Appellate Body

European Union Moves to Authorize Retaliation in Disputes Where There is No Alternative to the Appellate Body Pursued

With the WTO’s Appellate Body not able to handle appeals at the present time because of diminished membership, the EU has put forward a proposal that would authorize the EU to retaliate whenever a dispute where the EU has received what it views as a favorable ruling is appealed by the other party during the period when any such appeal cannot be considered by the Appellate Body. They have also proposed such actions in bilateral agreements where they view the other party as frustrating dispute settlement. https://ec.europa.eu/trade/policy/policy-making/enforcement-and-protection/. http://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/2019/0623/COM_COM(2019)0623_EN.pdf

The proposal is not adopted as yet, and the EU portrays the initiative as a way of protecting EU interests and consistent with its efforts to increase enforcement of its negotiated trading rights. This proposal, if adopted, will put pressure on smaller trading partners to join alternative dispute settlement approaches such as the arbitration approach the EU has agreed to with Canada and separately with Norway.

The proposal doesn’t address what the EU expects trading partners to take against EU products where it files an appeal (such as the EU did against the second 21.5 panel decision on December 6 which found against the EU in terms of compliance with its obligations on Airbus). WT/DS316/43 (11 December 2019)(notice of appeal); WT/DS316/RW2 (2 December 2019)(panel report on 2nd 21.5 request). But at least for larger WTO members, if the EU files an appeal that will not be heard during this interim period while Members seek ways to resolve open issues, the EU proposal invites similar action by such other Members. Retaliation has, of course, already been authorized for the U.S. against the EU for its WTO-inconsistent actions on Airbus. But should there be other cases that the US (or other countries who opt not to use arbitration under DSU Article 25 or not to simply adopt panel decisions without appeal) brings against the EU which the EU loses in part or whole, the EU is inviting retaliation without opportunity to correct its practices and without arbitration of the amount of retaliation being available. Virtually every Member who has been authorized to take retaliation has been subject to arbitration with amount authorized typically significantly less than the retaliating Member has sought. Thus, the EU may find its approach has costs for EU industry as well.

At the last Dispute Settlement Body (“DSB”) meeting of 2019 held on December 18, the effort to get the process for selecting Appellate Body members started was again unsuccessful because of opposition from the United States. So there will be some considerable period when there is no functioning Appellate Body and only four of the appeals pending on December 10 will be completed by the AB members who were involved in appeals prior to December 10. However, besides the EU efforts with Canada and Norway (which is reportedly being pursued with additional countries), there are alternative approaches being explored by other WTO Members including agreeing to adopt panel decisions without appeals or developing a different arbitration approach to that presented by the EU (e.g., reports that Australia and Brazil are exploring a different system).

For the United States, the U.S. indicated that it had filed on December 18th an appeal from a panel report in DS436, India’s resort to Article 21.5 of the DSU in its challenge to U.S. countervailing duty orders on hot-rolled steel products. The notice of appeal from the U.S. (WT/DS436/21) is not yet available on the WTO webpage. At the DSB meeting, the U.S. made the following comments on the WTO dispute settlement system:

“And the United States is determined to bring about real WTO reform, including to ensure that the WTO dispute settlement system reinforces the WTO’s critical negotiating and monitoring functions, and does not undermine those functions by overreaching gap-filling.

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

“The central objective of that system remains unchanged: to assist the parties in the resolution of a dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement and mutually agreed solutions.

“For instance, today, the United States appealed the compliance Panel’s report in DS436.

“While no division can be established to hear this appeal at this time, the United States will confer with India so the parties may determine the way forward in this dispute, including whether the matters at issue may be resolved at this stage or to consider alternatives to the appellate process.

“Consistent with the aim of the WTO dispute settlement system, the parties should make efforts to find a positive solution to their dispute, and this remains the U.S. preference.

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

Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, December 18, 2019, “6. Appellate Body Appointments, Proposal by Some WTO Members (WT/DSB/W/609/Rev.15), https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as-deliv.fin_.public-1.pdf.

It is certainly the case that the U.S. and the EU have very different views of the role of dispute settlement and the Appellate Body in particular and whether there are major problems with the operation of dispute settlement over the first twenty-five years of WTO operation. But the EU is traveling down a path of increasingly ignoring WTO limitations on its actions, a charge that they make with regard to the United States.

For example, when a WTO member disagrees with an action of a trading partner, it is expected to seek consultations and, if necessary, file a dispute, await resolution of the dispute, permit a reasonable period of time for implementation if a violation was found before retaliation is permitted. Yet the EU (followed by many other countries — Canada, Mexico, China, Russia, Turkey, India) created a facially false basis for retaliating against the United States without pursuing the required steps, when the U.S. took action under a domestic law (Section 232 of the Trade Expansion Act of 1962, as amended) on imports of steel and aluminum based on a report finding threats to U.S. national security from such imports. The EU and the other countries have claimed the action was a disguised safeguard action permitting immediate retaliation. WTO members don’t have to agree with another Member’s actions, but unilateral action is not authorized and the creation of false predicates to justify retaliation don’t change the action from being unilateral and unjustified.

The proposed regulation represents one more step by the EU to create its own system of enforcement regardless of the agreements to which it is a party using circumstances it does not like to justify its own unilateral actions. Let’s hope that whether adopted or not, the EU proceeds cautiously and reflects on its own actions consistency with international agreements.

The WTO Dispute Settlement System – Closing Out 2019 and Implications for 2020

The week of December 2, 2019 saw WTO Members engaged in a variety of year end activities including two added meetings – the resumption of the November 22 Dispute Settlement Body (“DSB”) meeting to explore how pending appeals would be handled post December 10 and another Committee on Budget, Finance and Administration meeting to see if Members could agree to a modified proposed budget to address U.S. concerns on funding for the Appellate Body (“AB”) in light of the imminent reduction of AB members from three to one.

December 3, 2019 DSB Meeting on Pending Appeals

The resumption of the DSB meeting did not result in agreement for how all pending appeals will be addressed with most pending appeals unlikely to be resolved by the current AB members, although it has been reported that the DSB Chair David Walker had indicated that appeals would proceed on four cases (of fourteen pending on December 3) – the two plain paper packaging appeals on Australia’s programs (Honduras (DS435) and the Dominican Republic (DS441), Ukraine’s challenge to various measures in the Russian Federation on the importation of raailway equipment (DS499) and the appeal in the case on U.S. countervailing duties on supercalendered paper from Canada (DS505).

