Trade disputes hit appeals impasse

The United States, now joined by others, wants to reform the WTO's appeal system to correct what have been termed 'egrarious errors'. Has there been over-reach?

AT A TIME of heightened trade friction, the number of global trade disputes is, not surprisingly,  soaring.
Disputes filed in 2018 with the Dispute Settlement Body (DBS) at the World Trade Organisation spiked to the highest level reached since the birth of the organisation in 1995.
The WTO body in 2018 received notification of 38 disputes, covering traded goods ranging from sugar to aluminum or steel -- usually over tariffs and dumping. This compared with 17 cases each in 2016 and 2017. Since 1995, WTO members have referred 590 disputes to the DSB, involving a total of 109 WTO members in dispute settlement procedures, either as a direct party or a third party.
But a crucial pillar to the WTO dispute settlement system is its appeal panel, known as the Appellate Body (AB) which steps in when the parties are unable to reach a mutually-agreed solution through consultation. The complaining member can request that a panel be established to examine the case, and either party can later appeal the rulings of the panel.
As of December 31, 2018, a panel had been established for no less than 336 disputes, almost 62% of all disputes initiated. Panel reports in 249 of these disputes led to 166 of these going to appeal.
While decisions taken by the appellate body can at times be controversial, the United States in particular has taken exception to a number of AB rulings.
The U.S., now joined by others, wants the WTO to reform the appeal system, to create what a key WTO official, Alan Wolff, says would be a consistent set of rules, and to correct what have been termed "egregious errors".
The full quota of judges on the Appellate Body is seven, but with the US blocking the appointment of new judges since 2017, there has been no appointment to replace outgoing jurists. From December 11, 2020, there will be only one jurist, Hong Zhao of China, left on the panel, which means effectively it will cease to function. The four-year terms of Thomas Graham of the U.S. and Ujal Bhatia of India expire on December 10.
 The dispute settlement system would continue to function, but absent an appeal process. A party losing a case could ask for an appeal, but none would be forthcoming and the DSB ruling would stand, a source told ATI.
Wolff, who is Deputy Director-General of the WTO, told an audience at London's Chatham House in October that there were no signs that the impasse would end soon.
After December 10, he said, countries would, more often than not, be pragmatic about how they handled their disputes and, in practice, would work to resolve these disputes with the AB. He cited the examples of Vietnam and Indonesia, which had agreed to abide by the original decision in their dispute.
The European Union and Canada have decided to appoint previous members of the appellate body as arbitrators, with the EU and Canada agreeing to abide by their decisions.
While no new appeals can be filed from December 11, a number of countries, including the U.S, are still filing disputes because DBS decisions are enforceable. Cases will continue to be settled whether or not the Appellate Body as now constituted is still functioning.
Wolff said there would be an appellate function in the future, but it would take some time to put together. The powerful G-20 group wanted to accelerate reforms, he said, and their Ministers and Ambassadors to the WTO would carry that forward with the G20's mandate.
Wolff, who was in Australia recently, said the US position was that there had been over-reach by the Appellate Body.
Speaking at the Lowy Institute, Wolff said: "The argument between the United States and most of the other WTO members is whether the AB is legislating -- that is, creating new rights and obligations, and whether this matters.
"The United States contends that the AB has added to the rights and diminished the obligations of members. Some members would probably contend that this has not happened, and many might say that this does not matter.
"Were this a domestic court, the legislature could overrule the court and change the result in a matter or on an issue if it felt that the court had exceeded its authority. But the legislative function of the WTO has been more absent than present. So there has been no corrective were the AB to exceed its mandate.
"This can have an unintended result. On the face of it, the WTO Dispute Settlement Understanding provides that, where a member appeals a panel decision, it is not final and cannot be adopted. This would allow the filing of an appeal to block an outcome.
In this situation, a disappointed complainant might choose to retaliate, and the respondent might choose to counter-retaliate. This could ignite a series of trade conflicts -- exactly what the WTO dispute settlement procedure was designed to prevent."
That said, a number of members "see eye to eye with the US" on some of the problems with the way judgments were handed out  by the Appellate Body, he said.
One source told ATI: "It is interesting that many WTO members have come to the conclusion that the US has a point when it says that the AB has not been functioning as it should. This explains why we have had so many reform proposals on this matter."
Under the leadership of New Zealand, which has taken on the role of facilitator, co-ordinator and adviser to the Chair of the WTO's General Counsel to find a solution to the AB issue, Woolf believes there is a growing consensus, and that the problem will be worked out. "But when that will be remains unclear," he said.