Why it is Important to Save the WTO Appellate Body: An Asian Perspective
Posted on : November 24, 2018Author : AGA Admin
The Director-General of the World Trade Organization (WTO) was asked recently about his top most concern related to WTO reforms. He remarked that he would like “the Appellate Body (AB) to start functioning properly.”[1] The United States has been blocking the appointment of Appellate Body members for a very long time to bring attention to their concerns related to the dispute settlement mechanism of the WTO, more specifically the work of the WTO Appellate Body. This action threatens not just the efficient functioning of the WTO dispute settlement but, if left unchecked, can seriously destabilize the rules based multilateral trading system. The Director-General pointed out that third party adjudication is a critical element of the WTO system as it is responsible for the enforcement of the trade rules that are negotiated by WTO members. The Appellate Body has played a crucial role in interpreting these rules and its absence will hurt the system significantly. The WTO’s top official said that, while the US has communicated its longstanding concerns related to the functioning of the Appellate Body, it has not offered any inputs on what needs to be done to address those concerns and has decided to outrightly block the appointment of Appellate Body judges to paralyze its functioning completely.
Dispute settlement in international relations is indispensable for the unity and success of international organizations. Conflicts have to be solved by accepted international legal standards and rules. This is particularly true in the field of international trade where conflicts arise in great numbers. The Dispute Settlement System (DSS) of the WTO is a unique mechanism for resolving trade disputes and it emphasizes a rule-oriented approach as opposed to a power-oriented approach to dispute resolution. The adjudicatory mechanism that existed under the General Agreement on Tariffs and Trade (GATT) evolved largely through custom and emphasized the diplomatic and conciliatory approaches to dispute settlement. Such an approach was largely power oriented that was not very popular among the developing and less developed countries and was mostly used by powerful countries like the United States. The WTO dispute settlement mechanism that emerged after the Uruguay Round negotiations was hailed as a vast improvement over its predecessor as it was more legalistic and effective in ensuring the adherence to multilateral trade rules negotiated by the WTO members. Its wider appeal was also reflected in the increased participation and success of developing and less developed countries in the WTO DSS.
The concept of appeal is of fundamental importance in domestic legal systems and a fundamental human right in criminal matters. But there is no such requirement in international law. So, the introduction of an appellate review for the settlement of trade disputes under the aegis of the WTO in 1995 was an innovation and the first example of a regular appeal procedure in international law and organization.[2] The WTO Appellate Body, established by Article 17 of the Dispute Settlement Understanding, is a standing body of seven members that are elected for a maximum of two four-year terms, and its membership is broadly representative of the WTO membership. Three out of the seven AB members serve on any one case that is appealed by either one or both the parties in a dispute. Over the years it has been increasingly used by WTO members. On average, 66.85% of the disputes bought before the WTO DSS were appealed between 1995 and 2014. In 2016 almost 90% of the panel reports issued were appealed.[3] The United States, despite blocking the appointment of Appellate Body judges has not refrained from appealing cases to it.[4] Such facts and figures indicate the effectiveness of the Appellate Body in interpreting and clarifying WTO treaties and texts as well the confidence of the WTO members in the international tribunal. In the 148 reports issued until now, the WTO Appellate Body has upheld, modified or reversed the legal findings of numerous panel reports.
The increased recourse to the appellate function of WTO dispute settlement has attracted considerable attention from scholars as well as policymakers in the proceedings of the AB and many countries have voiced significant concerns arising from its work. The United States has been the most vocal and critical about these concerns which are primarily related to the Appellate Body’s judicial over reach, its advisory opinions, de novo review of facts, timeliness of reports and continued service by persons who are no longer AB members (Rule 15 of the AB Working Procedures).[5] These are longstanding and critical issues which need to be addressed at the negotiating table through dialogue and discussion among the WTO members. The approach adopted by the United States to deal with them is akin to holding a gun to a very effective and central feature of the WTO system. At present, there are only three remaining members in the international tribunal which gives rise to a conflict of interest if a dispute involving their own countries is brought before them. By the end of 2019 two judges will complete their second term and the international tribunal will be rendered completely dysfunctional.[6]
In the backdrop of the recent tariff exchanges between the United States with China and other countries, the presence of an impartial and rule-oriented adjudicatory mechanism like the WTO DSS is even more critical to ensure that economic relations among countries do not regress to what they were during the period between the two world wars. The United States as well as China have initiated disputes at the WTO against the recent tariffs imposed by them on one another. If either the United States or China decide to appeal the panel report issued in these cases, there will be no one at the Appellate Body to examine the issues at hand and consequently the WTO panel rulings will hang in limbo forever. This will render the entire process of WTO adjudication meaningless. The current Appellate Body Chairman, Ujal Singh Bhatia cautioned against such a situation while delivering the annual update of WTO dispute settlement in May 2018.7 A competitive ‘race to the bottom’ between the United States and its trading partners to impose tariff barriers on each other’s goods will seriously undermine the GATT/WTO multilateral trading system. The AB Chairman also pointed out that weakening the WTO’s dispute settlement function will not revitalize its negotiating function. He said that, “the prospect of agreeing on new multilateral trade rules would lose much of its traction if the negotiating Members were not confident as to the principled and effective enforcement of those rules.”
Thus, it can be said that despite all its shortcomings and failings the WTO dispute settlement system, and especially the Appellate Body has made a substantial contribution to improve compliance with the WTO Agreements. The elaborate and multi-stage mechanisms, though not devoid of problems, have come a long way from the modest beginnings under GATT and is of fundamental importance to ensure the functioning of the rules based multilateral trading system. Without an efficient dispute settlement system to enforce the WTO trade rules the credibility of the organization will be seriously undermined.
Manisha Sinha
24th November, 2018
[1] Power and Politics: WTO Chief on Solving the Issue of National Security Tariffs, October 25, 2018, CBC News,
Canada. https://www.cbc.ca/player/play/1353207875507
[2] Gergio Sacerdoti (1997) “Appeal and Judicial Review in International Arbitration and Adjudication: The Case ofthe WTO Appellate Review” in Ernst-Ulrich Petersmann (ed.) International Trade Law and the GATT/WTO Dispute Settlement System (The Netherlands: Kluwer Law International) p. 247.
[3] Jacques Delors Institute, Saving the WTO Appellate Body or Returning to the Wild West of Trade?”, June 2018,http://institutdelors.eu/wp-content/uploads/2018/05/SavingtheWTOAppellateBody-FabryTate-June2018.pdf
[4] The United States has two appeals currently pending before the WTO Appellate Body. Seehttps://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm
[5] 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the TradeAgreements Program, available at https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20FINAL.PDF
[6] Appellate Body Members https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm [7] WTO 2018 News Item – Appellate Body Chair Calls for Constructive Dialogue on Addressing Dispute SettlementConcerns, May 3, 2018, Available at https://www.wto.org/english/news_e/news18_e/ab_07may18_e.htm
Leave a Reply