Appellate Body reform

“No Quick Fixes for WTO Dispute Settlement Reform” — a skeptical view by the former Deputy USTR of the EU’s willingness to address core U.S. concerns

In yesterday’s post, I reviewed a program hosted by Georgetown Law’s Institute for International Economic Law that looked at opportunities for transatlantic cooperation in WTO reform. See March 10, 2021, Today’s webinar hosted by Georgetown Law’s Institute for International Economic Law “Rethinking the WTO:  Opportunity for Transatlantic Cooperation” — many areas for likely cooperation; some important challenges, https://currentthoughtsontrade.com/2021/03/10/todays-webinar-hosted-by-georgetown-laws-institute-for-international-economic-law-rethinking-the-wto-opportunity-for-transatlantic-cooperation-many-areas-for-likely-cooperation-some-impo/. The focus of the program was the mid-February EC Trade Policy Review paper and Annex on WTO Reform. While there was agreement that there were many areas of possible U.S.-EC cooperation in pursuing WTO reform, Thomas Graham, a former Appellate Body Member and Chair, raised a caution about how quickly meaningful reform of the WTO dispute settlement system could be achieved. He referenced a commentary published by CSIS from Amb. Dennis Shea, the former U.S. Ambassador and Permanent Representative to the WTO during the Trump Administration. See Amb. Dennis Shea, No Quick Fixes for WTO Dispute Settlement Reform, March 9, 2021, https://www.csis.org/analysis/no-quick-fixes-wto-dispute-settlement-reform.

Ambassador Shea’s commentary is worth separate review. Amb. Shea starts by sharing his experience in 2018 as the new U.S. ambassador to the WTO in pressing the EU on whether they shared U.S. concerns about overreach and other problems in the Appellate Body’s functioning and being told that the EU shared none of the U.S. concerns. He then contrasts that position with the position staked out in the EC’s Trade Policy Review paper where there is a recognition that the U.S. “has raised ‘a number of valid concerns'”. The point of Amb. Shea’s initial comments is both to show skepticism as to whether the EU change of position is real and to point out comments by the EU which suggests a lack of understanding of the U.S. concerns or which indicate needed reversal by the EU of a number of positions taken in the past. Amb. Shea urges the Biden Administration not to take up negotiations before the U.S. is able to explore with the EU and others “why the Appellate Body felt free to overreach and why the WTO membership allowed it to occur for so long. A shared diagnosis of the problem will help lead to more durable solutions, including a possible rethinking of the dispute settlement system itself.” This is, of course, the position that Amb. Shea,for the Trump Administration, took consistently at the WTO during his tenure there.

There is little doubt that many WTO Members have been looking at very limited modifications to the WTO dispute settlement system as being adequate to address longstanding U.S. concerns — an approach repeatedly rejected by the prior Administration and unlikely to result in forward progress with the Biden Administration.

The Appellate Body was a new concept added at the end of the Uruguay Round. The binding nature of dispute settlement with an Appellate Body was premised on a limited role for the Appellate Body and assumed an ability of WTO Members to correct erroneous decisions through either negotiations or through interpretations adopted by the Ministerial Conference or the General Council. After 25 years, it is clear that the checks on the dispute settlement system that are included in the WTO Agreements have not functioned as intended or functioned at all. Coupled with the collapse of the negotiating function more broadly, the reality has been a dispute settlement system that has often made up rights and obligations on the fly. Why WTO Members have been ok with that usurpation of sovereign states’ right to limit obligations to those negotiated and agreed to is the fundamental question. It is at the heart of Amb. Shea’s commentary.

From some thirty years of traveling to Geneva, I have heard from nearly every major Member using the dispute settlement system that based on how the Appellate Body was operating, the Member believed it could obtain results through disputes that should be the subject of negotiations and that the Member knew had not been agreed by trading partners. Thus, obtaining rights without negotiations is certainly one of the reasons that many Members have accepted the actions of the Appellate Body that have exceeded its limited authority over time. There are undoubtedly other reasons. Understanding the reasons for Member acceptance of a dispute settlement system operating outside of its limited mandate presumably would be relevant to identifying solutions that would put dispute settlement back into its proper role and ensure errors can be addressed in fact, not just in theory.

Amb. Shea presents eight questions for European trade officials that raise some of the concerns the U.S. has and highlight where there have been significant differences in the positions staked out by the EU in prior cases from the statements in the EC Trade Policy Review paper.

The first question goes to the lack of precedent in WTO dispute settlement and whether the EU thus now recognizes that the Appellate Body erred when it mandated that panels follow Appellate Body reports “absent cogent reasons”. He also asks if the EU rejects “the view that the Appellate Body was vested with broad authority to develop ‘a coherent and predictable body of jurisprudence?'” The U.S. position has been that the dispute settlement process is intended to help the Members find a solution to a problem raised, and that the power to establish rights and obligations lies with the Members through negotiations.

The second question goes to the proper role of the Appellate Body — whether the role is limited to questions of law raised on appeal or extends to whether panels made an objective assessment of the facts under DSU Art. 11. The EU has supported the latter position in prior disputes which has often meant a relitigation of cases at the Appellate Body level.

The EU in its Trade Policy Review paper states that the 90-day deadline for Appellate Body reports should be “strictlly respected”. Because this is different than the position the EU exhibited during the first 25 years when the Appellate Body far exceeded 90 days on a regular basis, Amb. Shea in his third question asks “What has changed?” Problems with timeliness of reports exist both for the Appellate Body and for panels. The problem at the Appellate Body has been noteworthy because of early year compliance with the requirements and early outreach to disputants where 90 days couldn’t be met but an evolution of the Appellate Body’s approach to where extensions were taken without consultations with the disputants.

On the topic of “overreach” by the Appellate Body, Amb. Shea asks whether the EU agrees with the U.S. on cases other than the Appellate Body’s interpretation of “public body’ and if yes, how would the EU propose correcting these other prior rulings? (Question 4). Questions 5 and 6 address particular areas of concern (additional requirements in safeguard cases; the prohibition created by the Appellate Body on “zeroing” in antidumping duty investigations). As I have raised in prior posts, there will not be a resolution of the impasse on the Appellate Body until the problem of overreach is addressed and correction of past overreach has been achieved. While there has been overreach in areas besides trade defense agreements, the three examples raised in Questions 4-6 deal with major overreach problems in the subsidy/countervailing duty, safeguard and antidumping agreements.

Question 7 asks the EU if it agrees with the problems identified by former Appellate Body member Thomas Graham “including a ‘prevailing ethos’ to act like a court that was unaccountable to WTO members, an unjustified sense of infallibility, and an excessive degree of control exercised by its staff”. Mr. Graham at yesterday’s IIEL program argued for the need for greater accountability and the need for reexamining the structure of the dispute settlement — presumably addressing his prior observations on the problems of the Appellate Body. See March 10, 2021, Today’s webinar hosted by Georgetown Law’s Institute for International Economic Law “Rethinking the WTO:  Opportunity for Transatlantic Cooperation” — many areas for likely cooperation; some important challenges, https://currentthoughtsontrade.com/2021/03/10/todays-webinar-hosted-by-georgetown-laws-institute-for-international-economic-law-rethinking-the-wto-opportunity-for-transatlantic-cooperation-many-areas-for-likely-cooperation-some-impo/. The U.S.’s position has been that the Appellate Body is not a court. Indeed, the EU has agreed that the Appellate Body is not a court. See October 1, 2020:  Thoughts on the Geneva Trade Week session entitled “WTO Dispute Settlement – Where Do We Stand?”, https://currentthoughtsontrade.com/2020/10/01/thoughts-on-the-geneva-trade-week-session-entitled-wto-dispute-settlement-where-do-we-stand/ (EU Amb. Machado’s summary (as compiled by me) included that “The EU agrees that panels and the Appellate Body are not courts and that panelists and AB members are not judges. It is the role of WTO Members, not adjudicators, to establish new rules.”). The question in essence goes to how does reform of the dispute settlement system restore the very limited role panels and any second tier review have in helping parties find a solution to a dispute between Members.

Amb. Shea’s last question acknowledges two of the demands of the EU — binding decisions independently reached. But he questions the value of a two-tier system noting that over 25 years it has often been the U.S. view that panels reached the correct result and the Appellate Body the incorrect result. “Shouldn’t the focus be on reforming the WTO dispute settlement system (perhaps with an updated appellate review mechanism) rather than ‘reconstituting’ the Appellate Body?” Amb. Shea’s question seems to stress the institutional problems that the Appellate Body has developed over 25 years and the potential challenges to actually reforming the Appellate Body. But Amb. Shea doesn’t say a second-tier couldn’t work, just that Members should not be locked into restoring the Appellate Body as such.

Conclusions

USTR under the Trump Administration did an exceptional job of laying out U.S. concerns with the WTO Appellate Body over a 2-3 year period. Amb. Shea’s commentary reflects the fact that during the Trump Administration (and before), the EU’s positions on a host of issues important to the proper functioning of the dispute settlement system differed from those of the United States.

The EC’s Trade Policy Review paper and Annex on WTO Reform is an important document, including by showing movement by the EU on some issues of concern to the U.S. in the dispute settlement arena. Amb. Shea’s commentary highlights some of the issues that need to be resolved if there is to be a meeting of the minds between the U.S. and EU on Appellate Body reform, including addressing overreach including on past Appellate Body reports. As Mr. Graham reviewed yesterday and as Amb. Shea reviews in his question 7, reform includes the need for greater accountability of those involved. It also involves a significant contraction in the role any second-tier review handles.

While the approach advocated by Amb. Shea certainly has merit (gain an understanding of “why” the Appellate Body exceeded its authority and Members accepted such action before starting negotiations), it also is possible for the U.S. to start laying out reform needs realizing that some such reforms may go beyond the DSU and operating procedures of the Appellate Body to ensure meaningful checks and balances through the Members (currently hypothetically through Ministerial Conferences or the General Council) or through creating a different appeal mechanism for legal questions. But as Mr. Graham indicated yesterday, dispute settlement will not happen quickly and will be challenging based on the depth of the problems and the need for structural changes and changes in operating procedures as well as addressing the substantive needs.

While there seemed to be different views within the Trump Administration on whether dispute settlement should be binding, that is not the view of Amb. Shea in his commentary nor is it historically the view of the U.S. Congress (as long as Members have the authority to not implement an adverse decision and rather pay compensation or suffer retaliation) or prior Administrations (including the Trump Administration in its handling of disputes). While it is not known as yet the position of the Biden Administration, it is likely that a system that is binding and independent should be acceptable if properly limited and with meaningful crosschecks. I don’t know that there will be objections to a two-tier process, although the reforms needed may make the resulting second-tier look very different from the Appellate Body.

Reform of the dispute settlement system and restoration of a two-tier review is important to most WTO Members. Having focused Members attention on the importance of reform, the Trump Administration has handed off dispute settlement reform to the Biden Administration with WTO Members finally understanding that the longstanding concerns of the United States need to be addressed. The EC Trade Policy Review paper and Annex on WTO Reform shows movement by the EU on some issues of importance to the U.S. While the road forward is likely to be complicated and long, hopefully the Biden Administration will help the process move forward by identifying the array of changes that are needed in the coming months.

WTO Dispute Settlement Body meeting of February 22, 2021 — panels authorized in two matters; impasse on Appellate Body remains

The Appellate Body Impasse

With the Biden Administration not having its trade team in place, there was no realistic possibility that the United States at yesterday’s Dispute Settlement Body (DSB) meeting would modify its position on the WTO Appellate Body and its unwillingness to have new members of the Appellate Body appointed prior to the resolution of its longstanding concerns. Thus, it was not surprising that the U.S. again held firm. The issue was the last specified item on the agenda for the meeting as can be seen from the airgram embedded below.

dsb_agenda_22feb21_e

The U.S. intervention on item 8 of the agenda was brief and to the point and is copied below. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, February 22, 2021, https://geneva.usmission.gov/wp-content/uploads/sites/290/Feb22.DSB_.Stmt_.as_.deliv_.fin_.public.pdf.

“8. APPELLATE BODY APPOINTMENTS: PROPOSAL BY SOME WTO MEMBERS (WT/DSB/W/609/REV.19)

“• The United States is not in a position to support the proposed decision.

“• The United States continues to have systemic concerns with the Appellate Body. As Members know, the United States has raised and explained its systemic concerns for more than 16 years and across multiple U.S. Administrations.

“• We look forward to further discussions with Members on those concerns.”

The incoming Director-General Ngozi Okonjo-Iweala has identified addressing the problems surrounding the Appellate Body and the Dispute Settlement System as a high priority when she starts her term on March 1 and is hopeful of having a work program for moving forward by the 12th Ministerial likely to be held at the end of 2021. See February 16, 2021, Special Session of the General Council at WTO appoints Dr. Ngozi Okonjo-Iweala as the seventh Director-General, https://currentthoughtsontrade.com/2021/02/16/special-session-of-the-general-council-at-wto-appoints-dr-ngozi-okonjo-iweala-as-the-seventh-director-general/ (quotes certain portions of Dr. Ngozi’s statement including para. 1.12, “1.12. Reform of the dispute settlement system, which has been a central element in guaranteeing security and predictability of the multilateral trading system, is of utmost importance to the membership. Some Members have criticised the way it functions and demanded reforms. It will be important to agree on the nature of these reforms, flesh them out, and develop a work programme for implementation that can be advanced at MC12. I believe that the set of recommendations proposed by Ambassador Walker could provide Members with a platform upon which to build so as to restore confidence in the dispute settlement system. A strengthened and robust system is in the interest of all Members, and as such, every effort should be made to improve it. We need a system that can garner the confidence of all, including small developing and least developed countries who have found it challenging to utilize.”).

Thus, absent a significant shift in position by the Biden Administration, it is likely that the impasse will continue through 2021. What is likely is that the Biden Administration will start once the trade team is in place to flesh out changes needed to the dispute settlement system to permit reform and the restart of the Appellate Body. In prior posts I have suggested some possible approaches to moving reform forward to address underlying U.S. concerns. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/. The EU has indicated some willingness to address U.S. concerns about an Appellate Body not adhering to the limited role envisioned in the DSU. A major open question will be rebalancing rights and obligations through the correction of prior Appellate Body reports that impermissibly created rights and obligations never agreed to by Members.

