Isabelle Wenger, LL.M. in International Dispute Resolution at King’s College London
‘The dispute settlement system negotiated during the Uruguay Round seems to me still today an extraordinary achievement that comes close to a miracle. It seems to me to be wise not to take its existence for granted and to be guaranteed forever but to contribute to its consolidation and further developing in pursuing with circumspection and caution, but also with courage and in total independence, the road, which has been taken, and which has proved so far to be a notable success.’[1]
Recently, the World Trade Organisation (WTO) Dispute Settlement Body (DSB) and its Appellate Body (AB) have attracted the media’s attention. This is for good reason. The Trump administration is allegedly seeking to undermine the AB – one of the most fundamental innovations of the Dispute Settlement Understanding (DSU) – by blocking the reappointment of its panellists.
This post highlights the extraordinary – and to some extent unexpected – success of the DSU, a dispute settlement mechanism originally intended to be a mere side-effect, or, as Winham words it, ‘a by-product’ of the Uruguay Round.[2] The post then discusses the Trump administration’s stance regarding the AB, and the threat that this administration is posing to the body’s existence and function. Finally, the post concludes that if the trading system needs reform, this should be carried out within the framework of the DSB rather than outside it.
A Miracle?
The DSB negotiations during the Uruguay Round have been described in the Sutherland Report as ‘the greatest achievement of the international community since Bretton Woods’,[3] with the DSU being termed ‘the crown jewel of the entire multilateral trading system’.[4] Indeed, numerical evidence shows that the DSB is an incredibly successful tool for the settlement of trade disputes. Throughout its existence, the DSB has received over 436 complaints on over 320 ‘matters’[5], and has adopted more than 229 panel and AB reports.[6] Its abundant activity shows that the DSB – created in the Uruguay Round as a stepping-stone for a future International Trade Organisation[7] – is today the most important forum for trade disputes. It has become a fully-fledged World Trade Court.
The effectiveness of the DSB is mainly due to two main changes that were implemented as a result of the GATT 1994. To begin with, the DSB’s decisions and AB reports today are automatically adopted unless the WTO Member States unanimously decide not to follow them (‘reverse consensus’). This differs from the pre-1994 system where reports were not adopted unless there was consensus to do so. After 1994, the DSB also acquired a standing AB. The establishment of an AB can be summarised briefly as harnessing a ‘rule-of-law revolution’. The mechanism allows for a more judicial and formalised decision-making process, shifting the ultimate control of dispute settlement from the Member States to the more neutral AB.
Some academics like Weiler believe that the 1994 changes should not be viewed with undiluted optimism as ‘the jury is still out’, meaning that it is still too early to draw conclusions on the effectiveness of the new DSB.[8] Weiler even questions the legitimacy of the criticisms of the system that existed pre-GATT 1994, considering that its reports were well-reasoned and followed in the majority of cases.[9]
While it may be true that a definitive assessment of the WTO is pending, the DSB still remains a ‘miracle’.[10] It has enhanced the trade law framework by improving legal certainty, fostering effectiveness and efficiency, championing the equal treatment of all Member States, and, most importantly, gaining their trust in the WTO system.
The Trump Administration’s Position
Like Weiler, the US remains wary of the AB’s existence and work.[11] Such distrust stems from, among other things, the AB’s alleged lack of transparency, as well as the appointment mechanisms of panellists and their decision-making processes.
These criticisms seem bizarre. The US is one of the most active members of the WTO and it has a highly respected lose-win rate. Bloomberg shows that as a complainant, the US has won 87% of cases before the WTO since 1995.[12] This is a better rate than most WTO Member States. Exceptionally, the WTO’s AB has also always included one American panellist.
Whether these critiques are substantiated or not, the US is currently voicing its complaints towards the AB’s work by vetoing the reappointment of AB panellists. This practice may result in the body hitting a stumbling block soon. This is because all 164 members of the WTO must unanimously agree appointments to the AB, and the minimum number of panellists required to sign off on every report is three. Once Bhatia and Graham, the current Indian and US panellists, complete their respective terms in 2019, there will only be one AB panellist on the body, ultimately compromising the body’s functioning.
Need For Reform?
