When the number of Appellate Body members dropped to one after December 10, 2019 (full membership is seven; minimum number to hear appeals is three), no new appeals could be heard by the Appellate Body. And only those appeals which had proceeded through a hearing were allowed to be completed by the Appellate Body (current and past members).
Many WTO Members are desirous of getting the Appellate Body restored and various Members have been discussing interim procedures to permit a second tier review pending resolution of the Appellate Body impasse.
While there has been a great deal of discussion during Dispute Settlement Body meetings and meetings of the General Council on the issue of the functioning of the Appellate Body and while Amb. David Walker, acting as facilitator for the General Council, developed a draft proposal to address concerns of the United States, such efforts have to date not been successful in resolving the impasse.
For the United States, the core issue is the following:
“the fundamental problem is that the Appellate Body has not respected the current, clear language of the DSU.
“Members cannot find meaningful solutions to this problem without understanding how we arrived at this point. Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.”
Stated differently, “if the words of the DSU are already clear, then why has the Appellate Body strayed so far on each of these issues?”
Nearly seven weeks after the reduction of Appellate Body members to just one, there has been no apparent effort to resolve the “how” and “why” questions that the United States has teed up for many months.
U.S. suggested possible explanations for the why and how
Proposals put forward by WTO Members to address U.S. concerns (and the facilitator’s draft decision) often merely restated that which is in the Dispute Settlement Understanding (“DSU”) but not observed by Appellate Body actions.
The United States provided a detailed statement at the December 9, 2019 General Council meeting including a large number of possible reasons why the Appellate Body has felt free to deviate from the requirements of the DSU. A lengthy excerpt follows:
“For more than 16 years and across multiple U.S. Administrations, the United States has been raising serious concerns with the Appellate Body’s disregard for the rules set by WTO Members. Over the past two years, the United States has outlined its concerns in exhaustive detail. We have not avoided discussion; rather, we have laid out in the clearest possible terms the U.S. position on the issues raised.
“While the DSU text is straightforward and clear, the Appellate Body has ignored that text, and many WTO Members had not focused on just how far the Appellate Body’s practice had strayed from that text.
“And beyond our detailed DSB statements, we have made clear our willingness to discuss these concerns further with any Member in order to deepen each other’s understanding of these substantive issues. Several Members have participated in these dialogues and in many instances we have found the discussions to be frank and productive.
“Of course, engagement is a two-way street. For nearly a year, in the General Council and the Dispute Settlement Body, we have sought to deepen Members’ collective understanding of the concerns raised and asked Members to engage on a fundamental question: why did the Appellate Body feel free to disregard the clear text of the agreements?
“The United States did not pose this question as part of an academic exercise. Rather, this question is critical in the context of any “solution-focused discussion:” Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.
“A fuller understanding of the cause is particularly important here. As the United States has explained, the rules of the DSU are clear. Where ambiguity or uncertainty over the meaning of the treaty text has not caused the problem, then simply re-affirming the rules that have been persistently broken cannot resolve the concern. Remarkably, nearly one year later, we have yet to hear Members engage with the United States on this question.
“Notwithstanding Members’ public silence, at the October meeting of the General Council, the United States offered several potential explanations based on conversations and on our own reflections. For example, one cause could be the ongoing challenges facing the WTO negotiating function and its oversight function, leading to unchecked “institutional creep” by the Appellate Body.
“At the same meeting, we suggested that another cause could be that some WTO Members believe that the Appellate Body is an independent “international court” and its members are like “judges” who inherently have more authority to make rules than the focused review provided in the DSU. A related cause could be that some Appellate Body members view themselves as “appellate judges” serving on a “World Trade Court” that is the “centerpiece” of the WTO dispute settlement system, rather than one component of it. Such an expansive vision of the Appellate Body is not reflected in the DSU and was not agreed to by the United States.
“We also commented at that meeting that it was possible that some explanations for why the Appellate Body felt free to depart from the clear text of the DSU may be specific to the concerns that have been raised. For example, with regard to the Appellate Body’s repeated breach of Article 17.5 of the DSU, we noted that while some WTO Members raised concerns about the Appellate Body’s exceeding 90 days, particularly without consulting the parties, a few Members excused the breach of our agreed rules. We asked whether the attitude of those Members contributed to a mindset among the Appellate Body that the WTO’s rules and deadlines did not need to be respected.
