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TWN
Info Service on WTO and Trade Issues (Oct24/21) Geneva, 24 Oct (D. Ravi Kanth) — The ongoing discussions on the reform of the World Trade Organization’s dispute settlement system (DSS) could severely undermine the core provisions of the Dispute Settlement Understanding (DSU), thereby ensuring that the two-stage dispute settlement mechanism is ineffectual, said people familiar with the discussions. With the WTO’s 14th ministerial conference (MC14) likely to be held sometime in February 2026, the task of reaching an agreement on restoring the two-tier dispute settlement mechanism could be deferred to next year given the seemingly “chaotic” ongoing discussions on the reform of the DSS, said people familiar with the development. As per the mandate of the WTO’s 13th ministerial conference (MC13) held in Abu Dhabi earlier this year, members were expected to conduct discussions “with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024 …” The trade ministers at MC13 instructed their officials “to accelerate discussions in an inclusive and transparent manner, build on the progress already made, and work on unresolved issues, including issues regarding appeal/ review and accessibility to achieve the objective by 2024 as we set forth at MC12.” Early this week, the DSS reform discussions that took place at the level of the technical experts on some issues contained in the “WTO confidential” document do seem to portend that things are being done to restructure the Dispute Settlement Body (DSB) as per the interests of a major industrialized country, said people familiar with the discussions. The proposed appeal/review mechanism could be a radical departure from the existing Appellate Body and could provide little comfort to countries depending on the WTO to provide legal succour, due to alleged attempts to weaken the enforcement function, said people familiar with the discussions. The “WTO confidential” document issued earlier this month contains some rather “confounding” language in terms of the reform ideas put forward on several elements of the proposed appeal/review mechanism, said people familiar with the discussions. The six items on the proposed appeal/review mechanism are: (A) Scope of review; (B) Standard of review; ( C) Form of the mechanism; (D) Reducing/changing incentives to appeal; (E) Clarifying Members’ expectations of adjudicators; and (F) Access to the mechanism. In an earlier article, the form of the mechanism was covered, while in this article, scope of review, filters, criteria or admissibility tests for claims, and standard of review are highlighted. (See SUNS #10097 dated 16 October 2024.) SCOPE OF REVIEW According to the draft “WTO confidential” document on Appeal/Review tables issued on 11 October, the scope of review would involve the panel’s “objective assessment of the facts under DSU Article 11. Appeals are limited to issues of law covered in the panel report and legal interpretations developed by the panel (DSU Art. 17.6).” The proposed reform idea(s) by the co-convenors include:
The co-convenors argued that the key objective(s) of reform ideas 1-3 are: “To ensure the panel’s role as the trier of facts is respected; to ensure that appeal/review focusses only on legal issues; and to reduce the number of appeal/review claims.” As for the observations made by members on the above reform ideas, the co-convenors said: “There appears to be broad support for reform idea 1, which would seek to codify a high standard for appeal/review adjudicators’ review of errors relating to the panel’s objective assessment of the facts.” Without naming the members, the co-convenors said, “Some Members, therefore, consider that this would be a standard of review (see Table B, Standard of Review) rather than an admissibility requirement limiting the scope of review.” The co-convenors pointed out that “Members would need to consider further and give guidance to adjudicators regarding: * what would be an “egregious” error; * the extent (if any) to which adjudicators should reassess the evidence; and * whether “egregious” errors must be evident from the panel record.” The co-convenors said many members seem to have supported “a non-exhaustive list of examples of egregious errors (and/or general principles) than for a closed list.” In this regard, they proposed the following elements of “egregious” errors for further discussion: * serious distortion or misrepresentation of the facts; * serious disregard of, or refusal to consider, pertinent/relevant evidence submitted by a party; and * making an obvious error as to a fact (e.g. the commencement date of a tariff increase). According to the co-convenors, reform idea 2 (on clarifying that the parties should not resubmit factual arguments from the panel stage under the guise of challenging the objectivity of the panel’s assessment of the facts) “seeks to clarify that a party needs to identify a legal error in the panel’s assessment of the facts, not simply repeat the party’s factual arguments from the panel stage.” Further, on reform idea 3 (on clarifying that questions of fact, including the meaning and effect of “municipal law”, are not within the scope of appeal/review), the co-convenors said that it “reflects a view that questions of fact are not within the scope of appeal/review, including because any consideration of the facts risks increasing the complexity and inefficiency of the process. These reform ideas are linked to “Enhancing use of interim review” under Table D, Reducing/changing incentives to appeal. FILTERS, CRITERIA OR ADMISSIBILITY TESTS FOR CLAIMS According to the co-convenors, under the current system on filters, criteria or admissibility tests for claims, “Parties to the dispute may appeal any issues of law covered in the panel report and legal interpretations developed by the panel (DSU Art. 17.4, 17.6), without seeking leave. Adjudicators shall address each of the issues raised (DSU Art. 17.12). The proposed reform idea(s) by the co-convenors include: “1. Limit appeal/review claims to errors of law that would have a material impact on the respondent’s implementation obligations with respect to a measure. The adjudicators would be required to make an assessment of all claims at the outset. The assessment would be based on the appellant’s notice of appeal and would not examine the merits or substance of the claim. Only claims that would have a “material impact on implementation” (MII) in that they would materially change what the respondent would have to do to implement the recommendations and rulings would be assessed on the merits. For those claims that have MII, the adjudicators would determine the most efficient order in which to analyse the claims. After analysing each claim, the adjudicators would assess whether the next claim would have MII and would not consider the claim if it did not have MII. The appellant would bear the burden to demonstrate (in its notice of appeal and submission) the error of law and that correcting the error would have a material impact on the respondent’s implementation obligations with respect to a measure. 