While the impasse continues, WTO Members are either seeking alternative approaches to resolve disputes after a panel report (e.g., 25 Members are participating in a multiparty appellate arbitration process, others are agreeing not to appeal panel reports, others are resolving differences through consultations) or are taking appeals which essentially puts the matter on hold pending resolution of the impasse. On February 22nd, Pakistan became the latest to appeal a panel report where there is no functioning Appellate Body. See Pakistan – Anti-Dumping Measures on Biaxially Oriented Polypropylene Film from the United Arab Emirates, WT/DS538/5. The EU raised the Pakistan appeal in its comments at the DSB meeting. See EU Statements at the Regular Dispute Settlement Body(DSB), 22 February 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/93629/eu-statements-regular-dispute-settlement-body-dsb-22-february-2021_en.

“AGENDA POINT: ANY OTHER BUSINESS

“Pakistan – Anti-Dumping Measures on Biaxially Oriented Polypropylene Film from the United Arab Emirates (DS538)
This is yet another dispute that illustrates the grave consequences of the blockage of Appellate Body appointments since 2017. That blockage frustrates the essential rights of WTO Members that were agreed multilaterally in the DSU.

“We refer to EU’s intervention under item 7 of the DSB meeting on 28 September 2020, where we elaborated on these consequences and on the possibility of appeals being adjudicated upon through appeal arbitration based on Article 25 of the DSU, consistently with the principles of the DSU. We will not repeat these points today.”

With Pakistan’s appeal yesterday, there are now 18 panel reports that have been appealed but where the appeal is not proceeding due to the impasse on the Appellate Body. So the concerns by many Members about needing a resolution will continue to increase. See WTO Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm; February 17, 2021, The amended European Union enforcement regulation — hypocrisy or a reasonable move?, https://currentthoughtsontrade.com/2021/02/17/the-amended-european-unions-enforcement-regulation-hypocrisy-or-a-reasonable-move/(lists the 17 cases before the Pakistan appeal).

With USTR nominee Katherine Tai having her confirmation hearing by the Senate Finance Committee on Feburary 25, it is likely that the U.S. Trade Representative will be in place by March 1. No Deputy USTR’s have been nominated as yet. So the U.S. is still some time from having its full team in place. Thus, I wouldn’t expect movement by the U.S. for a few more months at a minimum.

Two requests for panels agreed to during the DSB meeting .

There was agreement at yesterday’s DSB meeting for the formation of two panels to hear disputes brought by Hong Kong against the U.S. and by the European Union against Indonesia. See items 4 and 5 on the DSB agenda.

  1. INDONESIA – MEASURES RELATING TO RAW MATERIALS
    A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY THE EUROPEAN UNION (WT/DS592/3)
  2. UNITED STATES – ORIGIN MARKING REQUIREMENT
    A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY HONG KONG, CHINA (WT/DS597/5)

The following comments are limited to the Hong Kong case as it raises national security defense issues by the U.S.

In prior posts, I had reviewed Hong Kong’s concerns with the United States action requiring goods from Hong Kong to be marked as made in China following the crackdown by China on Hong Kong. See January 16, 2020, Request for the establishment of a WTO panel by Hong Kong, China contesting the U.S. origin marking requirement, https://currentthoughtsontrade.com/2021/01/16/request-for-the-establishment-of-a-wto-panel-by-hong-kong-china-contesting-the-u-s-origin-marking-requirement/; November 3, 2020, Hong Kong requests consultations with the United States on the change in origin marking requirements for goods from Hong Kong, https://currentthoughtsontrade.com/2020/11/03/hong-kong-requests-consultations-with-the-united-states-on-the-change-in-origin-marking-requirements-for-goods-from-hong-kong/.

As expected, the U.S. defense is based on U.S. national security concerns and that is how it was described by the U.S. at yesterday’s DSB meeting.

“5. UNITED STATES – ORIGIN MARKING REQUIREMENTS

“A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY HONG KONG, CHINA (WT/DS597/5)

“• The United States regrets that Hong Kong, China, has chosen to move forward with a request for panel establishment.

“• In the U.S. reply to Hong Kong, China’s consultation request, the United States made clear that the Executive Order identified by Hong Kong, China, suspended the application of section 201(a) of the United States-Hong Kong Policy Act of 1992 to section 1304 of title 19 of the United States Code. The Executive Order further determined that the situation with respect to Hong Kong, China, constitutes a threat to the national security of the United States.

“• The clear and unequivocal U.S. position, for over 70 years, is that issues of national security are not matters appropriate for adjudication in the WTO dispute settlement system. We therefore do not understand the purpose of this request for panel establishment, seeking WTO findings that the United States has breached certain WTO provisions. The WTO cannot, consistent with Article XXI of the General Agreement on Tariffs and Trade 1994, consider those claims or make the requested findings.

“• No WTO Member can be surprised by this view. For decades, the United States has consistently held the position that actions taken pursuant to Article XXI are not subject to review in GATT or WTO dispute settlement. Each sovereign has the power to decide, for itself, what actions are essential to its security, as is reflected in the text of GATT 1994 Article XXI.1

“• Infringing on a Member’s right to determine, for itself, what is in its own essential security interests would run exactly contrary to the efforts to revitalize and reform the WTO that are necessary to ensure that it lives up to its potential.

“• There is no basis for a WTO panel to review the claims of breach raised by Hong Kong, China. Nor is there any basis for a WTO panel to review the invocation of Article XXI by the United States. We therefore do not see any reason for this matter to proceed further.

“1 GATT 1994 Article XXI(b) (“Nothing in this Agreement shall be construed … (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests … (italics added).”

The U.S. position of matters not being subject to dispute settlement where one party claims national security has not been accepted in several earlier panel reports although national security exceptions have been found where certain conditions are met. The U.S. is involved in some major disputes on the use of Section 232 of the Trade Expansion Act of 1962, as amended, on steel and aluminum where panel reports are presently expected in the second half of 2021. The Hong Kong case presents a different factual situation and will have different analysis if the U.S. position is not accepted by the panel. As has been true for most disputes in recent years, the dispute is unlikely to get to a panel report for several years — i.e., 2023 at the earliest.

Conclusion

The work of the WTO in general and the Dispute Settlement Body in particular do not pause because of elections or changes of administrations in one or more major Members. Nevertheless, with the heart of the challenges to the functioning of the Dispute Settlement System involving U.S. long-term concerns with the Appellate Body, practically there will be no movement until the new Biden Administration has time to get its team in place and review its priorities and game plan for WTO reform. Whatever else happens at the WTO, one should not expect movement by the U.S. on reform to the dispute settlement system before summer at the earliest.

.

The WTO Informal Ministerial of January 29, 2021 — hope for progress at the WTO in 2021

Switzerland typically hosts an informal ministerial meeting of WTO trade ministers on the sidelines of the World Economic Forum’s January Davos event. This year both were handled remotely.

The informal ministerial was summarized in ten points by the Swiss Confederation President Guy Parmelin at the end of the event. President Parmelin’s statement is available here, https://www.newsd.admin.ch/newsd/message/attachments/65098.pdf, and is copied below.

Virtual Informal WTO Ministerial Gathering, 29 January 2021

Personal Concluding Remarks by the Chair, President of the Swiss Confederation and Head of the Federal Department for Economic Affairs, Education and Research, Guy Parmelin, Switzerland

“29 Ministers and high officials representing a broad spectrum of the WTO membership attended this year’s Informal World Trade Organization (WTO) Ministerial Gathering in virtual format. In concluding and with warm thanks to all participants for their contributions, I would like to summarise the main points from our discussions as follows:

“• Ministers stressed the urgency of the swift appointment of a new WTO Director-General as well as the confirmation of the date and venue of the 12th Ministerial Conference (MC12).

“• Ministers reiterated their determination to maintain a credible multilateral trading system and to restore a climate of mutual trust.

“• Ministers expressed their concerns about the enormous social and economic impact of the COVID-19 crisis. They highlighted the relevance of trade and the role of the WTO in containing the pandemic and promoting recovery. Many Ministers underlined the importance of ensuring the development of as well as an equitable and affordable access to medical goods, including vaccines. They addressed ways and means to achieve these goals, including the implementation of measures facilitating trade, the role of intellectual property and transparency.

“• Ministers regretted that the negotiations on fisheries subsidies could not be completed in accordance with the end-2020 deadline foreseen in SDG 14.6. In light of the significance of this process for the sustainability of global fisheries, Ministers concurred that a comprehensive and effective agreement on fisheries subsidies should be concluded as soon as possible. Ministers agreed to step up efforts with a view to finding mutually acceptable solutions consistent with all the elements of the negotiating mandate.

“• Ministers highlighted the importance of restoring a fully functional WTO dispute settlement system, which is a key pillar of the rules-based multilateral trading system.

“• Many participants argued for further progress in agricultural trade policy reform at MC12 and asked for an outcome on domestic support and other issues. The issues of public stockholding and the special safeguard mechanism were highlighted by several Ministers.

“• Many Ministers called for tangible outcomes, by MC12, on the Joint Statement Initiatives. Inter alia finalizing the process on Services Domestic Regulation and making substantial progress on E-commerce and Investment Facilitation as well as on Trade and Women’s Economic Empowerment.

“• The need to reform the WTO was widely acknowledged. A number of Ministers insisted on advancing diverse issues related to the special and differential treatment of developing and least developed countries. Some participants proposed to adjust WTO rules to present-day economic and competitive conditions.

“• Several Ministers supported new initiatives launched in response to global challenges such as the structured discussions on Trade and Environmental Sustainability.

“• Ministers reaffirmed their commitment to engage in the preparations for MC12 in order to advance key issues.”


The participants at this year’s informal ministerial included officials from Argentina, Australia, Brazil, Canada, Chad (coordinator for LDC Group), Chile, China, Egypt, European Union, India, Indonesia, Jamaica (Coordinator ACP Group), Japan, Kazakhstan, Kenya, Korea, Mauritius (Coordinator African Group), Mexico, New Zealand, Norway, Russian Federation, Saudi Arabia, Singapore, South Africa, Switzerland (Chair), Thailand, Turkey, United Kingdom, United States and three officials with WTO roles — H.E. Mr. David Walker (New Zealand), WTO General Council Chair; H.E. Mr. Santiago Wills (Colombia), WTO Chair of the Negotiating Group on Rules, H.E. Mr. Alan Wolff, WTO Deputy Director-General. The full list with titles is embedded below.

List-of-participants-at-virtual-informal-ministerial-1-29-2021-65099

The good news for the informal ministerial was the position taken by the United States representative who reportedly indicated that the United States was actively reviewing the issue of the next Director-General and was intent on actively working on WTO reform. See, e.g., Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach; Politico, Biden administration joins call for ‘swift appointment’ of new WTO head, January 29, 2021, https://www.politico.com/news/2021/01/29/biden-world-trade-organization-463820. Under the Trump Administration, the United States had blocked the formation of consensus around Dr. Ngozi Okonjo-Iweala based on the U.S. view that Dr. Okonjo-Iweala did not have a sufficient trade background. See, e.g., January 26, 2021, Letter from variety of former U.S. officials to President Biden urges U.S. support for Dr. Ngozi Okonjo-Iweala as next WTO Director General, https://currentthoughtsontrade.com/2021/01/26/letter-from-variety-of-former-u-s-officials-to-president-biden-urges-u-s-support-for-dr-ngozi-okonjo-iweala-as-next-wto-director-general/. Hopefully, the current review of the issue by the Biden Administration, even ahead of President Biden’s trade team being confirmed by the U.S. Senate, will result in the U.S. joining the support for Dr. Okonjo-Iweala, permitting the WTO to approve a next Director-General.

It was also reported that the United States, consistent with the Biden Administration’s focus on the COVID-19 pandemic and climate change, expressed interest in promoting recovery from the COVID-19 pandemic and concluding an ambitious fisheries subsidies agreement. See Inside U.S. Trade’s World Trade Online, Biden administration strikes ‘constructive’ tone in first word on WTO approach, January 29, 2021, https://insidetrade.com/daily-news/biden-administration-strikes-%E2%80%98constructive%E2%80%99-tone-first-word-wto-approach. Fisheries subsidies negotiations have been going on for some twenty years, and many Members have remained more concerned with keeping their subsidies in place than agreeing to disciplines that would create conditions for sustainable fishing going forward. The Interest in the Biden Administration in working within the WTO on joint steps to promote recovery from the pandemic is different from the approach pursued by the Trump Administration which didn’t want to look at actions possible within the WTO (other than limits on export restraints on agricultural goods) while the world was dealing with the pandemic. The U.S. statement should mean more interest in exploring issues like those raised by the Ottawa Group. See November 27, 2020, The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/.

Other issues flagged in the Swiss President’s concluding remarks are issues of particular interest to some or many countries but not topics of clear agreement. For example, while it is likely that the United States will look for ways to resolve its concerns about longstanding problems in the WTO’s dispute settlement system, particularly around the Appellate Body, it is unlikely that there will be a swift resolution of the U.S. concerns, and hence there will likely be a continued impasse for at least much of 2021 on the return of a functioning two-stage dispute settlement system.

Similarly on domestic support in agriculture and other agriculture issues flagged, certain WTO Members have not supported further liberalization in agriculture while pushing for limits on domestic subsidies and rollback of liberalization commitments undertaken in the Uruguay Round. It is unlikely that there will be forward movement on these issues without greater balance in terms of tariff reductions on major agricultural products. Moreover, as noted in a recent post, other major distortions in agriculture that are not presently identified as domestic subsidies include widespread use of child and forced labor on many agricultural products. See January 25, 2021, Child labor and forced labor in cotton production — is there a current WTO mandate to identify and quantify the distortive effects?, https://currentthoughtsontrade.com/2021/01/25/child-labor-and-forced-labor-in-cotton-production-is-there-a-current-wto-mandate-to-identify-and-quantify-the-distortive-effects/; January 24, 2021, Forced labor and child labor – a continued major distortion in international trade for some products, https://currentthoughtsontrade.com/2021/01/24/forced-labor-and-child-labor-a-continued-major-distortion-in-international-trade-for-some-products/. Such practices should be quantified and the level of potential distortion identified so WTO Members can decide how to address them in ongoing agriculture negotiations.

