Isolated US still vetoes Chang reappointment to AB

The US has blocked the reappointment of a member of the WTO’s Appellate Body adjudicating on trade disputes, despite strong concerns expressed by other countries over the “troubling” and “very inappropriate” move.

by D. Ravi Kanth

GENEVA: The United States on 23 May stood isolated at the WTO for its belligerent opposition to the reappointment of Seung Wha Chang from Korea to the Appellate Body (AB) for a second term of four years.

The US, however, remained adamant and succeeded in vetoing Chang’s reappointment, despite a vociferous demand from several countries – the European Union, Switzerland, Korea, Brazil, India, Egypt and Nigeria, among others – for a second term for Mr Chang, whose first four-year term of office was to expire on 31 May, participants present at the 23 May WTO Dispute Settlement Body (DSB) meeting told the South-North Development Monitor (SUNS).

The developed and developing countries denounced the aggressive opposition from the US to the reappointment of Chang. The US charged that Chang had deviated from the covered agreements of the GATT/WTO jurisprudence.

In an extraordinary war of nerves between the US on the one side, and the rest of the membership on the other, at the DSB meeting, countries from the North and the South delivered a stinging rebuke to the US for its “my way or the highway” stance in blocking the reappointment of Chang on baseless grounds.

US statement

To cover up its aggressive stance at the DSB, the US issued an elaborate statement as to why Chang could not be reappointed. The US said Washington did not consider that Chang’s service reflected the role assigned to the AB members.

The Korean AB member’s failure to adhere to rules in several cases had undermined the WTO’s dispute settlement system, the US argued.

Reappointment to the AB, said the US, was not automatic and WTO member states’ consensus was needed for granting a second term.

Washington stuck to the line that the dispute settlement panels and the AB cannot add to or diminish member states’ rights and obligations, participants said.

The AB’s role, including Chang’s positions, in delivering the adjudicative approach lacked substance and raised “systemic” concerns, the US maintained.

The US went on to cite four cases in which Chang was either a presiding member or part of the three-member AB division:

(i) DS453 – Panama’s dispute against Argentina on allegedly restrictive measures imposed by Buenos Aires on goods and services. In this case, the AB, presided by Chang, struck down the earlier panel ruling and issued what the US said were obiter dicta pronouncements. The US said the AB is not an academic body, nor can it make law.

(ii) DS 430 – the US dispute against India on allegedly restrictive measures imposed by New Delhi on American agricultural products. The US said the AB’s ruling contained lengthy discussions that were irrelevant to the points raised by the two sides.

(iii) DS 437 – China’s dispute against US countervailing duties, in which the AB delivered a major ruling in favour of Beijing. The US said the AB adopted an approach that involved new standards instead of considering evidence and arguments. The US complained that the AB cannot make a case on its own and behave like an independent investigator.

(iv) DS 449 – China’s dispute against the US for allegedly illegal anti-dumping and countervailing duties imposed by the US Commerce Department. The US said that the AB reviewed domestic law, which is not in its domain.

(In a comment, Chakravarthi Raghavan, Editor Emeritus of SUNS, points out that among the four disputes cited by the US, three seem to involve anti-dumping issues, where the AB has consistently ruled against the US’ use of the “zeroing” methodology in holding imports as being dumped.

(So far, the US has not implemented the DSB recommendations to change its domestic law and regulations to end this practice. The US is now the only WTO member insisting on its right to use “zeroing”. The EU, against which the first AB ruling holding “zeroing” as contrary to the WTO Anti-Dumping Agreement was given, accepted the ruling and eschewed the practice, unlike the US.

(In the Argentina-Panama dispute, the fourth the US has cited, the AB ruling in effect means that WTO members can adopt a similar approach to countries which do not share tax information. While the US ostensibly is fighting such tax-shelter countries in demanding information from other nations that enable bank secrecy about US nationals or enterprises which hold accounts, recent reports have brought out that several states in the US themselves have laws enabling non-disclosure of real owners of firms and their tax status.)

WTO adjudicators, according to the US, overstepped their mandate and contributed complexity to the workload.

The AB invariably ignored the evidence and became a playground for views which are not responsible, the US suggested.

The US indicated that trust in the AB cannot be built in a vacuum. The US emphasized the importance of maintaining trust by holding the AB members accountable. It argued that reappointment is not automatic, emphasizing that the DSB’s role cannot be reduced.

The US described as “unfortunate” a letter written by the six remaining AB members on 18 May which raises concerns over the move to reject Chang’s reappointment (see following article). By sending the letter directly to members, the AB is setting a precedent and seeking to act outside its role, the US charged, according to participants.