2. Create a leave to appeal or permission to appeal mechanism so that only alleged errors of law that were (a) raised with the panel during interim review; and (b) with a real prospect of success, would be considered by the adjudicators.” According to the co-convenors, the key objectives for the above two reform ideas are: “Reform idea 1: To focus appeal/review on the issues necessary to resolve the parties’ dispute; and to avoid the perception of “law-making” by the adjudicators; to ensure adjudicators do not make advisory opinions or provide unnecessary reasoning. Reform idea 2: To limit appeals to those where there is a genuine error of law requiring correction.” According to the co-convenors, “Many Members have expressed a willingness to explore ways to reduce the scope of issues brought for appeal/review. Reform idea 1 is intended to limit appeals to claims that matter to the parties because they would have a material impact on the respondent’s implementation obligations.” Interestingly, according to the co-convenors, “some Members consider reform idea 1 could have a positive impact on the behaviour of Members and adjudicators. Regarding how this idea differs from judicial economy, it has been expressed that the application of MII would be mandatory, while judicial economy is exercised at the adjudicators’ discretion. There may be a need to consider (i) whether or how reform idea 1 would apply to claims relating to procedure or to the conduct or integrity of the proceedings; (ii) the meaning of “material” and how this modifies “impact”; and (iii) guidance to adjudicators. Some Members consider that all panel findings could impact on implementation and therefore do not see value in this idea. Concern has also been expressed about legal errors that might not meet the MII standard and therefore would not be able to be corrected by the appeal/review adjudicators. In response to this concern, reference has been made to No Precedential Value of Past Reports guidance (see Title V, Chapter III of the Draft Consolidated Text) and the Advisory Working Group (see Title VI, Chapter II of the Draft Consolidated Text).” As regards reform idea 2, which deals with creating a leave to appeal or permission to appeal mechanism, the co-convenors said “some Members hold the view that there should be no leave/permission to appeal mechanism because they consider that appeal/review should be automatic.” It is increasingly apparent that the mention of “some Members” seems to actually involve the observations of the United States, said a technical expert who asked not to be quoted. According to the draft “WTO confidential” document, “many Members have also expressed concern that reform idea 2 would add another step to the process that would make it more complex, costly and time consuming. Another view is that it would make an important change if the standard to grant leave was high.” As regards “who would decide whether leave was granted,” it seems that “some Members want impartial adjudicators to decide.” More importantly, “another view is that the appeal/review adjudicators would not filter claims effectively, as they would always be inclined to grant leave. There would also be a need to consider how the decision-maker would assess prospects of success and whether this would require reference to past decisions.” STANDARD OF REVIEW On the standard of review under the current system, the co-convenors said that “appeals are limited to issues of law covered in the panel report and legal interpretations developed by the panel (DSU Art. 17.6).” Significantly, “there is no explicit standard of review in the DSU’, as “the adjudicators apply the customary rules of interpretation of public international law and give no deference to the panel’s decision on legal issues (DSU Art. 3.2).” The proposed reform idea(s) in the “WTO confidential” document include the following: “1. A high or limited standard of review that gives some deference to the panel such as: a. a standard under which an appellant must establish that the panel’s decision on a legal issue was “clearly erroneous” or “plainly unreasonable”; or b. an approach whereby the appeal/review adjudicators would first consider whether the panel’s interpretation was reasonable/permissible based on the customary rules of interpretation of public international law. The appellant’s interpretation would only be considered if the panel’s interpretation was unreasonable/impermissible. 2. Standard of review under which an appellant must establish that the panel: a. was guilty of gross misconduct, bias, or serious conflict of interest, or otherwise materially violated a rule of conduct; b. seriously departed from a fundamental rule of procedure; or c. 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 key objectives of the above two reform ideas as per the WTO “confidential” document are “to reduce the opportunity for “rule-making” by adjudicators; and to preserve some legal review of panel reports.” According to the document, members’ responses to the above two reform ideas appear to be mixed. For example, “one view (perhaps of the US) is that reform ideas 1 and 2 would change the incentives for appeal and address concerns with judicial rule-making, de facto precedent and gap-filling. These ideas would also address a concern that the Appellate Body gave insufficient deference to panel’s decisions on legal issues.” “Some other Members have said it would be useful to clarify the standard of review and some have expressed a willingness to discuss a different or higher standard. For some Members, it is also important to ensure that panel decisions that are plainly wrong or erroneous can be reviewed,” and “some other Members consider that the DSU contains a standard of review, which is interpretation in accordance with the customary rules of interpretation of public international law.” “Further, some Members have suggested that the above mentioned concerns can be addressed by other reform ideas (such as MII) and by some of the proposed reforms in the Draft Consolidated Text, such as the Guidelines for Adjudicators (see Title V of Draft Consolidated Text).” More importantly, “many Members have said reform ideas 1 and 2 would not meet their interests in being able to seek correction of legal errors, as well as other interests, including consistency, coherence, legitimacy and fairness. Those Members consider that reform ideas 1 and 2 could result in inconsistent outcomes which would undermine predictability.” In conclusion, there appear to be clear and at times fundamental differences on both the scope of review and standard of review due to conflicting interests of many members on one side, and one or a few members, on the other, said people familiar with the discussions. +
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