The December 3 resumed DSB meeting did show the continued distance between at least certain WTO members in their view of one of the issues raised by the United States — whether the Dispute Settlement Understanding limits who may authorize individuals to serve as Appellate Body members to the WTO Membership through the DSB. For example, the EU statement confirmed that it viewed the Appellate Body, through Rule 15 of the Working Procedures, as qualified to permit members of the AB whose terms have expired to continue working on appeals that started while they were members. See EU statement at the regular DSB meeting on 3 December 2019, https://eeas.europa.eu/delegations/world-trade-organization-wto/71496/eu-statement-regular-dsb-meeting-3-december-2019_en.

The U.S. statement reviewed their year long effort to get an answer to the question “do Members agree that the Appellate Body does not have the authority to ‘deem’ a person who is no longer an Appellate Body member to nonetheless continue to be a member and decide appeals?” From statements by the EU and presumably others, the U.S. concluded that “members are not in agreement on this fundamental question.” As such the U.S. concluded that “there will be no consensus between Members on how to proceed on the Appellate Body by December 10” and that “[i]n the absence of any shared understanding of the underlying causes and of appropriate solutions, it will be for the parties to each dispute to engage with each other to determine an appropriate way forward.” Statement of the United States at the Meeting of the WTO Dispute Settlement Body (Dec. 3), https://geneva.usmission.gov/wp-content/uploads/sites/290/Nov22.DSB_.Reconvene.Item7_.as_.deliv_.fin_.public.pdf.

Since the DSB meeting on December 3, Morocco withdrew its appeal of a panel decision, Morocco – Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey, indicating that its antidumping measure had terminated in September. See WT/DS513/7 (5 December 2019). And on December 6, the European Union filed an appeal from the second compliance panel ruling in the Airbus case where the panel had found the EU had not brought its programs into compliance with WTO obligations (panel report was circulated on December 2, 2019). See https://www.wto.org/english/news_e/news19_e/ds316oth_06dec19_e.htm. Thus, as of December 7, there remain 14 appeals pending before the Appellate Body.

December 5, 2019 Committee on Budget, Finance and Administration Consideration of WTO 2020 Budget

Meanwhile, the Committee on Budget, Finance and Administration meeting of December 5 resulted in approval of the modified budget proposal for the WTO for 2020. The budget will now be before the General Council for approval in its final meeting of 2019 held on December 9-11. See Agenda item 20, WT/GC/W/793. The U.S. had worked with the Director-General to identify changes in the budget to reduce funds available for Appellate Body members in light of the current situation and only agreed to proceed with the budget for 2020, postponing the 2021 budget approval process until next year. A number of WTO Members, including the EU, China, India and Turkey had expressed concerns about the modifications to the budget, but approval at the Committee level was secured.

Reductions in two budget line items were reportedly made, reducing funding from $2.791 million to $200,000, presumably sufficient to handle appeals that do go forward through the Appellate Body. What such changes in funding will mean for the Appellate Body Secretariat is not yet clear but logically if there is no functioning Appellate Body, there is no need for an Appellate Body Secretariat until such time as the AB has sufficient members to once again hear appeals.

Other Issues Potentially Affecting the Operation of the Dispute Settlement System

Still unknown is whether current AB members whose term expires on December 10 will agree to continue on appeals after that date even on the four appeals where hearings have been had and that press reports indicated that Amb. Walker, the DSB Chair, had indicated would proceed post December 10. To the extent one of the current AB members opts not to continue on any appeal after the end of his term, that would presumably reduce the number of pending appeals that could be heard as it is likely there would be no continuing AB member who could be substituted (would depend on the composition of the AB Division presently hearing the appeal).

Moreover, as one of the four pending appeals identified in press articles as likely to be completed is a case where the U.S. is a party, it is also not clear what the U.S. position will be on that appeal post December 10. It may have agreed to have those appeals where hearings have been had completed if the current AB members are willing to continue to serve. Press accounts are unclear if that is the case.

There is also the question as to whether the Appellate Body Secretariat is disbanded pending the resumption of a functioning Appellate Body. Press reports have indicated that this is possible/likely with existing staff having the option to leave the WTO or accept positions in other WTO divisions. That would obviously make sense from a budget perspective as well as there is no institutional value in paying people who have no discernible workload.

December 6 Trade Negotiations Committee Heads of Delegation Meeting

There is always a flurry of activity ahead of the last General Council meeting of the year. December 6 saw a meeting of heads of delegation for the Trade Negotiations Committee (“TNC”). The TNC is the Committee that oversees ongoing negotiations within the WTO. While there are very important issues being pursued by various groups within the WTO under the jurisdiction of the TNC, for purposes of this post, the issue of interest will be the extent to which the dispute settlement system is a subject of debate.

As the minutes of the meeting are not publicly available, reference is made to three statements – one by Director-General Azevedo, one by EU Ambassador Joao Aguiar Machado and one by Ambassador Dennis Shea of the United States at the meeting. Other relevant statements were undoubtedly made as well.

The WTO put out a news release on Director-General’s statement to the TNC Heads of Delegation Meeting. The long excerpt below provides the Director-General’s views on the state of play on both the dispute settlement system and on the 2020 budget:

“In his remarks, the Director-General said that while the effective suspension of appellate review of WTO dispute rulings is a serious challenge to the global trade body’s adjudication function, it ‘does not mean the end of the multilateral trading system’.
“‘Existing WTO rules still apply. WTO disciplines and principles will continue to underpin world trade. And members will continue to use WTO rules to resolve trade conflicts – in regular WTO bodies, through consultations, via dispute settlement panels, and through any other means envisaged in the WTO agreements,’ he said.
“Members have important decisions to make, with implications for the WTO and for their respective economies, DG Azevêdo said.
“Where we go from here is in your hands. What we do – or just as significantly, what we fail to do – will define the trajectory of this organization.
“On rule-making, your choices could contribute to restoring certainty in the global economy, and help governments manage interdependence in a fast-changing world.
“On the implementation of existing commitments, you have scope to make regular committee work an even more effective vehicle for fostering compliance and addressing concerns about each other’s trade policies.
“And on dispute settlement, you could restore the impartial, effective, efficient two-step review that most members say they want.
“Alternatively, your choices could open the door to more uncertainty, unconstrained unilateral retaliation – and less investment, less growth, and less job creation.”
‘The DG welcomed a compromise reached in the Committee on Budget, Finance and Administration on the WTO’s budget for 2020. The committee’s favourable recommendation has been forwarded to the General Council for endorsement during its 9-11 December session.
“The proposed budget compromise is the result of flexibility and cooperation among members, both here in Geneva and in capitals. It represents a pragmatic response that preserves the WTO system amid turbulence in the wider international system – turbulence that we cannot wish away. I am counting on your help with approval in the General Council.”
DG Azevêdo urges WTO members to find ways forward on
the dispute settlement system, https://www.wto.org/english/news_e/news19_e/tnc_06dec19_e.htm.