Progress is being made on Joint Statement Initiatives including e-commerce, services domestic regulation, investment facilitation and women’s empowerment. An open issue for these and topics in the sphere of trade and the environment (e.g., environmental goods agreement) is whether benefits provided by participants will be made available on an MFN basis or limited to participants, with the option of other Members to join in the future. See January 18, 2021, Revisiting the need for MFN treatment for sectoral agreements among the willing, https://currentthoughtsontrade.com/2021/01/18/revisiting-the-need-for-mfn-treatment-for-sectoral-agreements-among-the-willing/. For many Members liberalization could be speeded up if benefits in sectoral agreements go to those participating only while leaving the door open for other Members to join later when they see the value for them.

And on the important topic of WTO reform beyond the items listed above, there is little current agreement on how to deal with industrial subsidies and other practices that lead to massive global excess capacity, or on how to address access to special and differential treatment and many other areas of importance to some or many WTO Members.

Deputy Director-General Alan Wolff provided a statement during the virtual informal ministerial urging WTO Members to make 2021 a year of accomplishments. The WTO press release can be found here. WTO News, DDG Wolff urges WTO ministers to address the pandemic and make 2021 a year of action, 29 January 2021, https://www.wto.org/english/news_e/news21_e/igo_29jan21_e.htm. DDG Wolff’s statement is copied below.

“My thanks to our Swiss hosts and to President Parmelin both for his remarks today and for his very thoughtful address on the occasion of the 25th anniversary celebration of the WTO last November.

“Ministers, you can make 2021 a year of substantial accomplishments at the WTO.

“There has already been a beginning.  In the first action of the year, Members accounting for most of the world’s agricultural exports committed to refrain from imposing export restrictions on purchases made by the World Food Program.

“The anticipated appointment of a new Director-General will bring needed leadership in moving toward concrete results.  But she can succeed only with your active engagement.

“I urge you not to wait for the Twelfth Ministerial Conference, delayed by the pandemic, to move negotiations forward to positive outcomes. 

“There is no reason why the twenty-year negotiation on fisheries subsidies cannot be concluded successfully — without a sacrifice of ambition — in the next few months.  Success hinges on Members’ willingness to accept a significant level of discipline on their own subsidies.  Political decisions and your active engagement will be required to bring about success.

“I urge you to address ‘trade and health’ forcefully and immediately.  Last year, trade made a vitally important contribution in supplying needed medical supplies to deal with COVID-19.  Proposals as to what more can be done must be deliberated now.  Cooperation on trade can accelerate access to vaccines.  There can be no higher priority.

“Consider how the WTO can further contribute to the economic recovery.  Members can take steps to ensure enhanced transparency, work to eliminate unnecessary barriers and agree that new restrictions will not be imposed.  Trade finance must be restored.  The WTO convened the major international financial organizations and banks to address this need in the aftermath of the financial crisis and it can do so now again.

“’Trade and climate’ must be on the WTO agenda.  Carbon border adjustment measures will likely result in conflicts unless Members engage in joint efforts to find mutually beneficial solutions.  The heightened interest of Members in a broad range of other environmental issues such as plastics pollution and the circular economy can be reflected in new agreements.   The WTO can be more visible as a steward of the planet by reviving and concluding the Environmental Goods Agreement

“The Joint Statement Initiatives on e-commerce, investment facilitation, and services domestic regulation can bear fruit this year, building on what was achieved with respect to small businesses last year.  In addition, more progress can be made on the economic empowerment of women through international trade.  

“Concerns over income inequality have been growing.  The WTO’s rules-based system needs to be seen not only among countries but also within countries, as responsive to the needs of workers, farmers and all who wish to engage in international trade.  But international trade rules cannot substitute for domestic policy actions to make growth more inclusive.  When large numbers of people are unhappy with how the economy is working for them, trade will often receive undeserved blame.  The WTO is about fairness.  Its work will never be done in pursuit of that objective, but further progress can be made this year.

“There can be an outcome on agriculture — at least a down-payment and a defined work program going forward.

“During 2021, the WTO can likely welcome new WTO Members, as it continues to move towards universal coverage.  Comoros and Bosnia-Herzegovina may be ready, and over a dozen others are making progress.

“Last but not least, ‘WTO reform’ can become a reality, with actions taken to —

“- facilitate rule-making with wide participation,

“- achieve heightened enforcement through binding dispute settlement in a manner agreed by all, and

“- provide a strong mandate for a Secretariat to deliver all needed support to Members and to achieving the mission of the WTO. 

“We should greet this year with optimism and re-dedication.  With your strong engagement, 2021 can be a year to remember for what is achieved.

“Thank you.”

A presentation from the WTO Secretariat to Ministers needs to be positive, forward looking, aspirational and inspirational. DDG Wolff’s statement yesterday provides all of that. The first item mentioned, the joint pledge from 79 WTO Members not to restrict agricultural exports to the UN World Food Programme for humanitarian purposes is a positive for the world but follows the December failure of the WTO General Council to agree to the same by all WTO Members. See January 23, 2021, WTO and the World Food Programme – action by 79 Members after a failed December effort at the General Council, https://currentthoughtsontrade.com/2021/01/23/wto-and-the-world-food-programme-action-by-79-members-after-a-failed-december-effort-at-the-general-council/.

The challenge for the WTO in 2021 will be whether Members can come together in fact to achieve many of the important opportunities and needs in front of the Membership. While the history of the WTO since 1995 and the major divisions among Members at the present time would strongly suggest that 2021 will not achieve many of the things that are needed and possible, hope springs eternal.

U.S. perspective

The Trump Administration did an excellent job of identifying problems with the operation of the WTO whether from the longstanding failures of the dispute settlement system, to the existential challenges to the viability of the WTO from major Members whose economies have not converged to a full market orientation, to the out-of-date rules around special and differential treatment to all who claim developing country status regardless of economic development of individual members, to the need for greater transparency in many areas, including importantly subsidies, to the failure of the WTO to update rules to address changing technology and trade issues.

The Biden Administration has indicated its intention to work within multilateral institutions, including the WTO. Early action by the United States on the Director-General selection issue could provide positive energy to WTO Members in the coming months. There are topics where success can be made in 2021 either multilaterally or plurilaterally. But a lot of what is needed for meaningful WTO reform will be difficult, if not impossible, to achieve in the short term. Hopefully, the Biden team will stay the course to achieve reform that both returns the WTO playing field to the level agreed at the time of concluding the Uruguay Round, finds ways to deal with the massive distortions not presently covered by WTO rules, works with others to bring the WTO into the 21st century and addresses the critical issues for global prosperity and sustainable development.

Farewell remarks of WTO AB member Prof. Dr. Hong Zhao, November 30, 2020

Dr. Hong Zhao, the last of the Appellate Body members at the moment, provided farewell remarks on her last day of her first term, November 30, 2020, in a virtual presentation hosted by the CTEI Graduate Institute’s Geneva Trade Platform. See https://www.graduateinstitute.ch/communications/events/professor-dr-hong-zhao-farewell-remarks-and-presentation; https://www.youtube.com/watch?v=8aKPj_Vj6Gc. Dr. Hong Zhao’s prepared remarks have not yet been posted on the CTEI Graduate Institute’s webpage nor on the WTO webpage on the Appellate Body, where remarks of other departing Appellate Body members have been posted. Such postings will presumably occur in the coming days. Hence what follows are my impressions from listening to the farewell remarks of Dr. Zhao.

Dr. Zhao’s remarks were about forty-five minutes in length and were followed by a short question and answer period. As the last current Appellate Body member, Dr. Zhao spent a good deal of her presentation walking through potential causes for the current controversy over the Appellate Body with a focus on a conflict of ideas on dispute settlement held by WTO Members and on different styles of dispute settlement (activism vs. restraint). She also reviewed areas for future action to get the WTO dispute settlement system back and functioning. Her comments were quite interesting. While she often laid out what Dr. Zhao believed are competing views within the WTO Membership, in general she provided a justification for past Appellate Body actions while also providing some steps Members could take going forward to resolve the present impasse.

Disagreement with some of her observations about the WTO Appellate Body

Her remarks made clear that Dr. Zhao views the Appellate Body as a court, that the objectives of consistency and predictability have justified the approach pursued by the Appellate Body, and that the objective of resolving disputes has justified the creation of rights and obligations even if the agreements are silent on the question before the Appellate Body. Nonetheless, Dr. Zhao emphasized, in light of the serious challenges facing the WTO, the need for WTO Members to come together to save both the dispute settlement system and the WTO itself.

The U.S. has stated that the Appellate Body and panels are not courts and that position has been supported by the European Union and Canada, each of whom has acknowledged that WTO dispute settlement does not involve courts. So there is a stark difference in the understanding of the role of the Appellate Body and panels between Dr. Zhao and at least some major Members of the WTO. What isn’t explored in Dr. Zhao’s comments is how the nature of dispute settlement changes if courts are not involved.

Similarly, recognizing the longstanding problems of the negotiating function at the WTO, Dr. Zhao does not perceive that a resolution of a dispute could include a decision that there are no rights or obligations on a particular point and hence the dispute (in total or on that particular issue) is resolved against the party who requested a panel and/or appeal. Consistency and predictability are obviously encouraged if efforts to achieve through a dispute an outcome not specified in one of the underlying agreements are denied. So too is the need of Members to pursue issues not covered by agreements in new negotiations.

Dr. Zhao also seems to excuse the failure of the Appellate Body to review and revise construction of provisions in subsequent cases when there are reasons to do so, instead putting the responsibility for dealing with erroneous decisions in the hands of the WTO membership through binding interpretations or new negotiations, despite the failure of the WTO membership to achieve either resolution. While the WTO has serious problems because the negotiating function has been largely impotent over the last 25 years, certainly on addressing errors from the Appellate Body, it is unfortunate that Dr. Zhao didn’t acknowledge the failure of the Appellate Body to resolve matters on a case-by-case basis and to not view prior reports as precedential and/or at least subject to review and revision.

Actions Members could take going forward to resolve the impasse

Dr. Zhao’s view is that the restoration of the Appellate Body as part of a resolution of various dispute settlement system issues should be the first order of business for the WTO Members. She encourages Members to bring out issues of concern with the dispute settlement system to the table for consideration.

Dr. Zhao had many proposed “to do” actions including the following:

(1) restore/implement the process for appointing new Appellate Body members,

(2) have the Appellate Body focus on not creating rights or obligations as they consider appeals,

(3) reinforce case-by-case resolution of disputes,

(4) not engage in rulemaking during dispute settlement,

(5) have Appellate Body exercise restraint in their reports (vs. activism),

(6) avoid obiter dicta in reports,

(7) improve communications with parties when reports can’t be generated in 90 days,

(8) give Appellate Body members a one term 7-8 year term,

(9) rotate Appellate Body Secretariat personnel.

Dr. Zhao also supports improving implementation steps after dispute settlement and strengthening panel proceedings by going to a fixed group of panelists (30 in number) with terms of 5-6 years, encouraging Members to join MPIA until the Appellate Body is restored, improve transparency of panel proceedings for WTO Members, provide technical assistance to developing and least developed countries and permitting Members to present their argument in their national languages.

Conclusion

Each departing Appellate Body member has provided their thoughts on the operation of the Appellate Body in farewell remarks. Dr. Zhao’s farewell remarks reflect a lot of thought about the system as she experienced it and reflect an examination of potential causes of friction in the system and provide suggestions for what types of steps Members could take to bring a two-step dispute settlement system back into play at the WTO.

There are WTO Members who want to have a quick resolution of the current impasse either through the lifting of the blockage on appointing new AB members or (more realistically) by solving U.S. problems and removing the blockage. Some have argued for a more expansive review of dispute settlement including addressing issues during panel proceedings, etc. While any approach can be pursued by Members if they so wish, the latter approach will certainly extend the period when there is no functioning Appellate Body. Indeed, the dispute settlement review which started twenty years ago has never been concluded and would suggest significant additional delay if full blown dispute settlement system review is the focus.

As to specific proposals on addressing the Appellate Body, some suggestions by Dr. Zhao have been nonstarters for the United States (extending terms from four to seven or eight years) while many others appear to reflect the need to resolve U.S. concerns. The devil is, of course, in the detail and likely includes a necessary agreement by Members on the underlying purpose of dispute settlement and clarifying DSU Article 3.2 and 19.2 by providing guidance on what constitutes the creation of rights or obligations.

Still, Dr. Zhao should be congratulated for recognizing that the status quo ante is not a viable approach and for providing her perspective on changes or clarifications that could be part of the solution to the current impasse.

Thoughts on the Geneva Trade Week session entitled “WTO Dispute Settlement – Where Do We Stand?”

The Graduate Institute of Geneva and other groups have organized an ambitious week of programs that started on September 28 and carries on through October 2 with both various plenary sessions and with breakout sessions where multiple events are happening during the same time period.

On Monday, September 28, after an opening plenary on rethinking trade at 1 p.m., there were three ninety minute breakout sessions at 3:00 p.m., including a session on WTO Dispute Settlement – Where Do We Stand? The dispute settlement session was organized by Gabrielle Marceau of the WTO Secretariat and the University of Geneva. The current Chair of the Dispute Settlement Body, H.E. Dacio Castillo of Honduras served as moderator of a panel that included five other Ambassadors/Permanent Representatives to the WTO and two highly respected international trade professionals. Specifically, the panel consisted of EU Ambassador Joao Aguiar Machado, Canadian Ambassador Stephen de Boer, U.S. Ambassador Dennis Shea, Mexican Ambassador Angel Villalobos Rodriguez and Chinese Ambassador Zhang Xiangchen. Ms. Claudia Orozco who had been part of the Colombia Mission, the most frequently selected panelists in WTO disputes and now an arbitrator in the MPIA (Multi-Party Interim Arbitration Arrangement to which 24 WTO Members have signed up pending the resolution of the WTO impasse) was a sixth panelist. Mr. Jorge Miranda, a Senior International Trade Adviser for Cassidy Levy Kent LLP in Washington, D.C., a past Rules Division official and a frequent writer and speaker on WTO dispute settlement was the seventh panelist.