“Similarly, in that statement, with respect to so-called “cogent” reasons, we noted the Facilitator’s Report suggests that Members agree that “precedent” is not created through WTO dispute settlement. And so we asked at that meeting why some WTO Members advocate for the Appellate Body to assert that its interpretations must be followed by panels absent unidentified cogent reasons. We also asked why then does the Appellate Body assert a precedential value for its reports like an authoritative interpretation that only WTO Members in the Ministerial Conference or General Council can give.
“More recently, at the November meeting of the DSB, we sought to discuss with Members systemic concerns regarding the compensation of Appellate Body members. We sought to further Members’ understanding of the compensation structure as a general matter, and to consider the possible consequences of that structure. In that statement, we commented that a system that provides a financial reward for violating DSU rules and prolonging the duration of an appeal would appear inconsistent with the objective behind the DSU rule of providing for the prompt resolution of disputes. And we asked Members whether the current structure creates the correct incentive, or a negative one? Does this structure encourage prolonged appeals at the expense of clear WTO rules? Without debate or effective oversight, have WTO Members acquiesced in a compensation structure that may undermine, rather than promote, the prompt resolution of a dispute?
“These repeated attempts over many months by the United States to provoke a meaningful conversation among Members in the DSB, in the General Council, and in the Informal Process have proven unsuccessful. Accordingly, we are no closer to an understanding of how we have arrived at this point.”
Some additional thoughts on causes
To the list teed up by the United States, I would add two and provide a subissue on the topic of precedent and a comment on failure to abide by time limits.
(1) achieving through disputes what was not achieved in negotiation
Many WTO Members have indicated privately that the dispute settlement system as it has evolved permits them to achieve objectives that are not part of existing agreements without having to negotiate. But for the current system, these Members would raise issues within ongoing or new negotiations. This cause is different than the institutional creep concern expressed by the United States and clearly undermines the negotiation function of the WTO.
(2) Subcontracting by many WTO Members of litigation to private law firms
While WTO Members have typically consulted with and worked with their domestic constituencies where disputes are being considered or pursued, over the last twenty-five years, there has been a dramatic increase in the role of private lawyers in developing and presenting cases for many governments at the WTO. Similar to the U.S. concern about the Appellate Body compensation scheme, a change in the dispute system to one often dominated by private lawyers has ensured cases with a huge number of alleged violations, a likelihood of more cases being appealed, an incentive for the case to take as long as possible, and a reduced likelihood of WTO Members finding an acceptable resolution without pursuit of the dispute.
(3) What, if any, role does the AB Secretariat play in the push for precedent
On the question of precedent, some observers have viewed the structure of the Appellate Body Secretariat as contributing to the rigidity of the Appellate Body in viewing later cases raising similar issues as generally controlled by earlier AB decisions. While the United States has not to date called for the review of the Appellate Body Secretariat as potentially relevant to understanding the how and why, to the extent other Members refuse to consider all aspects of the Appellate Body, including the Secretariat, one can predict that the impasse will drag on for a long time.
(4) Loss of compliance with DSU requirements over time
There is no doubt that some problems have worsened in the last decade. For example, the Appellate Body rendered most decisions in 90 days through 2010 while the vast majority since have been well beyond 90 days. Moreover, whereas the Appellate Body previously sought consent of the parties for missing the 90 day deadline, it no longer does. Thus, for the first fifteen years, the Appellate Body was able to conform to the requirement of DSU Article 17.5 for timely decisions but has flipped its position over the last ten years.
The January 27, 2020 Dispute Settlement Body meeting showed a basic replay of the existing positions of the WTO Members. A large number of WTO Members want the Appellate Body nomination process to be started. The U.S. does not agree since there has been no resolution of its longstanding concerns.
China noted that there are 10 appeals that are suspended until the Appellate Body resumes and that there are 33 panel proceedings ongoing that could be affected if the impasse is not resolved. https://www.wto.org/english/news_e/news20_e/dsb_27jan20_e.htm.
Those numbers will only grow without a resolution of the underlying concerns with the operation of the dispute settlement system. Such a resolution will not occur without a meeting of the minds by WTO members on the how and why of the current situation. While pursuit of an interim approach announced in Davos by 17 WTO members may provide a second tier review for those members, the approach will not include all members and has the potential to make more rigid positions of some Members not interested in Appellate Body reform.
The involvement of the Director-General may encourage Members to engage more than the last year has shown many are willing to do. Absent such engagement, don’t expect movement by the United States.