As of December 11, 2019, there was only one remaining Appellate Body member whose term had not expired. Agreement amongst WTO Members permitted a number of pending appeals (those where hearings had already happened) to be completed even though this would mean completion by individuals whose terms had terminated but who would operate under AB rule 15. The last Appellate Body reports were released on June 9, 2020. AUSTRALIA – CERTAIN MEASURES CONCERNING TRADEMARKS, GEOGRAPHICAL INDICATIONS AND OTHER PLAIN PACKAGING REQUIREMENTS APPLICABLE TO TOBACCO PRODUCTS AND PACKAGING, WT/DS435/AB/R and WT/DS441/AB/R (9 June 2020).
The WTO has contractual arrangements with the remaining Appellate Body member and with many of the Appellate Body Secretariat staff. As a result, the WTO Director-General has worked to move the AB Secretariat staff to other Divisions within the WTO in light of the reduced 2020 Appellate Body budget, the reduced workload and now the termination (at least temporarily) of any work by the Appellate Body.
For example, the Committee on Budget, Finance and Administration meeting of March 9, 2020 had an appearance by Director-General Azevedo. The write-up on the meeting noted that “Turning to the Appellate Body Secretariat, the Director-General observed that until a political agreement emerges as to the format of the future appeals process, 23 staff members of the Appellate Body Secretariat have been temporarily re-assigned to other Divisions.” Committee on Budget, Finance and Administration, Report of meeting held on 9 March 2020, WT/BFA/185/Rev. 1 at para. 1.10.
Last Friday, June 26, 2020, Director-General Azevedo wrote to all the WTO membership to alert them to the creation of a new Division on July 1 “responsible for Knowledge and Information Management, Academic Outreach and the WTO Chair’s Programme”. The new Division will be headed by Mr. Werner Zdouc who was being reassigned. Mr. Zdouc has since 2006 served as the director of the Appellate Body Secretariat. It is assumed that by July 1st all Appellate Body Secretariat staff have either left the WTO or been reassigned. The June 26 letter is embedded below.DG-letter-to-PRs-re-New-Division-Zdouc-June-2020
Press accounts from 2019 suggested that Mr. Zdouc was viewed as contributing to the problems at the Appellate Body long complained of by the United States and some others, particularly on the issue of precedent (i.e., whether AB reports were precedential) and on the practical problem of whether the Appellate Body would correct elements of decisions that were viewed as wrongly decided by Members. See Inside U.S. Trade’s World Trade Online, Appellate Body’s future could depend on whether its director keeps his job, December 8, 2019.
Movement of WTO Appellate Body Secretariat staff doesn’t end the conflict on second-tier review
While there has been hope amongst some that WTO Members would continue to pursue in 2020 a path to reform that would permit the reactivating of the Appellate Body, that hope seems to have no short-term prospect for fulfillment.
Parties remain locked in their existing positions. With U.S. elections scheduled for November, some WTO Members may be deciding that they will simply await the outcome of the election before further engaging. Ambassador Lighthizer said at the recent U.S. House of Representatives Committee on Ways and Means hearing on the President’s 2020 trade agenda that it would be ok if the Appellate Body never comes back.
Without an operational Appellate Body, WTO Members have various options including arbitration under DSU Article 25. However, there are ongoing skirmishes at the WTO pertaining to the coverage of costs by the WTO of arbitration costs for Members pursuing arbitration through the interim arbitration agreement to which the EU, Canada, China and many other countries are signatories. See JOB/DSB/1/Add. 12, 13 and 14.
During the 2020 budget discussions held at the end of 2019, the U.S. had pushed for a clarification for how arbitrators would be paid (same as panelists which was significantly lower than AB member daily charges; no monthly retainer) and for a reduction in the Appellate Body budget in light of the lack of sufficient AB members. See, e.g., Committee on Budget, Finance and Administration, Report of the Meeting Held on 12 and 27 November and 5 December 2019, WT/BFA/183 (6 December 2019).
Recent press accounts have reported that there continue to be challenges by the United States to the interim arbitration agreement on various fronts including payment from the WTO budget. See Inside U.S. Trade’s World Trade Online, June 12, 2020, Shea: U.S. opposes use of WTO budget for interim appellate plan (article includes a link to the June 5 letter from Amb. Shea to DG Azevedo). As stated in Amb. Shea’s June 5th letter to DG Azevedo, the U.S. objects to the interim arbitration agreement that the EU, China and others are party to because it “exacerbates some of the worst aspects of the Appellate Body’s practices.” The U.S. also objected “to the use of WTO budget funds for a process that is clearly far more than a simple Article 25 arbitration.” The letter is embedded below.June-5-2020-letter-from-Amb.-Shea-to-DG-Azevedo
With a reduced 2020 budget for the Appellate Body and with the conclusion of disputes on which Appellate Body reports will be prepared until such time as the Appellate Body is reactivated, the WTO has reassigned Appellate Body Secretariat staff to other divisions and has started a new division which will be headed by the former Director of the Appellate Body Secretariat.
Unfortunately, shifting personnel to different divisions does nothing to eliminate the deep divisions on how to proceed with dispute settlement after panel reports. Moreover, there is no apparent willingness to move reform of the dispute settlement system forward at the present time. Efforts by the EU and others to create an interim process that mirror many of the problems found in the Appellate Body practices have simply moved the deep divisions among Members over the Appellate Body into what is permissible under DSU Art. 25. So we will have a crisis in the dispute settlement area at least until 2021 and probably beyond.