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TWN
Info Service on WTO and Trade Issues (Apr23/15) Geneva, 26 Apr (D. Ravi Kanth) — The United States, in a somewhat “hegemonic” manner, led members in creating rules for resolving global trade disputes at the World Trade Organization 35 years ago, including the Appellate Body as the final adjudicator based on the principle of negative consensus. The principle of negative consensus required that a ruling issued by the Appellate Body can only be blocked if all the members agree not to adopt the ruling at the Dispute Settlement Body (DSB). This principle replaced the positive consensus framework wherein a losing member in a trade dispute could block the ruling. More importantly, Washington’s latest proposals, reviewed by the SUNS, seem to turn the clock back to the positive consensus framework. Today, Washington appears to be in a hurry to dismantle the existing rules to create a new Dispute Settlement Understanding at the WTO, said people familiar with the ongoing discussions for reforming the WTO’s dispute settlement system (DSS). The US proposals/actions for reforming the DSS seem somewhat akin to the desires of the proverbial emperor without clothes, said a negotiator, who asked not to be quoted. The second part of the US proposals on an appeal/review mechanism and on compliance says that “an appeal mechanism operating on [an] ad hoc basis will create uncertainty and allow for political pressures to be better tools of arm-twisting and making decisions in one’s own favour,” SUNS has learned. “This will hurt smaller members,” New Zealand apparently said during one of the meetings, according to a confidential matrix of proposals issued by the deputy trade envoy of Guatemala, Mr Marco Tulio Molina Tejeda, who is currently facilitating the informal discussions on reforming the dispute settlement system. The US proposals, which touch upon the role of the WTO Secretariat in assisting on dispute settlement, and on the issues of consistency and compliance, envision a reformed panel system but precluding the Appellate Body from any role in adjudicating trade disputes in the two-tier system, said people who are familiar with the ongoing discussions. The US proposals seem to focus only on a one-tier DSS and appear to be based on the principle of “might is right”, according to the comments made in the matrix of proposals. After making the Appellate Body dysfunctional for the past five years, Washington’s proposals on an Appeal/ Review Mechanism apparently received negative responses from the European Union, China, Australia, New Zealand, Brazil, India, and the African Group among others in the ongoing informal consultations. US PROPOSALS ON APPEAL/REVIEW MECHANISM The US floated four proposals on the Appeal/Review Mechanism in the ongoing discussions. To begin with, the first proposal on an Appeal/Review Mechanism, as contained in the confidential matrix of proposals, says “Our interests”, but in reality, it is the interests of Washington, which include facilitating the settlement/efficient resolution of disputes (not solely through the panel process or litigation), ensuring high-quality decision-making by an adjudicator (and not support staff), and having a system that promotes a negotiated outcome at all stages. The US says that “Our interests also include defining the role of an adjudicator as helping Members resolve disputes, defining what an adjudicator should or should not address to assist in resolving the dispute, and defining what an adjudicator should give the parties to assist in resolving the dispute,” according to the confidential matrix of proposals. The US says that it is concerned that “a panel’s interim review no longer contributes to resolving the dispute; a party’s incentive to preserve issues for appeal may be a contributing factor.” Further, the US argues, “we seek to improve interim review so that it can meaningfully support both a panel in its decision-making process and the parties as they seek a resolution to their dispute.” In terms of the purpose, the US said to “help address these interests/concerns would be to clarify the purpose and scope of a panel’s interim review to include reconsideration of any issue of fact or law, including completion of the analysis.” “Another would be to enable parties to request the assistance of a mediator to facilitate a resolution following issuance of the interim report and prior to circulation,” the US appears to have suggested. In response, New Zealand seems to have expressed concern that “an appeal [mechanism] operating on [an] ad hoc basis will create uncertainty and allow for political pressures to be better tools of arm-twisting and making decisions in one’s own favour. (Power dynamics). This will hurt smaller members.” However, the US suggested that: “The proposed solution would be one way to improve Members’ confidence in panel decision-making, and to ensure that parties have all available tools at their disposal to resolve their dispute throughout the adjudicative process.” The final decision on the US proposal will be made by the other members and at the Dispute Settlement Body, according to the confidential matrix of proposals. In the second proposal on an Appeal/Review Mechanism, the US suggests “defining the role of an adjudicator as helping Members resolve disputes, defining what an adjudicator should or should not address to assist in resolving the dispute, and defining what an adjudicator should give the parties to assist in resolving the dispute.” The US says that it is concerned that “review by default rather than exception has led to negative systemic consequences.” However, it did not provide any details in its proposal. However, Washington contends that “one way to help address these interests/concerns would be to limit review of issues in a final panel report to be only by agreement between the parties, with the review adjudicator to be selected via a mechanism agreed by the parties.” It is also “to enable parties to use those mechanisms they consider useful to assist in resolving the dispute” and it would permit Members “to obtain review of a panel report if the parties so agree at any point.” The final decision on the above proposal has been left to members and the DSB to take a final call on it. The third proposal by the US on an Appeal/Review Mechanism suggests that it is “the prerogative of Members to agree to new commitments where they have not clearly undertaken a commitment to govern their action.” The US says that it is concerned that “the system does not provide the proper incentives with respect to review: parties are incentivized to pursue appeals because the adjudicator reviews from a clean slate, and adjudicators are incentivized to provide expansive interpretations in order to distinguish their work from panelists.” The US has underscored the need “to establish a standard of review for questions of law, under which an appellant must establish that the panel: (1) was guilty of gross misconduct, bias, or serious conflict of interest, or otherwise materially violated a rule of conduct; (2) seriously departed from a fundamental rule of procedure; or (3) manifestly exceeded its powers, authority or jurisdiction, and any of these acts by the panel materially affected the decision and