TWN Info Service on WTO and Trade Issues (May16/20)
30 May 2016
Third World Network
  
US stands alone in vetoing reappointment of Chang to AB
Published in SUNS #8247 dated 25 May 2016
 
Geneva, 24 May (Kanaga Raja) - The United States stood virtually alone at the World Trade Organisation in its stead-fast opposition to the reappointment of Mr Seung Wha Chang of Korea for a second four-year term to the Appellate Body (AB).
 
The US voiced its opposition to Mr Chang, whose first four-year term of office expires on 31 May 2016, at a meeting of the Dispute Settlement Body on Monday (23 May).
 
According to trade officials, no member openly sided with the US in vetoing Mr Chang's re-appointment to the AB. Reportedly in somewhat ambiguous statements, Colombia said that the arguments of the US are partially reasonable, while Iceland said the US concerns are legitimate.
 
Some 30 delegations intervened under the agenda item of the issue of possible reappointment of one Appellate Body member.
 
[In a comment, Mr. Chakravarthi Raghavan, Editor-Emeritus of the SUNS, points out that among the four disputes cited by the US against reappointment of the Korean jurist, and questioning the AB rulings, three disputes seem to involve anti-dumping issues, where the AB has consistently ruled against the US use of "zeroing" in holding imports as being dumped.
 
[So far, the US has not implemented the DSB recommendations to change its regulations and domestic law to end this practice! The US is now the only WTO member insisting on its right to use "zeroing". The EU, against whom 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 WTO members can adopt a similar approach to countries who 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 having accounts, in fact recent reports have brought out that several of the states of the US have laws enabling non-disclosure of real owners of firms and their tax status.
 
[More detailed analysis of the consequences of the US stand at the WTO will be in an article in a future issue of SUNS.]
 
VIEWS OF MEMBERS
 
In its statement at the DSB, the US said that "after a careful review of Mr Chang's service on the Appellate Body, the United States has concluded that it does not support reappointing him to a second term, and the United States would object to any proposal to reappoint him."
 
The US added, "we do not consider that his service reflects the role assigned to the Appellate Body by WTO Members in the WTO Agreements. Any failure to follow scrupulously the role we Members have assigned through these agreements undermines the integrity of, and support for, the WTO dispute settlement system."
 
The US elaborated that reappointment is not automatic, and cited Article 17.2 of the DSU that provides that each member of the Appellate Body "may be reappointed once." Action by the DSB to reappoint requires a consensus of WTO Members, the US said.
 
Based on a careful review, the US concluded that Mr Chang's performance does not reflect the role assigned to the Appellate Body by Members in the DSU.
 
According to the US, the role of the Appellate Body as part of the WTO's dispute settlement system is to decide appeals of panel reports to help achieve "[t]he aim of the dispute settlement mechanism [...] to secure a positive solution to a dispute," as set out in DSU Article 3.7.
 
And the DSU reminds panels and the Appellate Body not once, but twice, that "in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements."
 
Yet, the US maintained, the reports on which Mr Chang participated do not accord with the role of the Appellate Body. It added that it had previously explained at DSB meetings its concerns with the adjudicative approach in a number of Appellate reports with which Mr Chang was involved. And these concerns have arisen in disputes in which the United States was a party and in those in which it was not.
 
The US went on to cite four cases. The first being the recent DS453 Appellate report in the financial services dispute between Panama and Argentina, where the US said that more than two-thirds of the Appellate Body's analysis - 46 pages - is in the nature of obiter dicta.
 
The US said the Appellate Body report went on at great length to set out interpretations of various provisions of the GATS. These interpretations served no purpose in resolving the dispute - they were appeals of moot panel findings, Thus, more than two-thirds of the Appellate Body's analysis comprised simply of advisory opinions on legal issues.
 
"The Appellate Body," the US said, "is not an academic body that may pursue issues simply because they are of interest to them or may be to certain members in the abstract. Indeed, as the Appellate Body itself had said many years ago, it is not the role of panels or the Appellate Body to 'make law' outside of the context of resolving a dispute - in effect, to use an appeal as an occasion to write a treatise on a WTO agreement. But that is what the report did in this appeal."
 
Second was in DS430 (India - Measures Concerning the Importation of Certain Agricultural Products), a dispute in which the United States was the complaining party and prevailed. The US maintained that the Appellate Body report engaged in a lengthy abstract discussion of a provision of the SPS Agreement without ever tying that discussion to an issue on appeal, and even expressed "concerns" in that discussion on findings of the panel that were not raised by either party in the appeal.
 
