Options for breaking the WTO Appellate Body deadlock

19 January 2018

As WTO members look to solve the stalemate in Geneva, this article assesses the possible hard and soft solutions for breaking the deadlock. Where some of the harder options risk inviting starker power clashes with the US, which may in turn further stunt progress in the WTO, the author recommends exploring “softer” temporary options as a good start in de-blocking the situation.

 

The Appellate Body crisis at the World Trade Organization has arisen from a decision by the United States not to support new appointments to the court. As a result, the activity of the seven-member Appellate Body risks freezing. One judge has resigned, and the terms of two others have already expired. This leaves the court with only four members to deal with a growing number of international trade disputes, and three judges required to hear each appeal. The result may be an Appellate Body rendered inoperable as it becomes increasingly impracticable to adopt decisions.

The crisis cannot be blamed on a lack of popularity of the dispute settlement system, which has settled over 500 hundred complex cases. The innovative two-tiered WTO court system built during the Uruguay Round has generally been well-regarded for its good compliance rate.

As WTO members look to solve the stalemate in Geneva, this article offers some possible solutions for breaking the deadlock.

No body is perfect

The US refuses to support the selection process, stipulating that Appellate Body members should be obligated to stop their activity upon the expiration of their mandates. This requirement demands that the Dispute Settlement Body (DSB) have greater control and prerogative on this matter.

While the DSB nominates the seven judges on the bench, it is the Appellate Body itself that is charged with extending their mandates as needed to “complete the disposition of any appeal to which that person was assigned while a Member.” The Appellate Body will have only to notify the DSB of such extensions.

This practice does not seem to be unordinary. Extensions are usually passed without objection by the DSB – a necessity given the increasing case load before the Appellate Body. The extension of individual adjudicators’ mandates is also a practice widely observed in other international courts.

The US has further taken issue with the alleged judicial activism of the Appellate Body, which results in the creation of new obligations. According to the US, both concerns put into question the legitimacy of the WTO Appellate Body.

Quo vadis?

Possible solutions can be subsumed into two categories. The first would require wide political support from WTO members as it entails resorting to a majority vote. This category can also include the proposal to re-create an appeal system through a separate treaty outside the WTO.

The second category involves somewhat “softer” measures such as modifying the Appellate Body procedural rules, or employing the appeal arbitration option available under Dispute Settlement Understanding (DSU) Article 25.

Going to a vote

This option would entail a one-off emergency majority vote in the DSB which takes decisions by consensus. A decision is only made when no member formally objects to the proposed decision. This may face some obstacles because it is unclear whether there is support for the DSB to vote on the matter in the WTO rules.

The advantage of this approach is that the mere possibility of bringing up the option of voting may be a solution in itself. In a consensus-based environment, WTO members may not want to be singled out through — or left out of — voting on decisions. But the risk is that it may invite starker power clashes with the US, which may in turn further block progress in the WTO.

Looking outside the WTO

In case of major opposition to the voting option, another idea is to seek a solution outside of the WTO by creating a negotiating group among a coalition of willing states. Closely mirroring the DSU, this group would re-create a procedure limited only to appellate review, or even a complete dispute settlement procedure. Besides the wide support and long time frames needed to agree on a new pact, an obvious drawback here is that the WTO disputes would have to leave WTO turf. This could take a long time to agree and implement knowing multilateral negotiations.

Modifying Appellate Body rules

To the extent that the issue can be solved through procedural rules, it has been suggested that the Appellate Body can amend its Working Procedures in order to deny new appeals in the event that the terms of three or more Appellate Body members have expired. This would allow panel decisions to be considered final for automatic adoption by the DSB.

The beauty of this option is that it would allow the system to move on, but at the cost that WTO members would have to forego the right of appeal, at least temporarily. The downside is that the legal basis for such a weighty change by the Appellate Body is dubious at the least. One must also recall that the Appellate Body already faces a shortage of mandates to adopt such a decision.

As an alternative, the need for a mandate extension can be overcome by a decision by the Appellate Body to stop its members from sitting on new appeals ahead the expiration of their appointments. This is not ideal since the problem with the Appellate Body — and the need for mandate extensions in the first place — is linked to its high workload.

The appeal arbitration option

The idea of appeal arbitration is certainly “softer” than voting and therefore more appealing. Its basis is found in DSU Article 25, which sets out an alternative means of dispute resolution contingent upon mutual agreement of the parties. Arbitration can be used under this provision in order to replicate the essential features of the current WTO appellate review process. Under these circumstances, parties would decide on their own proceedings, culminating in an arbitration award to be notified to the DSB, the WTO Council or relevant Committees. Decisions would be enforceable in the same way as if adopted through Appellate Body reports.

Under DSU Article 25, arbitration does not depend on any action by the DSB, allowing WTO members to exercise their right to appeal at least temporarily. There are however nuances to be considered. To make this work, the parties would have to agree on an appeal arbitration before the panel issues its interim report. This would eliminate the risk that the appeal is obstructed by the party which wins the case in the panel phase.  The upsides are slim, but this option does preserve the right of appeal (although not in its original form), avoids overloading the Appellate Body, allows the proceedings to be serviced by the Appellate Body Secretariat, and importantly, it buys time for WTO members to find more solid solutions for the system.  

Moving forward

It is difficult to turn a blind eye to the domestic political context in which the US tests the WTO. According to some, things may even get worse if one of the “harder” options, like voting, is employed to offset the Appellate Body crisis. While domestic agendas should not come at the cost of the rest of the WTO members and their long-standing efforts to build the multilateral trading system, exploring “softer” temporary options may be a good start in de-blocking the situation. This would allow continuous access to justice for WTO members, while making concerted efforts to genuinely address at least some of the US concerns.

 

Dr. Marina Foltea is Founder and Managing Director of Trade Pacts, Geneva. Follow her @MarinaFoltea