Dispute Settlement Body

U.S. blocks inclusion of Venezuelan request for panel on U.S. sanctions at WTO, Dispute Settlement Body meeting of March 26, 2021 postponed

The monthly regular meeting of the WTO Dispute Settlement Body was scheduled for March 26, 2021. The proposed agenda was circulated earlier and contained as item 4, “United States – Measures Relating to Trade in Goods and Services, A. Request for the Establishment of a Panel by Venezuela (WT/DS54/2/Rev.1)”. See Dispute Settlement Body, 26 March 2021, Proposed Agenda, WT/DSB/W/679 (24 March 2021). For background, the Venezuelan request for a panel is embedded below.

WTDS574-2R1

The United States objected to the inclusion of agenda item 4. USTR released a short statement on March 26. “The United States will reject any effort by Maduro to misuse the WTO to attack U.S. sanctions aimed at restoring human rights and democracy to Venezuela. The United States exercised its rights as a WTO Member to object to this illegitimate panel request because representatives of the Maduro regime do not speak on behalf of the Venezuelan people.” See USTR, Statement from USTR Spokesperson Adam Hodge on U.S. Action to Prevent Maduro Regime’s Attempt to Undermine U.S. Sanctions, March 26, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/statement-ustr-spokesperson-adam-hodge-us-action-prevent-maduro-regimes-attempt-undermine-us.

Venezuela did not agree to withdraw its request for a panel from the agenda with the result that Dispute Settlement Body meetings cannot proceed until there is a resolution. See Blomberg, U.S. Disrupts WTO Dispute Meeting Over Venezuela Sanctions Fight, March 26, 2021, https://www.bloomberg.com/news/articles/2021-03-26/u-s-disrupts-wto-dispute-meeting-over-venezuela-sanctions-fight (“The meeting ended prematurely after Venezuela refused Washington’s demand that the WTO remove Venezuela’s dispute request from the meeting agenda, according to the official attending the meeting. The impasse means that the WTO can’t hold any regular dispute settlement meetings unless and until the U.S. or Venezuela back down.”); Inside U.S. Trade’s World Trade Online, WTO: DSB meeting postponed over U.S. objection to Venezuela panel request, March 26, 2021, https://insidetrade.com/daily-news/wto-dsb-meeting-postponed-over-us-objection-venezuela-panel-request; Reuters, U.S. blocks Venezuela bid to seek WTO review of sanctions, March 26, 2021, https://www.reuters.com/article/us-trade-wto-usa-venezuela/u-s-blocks-venezuela-bid-to-seek-wto-review-of-sanctions-idUSKBN2BI1ZT (“Were the United States and other members to allow representatives of the illegitimate Maduro regime to exercise rights at the WTO on behalf of Venezuela, it would be tantamount to recognizing the Maduro regime itself,” the official said. “This would be contrary to the Biden-Harris administration’s firm policy supporting the people of Venezuela.”).

Background

The Maduro government in Venezuela is viewed as illegitimate by the United States and dozens of other governments based on the 2013 election. The U.S. has recognized Juan Guaido as the interim President and has imposed a series of sanctions on Venezuela and the Maduro government. While the sanctions were imposed during the Trump Administration, no changes have yet occurred in the Biden Administration. A 2020 write-up from the State Department describes the problems and justifications for the sanctions. See U.S. Department of State, U.S. Relations With Venezuela, Bilateral Relations Fact Sheet, Bureau of Western Hemisphere Affairs, July 6, 2020, https://www.state.gov/u-s-relations-with-venezuela/. Much of the fact sheet is copied below.

U.S.-VENEZUELA RELATIONS

“The United States recognizes Interim President Juan Guaido and considers the Venezuelan National Assembly, which he currently leads, to be the only legitimate federal institution, according to the Venezuelan Constitution. Nearly sixty other countries have joined in this recognition.

“The United States works with Interim President Juan Guaido and his team on a number of areas of mutual concern, including humanitarian and migration issues, health issues, security, anti-narcotrafficking initiatives, and reestablishment of the rule of law. The United States proposed a Democratic Transition Framework in 2020 as a guide to help Venezuelan society achieve a peaceful, democratic transition. Venezuela’s previous presidents, the late Hugo Chavez (1999-2013) and Nicolas Maduro (2013-2019), defined themselves in large part through their opposition to the United States, regularly criticizing and sowing disinformation about the U.S. government, its policies, and its relations with Latin America. Maduro, who was not reelected via free and fair elections, clings to power through the use of force. His policies are marked by authoritarianism, intolerance for dissent, and violent and systematic repression of human rights and fundamental freedoms – including the use of torture, arbitrary detentions, extrajudicial killings, and the holding of more than 400 prisoners of conscience. Maduro has been sanctioned by the Office of Foreign Assets Control, and in 2020 the Department of Justice charged him with offenses related to narco-terrorism and drug trafficking The U.S. Department of State’s Bureau of International Narcotics and Law Enforcement (INL) posted a $15-million reward for information to bring him to justice. The Maduro regime’s irresponsible intervention in the economy has facilitated widespread corruption and stoked hyperinflation leading to negative economic growth and a humanitarian crisis, including food, energy, and water shortages, in a country with the world’s largest proven oil reserves.

“U.S. Assistance to Venezuela

“Through its assistance to the legitimate Guaido Interim Government and democratic organizations within and outside Venezuela, the United States supports the protection of human rights, the promotion of civil society, the strengthening of democratic institutions, and transparency and accountability in the country. From Fiscal Year (FY) 2014 to 2019, the United States has committed approximately $58.6million in bilateral democracy assistance to Venezuela. Assistance to Venezuela is subject to a number of restrictions, including those under Section 706(1) of the Foreign Relations Authorization Act, Fiscal Year 2003 (P.L. 107-228) (the so-called Drug Majors restriction), the Trafficking Victims Protection Act, and restrictions contained in the annual appropriations laws

“Since 2005, the President has determined annually that Venezuela, and more recently the illegitimate Maduro regime, has “failed demonstrably” to adhere to its drug control obligations under international counternarcotics agreements. The President has issued a national interest waiver to enable certain assistance programs vital to the national interests of the United States, such as human rights and civil society programs, to continue.

“Pursuant to Section 40A of the AECA, since 2006 the Department of State has determined annually that Venezuela was “not cooperating fully” with U.S. counterterrorism efforts. Under this provision, defense articles and services may not be sold or licensed for export to Venezuela during the relevant fiscal year.

“U.S. Assistance in Response to the Venezuela Regional Crisis

“The United States is answering Interim President Guaido’s call to help the people of Venezuela cope with severe food, water, energy, and medicine shortages. Since FY 2017, the United States has provided more than $856 million in assistance to support the response to the crisis inside Venezuela and the region, which includes $611 million in humanitarian assistance and $245 million in economic and development assistance. The United States is the single largest donor to the combat the crisis, and supports sixteen countries hosting Venezuelan refugees. USG-provided humanitarian assistance addresses critical life-saving needs, including food and nutrition, water, sanitation, hygiene and health, and temporary shelter. Our development assistance is helping countries throughout Latin America and the Caribbean meet longer term needs, such as education deficits, caused by the man-made regional crisis.

“Bilateral Economic Relations

“Before the United States suspended diplomatic operations in Venezuela, the United States was Venezuela’s largest trading partner. Bilateral trade in goods between both countries reached $3.2 billion in 2019. U.S. goods exports to Venezuela totaled $1.2 billion in 2019. U.S. imports from Venezuela totaled $1.9 billion. U.S. exports to Venezuela have historically included petroleum and refined petroleum products, machinery, organic chemicals, and agricultural products. Crude oil dominated U.S. imports from Venezuela, which was one of the top five suppliers of foreign oil to the United States. In early 2019, imports of Venezuelan crude oil averaged roughly 500,000 barrels per day, but sanctions imposed by the United States have now cut this to zero. Previously, U.S. foreign direct investment in Venezuela was concentrated largely in the petroleum sector, but sanctions, coupled with the poor business environment, have significantly reduced these investment.

“Hyperinflation, state intervention in the economy including expropriations, macroeconomic distortions, physical insecurity, corruption, violations of labor rights, and a volatile regulatory framework make Venezuela an extremely challenging climate for U.S. and multinational companies. A complex foreign exchange system, capital controls, and the lack of dollars, coupled with increasing sanctions from the United States and other countries, have prevented firms from repatriating their earnings out of Venezuela and importing industrial inputs and finished goods into Venezuela. Lack of access to dollars, price controls, and rigid labor regulations have compelled many U.S. and multinational firms to reduce or shut down their Venezuelan operations.