Chilling effects

But the US broadside against Chang and the AB failed to garner any support from its traditional allies or developing countries.

Korea issued the strongest statement yet on how the arbitrary position adopted by one member undermined “trust” in the AB and nearly hollowed out its “independent and impartial authority.”

A senior European Union trade official told SUNS that the US’ decision to block the reappointment has “politicized” the AB. It would have chilling effects on the independent and impartial functioning of the AB, the official said, while asking not to be quoted.

In its statement, Korea said the US decision is “very inappropriate” and raises “serious systemic concerns as well.”

Korea asked how an AB member can be singled out for criticism when the AB reports are written by the three-member division looking into a particular case. As the AB members confirmed in their letter to the DSB chair on 18 May, “an AB decision cannot be attributed to any particular member, because it is the decision of the ‘Appellate Body’”, Korea said.

The US opposition, according to Korea, “is an attempt to use reappointment as a tool to rein in AB members for decisions they make on the bench.” “Its message is loud and clear: If AB members make decisions that do not conform to US perspectives, they are not going to be reappointed,” Korea maintained.

Effectively, if the US message “is allowed to prevail, it would seriously undermine the independence and integrity of the Appellate Body,” Korea said. “First-term AB members may have to reflect more on how their rulings will be viewed by major members rather than on the merits of the cases.”

“Linking reappointment with decisions made in specific disputes will create a dangerous precedent that other WTO members may be tempted to follow,” Korea warned.

Korea agreed with the AB members’ letter which had said: “[W]e are concerned about the tying of an Appellate Body reappointment to interpretations in specific cases, and even doing so publicly. The dispute settlement system depends upon WTO Members trusting the independence and impartiality of Appellate Body Members. Linking the reappointment of a Member to specific cases could affect that trust.”

Korea emphasized: “For an adjudicator to be truly independent, he or she must have assurance that his or her decisions, made in good conscience, will not result in what is effectively removal from office.”

“The US opposition contravenes this most fundamental judicial principle,” Korea argued.

Further, the hidden and subtle aspect of the US’ opposition to Chang’s reappointment is that “the AB rulings Professor Chang was involved with went beyond the boundary of the AB mandate, which is to adjudicate appeals and clarify existing provisions of the covered agreements without adding to or diminishing the rights and obligations provided in those agreements.”

The request that the AB remain within the boundary of its mandate is itself legitimate, said Korea. Yet, to argue that some AB decisions were not consistent with the AB mandate and oppose reappointment of an AB member who participated on those decisions on that basis conceals one important fact. Given the differing views among WTO members on the role and jurisdiction of the AB, it is difficult or impossible to argue “where the boundary of the AB mandate exactly lies”.

“The right way of addressing this situation is to continue the efforts to build a consensus through discussions among the members,” Korea maintained. Instead, the US chose to impose “its own perspective on other WTO members, as well as on the Appellate Body, by replacing an AB member who they believe has a different view”.

“This approach is of course misguided,” Korea said, arguing that “in the absence of an agreement on the clear boundary of AB mandate, replacing AB members will not eliminate differences in views regarding the consistency of specific AB decisions with its mandate.”

Korea suggested an alternative to overcome this ugly situation. It proposed that WTO members launch a discussion devoted to the question of the boundary of AB review with the goal of finding a common understanding.

“We believe that this is the right way to address the concerns of many Members, including the United States, while maintaining the integrity and independence of the Appellate Body,” Korea maintained.

Instead of settling for an “immediate fix that will in the end cause harm,” Korea said, it is important to adopt an appropriate way “that does not ignore the systemic concerns that we expect will be voiced almost in unison today.”

Regardless of the good intentions of the US, Korea said it cannot “find justification in the US opposition to reappoint Professor Chang.”

“This is why we would like to urge the United States to reconsider and withdraw its opposition,” Korea appealed.

“Our first priority is to restore an environment where the sitting and incoming Appellate Body Members can do their jobs properly without looking over their shoulders,” Korea concluded.

Serious consequences

In similar vein, India said “a successful dispute settlement mechanism is grounded on an independent and impartial Appellate Body.” The process of reappointment and the basis for opposition to the reappointment, according to India, will “undoubtedly have serious consequences on the independent functioning of the Appellate Body.”

India said the issue is not whether the reappointment is automatic but on what “grounds reappointment is opposed.” The alleged reasons cited by the US, according to India, are “troubling.”

India questioned the underlying rationale and said “attributing a particular adjudicative approach to a particular member of a division is unfathomable.” It said the AB functions and hears appeals as a whole as per Rule 3(a) of the Working Procedures for Appellate Review.