Ambassador Machado of the EU’s statement at the meeting is a good representation of the EU position over time and shows the continued sharp difference in views the EU has with the U.S.

“Since our last meeting, the situation of the WTO has further deteriorated. Not only the discontinuation of the Appellate Body’s work has become an evident prospect, but attempts to obstruct the functioning of this Organization through the budget discussion have shattered Members’ confidence in teh WTO. This has diverted us from progressing our negotiation agenda or from finding ways to resume nominations of the Appellate Body Members, which should be the priority. While the European Union is alarmed about the current state of affairs at the WTO, we remain strongly determined to address the challenges in front of us.

“First, we remain resolute to find ways to restore a two-step dispute settlement system at the the WTO, and resume nomination of Appellate Body’s Members as soon as possible. Next week’s General Council will be crucial in this respect and we invite all Members to engage constructively in finding solutions.”

https://eeas.europa.eu/delegations/world-trade-organization-wto/71633/eu-statement-ambassador-jo%C3%A3o-aguiar-machado-trade-negotiations-committeeheads-delegation-6_en

Ambassador Shea’s statement, like that of other Ambassadors at the meeting, covered a range of issues deemed important for the TNC and its work going forward. On dispute settlement, Amb. Shea provided the following thoughts:

“Foruth, with respect to dispute settlement, the United States has engaged constructively over the past year, providing detailed statements in the DSB and the General Council outlining clear positions and articulating our longstanding concerns with the functioning of the Appellate Body. Unfortunately, we have yet to see the same level of engagement from other Members. We have asked repeatedly, if the words of the DSU are already clear, then why have the practices of the Appellate Body strayed so far? This is not an academic question; we will not be able to move forward until we are confident we have addressed the underlying problems and have found real solutions to prevent their recurrence.”

https://geneva.usmission.gov/2019/12/06/ambassador-sheas-statement-at-the-wto-trade-negotiating-committee-heads-of-delegation-meeting/

General Council Meeting, December 9-11, 2019

When the General Council meets starting on Monday, December 11th, among its twenty-four agenda items are two that deal with either dispute settlement (Agenda Item 5) or the 2020 budget (Agenda Item 20). Both agenda items will likely generate a great deal of discussion.

Presumably on December 9th, the General Council will get to agenda item 5, “Informal Process on Matters Related to the Functioning of the Appellate Body – Report by the Facilitator and Draft Decision on the Functioning of the Appellate Body.” The original draft Decision and the revised draft have been discussed in earlier posts and reflects efforts by Amb. Walker (serving as Facilitator to the General Council) to identify possible solutions to the concerns raised by the United States over the last several years on the functioning of the Appellate Body. There will be many WTO Members – undoubtedly including the EU, China, India and others – who will support the draft Decision and urge its adoption. In their view adoption of the Decision would clear the path for the Dispute Settlement Body to start the process for finding replacements for the six Appellate Body seats that either are currently or will be empty after December 10.

The United States has made it clear that the draft Decision does not resolve its concerns, most importantly because there is no understanding of why the Appellate Body has felt free to disregard the limits on its activities.

So expect Agenda item 5 to be contentious but result in no agreed decision being adopted.

On agenda item 20, “Committee on Budget, Finance and Administration – Reports on Meetings of April, June, September, October and November”, this item will likely be taken up on the 10th or 11th (assume the 11th). While again there will likely be a large number of statements and concerns raised about the process, it is expected that the 2020 budget for the WTO will be approved by the General Council.

Regular DSB Meeting of December 18, 2019

The agenda for the upcoming last regular DSB meeting of 2019 is contained in WTO/AIR/DSB/90 dated 6 December 2019. The relevant item for this post, is agenda item 6 which takes up the latest iteration of the proposal to have the DSB make a decision to launch a selection process to fill the six Appellate Body member slots that are or will be open. The proposal is essentially identical to earlier versions and is supported by 117 of the 164 WTO Members. See WT/DSB/W/609/Rev.15, 6 December 2019.

As it has in the past, the United States will not support the proposal, and the year 2019 will end with the Appellate Body unable to hear new appeals, unable to proceed with many of the pending appeals and with WTO Members exploring different options for how they will handle disputes going forward.

Implications for 2020

The 2020 budget reflects the contraction in activity by the Appellate Body even assuming the four pending appeals are completed in 2020. So 2020 will be a year of no or limited Appellate Body activity.

Major players such as the EU, China, India and others are far removed from acknowledging the deep concerns that have been expressed by the United States on the functioning of the Appellate Body, and in many cases disagree that there is even a problem. This impasse suggests that progress on reestablishing a two-step dispute settlement system will be slow if it occurs at all in 2020.

For some, there may be a hope that U.S. elections in late 2020 could lead to a different Administration in 2021 and a different posture on the WTO dispute settlement system. Change may or may not occur regardless of which Administration is in place in 2021. But there is little doubt that 2020 will be a year in which WTO members will need to consider other approaches to resolving disputes. One obvious alternative could be through arbitration under Article 25 of the Dispute Settlement Understanding (the EU has a model it has adopted with Canada and separately with Norway; other approaches could obviously be pursued). Members could also agree to not appeal from panel decisions. Negotiations can also provide ways to address matters of concern to trading partners, as can greater transparency and increased activity in WTO Committees permitting Members to understand and comment on practices of trading partners.

Change inevitably brings discomfort and uncertainty. December 10 and the inability to appeal new panel decisions after that date is the bookmark date for change. 2020 will undoubtedly be a year of discomfort and uncertainty. Let us hope that the WTO Members can find a path to addressing U.S. concerns in a meaningful manner and that an improved dispute settlement system is the result.

Additional Meetings of the WTO Dispute Settlement Body and Budget, Finance and Administration Committee set for December 3 and 5 in search of Resolution of Outstanding Issues.

