Since the WTO’s formation in 1995, the WTO’s Appellate Body has stood as a vanguard of justice to ensure a rules-based system of dispute settlement as against a power-based system that prevailed in the GATT days. A unique contribution of the dispute settlement decisions of the Uruguay Round negotiations (1986-1994), the Appellate Body’s ("AB") significance as a mechanism to hear appeals from panel decisions is underscored by over 140 decisions it has rendered till date. Further, the AB’s contribution to jurisprudence on important issues in international trade law and public international law has been recognized as highly valuable.
Designed for hearing only questions of law and legal interpretations under the Dispute Settlement Understanding ("DSU"), the AB is composed of seven individual members who are selected by the WTO’s Dispute Settlement Body by consensus for a four-year term. Such Members are eligible for being re-appointed once for another four-year term. Since 1995, it has been the practice of the WTO Membership to re-appoint AB Members (although there has been one exception) and appoint new Members as and when existing Members retire.
However, since 2017, the US has thrown a spanner in the works by refusing to join the consensus required under the DSU for appointing new AB members, thereby resulting in a gradual depletion of the AB’s numerical strength. The situation has now reached a tipping point as just three AB members are left, which is the minimum number required to constitute a bench for hearing appeals. Of these three members, two are slated to retire by the end of this year, thereby leaving just one AB Member on the bench. This would effectively render the AB unable to hear appeals.
Bonafide grievances or malafide showstopper?
The US has cited a certain number of reasons for its dissatisfaction with the AB which are discussed below:
- The US’ main criticism is the AB’s judicial overreach by engaging in legal interpretations that were beyond its purview and thereby adding to Member obligations under the various WTO agreements. The US is also aggrieved by the AB’s advisory opinions on issues not necessary to resolve a dispute and engaging in fact-finding despite the DSU limiting the AB’s review powers to legal issues.
- The continued service of AB members on benches they were part of even after expiry of their term. Interestingly, before the United States raised this issue now, this was raised by India much earlier. However, this issue did not gain traction and fell into oblivion. Furthermore, the practice of AB Members serving after expiry of their term has been in place for over two decades now. The US’ objections at this point of time is therefore highly suspicious.
- The exceeding of the 90-day deadline within which appellate decisions must be circulated to the Membership in a number of cases. This criticism seems to be unfair given the different challenges being faced by the AB such as workload, complexity, etc., which render it unable to circulate the decision in time. Further, it is odd that the US has not taken the issue with the delays at the panel stage which are much more than in comparison to the appellate stage.
Prima facie, it would not be fair to say that the United States’ dissatisfaction with the AB is without merit. Indeed, the AB could benefit from a serious dose of reform. Such an approach should be collective and constructive in nature. However, none of the above issues warrant a WTO Member running the AB to the ground. Further, inspite of a number of proposals made by different WTO Members for addressing these issues, the US in itself has not come forward with any concrete proposal for reforming the AB.
In fact, a closer look at the United States’ behaviour would show that the real cause for its unhappiness with the judicial function of the WTO stems from a series of AB pronouncements on the inconsistencies of the United States’ domestic trade remedy measures and practices such as zeroing, adverse facts available, etc., with provisions of WTO law. In fact, this was one of the main reasons the United States did not consent to the reappointment of one of its own nationals as an AB Member.
Given the imminent doom that awaits the AB, options to salvage some sort of appellate mechanism after December 2019 are urgently required. One possible solution would be to arrive at a ministerial understanding that excludes the United States from the jurisdiction of dispute settlement mechanism and giving the AB a fresh lease of life.
Another option that is available would be to invoke the provisions of Article 25 of the DSU which recognizes arbitration within the WTO as an alternative means of dispute settlement. In fact, in a communication made in May 2019, the European Union has already made a proposal for an Interim Appeal Arbitration. Notwithstanding the merits and demerits of such a proposal, it is uncertain if the United States would agree to it.
Though the absence of a large economy such as the US from the aegis of the dispute settlement mechanism is undesirable, there are limited options and time is running short. Further, the exclusion of even one Member, particularly a powerful developed country, besides causing systemic disturbance in the WTO’s functioning, would send a wrong signal to the rest of the Membership and undermine the multilateral, rules-based characteristics of the WTO.
The WTO’s Dispute Settlement Mechanism has rightly been hailed as the WTO’s 'crown jewel'. The AB has played a key role as part of this crown jewel. However, the clock is ticking. Like a terminally-ill patient living his last days, the Appellate Body, or what’s left of it, is staring at what seems like certain doom. Given that two of the three remaining AB Members are slated to retire by the end of this year, unless the DSB fills the vacant Appellate Body slots, the appellate mechanism of the dispute settlement function will cease to function.
Eventually, even with a functioning panel system, the absence of an AB would significantly weaken the WTO’s dispute settlement mechanism as a system without the right to appeal would be ineffective and lack credibility. This issue becomes all the more important given that Members appeal panel decisions more as a norm rather than an exception, and if the appellate mechanism ceases to exist then appealed decisions would be rendered ineffective.
In case WTO Members are unable to arrive at a solution to resolve the issue, Members would be forced to wait out the current US Administration till it is replaced by an administration that sees light in a well-functioning appellate mechanism. But till then, the United States would be well advised to see the benefit of the importance of a rules-based system of settling disputes complemented with a healthy appellate body.
[The author is a Senior Associate in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]