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TWN Info Service on WTO and Trade Issues (Jun19/02)
10 June 2019
Third World Network

AB crisis is a crisis of trade multilateralism, says 2018 AB chair
Published in SUNS #8919 dated 4 June 2019

Geneva, 3 Jun (Kanaga Raja) - The crisis of the Appellate Body (AB) is the "crisis of trade multilateralism", and the choices that are made will define the prospects for international cooperation in trade for the next decades.

This is one of the main conclusions highlighted by the 2018 Chair of the Appellate Body, Ambassador Ujal Singh Bhatia, in an address to WTO Members during the launch of the Appellate Body's Annual Report for 2018 on 28 May.

In the next few weeks and months, said Ambassador Bhatia, WTO Members face critical choices regarding the future of the multilateral trading system.

Binding commitments of WTO Members must necessarily rest on the bedrock of impartial and effective dispute resolution. It is difficult to imagine how this can be achieved without a well-functioning appellate process, he added.

Ambassador Bhatia also said the heavy workload of the Appellate Body (AB) continues unabated, suggesting that World Trade Organisation (WTO) Members consider the appellate system to be a key pillar of a robust and effective dispute settlement mechanism.

Ambassador Bhatia, however, said that the transformation of the AB from "crown jewel" to a problem child in urgent need of reform in the space of a few months has been as dramatic as it is mystifying.

While not denying that the dispute settlement system (DSS), including the AB, needs reform, he said that if good solutions are to be found, the right questions must be asked.

"Members should think carefully about what kind of system they want, what its role and reach should be, and what core principles should govern its operation. Only then will Members be able to engage in long-lasting reform projects," he said.

"Every minute we spend without a properly functioning DSS is a minute where WTO-inconsistent measures remain in place, trade flows are hindered, and companies across the globe lose precious business opportunities," he cautioned.

Ambassador Bhatia said that this is possibly the last time that he speaks in public as a Member of the AB, and it is also possibly one of the last times the AB speaks tout court.

Unless something extraordinary happens, in December 2019, the AB will fall below the three-Member quorum necessary to compose Divisions and hear appeals, he pointed out.

Highlighting that he had served two consecutive terms as the Chair of the Appellate Body, Ambassador Bhatia said that from the perspective of the AB, "it is no over-statement to say that we are living in extraordinary times."

In 2018, the Appellate Body's docket continued to grow with increasingly complex appeals. In the same year, the membership of the Appellate Body was reduced from the already diminished number of four to three.

Despite these challenges, in 2018, the Appellate Body circulated nine Appellate Body reports concerning six matters, including the Appellate Body report in EC and certain member States - Large Civil Aircraft (Article 21.5 - US).

The covered agreements addressed by the 2018 Appellate Body reports included the Anti-Dumping Agreement, the Subsidies and Countervailing Measures (SCM) Agreement, the GATT 1994, the Trade-Related Investment Measures (TRIMs) Agreement, the Technical Barriers to Trade (TBT) Agreement, and the Dispute Settlement Understanding (DSU).

These Appellate Body Reports dealt with sensitive issues spanning prohibited and actionable subsidies, animal welfare, domestic tax regimes, and unfair trade.

Moreover, starting in 2017, and concluding in 2018, the Appellate Body Secretariat assisted an Arbitrator in issuing his award concerning the reasonable period of time for implementation of the panel and Appellate Body reports in US - Anti-Dumping Methodologies (China) (Article 21.3(c)).

In addition to the circulated Appellate Body reports and arbitration award, 12 panel reports concerning 11 matters were appealed in 2018.

"In sum, the heavy workload of the Appellate Body continues unabated. These indicators would appear to suggest that WTO Members consider the appellate system to be a key pillar of a robust and effective dispute settlement mechanism," said Ambassador Bhatia.

In his view, the ongoing debates should aim at answering two core questions:

1. What does it mean for WTO dispute settlement bodies to provide positive solutions to trade disputes?

2. What does it take for the DSS (dispute settlement system) to do justice to the needs of all Members, weak and strong, and to maintain legitimacy among its stakeholders?

On the first question, Ambassador Bhatia said the DSU indicates that the dispute settlement (DS) process "serves to preserve the rights and obligations of Members under the covered agreements" and "to clarify the existing provisions of those agreements" (Art.3.2).

In his view, these two functions are inextricably intertwined, and both serve the overarching goal of providing long-lasting and positive solutions to trade disputes.

He said what makes the DSS unique in the field of international adjudication is precisely its multilateral nature, coupled with extensive third-party rights, and the transparency with which rulings are disseminated across the WTO Membership.

