TWN Info Service on WTO and Trade Issues (Nov18/19)
30 November 2018
Third World Network

China, India, EU join hands to salvage WTO's Appellate Body
Published in SUNS #8805 dated  28 November 2018

Geneva, 27 Nov (D. Ravi Kanth) - China, India, and the European Union have joined hands to salvage the World Trade Organization's Appellate Body (AB) from its mortal crisis caused unilaterally by the United States for pursuing its "America First" trade policies, trade envoys told SUNS.

The three countries have issued two separate initiatives in which they called for filling the four vacancies on the Appellate Body on a war footing, and for amending several provisions of the Dispute Settlement Understanding (DSU) for addressing the US concerns.

The US, which seems determined to end the life of the Appellate Body by December 2019, citing extraneous grounds, has repeatedly blocked a proposal from more than 70 countries for launching an expeditious selection process for filling the vacancies at the AB. The US has vociferously inveighed against the AB for the delay in issuing rulings within 90 days as per the DSU provisions, and for allegedly overstepping the DSU mandate in several rulings.

Effectively, the US seems opposed to the impartial and independent functioning of the AB, said a trade envoy, who asked not to be quoted.

The AB has already been reduced to three members from seven members due to repeated blocking of the selection process by the US.

From December 2019, the AB will be reduced to a single member when two more members -- Ujal Singh Bhatia of India and Thomas Graham of the US -- retire at the end of their second four-year terms. Subsequently, the AB will become dysfunctional with just one member remaining.

Against this backdrop, China, India, and the EU formed an unusual alliance for addressing these two issues - i.e. filling of four vacancies at the AB along with addressing some of the US concerns, and safeguarding the independent functioning of the AB.

Both these initiatives will come up for consideration at the WTO's General Council meeting on 11 December.

In the first initiative (WT/GC/W/752) issued on 26 November, China, India, and the EU along with nine other countries such as Canada, Norway, New Zealand, Switzerland, Australia, Korea, Iceland, Singapore, and Mexico stated unambiguously the "successful contribution of the dispute settlement system to the security and predictability of the multilateral trading system."

Given "the essential role of the Appellate Body within the system that serves to preserve the rights and obligations of Members under the covered agreements , and to clarify the existing provisions of those agreements without adding to or diminishing the rights and obligations provided therein," the sponsors called on all members, particularly the US, "to fill the vacancies on the Appellate Body and to amend certain provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)."

The proposed amendments to the DSU include (a) "transitional rules for outgoing Appellate Body members", (b) "the issue of 90 days", (c) "the meaning of municipal law as an issue of fact", (d) "findings unnecessary for the resolution of the dispute," and (e) "the issue of precedent."

The US has repeatedly maintained that "the Appellate Body does not have the authority to deem someone who is not an Appellate Body member to be a member."

Incidentally, in some favourable rulings that endorsed the US actions, the US remained silent even though an outgoing AB member was part of the appellate proceedings.

In several rulings, an outgoing Appellate Body member, after the second four-year term, continued to engage in the appellate proceedings because of having been associated with the dispute when it was launched.

To address this specific concern of the US, the proponents proposed "that a transitional rule for outgoing Appellate Body members is adopted by the WTO Membership itself through an amendment of the DSU."

The amendment to the DSU "would provide that an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has already taken place during that member's term."

Another major charge levied against the AB by the US involves the AB's failure to adhere to the 90-day limit and its decision to extend the proceedings without informing the members.

For addressing the 90-day rule, the proponents called for amending the rule in Article 17.5 of the DSU "by providing an enhanced consultation and transparency obligation for the Appellate Body. Article 17.5, [as proposed to be amended], would provide for the possibility for the parties to agree to the exceeding of the 90-day timeframe. In practice, the Appellate Body would need to consult with the parties early in appellate proceedings - or before the appeal is filed - if it estimates that the report will be circulated outside 90 days."

"If there is no agreement of the parties on the exceeding of this timeframe," the proponents suggested that "there could be a mechanism pursuant to which the procedure or working arrangements for the particular appeal could be adapted to ensure the meeting of the 90-day timeframe. For example, the Appellate Body could propose to the parties to voluntarily focus the scope of the appeal, set an indicative page limit on the parties' submissions or it could take appropriate measures to reduce the length of its report. This could also include the publication of the report in the language of the appeal only, for the purposes of meeting the 90-day timeframe (the translation to the other WTO languages and formal circulation and adoption would come later)."

The proponents made it clear "that those changes do not affect the existing rules on the validity or the adoption of late reports."