Significantly, “if a question is raised on the legal approach of a particular Appellate Body member in a division hearing an appeal, does it imply that all other members of that division are also responsible for that allegedly erroneous approach?” India asked.

Clearly, this line of reasoning deployed by the US “has serious implications for the working of the Appellate Body itself,” India suggested.

As per Rule 4(1) of the Working Procedures, according to India, the AB functions as a “collegium” for ensuring “consistency and coherence in decision-making, and to draw on the individual and collective expertise of the members.” “Therefore, opposing the reappointment of an Appellate Body member on an approach or legal interpretation followed allegedly by one member constitutes a serious questioning of the functioning of the Appellate Body as a whole,” India maintained.

Arguably, the opposition “to the reappointment on the basis of the reasons/approach provided in particular disputes signifies, in our view, a critical threat to an independent, neutral and impartial Appellate Body,” India emphasized.

“Suffice it to say that opposition to reappointment on the basis of positions, legal interpretations and approaches Appellate Body takes in specific cases strikes at the very basis of an independent, rule-based judicial body,” India maintained.

India said the AB draws its mandate from the WTO’s Dispute Settlement Understanding (DSU) regardless of the diametrically opposing positions adopted by members on whether the mandate has been properly adhered to. But if the differing views of members become the ground for denying reappointment, “then this is a slippery slope that we are entering,” India argued.

“What are the contours and limits of the reasons to oppose a reappointment?” India asked. “For example, could a developing country member, in another context, oppose the reappointment of a particular member on the basis that that Appellate Body member’s interpretation has consistently not been in accordance with the flexibilities and circumstances of developing countries that the DSU and covered agreements provide?”

“If they become reasons for opposing reappointment, it is a very serious existential question for the functioning of an impartial and independent dispute settlement mechanism,” India warned.

India said the underlying message of the US action to block the reappointment of Chang is loud and clear. “By making the adjudicative approach as the basis for reappointment is essentially providing a strong signal that Appellate Body members who do not follow a particular approach or an adjudicative viewpoint, or who do not share the views of particular members in the way they need to approach the covered agreements, may not be considered for reappointment.”

In crux, “this could, in the long run, have a chilling effect on the way Appellate Body members decide appeals and undermines the system itself.”

India said it supported Korea and other members in expressing support for the reappointment of Chang to the AB.

Threat to independence

The EU said it is seriously concerned about the US veto against Chang’s reappointment on the basis of his alleged track record on the AB. “This is unprecedented and poses a very serious threat to the independence and impartiality of current and future Appellate Body members.”

In the view of the EU, in order to ensure the AB’s independence, reappointments should be more or less automatic if the AB member indicates that they are available for a second term. In particular, the reappointment process needs to be conducted in a way that respects this independence. This implies that AB members cannot be scrutinized on the basis of the positions they may or may not have taken when performing their judicial function.

The EU said that it supported the reappointment of Chang for another term, and hoped that this reappointment could still take place. “This being said, the situation is very serious and arguably the damage has already been done. The events of the past days may taint any future reappointment process.”

Therefore, the EU believed that it is of utmost importance that a systemic solution be found to this problem. The AB must remain fully operational and the independence and impartiality of its members must be protected. “In our view, the repetition of the current crisis in future reappointment processes would be untenable,” said the EU.

Japan said that the US action is “extraordinary, exceptional in nature, and has no precedent, and any act by a WTO member of this nature and magnitude must be exercised with extreme caution.”

On its part, Japan said that it does not have objections to the reappointment of Chang, who has no doubt served faithfully and honourably on the Appellate Body for the last four years.

Japan agrees that as an adjudicative body, the independence and impartiality of the work of the AB must be fully respected because this would ensure the credibility and proper functioning of the WTO dispute settlement system.

Japan cited the first sentence of Article 17.2 of the DSU, which reads: “The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once.” According to Japan, nothing in this text suggests that the reappointment is predetermined or a foregone conclusion.

Japan said that the problem is not simply about the propriety of the system of reappointment or the length of the term of office. The heart of the issue lies in divergent views on the proper roles of the AB and its institutional relationship with the WTO membership.

While nobody questions the importance of judicial “independence”, the AB is part of the much larger institutional structure of the WTO and in that context there appears to be disagreement as to the degree and nature of such “independence”, whether, how and to what extent the power and authority of the AB should or can be circumscribed, and whether and how the AB can or should discipline itself in exercising its authority.

In other words, there is a tension between the notion of the “separation of powers”, on the one hand, and that of “checks and balances” on the other, if such notions ever exist in the WTO institutional framework, and the question is how to strike the right balance.

