Written By: Aman Gupta [1]

  1. Introduction

The Appellate Body at the World Trade Organization (WTO) also known as the “jewel in the crown” has not been operational since December 2019. The dispute settlement mechanism of WTO is set out under the Marrakesh Agreement of 1994, which established the foundation of this organization. This agreement through its Annex 2 i.e. Understanding on Rules and Procedures Governing the Settlement of Disputes, stipulates that in the event of a trade dispute the complaining party may request the Dispute Settlement Body (DSB) for the establishment of a panel for dispute resolution. The report of the panel might be further appealed by one of the parties to the Appellate Body. The result of such appeal shall be binding between the parties if adopted by the DSB.[2] Since mid-2017, the USA has blocked the appointment of new Appellate Body members [3] on the fact that the Appellate Body, inter-alia, goes beyond its mandate in its textual interpretations of the WTO Agreements. Therefore, such a blockade has led to a non-functional Appellate Body.

The central theme of this article is to identify those legal pillars on the basis of which the USA justifies its action but at the same time limits itself in exploring alternatives for the Appellate Body mechanism.

  1. Legal Basis On Which USA Blocked The Mechanism At WTO Appellate Body 

The DSB is the only body of the WTO where the decision-making process takes place through a “negative” or “reverse” consensus. Footnote 1 to Article 2.4 of the DSU defines the nature of the consensus as “DSB shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting of the DSB when the decision is taken, formally objects to the proposed decision”.[4] In the present scenario, the chairman while making a decision regarding the appointment of the judges of the WTO, which shall be passed through reverse consensus, gets blocked by the USA under the procedural laws as stated by the DSU.USA opposes the decision of the DSB and thus creates a blockade to the appointment of any judge to the Appellate Body.[5]

  1. Allegations Put Forward By USA Upon WTO Appellate Body

The Appellate Body was established with an understanding that no definitive interpretations of agreement provisions shall be sought or developed. The USA has continuously since 2016 blamed the Appellate Body for overreaching the text of the Dispute Settlement of Understanding (DSU). Under Article 3.2 of the DSU, it has been specifically stated that any clarification of the covered agreements shall be in accordance with customary rules of interpretation of public international law and the USA considers that the Appellate Body has interpreted this explanation in a way that it has the right to fill the gaps by way of such interpretations which the negotiators didn’t intend to.[6] Thereby, the USA alleges the Appellate body of overreaching the provisions of DSU.

A.Appellate Body violates the text of Article 17.2 of the DSU:

The Appellate Body has adopted a rule, as against the ultimate authority of DSB to do so, that allows the members to participate in the ongoing dispute settlement process even after their term has expired. Article 17.2 points out that “[t]he DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once [7]Article 17.9 of the DSU talks about the Working Procedure for Appellate Review and states that “working procedures shall be drawn up by the Appellate Body in consultation with the Chairman of the DSB and the Director-General, and communicated to the Members for their information”[8] whereas Rule 15 of the Working Procedures for Appellate Review states that “a person who ceases to be a Member of the Appellate Body may, with the authorization of the Appellate Body and upon notification to the DSB, complete the disposition of any appeal to which that person was assigned while a Member, and that person shall, for that purpose only, be deemed to continue to be a Member of the Appellate Body”.[9] Thus, the USA raises its objection that this rule drawn up by the Appellate body is against the DSU text of Article 17.2 which warrants that “the DSB shall appoint persons to serve on the Appellate Body for a four-year term”. This practice of the Appellate Body is a long-established practice but such consistency cannot justify the illegality and overreaching of the texts of the DSU.

B.Appellate Body violates the text of Article 17.5 of the DSU:

Article 17.5 of the DSU notifies that in no case any proceedings of the Appellate Body shall take more than 90 days. The “general rule” obliges the Appellate Body to come up with the report within 60 days. The text accords no discretion for the Appellate Body to issue reports beyond the 90-day deadline. Even in exceptional circumstances if the Appellate Body takes more than 90 days, as a practiceit has to be done with the proper agreement between the parties.[10] It has been witnessed that the Appellate Body has respected this practice in at least 87 reports but since 2011 the wheel has taken a turnaround. The case of US-Tyres (China)[11]disregarded this rule of proper agreement between the parties and since then the Appellate Body has been blatantly violating this rule. The attitude of other countries of not protesting or refusing to object to this procedural violation emboldened the Body to continue in defying such rules. The USA raises its objection that nowadays the Appellate Body has abandoned this practice of taking consent of the parties in case the dispute cannot be resolved within 90 days. The USA contends that further, it would depend upon the positive consensus on whether to adopt the report or not after a span of 90 days.[12]

C.Appellate Body violates the text of Article 17.6 of the DSU:

