TWN Info Service on WTO and Trade Issues (Oct19/21)
24 October 2019
Third World Network

AB impasse can be solved through negotiations, says WTO official
Published in SUNS #9003 dated 23 October 2019

Geneva, 22 Oct (D. Ravi Kanth) - The impasse over making appointments to fill vacancies on the Appellate Body (AB) can be solved through further negotiations, a senior official of the World Trade Organization (WTO) said in Washington DC on Monday, according to a report in the Washington Trade Daily (WTD) on 22 October.

The remarks by the WTO Deputy Director-General Alan Wolff, however, suggest that there may not be an early resolution to the crisis afflicting the AB before 11 December 2019.

The AB will become dysfunctional after 11 December 2019 when it will be reduced to one member from its requisite strength of seven members. Without three members on the bench, the AB cannot adjudicate any dispute.

Speaking at the Washington DC-based Center for Strategic and International Studies (CSIS) on Monday (21 October), Wolff (a US national) said "the system [dispute settlement system and the AB] was constructed in a negotiation and it can be saved through negotiation."

"All [members] profess that they want an agreement, and that dispute settlement is a vital element of the WTO," he said.

However, "I shrink from calling it [the DSB] the "jewel in the crown" as what is the most important thing to be saved is the crown itself, which is the multilateral trading system embodied in the WTO."

"Concentrating on the so-called jewel in isolation, misses the need for broader systemic reform," Wolff said.

If WTO members can come to a common understanding about the nature of the problem and how to ensure that it would not recur again, the crisis can be resolved, Wolff suggested.

"There would be no need to re-litigate old cases nor for a struggle to make structural reforms," he said, according to the WTD report.

With the US blocking appointments to the Appellate Body, as of 11 December, only a single member will remain on the AB. Three are required for an AB division bench to hear appeals and to render decisions.

With members continuing to raise disputes, and panels handing down decisions, after 10 December, there will be no review of panel decisions available under existing WTO rules.

It is unclear what will happen after that date. A member losing a case before a dispute settlement panel could argue that filing an appeal blocks adoption of a panel report, even if there is no AB to hear the appeal.

"If all did this, gaming the system, and the necessity of hearing appeals remained the requirement of the system when in reality the original appellate mechanism no longer existed, the result could be retaliation and counter- retaliation. In short, Armageddon," Wolff said.

He suggested there are options for resolving trade disputes, such as (1) the parties to a dispute could agree not to appeal, (2) the parties could agree to some form of arbitration under the current rules, and (3) they could agree bilaterally or plurilaterally to an alternative approach for appeals in advance among others.

The deputy director-general highlighted in this regard the arbitration process agreed by the European Union and Canada.

As regards the efforts made by the facilitator, Ambassador David Walker of New Zealand, who has been tasked to break the deadlock at the AB, the WTO deputy director-general suggested that a meeting of minds is possible "but we are not there yet."

Wolff was a former colleague of the United States Trade Representative Ambassador Robert Lighthizer in a private law firm and his comments at the CSIS on Monday gave an indication of what could happen after 11 December, said a trade envoy, who asked not to be quoted.

The US would allow the AB to become dysfunctional after 11 December and let the crisis at the AB persist for a while until members agree to make a huge payment to Washington for reviving the AB, the envoy said.

Until then, the dispute settlement panels would adjudicate disputes in which it would be easier (for the WTO secretariat) to influence the rulings as was the case in the dispute involving the zeroing methodology in the Canada-US softwood lumber case, said a western trade envoy, who asked not to be quoted.

Canada lost the trade dispute to the US, as the panel in which a former Uruguayan trade envoy who was also the chair for the Doha rules negotiating body, Ambassador Guillermo Valles Galmes, along with two other members ruled that zeroing is permissible under WTO rules even though the AB had ruled against the use of the zeroing methodology in anti-dumping investigations in several trade disputes.

The US is the only member which continues to adopt the zeroing methodology in anti-dumping cases.

Against this backdrop, it is unsurprising that the US had rejected the facilitator's report on 15 October, despite substantial improvements suggested by the facilitator to address the US concerns, the envoy said.

Notwithstanding that "some progress has been made through engagement by Members and the efforts of the Facilitator and others, we fail to see convergence on how to ensure that those limitations are respected going forward, and what are the consequences for continued failure to adhere to those limitations," the US trade envoy Ambassador Dennis Shea argued at the WTO General Council meeting on 15 October.

"To find an appropriate and effective solution, it is imperative for Members to engage in a discussion on how we have come to this point," Ambassador Shea concluded. (See SUNS #8999 dated 17 October 2019).

In short, the absence of an independent and impartial AB is beneficial for the US because it could use the panel rulings to browbeat countries to fall in line as per its demands, said a trade envoy, who asked not to be quoted.

[In terms of the Marrakesh Treaty and its DSU, any revision of the DSU needs consensus of its members, and this may not be so easy, nor can it be hammered through, by ignoring dissenting voices, trade observers and some former negotiators pointed out. The US blackmail tactics, some of them suggest, need to be countered with an invitation to the US to withdraw from the WTO system. See SUNS #8873 Raghavan (2019) "WTO-MTS facing existential threat, needs political decisions" and SUNS #8892 Raghavan (2019) "WTO faces hard choices, no magic wand solutions". SUNS]