The Appellate Body in Crisis

The WTO Appellate Body is facing the biggest crisis in its 23 years of existence: the US has been blocking appointments and reappointments of its members for over a year and a half. As a result, it has shrunk from its normal seven members to four members. On 1 October 2018, this will go down to three. The Dispute Settlement Understanding (“DSU”) requires three members to serve on a case, selected by rotation. In a matter of months, therefore, rotation will have become meaningless, placing an almost impossible workload on the remaining members. The next vacancies, for the US and Indian members, occur in December 2019, at which point the appeals process would be crippled. A lone Chinese Appellate Body member would remain.

The projected paralysis of the dispute settlement mechanism has led to different solutions being suggested. The most aggressive voices call for treaty making outside the WTO. However, this would be cumbersome and most are exploring options within the four corners of WTO law itself. So far, these talks and discussions are taking place informally, outside the WTO, and although calls for addressing the crisis have been made by the current Chair of the Appellate Body, WTO members are yet to commence any initiative.

One early proposal has been for the Appellate Body to use its powers under Article 17.9 of the DSU, to amend the Working Procedures so as to prevent the Appellate Body from taking on any appeal if the membership is reduced to four or less (as it is currently). This would mean that panel reports could be adopted automatically by the dispute settlement body (“DSB”), sidestepping the impasse (Charnovitz 2017). However, this proposal is now looking unfeasible, given that the Appellate Body is already down to 4 members and there is no political consensus in the DSB in its favour.  

Majority voting, provided for in Article IX:1 of the WTO Agreement, for appointing new Appellate Body members has been proposed by Pieter Jan Kuiper, a former Director of the WTO’s Legal Affairs Division (which administers the dispute settlement process apart from appeals). This proposal found resonance within the trade law community. However there is doubt as to whether this is compatible with the DSU’s requirement for positive consensus within the Dispute Settlement Body for such matters. The wording of the two provisions provides scope for different interpretations.

Another widely advocated alternative is taking the arbitration route provided in Article 25 of DSU. Binding arbitration could be used for appeals instead of the Appellate Body. A subset of WTO Members could commit to this in respect of future disputes amongst themselves, using a plurilateral agreement; alternatively, the parties to a specific dispute can always agree, during the initial phase of the dispute settlement process, to resort to arbitration in case either or both parties want to appeal a Panel decision. Arbitration does seem to offer a solution within the four corners of the DSU itself and the working rules for the Appellate Body provide an already existing template for procedure. Despite this, reaching an agreement on the appointment of arbitrators, funding, and other issues can be challenging. More problematically, arbitration is not compulsory: WTO Members cannot be forced to use it. 

The options elaborated above reflect ways to keep dispute settlement functional to the exclusion of US demands. This could further distance the US from the WTO. Perhaps the membership could seek to address the US’s reasons for blocking appointments in the first place? The immediate US concern is that Appellate Body members continue serving on cases they have been assigned to after their terms have expired (Rule 15, Working Procedures for Appellate Review). Making adjustments to the procedural rules could be easier than the other options surveyed above, even if it would reward one member holding the DSB hostage. But what if US antipathy to WTO dispute settlement continues in another guise? Would addressing a technical point really bring the current administration on board?

The US has expressed plenty of other concerns against the Appellate Body and, contrary to popular belief, most were initiated by previous US administrations. The US has regularly criticised the Appellate Body’s consistent violation, since 2011, of the 90 days rule for appeals (DSU, Article 17.5). While this observation is indeed accurate, it is also pertinent that appeals have become more complex and lengthier over the years. Further, and notoriously, in 2016 the US blocked the reappointment of Seung Wha Chang. Chang had been on several cases that resulted in adverse decisions for the US. The US complained that Chang was responsible for the Appellate Body violating the principle of non ultra petita, resulting in judicial overreach by addressing issues and arguments beyond the scope of the appeal. This resulted in an unprecedent letter by all thirteen former Appellate Body members to the Dispute Settlement Body warning that “there must be no opening whatsoever to the prospect of political interference in what must remain impartial legal judgements in the WTO's rule-based system of adjudication”.

Indeed, the US has long been opposed to the Appellate Body’s powers, prompted in particular by its disagreement with the Appellate Body’s interpretations of the Antidumping Agreement. As far back as March 2003, the US had proposed, jointly with Chile, to amend the DSU permitting only partial adoption of DSB decisions, and the ability to delete parts of a report based on agreement between the parties to the dispute, thereby increasing flexibility and power of Member States over the dispute settlement process.

Time will tell whether the WTO weathers this storm. Rescuing an Appellate Body by caving in to the demands of one member may set a dangerous precedent. This could well be the ‘do or die’ moment that propels the WTO membership into action. In the words of former Appellate Body member, Ricardo Ramírez-Hernández in his recent farewell address,

“Many of the issues identified in the lead-up to the current state of affairs go to the core and the nature of what the AB is or should not be. If Members want to make progress and solve the current deadlock, maybe this is a good place to start. Or, alternatively, maybe there needs to be a pragmatic discussion that leaves these conceptual notions aside and goes to the very basic or minimal elements all Members can live with to have a fully functioning AB. But it is undeniable that there needs to be a discussion … This institution does not deserve to die through asphyxiation”.

Written by Nivedita Sen, PhD candidate at the Graduate Institute of International and Development Studies in Geneva.

Edited by the Linklaters Trade Practice. The views and opinions expressed here are the personal opinions of the author(s) and do not necessarily represent the views and opinions of Linklaters.