The appellate body of World Trade Organization (WTO) is facing a crisis in its system for resolving disputes between its members. This body, known as an appeal court, makes a final say on the panel decisions in trade disputes.
Resolving trade disputes is one of the core activities of the WTO. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
When a conflict arises between WTO member states over an obligation, members often proceed through the WTO’s dispute resolution mechanism. The mechanism, as laid down in the ‘Dispute Settlement Understanding’ (DSU), consists of consultations, a penal report, and if the parties choose, an appeal before three members [judges] of the WTO Appellate Body.
Since its creation in 1995, 592 disputes have been brought to the WTO and over 350 rulings have been issued by the Appellate Body. In fact, it is now widely regarded as the most successful international court in history.
What’s the bone of contention?
Under the rules of WTO, the Appellate Body allows WTO members to appeal rulings. The Appellate Body has ‘Seven Members’, regarded as judges, that’s not the language they use.
Before 10 December 2019, it had last three judges, the minimum number required for it to hear and decide on appeals. Unfortunately, the terms of two of those members expired on December 10, 2019, and no replacements.
Only one is left. Procedurally, one member cannot entertain the appeal.
Possibly, the remaining member may be forced to recuse himself from a case due to a conflict of interest. The crisis is borne out of the United States that has wielded veto powers to a process to nominate and appoint Appellate Body members over a variety of criticisms by the U.S. administrations against the Appellate Body.
The US has wholly refused to allow the recruitment of new judges. Other WTO member countries have repeatedly proposed to start a selection procedure. At the end of November more than 100 members called for that but the US alone said no. It’s the only country that has objected at any stage during this stand-off.
Blocking the nomination and appointment Appellate Body members started during Obama administration in 2016, citing its view that the Appellate Body has overstepped its mandate in the Dispute Settlement Understanding in a number of ways.
The United States claims that the Appellate Body in its rulings has reversed factual findings of panel reports and created new obligations or reinterpreted existing obligations in a manner strayed from agreed upon by WTO members.
Besides, the US also has some concerns about procedural issues, such as the Appellate Body not issuing its rulings as quickly as it is supposed to, and judges continuing to hear cases they have already started even after their terms have ended.
Another point of contention: “The United States has raised repeated concerns that appellate reports have gone far beyond the text setting out WTO rules in varied areas, such as subsidies, antidumping duties, anti-subsidy duties, standards and technical barriers to trade, and safeguards, restricting the ability of the United States to regulate in the public interest or protect U.S. workers and businesses against unfair trading practices.”
The US asserts if WTO members want it to remain supportive of a rules-based trading system, then the Appellate Body must follow the rules agreed in 1995.
On the contrary, several WTO members have indicated they don’t share the concerns of the US that the Appellate Body has deviated from Dispute Settlement Understanding text.
Any alternative option?
One option possible is the use of arbitration to resolve trade conflicts—a mechanism allowed for under Article 25 of the WTO Dispute Settlement Understanding (DSU). Article 25 allows for: “expeditious arbitration within the WTO as an alternative means of dispute settlement can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.”
The vague language of Article 25 implies that members are given a broad scope in determining which aspects of a dispute they want to resolve using arbitration and which rules exactly that process should follow.
Disputing parties would be able to select personnel to hear appeals via Article 25 arbitration which would prevent the United States from unilaterally paralyzing the appeals process.
Resorting to Article 25 arbitration and circumventing the U.S. blockade of the Appellate Body, while theoretically possible, would at best be a partial and temporary solution to the overall crisis at the WTO. If the United States refuses to take part in the new arbitration system, which is to be expected if the arbitration process simply mirrors the function of the current Appellate Body, trade conflicts involving the world’s largest economy would not be settled. However, a WTO enforcement regime excluding the US would have limited utility.
Replacing the function fulfilled by the Appellate Body through an arbitration system grounded in Article 25 of the DSU could ensure that trade conflicts will continue to be solved within the multilateral WTO framework, provided members can agree on a common set of arbitration rules and abide by them.
The writer is a law expert.
The views expressed in this article are of the author.