Article 17.6 of the DSU states that “an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.”[13]The Appellate Body itself in one of their reports has acknowledged that findings of facts are not subject to review by the Appellate Body.[14] Contrary to the texts of the DSU, the Appellate Body has reviewed the facts in a dispute. The interpretation of the Municipal Law of a State is an issue of fact as distinguished by the DSU between the issue of fact and the issue of law.[15]Even the international treatise states that “municipal laws are merely facts which express the will and constitute the activities of States.”[16]

The Appellate Body shall take the factual findings as mentioned in Article 17.6 as given and not by suo-moto evaluation of such given findings. Consequently, it shall not base its report on its own factual findings. The Appellate Body has not even justified its own basis of considering the issue of interpretation of Municipal Law as an issue of law rather than fact. The plea taken by it in the India-Patents (US)[17]that since WTO Panels, for a detailed examination, has assessed the domestic law to check whether they are in conformity with WTO obligations or not is an authorized task and this doesn’t justify that since the Panels can do so, therefore, the Appellate Body can also do the same task under the pretext of “detailed examination”. The urge for the detailed examination cannot justify the Appellate Body’s step in treating factual issues as an issue of law which is inconsistent with Article 17.6

  1. Conclusion

WTO with a compulsory dispute settlement system has fallen prey to the basis of its origin i.e. the Dispute Settlement Understanding. The tactic to block the functioning of the Appellate Body at the WTO by the USA is an attempt to paralyze the rule-based system which the negotiators had intended to achieve at the Uruguay Round. However, the allegations put by the USA are a matter which needs to be resolved multilaterally or an alternative to the Appellate Body mechanism needs to set up. The ultimatum of the USA to continue blocking the appointment of new members is a blow to the hope of the Appellate Body’s revival. As Peter Van den Bossche, member of the Appellate Body, in his farewell speech mentioned that “the proposals for reform currently discussed no longer have the ambition to strengthen the system but are merely aimed at ensuring its survival in some form or another.”[18] He was also doubtful in his speech regarding the existence of a bleak chance of any reform, which would satisfy the USA and subsequently, in remorse, gave his concluding remark that “History will not judge kindly those responsible for the collapse of the WTO dispute settlement system.”[19] With this uncertainty, it can be expressed that the Appellate Body, which was considered as ‘jewel in the crown’ has lost its glare and whose existence is now at stake.

[1] Chanakya National Law University, Patna

[2] Deadlock at the WTO Appellate Body: No Consensual Way Out in Sight, Baker Mckenzie (December 10, 2019, 1:07 PM), https://www.bakermckenzie.com/en/insight/publications/2019/12/deadlock-at-wto-appellate-body.

[3] Pieter Jan Kuijper, The U.S. Attack on the WTO Appellate Body, 45 Legal Issues of Economic Integration 1 (2018).

[4] Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU].

[5] WTO Body involved in the dispute settlement process, WTO (July 6, 2020, 12:22 PM), https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c3s1p1_e.htm.

[6] Brush Hirsh, Resolving the WTO Appellate Body Crisis: Proposals on Overreach, National Foreign Trade Council (December 2019), https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjJx4aytb3qAhXSAnIKHWIxDlcQFjAAegQIBRAB&url=http%3A%2F%2Fwww.nftc.org%2Fdefault%2Ftrade%2FWTO%2FResolving%2520the%2520WTO%2520Appellate%2520Body%2520Crisis_Proposals%2520on%2520Overreach.pdf&usg=AOvVaw2YsS7nx6KV9WSa7EzU_n5L.

[7] Art. 17.2, DSU, supra note 3.

[8] Art. 17.9, DSU, supranote 3.

[9] Working Procedures for Appellate Review, WTO (July 7, 2020, 10:59 PM), https://www.wto.org/english/tratop_e/dispu_e/ab_e.htm.

[10] Report on the Appellate Body of the World Trade Organization, United States Trade Representative (February 2020).

[11] Appellate Body Report, United States – Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China [US-Tyres (China)], WT/DS399/9, (adopted on 5 October 2011).

[12] Geraldo Vidigal, Addressing the Appellate Body Crisis: A Plurilateral Solution, Amsterdam Law School Legal Studies Research Paper No. 2019-14.

[13] Art. 17.6, DSU, supranote 3.

[14] Appellate Body Report, European Communities – Measures Concerning Meat and Meat Products (Hormones) (EC-Hormones), WT/DS26/29, (adopted on 13 February 1998).

[15] Art. 6.2, Art.11, Art. 12.7, DSU, supranote 3.

[16] Brownlie, Principles of Public International Law39 (5th ed., 1998).

[17] Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products (India-Patents (US)), ¶68, WT/DS50/10/Add.4 WT/DS79/6, (adopted 16 January 1998).

[18] Farewell Speech of Appellate Body Member Peter Van den Bossche, WTO (July 21, 2020, 2:45 PM), https://www.wto.org/english/tratop_e/dispu_e/farwellspeech_peter_van_den_bossche_e.htm.

[19] Id.

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