"It is not the role of the Appellate Body to engage in abstract discussions or to divert an appeal away from the issues before it in order to employ resources on matters that are not presented in, and will not help resolve, a dispute," the US said.
 
A third example occurred in DS437 (United States - Countervailing Duty Measures on Certain Products from China), where the US said it explained its concerns that the Appellate Body report suggests a view of dispute settlement that departs markedly from that set out in the DSU and reflected in numerous prior reports. There, the Appellate Body report rejected a party's appeal, but then went on to reverse the Panel report and to find a breach on the basis of an argument and approach entirely of the Appellate Body's creation.
 
"This approach suggests that panels and the Appellate Body are to conduct independent investigations and apply new legal standards, regardless of what either party actually argues to the panel or Appellate Body. But that is not right. Under the DSU, panels and the Appellate Body are to consider the evidence and arguments put forward by the parties to make an objective assessment of the matter before it."
 
Fourth, in DS449 (United States - Countervailing and Anti-dumping Measures on Certain Products from China), the US said the Appellate Body report took a "very problematic and erroneous approach to reviewing a Member's domestic law, risking turning the WTO dispute settlement system into one that would substitute the judgement of WTO adjudicators for that of a Member's domestic legal system as to what is lawful under that Member's domestic law."
 
It is inappropriate for a WTO adjudicator to say it would decide the "right" result under a Member's law, in the abstract, while ignoring key constitutional principles of that Member's domestic legal system, but that is what the Appellate Body did, the US argued.
 
The US said that it is also concerned about the manner in which Mr Chang has served at oral hearings, including that the questions posed spent a considerable amount of time considering issues not on appeal or not focused on the resolution of the matter between the parties.
 
"Together, the appeals in which the member participated indicate that he has not been willing to adhere to the proper role of the Appellate Body," the US maintained. "We do not see how holding a member accountable for the views they have endorsed and their actual service carries a risk for the trust WTO Members place in the independence and impartiality of the Appellate Body. To the contrary, WTO Members' trust is not built on a vacuum. It is based on the actual performance of the Appellate Body."
 
The US said it is disappointed at the suggestion that the DSU should now be re-interpreted to reduce the role of the DSB and WTO Members in the WTO dispute settlement system. "This is not a suggestion the United States can support or a way to sustain confidence in the WTO or its dispute settlement system."
 
The US underlined that its position on this issue is not one based on the results of those appeals in terms of whether a measure was found to be inconsistent or not. Instead, the concerns raised are important, systemic issues that go to the adjudicative approach and proper role of the Appellate Body and the dispute settlement system.
 
Referring to the letter sent to the DSB by the six remaining Members of the Appellate Body in support of Mr Chang, the US considers that the action by these Appellate Body members to interject themselves in a decision in which they have no role is, to say the least, "unfortunate".
 
The fact that these Appellate Body members are seeking to provide views on this issue is, regrettably, another instance in which Appellate Body members are acting outside the role assigned to them by WTO Members in the DSU, it said.
 
In its intervention, Korea said that it had previously asked the United States to reconsider its position, and was extremely disappointed that the US confirmed its opposition today.
 
"We are not arguing that Appellate Body Members have a right or a privilege to be reappointed. It is WTO Members who have a right to agree or disagree with the reappointment of any Appellate Body Member. However, in view of the importance of the Appellate Body, if this right is ever to be exercised, it should be for compelling and legitimate reasons."
 
"The US is telling us in effect that they are opposed to the reappointment of Professor Chang because they believe that Professor Chang has restricted the rights or expanded the obligation of WTO Members through the Appellate Body decisions he is involved with."
 
Korea was of the view that the US position is inappropriate and raises serious systemic concerns. First, it said that an Appellate Body member should not be singled out for any criticism directed at the Appellate Body for its reports. As the AB Members confirmed in the letter, an AB decision cannot be attributed to a particular Member, because it is the decision of the "Appellate Body".
 
Korea cited Article 17 of the DSU which provides that the proceedings in the Appellate Body shall be confidential and opinions expressed in the Appellate Body reports shall be anonymous.
 
Second, said Korea, "this opposition is, to put it bluntly, an attempt to use reappointment as a tool to rein in Appellate Body 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'."
 
Needless to say, Korea warned, if the US position is allowed to prevail, it would seriously undermine the independence and integrity of the Appellate Body. "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. It will also create a dangerous precedent that other WTO Members may be tempted to follow."
 
Korea said it agrees with what the six remaining Appellate Body members said in their letter to the DSB, that: "[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."
 
According to Korea, 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 underscored. "This alone should be sufficient grounds for us to reject the US opposition. Yet there is another aspect of its position, one that is no less significant, which concerns us deeply. It relates to how we address differing viewpoints in this institution."
 