“Since 2017, the United States has made over 300 Venezuelan-related designations, pursuant to various Executive Orders (E.O.), including under the International Emergency Economic Powers Act, and the Foreign Narcotics Kingpin Designation Act. Designations include former President

“Maduro and those involved in public corruption and undermining democracy under E.O. 13692 (Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Venezuela) issued by the President in March 2015 and E.O. 13850 (Blocking Property of Additional Persons Contributing to the Situation in Venezuela) issued by the President in November 2018, each as amended. Since 2017, the Department of Treasury has designated two individuals for involvement in narcotrafficking under the Kingpin Act, including former Vice President (and nominal Minister of Oil) Tareck El Aissami.

“Additionally, E.O. 13850, in conjunction with determinations made by the Secretary of the Treasury, authorizes sanctions against persons determined to be operating in the gold, oil, financial, and defense and security sectors of the Venezuelan economy and was the basis for the January 2019 designation of Venezuelan national oil company Petreoleos de Venezuela, S.A. (PdVSA). The Central Bank of Venezuela is also designated under E.O. 13850.

“On August 5, 2019, the President signed E.O. 13884 which blocks all property and interests in property of the Government of Venezuela that are in the United States or that are within the possession or control of any United States person. In conjunction with E.O. 13884, Treasury also issued or , including those that authorize, among other things, transactions with Guaido and the National Assembly, activities for the official business of certain international organizations, and activities NGOs undertake to support humanitarian projects to meet basic human needs in Venezuela.

“For additional information about the Venezuela sanctions program, please visit the Treasury Department’s Office of Foreign Assets Control (OFAC) website.

“On March 26, 2020, the Department of Justice charged former President Maduro and 14 other current and former Venezuelan officials, including his vice president for the economy, his Minister of Defense, and the Chief Supreme Court Justice with offenses related to narco-terrorism, corruption, and drug trafficking, and other criminal charges.

“Venezuela’s Membership in International Organizations

“Venezuela and the United States belong to a number of the same international organizations, including the United Nations, Organization of American States, International Atomic Energy Agency, International Civil Aviation Organization, International Monetary Fund, Interpol, World Bank, World Trade Organization and Inter-American Development Bank (IDB).

“Venezuela is a founding member of the Organization of the Petroleum Exporting Countries (OPEC), the Bolivarian Alliance for the Peoples of Our America (ALBA), the Community of Latin American and Caribbean States (CELAC), and PetroCaribe. Venezuela is also a member of the Non-Aligned Movement, , the G-15, the G-24, and the G-77. On August 5, 2017 Venezuela was indefinitely suspended from Southern Common Market (Mercosur).

“With the recognition of Juan Guaido as interim President by 57 countries, Venezuela’s participation or representation in some of these organizations has come under debate.

“On April 26, 2017, Maduro announced Venezuela would withdraw from the Organization of American States (OAS), a process that requires two years. This decision was reversed by Interim President Guaido and the National Assembly. On January 10, 2019, the OAS Permanent Council voted not to recognize the second term of former President Nicolas Maduro and on April 9, 2019 the OAS Permanent Council approved a resolution to accept interim President Guaido’s nominee Gustavo Tarre as Venezuela’s representative to the Permanent Council on April 9.

“The interim Guaido government is also an active member of the Lima Group, an important group of likeminded nations founded in 2017 to facilitate regional coordination in the pursuit of a democratic resolution to the Venezuela crisis.

“On March 15, 2019, the IDB approved a resolution recognizing Guaido’s representative, Ricardo Hausmann. The current representative is Alejandro Plaz.

“Bilateral Representation

“On March 12, 2019, the United States suspended embassy operations in Caracas. The United States maintains formal diplomatic relations with Venezuela and the Guaido interim government through its accredited Ambassador to the United States.

“On August 28, 2019, the Department of State announced the opening of the Venezuela Affairs Unit (VAU). The VAU is the interim diplomatic office of the U.S. Government to Venezuela, located at the U.S. Embassy in Bogota, Colombia. It continues the U.S. mission to the legitimate Government of Venezuela and to the Venezuelan people.”

While the Biden Administration is reviewing its approach to Venezuela and some in the Democratic party have questioned the sanction program in terms of effectiveness, the sanctions remain in place as of March 28, 2021. See, e.g., White House Briefing Room, Background Press Call by Senior Administration Officials on Venezuela, March 08, 2021,https://www.whitehouse.gov/briefing-room/press-briefings/2021/03/08/background-press-call-by-senior-administration-officials-on-venezuela/; PBS News Hour, Democrats pressure Biden to review U.S. sanctions on Venezuela, March 23, 2021, https://www.pbs.org/newshour/politics/democrats-pressure-biden-to-review-u-s-sanctions-on-venezuela.

WTO history of the dispute

Venezuela requested consultations with the United States in late December 2018. See UNITED STATES – MEASURES RELATING TO TRADE IN GOODS AND SERVICES, REQUEST FOR CONSULTATIONS BY VENEZUELA (28 December 2018), WT/DS574/1, G/L/1289, S/L/420, 8 January 2019.

The United States refused the request for consultations. Venezuela requested a panel on 14 March 2019. See UNITED STATES – MEASURES RELATING TO TRADE IN GOODS AND SERVICES REQUEST FOR THE ESTABLISHMENT OF A PANEL BY VENEZUELA, WT/DS574/2, 15 March 2019.

The request was included in the draft agenda for the DSB meeting of March 26, 2019. See Dispute Settlement Body, 26 March 2019, Proposed Agenda, WT/DSB/W/641, 22 March 2019 (agenda item 6, “UNITED STATES – MEASURES RELATING TO TRADE IN GOODS AND SERVICES, A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY VENEZUELA (WT/DS574/2)”).

The U.S. objected to the inclusion of the Venezuelan request on the agenda. No DSB meeting was held on March 26, 2019. Venezuela agreed to withdraw its request, and the DSB meeting was rescheduled for April 26, 2019. See Dispute Settlement Body, 26 April 2019, Proposed Agenda, WT/DSB/W/643, 24 April 2019.

The minutes of the April 26, 2019 DSB meeting included the following statement ahead of the adoption of the agenda.

“Prior to the adoption of the Agenda, the representative of the Bolivarian Republic of Venezuela said that his delegation wished to make a short statement for the record to the effect that Venezuela was not asking to modify the proposed Agenda of the present meeting to request an inclusion of an item. However, Venezuela wished to reserve its right to do so at any future DSB meeting. Subsequently, Japan said that it wished to include on the proposed Agenda an item under “Other Business” regarding its communication contained in Job/DSB/3. The Agenda was adopted as amended. Following the adoption of the Agenda, the representative of Peru, speaking on behalf of Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Panama and Paraguay said that the members of the Lima Group supported the functioning of the DSB at the present meeting.
However, their Governments wished to indicate that they did not recognize the legitimacy of Nicolás Maduro’s regime nor that of its representatives. The representative of Venezuela said that the DSB was not the appropriate forum to discuss this matter. The representative of the Russian Federation said that her country supported the legitimate government of Nicolás Maduro and underlined that the WTO was not the appropriate international forum vested with the authority to discuss issues raised by the members of the Lima Group.” Dispute Settlement Body, 26 April 2019, MINUTES OF MEETING HELD, WT/DSB/M/428
25 June 2019, page 1.

March 26, 2021 DSB Meeting

Thus, based on the history of U.S. concerns with the Maduro government in Venezuela, it was hardly surprising that the United States would block inclusion of the request for a panel from the agenda this past Friday. Press accounts report that Peru, Brazil and Colombia supported the U.S. position and that the Russian Federation and Cuba supported Venezuela. See, e.g., Reuters, U.S. blocks Venezuela bid to seek WTO review of sanctions, March 26, 2021, https://www.reuters.com/article/us-trade-wto-usa-venezuela/u-s-blocks-venezuela-bid-to-seek-wto-review-of-sanctions-idUSKBN2BI1ZT.

The EU made a statement at the truncated meeting which is copied below. See Permanent Mission of the European Union to the World Trade Organization (WTO), EU Statement at the Regular meeting of the Dispute Settlement Body (DSB), 26 March 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/95717/eu-statement-regular-meeting-dispute-settlement-body-dsb-26-march-2021_en.

ADOPTION OF THE AGENDA:

“If the EU understands correctly, the US is not ready to accept this panel request by Venezuela as being valid, as it was submitted by a government which the US no longer recognises as the legitimate government representing Venezuela.

