WTO General Council

WTO’s Appellate Body Reform – The Draft General Council Decision on Functioning of the Appellate Body

At the October 15, 2019 General Council meeting, agenda item 4, involved a report from H.E. Dr. David Walker (New Zealand) as the Facilitator on the informal process he had been assisting related to the functioning of the WTO Appellate Body.  More specifically, Ambassador Walker, who is also serving this year as the Chairman of the Dispute Settlement Body, has been working with WTO Members as they attempt to address the U.S. concerns with the operation of the Appellate Body (“AB”) and obtain removal of the U.S. blockage of starting a process of filling Appellate Body vacancies.  Amb. Walker submitted under his own authority, after several months of meetings with WTO Members and review /discussion of a range of submissions by various Members suggesting approaches to address U.S. concerns, a draft General Council Decision.

The Appellate Body’s membership will be reduced to one (vs. seven when the Appellate Body has a full number of members) after December 10, 2019 as two of three existing AB members terms expire then.  After December 10th, the AB won’t have three members to assign to hear appeals filed after that date absent removal of the blockage and new members being appointed.  This is not new news, but the draft General Council Decision is an important effort to move the process of finding solutions to the problems identified by the United States (and other countries).  The draft General Council Decision can be found as an Annex to JOB/GC/222.  https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/Jobs/GC/222.pdf.

Unfortunately, while there are sections of the draft decision that address each of the major issues raised by the United States, the draft falls short of actually providing any assurances that the problems of the past won’t continue going forward.  The U.S. Statement on the agenda item at the General Council meeting on October 15 makes the U.S. ongoing concerns abundantly clear:

“We thank the Facilitator, Ambassador David Walker, for his considerable efforts to date and for his report to Members.

“We have also listened carefully to the discussions. As we have explained, the fundamental problem is that the Appellate Body is not respecting the current, clear language of the DSU.  While a number of Members have expressed concern with actions or approaches by the Appellate Body, others appear willing to tolerate – or even encourage – those actions.   If we WTO Members cannot agree that we should be concerned that the Appellate Body has broken the plain rules that Members agreed to in the DSU, then it is difficult to see how we can find solutions to a “problem” we do not agree exists.  By denying that they are concerned about persistent rule-breaking by the Appellate Body, some WTO Members seek to avoid the deeper question: why did the Appellate Body feel free to disregard the clear text of the agreements?

“We cannot find meaningful solutions without understanding how we arrived at this point. Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.  It is possible that some explanations may cut across several of the issues and be of a systemic nature.  For instance, 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 as Members push to achieve through litigation what they haven’t achieved or can’t achieve at the negotiating table.

“Another cause could be that some WTO Members believe that the Appellate Body is an “international court” and its members are “judges” who inherently have more expansive authority than is provided in the DSU, for example, to create “jurisprudence” and fill gaps in the WTO agreements.  This view may be shared by some who have served on the Appellate Body.  It is also possible that some explanations for why the Appellate Body felt free to depart from the clear text of the DSU may be specific to the concerns that have been raised.

“For example, Article 17.5 of the DSU could not be more clear or categorical that appellate reports must be issued within 90 days.  While the DSB minutes record that some WTO Members raised concerns about the Appellate Body’s exceeding 90 days, particularly without even consulting the parties, the minutes also record a few Members excusing the breach of our agreed rules.  Did the attitude of these Members contribute to a mindset among the Appellate Body that the WTO’s rules and deadlines did not need to be respected?

“On so-called “cogent reasons”, the Facilitator’s Report suggests that Members agree that “precedent” is not created through WTO dispute settlement.    If this is so, then why did some WTO Members advocate for the Appellate Body to assert that its interpretations must be followed by panels absent unidentified cogent reasons?  And why then does the Appellate Body assert a precedential value for its reports like an authoritative interpretation that only WTO Members in the Ministerial Conference or General Council can give?

“As a result of these fundamental questions not yet being addressed, we do not see convergence among Members with respect to an understanding and appreciation of the concerns raised.

“It is important to recognize that suggested convergence on statements in the Facilitator’s Report that largely reflect the existing text of the DSU does not indicate convergence on the understanding of the problem and the situation in which Members now find themselves. It simply will not work to “paper over” the problems that have been identified with new language that the Appellate Body and some Members could subsequently argue means the Appellate Body can continue operating the way that it has.