The WTO’s last General Council meeting of 2019 is scheduled for next Monday-Wednesday (December 9-11). There are unresolved issues on what will happen with pending appeals before the Appellate Body and whether the modified 2020 budget that was introduced last week but received opposition from a number of Members will be approved. Not surprisingly, two additional meetings have been added to the WTO schedule for this week and can be seen in the section of the WTO webpage that shows pending meetings at the WTO.

The first is technically a resumption of the November 22 Dispute Settlement Body meeting to take up issue 7, “pending appeals”. The second is yet another Budget, Finance and Administration Committee meeting to seek approval of the proposed budget as modified by the Director-General in response to the issues raised by the United States on Appellate Body compensation and other matters.

As reviewed in earlier posts, the U.S. is seeking reductions in the budget within the WTO for Appellate Body [“AB”] matters in light of the reduced number of AB members and the likely inability to pursue appeals for some period of time after December 10. The U.S. also is opposed to former members of the AB continuing to hear most of the pending appeals after December 10. There are 13 reported pending appeals before the Appellate Body that will not be resolved prior to December 10. Resolution of how or if those appeals will proceed will presumably be relevant to the resolution of what funds are needed in 2020 for the AB in the proposed budget. Thus, the activities this week are important to providing clarification of what activity by the Appellate Body will occur prior to the resolution of the U.S. concerns on activities by the AB that are inconsistent with existing Dispute Settlement Understanding requirements.

The WTO General Council has had Ambassador David Walker of New Zealand (the current Chair of the Dispute Settlement Body) serving as a facilitator to see if solutions to the U.S. concerns could be found. At an informal General Council meeting of the Heads of Delegations held last Friday, November 29th, press reports indicate that modifications to the draft General Council Decision on the functioning of the Appellate Body that were contained in WT/GC/W/791 received the green light from Members. This indicates that the draft decision could be adopted at the upcoming General Council meeting.

It would be surprising if the modified draft Decision solves the impasse on filling AB vacancies. There are two additions to the draft General Council Decision from the version (JOB/GC/222 Annex) that the United States had dismissed as inadequate in the last General Council meeting on October 15. See my post of Nov. 4, 2019 on the Draft General Council Decision which quotes the U.S. position in full. https://currentthoughtsontrade.com/2019/11/04/wtos-appellate-body-reform-the-draft-general-council-decision-on-functioning-of-the-appellate-body/

First, a paragraph has been added acknowledging that the Appellate Body has not always functioned as intended. “Acknowledging that the Appellate Body has, in some respects, not been functioning as intended under the Understanding on Rules and Procedures Governing the Settlement of Disputes (the ‘DSU’)”. Such a paragraph is undoubtedly important to the U.S. as it reflects agreement that there have been problems – the U.S. position for many years that some other Members have not publicly acknowledged.

Second, paragraph 9 in WT/GC/W/791 has been added to a section previously titled “Municipal Law” but now renamed “Scope of Appeal”. The added paragraph reads, “9. Article 17.6 of the DSU restricts matters that can be raised on appeal to issues of law covered in the relevant panel report and legal interpretations developed by that panel.” The existing DSU limits the scope of appeal as reflected in this new paragraph. While the U.S. presumably supports the language, it is not clear that the concerns that the U.S. has raised about the Appellate Body opining on issues not raised by either party are fully addressed in this paragraph. Should the panel address issues not raised by the parties, the language would indicate the AB can address such issues in an appeal. The two documents are included below.

WTGCW791

JobsGC222

The press article indicates that it is not clear that the U.S. will approve the draft GC decision at the upcoming GC. Washington Trade Daily, December 2, 2019 at 1-2. Indeed, considering the October 15 statement of the U.S. at the General Council meeting, it would be surprising if the few modifications to the earlier draft would be viewed by the United States as adequate. For example on the longstanding problem of creating obligations or diminishing rights of Member, the draft Decision makes no changes to language which simply repeated part of DSU Articles 3.2 and 19.2. As reviewed in earlier notes, there is unlikely to be correction of the overreach problem if 3.2 and 19.2 aren’t clarified to identify situations where obligations are created (e.g., if gaps are filled, silence is construed or ambiguities clarified). Moreover, the U.S. concern reflects a more than 20 year problem of the balance of rights and obligations being altered. Nothing in the draft identifies how Members rights will be rebalanced.

if the U.S. joins other Members in approving the draft Decision at the upcoming General Council meeting on December 9-11, the U.S. could view the adoption of the decision as simply one step in the process needed before the U.S. will lift its hold on filling vacancies. Stay tuned.

The WTO Budget — Will There Be a Resolution in December?

November 2019 proved to be a challenging time for the WTO in terms of getting agreement on the budget for the organization for 2020. Normally, the budget is approved for a two year time period. At the November 12 Budget, Finance and Administration Committee [“BFA Committee”] meeting, the United States had questions on a number of topics including funding for the Appellate Body and its Secretariat with the result that the Director-General’s draft budget was not approved at that meeting. The Committee added another meeting to the agenda for November 27 in the hope of achieving resolution and agreement at the Committee level on the budget for 2020-2021.

Virtually none of the documents that are submitted to or generated by the BFA Committee are made public, nor is there a summary of meetings that is made available to the public. Thus, relatively little is public about events following the November 12 BFA Committee meeting. The Director-General is reported to have revised the budget proposal after consultations with the United States which appeared to leave the total budget for the WTO in tact but to have modified what could be used for the Appellate Body based on the reality of the number of Appellate Body [“AB”} members being reduced to 1 after December 10 which prevents the AB from handling new appeals after that date.

Press accounts suggest that the U.S. agreed to having just a few of the 13 pending appeals concluded with AB funds — specifically the two plain packaging of cigarette cases against Australia brought by Costa Rica and Honduras (DS435 and DS 441). In an earlier note, I had reviewed the likely challenges for the 13 pending appeals in light of when notices of appeal were filed and the possibility of one of the two AB members whose term expires on December 10 apparently not having expressed a willingness to continue to hear appeals past the end of his second term.

Reportedly, the U.S. has also insisted on funding for any arbitration under DSU Article 25 to be handled from the WTO Secretariat and be at the level and amount for panelists vs. Appellate Body members.

Finally, the U.S. has only agreed to funding for 2020 with 2021 to be dealt with next year.

At the meeting on November 27, press reports indicate that objections to the modified budget were raised by the EU, China, India and Turkey. on various grounds (e.g., different treatment for different pending disputes; contractual commitments to the remaining AB member for the remainder of the member’s term; view that it is not the role of the BFA Committee to resolve how pending appeals are handled) with no consensus at the end of the November 27 meeting. See, e.g., Washington Trade Daily, November 28, 2019 at 1-2.