It was an impressive panel with certain understandable limitations. WTO Members at a public event like this will provide a good overview of their existing positions on the topic but are not going to provide clarity of where solutions may be if different from what has been presented previously by their government. Not surprisingly, none of the Ambassadors deviated from that expected framework of comments. Similarly, the observations of panelists who are not speaking for WTO Members can be helpful in identifying possible paths forward but obviously only if Members opt to proceed in one or more of the suggested routes.

I start this post by looking at the positions stated by each panelist in their opening statement, their comments about other statements and their answers to questions. I then present some observations about the positions taken and whether Members are merely talking past each other or testing their priorities against the practical realities that surround the WTO dispute settlement system.

Opening Statements

H.E. Stephen de Boer, Canada

The first panelist to speak was Ambassador de Boer of Canada. He identified three themes to his comments: (1) the key role played by the dispute settlement system in the WTO; (2) the importance of the Appellate Body (AB) in that system; and (3) the role of the Multi Party Interim Arbitration Arrangement (MPIA) at the current time.

Amb. de Boer reviewed the elements of the Dispute Settlement Understanding (DSU) adopted as part of the Uruguay Round package that came into force in 1995 when the WTO commenced. The DSU provided for binding dispute settlement absent a negative consensus. This was a major improvement over the GATT dispute settlement approach where the losing party could block adoption of a panel decision. Canada is a very strong supporter of the rule of law. Amb. de Boer commented that it is not surprising that panels may err. The two-tier dispute settlement process is designed to address possible erroneous panel interpretations by appeal to the Appellate Body.

At the present time, the lack of a functioning Appellate Body makes the WTO system more uncertain. First, a party or parties unhappy with a panel decision can file an appeal which, with the AB not having three members, means the appeal is into a void where no outcome is possible until the restoration of the AB. If one is left with just panel decisions, there is a higher risk of erroneous decisions which in turn makes the system more uncertain for business. In Canada’s view, the fact that a Member may disagree with specific decisions is not a reason to undermine the dispute settlement system. As the saying goes, justice delayed is justice denied. Hence timeliness of the dispute settlement system is important.

On timeliness, Canada would note that much more of the delay in disputes is at the panel stage. Delays flow from increased complexity of case. Canada believes that dispute settlement reform needs to include a review of timeliness of both panels and the AB.

Canada’s priority is to find multilateral solutions to the dispute settlement system which would of course include the United States.

Canada was pleased to participate in the creation of the MPIA, which now has 24 Member participants.

H.E. Joao Aguiar Machado, European Union

Amb. Machado started by noting that the WTO’s dispute settlement system is not in a good place and is essentially paralyzed. While all Members do not agree on how we got here, we need to agree on where we go from here.

The top priority for the EU is to find a solution to the impasse. The EU supported the Walker proposal (Amb. David Walker, NZ, serving as a facilitator to the General Council in 2019). It proved not to be sufficient. The EU is open to meaningful reform. However, Members need to move forward not backwards in terms of the type of reform considered.

It is important that agreed rules of the WTO are enforceable. This is critical for predictability and certainty in the system.

For the EU, any reformed dispute settlement system must be binding, two-tiered, and guarantee impartiality of adjudicators.

The EU agrees that panels and the Appellate Body are not courts and that panelists and AB members are not judges. It is the role of WTO Members, not adjudicators, to establish new rules.

On the MPIA, it is the intent of the 24 Members participating to establish an interim mechanism to preserve a second-tier dispute settlement step while the AB is inoperable. The MPIA is open to the participation of all Members, is temporary in nature and is not an attempt at reform of the WTO AB which would require involvement of all Members. However, there are enhancements including the use of a pool of arbitrators.

H.E. Dennis Shea, United States

Amb. Shea reviewed that there is little doubt where the United States stands on the dispute settlement system. Over three years in Dispute Settlement Body meetings, the U.S. has reviewed how the Appellate Body has violated the DSU both procedurally and substantively. Then USTR in February of this year put out a 174 page report on the Appellate Body of the WTO [https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf] which pulled the U.S. concerns together in a single document.

The U.S. was very active in the Walker process in 2019. Unfortunately, very little of what the U.S. offered in comments on the draft proposal was taken on board in what was presented to the General Council. The U.S. has raised questions about the utility of the proposals since much of the language put forward was simply a repetition of what is already in the DSU which has been disregarded by the AB. We don’t have answers to why the AB disregarded the specific DSU language limiting the role of the AB or why it felt free to disregard the limits on its authority.

The AB is not an international court, and AB members are not judges. Role of the AB is not to create a body of jurisprudence but rather simply to make recommendations to help the Dispute Settlement Body (DSB) resolve a given dispute. The AB’s role is limited.

Unfortunately, some Members see the AB as an independent international court and the AB members as judges who have the ability to create jurisprudence.

On the MPIA entered into by Canada, the EU, China and others, they have incorporated into an arbitration process some of the worst aspects of the AB practices including awards that are precedential, arbitrators engaging in fact finding and more.

The U.S. fundamentally differs on the role of the Appellate Body from that approach and from the approach of those viewing the AB as a type of court.

In a recent Wall Street Journal piece by USTR Robert Lighthizer, he proposed a single-stage dispute process similar to commercial arbitration with a process to put aside erroneous decisions. What do other panelists think of that approach?

In the meantime, the WTO dispute settlement system continues to function. There have been eight panel requests made in the last five DSB meetings. Parties are considering how to handle panel reports, such as by agreeing not to appeal panel reports. The central objective of the dispute settlement system remains the same — to resolve a dispute between Members.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos’s comments were short and quite dispirited. He indicated that he was not optimistic for the future of the WTO dispute settlement system based on Amb. Shea’s comments. Amb. Villalobos feels that the dispute settlement system has become a “zombie”.

In talking about efforts in 2019 to address U.S. concerns with the Appellate Body, Amb. Villalobos noted that a large number of Members had come forward with proposals to deal with various aspects of U.S. concerns and that had resulted in the Walker proposal in late 2019 to the General Council which the U.S. had prevented from being adopted to address a range of U.S. concerns.

The impasse on the Appellate Body has led many countries including Mexico to come together in the MPIA. But the MPIA is intended to be temporary only.

Amb. Villalobos believes the WTO will have a more difficult road in the future to restore the two-tiered dispute settlement system.

While the dispute settlement system has been viewed by many as the crown jewel of the WTO, the present situation may be the beginning of the end for the crown jewel.

H.E. Zhang Xiangchen, China

Amb. Zhang views the Appellate Body and the WTO’s dispute settlement system as being on shaky ground. He is not optimistic that Members can reach agreement on substantive issues. However, that doesn’t mean that Members can’t work at improving the system.

When he looks at some of the concerns raised, such as issuing reports/decisions in 90 days, the problem is not entirely the fault of the Appellate Body. There have been a large number of appeals, many more than was envisioned when the WTO was created. Appeals are much more complicated. Thus, Members share some of the “blame”.

Is overreach a problem? Yes for many countries including China. Amb. Zhang cited the cases involving export duties where the Appellate Body viewed China did not have the right to put forward Art. XX defenses. In his view, Amb. Zhang believes that all negotiators know that there are ambiguous provisions in many agreements. These ambiguities have to be addressed in appeals and obviously are problems for the AB.

No matter how serious problems may be with the Appellate Body, the AB has solved many problems for parties which have improved certainty and predictability.

Going back to the system as it was in the 1990s would be problematic as rules will have no enforcement teeth. This lack of enforceability will hurt negotiations going forward.

Ms. Claudia Orozco, International Trade Law Advisor and Arbitrator for MPIA

Ms. Orozco believes that there is a serious crisis, not of the Appellate Body only, but of the dispute settlement system at the WTO and therefore of the rule of law.

The WTO dispute settlement system is intended to ensure that commitments under WTO Agreements are binding on all parties and that disputes are resolved by third party adjudicators.

The current challenges around the Appellate Body are a serious risk to the dispute settlement system and is leading to reduced use of the dispute settlment system.

A second consequence is likely to be erosion of the monitoring function within the WTO if Members can’t resolve the Appellate Body issues. The purpose of monitoring is to understand actions of trading partners. Greater information on actions can result in disputes if problems can’t otherwise be resolved. Where there is no binding dispute settlement system, Members will likely be less focused on notifications.

The third consequence of the AB impasse will be the erosion of the negotiating function, as there will less interest in new rules if they cannot be enforced.

In short, the impasse if not resolved, will affect the credibility and relevance of the WTO.

Are there solutions? Ms. Orozco believes Members need to look at the history of the WTO over the last twenty-five years. In her view, the AB’s role needs to be narrowed down as 25 years of history show that panels typically don’t make major errors of interpretation which was the intended function of the AB. Thus, questions for Members should include:

— how to narrow the focus of the AB;

— what changes are needed to permit the AB to meet the 90 day deadline;

— based on problems in the first 25 years, what type of experience should AB members have (e.g., experience with disputes in the WTO; experience in implementation of agreements);

–should more than three members of the AB participate in appeals where issues are of first impression;

–what is the role of the AB Secretariat vs. the role of AB members (e.g., should there be rotation of AB Secretariat staff).

The WTO dispute settlement system is critical to commercial players where predictability and certainty are key. Lack of predictability and certainty harm willingness to invest and to trade.

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Mr. Miranda stated that the Appellate Body has made some outstanding achievements but has made major errors in the trade remedy area. The errors coupled with the AB refusal to reconsider legal issues. Without a change in approach, it is hard to see progress.

Mr. Miranda’s comments reflect his views as a co-author in a paper [Jorge Mirand and Manuel Sanchez-Miranda, “How the WTO Appellate Body Drove Itself Into a Corner,” https:ssrn.com/abstract=3596217].

Mr. Miranda reviewed two of the five cases reviewed in the paper showing the serious errors by the Appellate. The first was the fasteners case [European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011] where the AB addressed an issue that was not part of the terms of reference and had not been briefed by the parties. This was a major problem as the issue addressed would potentially be subject to a dispute at the WTO.

A second case was a subsidy case and involved the interpretation of the term “public body” [United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WT/DS379/AB/R, adopted 25 March 2011]. Mr. Miranda’s comments focused on the fact that most public bodies in the context of countervailing duty investigations are commercial enterprises. The AB’s decision requires the existence of governmental powers to regulate, control or supervise, but ignored the entrepreneurial functions mentioned in the Subsidies and Countervailing Measure Agreement (Art. 1.1(a)(1)) where no other authority is required.

While Mr. Miranda recognizes the fact that all adjudicators can err, the problem with the WTO AB is its inflexibility and refusal to reconsider interpretations in later cases regardless of arguments put forward.

Mr. Miranda reviews the U.S. system of stare decisis and ability of court’s to reconsider prior decisions in certain circumstances. He also reviews the Mexican system where there need to be multiple decisions on the same issue before there is precedent.

By contrast, the Appellate Body views its interpretation as cast in stone at the first decision. He believes the AB needs to be more flexible in how it views prior decisions/interpretations.

Reactions to Opening Statements of Other Panelists

H.E. Joao Aguiar Machado, European Union

Amb. Machado reiterated the EU view that the AB is not a court. The EU view is that it is in the interest of the WTO membership that rulings are of high quality and that the rulings have consequences. Thus, to the EU, it is important to have a two-tier dispute settlement system so parties can address legal errors in any panel report. The EU is open to discuss how best to get a two-tier system back.

Amb. Machado believes that it is unfair to claim that the MPIA incorporates the worst elements of the AB. The MPIA results in arbitration decisions. The MPIA is not an attempt to create AB reform. Since the MPIA is an interim arbitration process while awaiting the return of the AB, it is understandable that the parties to the MPIA drew on the AB, which is the only second-tier system that has existed over the last 25 years. While the MPIA parties have introduced efficiencies in how MPIA operates, this is not an attempt to reform the AB as any reform would need all Members.

At end of the day, the EU needs a system that is efficient, binding, independent and of the highest quality.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos sees fragmentation of approach facing the WTO dispute settlement system — the MPIA for some; other approaches for others. The fragmentation may last a long time. If so, such fragmentation will weaken the appetite to negotiate, and the increased uncertainty and unpredictability will weaken investment and trade.

Amb. Villalobos noted that a large percentage of disputes are resolved at the consultation stage and that a sizeable portion of cases that do go forward to the panel stage are resolved without appeal.

There are typically not good alternatives for Members to WTO dispute settlement. Regional trade agreements often don’t have dispute settlement on trade remedies (though USMCA between the U.S., Mexico and Canada does) and typically don’t have strong Secretariats.

H.E. Zhang Xiangchen, China

Amb. Zhang noted that the paralysis of the AB is a major challenge to the trading system. Binding rulings from impartial adjudicators are important for predictability and certainty. Regional free trade agreements and any dispute settlement contained therein cannot replace the WTO.

In looking at the path forward, the accountability of the AB can be addressed through peer review and oversight by the WTO Members.

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Regional agreements can’t compete with the WTO dispute settlement system. None have an Appellate Body.

The fact that there are problems with the WTO dispute settlement system, in Mr. Miranda’s opinion, is not a major issue.

On the issue of oversight, there should be a way to address without affecting the independence and impartiality of the AB.

H.E. Stephen de Boer, Canada

It is important to go back to first principles. Members placed great importance on certainty. Fact that any Member believes it didn’t get the right result in a given dispute is not a basis to abandon the system. In a November 2016 statement by then Chairman of the Appellate Body, Thomas Graham, he noted that overreach is in the eye of the beholder. [Thomas Graham, 22 November 2016, Speaking Up: The State of the Appellate Body, https://www.wto.org/english/news_e/news16_e/ab_22nov16_e.pdf%5D. The dispute settlement system is different than individual disputes or cases.

The fact that there continue to be some disputes filed is not a sign that the system is well. The impasse will have an effect on negotiations.

Canada is willing to talk about change but needs an effective and enforceable system.

Ms. Claida Orzco, International Trade Law Advisor and MPIA Arbitrator

There is agreement that the crisis is very problematic. We must remember that everything the WTO does is for the private sector which needs certainty and predictability.

It is important to solve the problem. That includes looking at how to achieve decisions within 90 days, limiting the role of the AB to focus on issues relevant to a dispute’s resolution, identifying the relevant the credentials for AB Members.

As the AB was created to correct manifest errors in legal interpretations, history over the last 25 years shows that is not a significant problem. This implies, Members can reduce the role of the AB.