“In fact, in this case, the EU would have expected the US to rely on the security exceptions in Article XXI of the GATT and Article XIVbis of the GATS for justifying any departures from basic GATT and GATS provisions that may lie in the measures taken against Venezuela. 

Indeed, we note that the United States measures at issue appear justified by the security exceptions, so the challenge at issue cannot in any event succeed.

“All this being said, the EU has to react for systemic reasons and express its concern at the prospect of the DSB being prevented from holding its meeting on all items of today’s agenda simply because that agenda is not adopted. 

“There is a longstanding and widely recognised principle that DSB agendas cannot be blocked to the extent that they include items governed by negative consensus. This includes first panel requests (governed by consensus), since they are a necessary pre-condition to a second panel request. This principle is of utmost importance because the binding nature of WTO dispute settlement rests on it. 

“That said, the EU expects this meeting to be suspended now, as a result of the US objection to the agenda adoption. This should allow the Chairperson and the WTO Members most involved to consult in search of a solution. The EU hopes that these efforts will rapidly yield a solution, so that this meeting can continue and the DSB discharge the important duties with which it is entrusted.”

Conclusion

Friday’s events at the Dispute Settlement Body meeting were not surprising once the request for a panel had been filed by Venezuela. What is surprising is the Maduro government’s effort to re-raise a matter that had no possibility of being considered in light of the well understood U.S. position (a position agreed to by many WTO Members).

WTO Members have historically shown an inability to evaluate disputes they pursue from the vantage point of whether the result desired is at all politically possible for the Member whose action is being challenged. Yet pursuing disputes that cannot be resolved through the dispute settlement system is a disservice to the WTO and to the proper functioning of the Dispute Settlement Body. The Maduro government dispute with the United States first and foremost is a question of the legitimacy of the Maduro government and its refusal to transfer power to the interim President. No WTO dispute will help resolve the underlying dispute. Besides the question raised by the United States (blocking requests from entities which are not the true representatives of the people), getting rid of the request properly reflects the political realities of the underlying dispute.

U.S. files appeal at the WTO from panel report in case brought by the Republic of Korea — United States — Anti-Dumping and Countervailing Duties on Certain Products and the Use of Facts Available (DS539)

In a post from January 29, 2021, I had argued that the United States should appeal from the panel report issued on January 21 in a trade remedies dispute brought by the Republic of Korea against the use of facts available in antidumping and countervailing duty cases. See January 29, 2021, WTO Panel report on UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE should be appealed by the United States, https://currentthoughtsontrade.com/2021/01/29/wto-panel-report-on-united-states-anti-dumping-and-countervailing-duties-on-certain-products-and-the-use-of-facts-available-should-be-appealed-by-the-united-states/. As I wrote in that post:

“Antidumping and countervailing duty proceedings in the United States are very transparent with full access to information on the record available to parties under administrative protective order and with many opportunities to submit comments, raise questions, seek clarification or respond to additional inquiries flowing from earlier responses. It is quite common for Commerce to receive requests for more time to respond to the initial questionnaire and to any supplemental requests flowing from developments. Responding parties can determine whether or not to submit all information, partial information or no information. Questionnaire responses are often incomplete or adopt interpretations of what has been requested to provide less than complete information. In antidumping investigations, it is not uncommon for respondent data bases to change during the course of the investigation, sometimes markedly. Briefing after the preliminary determination permits challenges to the preliminary determination by all parties, including challenges to use of facts available. While there are always legal issues that are briefed, facts available issues are fact-based issues flowing from whether parties cooperated, withheld information, failed to supply requested information, etc., and if so, what alternative information is available that can be used.

“The ADA provides special provisions on dispute settlement in Article 17.6. The approach on review of facts is laid out in Article 17.6(i) of the ADA (there is no counterpart in the ASCM for the reason that Art. 17.6 of the ADA was added at the end of the Uruguay Round without chance to consider adopting a parallel provision in the ASCM). Art. 17.6(i) states:

“‘17.6  In examining the matter referred to in paragraph 5:

“‘(i)   in its assessment of the facts of the matter, the panel shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;’

“Article 17.6 was added to the ADA at the end of the Uruguay Round at the insistence of the United States which was interested in seeing that very complicated and detailed administrative proceedings were not second guessed by panels or the Appellate Body which would not have been involved in the proceeding or have access to all materials. Art. 17.6(i) deals with providing deference to administering authorities on facts. Art. 17.6(ii) does the same for legal interpretations for provisions subject to more than one meaning.

“The panel report, following other panel and Appellate Body reports that have been problematic from the U.S. perspective, doesn’t view Art. 17.6(i) as being deferential to an investigating authority as long as the authority hasn’t conducted the investigation in a biased or non-objective manner or somehow established facts improperly. See WT/DS539/R at para. 7.23 – 7.36 (after a review of the meaning of ADA Art. 6.8 and Annex II, the panel sums its view of the panel’s task to be the following: ‘In sum, we consider that the terms of Article 6.8, interpreted in light of their context and object and purpose, require investigating authorities to select – in an unbiased and objective manner – those facts available that constitute reasonable replacements for the missing ‘necessary’ information in the specific facts and circumstances of a given case. In doing so, investigating authorities must take into account all facts that are properly available to them. In selecting the replacement facts, Article 6.8 does not require investigating authorities to select those facts that are most ‘favourable’ to the non-cooperating party. Investigating authorities may take into account the procedural circumstances in which information is missing, but Article 6.8 does not condone the selection of replacement facts for the purpose of punishing interested parties.’).

“In reading the panel report, the Commerce Department is not given deference for its decisions of what facts available should be used. Thus, that violations were found for how Commerce determined facts available in each of the six proceedings reflect the panel reaching a different conclusion than Commerce. But while the panel may have reached a different result than Commerce, that by itself does not constitute a basis under Art. 17.6(i) to find a violation.

Conclusion

“The constant limiting by panel and Appellate Body reports of the ability to utilize trade remedy agreements is, of course, the main substantive concern that the United States has with the operation of the WTO’s Dispute Settlement system, although there are examples of the same problem in other areas covered by panel or AB reports as well. Last week’s panel report on Korea’s challenge to U.S. antidumping and countervailing duty proceedings on the use of facts available continues to undermine the legitimacy of WTO dispute settlement.

“Accordingly, the Biden Administration should file an appeal from last week’s panel decision and ensure that any eventual resolution of the Appellate Body impasse includes a restoration of rights that have narrowed or eliminated under the trade remedy or trade defense agreements (ADA, ASCM and safeguard).”

Today’s appeal

A Dispute Settlement Body meeting was scheduled for today with only one item on its agenda, consideration of the panel report in DS539. The WTO has reported on its website that the United States filed an appeal of the panel report today, March 19, 2021. WT/DS539/9. While the notice of appeal is not yet up on the WTO website, the U.S. has presumably indicated it is challenging the erroneous interpretation of ADA 17.6(i) among other issues.

The U.S. appeal is the ninth such appeal to the Appellate Body after December 10, 2019 when the Appellate Body ceased to have at least three members (and hence is unable to hear new appeals) and the eighteenth appeal that awaits the restoration of an Appellate Body for an appeal to be heard/completed.

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.

.

First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel

Costa Rica’s request for consultations

Costa Rica has filed the first request for consultations at the WTO in 2021. Its request was filed on January 11, 2021 and posted on the WTO website on January 14. See PANAMA – MEASURES CONCERNING THE IMPORTATION OF CERTAIN PRODUCTS FROM COSTA RICA, REQUEST FOR CONSULTATIONS BY COSTA RICA, WT/DS599/1, G/AG/GEN/179, G/SPS/GEN/1873, G/L/1383 (14 January 2021). Costa Rica alleges a host of restraints imposed on various agricultural exports from Costa Rica including on “(i) strawberries; (ii) milk
products; beef; pork; processed poultry meat; cured beef, pork and poultry products (including ham, sausages, mortadella, bacon, chorizo made of pork, chicken and turkey, pâté, pepperoni, salami, legs, ribs, loin of pork, roast beef and beef loin); prepared beef, pork and chicken, chicken and turkey breast, pork rind and dry chorizo; and fish food; (iii) pineapples; and (iv) plantains and bananas.” (Page 1).

