EU Proposals to Resolve the WTO Appellate Body Crisis Represent Partial Progress

Tetyana Payosova (Van Bael & Bellis), Gary Clyde Hufbauer (PIIE) and Jeffrey J. Schott (PIIE)
December 10, 2018 11:30 AM
Photo Credit: 
REUTERS/Denis Balibouse

The World Trade Organization (WTO) is in crisis but the G-20 leaders don’t seem to notice. Buried in the G-20 declaration issued in Buenos Aires on December 1 is an understated comment that the WTO needs improvement and the innocuous commitment to “support the necessary reform of the WTO to improve its functioning.” Such hortatory efforts are too little and will be too late to halt the impending collapse of the WTO’s dispute settlement mechanism.

Fortunately, some WTO members, led by the European Union, have offered new proposals to keep the system afloat that will be discussed in Geneva on December 12-13. These papers put forward constructive, albeit partially flawed, ideas for improving the procedures for conducting appellate reviews of dispute panel findings. They do not, however, offer remedies to the key US concern about judicial overreach.

The WTO situation has reached a crisis, precipitated in part by the Trump administration’s charge that the organization is biased against the United States.  The US refusal to allow the appointment of new Appellate Body members—a protest against this perceived bias, analysed in PIIE Policy Brief 18-5—may soon paralyze the dispute settlement function of the WTO.

Partial paralysis, due to a shortage of appellate body members, has already set in.  As of October 1, 2018, only three, instead of seven, members remain in the Appellate Body. Three is the absolute minimal number of members necessary to review a case on appeal. Some appeals going forward, however, may be blocked, if any Appellate Body member is recused for impartiality reasons or because of force majeure circumstances. The term of service for two of the remaining Appellate Body members lapses on December 10, 2019. This absence will leave the WTO without an appeal function. In turn that means any WTO member can block the adoption of a WTO panel decision rendered against it by simply filing an appeal that cannot be heard. Effectively, that would spell the end of the WTO dispute settlement system. And some WTO members will then be unwilling to accept new obligations in the absence of meaningful enforcement.

Several attempts have been made this year to advance discussions but so far with no agreement in sight. In May 2018, 67 WTO members submitted a formal proposal to the WTO Dispute Settlement Body (DSB) to launch a selection process for the then three vacant positions of the Appellate Body. This proposal was rejected by the United States, as none of its concerns had been addressed. Later, the European Union and Canada each circulated a discussion paper containing general proposals in three broad areas: (i) rules and rulemaking, (ii) the dispute settlement system, and (iii) the WTO monitoring function. A few rounds of formal and informal meetings in bilateral and multiparty settings followed.

The results of these efforts seem to have crystalized in two proposals, submitted by the European Union along with a group of like-minded WTO members, to be considered at the WTO General Council in December 2018. Both proposals, unlike previous concept papers, are specifically tailored to address the Appellate Body crisis.

The first proposal—which was submitted together with China, Canada, India, Norway, New Zealand, Switzerland, Australia, Korea, Iceland, Singapore, and Mexico—contains five elements. First, it suggests a transitional rule for the outgoing Appellate Body members, who would be allowed to complete a disposition of a pending appeal in which a hearing has already taken place during that member’s term. Second, the proposal envisages that any extension of the 90-day timeframe allocated for an appeal would be possible only upon approval by the parties to a dispute. Third, the proposal would limit the Appellate Body’s interpretation of the meaning of contested national laws.[1] Fourth, the Appellate Body would address issues on appeal only to the extent necessary for the resolution of the dispute (to avoid gratuitous obiter dicta). Fifth and finally, an annual meeting of WTO members with the Appellate Body is proposed to ensure regular communication concerning systemic issues or trends in jurisprudence.

The EU proposal mirrors several solutions presented in the PIIE Policy Brief. However, some important US systemic concerns are not addressed. In particular, elements three and four will not fully prevent “overreaching” interpretations, especially in cases involving so-called “constructive ambiguity”—in other words, areas where, arguably, WTO members deliberately agreed on ambiguous rules. Moreover, the proposed annual meeting offers at best a soft alternative to “legislative remand” for cases involving “constructive ambiguity” and would probably not spur negotiations to resolve legal uncertainties.

The second proposal submitted by the European Union together with China and India is much narrower in scope and does not address most of the US concerns. On the plus side, it suggests an increase in the number of Appellate Body members from seven to nine; this makes sense given the overload of cases and to better provide geographical balance of Appellate Body members. Two other suggestions are more problematical. One seeks to replace a renewable four-year term with a non-renewable six- or eight-year term of service. The other allows Appellate Body members to continue to serve for up to two years beyond their term if a replacement has not been appointed. Finally, the proposal would prohibit Appellate Body members from engaging in any other occupation of a professional nature, but at the same time would increase their remuneration.

The proposal for longer terms could create additional concerns for the United States and perhaps other WTO members. The United States might object that longer terms would result in less frequent reviews of the Appellate Body and dilute its ability to discharge objectionable members.

In terms of procedure, both proposals envisage a formal amendment of Article 17 of the Dispute Settlement Understanding (DSU). Pursuant to Article X:8 in conjunction with Article IV:2 of the Marrakesh Agreement, the General Council can adopt amendments to the DSU only by consensus. As outlined in the PIIE Policy Brief, some procedural matters (elements one, two, and five of the first proposal) could be potentially addressed by amending the Appellate Body Working Procedures, which does not require consensus of all WTO members. At the same time, going through a formal DSU amendment would ensure that all WTO members are effectively on board and shield the Appellate Body from further criticism.

The General Council is scheduled to meet on December 12 and 13, 2018. The urgent nature of the Appellate Body crisis requires pragmatic solutions. Since it would be naïve to demand that all systemic issues be resolved at once, the first EU proposal offers a good starting point for constructive dialogue. However, it seems unlikely that the United States will approve new Appellate Body members before its systemic concerns are addressed.  That’s why it is critical that the reform proposals revisit the issue of legislative remand. There needs to be a channel for the Appellate Body to defer decisions in cases where the WTO text is ambiguous or incomplete and needs prior clarification by the WTO members. PIIE Policy Brief 18-5 recommended such a channel.

In the interim, EU and US officials, and other WTO members, should agree to commissioning an expert panel, chaired by the WTO deputy director general, to assess outstanding procedural and substantive issues following the WTO General Council meeting on December 12 and 13. If nothing else, the expert panel would keep the dialogue alive on critical problems in the months ahead.

Note: Ms. Payosova’s views expressed here are her own and do not represent those of Van Bael & Bellis.

Note

1. This is a critical point in the proposal, but too complex to cover in a short blog. For the US position as of August 2018 (pp. 10 et seq.), see: “Statements by the United States at the Meeting of the WTO Dispute Settlement Body.” For a comment, see Prakhar Bhardwaj, "Critical analysis of the EU DSU Reform Proposal," December 2, 2018, International Economic Law and Policy Blog.