WTO and the Appellate Body: What’s Going On?

By: Adara Manamperi

Currently, the WTO’s highest ruling body, the Appellate Body (AB), which handles appeals from the Panel Reports, is in danger. The AB is a seven-member group that hears appeals from panel cases.[1] The members of the AB are appointed by the Dispute Settlement Board (DSB), with each member being a “person of recognized authority,” and not affiliated with a government.[2] To ensure that these issues are treated impartially, when an appeal is made a division of three members is selected to hear an appeal to ensure “randomness, unpredictability and opportunity for all Members to serve regardless of their national origin.”[3] The AB plays a crucial role in resolving the underlying dispute settlement issues of the old GATT system,[4] and serves as a way for parties to appeal decisions that may seem inconsistent, or applied wrongly by the Panel. [5] According to Article 2.4 of the DSU, the decision to appoint new judges to the appellate body must be done by a consensus of the WTO Members.[6] Because of this provision of the DSU, the United States (U.S.) has effectively been able to use a “veto power” to block new appointments to the AB.[7]

The United States Trade Representative (USTR) issued a report entitled “Report on the Appellate Body of The World Trade Organization.” [8] In this report, the United States claimed that four main issues exist with the Appellate Body as a whole.[9] Firstly, the AB “frequently overturns panel findings,” thus “extending the number and duration of disputes.”[10] Secondly, it has “increased the complexity of appeals” and “encouraged additional litigation.”[11] Thirdly, the AB has “added to or diminished rights and obligations of WTO Members.”[12] Lastly, the “Appellate Body has diminished the stature of dispute panelists and diminished the impact of the WTO agreements as written.”[13] With this report, the U.S. has made the decision to block the appointment of new judges, and threaten a power of veto, as a way of protesting the way the WTO operates.[14] According to the U.S., if an appeals ruling takes longer than ninety days, the ruling will be vetoed.[15] Not all nations agree that this is the correct course of action as sixty-six WTO member states support a petition hoping to allow the resumption of new appointments.[16] Unless a direct and determined change is implemented, the U.S. and the WTO will likely never reach a common ground and will continue to brew in disagreement.[17]

As the AB was implemented to resolve issues with the old GATT dispute settlement system, [18] if it ceases to exist, then it could cause a significant impact to the global trading environment.[19]  If the AB no longer can serve as the arbitrator, then countries will likely resort to self-help measures such as tariffs and protectionist trade policies.[20] Along with the WTO’s inability to resolve disputes, the WTO will also have issues opening the markets between countries. Currently, countries that are victims to U.S. tariffs have also placed tariffs of their own, which has “affected tens of billions of dollars in U.S. exports and upended global trade flows”.[21]

According to Article 25, “expeditious arbitration” can be used instead of dispute settlement, so long as the issues are “clearly defined by both parties.” [22] This means that in the absence of the AB, both parties can “set up arbitration procedures identical to those guiding the current Appellate Body”[23] The great part about this is that outside parties “would have no influence over the arbitration.”[24] Furthermore, the U.S. would not have the ability to stop the appeals process, so this mock version of the Appellate Court would function similar to the existing one. This of course comes with its set of limitations; since this process requires voluntary consent of both parties, “members would have no incentive to bind themselves to arbitration if they expect an unfavorable outcome.”[25] Additionally, over the years “WTO members have developed a wealth of expertise and knowledge regarding WTO DSU, which they cannot simply forgo.”[26] This means that it is likely that the WTO members would enter into an unfamiliar arena, with no sense of what the outcome would be.

Currently, countries are working around the AB appointment blockage in this fashion. Canada and the EU entered into an agreement to “ensure that if Canada launches a trade dispute against the EU, or vice-versa, they can be sure that the case can be adjudicated, appealed and settled in a ruling that both sides will respect as binding and final.”[27] They are doing this by attempting to imitate the AB. Furthermore Brussels (Belgium) has formed an alliance through a joint declaration with sixteen nations in order to find ways to work around the U.S. judicial appointment block.[28] By signing this declaration, these nations committed to implementing “contingency measures that would allow for appeals of WTO panel reports in disputes among ourselves, in the form of a multi-party interim appeal arrangement.” [29] The EU has taken significant action, approving their member states to enter into voluntary arbitration, and have also actively condemned actions on behalf of the U.S.[30]  In addition, other nations are entering into agreements that allow for an arbitration process with the “essential principles and features’’ of the appellate body, [31] and the U.K. government hopes that “all Members … act urgently to restore the system to full functioning … prioriti[zing] discussions on a permanent solution.”[32]

With COVID-19 and its impacts on the economies of almost every nation,[33] a gridlocked appellate body, and the possibility of increased protectionist measures by nations to boost their own economies,[34] the possibility of increased trade agreement violations are sure to arise in the upcoming years. Will nations come together and renegotiate like they did when the WTO was formed? Or is the WTO facing extinction, and holding on to its last living moments? Unfortunately, as with many issues, only time will tell how this plays out.