Costa Rica’s request for consultations reviews the lengthy efforts at communicating with Panama and the apparent failure of Panama to respond or to provide inspections of facilities in some cases. Costa Rica has been seeking resolution with Panama over the last two years without results. Costa Rica has raised some of the issues in the Committee on Agriculture during 2020. See WTO Committee on Agriculture, SUMMARY REPORT OF THE MEETING HELD ON 28 JULY 2020, NOTE BY THE SECRETARIAT, G/AG/R/95 (19 October 2020)(“The Committee adopted the agenda with the following additions: • Under Part 1.A: The Review Process, matters relevant to the implementation of Commitments under the reform programme raised under Article 18.6 of the Agreement on Agriculture: o Costa Rica raised matters relating to non-tariff barriers to agricultural trade during the COVID-19 pandemic by Panama”). The question from Costa Rica and Panama’s limited response are embedded below.

View-Question-Answer

Indeed press articles from the summer of 2020 reviewed the growing trade concerns that Costa Rica had with Panama’s restrictions on Costa Rica’s exports of agricultural products. See, e.g., MENAFN, Costa Rica protests Panama trade blockade to World body, 8/7/2020, https://menafn.com/1100601315/Costa-Rica-protests-Panama-trade-blockade-to-World-body (“A growing trade dispute between Costa Rica and Panama has landed on the world stage as Costa Rica notified the Agriculture Committee of the World Trade Organization (WTO) that Panama has blocked the entry of Costa Rican products of animal origin to the Panamanian market for over three months. In a statement, issued on Thursday, August 6, the Minister ofAgriculture and Livestock, Renato Alvarado Rivera, and the Minister of Foreign Trade, Dyalá Jiménez Figueres, said that the blockade constitutes ‘a serious commercial problem between both countries.'”); CentralAmericaData.com, Trade Dispute Between Panama and Costa Rica, August 7, 2020, https://www.centralamericadata.com/en/article/main/Trade_Dispute_Between_Panama_and_Costa_Rica.

The bulk of the alleged violations by Panama are to obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”), with GATT 1994 Article violations (e.g., failure to provide most favored nation access) alleged as well. The request for consultations is embedded below.

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Costa Rica will have a long road (likely measured in years) in pursuing its dispute with Panama and at present, has no second stage dispute settlement option. While Costa Rica has joined the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU, Panama is not a signatory. Hence, absent agreement on how to proceed after a panel report, Panama could file an appeal which could not be heard until such time as there is a resolution to the Appellate Body impasse.

The challenge Costa Rica is having with Panama on restraints based on claims of SPS problems has become increasingly common. For example, while most observers perceive that the wide range of import restrictions by China on goods from Australia flow from China’s unhappiness with Australia’s positions on unrelated matters, China has imposed restrictions often claiming SPS or other problems. See, e.g., 9news, Aussie cherries labelled ‘inferior’ by China, growers worried, January 14, 2021, https://www.9news.com.au/national/china-trade-dispute-cherry-exporters-targeted/9f734bf9-ba2f-4259-bce0-758ff0913cc3. For the more likely reason for Chinese restrictions see my prior post (December 22, 2020, China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/) and last week’s article (South China Morning Post, China-Australia relations: bans on Australian imports ‘beginning to bite’ as commodity exports fall, 8 January 2021, https://www.scmp.com/economy/china-economy/article/3116808/china-australia-relations-bans-australian-imports-beginning).

The EU’s request for establishment of a panel to address its concerns with export restraints on raw materials from Indonesia

The EU filed its request for establishment of a panel today, January 14, 2021. The European Commission’s Directorate of Trade issued a press release entitled “EU files WTO panel request against illegal export restrictions by Indonesia on raw materials for stainless steel” and the request for establishment of a panel is also available from the same website. Both documents are embedded below.

EU-files-WTO-panel-request-against-illegal-export-restrictions-by-Indonesia-on-raw-materials-for-stainless-steel-Trade-European-Commission

tradoc_159271

The EU request for establishment of a panel raise two issues where Indonesia’s actions are alleged to violate GAT 1994 Article XI:1 which provides, “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.” The actions of Indonesia from the request are copied below.

“Indonesia has restricted exports of nickel ore to different extents and under different rules since at least 2014. In January 2014 nickel was excluded from the regime on the necessary processing and purification of mining commodities for export, which effectively outlawed exports of nickel ore. From January 2017 to December 2019 exports of nickel ore with a concentration below 1.7% were permitted subject to certain conditions, while those of nickel ore with a higher concentration remained prohibited. Since January 2020 all exports of nickel ore, regardless of its concentration, are banned.” (page 1 of request for establishment of a panel)

“Indonesia applies domestic processing requirements with regard to certain raw materials, notably nickel ore and iron ore, prior to them being exported. Domestic processing requirements oblige mining companies to enhance the value of the relevant raw materials through the conduct of certain processing and/or purification operations in Indonesia before exporting them.” (page 2)

While the EU is a signatory to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU but Indonesia is not. Should the EU be successful in its dispute with Indonesia at the panel stage, Indonesia could take an appeal to the Appellate Body which at least at present could not hear it. The EU would likely retaliate against Indonesia if an appeal were pursued where the Appellate Body is not functioning.

Conclusion

It is not surprising that new requests for consultations and new requests for the establishment of a panel continue despite the current inoperability of the second stage dispute settlement (the Appellate Body). As panels have been taking a long time in rendering panel reports, it is possible that reform of the Appellate Body will be accomplished before either the Costa Rica case against Panama or the EU case against Indonesia get to a panel decision. It is also obviously the case that the Dispute Settlement Understanding encourages parties to disputes to resolve them at any time, so neither case may reach a point where an appeal is considered. Alternatively, the parties could agree to not appeal from any panel report or otherwise find a mutually agreeable solution without appeal. However, if either or both cases get to a stage where an appeal is taken, either the case will sit awaiting the return of a functioning Appellate Body or the winning party may opt to take unilateral action and retaliate even though not authorized by WTO DSU provisions.

The following from the WTO webpage on Dispute Settlement, Appellate Body, provides a list of disputes where appeals have been taken but the Appellate Body is not in a position to resolve at the present time. The list and note are copied below (but don’t contain quote marks). There are presently 16 disputes where appeals have been filed where the Appellate Body is not currently working the appeals.

Current Notified Appeals (1)

  • 17 December 2020:  Notification of Appeal by Indonesia in DS484: Indonesia — Measures Concerning the Importation of Chicken Meat and Chicken Products (Article 21.5 — Brazil) (WT/DS484/25)
     
  • 26 October 2020:  Notification of Appeal by United States in DS543: United States — Tariff Measures on Certain Goods from China (WT/DS543/10)
     
  •  28 September 2020: Notification of Appeal by United States in DS533: United States — Countervailing Measures on Softwood Lumber from Canada (WT/DS533/5)
     
  •  28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7)
     
  •  28 July 2020: Notification of Appeal by Saudi Arabia in DS567: Saudi Arabia — Measures Concerning the Protection of Intellectual Property Rights (WT/DS567/7)
     
  •  18 December 2019: Notification of Appeal by the United States in DS436: United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Article 21.5 — India) (WT/DS436/21)
     
  • 6 December 2019: Notification of Appeal by the European Union in DS316: EC and certain member States — Large Civil Aircraft (Article 21.5 — EU) (WT/DS316/43)
     
  • 19 November 2019: Notification of Appeal by India in DS541: India — Export Measures (WT/DS541/7)
     
  • 9 September 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines II) (WT/DS371/30)
     
  • 15 August 2019: Notification of Appeal by the United States in DS510: United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/5)
     
  • 4 June 2019: Notification of Appeal by Canada in DS534: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada (WT/DS534/5)
     
  • 25 January 2019: Notification of Appeal by the United States in DS523: United States — Countervailing Duty Measures on Certain Pipe and Tube Products from Turkey (WT/DS523/5)
     
  • 9 January 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines) (WT/DS371/27)
     
  • 14 December 2018: Notification of Appeal by India in DS518: India — Certain Measures on Imports of Iron and Steel Products (WT/DS518/8)
     
  • 20 November 2018: Notification of Appeal by Panama in DS461: Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (Article 21.5 — Colombia)(Article 21.5 — Panama) (WT/DS461/28)
     
  • 21 September 2018: Notification of Appeal by the European Union in DS476: European Union and its member States — Certain measures Relating to the Energy Sector (WT/DS476/6)

Notes

  1. This refers to current cases in which notifications of appeal have been made. As indicated in the opening paragraphs, at the current time the Appellate Body is unable to review any of these notified appeals given the ongoing vacancies.  Back to text

The WTO ends the year with General Council and Dispute Settlement Body meetings

The last meetings at the WTO for 2020 are the General Council meeting (originally set for Dec. 16-17) and Dispute Settlement Body meeting on December 18. The meetings take place against a background of limited progress at the WTO across a broad array of issues of interest to Members. Certainly, there have been challenges to the functioning of the WTO flowing from the COVID-19 pandemic, particularly as the pandemic has affected the ability to hold in person meetings and stretched capabilities of many Members (particularly developing and least developed countries) to participate or coordinate with capitals. But the problems for the WTO run much deeper and have been building over time.

