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WTO: The definitive end of optimism on the Appellate Body

The United States’s envoy to the World Trade Organization Dennis Shea poured cold water on any hopes – if there were any left – that this administration would enter into negotiations on reforming and restoring the institution’s Appellate Body.

While offering nothing new in terms of insights on the latest thinking in Washington on the simmering crisis in the WTO’s dispute settlement body, Shea’s intervention at a panel discussion at the online Geneva Trade Week at the very least articulated the US views clearly and openly.

The panel discussion featured other high-profile ambassadors such as China’s Zhang Xiangchen, the EU’s João Aguiar Machado, Mexico’s Ángel Villalobos and Canada’s Stephan de Boer.

Deputy USTR Dennis Shea. Credit: USTR

The Deputy United States Trade Representative made it clear that his country can live happily without an Appellate Body in the WTO. What used to be seen as the ‘crown jewel’ in a seemingly rules-based multilateral trading system ceased to function in December 2019 following a US veto on appointments of persons to replace departing arbitrators whose four-year terms expired.

Shea praised recent decisions by WTO members having launched dispute settlement proceedings not to appeal panel reports at first instance.

“It is important to recognise that global trade continues,” said Shea. “The dispute settlement system also continues to function and members are continuing to turn to the WTO. As before many members have many methods to resolve a dispute, including through bilateral engagement, alternative dispute procedures, and third party adjudication.”

Dennis Shea rejected claims by many counterparts in Geneva that the US has not genuinely engaged with attempts at grappling with the concerns raised by Washington, especially during the so-called Walker Process in 2019, which led to the drafting of a joint membership decision that the US ultimately rejected.

“The United States was actively engaged in the Walker Process,” said Shea. “During this process we provided specific comments on some of the language contained in the guidelines drafted by Ambassador Walker. Unfortunately, very little of what we offered was taken on board.”

Shea said the draft Walker decision mainly reaffirmed principles enshrined in the founding treaty of the dispute settlement system, the DSU.

“We asked the membership: why would the Appellate Body respect these new words when it has not respected the old words in the DSU? It seemed to us that simply reaffirming the rules that the AB had repeatedly broken was not an effective solution.”

Shea added: “More fundamentally we sought members’ views on why the Appellate Body simply disregarded the clear text of the DSU and why the membership itself allowed the rule-breaking to continue for so long. This is the famous ‘Why’ question. Unfortunately the membership failed to engage seriously on these issues.”

“The job of the Appellate Body was always meant to be a limited one, to correct egregious legal errors by panels,” Shea continued.

“The debate over the last two years demonstrates that some WTO members have a fundamentally different vision for appellate review with a limited role that is set out in the DSU,” said the US envoy.

“Some members saw, and continue to see, the Appellate Body as an independent international court and its members as judges who inherently have more authority to make rules and create jurisprudence. The same members envisage the body as the centrepiece of the dispute settlement system, not just one component of that system.”

Shea rejected accusations that the US has not articulate what it wanted, pointing to a late August opinion piece by his boss Robert Lighthizer in the Wall Street Journal, where he spells out his vision for dispute resolution at the world trade institution.

Lighthizer’s view is that of “a single-stage dispute process akin to commercial arbitration,” said Shea. “Ad hoc tribunals would […] quickly resolve the dispute. The rulings of these one-off panels should only apply to the parties in the dispute and not become part of an ever-evolving body of trade jurisprudence.”

The USTR also envisaged “a mechanism that would allow WTO members to set aside panel opinions in exceptional cases,” Shea explained.

Opposite views

That is of course the opposite view of leading WTO members such as the EU and China.

“For the EU any reform would need to preserve the core features that are in the DSU. And this includes dispute settlement that is binding, two-tiered and independent and impartial,” said João Machado.

Mexico’s ambassador Ángel Villalobos Rodríguez was clearly discouraged by Shea’s intervention.

Mexico has been spearheading a campaign in the WTO that has led to more that 120 out of its 164 members to call for the resumption of the Appellate Body member nomination process. The call is made every month when the dispute settlement body meets in Geneva.

Mexico also signed on to the MPIA, the stop-gap arrangement agreed among a subset of WTO members to keeps alive the automatic right to an appeal. The MPIA, originally signed by 16 members, including China, Brazil and Canada, now counts 24 members.

“If I had any optimism, I just lost it after what I heard from the [US ambassador]” said Villalobos. “The Appellate Body has certainly become a zombie. I must confess that I always had a strong belief, almost a faith, that something will be saved from becoming a zombie and eventually we will engage in a constructive discussion to restore the Appellate Body.”

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