H.E. Dennis Shea, United States

The WTO membership needs to understand that there is a problem with the operation of the dispute settlement system. Efforts of the U.S. over the last three years has finally gotten a recognition by many that there are problems. So that is some progress.

Some Members view the role of the AB as that of a court with the ability to establish rules. The U.S. does not view the AB as a court and views rule making as the sole responsibility of the WTO Members.

While Canada has talked about the need for certainty, the U.S. views certainty as the AB completing its work in 90 days, not investigating facts, and not creating obligations.

While some view the current situation as undermining the ability to negotiate, the United States has viewed the operation of the Appellate Body as leading Members to litigate rather than negotiate.

On the issue of precedent, in 1996, the AB indicated its decisions were not precedential. Twelve years later in 2008, it viewed its decisions as precedential absent cogent reasons.

The U.S. disagrees that the AB is a higher source in dispute settlement. The AB has a limited role only.

In 2020, Thomas Graham gave his farewell speech as an Appellate Body member at Georgetown and listed areas where in his experience the Appellate Body was acting like a court. [see https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.wto.org%2Fenglish%2Ftratop_e%2Fdispu_e%2Ffarwellspeechtgaham_e.htm&data=02%7C01%7C%7C892aebd466894f3d774908d86571205c%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C637370883824924668&sdata=QPkC0ep1OHLIwTtUPpDgTAWV9cfx%2FoDB812iMg%2FrTKk%3D&reserved=0]

Answers to Questions

H.E. Joao Aguiar Machado, European Union

In responding to a question about why a two-tier system of dispute settlement is necessary since other organizations make due with a single tier, Amb. Machado stated that a two-tier system of dispute settlement is important in the WTO since disputes are often dealing with national legislation. The second level of review is needed to review potential errors of law, so Members can go back to their legislatures for domestic changes to bring themselves into compliance with WTO obligations.

In looking at the length of time to resolve disputes, Amb. Machado noted that disputes have become very complex which has contributed to the delays. Members need to take some responsibility to reduce the number of issues in appeals versus the historic approach.

While the EU will discuss reforms, the EU will not agree to have the dispute settlement go back to the GATT system.

H.E. Angel Villalobos Rodriguez, Mexico

Amb. Villalobos responded to a question on likely effect of the current impasse by stating that with no Appellate Body, the appetite of Members for new rules will be reduced.

H.E. Stephen de Boer, Canada

Amb. de Boer indicated that Canada doesn’t view the AB as a court or members as judges.

Canada believes any reforms to the dispute settlement system can only look forward; specifically, reforms of the dispute settlement system can’t look at past decisions.

Amb. de Boer reiterated his opening statement point that delay in the dispute settlement system is not limited to the AB process and so reform should look at the entire dispute settlement system to ensure timely reports and decisions.

Looking at USTR Liighthizer’s Wall Street Journal article, Amb. de Boer stated that it appears to be the first expression of what U.S. wants. Going back to the GATT system seems to be Amb. Lighthizer’s objective.

H.E. Zhang Xiangchen, China

Amb. Zhang stated that a two-tiered system of dispute settlement was adopted in the Uruguay Round as a response to problems with the GATT system of resolving disputes. Amb. Zhang indicated that 90% of Members believe the WTO needs a two-tier system for disputes.

On the question of the recent panel decision on U.S. tariffs imposed on China pursuant to a section 301 investigation, China agrees with the panel report that the U.S. actions violated MFN obligations. China urges the U.S. to bring its actions into conformance with its obligations.

H.E. Dennis Shea, United States

In response to an inquiry about why Members would negotiate new rules where enforcement is not guaranteed, Amb. Shea noted that the U.S. (and many other Members) are actively engaged in negotiations, whether multilateral (fisheries subsidies) or plurilateral (e-commerce). Thus, it is possible for negotiations for new rules to proceed in the current circumstances.

Ms. Claudia Orozco, International Trade Law Advisor and MPIA Arbitrator

Ms. Orozco noted that the concern if rules are not enforceable is that there would be less interest in negotiating new rules. Her hope was that that concern would not materialize.

On a question about the Secretariat, Ms. Orozco noted that some reforms, like rotation of personnel at senior position, time limits for Secretariat personnel might be useful as in the past the head of the AB Secretariat had served longer than any AB member. The WTO also needs oversight of the AB by Members and some form of response where a problem arises and repeats itself (e.g. repeated failure to complete reports in 90 days).

Mr. Jorge Miranda, Senior International Trade Adviser, Cassidy Levy Kent LLP

Mr. Miranda took the view that any type of adjudicatory system would have the adjudicators looking back at what they had done previously. Key, in his view, is to have more flexibility than the AB has shown as to relevance of prior decisions.

Observations

As an outside observer, I provide some comments for what they are worth.

  1. While stating that they don’t view the AB as a court or AB members as judges, the EU and Canada do not identify how that point of agreement with the United States translates into a view of AB reports. If not a court, presumably the AB is not to create law or rules. Yet that is what the AB has repeatedly done. Should the prior reports of the AB have any value? Any value other than their pursuasiveness would seem inappropriate.

2. Wouldn’t the issue of overreach be addressed in part by clarifying what is meant by creating rights or obligations? For example, many of the overreach issues of concern to the U.S. (and possibly others) flow from gap filling, construing silence or adopting a single interpretation on ambiguous language. Clarifying the language in DSU 3.2 and 19.2 to indicate that examples of creating rights or obligations would include gap filling, construing silence or providing a single interpretation of ambiguous language would thus increase certainty and predictability and leave rulemaking to the WTO Members as intended.

3. Ms. Orozco stated that the AB role should be reduced as typically panels have not made manifest errors in legal interpretation based on a review of the first twenty-five years of decision. The AB was done at the end of the Uruguay Round negotiations and was largely a safeguard against wildly erroneous decisions by a panel if adoption of reports was to be automatic. Does the experience of the first 25 years reduce the need for a two-tier system? Reasons for wanting a two-tier system going forward include automaticity of adoption, independence of adjudicator, opportunity to correct errors from a panel report. But automaticity need not be tied to having a two-tier system. Particularly where purpose of dispute settlement is to help find a resolution to the dispute between parties versus an effort to create law through “clarifying” agreements, a single level could be made automatic. There is nothing about a single level of dispute settlement that doesn’t permit independence (whether panels are staffed as they are now or through a different approach as has been suggested by some). Even the opportunities to correct errors could be addressable in a single-tier if there were a process (such as suggested by USTR Lighthizer) for addressing erroneous decisions.

4. Both Canada and the European Union talk about any reform process as being forward looking only and not addressing the harm caused by the long history of AB deviation from obligations. Since the entire purpose of the dispute settlement system is to resolve disputes to permit a restoration of rights and obligations of Members, the notion that a system which has changed the rights and obligations of Members over 25 years cannot be addressed as part of reform is at least bizarre. There is no question that it is easier to simply adopt changes to the DSU and move forward but that basically legitimizes a wide range of erroneous decisions which have significantly changed the balance of rights and obligations for many Members. While the challenge of finding a path to address the past as part of the reform is real, there are undoubtedly ways to do so. I had suggested one approach in a prior post. See July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

5. The concern about wrongly decided Appellate Body reports is real and not really addressed by most of the panelists. Amb. Lighthizer in his Wall Street Journal piece has a proposal which would change the system to one-tier resembling commercial arbitration and with an ability of Members to correct erroneous decisions. This proposal may reflect U.S. concerns that other WTO Members haven’t meaningfully addressed the problem of erroneous AB decisions (whether overreach or faulty legal analysis). See August 24, 2020:  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/. If one looks at Mr. Miranda’s paper, there is little doubt that there are decisions from the AB that are pretty clearly wrongly decided. Efforts in the AB reform process to confirm that there are no precedents doesn’t move the ball very far where prior decisions remain as a body for review without means to get the AB to recognize its mistakes in subsequent cases, for the WTO Membership to correct the AB or through other means.

6. The concept that the current situation will adversely affect willingness of Members to negotiate is interesting particularly when juxtaposed with the last twenty-five years of very limited success in negotiations at the WTO. So while there may be some merit in the concern (which is a supposition at this point), it is hard to imagine a less productive negotiating function than what has existed with a functioning dispute settlement system over the last 25 years. The U.S. view that the current system and willingness of the AB to create rights that can’t be found in the agreements is factually the more compelling. I have travelled to Geneva over the last thirty years and have been told in private by virtually every major WTO Member that they know there are issues that before the WTO they would have teed up for negotiations, but because of the activity of the AB, they chose to see if they could get through dispute settlement even though knowing their trading partners had never agreed to what was being sought. So in my mind, there is no doubt that a major contributor to the dysfunction of the negotiating function at the WTO has been the willingness of the Appellate Body to create rights and obligations that cannot be found in the Agreements that sovereign states agreed to.

7. On the MPIA, while there is understanding by all Members that the MPIA is intended to be temporary, there is little doubt that the MPIA includes aspects of the AB that the U.S. has viewed as very problematic. While the EU professes that there is no effort at reform in the MPIA, the MPIA includes aspects that the EU may want as reforms to the dispute settlement system. Finally, other Members have found other approaches to handle disputes in an era when the AB is not functioning. While that is not true for all disputes, the Members choosing to appeal into a void include the EU, a participant of MPIA, on a panel decision adverse to its interests brought by the Russian Federation. See August 29, 2020,  WTO Dispute Settlement Body meeting of August 28, 2020 – how disputes are being handled in the absence of reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/29/wto-dispute-settlement-body-meeting-of-july-28-2020-how-disputes-are-being-handled-in-the-absence-of-reform-of-the-appellate-body/.

Conclusion

The program on WTO Dispute Settlement – where do we stand? was an interesting update from a number of the major WTO Members, the Chairman of the Dispute Settlement Body and two well respected private sector advisers.

While all seem to recognize that the United States has serious concerns that it has articulated for decades but has spelled out in detail in the last three years, there has been little movement on the substantive issues during the last fifteen months. The gap between having a binding system that resolves disputes between parties but doesn’t create jurisprudence and a binding system that creates jurisprudence is wide. While many talk the talk that the Appellate Body is not a court and its members are not judges, there hasn’t been an apparent active effort to translate that into a framework to compare with the U.S. view of the role of the system.

Without a willingness to actually have the Appellate Body serve the very limited role for which it was created, the future for the WTO dispute settlement system will likely look like the hodgepodge of approaches that are presently in play.

WTO Dispute Settlement Body Meeting of August 28, 2020 — How disputes are being handled in the absence of reform of the Appellate Body

No forward movement has been made on resolving the impasse of the WTO’s Appellate Body which effectively ceased to operate for new appeals after December 10, 2019 when the number of active Appellate Body members fell below the minimum of three needed to hear appeals. At every monthly Dispute Settlement Body meeting, one of the Members presents the proposal to start the process of selecting new Appellate Body members and the U.S. indicates it is not in a position to agree to that action.

While the impasse continues, Members are dealing with how to proceed on specific disputes that have been filed and how to deal with panel decisions that get issued. For the EU and 22 other Members who are parties to the multi-party interim appeal arrangement (MPIA), disputes involving two members of the MPIA are handled through the MPIA after a panel decision if one or both parties are dissatisifed with the panel decision. Current members of the MPIA are Australia, Benin, Brazil, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the European Union, Guatemala, Hong Kong (China), Iceland, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay. This means that more than 110 WTO Members are not parties to the MPIA including the United States, Japan, Korea, India, Indonesia, Malaysia, Argentina, Peru, Egypt, South Africa, Saudi Arabia, the Russian Federation and many others.

Disputes between all other WTO Members or between other Members and one of the MPIA members require the parties to the dispute either before the panel decision or afterwards to decide how they will proceed. Concerns of many WTO Members is that a party dissatisfied with a panel decision will take an appeal which will effectively stop resolution of the matter as an appeal cannot be heard while there is no functioning Appellate Body.

MPIA members can take appeals where they are in a dispute with a non-MPIA member instead of seeking resolution through other means. For example, the Russian Federation is not a member of the MPIA. Their dispute with the EU on its antidumping methodology resulted in a panel decision that the EU found problematic. The EU filed an appeal on August 28, 2020. See WTO, Dispute Settlement, EU appeals panel report on EU dumping methodologies, duties on Russian imports, https://www.wto.org/english/news_e/news20_e/ds494apl_28aug20_e.htm. When raised at the August 28 dispute settlement body (DSB) meeting, Russia provided the following comment:

“The Russian Federation made a statement regarding the European Union’s appeal of the panel ruling in in DS494 (https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds494_e.htm) (EU —
Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia). Russia said it was disappointed with the EU’s decision and that that the EU’s action, in the absence of a functioning Appellate Body, essentially meant that the matter was being appealed “into the void.” The EU was seeking to escape its obligations by not trying to resolve the dispute,
Russia said.” https://www.wto.org/english/news_e/news20_e/dsb_28aug20_e.htm.

Interestingly, the EU has been working to be able to retaliate on any WTO Member who is not a party to the MPIA who appeals from a panel decision where the EU is a party. Presumably they understand that their action will encourage countries like the Russian Federation to take unilateral action against the EU where the EU appeals a panel decision instead of seeking a mutually agreeable solution.

The United States has reviewed at prior DSB meetings that there are many ways for Members to resolve disputes between themselves. At the recent DSB meeting, the U.S. in its prepared statement, after reviewing its ongoing concerns with the Appellate Body and the need to understand why the Appellate Body ignored the clear limits on its authority under the Dispute Settlement Understanding, provided examples of how Members are resolving disputes since December 10, 2019:

“ As discussions among Members continue, the dispute settlement system continues to function.

“ The central objective of that system remains unchanged: to assist the parties to find a solution to their dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement, alternative dispute procedures, and third-party adjudication.

“ As noted at prior meetings of the DSB, Members are experimenting and deciding what makes the most sense for their own disputes.

“ For instance, in Indonesia – Safeguard on Certain Iron or Steel Products (DS490/DS496), Chinese Taipei, Indonesia, and Vietnam reached procedural understandings that included an agreement not to appeal any compliance panel report.3

“ Similarly, in the dispute United States – Anti-Dumping Measures on Certain Oil Country Tubular Goods from Korea (DS488), Korea and the United States agreed not to appeal the report of any compliance panel.4

“ Australia and Indonesia have agreed not to appeal the panel report in the dispute Australia – Anti-Dumping Measures on A4 Copy Paper (DS529).5

“ Parties should make efforts to find a positive solution to their dispute, consistent with the aim of the WTO dispute settlement system.