#WTO #Manamperi #International #Law #AppellateBodyCrisis

Picture Credit: The Center for Strategic and International Studies (CSIS).

[1] Appellate Body Members, WTO, https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm (last visited Mar. 20, 2020).

[2] Id.

[3] Id.

[4] Historic Development of the WTO Dispute Settlement System, WTO, https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm (last visited Aug. 2, 2020).

[5] Dispute Settlement: Appellate Body, WTO, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (last visited Aug. 2, 2020).

[6] Understanding on Rules and Procedures Governing the Settlement of Disputes art. 2.4, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU].

[7] Tom Miles, U.S. Blocks WTO Judge Reappointment as Dispute Settlement Crisis Looms, Reuters, (Aug. 27, 2018) https://www.reuters.com/article/us-usa-trade-wto/u-s-blocks-wto-judge-reappointment-as-dispute-settlement-crisis-looms-idUSKCN1LC19O.

[8] United States Trade Representative, Report on the Appellate Body of the World Trade Organization (Feb. 2020) [hereinafter US Report on WTO].

[9] Id.

[10] Id. at 120.

[11] Id.

[12] Id.

[13] Id.

[14] Tom Miles, U.S. Unveils New Veto Threat against WTO Rulings, Reuters, (Jun. 22, 2018) https://www.reuters.com/article/us-usa-trade-wto/u-s-unveils-new-veto-threat-against-wto-rulings-idUSKBN1JI22J.

[15] Id.

[16] Id.

[17] Jens Lehne, Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified?, in Suis Generis 1, 137-39 (Daniel Hürlimann & Mark Thommen eds., 2019).

[18] Historic Development of the WTO Dispute Settlement System, supra note 5.

[19] WTO Judge Blockage Could Prove ‘The Beginning of the End’, Deutsche Welle, (Dec. 10, 2019) https://www.dw.com/en/wto-judge-blockage-could-prove-the-beginning-of-the-end/a-51613082.

[20] Id.

[21] Keith Johnson, How Trump May Finally Kill the WTO, Foreign Policy, (Dec. 9, 2019) https://foreignpolicy.com/2019/12/09/trump-may-kill-wto-finally-appellate-body-world-trade-organization/.

[22] DSU, supra note 7, art. 25.

[23] William Alan Reinsch, Jack Caporal, & Jonas Heering, Article 25: An Effective Way to Avert the WTO Crisis?, Center for Strategic & International Studies, (Jan. 24, 2019) https://www.csis.org/analysis/article-25-effective-way-avert-wto-crisis.

[24] Id.

[25] Id.

[26] Bashar H. Malkawi, Can Article 25 Arbitration Serve as a Temporary Alternative to WTO Dispute Settlement Process?, Kluwer Arbitration Blog (Jan. 5, 2019) http://arbitrationblog.kluwerarbitration.com/2019/01/05/can-article-25-arbitration-serve-as-a-temporary-alternative-to-wto-dispute-settlement-process.

[27] Tom Miles, EU, Canada Agree First Workaround to Avoid U.S. Block on WTO Judges, Reuters, (Jul. 25, 2019) https://www.reuters.com/article/us-trade-wto-eu-canada/eu-canada-agree-first-workaround-to-avoid-u-s-block-on-wto-judges-idUSKCN1UK2QY.

[28] Jim Brunsden, Brussels Builds Alliance to Bypass US Block on WTO Judges, Financial Times (Jan. 24, 2020) https://www.ft.com/content/e644ffea-3e97-11ea-b232-000f4477fbca.

[29] Id.

[30] Nikos Chrysoloras & Bryce Baschuk, EU Seeks to Break U.S. Strangehold on WTO, Bloomberg, (May 29,2019) https://www.bloomberg.com/news/articles/2019-05-27/eu-eyes-end-run-around-u-s-action-set-to-hobble-wto-influence.

[31] Id.

[32] Foreign & Commonwealth Office and Department for International Trade, UK Statement to the WTO Dispute Settlement Body on Appellate Body Appointments, GOV.UK (Jul. 30,2020) https://www.gov.uk/government/news/uk-statement-to-the-wto-dispute-settlement-body-on-appellate-body-appointments.

[33]The Global Economic Outlook During the COVID-19 Pandemic: A Changed World, The World Bank, (Jun. 8, 2020) https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world.

[34] Yen Nee Lee, Coronavirus pandemic will cause a ‘much bigger wave’ of protectionism, says trade expert, CNBC (Apr. 9, 2020) https://www.cnbc.com/2020/04/10/coronavirus-expect-a-lot-more-protectionism-says-trade-expert.html.