Info Service on WTO and Trade Issues (Jul18/01)
2 July 2018
Third World Network
Dispute settlement system facing terminal existential crisis
Published in SUNS #8708 dated 26 June 2018
Geneva, 25 Jun (D. Ravi Kanth) - The chair for the World Trade Organization
Appellate Body (AB) Ujal Singh Bhatia on Friday cautioned members
that the dispute settlement system is facing a terminal existential
crisis following "the year-long impasse on the process for appointing
the AB members," and "its reduced strength" is now
threatening its "legitimacy".
"Unless WTO members take swift and robust action to remedy this
situation, there may soon come a time when appellate proceedings are
paralysed if fewer than three AB members are available", the
By December 2019, the AB will be reduced to just one member if the
current three vacancies are not filled and the second term for a sitting
member Shree Babu Chekitan Servansing is not extended by end-September.
"If rules cannot be enforced, is there a point to negotiating
them," the AB chair pointedly asked, after succinctly nailing
the arguments advanced by the United States that the highest adjudicating
body for global trade disputes failed to circulate its reports within
the 90-day deadline since 2011.
Bhatia cautioned members that the AB is now facing the terminal existential
crisis because of the continued attempts to block the selection process
for filling vacancies and terminate the principle of negative consensus
under Article 1 7.14 of the Dispute Settlement Understanding (DSU).
The AB chair urged members to enter into an urgent "political
dialogue" to address two fundamental challenges facing the WTO
dispute settlement system - "the burgeoning pressure of increasingly
complex disputes at various stages " and "the way the DSU
should be used to resolve disputes" - failing which "these
challenges can cripple, paralyze, or even extinguish the system."
Without naming the US, the AB chair made his comments a few hours
after the US trade envoy to the WTO, Ambassador Dennis Shea, launched
a searing critique of the AB's failures to circulate its reports within
the 90-day deadline under Article 17.5 of the DSU since the last eight
The US trade envoy also threatened that any report or rulings issued
by the AB after the 90-day deadline should not be adopted under the
principle of negative consensus which requires WTO members to implement
Dispute Settlement Body recommendations based on AB reports to be
implemented unconditionally unless there is complete consensus among
members to reject the AB's rulings.
Several members sharply disagreed with the US trade envoy's assessment
on Article 17.5 of the 90-day deadline as well as the negative consensus
"We find it striking (for the US) to criticize the Appellate
Body for delays, while at the same time not allowing the new appointments
to take place," the European Union said pointedly.
The EU also squashed the US proposal for not adopting the negative
consensus principle if the AB reports are delayed beyond 90 days.
The EU argued the principle of negative consensus is "absolute"
and valid for both "late" and "timely" AB reports.
At an unusual Dispute Settlement Body meeting on Friday, the US again
blocked a proposal from more than 66 countries for establishing an
expeditious selection process for filling the three vacancies at the
Prior to blocking the proposal for an expeditious selection process,
the US trade envoy launched a scathing attack on the AB for failing
to respect Article 1 7.5 of the Dispute Settlement Understanding and
"the mandatory requirement to complete appeals in no more than
90 days, with no exceptions."
Ambassador Shea said the AB had respected this rule prior to 2011
and "when there were deviations, it was only with the agreement
of the parties."
But since 2011, the AB resorted to "inexplicable" practices,
with the "appeals taking longer and longer".
The US envoy said "there are serious consequences for the WTO
dispute settlement system of the AB's repeated, flagrant breach of
Ambassador Shea, however, remained silent on the US failure to implement
the WTO dispute settlement recommendations and the AB rulings in several
cases for more than 16 years.
He offered a detailed explanation of the provisions of Article 17.5
of the DSU, saying it "does not accord discretion to the Appellate
Body to issue reports beyond the 90-day deadline."
Ambassador Shea said "if any Member considers today that Article
17.5 does not mean exactly what it says, we would simply point out
that, some 20 years ago, the Appellate Body understood Article 17.5
to mean exactly what it says."
The US trade envoy gave several examples of pre-2011 when members
cooperated to facilitate the ability of the AB to meet the 90-day
"At the request of the parties to the dispute, the DSB several
times agreed to take DSB decisions to extend the time period for adoption
or appeal of panel reports so that the appeal could be considered
at a time when the Appellate Body would be better placed to issue
its report within 90 days," he argued.
From 2011, the AB began ignoring the 90-day requirement, he said.
"Some WTO members had expressed significant concerns," the
US envoy said, suggesting that "starting with the appeal in US-Tyres
(China), the Appellate Body, without explanation, departed from the
long-established practice of consulting and obtaining parties' consent
where it considered it could not meet the 90-day requirement."