Obviously, under the DSU, rulings adopted by the DSB are binding only upon the parties to the dispute.

"But by progressively clarifying the content of WTO provisions, panels and the AB have offered guidance to Members on how to comply with their WTO obligations, thereby promoting WTO-consistent practice and preventing the initiation of countless disputes."

The importance of such clarifications for the smaller and poorer WTO Members who often lack the resources to examine their trade policies in the context of their WTO commitments, must not be disregarded, said the 2018 Chair of the AB.

"There is no denying that, on occasion, both panels and the AB could have exercised greater economy in their legal reasoning," he acknowledged.

However, one of the core conditions for the legitimacy of international dispute settlement is that the adjudicators provide adequate reasons, including an interpretation of the relevant rules, to support their conclusions.

If adjudicators were to limit their decisions to laconic "consistency/inconsistency" statements, the parties in dispute would be stripped of their right to have fully reasoned rulings.

"This would hardly foster compliance," said Ambassador Bhatia, asking: "How helpful would it be for governments to overcome domestic resistance against compliance, and to implement DSB recommendations consistently with WTO law, if they were not clearly told why their measures were violative?"

Against this backdrop, it is incumbent upon Members to decide where the appropriate boundaries of legal reasoning lie, and what role legal reasoning should play in securing positive outcomes to disputes.

As the debates continue, he said, Members may also want to reflect on the following points:

* Panels are triers of facts and the AB is a forum to decide on legal interpretations developed by panels. But what happens when the factual analysis by panels is flawed, contaminating their legal analysis?

* Is the "completion of analysis" a valid procedural tool for the AB to employ in view of its mandate, given the absence of a proper remand system?

Ambassador Bhatia also addressed the second question of what does it take for the DSS to do justice to the needs of all Members, weak and strong, and to maintain legitimacy among its stakeholders?

He said that the legitimacy of any multilateral DSS can only be sustained if it is seen by Member governments and other stakeholders as operating in a fair, impartial and independent manner.

While normative legitimacy is important, at the end of the day, legitimacy is about perception and is based on empirical performance. This implicates not only the quality of the adjudicators and their decisions, but also their timeliness.

He noted that in recent months, several delegations have lamented the delays incurred by appellate proceedings beyond the 90 days set out in the DSU.

Sadly, these critiques are accurate: the average duration of appeals completed in 2018 was 395 days, he said.

"These slippages - which worry us as much as they worry Members - were often due to the AB's inability to staff cases with the reduced number of Appellate Body Members and supporting lawyers, as well as the complex nature of the issues raised."

However, focusing exclusively on delays in appellate proceedings risks obscuring the broader issue of duration of WTO disputes, said Ambassador Bhatia.

In fact, he added, appellate review is but a fraction of the total time-length of proceedings, which has been steadily increasing in recent years.

Suffice it to say that the panel reports the AB reviewed in 2018 took, on average, 859 days to complete against the stipulated 6 months as of panel composition, or, at most, 9 months as of panel establishment.

Moreover, he said, one must consider the steps that often follow the adoption of panel and AB reports, such as the reasonable period of time (RPT), compliance proceedings, and retaliation.

When one takes these factors into account, the picture becomes quite dramatic. Consider, again, the appeals the AB completed in 2018.

The original panel requests in those disputes were filed, on average, 2,227 days prior to the circulation of the latest AB reports.

These include the original panel requests in Airbus, filed on 3 June 2005, and in Tuna, filed on 9 March 2009.

Even discounting these extraordinarily lengthy cases, however, the figure remains strikingly high: on average, 1,267 days have elapsed since the filing of the panel requests and the circulation of the AB reports.

What is more, some of these disputes are still ongoing as he speaks, he said.

All this, put together, means that "prompt settlement" of disputes (Art.3.3) is firmly a thing of the past, he added.

It is this larger context of the total life-cycle of WTO disputes which should be the focus of the debate as well as of reform initiatives.

"But if we are to address the 90-day issue frontally, it is important to address the problem in all its dimensions."

In the last 3 years, 29 panel reports have been appealed, meaning an average of almost 10 per year.

The requirement to complete this number of appeals within a 90-day time-frame has obvious implications for the number of AB Members required and staff resources.

This would also require a discussion among Members about the size of appeals, procedures for extensions of the 90-day rule, the nature and depth of consideration by the AB and so on. It would also require discussions about how to sequence and structure the queue of un-staffed appeals.

Given that AB reports are adopted by the DSB by negative consensus, the AB effectively functions as a last instance forum.