“To find a solution to the concerns raised, WTO Members will need to reach a shared understanding that the Appellate Body has failed to follow the rules agreed by Members and the role assigned to it by the Members. And let me repeat – the purpose of this process is not to re-negotiate the rules already agreed by Members to establish and govern the WTO dispute settlement system.  Rather, we need to find a way to ensure the system operates as agreed by Members.  Consequently, simply re-affirming the current WTO rules that have been broken persistently does not resolve the problem.

“In addition to these threshold considerations, we question whether there is convergence on the suggestions presented in the Facilitator’s Report.  For example:

  • “With respect to the issue of Appellate Body members whose terms have expired, the proposal would appear to depart from the DSU and provide for an undetermined term for those former Appellate Body members.
  • “Regarding the 90-day deadline for Appellate Body reports, the DSU text is already clear, and yet the Appellate Body has failed to respect it. What reason would there be to think this language would ensure a different result?
  • “With respect to the issue of appellate review of questions of fact, we are concerned that the Appellate Body would say it is already abiding by the text in the Facilitator’s Report, especially since the Appellate Body has interpreted DSU Article 11 to convert questions of fact into questions of law, and we hear WTO Members expressing different views on the meaning of Article 11 of the DSU.
  • “With respect to advisory opinions, similarly, the Appellate Body presumably considers that it is already abiding by the text in the Faciliator’s Report. What basis is there to consider that this language would have a different result?
  • “Regarding the issue of precedent, the Appellate Body has relied on the reference in the DSU to security and predictability to justify its “cogent reasons” approach, and we are concerned that the proposed language does not address the issue.
  • “With respect to the issue of overreach, it is clear that the Appellate Body would say that it already abides by the text of Article 17.6 of the Anti-Dumping Agreement and, in turn, the text in the Facilitator’s Report. The problem is that the Appellate Body has adopted an erroneous interpretation of Article 17.6 that renders it inutile.  We have not yet seen convergence on how to address this issue, or other instances in which the Appellate Body has departed from the plain text of other covered agreements.

“And we would note that there are a number of concerns that have been expressed over the years with respect to the Appellate Body’s approach to substantive provisions in a variety of areas, such as national treatment and technical barriers to trade, safeguards, subsidies, countervailing measures, and antidumping duties.  Concerns related to the Appellate Body departing from the plain text of the covered agreements and upsetting the careful balance of rights and obligations struck by Members have not yet been part of the discussions.

“In sum, the Facilitator’s Report suggests agreement among some Members that the DSU imposes clear limitations on the Appellate Body.  We appreciate that some progress has been made through engagement by Members and the efforts of the Facilitator and others.  But we fail to see convergence on how to ensure that those limitations are respected going forward, and what are the consequences for continued failure to adhere to those limitations.  To find an appropriate and effective solution, it is imperative for Members to engage in a discussion on how we have come to this point.

https://geneva.usmission.gov/2019/10/15/statements-by-the-united-states-at-the-wto-general-council-meeting/

Other Members have been unwilling to explore how the operation of the dispute settlement system has come to the situation it is in at present.  Thus, it is unlikely that one will see meaningful progress in narrowing the differences between the U.S. and others on a core concern of the U.S.  That said, there is always the possibility that WTO Members could examine each of the issues from the perspective of how the system can be made to comply with the DSU requirements beyond simply the language of the DSU.  Stated differently, what are the consequences for failure to comply with DSU limitations by the Appellate Body?

What follows is my personal effort to identify some consequences of actions that have long concerned the United States.  Obviously, only the U.S. can determine what will address its concerns.  But possibly some of the following suggestions, if part of any final package, could address some of the ongoing and longstanding U.S. concerns.  The text, other than what is both in bold and underlined, is the draft General Council Decision that is contained as an Annex to Amb. Walker’s October 15, 2019 report to the General Council.  Job/GC/222.  Only one number has been deleted – “6” (60 days has been changed to 90 days under the first topic).

