TWN Info Service on WTO and Trade Issues (Oct17/04)
9 October 2017
Third World Network
US assault on DSU and DG's "deafening silence"
Published in SUNS #8544 dated 3 October 2017

Geneva, 2 Oct (D. Ravi Kanth) - The United States appears to be mounting a sustained assault on the Dispute Settlement Understanding (DSU) of the World Trade Organization, with the objective of eliminating the negative consensus rule, something that the US had principally pushed for in 1993 as a condition for its acceptance of the DSU.

In the face of this sustained assault, WTO Director-General Roberto Azevedo has adopted a  policy of "deafening silence", and this is contributing to "demoralization" at the trade body, trade diplomats told the SUNS.

The director-general (DG) has apparently come under pressure from the US for removing/transferring a senior official in the dispute settlement division.

Besides, in one instance, the DG wanted the re-writing of a major ruling concerning the US, according to a former Appellate Body member, who asked not to be quoted.

Instead of speaking out against the US attempts to undermine the dispute settlement system, the DG is willing to negotiate with the US to explore how things can be improved at the DSB, the former member noted.

At a DSB meeting on Friday (29 September), the US suggested the need for "positive consensus" for adopting a WTO ruling in a dispute to which it was only a third party.

The United States said it will continue to oppose the launching of the selection process to fill current and upcoming vacancies on the WTO's Appellate Body until its concerns about the continued service of former judges is addressed.

[Apart from discussing Appellate Body matters, the DSB at last week's meeting also agreed to establish a panel at the request of Brazil to rule on alleged Canadian support programs in favour of Montreal-based aircraft manufacturer Bombardier. A full report on the DSB meeting will appear in an upcoming issue. SUNS]

In the dispute between Indonesia and the European Union over anti-dumping duties on certain fatty alcohols from Indonesia, the panel and the Appellate Body (AB) ruled in favour of the EU.

The US said while it concurred with the AB ruling, it objected to the adoption of the ruling on procedural grounds. The US maintained that two of the AB members - Hyun Chong Kim and Ricardo Ramirez-Hernandez - who were signatories to the ruling, had demitted office.

The US maintained that the adoption of the ruling was not consistent with the provisions in Article 17 of the DSU, and suggested that it must be adopted under "positive consensus" as opposed to the "negative consensus" underlying adoption of the rulings in 1995.

Thus, argued the US, adoption of the ruling by the DSB should be by "positive consensus," i.e. adopted only if no objections are raised, rather than by "negative consensus."

Under Article 17.14 of the dispute settlement understanding (DSU), "an Appellate Body report shall be adopted by the DSB and unconditionally accepted by parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following its circulation to members."

This is not the first time that the US suggested "positive consensus" as the basis for adopting a WTO ruling.

In 2012, when the Appellate Body report on a dispute between the US and Canada on Certain Country of Origin Labelling (COOL) requirements was delayed beyond 90 days, the US had said that positive consensus was needed for adoption.

Subsequently, it had agreed to adopt the ruling based on the existing negative consensus provision in Article 17.14 of the DSU.

Significantly, the US blocked a proposal from many countries for launching the simultaneous selection process for filling three vacancies in the AB on procedural grounds.

Until now, it has not provided any credible reasons for blocking the simultaneous selection process for the three vacancies. The US has also blocked attempts to increase the staff in the divisions concerned with disputes.

Ahead of the ongoing attempts by the US to block proceedings for launching the simultaneous selection process, the US Trade Representative Ambassador Robert Lighthizer had said unambiguously that Washington wants to go back to the old GATT practice of negotiating rulings.

Speaking at the Center for Strategic and International Studies in Washington DC on 21 September, Ambassador Lighthizer said, "on the [WTO's] dispute settlement system, I would answer in two parts."

He argued "there are number of areas [where] there is a broad agreement that the WTO dispute settlement system is deficient."

"There is the transparency issue, there are issues with the staff, whole lot of areas we have a problem with [the dispute settlement system]," Ambassador Lighthizer said.

"Beyond that the US sees there are examples that the dispute settlement system has diminished over the years," he argued.

The USTR suggested that what the US had bargained for and the obligations it undertook, are different from the rulings issued by the Appellate Body.

"We believe that there have been lot of cases in the trade remedy laws where the decisions [of the Appellate Body] are indefensible," he said, suggesting that "many of the people there [at the AB] have free trade orientations, and we have tax laws that are struck down and we have other provisions where the WTO has taken the position that they are going to strike down something that should not happen instead of looking down the GATT agreement as a contract."

Ambassador Lighthizer said "the DSU has evolved in a way that it creates new obligations and it does not provide benefits to us both in procedural way and we have to worry about the DSU and it is a fundamental part of the WTO."

"We are objecting to the [dispute settlement] process because we don't agree with it as in many cases [as] the Appellate Body has approached [the disputes]," he said.

"Before 1995, there was a system then in the GATT and then you would negotiate after a ruling was issued," he suggested.

Ambassador Lighthizer objected to the binding dispute settlement system under the WTO, suggesting that the previous system of resolving trade disputes under GATT was better.

[In 1993, when the Dispute Settlement Understanding was being negotiated and formalised at official level, it was the US that had insisted on the "negative consensus" provision for adoption of panel and AB rulings. It had felt aggrieved and frustrated under the old GATT 1947, where in at least two cases brought by it against the then European Economic Community - both on agricultural products - the EEC blocked adoption of rulings. There were also subsequent disputes involving the US and the EEC where panel rulings were blocked. Bearing this in mind, the US had insisted on the negative consensus rule. The Europeans at that time had very reluctantly agreed to it. At that time, developing countries pointed to the DSU, and this feature (of powerful trading nations unable to block adverse rulings) as the major positive achievement of the Marrakesh treaty. SUNS]

In effect, the US moves are clearly directed at bringing back "positive consensus" into the dispute settlement system so that it can accept rulings that are favourable to its trade interests and block those that would adversely affect its interests.

In a way, the US is preparing the ground for unilateral actions against China and other countries in trade remedy cases as well as other areas such as intellectual property provisions under Section 301.

Following his meeting with Azevedo, Ambassador Lighthizer told the Senate Finance Committee on 21 June that the US would like to see fundamental changes in the functioning of the Dispute Settlement Body, including the rulings issued by the Appellate Body.

Ambassador Lighthizer said he told Azevedo that there will be "absolutely cataclysmic" consequences if the WTO dispute settlement panel upholds China's complaint against the European Union over the denial of market economy status to Chinese products after 12 December 2016.

The USTR said he is "assuming the WTO will do the right thing", failing which he said he will consult with the US Congress. The USTR chose to threaten the WTO Chief of far-reaching consequences if the panel and later Appellate Body were to concur with China that the denial of market economy status is inconsistent with the commitments undertaken by the EU and other countries.

Against this backdrop, Azevedo's "deafening silence" on the US actions at the Dispute Settlement Body have caused untold disquiet among the staff as well as members, sources said.

Last year, Azevedo remained silent when the US blocked the reappointment of Seung Wha Chang of South Korea to the Appellate Body. Now, when the US is blocking the selection process for the AB, which will lead to the paralysis of the DSB, the director-general is willing to negotiate with Washington instead of calling a spade a spade.