“ The United States will continue to insist that WTO rules be followed by the WTO dispute settlement system. We will continue our efforts and our discussions with Members and with the Chair to seek a solution on these important issues.

“3 ‘Understanding between Indonesia and Chinese Taipei regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS490/3) (April 11, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’) and ‘Understanding between Indonesia and Viet Nam regarding Procedures under Articles 21 and 22 of the DSU’, WT/DS496/14 (March 22, 2019), para. 7 (‘The parties agree that if, on the date of the circulation of the panel report under Article 21.5 of the DSU, the Appellate Body is composed of fewer than three Members available to serve on a division in an appeal in these proceedings, they will not appeal that report under Articles 16.4 and 17 of the DSU.’).

“4 ‘Understanding between the Republic of Korea and the United States regarding Procedures under Articles 21 and 22 of the DSU’, (WT/DS488/16) (February 6, 2020), para. 4 (‘Following circulation of the report of the Article 21.5 panel, either party may request adoption of the Article 21.5 panel report at a meeting of the DSB within 60 days of circulation of the report. Each party to the dispute agrees not to appeal the report of the Article 21.5 panel pursuant to Article 16.4 of the DSU.’).

“5 Minutes of the Meeting of the Dispute Settlement Body on January 27, 2020 (WT/DSB/M/440), paras. 4.2 (‘Indonesia also wished to thank Australia for working together with Indonesia in a spirit of cooperation in order to reach an agreement not to appeal the Panel Report’ and 4.3 (‘Australia and Indonesia had agreed not to appeal the Panel Report and to engage in good faith negotiations of a reasonable period of time for Australia to bring its measures into conformity with the DSB’s recommendations and rulings, in accordance with Article 21.3(b) of the DSU.’).”

Statements by the United States at the Meeting of the WTO Dispute Settle- ment Body, Geneva, August 28, 2020 at 14, https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug28.DSB_.Stmt_.as-deliv.fin_.public.pdf.

Thus, there are ways for WTO Members to resolve disputes between themselves even with the Appellate Body inoperative. Some countries, like Australia, have sought positive resolutions where the other disputing party is not a member of MPIA. To date, the European Union has not sought resolution with members who are not party to the MPIA but have rather filed appeals so cases will sit in limbo until such time as the impasse is resolved.

Concluding comments

While each of the eight candidates to become the next Director-General of the WTO believe resolution of the dispute settlement system impasse is an important priority for the WTO, they differ in how quickly they believe Members will be able to overcome the impasse — Dr. Jesus Seade (Mexico) believes it can be resolved in the first 100 days. Amb. Tudor Ulianovschi believes that the challenges presented will not be resolved ahead of the 12th Ministerial Conference in 2021 but will be resolved sometime thereafter. Most other candidates hold out hope that the impasse can be resolved by the next Ministerial in 2021. Thus, the current situation of no functioning Appellate Body may continue for some time.

The U.S. Trade Representative Robert Lighthizer in an Op Ed last week in the Wall Street Journal suggested that reform of the dispute settlement system is critical but may involve changing the system from its existing two-tiered configuration under the DSU to a one-tier process more like commercial arbitration. If that is the path that the United States pursues, resolution of the current situation will take years. See August 24, 2020,  USTR Lighthizer’s Op Ed in the Wall Street Journal – How to Set World Trade Straight, https://currentthoughtsontrade.com/2020/08/24/ustr-lighthizers-op-ed-in-the-wall-street-journal-how-to-set-world-trade-straight/.

Similarly, if dispute settlement reform is lumped into the broader WTO reform being discussed, the timing will be significantly delayed if reform of the WTO is to be meaningful and return the organization to a place of relevance in the 21st century.

With the queue of panel decisions that are yet due this year involving some high profile issues (e.g., national security actions by the United States on steel and aluminum and retaliation taken by many trading partners) and with the recent panel report on the U.S. countervailing duty order on Canadian softwood lumber, pressure will likely build on WTO Members to find a lasting solution to the current impasse. Increased pressure suggests heightened tensions in an organization already suffering from distrust among Members and, as a result, largely nonfunctioning pillars of negotiation, notification/monitoring, dispute settlement. In short, 2021 promises to be a challenging environment for the WTO Members and the incoming Director-General.

USTR Lighthizer’s Op Ed in the Wall Street Journal — How to Set World Trade Straight

Most countries and customs territories that are Members of the World Trade Organization (WTO) agree that the WTO is need of reform to make it more relevant and to address the challenges with the current system that the first 25 1/2 years of operation of the WTO have laid bare.

The United States has raised concerns for more than twenty years with the Dispute Settlement System and under the Trump Administration laid out detailed critiques of the Appellate Body and various deviations from the agreed text of the Dispute Settlement Understanding (DSU). The U.S. refusal to permit new Appellate Body members to be selected until its concerns were addressed led to the effective (temporary) shutdown of the Appellate Body from December 11, 2019 for new appeals. While trading partners put forward various proposals to address U.S. concerns, the U.S. has viewed it as critical to have Members discuss why the Appellate Body has been willing to depart from clear requirements in the DSU.

Similarly, the United States has been raising concerns about self-selection of developing country status with the resulting use of special and differential treatment provisions by some three quarters of the WTO Members. The basic U.S. position has been that there has been enormous economic development by many countries over the last twenty-five years such that a static system of designation is unwarranted. The U.S. has proposed various factual criteria to determine whether a given country should be eligible for developing country status. A few countries have indicated that they will not seek special and differential treatment in ongoing and future negotiations.

Similarly, the United States has argued that the WTO should reaffirm that the WTO rules envision Members who operate under market economy principles and that non-market economic systems (including so-called state capitalism economies) are not appropriate for WTO rules. The U.S. has also been working with the EU and Japan to develop a proposal on industrial subsidies, state-owned enterprises and forced technology transfer — all issues viewed as outgrowths of non-market economies.

While the U.S. has not presented a formal statement at the WTO on the subject, the U.S. has also raised concerns about the level of tariff bindings and the lack of progress in obtaining further liberalization over the last twenty-five years, suggesting a need for a rebalancing of tariff bindings.

USTR Lighthizer’s Op Ed in the Wall Street Journal, How to Set World Trade Straight

While the WTO is in the process of selecting a new Director-General with the current Director-General stepping down on August 31, much attention has understandably been on the eight candidates seeking to become the new Director-General.

Many government officials around the world are on holiday. In the U.S., the 2020 Presidential election process and campaigns are heating up with elections for the President and for the House of Representatives and a third of the Senate set for November 3. One would expect that various actions by the current U.S. Administration would be aimed at election political needs. The recently announced agreement between the U.S. and the EU to reduce tariffs on U.S. lobsters exported to the EU and a reduction of various tariffs that the US has on products of interest to the EU is likely one such example, with lobster fishermen in Maine in trouble with the loss of the EU market.

Last week, Ambassador Lighthizer, the U.S. Trade Representative, published an op ed in the Wall Street Journal entitled “How to Set World Trade Straight”. https://www.wsj.com/articles/how-to-set-world-trade-straight-11597966341. Whether the op ed is meant for domestic consumption during the election cycle or is an amplification of U.S. positions already taken in Geneva is not clear but is an interesting review of the current Administration’s concerns with the global trading system.

The piece by Amb. Lighthizer reviews the need for WTO reform, and notes various problems that he sees with the current WTO: (1) uneven tariffs; (2) the nonappicability of rules to some Members; (3) the huge number of free trade agreements which may lock in protectionism and by definition aren’t applied on a most favored nation (MFN) principle; (4) the shift in the system from negotiations to litigation because of the current dispute settlement system; (5) the inability to address distortions created by non-market economies.

Amb. Lighthizer then calls for WTO Members to recommit “to the principles of market reform and most-favored-nation status.” He then identifies five reforms that are needed:

  1. find baseline tariffs that all Members will apply with limited exceptions;
  2. limit Free Trade Agreements to those fostering regional integration;
  3. see that large and advanced economies are not eligible for special and differential treatment;
  4. adopt new rules to address economic distortions caused by China’s state capitalism system;
  5. overhaul the dispute settlement system to be more like commercial arbitration.

Amb. Lighthizer views that the two options for global trade are (1) “a WTO that is truly committed to most-favored-nation norms and focused on multilateral trade negotiations and (2) a system of bilateral trade agreements. While U.S. could go either way, it is willing to work with WTO Members to achieve the first outcome.

Analysis of the Five Proposals

Free Trade Agreements (FTAs)

Of the five proposals included in Amb. Lighthizer’s op ed, only the second deals with an issue (the increasing number of Free Trade Agreements) where the U.S. has not identified problems with the status quo at the WTO. Amb. Lighthizer’s concern about the hundreds of free trade agreements that have been created has a focus on the European Union where the EU has some 72 FTAs and works to include provisions that are not part of the WTO and that the U.S. views as simply protectionist, such as geographical indications on food, and which harm U.S. and other exporters.

While there is no question that FTAs have resulted in a fair amount of trade diversion and that countries negotiating FTAs often add topics not part of the WTO of interest to them, it is hard to imagine WTO Members agreeing to shut down the vast majority of FTAs that have been established. Looking just at the U.S., many of its existing FTAs would not qualify under Amb. Lighthizer’s test — those with Israel, Korea, Singapore, Australia, Oman, Morocco, Jordan, Bahrain, CAFTA, Colombia, Costa Rica and Peru (though the Central and South American countries could fit under regional integration if expanded beyond North America). Similarly, current negotiations with Japan, with the EU, with the United Kingdom and with Kenya wouldn’t qualify.

So it is hard to see how WTO Members agree to modify the right to establish Free Trade Agreements. And changing GATT Articles would be a very time consuming process even if there were interest among Members.

No one has brought a dispute at the WTO (or at the GATT before 1995) on whether a particular FTA meets the actual requirements of the WTO. Nor has any Member challenged aspects of an FTA that imposes conditions that adversely affect trade of other Members where the conditions are not part of a WTO Agreement and otherwise are inconsistent with WTO principles. Thus, there could be ways to address some of the concerns that Amb. Lighthizer has with FTAs. But disputes won’t return MFN to the primacy role Amb. Lighthizer is espousing.

Special and differential treatment

Amb. Lighthizer’s third proposal to limit which countries have access to special and differential treatment is consistent with the papers that the U.S. has presented at the WTO. In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See December 28, 2019, WTO Reform – Will Limits on Who Enjoys Special and Differential Treatment Be Achieved? https://currentthoughtsontrade.com/2019/12/28/wto-reform-will-limits-on-who-enjoys-special-and-differential-treatment-be-achieved/; August 13, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  eligibility for special and differential treatment/self selection as a developing country, https://currentthoughtsontrade.com/2020/08/13/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-eligibility-for-special-and-differential-treatment-self-selection-as-a-developing-country/.

New rules to address economic distortions caused by China’s state capitalism system

Amb. Lighthizer’s fourth proposal reflects the ongoing U.S. concern about whether current WTO rules adequately discipline distortions flowing from the economic system of China (and other countries with similar systems). As reviewed above, the U.S. has sought reconfirmation of core WTO principles that rules apply to market economies and has worked with the EU and Japan to develop proposals (not yet presented at the WTO) on enhanced subsidy rules on industrial goods and new rules on state-owned enterprises and forced technology transfer. The fourth proposal is focused on new and modified rules.

In prior posts, I have reviewed both the U.S. proposal and the views of the eight candidates to become the next Director-General on the issue. See February 22, 2020, WTO Reform – Addressing The Disconnect Between Market and Non-Market Economies, https://currentthoughtsontrade.com/2020/02/22/wto-reform-addressing-the-disconnect-between-market-and-non-market-economies/; August 19, 2020, The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 2, comments by the candidates, https://currentthoughtsontrade.com/2020/08/19/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-addre/; August 17, 2020,  The race to become the next WTO Director-General – where the candidates stand on important issues:  convergence vs. coexistence of different economic systems; possible reform of rules to address distortions from such economic systems – Part 1, background on issues, https://currentthoughtsontrade.com/2020/08/17/the-race-to-become-the-next-wto-director-general-where-the-candidates-stand-on-important-issues-convergence-vs-coexistence-of-different-economic-systems-possible-reform-of-rules-to-address-dist/.

Baseline tariffs that all Members will apply with limited exceptions

The first proposal from Amb. Lighthizer provides for the first time some content to his earlier comments that tariff bindings needed to be rebalanced. The proposal would seem to flow from Pres. Trump’s concern about trade deficits the U.S. runs with many countries, the lack of trade liberalization negotiations in the last twenty-five years, and the large variation in bound rates with developed countries typically having very low rates compared to large and advanced developing countries.

There has never been since the GATT’s start in the late 1940s an effort to rebalance tariffs like that envisioned by Amb. Lighthizer. His proposal would flatten tariff bindings for nearly all countries and would result in upward movement of tariff bindings for some products from developed countries. There has never been the view within the GATT or now the WTO that one tariff rate on a product fits all countries (with limited exceptions).

It will undoubtedly be helpful to have WTO Members focus on the imbalances that have arisen as multilateral trade liberalization has ground to a halt and advanced developing countries have typically not taken the lead in purusing tariff reductions among those with continued high tariff bindings. That said, it is hard to see how the proposal has actual legs in terms of any future WTO reform.

Reform of the dispute settlement system

The fifth proposal by Amb. Lighthizer deals with an issue, reform of the dispute settlement system, which has occupied a lot of time and attention at the WTO. However, the proposal put forward by Amb. Lighthizer is different from the problems that the U.S. has been chronicling in various statements and papers over the last several years.

The DSU has a two-tiered dispute settlement system – panel review with possible appeal of legal issues to the Appellate Body. Nearly all WTO Members actively support a two-tiered system and many have set up an interim multiparty appeal arbitration agreement to provide them with a substitute until the impasse created by the United States is resolved.