Specifically, 2020 has not been a particularly successful year for the WTO and its effort to remain relevant. The Director-General Roberto Azevedo stepped down a year early reportedly to permit a new Director-General to be selected and help guide the process for the COVID-19 delayed Ministerial Conference to be held in 2021. The selection process for a new Director-General (“DG”) has been blocked from recommending a new DG by the United States refusal to join a consensus and the failure of Korea to withdraw its candidate after the conclusion of the third round of consultations. The delay in appointing a new DG has resulted in calls for a further delay in the next Ministerial Conference from summer to December 2021.

The Appellate Body, which lost its quorum after December 10, had its last member’s term expire earlier this year. No progress has been made on reforming the Appellate Body process. While a number of Members created an interim arbitration process (“MPIA”), it doesn’t apply to all Members and a number of panel decisions have been appealed (with no Appellate Body, such “appeals” put the case in limbo where WTO authorized retaliation for failure to comply is not possible). Such appeals have been taken by a number of Members, including at least one who is a member of the MPIA against a non-MPIA member.

On the negotiations front, there has been some forward movement on plurilateral talks (negotiations among the willing) but limited progress on multilateral talks or on agreeing on a reform agenda. Thus, there appears to be progress in a number of Joint Statement Initiatives that were launched at the end of 2017 at the WTO Ministerial in Buenos Aires. However, as reviewed in prior posts, there has been a failure to conclude the multilateral negotiations on fisheries subsidies despite a UN Sustainable Development Goals timeline objective of the end of 2020 and despite 19 years of negotiations. Similarly, while many Members have teed up proposals for topics to be addressed by the membership either to address the pandemic or recovery from the pandemic or on WTO reform and while there are remaining items from prior Ministerials, Members have largely been talking past each other or unable to agree on taking items up.

The December General Council meeting covers many topics not all of which are controversial. The Agenda is embedded below. While the meeting was originally scheduled for December 16-17, it was apparently extended to today.

W813

WTO Members can provide comments on most agenda items if they choose. I review two of the agenda items and provide the U.S., EU and China interventions, to the extent they provided interventions (based on statements released on the webpages of the US, EU and China Permanent Missions to the WTO). The two agenda items are typical of many topics presented where major Members take very different views of proposed initiatives that others have teed up and characterize the general lack of progress at the WTO in addressing new or longstanding issues.

Item 8. COVID-19 and Beyond: Trade and Health — Statement by Cosponsors of WT/GC?223

The Ottawa Group of Members had submitted a proposal for a trade and health initiative. The proposal is embedded below.

223

I have previously reviewed the proposal/communication from 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/. Considering the severity of the COVID-19 pandemic and the relatively limited objectives of the proposed initiative, one wouldn’t have expected opposition from any major player. The European Union, being part of the Ottawa Group, was among the Members who addressed this agenda item.

“Item 8 – COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The COVID-19 pandemic has had a devastating impact on people’s health, well-being and economic prosperity. It has created unprecedented challenges for governments across the world. Most of us – and this includes the EU – have taken a range of trade-related actions with a view to ensuring that essential goods are available to our populations. It goes without saying that safeguarding the lives and health of their people is at the core of every government’s section.

“But the crisis has also exposed the fragility or even a potential negative fallout of unilateral, uncoordinated trade-related actions. If every current exporter were to ban shipments of essential goods, a large portion of the world population would be denied access to the necessary life-saving supplies.

“A global crisis requires global cooperation. With that in mind, the EU fully supports innovative cooperation developed under the Access to Covid Tools Accelerator, and the Covax Facility.  

“Although the response to the pandemic is primarily in the sphere of health policy, trade policy can also contribute to this fight. With the long-awaited discovery of vaccines, we are beginning to see the light at the end of the tunnel, but the operational and logistical challenges ahead of us will still be enormous.

“To succeed in this fight, global cooperation is fundamental. The WTO has a valuable role to play, in particular to ensure that supply chains of essential products remain open, that goods can cross borders quickly, and that the trade environment is stable and transparent.

“The time for WTO Members to take action is now. Through the Communication Covid19 and beyond, 13 Members, including the EU, invite all WTO Members to engage in a Trade and Health Initiative. At the heart of this Initiative lies the belief that each Member should be free at domestic level to take the trade policy actions needed to fight the pandemic in accordance with the WTO framework. But we are also convinced that in the interest of the common public good such actions should be coordinated and transparent. Ultimately, the objective is to create conditions for a more stable and predictable trade environment, which in turn would help to mitigate the impact of the pandemic.

“Therefore we invite Members to proceed in two steps.

“In the first step, we call on WTO Members to take immediate actions to address the current COVID-19 crisis.

“These actions are detailed in the Annex to the Communication and would consist in particular in:

“1) exercising restraint when applying export restrictions on essential goods, ensuring that measures are targeted, transparent, proportionate, temporary and consistent with WTO obligations;

“2) sharing experience and best practices in trade facilitating measures, including on services facilitating the frictionless movement of essential goods as well as in the area of technical regulations;

“3) considering removing or reducing -tariffs on essential goods;

“4) promoting transparency, including by engaging fully in the trade monitoring exercises;

“5) encouraging the WTO Secretariat to cooperate with other international organisations in order to respond more effectively to the current and future pandemics.

“We call on WTO Members to capture these actions in a declaration that should be issued as early as possible and, ideally, by the time of the next General Council Meeting. The agreement on the declaration would be without prejudice to the commitments, if any, that Members might take in the second step.

“The second step is aimed at increasing our global preparedness for any future health emergencies. We propose to explore possible future commitments on the basis of the actions taken as a first step. Ideally, we should seek to achieve progress on this strand of work by the 12th Ministerial Conference.

“We invite all WTO Members to join us in this endeavour and look forward to our successful cooperation.”

EU Statements at the WTO General Council, on 16 and 17 December 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/90831/eu-statements-wto-general-council-16-and-17-december-2020_en.

The United States has taken the position at the WTO that it does not view pursuing negotiations on trade liberalization of medical goods during the pandemic as appropriate. Thus, the U.S. did not support the call for a trade and health initiative and instead highlighted its own proposal for Members to step up trade facilitation efforts. Meeting of the WTO General Council, December 16-17, 2020, U.S. Statements delivered by Ambassador Dennis Shea, https://geneva.usmission.gov/wp-content/uploads/sites/290/GeneralCouncilStatementsDecember2020.pdf.

“COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The United States takes note of the communication in WT/GC/223 and thanks the co-sponsors for their statement. We have some initial observations to share today.

“Some context might be helpful. The most recent Trade Monitoring Report by the Secretariat, which was discussed in the TPRB last week, included these assessments:

“o ‘Members have generally expressed and followed a commitment to ensure that trade could flow freely during the pandemic.’

“o ‘Most of the COVID-19 related measures taken on goods since the outbreak of the pandemic were trade-facilitating.’

“o ‘In the services sectors heavily impacted by the pandemic, most of the 124 COVID-19 related measures adopted by WTO Members appeared to be trade facilitating.’

“Against this backdrop, it’s not clear what problem the cosponsors aim to solve, nor how the proposed measures would solve that problem.

“We would encourage deeper reflection. For example, supply chain resiliency doesn’t seem to be about lowering tariffs, or increasing Secretariat monitoring, or encouraging vague cooperation between the WTO and other IOs. It’s about how to prevent disruption when production somewhere beyond your shores is shut down due to an unexpected shock, or when a supplier beyond your shores is suddenly unreliable.

“A second observation also requires some context. The world has been grappling with a pandemic for nearly a year. The public health situation remains very difficult and has been worsening. As of today, more than 1.6 million people have died around the world, including more than 300,000 in the United States.

“Against this backdrop, we question the prudence of asking Members to put new constraints on their rights under the WTO Agreement—not to mention on their duty—to undertake measures to protect human health and life. For example, the idea that such measures might be granted a period of validity of three months seems to misunderstand the moment.

“We take a different view. WTO rules may not have been drafted with a pandemic at front of mind, but our initial observation is that the WTO Agreement seems fit for purpose. Its balance of rights and obligations, if adhered to by Members, will continue to provide stability and predictability as we navigate this very difficult period and, finally, recover.