No additional BFA Committee meeting has been added to the WTO list of remaining meetings in 2019. There are two informal heads of delegation meetings ahead of the December 9-11 General Council meeting. One was held on November 29 (informal General Council – heads of deletation) but has no report of what was discussed or whether the budget was being handled in ongoing negotiations with those raising concerns. The next informal heads of delegation meeting is scheduled for Friday, December 6 (TNC – heads of delegation) followed by the three day General Council meeting.

The General Council’s agenda is likely lengthy and will include annual reports from various committees and other entities but has not been made public at this point. However, some documents for review at the General Council are available publicly including the draft General Council Decision prepared by Amb. Walker of New Zealand which is an attempt to find a solution to problems with the dispute settlement system raised by the United States. As the U.S. has already indicated that the draft General Council Decision does not adequately address its concerns, it is not expected that the draft Decision will be adopted by the General Council after it has been presented and discussed.

December 18 is the last regularly scheduled Dispute Settlement Body meeting of the year, and will occur eight days after the last day the Appellate Body has a minimum of three Appellate Body members (assuming no resolution with the United States). Thus, no new appeals filed after December 10 can be heard by the Appellate Body until new members are agreed to.

Amb. Walker, who in addition to being the facilitator for the General Council’s consideration of the issue is the current Chairman of the Dispute Settlement Body, is understood to be working with Members to see if there is an approach to the pending appeals that can be approved. For the reasons reviewed in the Nov. 24 post, it is unlikely that most of the current appeals will be in a position to proceed if all three of the existing Appellate Body members don’t agree to continue to serve under Rule 15 of the AB’s procedures despite the terms for two of the three expiring on December 10. Amb. Walker will be hoping to have an agreed solution ahead of the December 18 DSB meeting. But the resolution on how pending appeals will be handled, if found, is presumably relevant to what the Members agree to for the 2020 budget. The December 18 DSB meeting is the last listed meeting of any WTO group for 2019. Indeed, December 23 – 31 are shown as non-working days for the WTO.

While it is hard to imagine that WTO Members won’t approve a modified budget for 2020 in the coming few weeks, it is likely to be a tense end to 2019 at the WTO with formal or informal additional meetings possible and with some Members having to consider how to handle pending appeals and all ongoing and future disputes.

With the WTO Appellate Body Becoming Dysfunctional on December 11, What Happens to Pending Appeals and Other Open Issues?

There was another WTO Dispute Settlement Body (“DSB”) meeting on November 22, 2019. In addition to the normal agenda item of receiving reports and comments by other members on the status of implementation of recommendations on disputes where reports had previously been adopted by the DSB, there were a number of other agenda items, one of which was not addressed.

First, the United States had put on the agenda making a statement on what it considers systemic concerns on the compensation for Appellate Body.

Second, annually each body within the WTO prepared a report on activity during the year. Adoption of the 2019 draft annual report of the DSB was an agenda item for consideration.

Third, the topic of Appellate Body appointments was an agenda item based on the September 2019 proposal from 117 WTO members.

Finally, there was an agenda item entitled “Pending Appeals” which was meant to permit an examination of how the 13 pending appeals would be handled after December 10 when the number of current Appellate Body members would decline to 1 from 3.

This note looks at several of the agenda items with a focus towards the end on the thirteen appeals which are proceeding at the present time.

I. Compensation for Appellate Body members

As reviewed in a post from November 16, the United States had raised a series of questions on the handling of funds for the Appellate Body and its Secretariat (among other issues) and held up adoption of the 2020/2021 WTO budget at a November 12 meeting of the Committee on the Budget, Finance and Administration. Another meeting of the Committee has been scheduled for November 27, with efforts to provide answers and resolve concerns ahead of that meeting.

At the same time, the U.S. added the agenda item to provide its thoughts on “systemic issues” flowing from the Appellate Body compensation system. The comments on this agenda item were made by Ambassador Dennis Shea and laid out the various elements of the compensation package, the part time nature of the work of Appellate Body members, and the fact that compensation has been paid to individuals whose terms have expired but who continue to handle appeals. See pages 9-12 of Statements b the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, November 22, 2019, https://geneva.usmission.gov/wp-content/uploads/sites/290/Nov22.DSB_.Stmt_.as-handed-out.fin_.public.pdf. U.S. concerns revolved around: (1) the total compensation (some 300,000 Swiss Francs tax free for part time work which is higher than compensation for Deputy Director Generals at the WTO whose work is full time; (2) whether the daily component of compensation contributed to delay in completing Appellate Body decisions, hence undermining prompt resolution of disputes; (3) lack of transparency on expenses; and (4) pay to former members who are continued after terms expire when working on appeals which they started prior to term expiration.

Press reports from the day of the DSB meeting indicated relatively little interest/sympathy by other trading partners on the U.S. concerns including on the size of the compensation. See, e.g., Inside U.S. Trade’s World Trade Online, U.S. Questions WTO Appellate Body compensation as others lament impending paralysis, https://insidetrade.com/daily-news/us-questions-wto-appellate-body-compensation-others-lament-impending-paralysis.

From the earlier U.S. statement of concerns on how to remedy the Appellate Body disregard of clear requirements under the Dispute Settlement Understanding, the U.S. statement provides a potential “why” answer to part of the disregard. Failing to meet the required 60-90 day deadline for appeals results in longer work on any given appeal and hence higher compensation, potentially encouraging longer decisions, coverage of additional issues, etc. and making timely delivery of AB decisions more difficult.

Should the U.S. insist that the AB compensation system be reviewed and potentially modified before agreeing to opening the Appellate Body nomination process, obviously a protracted and difficult process will become more complicated and presumably more drawn out.

II. Appellate Body Proposal to Start the Appointment Process

Not surprisingly, the same proposal to start the process of finding new Appellate Body members that had been presented in October by Mexico and 116 other WTO members was resubmitted for consideration at the November 22 DSB meeting. Once again the U.S. found itself unable to agree to moving ahead with the process for finding six Appellate Body members to fill the existing vacancies and the two that will occur when existing terms expire on December 10. So there is actually nothing new on this agenda item or the outcome at the recent DSB meeting.

