WTO’s first priority is restoring credibility of DSU, AB

The furore generated by the recent US rejection of a WTO Appellate Body member’s reappointment has underlined the need to improve the broader functioning of the WTO’s trade dispute resolution mechanism.

by Chakravarthi Raghavan

GENEVA: When member states of the WTO resume consultations at the Dispute Settlement Body (DSB) on filling vacancies in the Appellate Body (AB), they have to come to grips with a credibility problem of the WTO and its dispute settlement process, impaired by the US statements in vetoing a second AB term for Seung Wha Chang of Korea.

Hopefully, WTO members at the DSB will agree on and tackle this as being of the highest priority.

As of 1 June, there are now two vacancies in the seven-member AB. One is to replace Chang, whose reappointment at the end of his first four-year term was vetoed by the US at the DSB meeting on 23 May (see TWE No. 616/617). The second vacancy is for replacing Yuejiao Zhang of China, whose second and last term also ended on 31 May.

The US veto of Chang and critique directed against him (though clearly targeted at the AB as a whole, aiming to intimidate or pressure its members to toe the US line in disputes) has elicited such widespread criticism that the US stance sounds like the entire world is marching out of step but for the Exceptional Nation, USA.

If the rest of the WTO members, having made statements of trenchant criticism, believe they can hereafter continue with “business as usual”, they would be committing a fatal error. The WTO’s Dispute Settlement Understanding (DSU, which sets out the procedures and rules of the WTO dispute settlement system), and with it the WTO, would lose all public credibility and legitimacy, and the WTO would soon meet the fate of the League of Nations.

With the US having staked out a public stance on the issue, and after its varying explanations – first at the level of US trade officials in Washington and then at the DSB on 23 May – it is extremely unlikely that the US would reverse its stance and agree to a second term for Chang. And even if it does, it will still leave the AB’s reputation in tatters, and every future ruling of the AB or of a dispute settlement panel will be suspect and tainted.

There are only two options for WTO members to restore the credibility of the DSU and AB:

(a) They could agree on and adopt by consensus a decision that for the future, any retiring member of the AB who is eligible otherwise for reappointment should be automatically reappointed, unless there are some serious questions over their health, misconduct or inability or unwillingness to continue for another term.

(b) Alternatively, they should appoint AB members for one fixed term, as Brazil and past AB members have suggested. If the six or seven years mooted by Brazil is viewed as too long, a compromise can be reached with a five-year term.

Another suggestion for option (a), posted at US trade lawyers’ International Economic Law and Policy (IELP) blog, is that reappointment should be automatic unless there is a positive consensus against. Option (a) as an immediate decision, and considering and deciding on option (b) as part of the mandated DSU review process (see below), could also be considered.

When vetoing Chang’s reappointment, the US pointed to AB decisions which it said engaged in rule-making, added to the obligations of WTO members and curtailed their rights instead of “clarifying” existing rules and leaving interpretations of the rules to the WTO Ministerial Conference or General Council. In this, the US is exhibiting the double standards it plays by on international questions.

So long as it benefited from such AB rulings, as in the early days of the WTO, it was praising the AB. However, once its own favourite protectionist action – the use of “zeroing” in anti-dumping investigations and taking counter-measures by levying anti-dumping duties – was found WTO-illegal, the US began crying foul.

To calculate anti-dumping duties against a foreign product, the foreign domestic price of the product is compared with its import price adjusted for transportation and handling costs. Under the controversial practice of “zeroing”, the US sets at zero any negative differences (that is, whenever the foreign domestic price is less than the import price).

This methodology, or its application in particular ways, has been repeatedly found by the AB to be in contravention of WTO rules. Unable to comply (because of powerful domestic lobbies and Congress), the US began to cry foul, and has so far failed to implement any of the rulings and DSB recommendations involving such anti-dumping measures.

DSU review

Having dealt with the immediate issue of restoring the credibility of the AB through one of the two options cited above, it is also time for the WTO to come to grips with and tackle the mandated DSU review, and complete it in a time-bound and fresh manner before the WTO’s next Ministerial Conference.

This is an important long-term issue for the WTO to ensure credibility in its dispute settlement function, long proclaimed as the jewel in its crown. All the more so as the WTO’s role as a negotiating forum has already been impaired by the US’ unilaterally viewing itself as being no longer bound to engage in “good faith” negotiations on the Doha Work Programme – a US stance that has been supported by other developed countries.

The way the issue relating to the reappointment of AB members has come up in public (in two earlier cases, the US vetoed appointment or reappointment, but did not voice its views openly) is now forcing WTO members to come to grips with the Ministerial Decision on DSU review, adopted at Marrakesh in 1994 when the agreement establishing the WTO was signed. The decision called for a review of the DSU to be completed within four years of the entry into force of the WTO treaty (that is, by the end of 1998), and for the Ministerial Conference to take a decision “whether to continue, modify or terminate” the DSU.

This is a ministerial mandate that the WTO members have avoided or evaded so far. It was initially on the agenda of the WTO’s third Ministerial Conference, held in Seattle in 1999, but that conference broke up in utter confusion and chaos, engineered by the host country, and failed to reach any decision.

In the run-up to Seattle, the developing countries, in particular a like-minded group coordinated by Egypt and its ambassador to the WTO Mounir Zahran, had consulted past GATT and Uruguay Round negotiators and sought help from one of them, former Indian ambassador to GATT Bhagirath Lal Das, to write a paper with concrete recommendations.