Amb. Lighthizer’s proposal reflects U.S. concerns with the apparent inability to limit the Appellate Body to the role it was given by the DSU and the general unwillingness of other Members, particularly the EU, to agree to the proper role of the Appellate Body. While the proposal from Amb. Lighthizer isn’t two tiered, it does have binding effect on the parties to the particular dispute between them without creating precedent.

As Amb. Lighthizer’s proposal would require a reworking of the DSU, if accepted by other Members as a road forward, resolution would likely be years away.

I have written extensively on the impasse on the dispute settlement system as well as reviewing the views of the eight candidates to be the next Director-General. See, e.g., August 10, 2020, The race to become the next WTO Director-General – where candidates are on important issues:  reform of the Appellate Body, https://currentthoughtsontrade.com/2020/08/10/the-race-to-become-the-next-wto-director-general-where-candidates-are-on-important-issues-reform-of-the-appellate-body/; August 9, 2020,  USTR Lighthizer on WTO dispute settlement – answers to Congressional questions from June 17 hearings, https://currentthoughtsontrade.com/2020/08/09/ustr-lighthizer-on-wto-dispute-settlement-answers-to-congressional-questions-from-june-17-hearings/; July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

Conclusion

Considering the timing of the op ed, it is hard to know if the intended audience is largely U.S. workers or is intended for an international audience considering WTO reform.

Some of the five proposals, regardless of intellectual merit, seem certain to be viewed as nonstarters, although potentially leading to discussion of key principles of the WTO in Geneva. If the intent is to have items that can be set aside if others are achieved, then Amb. Lighthizer’s five proposals may be a successful approach. To the extent that all five are must have issues for the U.S., one doesn’t need to worry about WTO reform during the next four and a half years as it is hard to imagine the circumstances when all are accepted by the WTO membership.

The race to become the next WTO Director-General — where candidates are on important issues: reform of the Appellate Body

[Post updated on August 27 to incorporate comments by Amb. Tudor Ulianovschi of Moldova made at the WITA webinar on August 26. The post was previously updated on August 11 to incorporate comments by Minister Yoo Myung-hee of Korea at the WITA webinar that morning]

With less than a month to go before the last phase of the selection process begins for the next Director-General of the World Trade Organization, the eight candidates have engaged in large numbers of meetings (in person or virtually) with Missions in Geneva, with trade officials in capitals and have done outreach to the media and have participated in webinars put on by various organizations. These meetings and outreach are part of Phase 2 of the selection process where candidates make themselves known to the WTO Members. This phase ends on September 7.

All candidates are understandably guarded on specifics about many issues, all recognizing the WTO is a member driven organization. Similarly, with sharp divisions within the WTO membership, candidates are also careful not to express support for any of the major Members as a general rule. At the same time, all candidates have been asked about current pressing issues before the WTO and the topic of overall WTO reform.

Today’s post looks at how candidates have positioned themselves on one such issue — the impasse over the functioning of the Appellate Body.

Presentations to the General Council and Later Press Conferences

During the three days of meetings of the General Council in mid-July, each candidate was able to provide a statement of his/her vision for the WTO, answer questions posed by WTO Members and also had a thirty minute press conference. In a prior post, I had summarized the prepared statements and the press conferences. See July 19, 2020, The eight candidates for WTO Director-General meet the General Council – recap of prepared statements and press conferences, https://currentthoughtsontrade.com/2020/07/19/the-eight-candidates-for-wto-director-general-meet-the-general-council-recap-of-prepared-statements-and-press-conferences/. In addition to prepared statements and press conferences after meeting with the General Council, I am also including selected comments made by the candidates during webinars held by the Washington International Trade Association (WITA) and the Asia Society Policy Institute (ASPI) with six of the candidates (through August 6; a seventh is scheduled for August 11).

On the topic of the Appellate Body, the eight candidates had the following public comments:

Dr. Jesus Seade Kuri (Mexico):

From his prepared statement to the General Council, Dr. Seade made it clear that a top priority for him if selected as the next Director-General would be to get the Appellate Body refunctioning, something he would work to see happened in the first 100 days he was Director-General: “It is also necessary to give back to the dispute settlement mechanism its strength and certainty.” (Google translation from Spanish) “Within the first hundred days: I will work closely with members in seeking to * * * ii. restore the second instance of the dispute settlement system.” (Google translation from French).

In the press conference, Dr. Seade was asked how he would address the Appellate Body impasse. My notes on his answer are as follows:

On the question of the Appellate Body impasse, Dr. Seade noted that none of the Members were denouncing any provision within the Dispute Settlement Understanding. Rather concerns had been voiced on how DSU provisions had been applied. Dr. Seade believes that what is missing is the way to operationalize the role of the Dispute Settlement Body (all WTO Members sitting as the DSB) which is organizationally above the Appellate Body but for which there are currently no procedures for communications from the DSB to the Appellate Body to address issues generally (vs. in specific disputes). Such procedures were needed. He also had other ideas for how to resolve the impasse that he was interested in reviewing with Members to see if there could be movement. On the question of the interim arbitration arrangement, Dr. Seade thought a temporary arrangement made sense as it provided Members a second stage to dispute settlement as provided in the DSU. Key is finding a solution to the impasse so the two-tier dispute settlement system is restored for all.

WITA had a webinar with Dr. Seade on July 7. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-seade/. During the webinar, Dr. Seade addressed the need to get the Appellate Body functioning again. In pointing out why he would be the right person to be the next Director-General, Dr. Seade reviewed the importance of bringing to the table a knowledge of the underlying Uruguay Round negotiations and the purpose of the provisions in the agreements. He asked “Why is the U.S. frustrated with the Appellate Body?” It is because of the history of the negotiations and what was actually agreed to. Dr. Seade also viewed restoring the dispute settlement system as important to address problems other Members are having with China (in addition to negotiations on issues like industrial subsidies). He stated that the U.S. points about problems with the Appellate Body are good. The U.S. is not challenging the Dispute Settlement Understanding (“DSU”), but rather is arguing that the provisions of the DSU are not being respected by the Appellate Body. Thus, the problem is with the application of the DSU not the terms of the DSU as such. Dr. Seade believes that it is possible to find solutions that all Members can live with. He noted that the Appellate Body issue reflects different views of the DSU by the EU and the U.S.

Dr. Ngozi Okonjo-Iweala (Nigeria):

From her prepared statement, Dr. Ngozi Okonjo-Iweala had relatively short statements about the Appellate Body: “A refreshed WTO must find solutions to the stalemate over dispute settlement. It is clear that a rules-based system without a forum in which a breach of the rules can be effectively arbitrated loses credibility over time.” “I would also prioritize updating the rulebook, unlocking the dispute settlement system, working on transparency and notification, enhancing the work of regular bodies, and strengthen the Secretariat.”

While Dr. Ngozi Okonjo-Iweala was asked many questions at the press conference, none dealt with the Appellate Body.

WITA had a webinar with Dr. Ngozi Okonjo-Iweala on July 21. https://www.wita.org/event-videos/conversation-with-wto-dg-candidate-dr-ngozi-okonjo-iweala/

Dr. Ngozi Okonjo-Iweala noted that addressing the Appellate Body impasse was a priority for the next Ministerial and repeated her view that a WTO without effective dispute settlement would lose its legitimacy over time.

In response to a question on how she would restore dispute settlement, Dr. Ngozi Okonjo-Iweala noted that there is a common desire among WTO Members to have the dispute settlement system work and function. The question is how. There is a common belief that the panel process has been working well, so that places the focus on the Appellate Body. To address the various issues that have been raised by the United States, the WTO has the work product of the Walker process (note: Amb. Walker (NZ) was a facilitator to the General Council in 2019 to see if he could work with Members to find a solution to issues raised by the U.S.). Some of the proposals made by Amb. Walker can be used to move the process forward. The U.S. is seeking to go back to what the existing Dispute Settlement Understanding requires — 90 days for decisions, not creating rights or obligations (“overreach”), Appellate Body members working on appeals after their terms have expired, etc. We should take them up one at a time and find solutions that work. Can Members agree that appeals should be resolved in 90 days? Very likely. Can Members agree that the Appellate Body is limited to reviewing issues of law and not reviewing fact finding by panels? Very likely.

Mr. Abdel-Hamid Mamdouh (Egypt):

Mr. Mamdouh in his prepared statement reviewed the challenge to the WTO from the imbalance resulting from growing importance of dispute settlement while the negotiating function has been reduced in effectiveness:

“In my view, over the past quarter of a century, the WTO has suffered from a chronic imbalance across all its vital functions. That is, dispute settlement, negotiation, and the transparency/deliberative functions

“In any legal system, there needs to be a balance between the ‘legislative’ and the ‘judicial’ functions. For the WTO, these are the negotiating and the dispute settlement functions. While dispute settlement gained strength due to the inherent automaticity of procedures, the negotiating function has broken down. This created an unsustainable imbalance.” (Page 3)

During the press conference, Mr. Mamdouh was asked about how to bring the Appellate Body back. My notes on his answer are as follows:

Asked what he would do to revive the Appellate Body, Mr. Mamdouh responded that he would build off of the work already done. Most logical and productive first step is to build on that work and see what else is needed. And there is a need to look deeper into causes which he believes are rooted in differences in legal and regulatory systems. Mr. Mamdouh has not heard any suggestions that rules within the Dispute Settlement Understanding need to be changed. He concluded by saying that the size of the problem needs to be put into perspective and one needs to remember that on this issue, the WTO Members are not starting from zero.

WITA had a webinar with Mr. Mamdouh on June 23. https://www.wita.org/event-videos/conversation-candidate-hamid-mamdouh/. There were no specific questions asked on dispute settlement, but Mr. Mamdouh provided some introductory thoughts on the genesis of the crisis in the WTO. He noted that the WTO has been suffering from a chronic imbalance between the negotiating function and the dispute settlement function.  He indicated that the negotiating function has underperformed miserably.  Dispute settlement system, being automatic adoption at the end of disputes absent a negative consensus has grown in importance and hence has created imbalance.  Mr. Mamdouh views that there is a critical need to reboot the negotiating function to help restore better balance.

Amb. Tudor Ulianovschi (Moldova):

Amb. Ulianovschi, in his prepared statement, had reform of the Appellate Body as a top priority for the incoming Director-General:

“Dispute Settlement

“The reform of the dispute settlement mechanism and particularly the reform of the Appellate Body will be one of the main priorities for the next Director General. This process needs to be open, inclusive and constructive. We need to find a way for all members to accept a two-step binding independent Dispute Settlement system.

“I believe that the issues and concerns were clarified by the members already and now they have to be addressed.

“I am aware of the on-going consultations on this important matter among the Members. In my opinion, there is a general common understanding on fundamentals of the DSU, which is already a good start.

“The least a DG can do is to facilitate discussions among Members to agree together on how to move forward and eventually agree on a roadmap and mechanisms – ‘agree on how to agree’ on this sensitive but crucial issue and devise a process of further engagement to reach an acceptable solution.”

During the press conference following his appearance before the General Council, Amb. Ulianovschi was asked several questions about the Appellate Body impasse. Below are my notes on Amb. Ulianovschi’s answers.

There were several questions on the Appellate Body including how Mr. Ulianovschi would reactivate the Appellate Body and whether reform of the dispute settlement system should be broader than getting the Appellate Body back functioning. Mr. Ulianovschi indicated that on the provisions of the Dispute Settlement Understanding, all Members agree on the provisions as written. With the application of the DSU by the AB, there are concerns raised by the U.S. and others. The Director-General can provide a process to help Member’s discuss. Solutions to the concerns raised need to be found, but the parameters of the solutions need to be found by members themselves. In his view, the Director-General’s role is to help Members identify how to move forward on the Appellate Body impasse with resolution by the next Ministerial Conference. On the question of breadth of action on the dispute settlement system, Mr. Ulianovschi stated that Members are not looking for a complete redrafting of the Dispute Settlement Understanding. What is needed is a targeted approach to address issues raised by certain members on the operation of the Appellate Body.

WITA held a webinar with Amb. Tudor Ulianovschi on August 26, 2020. https://www.wita.org/event-videos/conversation-with-tudor-ulianovschi/. Amb. Ulianovschi referenced the impasse on the Appellate Body (dispute settlement system) both in his opening statement at the webinar and in answer to a number of questions. My notes on his statements are provided below.

In his opening statement, Amb. Ulianovschi noted that as a member driven organization, the WTO needs Members to negotiate to move forward.  He believes that a diplomatically active Director-General can help the WTO move forward, and he can help address lack of trust which he believes is largely psychological primarily based on unfinished business but also on the dispute settlement impasse on the operation of the Appellate Body, Special and differential treatment and other issues.

Q:  How important is it to have a reform agenda, and how can you convince the major Members to agree on a common agenda?

A:    Amb. Ulianovschi stated that reform is absolutely necessary.  In his view, cosmetic reform is not sufficient, a fact made clear by major Members.  Amb. Ulianovschi believes that political experience and dialogue by the Director-General will be key to get those who have put forward proposals to get into a discussion that is inclusive and transparent.  There are a large number of issues that are affecting the environment at the WTO.  For example, the current situation between the U.S. and China is affecting the system.  Also the impasse on dispute settlement and the concerns raised by the United States and the EU position on an interim arbitration agreementwith MPIA.  He sees a positive signal that major players are putting forward proposals; this should be starting point for discussions.  He would invite those who have put forward proposals to start discussions.  The process will require political will, and members will need to agree on how to proceed).  Amb. Ulianovschi believes he can get Members to that point.  On dispute settlement, Members have the paper from Amb. Walker which can be used to move forward.  Will have to see how deep reforms will be.

Q:  If you are the next Director-General, what would be your priorities for the 2021 Ministerial Conference and how would you define success?

A:  In Amb. Ulianovschi’s view, the next Ministerial must show some results.  He believes the top priority would be completing the ongoing negotiations on fisheries subsidies, which is important to fulfill U.N. Sustainable Development Goal 14.6.  He believes that the Members are close to getting language agreed to.  Completing the fisheries subsidies agreement Is just the first step, but it is an important one.  On the current impasse on the Appellate Body (and hence the lack of a second-tier dispute settlement stage), Amb. Ulianovschi doesn’t see a clear cut resolution of the reform needed by the next Ministerial but rather hopes the Members will have a road map of how to proceed by the Ministerial. 