Commenting on the "meaning of municipal law as an issue of fact," which the US had raised in the disputes involving the AB review of "panel findings as to the meaning of domestic legislation," the proponents proposed to "clarify, for greater certainty, that issues of law covered in the panel report and legal interpretations developed by the panel, in the meaning of Article 17.6 of the DSU, while they include the legal characterization of the measures at issue under the WTO rules, and the panel's objective assessment according to Article 11 of the DSU, they do not include the meaning itself of the municipal measures."

On another major complaint of the US against the AB, namely, on "findings unnecessary for the resolution of the dispute" or the AB's tendency "to make findings on issues not necessary to resolve a dispute," the proponents proposed "to amend Article 17.12 of the DSU to provide that the Appellate Body shall address each of the issues raised on appeal by the parties to the dispute to the
exent this is necessary for the resolution of the dispute."

The proponents claimed that the above amendment of Article 17.12 of the DSU "indirectly" would also address the concern related to the timelines of appellate proceedings (the issue of 90 days).

Lastly, on the US concern over the AB's "approach to treat its own reports effectively as precedent that panels are to follow absent cogent reasons", the proponents suggested holding annual meetings between the AB and the WTO members (in the DSB) "where Members could express their views in a manner unrelated to the adoption of particular reports (as laid down currently in Article 17.14 of the DSU)."

The proponents argued that an annual interaction between the AB and the WTO members "would provide an additional "channel of communication" where concerns with regard to some Appellate Body approaches, systemic issues or trends in the jurisprudence could be voiced."

The proponents indicated that "adequate transparency and ground rules for such meetings would need to be put in place, in order to avoid undue pressure on Appellate Body members."

In the second initiative for strengthening "the independence and impartiality of the Appellate Body, improving efficiency so as to enable it to meet the required timeframes, and ensuring an orderly transition as well as an orderly launch of selection procedures," China, India and the EU called for (i) "independence of Appellate Body members," (ii) "efficiency and capacity to deliver," (iii) "transitional rules for outgoing AB members," and (iv) "the launch of the Appellate Body selection process."

For ensuring the independence of AB members, China, India, and the EU proposed to "provide for one single but longer (6-8 years) term for Appellate Body members."

The underlying objective, according to the three proponents, is "to enhance the independence of the Appellate Body and its members, which is needed in view of the experience of recent years."

As regards improving "efficiency and capacity to deliver" along with the proposed amendment on the 90-day rule, the three proponents proposed the following elements:

A. Increasing the number of Appellate Body members from 7 to 9. This would improve the efficiency and internal organization of the Appellate Body while also improving the geographical balance on the Appellate Body after numerous accessions to the WTO since 1995.

B. Providing that the membership of the Appellate Body is the exclusive occupation of Appellate Body members (currently, pursuant to the DSB decision WT/DSB/1, it is a part-time job). This would be accompanied by appropriate changes in the employment conditions. This would not preclude Appellate Body members from academic or scientific activities, consistent with the nature of their functions.

C. As an accompanying measure - not requiring an amendment of the DSU (cf. Article 17.7 of the DSU) - an expansion of the resources of the Appellate Body Secretariat, providing the administrative and legal support to the Appellate Body, would also be considered in order to facilitate the prompt circulation of Appellate Body reports while safeguarding the quality of the reports. In line with the general recruitment policy of the WTO, the objective should be to attract and retain staff members offering the highest standards of efficiency, competence, and integrity while ensuring the broadest possible diversification, reflecting that of the membership in the WTO.

On the issue of transitional rules for outgoing AB members, the three proponents said "in order to ensure an orderly transition between the outgoing and new Appellate Body members, the outgoing Appellate Body members should continue discharging their duties until their places have been filled but not longer than for a period of two years following the expiry of the term of office."

Lastly, on the launch of the Appellate Body selection process, the three proponents clarified that the "selection process to replace outgoing Appellate Body members shall be automatically launched no later than X [e.g.6] months before the expiry of their term of office."

The proponents have placed the ball in the US court but the chances of the US engaging in amending the DSU provisions as proposed by the proponents are close to zero, said a trade envoy, who asked not to be quoted.

Despite the joint initiative, it is highly unlikely that the US will accept the amendments as it seems determined to end the life of the AB by December 2019.

The US Trade Representative Ambassador Robert Lighthizer had publicly stated that the US would prefer to go back to the pre-1995 GATT (General Agreement on Tariffs and Trade) phase so that it can negotiate the rulings of a panel, instead of implementing the AB rulings.