Das, for personal reasons, was not able to complete the task, and entrusted it to this writer. The draft was presented and discussed in 1999 at a consultation meeting of developing countries (attended by most of them at ambassador level, and with the participation of the then UNCTAD Secretary-General Rubens Ricupero, formerly Brazilian ambassador to GATT during the Uruguay Round). After the collapse of the Seattle Ministerial Conference, the draft paper was finalized and published by the Third World Network (TWN Trade & Development Series, No. 9, twn.my/title/tilting.htm).

The DSU review mandate resurfaced in paragraph 30 of the WTO’s 2001 Doha Ministerial Declaration, which stipulated: “We agree to negotiations on improvements and clarifications of the Dispute Settlement Understanding. The negotiations should be based on the work done thus far as well as any additional proposals by Members, and aim to agree on improvements and clarifications not later than May 2003, at which time we will take steps to ensure that the results enter into force as soon as possible thereafter.”

Under paragraph 47 of the Doha Ministerial Declaration, this mandate for “improvements and clarifications” (the Marrakesh mandate language that included “terminate” was quietly dropped) of the DSU was made an independent negotiating item, outside the Doha Work Programme’s single undertaking.

The DSB, meeting since then in special sessions, has been considering, off and on, small procedural changes on sequencing of “retaliatory” actions etc which would at best tinker with the DSU rules, but has not taken up or come to grips with the review in any substantial way.

It is perhaps time for the membership to take a fresh look and do so, and this does need to cover the role and extent of AB rulings, in terms of where “clarification” of the WTO rules ends and the role of “interpretation” (reserved solely for the Ministerial Conference or General Council) begins.

The AB’s powers

Within this remit comes also the issue of self-assumed powers of the AB, under the concept of “collegiality” under Rule Four of its “Working Procedures”, which enables the three-member AB division bench hearing an appeal to “consult” the four other members of the AB at all stages, behind the backs of the parties and third parties to the dispute/appeal. This is something alien to the principles of natural justice, and to an independent judicial process. In terms of principles of natural justice and an independent judicial process, a judge or judges adjudicating a dispute, after hearing the parties, must come to an independent conclusion, without consulting any other person or body of persons, not even the secretariat servicing the panel or appellate process providing any input or draft, and write down and deliver their own judgment.

If a rules-based WTO treaty has any meaning, it entails that no instrument created by the treaty enjoys any power not provided for in the various provisions of the treaty and its annexed agreements. There is no “residual” power under which any treaty body, whether a dispute panel or the AB, can claim inherent power to do something on the basis that it is not prohibited.

In this instance, the WTO’s DSU, in its Article 17, has provided for the setting up of an Appellate Body. It sets out how the body should be constituted and its members chosen, and its remit, powers and functioning. The AB has no inherent powers that cannot be found in the various provisions of Article 17.

In terms of substance, Article 17.1 says: “A standing Appellate Body shall be established by the DSB. The Appellate Body shall hear appeals from panel cases. It shall be composed of seven persons, three of whom shall serve on any one case. Persons serving on the Appellate Body shall serve in rotation. Such rotation shall be determined in the working procedures of the Appellate Body.”

Article 17.2 and 17.3 set out how the AB members are to be appointed, the duration of appointment and reappointment, and qualifications. Article 17.4 sets out who can appeal and the rights of third parties in such appeals. Article 17.5 sets out the duration and time limitations for the work of the AB on any appeal. Article 17.6 sets out that an appeal “shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.” Article 17.7 provides for appropriate administrative and legal support for the AB, and Article 17.8 for expenses (travel and subsistence) for AB members to be met from the WTO budget.

Article 17.9, on the working procedures, says: “Working procedures shall be drawn up by the Appellate Body in consultation with the Chairman of the DSB and the [WTO] Director-General and communicated to the Members for their information.” While the AB is only to consult the DSB chair, in practice the chair circulates the draft procedure to the DSB members and forwards any comments from them to the AB.

In terms of the “ordinary meaning” (public international law requires a treaty to be interpreted in accordance with the “ordinary meaning” of its terms, as codified in the Vienna Convention on the Law of Treaties), a “procedure” cannot mean “substantive”. No dictionary, not even Black’s Law Dictionary, gives such a meaning. As such, the AB cannot derive any substantive rights or duties and responsibilities other than those prescribed under Article 17.1, 17.6, 17.12 and 17.13 of the DSU. Neither can it create a substantive right for itself nor devolve substantial responsibility on the AB members or the WTO members.

Also, Article 17.12 stipulates: “The Appellate Body shall address each of the issues raised [emphasis added] in accordance with paragraph 6 [Article 17.6 cited above] during the appellate proceeding.” The use of the mandatory “shall” here leaves no scope for the AB not to address an issue of law raised in an appeal on the ground of “judicial economy”, as the US in vetoing Chang’s reappointment has argued.

A comment (on Chang’s reappointment and the US call for exercise of judicial economy) posted on the IELP blog points out that Article 17.12 requires the AB to address every issue raised in an appeal. This has been taken to mean claims in an appeal. “Therefore, in effect, the Appellate Body has less discretion under the DSU to exercise judicial economy by ignoring claims than panels.”

As the AB has ruled on several occasions, if members wanted such exercise of “judicial economy” for whatever reason, they would have said so! (SUNS8255)                                         

Third World Economics, Issue No. 618, 1-15 June 2016, pp2-4