Therefore, the AB must ensure that its interpretations and reasoning are of the highest quality and should not be rushed to come to conclusions.

In fact, any rushed conclusions cannot be corrected (save perhaps, for authoritative interpretations by Members).

According to Ambassador Bhatia, this has obvious implications for the rigour and attention to detail that must inform deliberations in the AB.

These considerations are also pertinent for Members' discussions of the 90-day rule.

One thing should be abundantly clear: ultimately, the performance and legitimacy of the DSS will not rest on some abstract principles of international law, but on its ability to address the pressing needs of real-life trade.

"Every minute we spend without a properly functioning DSS is a minute where WTO-inconsistent measures remain in place, trade flows are hindered, and companies across the globe lose precious business opportunities."

This accentuates, as nothing else can, the real value of an independent and effective DSS in a multilateral setting.

Ambassador Bhatia said that in the next few weeks and months, WTO Members face critical choices regarding the future of the multilateral trading system.

"Let us be clear - the crisis of the AB is the crisis of trade multilateralism."

Binding commitments of WTO Members must necessarily rest on the bedrock of impartial and effective dispute resolution.

It is difficult to imagine how this can be achieved without a well-functioning appellate process, he said.

The choices that are made will define the prospects for international cooperation in trade for the next decades.

In appointing Ambassador David Walker as Facilitator for this important debate, WTO Members have chosen wisely.

"I have no doubt they will exhibit similar wisdom in the choices they eventually make," Ambassador Bhatia concluded.

FAREWELL SPEECH BY AB MEMBER VAN DEN BOSSCHE

The event marking the launch of the 2018 Annual Report of the Appellate Body also saw departing AB member Mr Peter Van den Bossche delivering his farewell speech to the WTO Dispute Settlement Body.

In his speech, Mr Van den Bossche spoke of the "current crisis" in the rules-based multilateral trading system, and added: While it is a system that needs much improvement to be fair to all, as well as adapted to 21st-century realities, the rules-based multilateral trading system, as it progressively developed since the late 1940s, has served us well."

It has allowed hundreds of millions of people to escape from poverty and has brought continued prosperity to many others.

It has also been instrumental in keeping trade and broader economic disputes from boiling over and escalating beyond control.

At the core of a well-functioning multilateral trading system is an effective dispute resolution mechanism. The Uruguay Round negotiators understood this, he said.

They therefore agreed on the WTO Dispute Settlement Understanding, the DSU, to provide security and predictability to the multilateral trading system and to strengthen that system by prohibiting any WTO member from determining unilaterally whether another member violates its obligations under WTO law.

While there was a high degree of satisfaction among WTO members with the functioning of their dispute settlement system, concerns regarding certain aspects of the system were raised almost from the beginning.

Many proposals to address these concerns were made and discussed, first in the context of the DSU review in 1998 and 1999, and later in the Doha Round negotiations on DSU reform.

"These negotiations came to nothing, and this is unfortunate because while some proposals aimed at introducing more member control over dispute settlement, most proposals focused on further strengthening the system. How different is the situation today!"

In response to concerns raised by the United States, in particular regarding the functioning of the Appellate Body, and the US obstruction of the appointment of Appellate Body members, more than 20 WTO members have made - individually or in groups - proposals for the reform of WTO appellate review, Mr Van den Bossche noted.

These proposals seek to address the US concerns relating to the alleged "over-reach" by the Appellate Body, the precedential effect of case law, the 90-day timeframe for appellate review, the Appellate Body's review of factual findings, including findings on the meaning of domestic law and the transition rules for outgoing Appellate Body members.

However, unlike most of the proposals for reform made in the context of the Doha Round negotiations, the proposals for reform currently discussed no longer have the ambition to strengthen the system but are merely aimed at ensuring its survival in some form or another.

On the proposals on the reform of WTO appellate review currently under discussion, Mr Van den Bossche said firstly that while members have made, and now discuss, multiple proposals on the reform of WTO appellate review to address the concerns raised by the United States, very few, if any, of these members consider that there is something so fundamentally amiss with the Appellate Body and its functioning that blocking the appointment of Appellate Body members - and thus endangering the very existence of the Appellate Body - is an appropriate and proportionate action.

In this regard, no less than 75 WTO members have made, repeatedly, a joint proposal urging the DSB to fill the vacancies on the Appellate Body without delay.

To the extent that the concerns addressed in the reform proposals are legitimate, and some of them certainly are, these concerns can be addressed without undermining the essential features of the current system.

The proposal made by Thailand on 25 April 2019 (WT/GC/W/769) shows the way forward in this regard.