During the last eight years, the AB "has frequently and increasingly
breached its 90 days obligation," said Ambassador Shea.
"This problem may also relate to other systemic concerns Members
[the systemic concerns have been largely raised by the US] have expressed.
For example, an appeal will take longer where the Appellate Body spends
valuable time addressing issues that [are] not necessary to resolve
The US repeatedly said the AB deviated from the covered agreements
even though the complexity of the disputes required a thorough examination
of all issues coming under the purview of the dispute.
The US envoy said "the AB creates reasons for breaching the rule
rather than changing its behavior to ensure compliance with the rule,"
thereby, the AB "diminishes the rights of WTO Members contrary
to DSU Article 3.2 and undermines confidence in the WTO as a whole."
Therefore, "it is past time for WTO Members to meet their responsibility
to administer the WTO rules-based system according to the rules,"
Ambassador Shea argued.
Because of the AB's flagrant violation of Article 17.5 of the DSU,
any report issued by the AB after 90 days "would be that this
report no longer qualifies as an Appellate Body report for purposes
of the exceptional negative consensus adoption procedure of Article
17.14 of the DSU."
"No party should bear uncertainty as to the adoption of a report
due to the adjudicator's unwillingness to follow the rules or obtain
the DSB's agreement to deviate from those rules," the US envoy
Unsurprisingly, the US did not address the growing complexity of trade
disputes as mentioned by several members during the meeting.
A few hours after the US envoy delivered the scathing attack on the
AB, the chair of the AB, Ujal Singh Bhatia, delivered the annual report
Bhatia began by saying "these are extraordinary times" for
the WTO's dispute settlement system which is now facing two "contrasting
and yet related challenges that threaten its legitimacy as well as
The two challenges, according to Bhatia, are: "On the one hand,
the dispute settlement system, which has for two decades established
its credentials as an efficient and impartial mechanism, faces the
burgeoning pressure of increasingly complex disputes at various stages."
"On the other, some recent critiques have raised fundamental
questions about the way the DSU should be used to resolve disputes."
It is an open secret that the US has been arguing for the past one
year that WTO members should revert to the pre-1995 phase of resolving
trade disputes by negotiating the findings issued by panels. The US
has also argued against the negative consensus of the DSU.
The AB chair urged members to address the twin challenges as they
are "clearly beyond the capacity of the dispute settlement system
itself to resolve, and they call for determined political dialogue
among WTO Members."
"Left unaddressed," he warned, "these challenges can
cripple, paralyse, or even extinguish the system."
The AB chair maintained that 551 disputes have been initiated by WTO
Members, resulting in 230 circulated panel reports and 136 circulated
"Aside from the sheer number of disputes that Members have submitted
to dispute settlement - which is a sign of empirical legitimacy -
it is worth mentioning the almost total absence of instances where
Members have chosen not to implement a ruling upon losing it,"
The AB chair's assessment on the implementation of the disputes by
members is incorrect as the US had not implemented several rulings
for the past 16 years, said a trade envoy, who asked not to be quoted.
Without naming the United States, Bhatia said "while losing parties
have criticized individual rulings, "these critiques have rarely
challenged the overall authority or legitimacy of the WTO judicial
He said "given the number, size, and complexity of appeals, coupled
with the resources provided to it, the AB cannot be realistically
expected to deliver high-quality reports within the timeframes prescribed
in the DSU."
"Long delays in filling vacancies in the AB obviously do not
help either," he said.
"Given the daunting mismatch between its workload and resources,
the AB has undertaken several initiatives to simplify and streamline
the content of it s reports and its legal analysis," he said.
Bhatia said "the growing incongruence between the disputes being
referred to the WTO dispute settlement system, the resources allocated
to it, and the rules and procedures governing it are together leading
to very significant delays."
The AB chair offered a detailed explanation as to what the highest
adjudicating body is required to do under its mandate set out in Article
3.2 of the DSU.
Given the "constructive ambiguity" in rules, he said it
is imperative for the AB to strictly follow the "customary rules
of interpretation of public international law" as codified in
the Vienna Convention on the law of treaties.
The AB chair said that "while many provisions of international
treaties are agreed upon in clear and detailed language, certain provisions
may be couched in what international lawyers call "constructive
ambiguity," where consensus on precise language could not be
reached during negotiations."
"In the WTO context, when a dispute arises in relation to such
an unclear or ambiguous provision, adjudicators are to examine that
provision in accordance with customary rules of interpretation and
to apply them to the particular case," he said.
Without naming the US, Bhatia said, "some [members] argue that
where adjudicators encounter such ambiguity or lack of clarity, they
should refrain from examining it and instead leave it for WTO Members
to deal with."