In short, said Japan, there is no easy fix to the problem because the issue is deeply rooted in the differences in opinion with respect to the place of dispute settlement in the WTO regime at large. As difficult and fundamental as it may be, the issue can only be addressed and solved by WTO members themselves.

Brazil said that the issue is one that goes to the heart of the matter, an item that has to do with one essential pillar of the WTO and the principle on which rests the AB: the independence and impartiality of its members.

“And the underlying question with which we have to deal here is: How can a member of the Appellate Body discharge properly and independently its functions if worried, tempted, or put under pressure to satisfy specific opinions of [WTO] members throughout its mandate, so as to be reappointed?”

Brazil has always believed that if reappointment to a second mandate at the AB is not automatic, in view of Article 17.2 of the DSU, it should be understood as quasi-automatic: only a specific set of objective circumstances could justify non-reappointment, such as health conditions, malfeasance, a member’s own desire not to continue, etc.

It is worth remembering that this quasi-automatic nature of the reappointment process has been the rule in the WTO for many years; this important feature was attested to Brazil by several of the original members of the AB.

“The reasons we now hear, however, for the objection to the reappointment of Mr Chang are of an altogether very distinct nature and have nothing to do with the circumstances mentioned before. They are very far from what would be considered acceptable reasons, directed as they are towards the alleged vices, excesses or errors in some Appellate Body reports.”

Moreover, these criticisms are attributed to one specific member of a division tasked to decide a case, which is composed of three members, and these three members are part of an Appellate Body of seven members. “And as we know, these seven members are collegially responsible for each report,” said Brazil.

According to Brazil, what does not seem to be fitting is to object to the reappointment of a member to a second mandate on the grounds that certain legal decisions, by certain individuals in a collegiate body, are wrong or not satisfactory or, worse, because they do not correspond to a WTO member’s specific interests or expectations. This runs counter to all canons of independence which are inherent to any decision-making instance, whichever legal nature one may want to assign to it.

“If the alleged reasons for objection are of this calibre, then the integrity of the WTO’s main adjudicatory body is clearly jeopardized,” said Brazil. “It is evident that if all [WTO] members acted according to the logic and arguments used in the present instance to not reappoint the member of the Appellate Body in question, we would soon transform that body into a tool of our own interests, something that cannot be the universal law we strive for, the general rule which allows for trustworthy and impartial decision-making in an international forum.”

Considering that Article 17.2 of the DSU establishes that “each member may be reappointed once”, and no clear rules indicate the circumstances that could justify non-reappointment, Brazil said, WTO members could consider amending the DSU to the effect that a single six- or seven-year mandate for AB members be established, so as to close the loophole for undue interference and pressure and to ensure an adequate working environment for AB members.

At the same time, provided that independence and impartiality are thus safeguarded throughout the mandate of AB members, WTO members could weigh the pros and cons of introducing a regular “moment of interaction” between themselves and the AB – disconnected from the moment of reappointment – as a means of allowing for the legitimate interest of WTO members to convey their views on matters of concern regarding dispute settlement. “This could become an opportunity for an exchange of opinions on several issues, as long as the adequate rules of procedure are formulated.”

“No reasonable basis”

Chinese Taipei said that WTO members should be extremely cautious and employ a great deal of self-restraint when considering whether or not a reappointment should be blocked. Barring certain exceptional circumstances, such as ethical misconduct or a serious medical condition affecting the candidate’s ability to perform the function, the reappointment, in principle, should usually be allowed to take place.

Its understanding is that the AB’s decisions on appeal are drafted by a three-person division, with consultations taking place later among all seven members. “We can see no reasonable basis for exclusively attributing a particular legal view, or views, expressed in the Appellate Body’s reports to one single Appellate Body member.”

It said that it is most concerned that any blockage of a reappointment which is based on the AB’s legal views in certain disputes may be an intervention in the core of the authority of the institution, and that it could also have a chilling effect on the individual AB members and seriously undermine the institution’s independence in carrying out its prime responsibility, which is “to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.”

Australia said that non-reappointment should only be exercised in exceptional circumstances.

While recognizing that the reappointment of AB members is not automatic, New Zealand emphasized that consensus should only be blocked in rare and exceptional circumstances.

Despite its complete isolation, the US succeeded on 23 May in vetoing Chang’s reappointment. The moot issue is whether the developing countries can veto the US actions which are diametrically opposed to their developmental concerns, trade diplomats said.                            (SUNS8246)                                          

Kanaga Raja contributed to this report.

Third World Economics, Issue No. 616/617, 1-31 May 2016, pp14-17