Ambassador David Walker’s draft General Council Decision which is an effort to present a possible road forward to addressing U.S. concerns was not taken up within the DSB (other than a review of the effort at resolution contained in the draft annual report of the DSB) but will be on the agenda for the December 9-11 General Council meeting. As reviewed in an earlier post, the U.S. has already rejected the draft General Council Decision as not meeting its concerns. Thus, the General Council meeting in December is not likely to provide a breakthrough on the current impasse. So an obvious question is what happens on December 11?

The panel process of dispute settlement will continue as before. Thus, for the many cases proceeding through panel deliberations, one can expect those panels to continue without interruption. WTO Members have the option of agreeing to arbitration under Article 25 of the DSU, as the EU has done with Canada and with Norway. Similarly, WTO Members can agree not to take an appeal in a given dispute such that the panel report would be what is adopted absent a negative consensus. It is understood that some WTO members are considering this or have agreed to this approach. Thus, December 11 marks not the collapse of the dispute settlement system in its entirety, but rather a need to evaluate options for WTO members as they look at pending or future disputes or face a process where there is no automatic adoption.

A large number of WTO Members have participated in at least one dispute in the first 25 years of the WTO. Other WTO members, who have not been a complainant or a respondent have participated as a third party in one or more cases. While that is true, the number of cases where a Member is either a complainant or a respondent is very small for nearly all countries. The attached table looks at information from the WTO Dispute Settlement listing (looked at on November 22, but not reflecting the EU request for consultations filed against Indonesia on November 22). Six Members (U.S. (11.16/yr), EU and member states (9.44/yr), China (3.61/yr), Canada (2.52/yr), Russian Federation (2.42/year), and India (2.24/yr)) have seen two or more disputes filed each year of membership. Eight others have between one and two disputes each year (Brazil, Argentina, Japan, Mexico, Korea, Ukraine, Australia, and Indonesia). Everyone else (121 members) have less than one dispute per year including 81 who have never either filed a dispute or been a respondent in a dispute in the first twenty-five years of the WTO and 46 of whom have also never been a third party in a dispute.

WTO-Member

The EU’s agreements with Canada and Norway are important for Canada and Norway but relatively minor for the EU itself, other than creating what they hope will be an approach that other trading partners of theirs will agree to. For Canada, 23.81% of the disputes where Canada has been a complainant or respondent have been where the EU was the other party. For Norway, 3 of 5 cases they have been involved in have been with the EU (60%). However, for the EU, Canada and Norway represent less than 6% of the disputes in which they have been a party.

So how disruptive the reduction in Appellate Body membership to one member as of December 11, 2019 will be is uncertain and will depend on actions by a number of major players in terms of ongoing disputes..

III. Pending Appeals Before the Appellate Body

Agenda item 7 on the November 22, 2019 DSB meeting was “Pending Appeals. A. Statement by the Chairman.” WTO/AIR/DSB/89.

In the Dispute Settlement Body’s draft Annual Report (2019), the following brief discussion appears on what the Chair of the DSB was doing on the issue of pending appeals. WT/DSB/W/651 (8 November 2019) at 4:

” Finally, he said that he would be consulting with delegations who had pending appeals before the Appellate Body ahead of 10 December 2019 to see how to deal with those appeals. He said that he would revert to this matter at the November DSB meeting (WT/DSB/M/436).”

While the WTO does not have a summary of the November 22nd DSB meeting up on its webcite as of 11/24 2:30 p.m. (ET), a press article from the 22nd indicated that the agenda item wasn’t pursued as the Chair had not found agreement on how to deal with the 13 pending appeals. The U.S. was apparently the holdout in reaching agreement on how to proceed. Inside U.S. Trade’s World Trade Online, U.S. Questions WTO Appellate Body compensation as others lament impending paralysis, https://insidetrade.com/daily-news/us-questions-wto-appellate-body-compensation-others-lament-impending-paralysis.

In looking at the thirteen appeals that are understood to be underway and the relevant DSU articles on Appellate Body practice rules, there appear to be a number of potential issues that will need to be addressable if the issues are in fact present and the appeals are to proceed.

First, eight of the thirteen appeals were noticed by the appellant after 30 September 2018 the last day of Mr. Shree Baboo Chekitan Servansing’s four year term. See DS541, DS534, DS523, DS518, DS513, DS510, DS461, DS371. After that date, there have been only three Appellate Body members, all of whom would have to be hearing the appeal and no substitute would be possible if one of the two members whose terms end on December 10, 2019 decided not to continue on an appeal after that date. See DSU Art. 17.1; Working Procedures for Appellate Review, WT/AB/WP/6 16 August 2010, Rules 6.(3) and 12 and 13. It is understood that one of the two Appellate Body members whose second term expires on December 10 has indicated an unwillingness to continue to serve on the appeals after the expiration of his term. If correct, absent a decision by the DSB on how those appeals can proceed, the appeals will presumably terminate or be in a state of limbo pending restoration of the membership of the Appellate Body. The United States is a party in four of the eight cases.

Of the other five appeals, it is unclear if a similar situation exists in terms of the composition of the Division hearing the appeal (DSU Art. 17.1 has appeals heard on a rotation basis) and if so, if the remaining AB member would be available to maintain the appeal at three members (two former members and the remaining current member).

For all thirteen appeals, after December 10, 2019, the appeals could only be handled in two or all three of the people hearing the appeal were individuals whose terms expired, hence falling into the space that the U.S. has reviewed as to the lack of authority for the Appellate Body have non-AB members complete appeals that were started when they were members. The U.S. is a party in five of the thirteen pending appeals.

Expect that the DSB Chair David Walker will continue to search for an approach that is acceptable to all members. Don’t be surprised if no consensus is reached. Two known events in December are possible situations where better understanding of the issues will surface: the December 9-11 General Council and the December 18 DSB meeting.

Below is a reverse chronological listing of the thirteen pending appeals:

DS541, India-Export Related Measures (U.S. complainant); notice of appeal, Nov. 19, 2019.

DS534, United States – Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada; notice of appeal, June 4, 2019.

DS523, United States – Countervailing Measures on Certain Pipe and Tube Products (Turkey complainant); notice of appeal, Jan. 25, 2019.

DS518, India – Certain Measures on Imports of Iron and Steel Products (Japan complainant); notice of appeal, Dec. 14, 2018.

DS513, Morocco – Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey; notice of appeal, November 20, 2018

DS510, United States – Certain Measures Relating to the Renewable Energy Sector (India complainant); notice of appeal, August 15, 2019.

DS505, United States – Countervailing Measures on Supercalendered Paper from Canada; notice of appeal, August 27, 2018.