"Others support the need for resolving the interpretative issue
so as to make sure that disputes are not left unresolved," he
"When adjudicators, having applied these interpretative tools,
conclude that certain conduct is outside the scope of application
of the treaty obligation invoked, they should have no hesitation in
ending their analysis there," he said, suggesting that "if
an issue is not regulated in WTO law, WTO Members are entitled to
act as they please."
He gave the example of Havana rum trademark dispute, saying the AB
"agreed with the panel that this definition has been left to
the legislative discretion of individual countries."
The AB chair said "Article 3.2 provides that the dispute settlement
system serves to clarify WTO provisions in accordance with customary
rules of interpretation."
He then asked "how far should the dispute settlement system go
in "clarifying" ambiguous provisions, and where are the
Again without naming the US, Bhatia said "there appears to be
a tension between the minimalistic approaches favoured by some and
the requirements under Article 11 of the DSU for panels to make "an
objective assessment of ... the applicability of and conformity with
the relevant covered agreements" and under Article 1 7.12 for
the Appellate Body to "address" each issue of law and legal
interpretation covered in the panel report that is raised during an
"When we sit in judgement of specific cases, these issues are
not always easy to resolve," he argued.
The AB chair raised several questions whether "DSU provisions
provide WTO adjudicators with the discretion to deny clarifying WTO
provisions where such clarification is necessary to resolve the dispute?
Do they permit adjudicators to deny exercising jurisdiction to resolve
the dispute when it has been properly established?"
He said "it is important to note that a decision not to fully
address an issue could, in effect, be a decision in favour of one
of the participants, possibly altering the rights and obligations
of WTO Members."
"There are also cases in which Members raise an issue on appeal
concerning a "legal interpretation developed by the panel",
as contemplated by Article 1 7.6, without challenging the ultimate
conclusion that the panel reached," he said.
Bhatia said "the issue of consistency of rulings in WTO dispute
settlement is closely connected to the mandated requirement for "security
"As is well known, one reason for creating the Appellate Body
was to provide greater guarantees to WTO Members that panel reports
would be subject to review, in the context of the adoption of the
reverse consensus principle. The Appellate Body has taken the view
that ensuring "predictability and security" implies that,
absent cogent reasons, an adjudicator will resolve the same legal
question in the same way in a subsequent case," he maintained.
The AB chair said "each case has to be considered on its own
merits, and cases or issues that appear to be similar may be decided
differently when they can be distinguished from earlier cases or when
factual scenarios are different."
In a riposte to the US charge that the AB deviates from the covered
agreements, Bhatia said that a tabula rasa approach, which consciously
sweeps aside the past, could not meet the requirements of "security
and predictability" as outlined in the DSU.
He cited the rulings issued by the international investment arbitration
that caused more difficulties to parties because of the "lack
of consistency in first-instance arbitration rulings, as an immediate
counterfactual of a system without a review mechanism for ensuring
coherence and predictability."
"Given the urgency for decisions regarding the AB, inaction is
no longer an option," he said, arguing that "the year-long
impasse on the process for appointing AB Members is debilitating the
The AB's "reduced strength is undermining the collegiality of
our deliberations, and the lack of proper geographical representation
threatens its legitimacy."
"I need not point out that the reduction in our numbers will
cause further delays in appellate proceedings," he warned.
"Unless WTO Members take swift and robust action to remedy this
situation, there may soon come a time when appellate proceedings are
paralysed if fewer than three AB Members are available", Bhatia
"Such a paralysis would have profound implications on panel proceedings,"
he said, arguing that "the Appellate Body and panels are part
of one dispute settlement mechanism, and one cannot properly function
without the other."
"Where a panel report is appealed, but an Appellate Division
cannot be formed to hear that appeal, the adoption of the panel report
is suspended until the Appellate Body can complete its proceedings,"
"This would lead to the de facto demise of the negative consensus
rule that has characterized the WTO dispute settlement system since
1995," Bhatia warned.
"Any losing party would be able to prevent the adoption of the
panel report by appealing it to a paralysed Appellate Body,"
he said. "If rules cannot be enforced, is there a point to negotiating
them?" he asked.
The chair said "while the WTO dispute settlement system has to
enforce existing international obligations, it also has to respect
the limits of those rules and identify areas where national sovereignty
is not constrained".
"But WTO Members also need to bear in mind the consequences of
their actions on the effectiveness of the international system. In
an interdependent world, global problems demand global solutions,
and even national problems often require international cooperation,"
In conclusion, the AB chair's assessment points to a grim situation
that could lead to the demise of the AB by end-2019, unless the WTO
members act on a war footing to strengthen the highest adjudicating