Former Appellate Body member Peter Van den Bossche in conversation with Borderlex’s Iana Dreyer on the WTO crisis, the slow death of the Appellate Body and aircraft subsidy cases.
The United States and the European Union are expected to apply retaliatory tariffs on each other now that the final verdicts from the World Trade Organization’s Appellate Body on their respective compliance with global rules on industrial subsidies are out. The EU will pay a higher price than the US and get hurt earlier. Additional US tariffs on imports of EU products worth billions are expected to be imposed in the coming weeks.
Dividing up the global aircraft market
Brussels is awaiting its own green light from Geneva later this autumn to retaliate on the basis of a compliance report in the case United States — Measures Affecting Trade in Large Civil Aircraft, the last assignment report Peter Van den Bossche worked on. The ruling gave a clean slate to the United States for having respected an earlier pronouncement that the US breached the rules enshrined in the WTO’s Subsidies and Countervailing Measures Agreement. But it did find that continued support given by the State of Washington to the US aircraft maker Boeing to still be in breach of the rule-book.
Is there a chance the US and EU will settle this dispute? “In the current climate, no,” reckons Van den Bossche, who served as the European member of the Appellate Body for more than nine years. “And this will fester for some time.” But was the 15-year litigation between Brussels and Washington over aircraft subsidies worth it at all?
Van den Bossche thinks the various panel and appeal reports offered “useful clarifications” of terms enshrined in the WTO’s subsidies rule-book, which many trade lawyers and policy professionals see as imprecise and weak.
“Strange as it may be, the Airbus and Boeing subsidy disputes are not in the first place disputes between the US and the EU,” continues Van den Bossche. “Airbus and Boeing are themselves quite happy to divide the [global] market among themselves. What the aircraft subsidy cases have done, and what may arguably have been the prime intention of the US and the EU for bringing these cases, is to create useful case law that keeps the competition of other [WTO] members out”. There are various new or smaller players on the market for large aircraft from China, Brazil, Canada and elsewhere. Washington and Brussels “wanted to clarify the existing rules that would make it possible for them to act against these newcomers. They knew that through negotiations they would never get such clarification.”
Appellate Body crisis
The Belgian professor of international economic law, who joined the Appellate Body in 2009 and stayed on until March this year, deliberately stayed aloof from the media and Genevan social life throughout his tenure. He suddenly drew attention on himself at his farewell speech last May, in which he criticised the United States for choking off the WTO’s famously strong dispute settlement system — the ‘jewel in the crown’ of the multilateral trading order.
Commenting on reform proposals for the Appellate Body and a mediation process run by New Zealand’s Ambassador to the WTO, Van den Bossche said: “It is not clear to me, as I am sure it is not clear to most of you, whether any reform of the current system, short of its virtual elimination, will satisfy the United States.”
The US have been blocking the appointment of new Appellate Body members since 2017. Consequently, the seven-member body is down to three – the minimum quota required to function – and will no longer be able to decide on new appeals next December, when there will be only one Appellate Body member left. “I don’t believe the US will give in on this any time soon, if ever,” Van den Bossche tells Borderlex. “They are in a dream scenario. They have to do nothing and yet they reach their goal: no appellate review.”
The US have had gripes with the Appellate Body for a variety of reasons. Some are long-standing procedural frustrations that have to do with the inability of the team working on appeals to issue reports within 90 days, as officially mandated in the WTO rule-book. However, the growing complexity of cases — not flanked by commensurate increases in staffing – made completing appellate review within the required time-framework basically impossible. The US has also been unhappy with Appellate Body members — such as Van den Bossche himself -staying on beyond their term to finish work on appeals randomly assigned to them before the end of their term.
More fundamentally, there is a strong constituency in Washington, of which the current USTR Robert Lighthizer is the most prominent representative, that does not want any international judicial body to constrain US trade policies, especially its trade defence policies. Even before the Trump administration, the United States were unhappy with Appellate Body rulings that chided US trade defence practices, such as ‘zeroing’, a methodology used to calculate ‘dumping margins’.
The US were very unhappy with a 2011 Appellate Body report on which Van den Bossche had worked: US – Anti-Dumping and Countervailing Duties (China). The ruling is famous for having given a definition of ‘public body’ that favoured the Chinese view that its state-owned industrial companies – the targets of US anti-dumping and anti-subsidy measures – were not public bodies. The WTO’s subsidies rules stipulate that a subsidy is “a financial contribution by a government or any public body … which confers a benefit”. But they do not define what exactly a public body is. The dispute settlement panel had largely accepted the US view, stating that a public body is “any entity controlled by a government”. The Appellate Body took a much more nuanced view: “a public body within the meaning of Article 1.1.(a)(1) of the SCM Agreement must be an entity that possesses, exercises or is vested with governmental authority.” That definition infuriated Washington.
The case goes to the heart of the current frictions between China and the US and the wider world. Despite its many reforms, China is seen as remaining a largely state-driven economy, with the government artificially boosting production and exports of firms, notably via its state-owned commercial banks and ownership or strategic control of key industrial firms. Note that unlike the state-owned input suppliers the Appellate Body did find China’s state-owned banks to be ‘public bodies’.
This question is at the heart of the recent dispute over China’s ‘market economy status’ among WTO members – a status the US has refused to confer on China as part of its trade defence practices. These tensions add to a general sense of strategic and technological rivalry with China, which manifests itself in the spectacular trade frictions between the two giants that have rocked the world in recent months. The Washington-Beijing ‘trade war’ is shaking the fundamentals of the WTO.
“The WTO has to adapt to the new reality, a reality in which the US, formerly the driver of the system, the instigator, the inspirator, has turned protectionist and unilateralist and sees everything through an anti-China prism,” reckons Van den Bossche. “Everything is focused on containing China. I think this is not just the Trump administration. This has bipartisan support in Washington and is therefore not going away any time soon.”
Future of WTO dispute settlement?
The end of the Appellate Body will most likely upend the entire dispute settlement process. A WTO panel report cannot be adopted by the DSB and become legally binding until after completion of the appeal. “One can predict with confidence that, once the Appellate Body is paralysed, the losing party will in most cases appeal the panel report and thus prevent it from becoming legally binding,” said Van den Bossche. “Why would WTO Members still engage in panel proceedings if panel reports are likely to remain unadopted and thus not legally binding?”
Recourse to arbitration under Article 25 of the WTO’s Dispute Settlement Understanding – as currently envisaged by the European Union — to provide for appellate review, or agreements between parties not to appeal may in some cases allow members to ensure the availability of WTO dispute settlement. But they are definitely not long-term solutions to the current crisis in WTO dispute settlement. As Van den Bossche suggested in his farewell speech, if it is impossible to overcome the current crisis due to US obstructionism, “a coalition of willing WTO Members should consider establishing a new parallel dispute settlement system … in order to settle WTO disputes between them in an orderly and rules-based manner.” This parallel system would essentially copy the existing but dysfunctional WTO system.
Van den Bossche looks back at his tenure in the WTO with some sadness. His nine years in Geneva were marked by a severe deterioration of the relationship with the United States, starting under the Obama administration. Van den Bossche thinks the WTO secretariat have been rather weak in defending the Appellate Body as an institution from attacks from the US administration – and that current interventions are too little, too late.
“The WTO dispute settlement system was – and currently still is – a glorious experiment with the rule of law in international relations,” Van den Bossche said in his farewell speech. “I dedicated much of my professional life to this unique system. To see that go….,” he sighs when wrapping up his conversation with Borderlex in his office on a sunny afternoon in Bern’s World Trade Institute.