TWN Info Service on WTO and Trade Issues (Nov19/22)
29 November 2019
Third World Network

US creates "new normal" on use of funds for AB members
Published in SUNS #9029 dated 28 November 2019

Geneva, 27 Nov (D. Ravi Kanth) -  The United States has created a "new normal" at the World Trade Organization by forcing wrenching conditions for the use of funds for Appellate Body (AB) members.

The US conditions, if accepted by the budget committee and the General Council, would require the WTO Secretariat to spend only CHF100,000 ($100,240) from the AB's CHF791,000 ($793,056) budget, to adjudicate one trade dispute, trade envoys told the SUNS.

The "new normal" has been finalized during the consultations held between the US on the one side, and the World Trade Organization's director-general Roberto Azevedo and the deputy director-general Karl Brauner, on the other.

At an earlier meeting of the budget committee (see SUNS #9019 dated 14 November 2019), the US had blocked the biennial budget for 2020 and 2021, claiming alleged irregularities in the expenses incurred for AB members and the trust funds provided by member countries.

The US and the two WTO officials have agreed on the fee of CHF100,000 to be allocated for adjudicating the appeal between The Dominican Republic and Honduras against Australia over tobacco products and plain packaging issues.

As part of the arrangement worked out with the US, the three remaining Appellate Body members - Ujal Singh Bhatia, Thomas Graham, and Hong Zhao - will receive a fee of CHF100,000 ($100,240) next year for completing work in the dispute between The Dominican Republic and Honduras against Australia.

"This is the biggest trade dispute in the WTO's history and with CHF100,000 you cannot finish this case," said a source, who asked not to be quoted.

While Bhatia and Graham will complete their second terms on 10 December 2019, Hong Zhao has her tenure till 30 November 2020.

There is still no clarity whether Graham will continue to adjudicate the dispute, said a trade envoy, who asked not to be quoted.

As per the budget agreement worked out between the US and the WTO Secretariat, the annual fee of CHF 791,000 ($793,056) that will be owed to Hong Zhao for 2020 now hangs in the balance.

There will be a breach of Hong Zhao's contract, if her retainer fee for 11 months until end-November 2020 is denied, the source said.

Surprisingly, the US has not challenged the AB budget and it remains to be seen whether this will come at a later stage in a step-by-step attack on the AB, said another source, who asked not to be quoted.

Further, out of the other 12 pending appeals before the AB, two cases concerning Ukraine's appeal against Russia's trade restrictive measures on the import of railway equipment and the US appeal against the panel's ruling on countervailing measures imposed on supercalendered paper from Canada - will be concluded by the end of this year.

Effectively, ten other pending appeals before the Appellate Body will remain in limbo until the AB is revived after 11 December, the source said, describing the new arrangement as "humiliating" for the AB members.

The US also introduced painful conditions for the use of funds from the Appellate Body's operating fund that would be replenished with CHF2 million ($2.01 million).

However, "the authority of the Secretariat" to spend from the fund would be limited to CHF100,000 ($100,240).

In short, the US is now given a veto power to decide when to revive the AB from the AB operating fund of $2 million, said a trade envoy, who asked not to be quoted.

Effectively, these new conditions, if agreed at the WTO's budget committee meeting Wednesday (27 November), will make the AB almost dysfunctional from 11 December, said several trade envoys, who asked not to be quoted.

[Lost in all the arguments about the AB (and now its budget) is the fact that when the Marrakesh treaty and its DSU were being negotiated in Oct-Nov 1993, the US push for adoption of panel reports by negative consensus was agreed to only when the US agreed to the EU (then the European Communities) insistence on an Appellate Body to provide rulings on law.

[It remains to be seen whether the provision for adoption of panel reports by negative consensus can survive, without a functioning AB and its ability to hear and hand down rulings on issues of WTO law raised in the dispute. SUNS]

Even before members gave their consent to the proposed changes in the budget at the budget committee meeting Wednesday, a text was circulated by the WTO Secretariat with the "elements" for members' approval.

The elements include:

* The 2020 budget amount CHF 197,203,900 could be approved and a recommendation made in the General Council for a decision during its meeting scheduled to take place on 9,10, and 11 December 2019. The recommendation would further invite the General Council to take note of the proposed 2021 budget of CHF 197,203,900.

* Expenditure against the budget lines in the budget of the Appellate Body and its Secretariat, allocated to Appellate Body member fees and the Appellate Body operating Fund, would each have a temporary limit of CHF 100,000, until CBFA (Committee on Budget, Finance, and Administration) members decide otherwise. The budget for the Appellate Body Fees would remain at CHF 791,000 and the Appellate Body Operating Fund would be replenished with CHF 2 million; and

* Funding for any arbitration under DSU Article 25 would come solely from the WTO Secretariat Budget and that Arbitrators would be compensated on the same basis as Panelists. That is, daily fees of CHF 3,000 for Government Panelists and CHF 900 for Non-Government Panelists, with no monthly retainer.

Prior to the circulation of the above elements, a senior official of the WTO administration sent an email to members on Tuesday morning explaining that "following on from the CBFA meeting of 12th November, there have been consultations aimed at advancing a consensus on the budget."

The official, however, did not indicate who held the consultations with the US.

The US had blocked the WTO's biennial budget on 12 November, citing irregularities in the manner in which funds were used for the AB members and also the deployment of trust funds provided by countries on their own (see SUNS #9019 dated 14 November 2019).

The WTO official wrote: "It seems that the budget could have the support of all Members with the following elements that have been put forward by a Member [the US]:

1. The 2020 budget could be approved at this stage and the 2021 proposed budget would be taken note of now. The review process for the 2021 budget proposal would be initiated in early 2020.

2. The one budget line in the Appellate Body Secretariat budget that deals with the monthly retainer for the Appellate Body Members would be kept at the full amount (CHF 791,000) but the authority of the Secretariat would be limited to spending CHF 100,000 only until Members decide otherwise.

The same would apply to the budget line concerning the Appellate Body Operating Fund. It would be replenished with CHF 2 million but the authority of the Secretariat to spend from it would be limited to CHF 100,000.

3. A stipulation that funding for any arbitration under DSU Article 25 would come solely from the WTO Secretariat budget.

The Budget Report would specify that Article 25 arbitrators would be compensated like panellists - no monthly retainer, just the daily fees of panellists and per diems.

The budget could be agreed upon on Wednesday by the CBFA, based on the revised budget proposal submitted by the WTO chief Roberto Azevedo on 1 November.

"This is an unprecedented arrangement that is worked out to satisfy one member and the director-general seemed willing to accept any condition placed by that member," said a source, preferring anonymity.

As part of this budgetary arrangement, the US can dictate every decision/action at the WTO, especially the dispute settlement system, the source said.

"It effectively undermines the independent and impartial functioning at the panel and AB stages," the source said.

Earlier, the US had also raised concerns about the use of trust funds by the WTO Secretariat.

It now remains to be seen whether the US will oppose the budget on trust funds at Wednesday's budget committee meeting, said a trade envoy, who asked not to be quoted.