“We would also like to take this opportunity to highlight an initiative launched in the Trade Facilitation Committee, sponsored by the United States and eight other WTO Members, found it G/TFA/W/25/Rev.1 entitled ‘Supporting the Timely and Efficient Release of Global Goods through Accelerated Implementation of the WTO Trade Facilitation Agreement.’

“This initiative puts a focus on tangible actions WTO Members can take to contribute to timely and efficient movement of health and medical products.

“We encourage all WTO Members to join us in this initiative.”

China did not provide an intervention on agenda item 8.

Item 10, Importance of Market-Oriented Conditions to the World Trading System — Joint Statement by Brazil, Japan and the United States

Over the last several years, the United States has highlighted the inability of the current WTO rules to address the distortions caused by the economic systems of countries like China (“state capitalism” or “non-market economies”). The U.S. has cited decisions by the WTO dispute settlement system that don’t permit Members to address distortions caused by China’s system as proof of the problem. U.S. actions under various U.S. statutes including Section 232 of the Trade Expansion Act of 1962, as amended, and section 301 of the Trade Act of 1974, as amended, are intended to address problems caused by Chinese actions which are not clearly covered by existing WTO rules.

The United States and others view the WTO as premised on competition between enterprises operating in economies that are market economies or operating under “market-oriented conditions”. In the view of the U.S., the WTO system requires Members’ economic systems to converge around market principles. To the U.S., coexistence of different types of economic systems within the WTO is not a long-term viable approach for the WTO. The U.S. view is similarly supported by Deputy Director-General Alan Wolff who in several speeches this year has outlined core principles of the WTO and has opined that the system is premised on convergence not coexistence.

At the same time, the prior Director General, Roberto Azevedo, took the position that it was not for the WTO to take up differences in economic systems in Members.

The EU has taken the view that market-oriented conditions are critical, and the WTO rules need to be updated to ensure that distortions created by different systems are addressable within the WTO. Thus, the EU, U.S. and Japan agreed at the Buenos Aires Ministerial to look at issues like industrial subsidies and other topics to see what modifications were needed to address some of the distortions caused by the Chinese-type system.

Not surprisingly, China has led the opposition to any efforts at either mandatory convergence or efforts to address distortions caused by the state-capitalist system.

The Brazil, Japan and U.S. paper lays out the thinking behind the need for convergence. It is embedded below.

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U.S. Amb. Shea provided the U.S. and other Members logic in continuing to push this item at the General Council yesterday.

“IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“The United States, Brazil, and Japan have requested this agenda item to continue highlighting the importance of market-oriented conditions to the global trading system.

“As a result of our work together, Brazil, Japan, and the United States have released a joint statement (WT/GC/W/803/Rev.1). The joint statement reflects our shared belief in one of the core principles of the WTO: that market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system.

“To that end, the Brazil-Japan-U.S. joint statement affirms that Members’ enterprises should operate under market-oriented conditions and notes the elements that indicate and ensure those conditions for market participants. These criteria reflect the market-oriented conditions and disciplines to which our own enterprises are subject.

“At the last General Council meeting in October, we encouraged Members to review these elements in detail to facilitate more robust engagement on this important issue.

“”It is notable that both in the General Council and informal meetings, we have considerable agreement from Members that these criteria do promote fair trade and have not heard any Member assert that trade is fair if market-oriented conditions are denied by a Member.

“We have heard statements from one Member dismissing market-oriented conditions as academic, questioning whether these concepts can ever be defined, and asking why we should bother to engage on this topic at the WTO.

“We would like to address these criticisms directly: these concepts are not new; they are not academic; and they have been recognized by others as critical to our efforts to ensure the proper functioning of international trade.

“To give one, prominent example: steel is an area where Members have focused significant attention on the problems caused by non-market policies and practices. Let us consider what the G20 and interested OECD members said in the Global Forum on Steel Excess Capacity, in particular in their 2017 report approved under the German presidency of the G20.

“In examining the conditions leading to excess capacity and recommending an effective response, these countries considered that steel excess capacity ‘is a global issue which requires . . . effective policy solutions to enhance the market function.’1 They considered that ‘the enhancement of market function is essential to ensure that exchanges at the national and international level are based on genuine competitive advantages.’2

“They considered that ‘[o]pen and competitive markets and a market-driven approach to resource allocation based on the competitive positions of steel enterprises should be the driving forces of the steel sector. New investment, production and trade flows should reflect market-based supply and demand conditions.’3

“Among their ‘Key recommendations,’ these countries concluded that ‘Members should consider the extent to which their framework conditions and institutional settings ensure proper market functioning.’4

“They emphasized that ‘[p]articular attention should be given to ensure that,’ inter alia, ‘competition law, trade and investment policies . . . foster a level playing field for competition among companies irrespective of ownership, both domestically and internationally;’ that ‘bankruptcy legislation is effective and procedures are expedited efficiently;’ and that ‘the internal financial market is able to price risk and deal with non-performing loans.’5

“These countries concluded, among their key recommendations, that ‘[a] level playing field should be ensured among steel enterprises of all types of ownership’ and that ‘[a]ll enterprises acting in a country’s steel market should follow the same rules and regulations with economic implications, including bankruptcy procedures.’6

They emphasized that ‘[i]n order to ensure fair competition and a level playing field in the steel industry, it is important that all steel enterprises follow the same rules and reporting requirements.’7

“These conclusions and others agreed by numerous Members under the German G20 presidency confirm a wide recognition that market-oriented conditions are essential to solving the problems we face.

“As we see it, the WTO is an appropriate place for Members to work to address these problems of non-market conditions that undermine fair trade. To say that the WTO is not the place to discuss these concerns is really to assert that the WTO is and should be irrelevant – and we respectfully disagree.

“The elements and criteria identified in our joint statement with Brazil and Japan are essential to ensuring that market-oriented conditions exist across sectors – not just in steel – so that all market participants compete on a level playing field.

“We disagree with those who would say that the importance of these conditions is only academic. The example of the conclusions reached by G20 and interested OECD members on the need for market-oriented conditions in the steel sector demonstrate vividly that this discussion is not academic but is rather at the heart of some of the most significant stresses in the international trading system.

“When a Member takes the position that market-oriented conditions are not worth the time or concern of WTO Members, it sounds as if they do not want to provide a level playing field for other Members. If that is the case, then this discussion is even more important to have. A Member who would dismiss these concerns should explain how we can have a level playing field if some Members offer market-oriented conditions but others do not.

“If one examines the market-oriented conditions criteria, it is clear how each contributes to conditions of fair competition and trade. A review of these criteria also helps to illustrate how a failure to meet these criteria is unfair.

“Take, for example, a business that may try selling into a market, only to find that its competitor is directed to sell at non-market or unprofitable prices.

“Or, for example, consider a business that would like to expand and seeks financing at a market rate, only to find that its state-backed competitor can obtain financing from another State Enterprise at a non-market rate.

“Or, for example, consider a firm that seeks financing from the market at a rate to make its business case, only to be denied because competitors have access to non-market financing that results in over-investing and excess capacity.

“Likewise, it is well known that forced technology transfer remains a large and growing concern. These policies and practices also reflect a failure to respect market-oriented conditions because a forced transfer – or an outright theft – is not voluntary. Forced technology transfer unfairly deprives one actor of its intellectual property, trade secrets, ‘know-how,’ or other valuable knowledge, and gives them to another on non-market terms. We do not think any Member would try to defend cyber hacking or cyber theft to transfer technology to a domestic commercial actor as fair.

“In each of these examples, the failure to ensure market-oriented conditions generates a result that
is fundamentally unfair.

“And we have not heard any Member argue for a different position. Do any Members really believe that fair trade can result when special advantages are given to domestic entities under these conditions?

“Ensuring that market-oriented conditions exist for market participants is critical to realizing the benefits of the international trading system that come from our mutual commitment to these rules. This common foundation is necessary to ensure a level playing field for all Members.

“As we see it, the continued relevance of the WTO will depend on whether it can deliver on the promises of a world trading system based on open, market-oriented policies. The success of our reform efforts will depend on our ability to ensure the fundamental premise of free, fair, and mutually advantageous trade remains intact.

“As we keep in mind the imperative to reform the WTO, we will continue to welcome engagement with Members who seek to strengthen our collective commitment to open, market-oriented policies, to move closer toward these market-oriented conditions, and to ensure a level playing field that benefits us all.

“1 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“2 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“3 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 9.

“4 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“5 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“6 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.

“7 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.”

