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The Appellate Body’s disintegration: Is this the WTO’s “Infinity War” or is there an “Endgame”?

26 December 2019

by Jayant Raghu Ram

On 10th December 2019, the terms of two WTO Appellate Body ("AB") members – Mr. Ujal Singh Bhatia (from India) and Mr. Thomas Graham (from the United States) – came to an end, and they subsequently demitted office. In the absence of any selections by the WTO’s Dispute Settlement Body to replace them, the AB’s strength has come down to a symbolic one – represented by Ms. Hong Zhao (from China) – as against the requisite strength of seven. This development finally brings to fruition the United States’ ("US") long-standing ambition to shut down the AB, which it has been targeting since 2016.

It is relevant to note that just before the shutdown, WTO Members’ made last-ditch efforts to revive the AB. However, US disinterest ensured that nothing came off this; confirming the notion that the US does not want any effective system of settling WTO disputes.

Thus, for the first time in the WTO’s 25-year history, there will be no AB, and the "crown jewel" would have lost some of its sheen. However, what will happen to a WTO dispute settlement minus the AB? Also, what will be the fate of pending appeals? This Article is intended to discuss these issues.

Pending appeals and the way forward

At the time of its last seen, the AB had issued nearly 160 decisions. At present, there are currently 14 disputes pending disposal by the AB. These numbers will in all probability increase as Members appeal panel reports.

However, the AB’s paralysis does not mean the end of WTO dispute settlement as such. Fortunately, the panel process is still functional, and Members are continuing to initiate disputes. However, if a panel report arising from any of these complaints is appealed by any of the parties, the panel process would be rendered futile, particularly if the appeal is preferred by the respondent.

One implication that might arise from a reliance on panel adjudication is that there might be pressure on the panels to issue their reports in such a way that is acceptable to both parties, thereby avoiding a recourse to the appellate process. However, in a stark reminder of dispute settlement during the GATT days, such a practice would force panelists to be less objective and more diplomacy-oriented.

Notwithstanding the availability of panel adjudication, the AB paralysis has opened the door for Members to flirt with the adoption of measures that could be WTO inconsistent. Not only could this lead to a situation of lawlessness in the WTO, Members would not shy away from resorting to unilateral actions to address alleged WTO violations by other Members. This could lead to a trade war on a global scale. In fact, in the context of India – Export Measures, it is speculated that the United States may rely on the panel report itself to take unilateral Section 301 action against India.

India’s Pending Appeals at the WTO

Out of the 14 appeals pending disposal, 4 involve India either as a complainant or a respondent. These appeals are:

  1. India – Solar Cells and Modules (DS456)
  2. US – Renewable Energy Measures (DS 510)
  3. India – Export Measures (DS 541)
  4. India – Iron and Steel Products (DS 518)

The implications of these pending appeals are quite varied. In India – Iron and Steel Products, the safeguard measure challenged by Japan had expired during the panel process itself. Thus, any judgment on the validity of these measures would be merely academic in value and of limited implication for either party.

In US – Renewable Energy Measures, even though India is a complainant, the implications are limited since India’s stakes in the export market for renewable energy products are not significant. In fact, this dispute was primarily brought by India as a tit-for-tat to the US’ complaint against India in India – Solar Cells and Modules. However, that the decision in US – Renewable Energy Measures has not attained finality means India has lost any potential bargaining power in the parallel dispute brought against it by the US in India – Solar Cells and Modules.

In India – Export Measures, the implications are quite the opposite. It is significant that India has appealed the panel report since the AB paralysis means that India has more time till any final judgment is pronounced on the validity of its export support measures with the SCM Agreement. This would be of major relief to India as the benefits conferred under these challenged export support schemes run into millions of rupees. Notwithstanding, the Government of India is already examining ways to formulate export subsidy programmes that are WTO compliant.

Among the disputes not appealed, it is relevant to note that India has initiated compliance proceedings in India – Avian Influenza and India – Solar Cells and Modules, where both the panels and Appellate Body have ruled against India’s measures as being WTO inconsistent. If the compliance panels rule against India and India appeals both these rulings, decisions regarding India’s compliance with the decisions in the above disputes would not achieve finality.

Conclusion

The AB has stood as the vanguard of the rules-based system of settling WTO disputes. Its contribution to the international rule of law and its rich jurisprudence has been remarkable. Nonetheless, it should be pointed out the AB’s decisions on certain issues do require introspection. However, none of these decisions are of such a nature that they warrant the AB’s cessation.

The AB’s disintegration by the US reminds one of how Thanos disintegrated half the universe with his apocalyptic snap. This begs the question – is there an Endgame in sight? Let’s hope the WTO and its other Members can assemble to solve the fate of the WTO’s dispute settlement mechanism.

[The author is a Senior Associate in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]