DRAFT GENERAL COUNCIL DECISION ON FUNCTIONING OF THE APPELLATE BODY

The General Council,

Conducting the function of the Ministerial Conference in the interval between meetings pursuant to paragraph 2 of Article IV of the Marrakesh Agreement Establishing the World Trade Organization (the “WTO Agreement”);

Having regard to paragraph 1 of Article IX of the WTO Agreement;

Mindful of the work undertaken in the Informal Process of Solution-Focused Discussion on Matters Related to the Functioning of the Appellate Body, under the auspices of the General Council;

Recognizing the central importance of a properly functioning dispute settlement system in the rules-based multilateral trading system, which serves to preserve the rights and obligations of Members under the WTO Agreement and ensures that rules are enforceable;

Desiring to enhance the functioning of that system consistent with the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”);

Decides as follows:

Transitional rules for outgoing Appellate Body members

Only WTO Members may appoint members of the Appellate Body.  

The Dispute Settlement Body (the “DSB”) has the explicit authority, and responsibility, to determine membership of the Appellate Body and is obligated to fill vacancies as they arise.

To assist Members in discharging this responsibility, the selection process to replace outgoing Appellate Body members shall be automatically launched 180 days before the expiry of their term in office. Such selection process shall follow past practice.

If a vacancy arises before the regular expiry of an Appellate Body member’s mandate, or as a result of any other situation, the Chair of the DSB shall immediately launch the selection process with a view to filling that vacancy as soon as possible.

Appellate Body members nearing the end of their terms may be assigned to a new division up until 90 days before the expiry of their term.

An Appellate Body member so assigned may complete an appeal process in which the oral hearing has been held prior to the normal expiry of their term if completing such appeal is consistent with Article 17.5 of the DSU or any mutually agreed extension by the parties.

90 Days

Consistent with Article 17.5 of the DSU, the Appellate Body is obligated to issue its report no later than 90 days from the date a party to the dispute notifies its intention to appeal.

In cases of unusual complexity or periods of numerous appeals, the parties may agree with the Appellate Body to extend the time-frame for issuance of the Appellate Body report beyond 90 days.1 Any such agreement will be notified to the DSB by the parties and the Chair of the Appellate Body.

Failure to complete the appeal within 90 days of the notification of intent to appeal, or such other time as the parties agree to, shall result in the appeal terminating with no decision.  In such situations the Dispute Settlement Body will consider adoption of the panel report but rights of the complaining party under Articles 21.6 and 22 of the DSU shall not apply.

The Appellate Body will supply the Dispute Settlement Body with a description of steps taken by the Division to complete any such appeal within 90 days and any modifications to Appellate Body procedures and practice that will be pursued by the Appellate Body to ensure such failure to comply with the 90 day rule is not repeated.   

1 Such agreement may also be made in instances of force majeure.

Municipal Law

The ‘meaning of municipal law’ is to be treated as a matter of fact and therefore is not subject to appeal.  Where the Appellate Body nonetheless addresses the meaning of municipal law in an Appellate Body report, either party may request that the paragraphs of the Appellate Body report dealing with such issue or issues and any conclusions drawn therefrom  be striken, and the Appellate Body will reissue the decision without such paragraphs forthwith.  Compliance with the 90 day requirement will be measured from the date of the revised decision.

The DSU does not permit the Appellate Body to engage in a ‘de novo’ review or to ‘complete the analysis’ of the facts of a dispute. 

Consistent with Article 17.6 of the DSU, it is incumbent upon Members engaged in appellate proceedings to refrain from advancing extensive and unnecessary arguments in an attempt to have factual findings overturned on appeal, under DSU Article 11, in a de facto ‘de novo review’.   Where Article 11 is invoked by a Member seeking review on appeal of whether the panel failed to make an objective assessment, any other party may file an objection.  The Appellate Body will consider the claim only in extraordinary circumstances of facial bias in the assessment by the panel.  A Member raising such a claim that is dismissed will be assessed costs to the Member who filed an objection.

Advisory Opinions and Appellate Body Economy in Decisions

Issues that have not been raised by either party may not be ruled or decided upon by the Appellate Body.   Where issues not raised by either party are addressed in the Appellate Body report, the addressing of such issues constitutes the provision of an advisory opinion and is inconsistent with DSU Article 17.12 .  Either party may request that the paragraphs of the Appellate Body report dealing with such issue or issues and any conclusion based thereon be striken, and the Appellate Body will reissue the decision without such paragraphs forthwith.  Compliance with the 90 day requirement will be measured from the date of the revised decision.