The European Union comments reflect their longstanding position that market-conditions are important and that is why the WTO rule book needs to be updated to ensure that distortions are addressed. Below the EU’s comments yesterday. The EU position essentially accepts coexistence but tries to address the myriad distortions of non market-oriented economies by adding rules that will hopefully address the distortions and hence permit a form of rational trade on reasonably comparable terms. As noted, the U.S. and Japan are working with the EU on this approach as well and will be supported by many other Members when formal proposals are presented to the WTO.

“Item 10 – IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“As the EU stated at the previous meeting of General Council, market-oriented conditions are central to allowing a level-playing field. The EU has repeatedly expressed its concerns with non-market-oriented policies and practices that have resulted in distortions to the world trading system.

“The role of the WTO – and therefore the role of all of us, as its Membership – is to ensure that there are effective rules in place to eliminate these distortions and to ensure a level-playing field. There are clearly gaps in the WTO rulebook that do not enable us to do so. These gaps must be addressed through the negotiation of new or updated rules to address the issues raised in the statement of the US and its co-sponsors. We look forward to discussing, in the coming months, how the rule-book can be supplemented and to work towards a negotiation of new rules to fill the gaps.”

China does not view it as the WTO’s role to seek convergence among different economic systems. China has always been sensitive about what it perceives are actions by other WTO Members to impose China-specific rules or otherwise discriminate against China’s system or interests. In prior General Council meetings, China has presented more detailed arguments on why they don’t view the topic raised by the United States to be an appropriate one for the WTO to take up. In a consensus-based organization, China obviously believes that it can prevent this issue being taken up for formal discussions. China’s Ambassador Zhang Xiangchen delivered the Chinese intervention on December 17 on the agenda item. Like U.S. Amb. Dennis Shea, Amb. Zhang Xiangchen’s time in Geneva is ending. His comments reflect his long history with the Chinese government and its accession process. See Statements by H.E. Ambassador Zhang Xiangchen of China at the WTO General Council Meeting, December 16-17, 2020, Agenda Item 10: Market-Oriented Conditions, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202012/20201203024189.shtml.

Agenda Item 10: Market-Oriented Conditions

“Mr. Chair, as a Chinese saying goes: ‘Not even mountains can stop the river from flowing into the sea’. In the relationship between market and government, market obviously has the decisive power. This is a common sense. What we need to discuss here is- in today’s world, who is actually going against this common sense? Who is undermining the common rules of the international market, such as the ‘Most-Favoured-Nation’ principle? Who is artificially altering and impeding the international flow of production factors? And who is bringing WTO back to the ages of ‘might is right’? Dennis mentioned recommendations contained in the Report of Global Forum on Steel Excess Capacity this morning, the question immediately comes to my mind is who is taking measures in the name of national security to distort normal trade in steel sector? If we cannot have a clear answer to these questions, and if we, as WTO members, cannot take effective measures to undo the damages and prevent future disruptions to the system, empty talks about market orientation is nothing but a quixotic quest that leads us to nowhere.

“Ambassador Shea said in the July General Council meeting: ‘what we’re concerned with is ensuring fair competition and a level playing field; not interfering with the ability to govern’. I have to say that I have serious doubts about this statement.

“The ‘market-oriented conditions’ in the US proposal is nothing new. From my perspective, it is an extension of the ‘non-market economy’ standard in countervailing investigations under the US domestic law. In fact, through these domestic standards, the US has high-handedly judged the economies of other countries, and the extensive application of this standard led to arbitrary decision on using the ‘surrogate countries’ data. These unilateral actions have made a lot of companies both from China and other developing members suffer from unjust duties, affecting millions of jobs. From our experiences, these standards are utterly incompatible with the non-discrimination principle of the multilateral trade system.

“The same is in the countervailing investigations. Let me give you an example. A small company in a remote village of Shanxi province produces cast iron sewage pipes. They had completely no idea why in July 2018, their company was placed on the list of countervailing investigation by the US. The determined countervailing rate amounted to 34.87%.

“We had a look at how the investigation arrived to such an erroneous conclusion. First, it was determined that since there’re state-owned enterprises in China, there must be a market distortion in production factors in China. Second, based on the first assumption, the countervailing rate was calculated using the prices in the third country market, while completely ignoring the real market prices in China. According to this reasoning, the company received various kinds of subsidies, including on purchases of iron ore, scrap iron, coke, electricity and even on interest rates of loans. In fact, the company received none of these so-called subsidies. The support it received from the government, if any, is only 0.12%. There’re many more examples of such distortions of using the US’s own standards to inflate the subsidies of other countries, which can be found in the studies by professor Simon Evenett from St. Gallen University.

“The term ‘market-oriented conditions’ may sound completely harmless. However, not all that is wrapped in gold paper is a chocolate. My chef likes to pick mushrooms on his weekends walks and has developed quite a bit of knowledge of mushrooms. He tells me: beware of the brightly coloured ones, they’re most likely to be poisonous.

“Thank you.”

From the above, it is clear that the WTO Members are not finding multilateral solutions or agreeing on issues of great immediate importance to address. This inability to reach agreement on matters that need to be addressed has been true for years and will likely continue to be true in the coming years and will delay meaningful movement on WTO reform that is desperately needed to restore relevance to the WTO.

That has put a lot of pressure on countries to do plurilateral deals or to focus on free trade agreements. At the WTO in Buenos Aires at the Ministerial Conference in 2017 a series of Joint Statement Initiatives were started by “the willing”. Initiatives have been started on e-commerce, services domestic regulation, investment facilitation, MSMEs, among others, and a progress report was provided on December 18 which suggests good progress and the possible announcement of plurilateral agreements by the next Ministerial Conference, with MSMEs having announced some preliminary results. See WTO, Coordinators f joint initiatives cite substantial progress in discussions, 18 December 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.htm; Progress on the JSIs: Communication by the Co-coordinators of the JSIs, December 18, 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.pdf. The communication is embedded below.

jsec_18dec20_e

Since 2008 when the Doha Development Agenda negotiations didn’t achieve a breakthrough in the summer negotiations, the United States and many other countries have pursued bilateral and plurilateral FTAs and plurilateral agreements on subject matter topics in an effort to achieve forward movement on trade liberalization and updating rules to address current commercial realities. The latter, if open to others to join and if benefits are provided on an MFN basis, can be a stepping stone to multilateral agreements over time. The JSIs begun at the end of the Buenos Aires Ministerial in 2017 are examples of plurilateral negotiations that could be multilateralized over time. All of the JSIs are important. Obviously a multilateral trading system in 2020 without rules on e-commerce is not covering a critical issue of growing importance to international trade. So the JSIs hold out some hope for a trading system whose Members have lost a sense of common purpose and forgotten or disagree on core principles.

December 18 Dispute Settlement Body meeting

The last Dispute Settlement Body meeting of the year at the WTO had an agenda similar to most DSB meetings this past year. While for Members each item on the agenda may be relevant or important, for purposes of this post, I will be limiting myself to a review of agenda item 9, Appellate Body Appointments. A large portion of the WTO membership has month after month put forward a proposal to get the process for selecting new Appellate Body members started. Today’s meeting included the issue and the underlying document, WT/DSB/W/609/Rev.19 which is embedded below.

W609R19

The efforts to appoint new Appellate Body members has been being blocked by the United States. The United States blocked starting the process once more today. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, December 18, 2020, pages 14-17, https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as_.deliv_.fin_.public.pdf.

Below is the United States statement on agenda item 9, Appellate Body Appointments: Proposal by Some WTO Members (WT/DSB/W/609/Rev.19). As it is the last Trump Administration handling of the Dispute Settlement Body and the reasons for the inability to move forward on reconstituting the Appellate Body or the needed Appellate Body Reform, the entirety of the U.S. intervention is provided below. The U.S. provides both its evaluation of the divisions within the Members on whether there is a significant problem with the actions of the Appellate Body, its view of the refusal of Appellate Body members in general to recognize the problems they were creating, and its identification of the multiple possible reasons why Members have permitted the Appellate Body to stray so far from the agreed limited role of the second tier review in disputes.

“• As the United States has explained in prior meetings, we are not in a position to support the proposed decision. The systemic concerns that we have identified for more than 16 years and across multiple U.S. Administrations, remain unaddressed.

“• Over the past three years, we have engaged in many discussions with Members – on a bilateral basis, in small groups, and in large settings. After three years of effort, what have we learned?