While some argue that Trump’s view on trade is ‘medieval’,[13] and criticise the US by comparing it to Mugabe’s killing off of the SADC by blocking new judges,[14] the difficult position of the AB is seen by others as a sign of broader legitimacy issues of the DSB. In this sense, Pascal Lamy, the former WTO Director-General, questions whether the US is legitimately attempting to fix recognised issues within the system, or simply trying to wreck it.[15]
Fix It?
Some criticisms voiced by the US may signify more widespread concerns about the AB, concerns that may actually stand a chance of being ‘fixed’. An example is the issue of ‘judicial overreach’ by AB panellists. As previously mentioned, one of the main criticisms made by the Trump Administration against the WTO is the manner in which the DSB makes decisions. From the point of view of the US, the AB often engages in ‘judicial overreach’, that is, ‘judicial norm creation’, lacking in adequate checks and balances.[16] In this sense, the DSB effectively supersedes negotiated consent-based law making, exercising a form of ‘judicial law making’.
The US has made allegations of ‘judicial overreach’ on more than thirty occasions. For instance, in US – Continued Dumping and Subsidy Offset Act of 2000,[17] the AB was accused by the US of ‘creating’ a new category of prohibited subsidies that was neither negotiated nor agreed by WTO Members. This new category was the subsidisation of domestic producers who have successfully petitioned for anti-dumping or countervailing duties. This and similar DSB decisions add fuel to the fire, fostering the Trump Administration’s concerns that the AB is ‘altering’ the law in a manner deemed to be uncertain and incoherent, rather than simply correcting legal errors by first-instance panels.
Were WTO Member States to agree between themselves that judicial overreach is indeed a problem that needs to be addressed, solutions like legislative remand may ‘fix’ the issue. By means of legislative remand, the AB would have to submit issues of legal uncertainty to Committees for discussion, thereby leaving the ultimate control in relation to interpretation with the Member States. Calling on Members to participate when it comes to interpretatively problematic issues reinforces the authority of the AB’s decisions. Thus, legislative remand could restore Member States’ trust in the system – the very value that renders the AB a ‘miracle’.[18]
Wreck It?
Other critiques made by the US in relation to the AB seem less legitimate and geared primarily towards ‘wrecking’ the WTO system. For instance, the US vetoing of the reappointment of the South Korean panellist, Mr Seung Wha Chang, is arguably more linked to the positions that Mr Chang has taken in deciding certain cases involving the US, rather than to genuine concerns about his independence. Whilst the Trump Administration cited cases such as US–Countervailing Measures[19] and US–Countervailing and Antidumping Measures[20] to demonstrate that ‘the reports on which [Mr Chang] participated do not accord with the role of the Appellate Body’, one may wonder whether the US position was less concerned with the alleged impartiality of Mr Chang and more troubled with the fact that these cases were not decided in its favour.
Specious allegations against the WTO are more difficult to address, as they show a lack of political will to address the flaws in the system. Ill-founded accusations also function as a powerful tool to delegitimise the AB in the eyes of other Member States. For example, challenging the decision-makers instead of the decisions themselves, as in the case of the appointment of Mr Chang, sets a bad example, and is likely to undermine the credibility of the DSB.
Are reforms of the WTO sufficient to counter the efforts that seek to wreck it? Some academics believe that may not be the case and suggest instead that the way forward for the resolution of trade disputes lies in the creation of an entirely new mechanism. For instance, Kuijper suggests that starting a negotiation group called ‘The Real Friends of Dispute Settlement’ from which the US would be excluded can restore the ‘miracle’.[21] While this may be a quick fix, Foltea notes that it would require ‘wide support and long-time frames’ for this solution to be successful. It would also entail WTO disputes ‘leaving WTO turf’, as a negotiation group cannot be created under the rules set forth under the DSU.[22] This is undesirable.
Conclusion
Deciding on issues ranging from agricultural goods to asbestos, bananas to brooms, and coconuts to dairy products, the DSB negotiated in Uruguay was a success story. However, it is a story which the US threatens to undermine. On the one hand, the harm that the US is inflicting on the WTO seems to contradict its active role and success rate in the context of the DSB. On the other hand, the threat posed to the AB stresses the need for reform of the dispute settlement mechanism.