DS499, Russian Federation – Measures Affecting the Importation of Railway Equipment and Parts Thereof (Ukraine complainant); notice of appeal, August 27, 2018.

DS476, European Union – Certain Measures Relating to the Energy Sector (Russian Federation complainant); notice of appeal, September 21, 2018 [The WTO webpage shows this dispute still being on appeal before the Appellate Body, but the case is not included in the list of 13 pending appeals on the WTO webpage] .

DS441, Australia – Certain Measures Concerning Trademarks, Geographical Indicators and Other Plain Packaging Requirements Applicable to Tobacco Products (Dominican Republic complainant); notice of appeal, August 23, 2018.

DS435, Australia – Certain Measures Concerning Trademarks, Geographical Indicators and Other Plain Packaging Requirements Applicable to Tobacco Products (Honduars complainant); notice of appeal, July 19, 2018.

DS461, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear (21.5, Panama complainant); notice of appeal, November 20, 2018.

DS371, Thailand – Custom and Fiscal Measures on Cigarettes from the Philippines; notice of appeal (2nd recourse to 21.5), September 9, 2019; notice appeal (1st recourse to 21.5), 9 January, 2019).

IV. Conclusion

WTO Members are continuing to look for alternatives to the present appeal process as they await further developments both at the General Council and the Dispute Settlement Body. The U.S. has been looking for adherence to the original DSU commitments and is unwilling to accept simple reaffirmation of those principles in light of the longstanding problems flagged by the United States. The core disagreement on the purpose of the dispute settlement system between the U.S. and the EU (and like minded Members) has made meaningful progress difficult.

What is certain is that the brave new world of a more complicated dispute settlement system within the WTO arrives in less than three weeks. How long the changed status will continue is unclear. Current indications are the wait will be long in fact before the Appellate Body is back functioning with the concerns of the U.S. at last addressed in an enforceable manner. For the U.S. a major concern should be achieving a restoration of the rights and obligations that were agreed to through negotiation and that have been lost through overreach actions by the Appellate Body.

The WTO budget and the Appellate Body — Potential Fireworks at the end of 2019

On December 11, the WTO Appellate Body will be down to one member based on the current impasse created by the U.S. insistence that significant problems with the dispute settlement system be addressed before new Appellate Body members are added. Earlier posts have reviewed the impasse and underlying issues at some length.

On November 12, the U.S. reportedly blocked adoption of the 2020-2021 budget proposal from the WTO Director-General at the meeting of the Committee on Budget, Finance and Administration. There were a series of written questions about the budget received from Members ahead of the November 12 meeting, including a six page document entitled, “CBFA questions received from the United States relating to the coordination, governance and administrative responsibilities of the multi-donor voluntary contribution trust funds”. WT/BFA/INF/6, 7 November 2019. The written questions are not publicly available at the present time.

A version of the 2020-2021 Budget Proposal from the Director-General that is available publicly is from 10 September 2019 and is document WT/BFA/W/492 (38 pages). Pages 23-24 review the budget proposal for the Appellate Body and its Secretariat (Section 3.2). The proposal shows the budget for the Appellate Body Secretariat staff at 4.573 million Swiss Francs/year, Appellate Body Members Fees and other temporary assistance as 871,000 Swiss Francs/year, other resources as 136,000 Swiss Francs/year and contributions to special reserves as being 2.0 million Swiss Francs/year. In mid-November 2019, 1 Swiss Franc was worth $1.01.

Press reports on the WTO meeting indicate that the U.S. was opposed to the budget for various reasons, including the provision of funds for the Appellate Body (AB) and its Secretariat for 2020-21 because of the impasse which would render the AB dysfunctional (arguably meaning no funds would be required until the impasse is resolved).

The U.S. also raised questions as to where funds for arbitration under DSU Article 25 would come from, including whether funds would be diverted from the AB. The EU has concluded agreements entitled “Interim Appeal Arbitration Pursuant to Article 25 of the DSU” with Canada and separately with Norway. These agreements call for the use of former AB members to act as arbitrators (in groups of three the same as AB Divisions) and use of AB Secretariat staff for such arbitrations.

Concern was also expressed on what was done with AB funds from 2018 and presumably 2019 because of the reduced number of AB members. See, e.g., Washington Trade Daily, November 13, 2019, “US Blocks WTO Budget” at 1-2; Bloombergs, Bryce Baschuk, November 12, 2019, “U.S. Raises Prospect of Blocking Passage of WTO Budget”, https://www.bloomberg.com/news/articles/2019-11-12/u-2-is-said-to-raise-prospect-of-blocking-passage-of-wto-budget.

The U.S. intends to develop its concerns on budget matters in multiple fora within the WTO. For example, the U.S. has added an agenda item (no. 4) to the upcoming Dispute Settlement Body meeting on November 22, “4. Statement by the United States on systemic concerns regarding the compensation of Appellate Body members”. WTO/AIR/DSB/89, 12 November 2019.

One can envision a number of concerns that could be raised by the United States. For example, based on its concerns about former AB members continuing to handle disputes after their term has expired, the U.S. could raise concerns about any payments (fees and expenses, etc.) to such individuals. Similarly, the U.S. could raise concerns over the total compensation including expenses that go to AB members whose work is part time only, particularly if the overall level of expenditures per AB member exceeds what full time compensation is for judges at appeals courts or the Supreme Court.

It is not clear if the U.S. will use the agenda item at the DSB meeting to also question whether WTO Members can utilize Appellate Body resources and staff for DSU Article 25 arbitration work or whether that issue will be left for the budget discussion.

Based on the Budget Finance and Administration Committee meeting of this past week, the U.S. statement at the November 22 DSB meeting is likely to be a detailed review of its concerns on how AB and Secretariat funding has been handled. The U.S. statement will almost certainly see responses from many other Members defending the status quo. The conflict on the budget issue adds to the tension among the membership on the likely continued impasse on the AB vacancies and the imminent shut down of the AB for future appeals pending a resolution on the many concerns raised by the U.S. on the functioning of the dispute settlement system.

The current approved budget ends at the end of 2019. So achieving an approved budget in the remaining weeks of 2019 is critical to the continued functioning of the WTO. Whether the U.S. will block the budget, achieve some accommodation or simply approve the budget in the coming weeks creates the focus for WTO Members. There is a three day General Council meeting on December 9-11, and there is an assumption that the matter will be resolved by then, if it is to be resolved this year. What is certain is that the last weeks of 2019 will see increased tensions within the WTO and likely fireworks at formal meetings.