The US claims that the AB rulings Professor Chang was involved with went beyond the AB mandate, which is to adjudicate appeals and clarify existing provisions of the covered agreement, 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. 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.
 
There are different views among WTO Members on the role and jurisdiction of the Appellate Body. In other words, there is no agreement on where the boundary of the AB mandate exactly lies, said Korea.
 
Under these circumstances, the positive and constructive way forward would be to continue efforts on building consensus through discussions. Instead, the United States has chosen the very different path of imposing its own perspective on WTO Members and the Appellate Body through the removal of an Appellate Body member.
 
"This approach is misguided. Replacing AB Members will not eliminate differences in views regarding the consistency of specific AB decisions with its mandate," Korea stressed.
 
Korea proposed that Members launch a discussion devoted to the question of the boundary of appellate review with the goal of finding a common understanding. "We believe that this is the right way to address the concerns of Members, including the United States, while maintaining the integrity and independence of the Appellate Body."
 
Korea said that it does understand and respect the intention of the United States to raise an important issue relating to the dispute settlement system. "Good intentions, however, do not justify a wrong course of action. We cannot find justification in the US opposition to reappoint Professor Chang. We could like to urge the United States to reconsider and withdraw its opposition," it said.
 
Korea requested the DSB continue discussions on reappointment so that "we may find a solution that safeguards the integrity of the Appellate Body."
 
Expressing support for Korea and other members in support of the reappointment of Mr Chang, India said that "a successful dispute settlement mechanism is grounded on an independent and impartial Appellate Body," adding that the alleged reasons cited by the US are "troubling".
 
India underlined that the reappointment process and the basis for opposition to the reappointment will "undoubtedly have serious consequences on the independent functioning of the Appellate Body." (See SUNS #8246 dated 24 May 2016 for details on India's remarks.)
 
The European Union said it is seriously concerned about the United States' veto against the re-appointment of Prof. Chang on the basis of his alleged track record on the Appellate Body. "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 independence of the Appellate Body, re-appointments should be more or less automatic if the AB Member indicates that they are available for a second term.
 
In particular, the re-appointment process needs to be conducted in a way that respects this independence. This implies that Appellate Body members cannot be scrutinised on the basis of the positions they may or may not have taken when performing their judicial function.
 
The EU said that it supports the re-appointment of Prof. Chang for another term, and hopes that this re-appointment can 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 re-appointment process."
 
Therefore, the EU believes that it is of utmost importance that a systemic solution be found to this problem. The Appellate Body 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 re-appointment 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 objection to the re-appointment of Mr. 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 Appellate Body 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 re-appointment is pre-determined or a forgone conclusion.
 
Japan said that the problem is not simply about the propriety of the system of re-appointment, or the length of the term of the office. The heart of the issue lies in divergent views on the proper roles of the Appellate Body and its institutional relationship with the Membership.
 
While nobody questions the importance of the judicial 'independence', the Appellate Body 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 Appellate Body should or can be circumscribed, and whether and how the Appellate Body 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 Appellate Body: 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 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 the 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 Appellate Body.
 
"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 7 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 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 caliber, then the integrity of the WTO's main adjudicatory body is clearly jeopardised, " said Brazil. "It is evident that if all 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 in 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."
 
As to what Members can concretely do, Brazil said that 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, WTO Members could consider amending the DSU to the effect that a single 6 or 7 year mandate for Appellate Body 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, Members could weigh the pros and cons of introducing a regular "moment of interaction" between Members and the Appellate Body - disconnected from the moment of reappointment - as a means of allowing for the legitimate interest of 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."
 
Chinese Taipei said that 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 Appellate Body's decisions on appeal are drafted by a three-person division, with consultations taking place later among all 7 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 Appellate Body'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 Appellate Body 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 recognising that the reappointment of Appellate Body Members is not automatic, New Zealand emphasised that consensus should only be blocked in rare and exceptional circumstances.
 
The Chair of the DSB, Ambassador Xavier Carim of South Africa, said he will be away from Geneva from 25-28 May and from 31 May to 3 June. He said that on his return, he will make himself available to meet with delegations and consider any suggestions.
 
Meanwhile, under a separate agenda item, concerning the replacement of Ms Yue Jiao Zhang of China, whose second and last term of office at the AB ends on 31 May 2016, the Chair reported that the Selection Committee was not in a position to recommend a candidate that would enjoy the consensus of the entire membership. He said that the selection committee will continue its consultations.
 
There are seven nominations for the post from Japan, Nepal, China (two), Turkey, Australia, and Malaysia.