’s Trade Policy Agenda, in which the agency alleged that the Appellate Body frequently goes beyond its mandate, to the point where the panel of judges has “added to or diminished rights or obligations” of WTO members. (See Bridges Weekly, 8 March 2018) 

AB Chair’s speech

During a separate event on the same day, the Appellate Body Chair provided his observations on challenges faced by highest global trade court, calling for “swift and robust action” from the WTO membership to resolve the impasse situation. 

Singh Bhatia reiterated previously expressed concerns, such as the burgeoning caseload of the Appellate Body, made even more difficult given the complexity of today’s disputes. He also highlighted the resource limitations involved, arguing that those elements as a whole lead to “very significant delays” and that the Appellate Body “cannot be realistically expected to deliver high-quality reports within the timeframes prescribed in the DSU.” 

He also noted the debate among members over how the Appellate Body should approach “ambiguity” in existing treaties. When a matter falls out of the scope of the WTO rules, the Appellate Body had left the freedom of members untouched, he said. 

Singh Bhatia commented that a decision not to fully address an issue properly established in a dispute, “could, in effect, be a decision in favour of one of the participants, possibly altering the rights and obligations of WTO members.” 

The speech had also touched on the value of past case law and the necessary evolution of the legal interpretations conducted by the Appellate Body in order to ensure the “security and predictability” of the multilateral trading system. 

Singh Bhatia concluded his remarks by calling for WTO members to act to preserve the legitimacy of the dispute settlement system and to address broader challenges to multilateralism. 

“WTO members must embrace this responsibility and engage in constructive dialogue to ensure the continued good health of a system that is uniquely effective, but which cannot be taken for granted,” he said. 

Geopolitical landscape on trade

Those debates occur during a critical moment for the global trading system, with one key player, the US, opting in recent months to adopt unilateral actions to address its trade concerns with partners. Those actions have in turn triggered vocal responses from other players, both in light of the commercial consequences and the systemic implications. 

Much of the spotlight has been on the responsive measures announced by the EU, China, Canada, and Mexico following US tariffs on steel and aluminium, which are also facing domestic legal challenges from industry players. Other economies whose interests have also been affected have publicly expressed their own concerns, and in some cases notified planned actions in response. 

These include, for example, a WTO dispute from Norway on the US’ steel and aluminium tariffs, or notifications of “suspension of concessions” in response to these tariffs from the likes of India, Turkey, Russia, and others, who have argued that the US tariffs are safeguard measures, rather than national security-related policies. That distinction has legal implications at the global trade club, given that safeguard measures and national security-related trade measures are subject to different requirements, including over whether compensation is required for affected exporting members. 

Even some countries that have reached deals with the US to avert the duties, such as Brazil, have publicly criticised Washington’s negotiating approach in this area, and have noted that alternative quota arrangements were imposed over Brasilia’s objections. (A more detailed report on the Section 232 situation will be featured in next week’s edition of Bridges) 

US Trade Representative Robert Lighthizer issued a statement on Tuesday 26 June criticising the responsive measures adopted by other WTO members in light of the US’ steel and aluminium tariffs. He argued that while the US tariffs were “wholly legitimate and fully justified” under both domestic law and at the WTO, steps like the EU’s “re-balancing” measures are based on a “groundless legal theory.” 

“These retaliatory tariffs underscore the complete hypocrisy that governs so much of the global trading system.  For months, the EU, China, and others have criticised the trade policy of the United States, while claiming to champion the WTO. But their recent tariffs prove that they simply ignore WTO rules whenever doing so is convenient,” he said. 

ICTSD reporting.

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