The October 28, 2019 WTO Dispute Settlement Body Meeting – Another Systemic Problem Flagged by the United States

The United States has been raising concerns for many years on a range of issues with the operation of the dispute settlement system, particularly actions by the Appellate Body.  Time has run out to prevent some hiatus in the functioning of the Appellate Body after December 10 when the current membership of the Appellate Body goes from three to one with vacancies going from four to six of the seven member body.  There is a requirement within the Dispute Settlement Understanding to have three Appellate Body members handle any appeal from a panel report.  The likely process for finding replacements for Appellate Body vacancies, once authorized (see, e.g., WT/DSB/W/609 and revisions 1-14) will take a number of months.  With the continued impasse within the Dispute Settlement Body (“DSB”) as recently as the last DSB meeting on October 28, WTO members now certainly face a gap for appeals from panel decisions issued around or after December 10.  A few WTO members have formalized agreements among themselves for procedures to handle resolution of disputes for such time as the Appellate Body lacks adequate membership to conduct appeals relying on the authority for members to resolve disputes through arbitration.  The European Union and Norway have signed an agreement similar to the one that the EU and Canada had submitted previously (see post of Oct. 9).

Of interest in the press release on the October 28 DSB meeting from the WTO, was the issue raised by the United States on the problems posed by the Appellate Body’s past interpretation of Article 6.2 of the Dispute Settlement Understanding (“DSU”).  Article 6 of the DSU reads as follows:

“Article 6: Establishment of Panels

“1.     If the complaining party so requests, a panel shall be established at the latest at the DSB meeting following that at which the request first appears as an item on the DSB’s agenda, unless at that meeting the DSB decides by consensus not to establish a panel.

“2.     The request for the establishment of a panel shall be made in writing.  It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.  In case the applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference.”

The WTO press release on the DSB meeting indicated that the U.S. had claimed that the Appellate Body (“AB”) had “adopted an erroneous interpretation of Article 6.2 in past rulings which required a member to explain ‘how or why’ the measure at issue is considered to be violating WTO rules, a requirement that does not appear in the DSU text.”  The result of the AB interpretation was more complicated  disputes with a large number of procedural challenges which both increased the time to complete disputes and the uncertainty for parties.  https://www.wto.org/english/news_e/news10_e/dsb_28oct19_e.htm

One of the cases before the DSB on October 28 was a dispute brought by Japan against Korea (DS504, antidumping duties on pneumatic valves from Japan).  Korea had challenged whether Japan had satisfied the “who or why” construction identified in prior Appellate Body decisions.  The panel found a number of Japan’s claims to be outside the panel’s terms of reference.  While the Appellate Body in the particular dispute disagreed with the panel, the issues that had been found outside of the panel’s terms of reference were not capable of decision based on the record.  The United States used the pneumatic valve case and the interpretation of Article 6.2 as another example of the problems that have been created in the dispute settlement system by the Appellate Body not limiting itself to actual text of the DSU.

Japan agreed with the United States that the “how or why” requirement for panel requests was inconsistent with Art. 6.2.  Canada took a different view, agreeing that at a minimum the specific WTO provisions alleged to be infringed needed to be identified  “although there may be cases where just citing the provisions does not cover the requirements of the DSU; ultimately a judgment must be made on a case by case basis.”  Id.

As the WTO struggles to achieve agreement on the future of the dispute settlement system, the different perspectives on the correct interpretation of Article 6.2 of the DSU show the challenges that are faced to restore a fully functioning dispute settlement system at the WTO.  Moreover, when the Appellate Body adds obligations to Members’ ability to bring disputes, the AB contributes to the delay in achieving final resolution of disputes, making it more likely timelines for appeals will not be respected.

U.S. Statement at the DSB Meeting Provides More Detail

The U.S. statement at the October 28 DSB meeting on the issue of Article 6.2’s proper interpretation was 4 1/3 pages in length (pages 10-14.  https://geneva.usmission.gov/wp-content/uploads/sites/290/Oct28.DSB_.Stmt_.as-deliv.fin_.public.pdf). (“U.S. Statement”).

The U.S. identifies AB decisions that imposed the requirement on a complaining Member “to explain ‘how or why the measure at issue is considered by the complaining Member to be violating the WTO obligation in question.’”  Id. at 10 (referencing three AB decisions in footnote 2, EC -Selected Customs Matters, para. 130; China – Raw Materials, para. 226; US – Countervailing Measures (China), para. 4.9).  The consequences for Members can be significant, as issues plainly sought to be challenged are rejected as not properly before the panel and complaining parties face procedural issues resulting in delay and increased costs.  The U.S. noted that sixteen challenges had been brought by defending Members under Article 6.2’s construction put forward in earlier AB decisions. Indeed, “Over the past two years, over 30% of panel reports addressed Article 6.2 and the Appellate Body’s incorrect element of ‘how or why’.”  U.S. Statement at 12.  Defending parties seek to strike claims where the complaining party has not provided the basic arguments (the how or why) the complainant will be making in its later submissions.

To the extent that panels reject claims as not covered by the terms of reference, the complaining party is denied the opportunity to have its concerns examined.  Early termination of challenges to issues can result in truncated records before the panel, limiting what can be achieved through an appeal but also extending the time for final resolution (and to the extent rejection of claims are appealed) contributing to the inability of the AB to complete appeals within 90 days.

The U.S. also reviewed the history of the language in Article 6.2 of the DSU that had been interpreted by the AB as requiring an articulation of how or why the measure in dispute violated WTO obligations.  The language had been adopted in Montreal at the mid-term Uruguay Round meeting as part of improvements to the GATT dispute settlement rules (id. at footnote 8 citing GATT, Improvements to the GATT Dispute Settlement Rules and Procedures, Decision of 12 April 1989, L/6489, 13 April 1989, Section F(a)), and had never been construed to require a showing of “how” or “why” until the Appellate Body came up with that construction.  The first case cited in footnote 2 in the U.S. Statement (EC – Selected Customs Matters) was an Appellate Body decision issued in 2006.

While the apparent (at least partial) movement away from the “how or why” requirement in the recent Japan-Korea dispute by the Appellate Body decision is welcome, the continued confusion on what is required for a complaining party to have its issues considered  by a panel will both continue to challenge future panels and will complicate the ability to have a dispute settlement system that is operated to ensure it conforms to agreed rules by sovereign states – stated differently, permits the system to function as envisioned when created in the Uruguay Round.