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Life after the WTO Appellate Body: the case for more flexible dispute handling

WTO buildings. Credit: WTO.

The Appellate Body is dead – long live the WTO! In this column, Wolfgang Weiss discusses alternative ways to uphold compliance with World Trade Organization rules in spite of the current Appellate Body impasse. Weiss argues that the current crisis might alter the way panels apply WTO law.

The end of the World Trade Organization’s Appellate Body’s ability to function raises the question of how compliance with the world trade institution’s rules can be maintained – since all panel decisions can from now on be ‘appealed into the void’. Unless parties agree on alternatives, the appealing party has the the ability to obstruct the settlement process, as it knows that such an appeal cannot be considered by the Appellate Body under the current circumstances.  The Director General of the WTO has asked the members ro refrain from introducing new protectionist measures. But such a call alone will not ensure compliance with WTO law.

There are a few alternative ways of strengthening compliance with WTO law despite the AB´s impasse.

Alternative appeals mechanism

There is the path already taken by some – such as the European Union – to replace the Appellate Body with an arbitration procedure pursuant to Article 25 of the WTO’s Dispute Settlement Understanding. This requires an abundance of bilateral agreements between WTO members.

The EU recently proposed an amendment to its internal trade rules with the effect that it would in future consider itself authorised to retaliate whenever a WTO panel issues a report favorable to the EU but the report is appealed by the other party ‘into the void’. This change of rules aims to avoid that a pending case gets ‘frozen’ by exercising pressure on the other party. It is, however, highly doubtful whether such EU unilateral retaliation is WTO-compliant.

The EU-style approach will also directly conflict with the US approach. The United States’ current strategy is to insist on its right to appeal and to use an appeal to force the other party back to the negotiating table, as one can infer from the US’ recent statements in a compliance case involving India. The statement argues that, because as there is no division to hear the appeal, the US will confer with India so the parties may determine the way forward in this dispute and find a positive solution.

Resorting to bilateral or regional FTA panels

There are specific dispute settlement mechanisms within the framework of bilateral free trade agreements – FTAs – which the EU is already using. In principle, these mechanisms can act as a substitute for WTO dispute settlement.

Formally, bilateral trade agreement panels do not decide on WTO law but on the rules set out in the FTA. In the area of goods in particular, FTAs’ basic rules however are very close to WTO disciplines contained in the GATT, and in the agreements on Technical Barriers to Trade and on Sanitary and Phytosanitary standards.

Some FTA disputes could also be adjudicated in the WTO dispute settlement and vice-versa. Existing ‘fork-in-the-road’ clauses that oblige parties to choose between the FTA or the WTO route in FTAs could be lifted given the AB’s dysfunctionality.

There are limits to this approach. Overall FTA dispute settlement only helps those trade relations covered by an FTA. It does not help in trade remedy cases. Furthermore, there is no guarantee of consistency in panel decisions.

Dispense with an appeal altogether

Two parties to a dispute could agree at the beginning of a WTO dispute settlement procedure to dispense with an appeal – some have started to do so. This defines from the outset the recognition of a panel report as the final one.

However, many WTO members will not be prepared to go down that path and prefer to wait for a ruling before taking any further steps.

An example is a recent arrangement between Brazil and Japan in a case involving a compliance report in a tax case lost by Brazil. The bilateral arrangement restates that each party has the right to appeal. It further states that “in the event a division of the Appellate Body can be composed”, the parties will cooperate to allow this division to hand down its reports within the time frame set in the Dispute Settlement Understanding. But the arrangement does not set out how the parties will fix the Appellate Body. Nor does it say what happens if there still is no ‘division’ of the Appellate Body they can work with.

Strengthening good offices, conciliation and mediation mechanisms

Another recommended course of action for WTO members would be to make greater use of good offices, conciliation and mediation. These are provided for in Article 5 of the Dispute Settlement Understanding.

Towards the end of the initial consultation phase foreseen in WTO disputes, a complainant may consider going down this path – instead of litigating – in order to bring the other party into a permanent dialogue on the issues at stake. But that requires that the other side agrees; and that is why many might see this solution as unhelpful.

Therefore, there is the need to strengthen the attractiveness of Article 5 DSU. Institutionally, it could be strengthened by using the possibility for the Director-General to offer his services on a regular basis as a default option. Furthermore, the WTO should come up with more suitable procedures. It might be particularly helpful to abandon the current renunciation of legal conclusions.

Conciliation and mediation could at least contribute to clarifying which rules are relevant and what line was taken in earlier WTO rulings. It does not, however, automatically ensure compliance with WTO law. Such a mechanism would shift WTO dispute settlement in the direction of diplomatic negotiations, as under the GATT 1947.

More flexible WTO panels

The central question seems to me is how the Appellate Body impasse will impact the decisions of dispute settlement panels.

The parties to disputes are likely to become even more demanding in their selection of panelists for the initial report. Under present rules, the WTO secretariat has a strong influence: it proposes the panelists and the parties may only oppose their nomination for ‘compelling reasons’.

Now that a panel report can be appealed into the void, it is of utmost interest for the functioning of the WTO dispute settlement mechanism that the parties have sufficient leeway in their choice of panelists. The stipulation that parties to the dispute can oppose nominations by the secretariat only for compelling reasons should therefore not be read in a too restrictive way.

As to the panels, they may – and should – try to further develop their reports in a way that resolves the dispute in a mutually acceptable way. The reasoning of the reports may deal with the arguments of the parties in even more detail and make much greater efforts to present and explain the panel´s position convincingly to the parties.

Compliance with AB decisions on relevant issues may no longer play the central role it has played so far. Panels can now move more freely. It will become much more important to appease the parties than to adopt the AB’s opinion.

In substantive terms, this may imply exploring the room for manoeuver that WTO law offers for respecting national policy decisions. This could, for example, mean softening the Appellate Body’s so far very strict requirements when examining the justification of Article XX GATT exceptions – which cover environmental, health and other measures – in particular with regard to its chapeau.

Procedurally, panels will now be challenged to find a more refined, recalibrated stance with regard to their standard of control of domestic assessments. The standard of review applied by panels could evolve with a view to allow more leeway for WTO members. Panels could be more inclined to focus their control on domestic procedures instead of substantive issues. In trade remedy cases WTO rules – more precisely Article 17.6 of the Antidumping Agreement – already call on panels to exert restraint when judging their legality. This should now be taken more seriously than ever before. The interim review phase for panels might become more important, and panel proceedings last longer as a result.

All the mechanisms explored above might strengthen compliance with WTO law only to a very limited extent. But one can be quite sure that something else will result from the current AB stalemate: we will see a shift in the approach to WTO law and its judicial application by panels. WTO law could go in new directions that might widen the scope for national action. This would perhaps help address some criticisms made to the Appellate Body.

There is more leeway now for developing the conceptualisation of WTO law. Panels are not well-advised to apply a somehow petrified WTO law going forward, which would be frozen at the state of play, i.e. the standard of interpretation developed by the Appellate Body at 10 December 2019, the date when it ceased to function.

Over time the substance of WTO law might change, giving greater room for manoeuver to WTO members. This might not be the worst outcome of the Appellate Body crisis.

Wolfgang Weiss is Professor of International and EU Law at the University of Speyer in Germany.

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