threatens the integrity of the process.” The proposed solution, according to the US, “would be one way to institutionalize the proper incentives for all participants, to limit the role of adjudicators in adding to or diminishing the rights and obligations of Members, and to reduce the complexity, length, and cost of any review.” Here again, the decision has been left to the other members and the DSB. In the fourth proposal on an Appeal/Review Mechanism, the US says that it is concerned that “adjudicators’ disregard for deadlines enabled them to engage on issues not necessary to resolve the dispute, which contributed to overreach.” “One way to help address this interest/concern would be to confirm that the deadline for issuance of the report may not be extended by the adjudicator, given the systemic implications; parties may agree to suspend the proceeding and until the deadline,” the US suggested. The US argues that it wants “to limit the potential for overreach during the review process” so that “clearly defined time limits require dispute settlement participants to focus only on those issues necessary to resolve the dispute.” The US says that “a systemic approach to mandatory limits eliminates the conflicting interests that may arise in the context of a particular dispute,” as well as facilitates the settlement/efficient resolution of disputes and maintains the integrity of the system over time. ISSUE OF CONSISTENCY On the issue of consistency, the US says that it wants to ensure that the “interpretative authority” is returned to the Members by “empowering Members to clarify ambiguous terms, respecting the roles of the negotiating and monitoring functions of the WTO, and ensuring the system maintains policy space for Members where they have not clearly undertaken a commitment to govern their action (activities), and maintains the prerogative of Members to agree to new commitments where they have not clearly undertaken a commitment to govern their action”. The US says that it remains concerned that “reliance on litigation to clarify treaty interpretation has undermined the other functions of the WTO, with experts in the committees often disconnected from the interpretations that are developed in the dispute settlement context.” Further, Washington says, “The dispute settlement system should contribute to and not undermine these functions.” “One way to help address these interests/concerns,” according to the US, “would be to establish a mechanism, in addition to the authoritative interpretation process, through which the relevant WTO committees discuss treaty interpretations contained in reports.” However, there is no consensus on any of the US proposals. SECRETARIAT SUPPORT Another area of deep controversy arising from the US proposals is ensuring that “an adjudicator has the appropriate experience and level of expertise and that the system ensures high-quality decision-making by an adjudicator, not support staff.” “We seek to improve the level of Secretariat support by ensuring that staff has practical experience in the relevant topic area,” the US apparently argued. In response to the US proposal, the EU is understood to have said that while it is open to reforms on this topic, Brussels is not clear about “what is required here by the USA” and “what kind of role is desired to be given to the Secretariat here.” China said it understands the desire of the US here, adding that the Secretariat is mandated to uphold the quality of decisions. Japan said that it would like to discuss the first proposal further, while the second proposal seems to suggest that adjudicators are required to draft the panel report. The US said that one way to help address these interests/concerns would be to establish Secretariat guidelines for the staffing of panels (e.g., at least one staffer with a legal background, and each staffer must either support the relevant committee or have relevant, practical subject matter expertise). The proposed solution would be one way to improve the quality of decision-making by adjudicators (and not support staff), while appropriately supporting the panel process with necessary resources, it added. The US said this would help “meet our interests in a system that ensures that an adjudicator has the appropriate experience and level of expertise and high-quality decision-making by an adjudicator, not support staff.” In another proposal on the Secretariat, the US says that its interests include “facilitating the settlement/efficient resolution of disputes (not solely through the panel process or litigation, ensuring high-quality decision-making by an adjudicator (and not support staff), and having a system that promotes a negotiated outcome at all stages.” Washington also says that it wants to ensure that the system serves the needs of domestic stakeholders and that it respects the roles of the negotiating and monitoring functions of the WTO. It wants to improve the operation of the DSB surveillance mechanism. To address these interests/concerns, according to the US, “would be to establish parameters on the support to be provided to panels, to be limited to (1) the administration of the proceeding, and (2) legal support that is responsive to the submissions of the parties.” The US prescribes that “any Issues Paper or background memo prepared by the Secretariat would be provided to the parties for comment as part of the briefing process” and “the panel report (in particular, its findings and conclusions) is to be drafted by the panel.” According to the US, this is “one way to provide confidence to Members and stakeholders that panelists are taking decisions and that those decisions are based on the panelists’ own objective assessment of the matter based on a review of the party submissions.” ISSUE OF COMPLIANCE Several members raised sharp concerns over the US proposal on the issue of compliance. Australia sought to know “how will this practical function be submitted to negotiated rules (how members will avoid power dynamics) & how you see this complying with Article 21 [of the Dispute Settlement Understanding (DSU)].” Brazil insisted that a compliance panel under Article 21 (of the DSU) will be required, while Russia said that the US proposal “reduces Article 21, so for us it means that two options could be (1) immediate compliance, and (2) immediate retaliation.” The EU said the US proposal seems to be assuming that the respondent doesn’t have to obey the decision and that he will have to either come up with a suggested solution or wait for penalties. Russia said that 60 days (period for compliance) are not enough at all, while India said it is a very short time- frame. In short, the US proposals call for an overhaul of the existing two-tier dispute settlement system which was agreed by all members at the end of the Uruguay Round. But any changes in the DSU can only be decided by trade ministers at the WTO’s 13th ministerial conference (MC13), to be held in Abu Dhabi in February next year. Worse still, the US could ask for a payment from members, namely a trade-off between its dispute settlement reform proposals on the one side, and Washington’s acceptance of outcomes in other areas in the run-up to MC13, on the other, said people, who preferred not to be quoted. +
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