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.