Svetlana Chobanova[1]

 

The agreements of the World Trade Organization (WTO) form the basic rules in international trade relations among nations, with the WTO dispute settlement system allowing its Members to resolve disputes about the conformity of national measures with these rules. Today, this functional and well-developed over the years system is in a crisis because of the absence of a sufficient number of arbitrators to hear disputes at the second and last instance, its Appellate Body (AB). This article describes the development of the crisis, outlines the reasons that led to the blocking of the work of the AB and sets out some existing proposals for resolving the impasse.

The reason for the crisis of the WTO dispute settlement is the diminishing number of AB members whose appointment and re-appointment must be made by consensus of all WTO Members under the rules of the Dispute Settlement Understanding (DSU). Since 2017, the United States’ (US) administration has been blocking their election and re-election leaving the AB with a single member in December 2019, thus unable to form a division of three necessary to hear appeals. At Dispute Settlement Body (DSB) meetings, the US has expressed a number of systemic concerns regarding the functioning of the AB: (i) deeming an individual whose term has expired to be an AB member for purposes of completing pending appeals; (ii) issuing reports beyond the 90-day deadline mandated by the DSU and without requesting the consent of the parties; (iii) engaging in overreach by reviewing panels’ fact-finding and the meaning of municipal law; (iv) issuing “advisory opinions” by making findings that are not necessary to resolve a dispute; (v) maintaining that AB reports serve as precedent in subsequent disputes absent cogent reasons; and (vi) adding a requirement for the legal basis of a panel request that does not appear in the DSU. Furthermore, in February 2020 the United States Trade Representative issued a “Report on the Appellate Body of the World Trade Organization” which summarizes the above-mentioned critiques, together with a number of concerns on the substance of the AB reports.

In the period 2017-2019, WTO Members’ delegations, as well as academics and practitioners, made a number of proposals on how to reform the dispute settlement system and improve the functioning of the AB. In order to determine which proposals could gain the support of the DSB, the chair of the WTO General Council tasked Ambassador David Walker from New Zealand to oversee the reform process. Having conducted multiple informal discussions with WTO Members, on 15 November 2019, Ambassador Walker presented its last report, together with a proposal for a General Council decision, summarizing the points with regard to which an agreement for improving the functioning of the AB could be reached. In parallel, a group of 117 WTO Members issued a call at the DSB meeting of 25 November that year to launch the process for filling vacancies on the AB, marking two years since proponents first issued their joint appeal. The US however repeated that it was not in a position to agree to these proposals because its systemic concerns regarding the AB had remained unaddressed.

Accordingly, on 11 December 2019 the work of the AB halted to a complete stop. The consequences of this blockage are serious, including the possibility for a party to a dispute discontent with the outcome of a panel report to “appeal into the void”, thereby preventing the report’s adoption and a final resolution of the dispute. This situation resembles the rules of the GATT 1947 under which panel reports were adopted by consensus of all contracting parties and each of them (including the parties to the dispute) could block its adoption. Moreover, in the absence of an adopted panel report and thus an obligation to bring the inconsistent measure into conformity with the WTO agreements, the complainant cannot make use of the rules in the DSU allowing it to request from the DSB the suspension of concessions and other obligations with respect to the respondent.

In the absence of an agreement among the WTO Members for unblocking the AB appointments, the supporters of the system began looking for alternatives that recreate its basic characteristics. Some ideas envisage circumventing the AB entirely by removing the possibility for an appeal; alternatively, parties to a specific dispute could renounce on their right to appeal on a bilateral basis. The proposal that gained the most traction is the creation of a temporary institution in the form of ad hoc arbitration within the framework of Article 25 of the DSU, which envisages expeditious arbitration as an alternative means of dispute settlement. On 30 April 2020, 18 WTO Members (Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, the European Union, Guatemala, Hong Kong, China, Iceland, Mexico, New Zealand, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay) notified to the WTO the conclusion of a Multi-Party Interim Appeal Arbitration Arrangement which would apply for future disputes among the parties to the agreement and for the duration of the AB crisis. It is based on the usual WTO rules applicable to appeals, but also contains some novel elements to enhance procedural efficiency.

Some authors highlight that the AB was created as a “safety valve” against panel reports with critical shortages in the interpretation of WTO law, the adoption of which has been rendered quasi-automatic by the DSU. Thus, the AB’s mandate was limited to questions of law and the expectation was that very few reports would be appealed. Instead, almost three quarters of all panel reports reach the AB each year. One reason for this is said to be the lack of clarity regarding the meaning of certain provisions in the WTO agreements, often drafted with “constructive ambiguity” by the negotiators. According to these authors, it is not for the AB but for the WTO Members to clarify such provisions in subsequent rounds of negotiations. Others consider that there is an asymmetry between the success of the WTO quasi-judicial system over the last 25 years and the crisis of its legislative system related to the absence of development in the Doha round of negotiations. Given the lack of agreement among Members, the legislator (the Ministerial Conference or the General Council) is unable to correct interpretative errors made by panels and the AB – an important mechanism ensuring the balance of powers in any rule of law system. The economic and political shifts of power in the last decades also compel an urgent update of the rulebook. As underlined by Ambassador Bhatia, the crisis of the AB is the crisis of trade multilateralism.

In all cases, the solution to the current crisis has to be found via constructive discussions and negotiations among all interested WTO Members. This is an opportunity for them to reconsider their expectations and requirements towards the dispute settlement system and reach a consensus on the most appropriate ways to reform its functioning.

 

[1] Dispute settlement lawyer at the World Trade Organization. The opinions in this article are made entirely in a personal capacity.