Depending on whether one takes the stance that there still is a future for the DSB or not, reform can be carried out either within the system, by ‘fixing’ it, or outside the framework of WTO law, thereby ‘wrecking’ it. This post supports the idea that the DSB can and should be reformed, and that this path is preferable to the setting up of an entirely new system seeking to address the previous’ flaws. ‘Taking the road which has been taken’, as Kuijper proposes, has proved so far to be a notable success.[23] Therefore, options like the setting up of committees which decide on delicate issues of interpretation is to be preferred over creating a new system like ‘The Real Friends of Dispute Settlement’, which would exclude certain ‘unfriendly’ countries. Developing the DSB further in this manner, as opposed to setting it aside, is indeed in line with the characteristic that rendered it a ‘miracle’ at the international level: its capacity to gain (or regain, in this case) Member States’ trust in the World Trade Court.
[1]C D Ehlermann, ‘Six Years on the “World Trade Court”: Some Personal Experiences as a Member of the Appellate Body of the World Trade Organisation’ [2002] 36 Journal of World Trade 605, 639
[2]G R Winham, ‘The World Trade Organisation: Institution-Building in the Multilateral Trade System [1998] 21(3) World Economy 353, 353
[3]J Bacchus, ‘Inside the World Trade Organisation’, speech on 17 April 2002 to the Columbia Business School APEC Study Centre, 6, available at <http://www8.gsb.columbia.edu/apec/sites/apec/files/fiels/discussion/bacchusdp.pdf>, accessed on ?
[4]Ibid
[5]Including adopting panel reports, monitoring the implementation of rulings, and authorising the suspension of concessions.
[6]S Lester, B Mercurio, A Davies, World Trade Law: Text, Materials, and Commentary (1st edn, Bloomsbury Publishing 2012), Ch 5
[7]The International Trade Organisation (ITO) was the proposed name for an international institution for the regulation of trade – the forerunner of the World Trade Organisation.
[8]H J J Weiler, ‘The Rule of Lawyers and the Ethos of Diplomats; Reflections on the Internal and External Legitimacy of WTO Dispute Settlement’ [2001] 35(2) Journal of World Trade 191, 200
[9]Ibid
[10]n1
[11]Ibid
[12]J Epstein, ‘Trump Says WTO Is Treating the U.S. ‘Very Badly’ Despite Wins’, available at <https://www.bloomberg.com/news/articles/2018-07-02/trump-says-wto-is-treating-the-u-s-very-badly-despite-wins>, accessed on ?
[13]P Lamy, former WTO Director-General, Speech, Geneva, February 2017, available at <https://www.wto.org/english/news_e/sppl_e/sppl139_e.htm>, accessed on 19 August 2018
[14]Z Godzimirska, ‘At the Brink of Death? The Slow and Painful Dismemberment of the WTO’s Appellate Body’ (are there any more details here that need to be included to make this easier to locate?); The former Zimbabwean President Robert Mugabe rejected the rulings and the jurisdiction of the SADC Tribunal, effectively causing it to be disbanded in August.
[15]P Lamy, former WTO Director-General, (Speech, Geneva, February 2017), available at <https://www.wto.org/english/news_e/sppl_e/sppl139_e.htm>, accessed on 19 August 2018
[16]J Chaise, T Lin, International Economic Law and Governance: Essays in Honour of Mitsuo Matsushita., Ch 29
[17]Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R, adopted 27 January 2003, DSR 2003:I, 375
[18]n1
[19]Appellate Body Report, United States – Countervailing Duty Measures on Certain Products from China, WT/DS437/AB/R, adopted 16 January 2015, DSR 2015:1, 7
[20]Appellate Body Report, United States – Countervailing and Anti-Dumping Measures on Certain Products from China, WT/DS449/AB/R and Corr.1, adopted 22 July 2014, DSR 2014:VIII, 3027
[21]P J Kuijper, ‘What to do about the US Attack on the Appellate Body?’ [2017] International Economic Law and Policy Blog
[22]M Foltea, ‘Options for breaking the WTO Appellate Body deadlock’ [2018] International Centre for Trade and Sustainable Development
[23]n1