Consistent with Article 3.4 of the DSU, the Appellate Body shall address issues raised by parties in accordance with DSU Article 17.6 only to the extent necessary to assist the DSB in making the recommendations or in giving the ruling provided for in the covered agreements in order to resolve the dispute.  The Appellate Body’s indicating that other issues raised need not be addressed to resolve the dispute satisfies the requirements of DSU Article 17.12.

Precedent

Precedent is not created through WTO dispute settlement proceedings.

Consistency and predictability in the interpretation of rights and obligations under the covered agreements is of significant value to Members.

Panels and the Appellate Body should take previous Panel/Appellate Body reports into account to the extent they find them relevant in the dispute they have before them.  The Appellate Body shall not reverse a panel decision on any issue solely on the basis of the panel not conforming to a prior Appellate Body report where the panel has identified different factual and/or legal issues.  

‘Overreach’

As provided in Articles 3.2 and 19.2 of the DSU, findings and recommendations of Panels and the Appellate Body and recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.   In a large number of Panel and Appellate Body reports, one or more parties and/or third parties have raised concerns about the Panel or Appellate Body adding to or diminishing the rights and obligations contrary to Articles 3.2 or 19.2 of the DSU.

To clarify situations where rights and obligations are being added to or diminished, Panels and the Appellate Body will not fill gaps in agreements, construe silence to indicate obligations or construe ambiguities in language of existing agreements to require a particular construction.  Any such actions by a Panel or by the Appellate Body is inconsistent with Articles 3.2 and 19.2 of the DSU.

Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report concerns about the creation of rights or obligations inconsistent with Articles 3.2 or 19.2, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such request will be for the limited purpose of having the Appellate Body determine whether on the specific issues raised where the party complained of creating rights or obligations the clarification of meaning provided in this General Council decision would result in a changed decision on the particular issue.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.      

Panels and the Appellate Body shall interpret provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“antidumping agreement”) in accordance with Article 17.6(ii) of that Agreement.  Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report that Article 17.6(ii) was not applied in interpreting the antidumping agreement, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such a request will be for the limited purpose of having the Appellate Body determine whether a different outcome on one or more issues would have resulted had the Appellate Body applied Article 17.6(ii)  of the antidumping agreement.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.       

Regular dialogue between the DSB and the Appellate Body

The DSB, in consultation with the Appellate Body, will establish a mechanism for regular dialogue between WTO Members and the Appellate Body where Members can express their views on issues, including in relation to implementation of this Decision, in a manner unrelated to the adoption of particular reports.  Such mechanism will be in the form of an informal meeting, at least once a year, hosted by the Chair of the DSB.

The Appellate Body Secretariat will prepare and circulate to the DSB at least 60 days in advance of such a meeting a document which reviews:

(a) for any Appellate Body member whose term is or has expired in the last 12 months, assignments to appeals within 90 days of the end of the term and any appeals on which the AB member continued to work after his term expired and whether such continuation was authorized by the parties to the appeal;

(b) the time from notification of intent to file an appeal to the AB decision in each case filed in the last twelve months (and for the first such report and any subsequent reports where appeals are not current with the 90 day requirement) to an AB report (or revised report where paragraphs are requested to be deleted as addressing issues not raised by any party) and copies of any write-ups filed where reports were not filed within 90 days;

(c) a list of AB reports where paragraphs were requested striken and time from request to rerelease of AB report;

(d) a list of requests for review in appeals pursuant to Article 11 of the DSU of panel decisions as not being an objective assessment, how each request was resolved, and for such claims that were not properly filed whether costs were paid by the party raising the issue;

(e) the number of AB reports where parties requested review based on statements made at prior DSB meetings that rights or obligations were being added to or diminished and/or that Article 17.6(ii) of the antidumping agreement was not applied or was applied inappropriately, timing of resolution by the Appellate Body and the number of issues where a different decision was rendered.

Where the Appellate Body has been unable to comply with the requirements of the DSU as clarified by this General Council Decision, it is expected that the Appellate Body Chairman will present at the informal meeting the action plan being pursued by the Appellate Body to achieve full compliance with the terms of the DSU and this Decision. 

To safeguard the independence and impartiality of the Appellate Body, clear ground rules will be provided to ensure that at no point should there be any discussion of ongoing disputes or any member of the Appellate Body other than as it relates to compliance with this General Council Decision.