The WTO’s Appellate Body – R.I.P.

For the last two years, the United States has gone to great lengths to catalog its concerns with the WTO’s Appellate Body (AB) and the need to address how the Appellate Body had gone off the tracks (in the U.S.’s view) and how to ensure that the Dispute Settlement Understanding (DSU) as negotiated and agreed by WTO Members is followed absent Member agreement to the contrary.

Many WTO Members have suggested solutions to particular problems raised by the United States but have not really addressed the underlying question of how the Appellate Body could deviate so significantly from its mission (at least in a significant number of cases on particular issues) in the first place. Absent an understanding of that core question, merely changing the DSU doesn’t ensure compliance with the DSU limitations in fact going forward.

As the WTO approaches the last Dispute Settlement Body meeting before the August recess, the concerns of many Members are heightened that a solution will not be found to permit the Appellate Body to be repopulated to permit continued operation before two of the three current AB Members’ terms expire December 10, 2019.

Unfortunately, highlighting the problem with the Appellate Body’s disregard of the DSU, the Appellate Body released a Report on July 16, 2019 that embodied many of the concerns expressed by the U.S. in a case of significant importance to the U.S. dealing with China’s challenge to U.S. countervailing duty determinations.[1] While USTR issued a statement blasting the decision, the report itself contains a damning dissent highlighting some of the serious concerns that have long been raised by the United States in the actions of the Appellate Body. [2]

Issues at play in the review of U.S. CVD actions were important ones addressing what latitude investigating authorities have in finding actors in a country to be a public body, the type of information that is required to resort to third country prices, and how one determines “specificity”. The dissent criticized the majority’s views on public body by adhering to “precedent,” and by creating obligations not in the Agreement on Subsidies and Countervailing Measures (SCM Agreement).[3] On the issue of when third country prices can be used for benchmarks, the dissent criticizes the majority for essentially evaluating the facts vs. analyzing the legal analysis of the panel and hence exceeding its authority under the DSU.[4] The dissent said:

On the question of specificity, the dissent said that the majority’s views would, if followed, enable circumvention of the disciplines of the SCM Agreement and even discourage the transparent management of subsidies. I believe such a result in not contemplated under the SCM Agreement, was not intended by the SCM Agreement’s drafters, and is not in accordance with customary principles of treaty interpretation.[6]

In other words, the majority has created obligations that are not in the agreements Members negotiated. So the Appellate Body has ensured by its actions, including those of this week, that there will be no resolution of the serious questions that have been before the WTO for many years and in focus for the last two. While many have looked for solutions, the continued disregard of the limitations on the Appellate Body by the AB’s Members will result in the Appellate Body being reduced to one member in mid-December this year.

Take the issue of overreach. The number of cases where the Appellate Body has been viewed by one or multiple countries as having created obligations or rights not contained in the agreements was nearly 50 as of April 2018,[7] with Tuesday’s decision just the most recent. There will be no resolution of the overall impasse if there is not a way to correct the change in the balance of rights and obligations that Members have flowing from Appellate Body activism. Such an approach has not been teed up by any of the WTO Members as yet and will effectively hinder the ability of Members to reach a consensus on how to proceed. The need to go into multiple agreements and correct erroneous Appellate Body constructions of rights or obligations is not a realistic option as no resolution would occur for many years considering all of the agreements and individual issues that would need to be addressed. Requiring the Appellate Body to revisit claims of overreach in cases where one or more parties have raised that claim under clarified rules of the Appellate Body’s role could be possible but unlikely without an understanding of why the Appellate Body has felt at liberty to disregard the limitations within the current DSU and ensuring that such disregard doesn’t continue. And, of course, there are many other issues raised by the United States that need to be addressed in fact as well.

So the experiment in the WTO of binding dispute settlement with a limited right of appeal for legal issues has been in place for 24 and a half years. It has had many successes, but it has proven to have flaws that Members cannot easily address or correct. The flaws in individual reports and an apparent unwillingness of the Appellate Body Members to recognize the stress their actions have put on the system have brought us to this point. While many Members will look for alternatives if the Appellate Body becomes inoperable and while a mechanism for resolving disputes is of obvious benefits to all, it has never been the role of the Appellate Body to create obligations for Members. The system will be broken until the membership can agree on a system where rights and obligations are negotiated by the Members and enforced through dispute settlement. Having a dispute settlement system create rights and obligations that Members have not agreed to is not survivable. That truth will become a reality on December 11, 2019.

Disclaimer: This material is for the reader’s information only. It is not to be construed as legal advice.

[To view the original article, click here]