In an attempt to address the concerns raised by the United States, some other WTO members have made proposals that would significantly change essential features of the current system.

"It is, however, not clear to me, as I am sure it is not clear to most of you, whether any reform of the current system, short of its virtual elimination, will satisfy the United States," said Mr Van den Bossche.

The United States has stated - most recently at the General Council meeting of 7 May 2019 - that the Appellate Body should follow the rules set out in the DSU.

"Nobody would disagree with that, but the United States has largely remained silent on what this actually means and has not engaged in the discussions on any of the reform proposals currently on the table," he pointed out.

"I am afraid that - in spite of the most determined efforts of Ambassador Walker - efforts for which I would like to commend him, as well as the efforts of many WTO members - it is ever more likely that the current crisis will not be resolved by 11 December 2019."

If this is indeed the case, the Appellate Body will no longer be able to hear and decide new appeals from that day onwards.

As set out in Article 16.4 of the DSU, a panel report cannot be adopted by the DSB and become legally binding until after completion of the appeal.

One can predict with confidence that, once the Appellate Body is paralysed, the losing party will in most cases appeal the panel report and thus prevent it from becoming legally binding.

"Why would WTO members still engage in panel proceedings if panel reports are likely to remain unadopted and thus not legally binding?"

As from 11 December 2019, it is therefore not only appellate review but also the entire WTO dispute settlement system that will no longer be fully operational and may progressively shut down, said Mr Van den Bossche.

"While the United States may welcome such an outcome, most other WTO members obviously would not," he added.

A return to some kind of pre-WTO dispute settlement system means a return to dispute settlement in which economic and other might trumps legal right, said Mr Van den Bossche.

As Judge James Crawford of the International Court of Justice recently commented, for international trade dispute settlement, this would be "back to square one".

Ambassador Julio Lacarte Muro, the first Chair of the Appellate Body, wrote in 2000 that the WTO dispute settlement system gives security to those WTO members that "have often, in the past, lacked the political or economic clout to enforce their rights and to protect their interests".

Most WTO members do not want international trade without rules, or to be more precise, international trade with rules that are whatever the strongest party to a dispute says the rules are.

They have a strong interest in an effective rules-based dispute settlement system, said Mr Van den Bossche.

Perhaps WTO members will be able to reach in 2021, or sometime soon thereafter, consensus on reforms to the WTO dispute settlement system, and in particular WTO appellate review, that would preserve and even strengthen the key features of the current system, namely compulsory jurisdiction, the independence and impartiality of the adjudicators, appellate review, and binding rulings.

"However, if consensus among all WTO members on such reforms is not possible, a coalition of willing WTO members should consider establishing a new parallel dispute settlement system that would copy the existing, but dysfunctional, DSU, in order to settle WTO disputes between them in an orderly and rules-based manner," he suggested.

While recourse to Article 25 of the DSU for appellate review or agreements between parties not to appeal may, for some time and in some cases, allow members to ensure the availability of WTO dispute settlement, these are not long-term solutions.

He noted that between December 2009 and March 2019, he had served on 20 appeals and had participated in the exchange of views in another 18 appeals.

Few of the questions of interpretation or application that come to the Appellate Body have a simple answer. Giving them a simple answer would not do justice to the arguments advanced by at least one of the parties.

He said: "I have often struggled with what was the correct interpretation and/or application of the relevant WTO provisions in a particular case."

"The most challenging cases for me were those regarding the balance struck in the relevant WTO agreement between free trade and conflicting societal values, as well as cases regarding the proper role under WTO law of governments in the economy."

The Appellate Body rulings in these cases have not seldom been severely criticized by members.

"I have always - as have my colleagues on the Appellate Body - taken such criticism to heart, even when it was often merely a repetition of the arguments that were already presented during the appellate proceedings, were extensively addressed, and were found wanting by the Appellate Body," said Mr Van den Bossche.

"Some of these much-criticized rulings may have been in error," he acknowledged, adding, "to say it in Latin, errare humanum est, but I am confident that wiser women and men on panels and the Appellate Body can and will in the future correct such mistakes, if and when they get the chance to do so."

"The Appellate Body never proclaimed it is infallible, just as it never proclaimed that its reports constitute binding precedent."

There are very difficult times ahead for the WTO dispute settlement system, he underlined.

This system was - and currently still is - a glorious experiment with the rule of law in international relations.

"In six months and two weeks from now, this unique experiment may start to unravel and gradually come to an end. History will not judge kindly those responsible for the collapse of the WTO dispute settlement system," Mr Van den Bossche concluded.

 


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