“• First, we have learned that the Appellate Body thinks it did no wrong. We know this because, despite U.S. action on appointments under both the Obama Administration and the Trump Administration, the Appellate Body did not change its approach. In fact, it expanded and deepened its WTO-inconsistent practices and interpretations. This reflects an institution that came to view itself as more important than the rules – and the Members – that created it.

“• We have learned that the Appellate Body turned out to be less expert than panelists in adjudicating disputes under the DSU. We know this because the United States catalogued numerous substantive interpretive errors by the Appellate Body.1 In most cases, a panel reached a correct interpretation, and the Appellate Body got it wrong. And so, while some Members may think the Appellate Body did a better job than panels – we think the record shows the opposite: panels generally respected WTO rules, and the Appellate Body far too often did not.

“• We have learned that some Members think the Appellate Body did no wrong. This is regrettable because we have not heard any convincing defense of the Appellate Body’s errors in interpreting the DSU or substantive WTO rules. The ongoing denial by some of any AB errors reflects, in part, a fundamental divide among Members on the proper role of the Appellate Body in the WTO and the global trading system more generally.

“• We have learned that some other Members may think the Appellate Body did wrong, but are content to maintain the status quo. We do not understand how a Membership that proclaims its support for a rules-based trading system can nonetheless accept persistent rule-breaking by its dispute settlement system. This unwillingness on the part of some Members may unfortunately reflect a Membership incapable of holding WTO institutions, including the Appellate Body, accountable. Experience shows, however, that without accountability, there can be no reform.

“• And we have learned that some reform-minded Members think the Appellate Body did commit serious errors, and bravely see a need for real, fundamental reform – reform so that the WTO dispute settlement system supports the WTO as a venue for discussion and negotiation between Members, rather than undermining the WTO and converting it into a mere litigation forum.

“• So I think it is fair to say that we have learned a considerable amount. Members have deepened their understanding of the issues and, in some cases, sincerely wrestled with the challenge before us.

“• But of course, many questions remain.

“• There is the question that everyone here knows well – the ‘why’ question. Some Members may be tired of hearing it, and we could similarly tire of having to ask it – but the question is too important to the future of the WTO to ignore it.

“• Despite best efforts by the United States to push the conversation forward, we have heard very little from other Members on their views of how we arrived to this situation – where the Appellate Body had ignored the clear limits placed on it under the DSU and rewrote the substantive rules set out in the WTO agreements.

“• In meeting after meeting, we posed this question to the Members. We explained why the ‘why question’ was so important. But most Members did not want to undertake this critical, reflective exercise.

“• In the absence of engagement from Members, we offered several potential explanations based on conversations and on our own reflections. For example, we noted:

“o One cause could be the ongoing challenges facing the WTO negotiating function and its oversight function, leading to unchecked ‘institutional creep’ by the Appellate Body.

“o Another cause could be that some WTO Members believe that the Appellate Body is an independent ‘international court’ and its members are like ‘judges’ who have more authority to make rules than the focused review provided in the DSU.

“o Relatedly, some Appellate Body members viewed themselves as ‘appellate judges’ serving on a ‘World Trade Court’ that is the ‘centerpiece’ of the WTO dispute settlement system. Of course, such an expansive vision of the Appellate Body is not reflected in the DSU.

“o Finally, we also noted that the compensation arrangements for AB members rewarded their delays and staying on beyond the end of their terms, and we learned that there was very little transparency and accountability for the compensation claimed.

“• Besides these, we also heard from a former member of the Appellate Body, Mr. Graham, who was willing to speak out candidly on these issues.2 He put forward a number of reasons ‘why’ the Appellate Body erred and was unwilling to correct those errors – and these remarks deserve attention from all WTO Members. Among his observations on why the Appellate Body behaved as it did:

“o (1) A ‘prevailing ethos’ to act like a court, and not be accountable to WTO Members,

“o (2) the degree of control by Appellate Body staff,

“o (3) an over-emphasis on ‘collegiality’ that created ‘peer pressure to conform’,

“o (4) an ‘excessive striving for consensus’ that ‘led to excessively long and unclear compromise reports’ and ‘encouraged over-reach, gap filling, and advisory opinions’,

“o (5) ‘a sense of infallibility and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular dispute, so as to create a body of jurisprudence’, and, finally,

“o an ‘undue adherence to precedent’, ‘not only as to outcomes, but also as to reasoning, definitions, and obiter dicta’, which ‘made it more important to know the past’ than to ‘openly consider[] whether the past should be reconsidered.’

“• None of these potential reasons ‘why’ are addressed in the decision before the DSB today. Starting a selection process would therefore simply revive the interpretations and practices that the United States has, for years, explained as contrary to the WTO agreement and unacceptable to us.

“• Nor do these potential reasons ‘why’ suggest a problem that can be resolved by simply agreeing on words that repeat, with feeling, existing WTO principles. Many Members have been unwilling to confront this difficult reality.

“• Looking ahead, we must find ways to ensure that the limitations we Members imposed on all WTO adjudicators in the DSU are respected. We have to consider and grapple with the damage to the WTO, as a forum for discussion and negotiation, and as a rules-based system, for continued failure to adhere to those limitations.

“• While there are many problems in international trade that require discussion of new norms and rules, the United States considers that the rules that we were able to agree in 1995 represent some important progress in bringing greater fairness and market-orientation to international trade.

“• As we see it, the Appellate Body has effectively written a new, less-market-oriented, less reciprocal, and less mutually beneficial WTO agreement, which we never agreed to, and which I believe no U.S. Government would agree to. The United States will continue – as it always has – to engage with Members on these important issues.

“1 See United States Trade Representative Report on the Appellate Body of the World Trade Organization, February 2020, pp. 81-119, available at https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf; see also, e.g., Dispute Settlement Body, Minutes of the Meetings WT/DSB/M/294, paras. 103-127 (statement of the United States concerning the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) (AB)); WT/DSB/M/346, para. 7.7 (statement of the United States concerning the Appellate Body report in EC – Seal Products (AB)); WT/DSB/M/211, paras. 37-40 (expressing concerns with the Appellate Body’s interpretation of Article 2.4.2 of the Antidumping Agreement); WT/DSB/M/225, paras. 73-76 (expressing concerns with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing); WT/DSB/M/250, paras. 47-55 (expressing concerns that the Appellate Body wrongly claims that its reports are entitled to be treated as precedent and must be followed by panels absent “cogent reasons”); WT/DSB/265, paras. 75-81 (expressing concern that the Appellate Body’s findings incorrectly expanded the scope of the proceedings, concern with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing, and concern that the Appellate Body had failed to apply the special standard of review under the Anti-Dumping Agreement); WT/DSB/M/385, paras. 8.8-8.19; WT/DSB/M/73 (expressing concerns with the Appellate Body’s interpretation of the Safeguards Agreement).

“2 Farewell speech of Appellate Body member Thomas R. Graham, available at https://www.wto.org/english/tratop_e/dispu_e/farwellspeechtgaham_e.htm.”

Current U.S. Trade Representative Robert Lighthizer is quoted as saying to the BBC in an interview this week, “What you had really was an organisation that migrated from a negotiating organisation into a litigation organisation. And that was not healthy. Now we have a situation where we’re trying to create a new organisation, we have to massively reform the appellate body * * *.” BBC News, December 17, 2020, We’re proud of what we’ve done, says Trump’s trade chief, https://www.bbc.com/news/business-55345826. The U.S. has viewed the Appellate Body as simply one part of dispute settlement, and the core WTO function to be to permit Members to negotiate updated and new agreements. The WTO Members also meet to understand actions Members are taking (requiring an understanding of actions taken to implement obligations and transparency in national actions). While a dispute settlement system is important, it was never intended to be the dominant piece of the organization. The EU and Canada in conferences in Geneva this year have each agreed through their panel participants that WTO panels and the Appellate Body are not courts and panelists and Appellate Body members are not judges. But the membership is a long way from getting back to the original purpose and limited role of the dispute settlement system. As long as that is the case, it is likely that there will be limited progress on restoring the Appellate Body and making the reforms critical to ensuring it limits its role to that envisioned by the DSU. I don’t believe that the problems of the WTO’s dispute settlement system will disappear when the Trump Administration’s term ends next month. U.S. concerns go back to the late 1990s and have grown over time for both political parties. Thus, while the Biden Administration may over time put forward what it believes is necessary to achieve necessary DSU reform, there is unlikely to be a resolution and a restoration of the Appellate Body until there is a greater agreement on the underlying problems and purpose of the dispute settlement system. If the U.S. appraisal of the current positions of Members is correct, the road to resolution will be long indeed.