Q:  On dispute settlement, it is becoming quite clear that the divergences are growing between the Trump Administration and some of our trading partners.  Many Members have shared the view that there have been problems with the Appellate Body engaging in overreach in certain situations.  The recent Op Ed in the Wall Street Journal by USTR Lighthizer suggests that Amb. Lighthizer is looking to eliminate the Appellate Body and change the system so that panels’ role is limited to helping resove specific disputes between Members, more like commercial arbitration, without broader effect of the decisions.  Is it realistic to go back to a system without an Appellate Body?

A:  Amb. Ulianovschi responded that understand the U.S. concerns at the WTO on the Appellate Body both procedural (e.g., decisions within 90 days; Appellate Body members not involved in appeals after their four year term expires) and substantive (e.g., overreaching).  He recognizes that the U.S. concerns are shared by other members of the organization.  Amb. Ulianovschi believes that this is the moment to put forward different opinions on both problems and how to proceed, but all issues have to be negotiated.  The role of the Director-General is to put Members together to permit Members to present the details of their proposals.  In Amb. Ulianovschi’s view, the Recent Op Ed by Amb. Lighthizer is another idea put forward to find a solution to the ongoing problem at the WTO.  He has talked with all of the major Members on how to deal with the broader issue of Appellate Body reform.  The Director-General is there to encourage members to put forward proposals but also to use his/her good offices to encourage discussions.  Having said that, Amb. Ulianovschi noted that some Members have undertaken different initiatives under Rule 25 of the Dispute Settlement Understanding, such as MPIA, to provide a second-tier of review.  These initiatives are interim efforts.  Such actions don’t have to distract the Members from the main task of finding a common understanding on the purpose of the dispute settlement understanding or on a sustainable solution.  So the WTO Members have to identify the consensual solution and how we can ensure a compliance mechanism so that the system works as intended and agreed to.  This should be a top priority of the next Director-General.

H.E. Yoo Myung-hee (Republic of Korea):

In her prepared statement, Minister Yoo includes one paragraph on the Appellate Body impasse:

“Another urgent, pressing issue is restoring the dispute settlement system. We need a stable and fully-functioning dispute settlement system which would effectively contribute to the prompt and satisfactory resolution of the disputes. I will act as an honest broker to facilitate constructive discussions to find an effective and permanent solution.”

During the press conference, Minister Yoo was asked two questions about dispute settlement, one dealing with resolving the impasse on the Appellate Body and the other on the Multi-Party Interim Arbitration Agreement. My notes of Minister Yoo’s responses to these questions follows:

On the issue of The Appellate Bidy impasse, Minister Yoo was asked how she would solve the impasse. She indicated that Members have very divergent views on the role of the Appellate Body. All members understand the need for a two-tier dispute settlement system. If selected as the next Director-General, Minister Yoo would accelerate members’ consultations to resolve the issue.

On the interim arbitration mechanism adopted by the EU, China and about 20 other Members, Korea is not a party. Does Minister Yoo have any concerns that the interim arrangement (MPIA) might become permanent? Minister Yoo responded that the MPIA was being used by some Members to overcome the current vacuum with the Appellate Body being shut down. The key for the WTO is to focus on finding a permanent solution, and she would do that if selected as the next Director-General.

WITA had a webinar with H.E. Yoo scheduled on August 11,https://www.wita.org/event-videos/candidate-h-e-yoo-myung-hee/. My summary of Minister Yoo’s comments on dispute settlement follow.

from her opening comments: Restoring dispute settlement system is an urgent need.

Questions asked on Dispute settlement – do you share assessment of US and others that there have been problems of overreach by AB?  Secondly, there are procedural flaws that need to be addressed?  What can a DG do about it?

Minister Yoo’s response: Clearing impasse on the Appellate Body is a top priority.  The WTO needs a prompt resolution to restore the two-tier dispute settlement system.  There are divergent views of the proper role of the Appellate Body.  Some countries, like the United States, have said the Appellate Body has gone too far — overreaching by creating or diminishing rights and obligations of Members.  However, some members say that the Appellate Body has been working to clarify of the provisions of Agreements to provide stability to the multilateral trading system.  So there are competing views of what the role of the Appellate Body is supposed to be.  The Walker process has put forward certain ideas.  Still the gap is very wide between the two views.  If we look at three pillars of WTO (negotiations, notifications, dispute settlement), over the first 25 years of the WTO, there have been no major agreements from negotiations other than Trade Facilitiation Agreement. This failure of the negotiating function to work has put much strain on the dispute settlement system.  Members are resorting to dispute settlement to address issues not handled by negotiations.  So, lacking periodic updates through negotiations, it is easy for the Appellate Body to engage in creating obligations to fill gaps.  So Minister Yoo agrees to some extent with US (and others) about of overreach.  The question for the WTO and the incoming Director-General is how to move forward to find solutions acceptable to all.  There have been very divergent views within the WTO for a long time.  If Minister Yoo becomes the Director-General, she would try to increase communication with missions in Geneva and ministers in capital.  Need some political involvement to resolve the impasse.  Minister Yoo would also look at some ideas floated by academia as well to see if those views might provide different approaches that would be of interest of Members.  Several examples would include strengthening qualifications of AB members and what role of Appellate Body Secretariat should be, etc.  I would encourage Members to engage in open, transparent and inclusive discussions on these issues. 

Minister Yoo wanted to highlight importance of revitalizing negotiating function. If there is a more active negotiating functions, Members would be able to address needs to update and clarify agreements which should be done by Members and not the dispute settlment system.

H.E. Amina C. Mohamed (Kenya):

Minister Mohamed in her prepared statement reviewed the need for a functioning dispute settlement system:

“The WTO’s dispute settlement function is key to the credibility and effectiveness of the rules. We need to find a way through its problems to make it once again an instrument that all Members can use with confidence.”

During the press conference, Minister Mohamed was asked about the Appellate Body impasse. My notes on her response are as follows:

On the issue of how to remove the impasse on the Appellate Body, Minister Mohamed indicated that Members need to consult and negotiate. The WTO needs members to find solutions to permit the second-tier of dispute settlement to be restored. A Director-General DG can offer technical assistance and process to help Members find the solutions.

WITA had a webinar with H.E. Mohamed on August 6. https://www.wita.org/event-videos/ambassador-amina-mohamed/. Minister Mohamed had a number of comments about the Appellate Body impasse.

Restoring the Appellate Body is an important priority for the incoming Director-General.

The WTO dispute settlement process is key to the credibility and effectiveness of the WTO.  Members have been working for some time on finding solutions.  Minister Mohamed takes seriously US concerns about the operation of the Appellate Body. If she becomes Director-General, she will use her skills at building consensus to help Members find solutions.  Finding solutions is important so that the WTO Members can get back to a dispute settlement system that all can use.

Minister Mohamed was Chair of the Dispute Settlement Body in 2004.  She made sure that there was continuous flow of information from the Dispute Settlement Body to the Appellate Body.  She had lunch with the Appellate Body quarterly.  Issues she had been raising back in 2004 as of concern to Members remain unresolved today. 

WTO Members designed a system that was complete from negotiations to dispute settlement.  In Minister Mohamed’s view the system was designed really well.  Now there is a gap in the system with the inoperability of the Appellate Body.  The WTO needs to fill the gap quickly. Absent a resolution, some Members will comie up with an interim system (MPIA).  Thus, Minister Mohamed believes the WTO needs to deal with the issues raised by the United States urgently.  She agrees with some of the issues raised by the U.S.  Many of those same concerns were around in 2004 when she chaired the Dispute Settlement Body.  In her quarterly meetings with the Appellate Body, Minister Mohamed told the Appellate Body members that they had a specific mandate laid out by Members in the Dispute Settlement Understanding.  It was not the role of the Appellate Body to add to or diminish the mandate.  Minister Mohamed believes that Members need to see where the Appellate Body veered off of the mandate.  She believes that the new Director-General should look at te Walker process (note: Amb. Walker (NZ), as facilitator to the General Council in 2019 had met with Members to see if solutions to the U.S. concerns could be found) and see how to move forward.  But it is critical for the WTO to resolve the issues raised by the U.S. to permit the Appellate Body to resume.

H.E. Mohammad Mazaid Al-Tuwaijri (Saudi Arabia):

In his prepared statement, Minister Al-Tuwaijri referenced the challenges in the dispute settlement system but did not identify any specific approach to addressing Appellate Body reform if selected as the next Director-General other than his overall approach reviewed in the statement on all issues. Several quotes from his prepared statement follow:

“As you all know, the WTO has three main functions for monitoring trade issues, settling disputes, and negotiations, which include improvements to existing rules, new rules and market access.”

“We also need to recognize the consequences for the WTO of over-performance in litigation, while neglecting the negotiating and monitoring functions. A system out of balance cannot move forward.”

During the press conference, Minister Al-Tuwaijri was asked what his plan was to address U.S. concerns with the Appellate Body. My notes on his response are provided below.

On the Appellate Body, what is your plan to addressing U.S. concerns and do you plan to get it back functioning? Minister Al-Tuwaijri’s approach is the same as reviewed elsewhere. Determine what is the root cause of AB not functioning. He believes it is because negotiations are not functioning well. Therefore, he wants to get the negotiating process to improve and to gain data to improve the system. For example, he believes it is important to be able to quantify the effect of delay of even one month in resolution of disputes.

WITA did a webinar with Minister Al-Tuwaijri on August 5. https://www.wita.org/event-videos/director-general-candidate-he-mohammed-al-tuwaijri/.

Minister Al-Tuwaijri provided some comments in his opening statement and responded to a question on the dispute settlement system.

The structure of the organization is not functioning – negotiations, dispute settlement, notifications.  Key is what type of change is needed to help organization be fit for the 21st century.

Minister Al-Tuwaijri believes the correct analysis for any issue is: what is the problem, what needs to be done, consult with the Members for possible solutions.

Does Dispute Settlement reform need to be taken up as a condition precedent to broader WTO reform?

In Minister Al-Tuwaijri’s view, the role the Director-General can play is resolving the impasse on the Appellate Body is somewhat limited. Can the Director-General help with a procedural question?  Yes. Is there an interpretation issue that the Director-General may be able to assist in resolving?  Yes.  In 2019, the General Council had Amb. Walker, acting as a facilitator, work with Members to see if solutions could be found to the issues raised by the U.S. So that work product is available.  The EU has also pursued a multi-party interim arbitration agreement to help at least some Members handle a second stage dispute process while the Appellate Body is not functioning.  Despite these efforts, there is the question why resolution of the impasse is not happening.  Minister Al-Tuwaijri believes that the answer goes back to his core point, the WTO must fix its negotiating function.  If Members want to change the rules on the operation of the Appellate Body, that is for the Members to decide.  As Director-General, Minister Al-Tuwaijri would encourage Members to think differently about the impasse and the options for finding solutions.

The Rt Hon Dr. Liam Fox MP (United Kingdom):

Dr. Fox’s prepared statement talked about many topics, including WTO reform, but did not speak specifically about the impasse on the Appellate Body or needed reforms to permit reactivating the second stage of dispute settlement.

During the press conference, Dr. Fox was asked about how he would address U.S. concerns with the WTO. My notes on his response are provided below:

A question was asked of how Dr. Fox would address the broad concerns of U.S. with the WTO. Dr. Fox noted that the U.S. has some very specific concerns with the WTO, particularly with regards to the Appellate Body. Dr. Fox stated that the WTO has the Appellate Body because countries felt panels in GATT disputes went too wide. The Appellate Body was set up with a limited mandate. He is aware that there are different views of the role of Appellate Body and whether it has engaged in mission creep or handled incomplete texts by filling them out. If WTO Members are able to get back to a more narrow definition of the function of the Appellate Body, there may be some concept of precedent being set. Dr. Fox asks the question, does everyone want the AB to be functioning properly or not. If not, the multilateral trading system is under threat as obligations can’t be enforced. Believe there is room for compromise.

WITA had a webinar with Dr. Fox on July 30, 2020. https://www.wita.org/event-videos/conversation-with-dr-liam-fox/. His comments on dispute settlement from the webinar are summarized below.

A rules-based system must have a functioning dispute settlement system, a top priority for the incoming Director-General.  To have a rules-based system without a functioning dispute settlement system is nonsensical.  For many countries, the dispute settlement system is the value added that membership in the WTO brings.

All members need to focus on adhering to the rules that they have already agreed to.  The WTO needs an effective dispute settlement system for that.  The WTO needs all Members to adhere to all rules they have signed up for and not decide that some rules don’t apply to them.

Questions asked of Dr. Fox: There have been some problems with the Appellate Body overreaching.  Do you agree we need a more realistic approach by Appellate Body where there is ambiguous language in an agreement?  How would you resolve the impasse on the Appellate Body?

Resolution of the Appellate Body impasse is the most urgent task facing the incoming Director-General.  Dispute Settlement is the value-added to many Members of joining the WTO.  Many members view the Appellate Body as having gone beyond the Dispute Settlement Understanding.  Moreover, the excessive length of time to render an appeal decision undermines the system by itself — Members violating their obligations can get a three-year free ride.  The WTO needs to tighten up the parameters and limit the areas that the Appellate Body examines.  While the Appellate Body can’t create binding precedent, the need for consistency supports the ability to review how issues have been handled in other cases.  Thus, looking at prior disputes makes sense, but the Appellate Body can’t create law through the process.

On any negotiation there are technical, political and timing issues. WTO Members are not going to see any concessions from the U.S. before the presidential election.  It may be possible for the U.S. to make compromises, but the timing of major political events affects the ability to do so.    

Conclusion

One of the major current challenges for the WTO and its Members is finding solutions to the impasse on the Appellate Body. The eight candidates for the Director-General post have all expressed views on the importance of resolving the issue and where in the hierarchy of issues to be addressed by an incoming Director-General the impasse is found. Presumably, most Members will be carefully considering each candidate’s views and suggested approach on all key issues, including resolving the Appellate Body impasse.

The fundamental disconnect between the EU (which has been reluctant to recognize any deviation from the Dispute Settlement Understanding by the Appellate Body) and the United States (which has focused on the limited role of the Appellate Body as laid out in the Dispute Settlement Understanding) remains. The role of honest broker and consensus builder that the incoming Director-General will assume later this year will be tested by the gulf in positions of two of the WTO’s major Members.