Service on WTO and Trade Issues (Jun16/05)
10 June 2016
Third World Network
first priority is restoring credibility of DSU, AB
Published in SUNS #8255 dated 6 June 2016
Geneva, 3 Jun (Chakravarthi Raghavan*) -- When the WTO and its key
members return to Geneva next week, to resume consultations at the
Dispute Settlement Body (DSB) on filling vacancies in the Appellate
Body, they have to come to grips with a credibility problem of the
WTO and its dispute settlement process, impaired by the US statements
in vetoing a second term for Prof. Seung Wha Chang of Korea.
Hopefully, WTO members at the DSB will agree on and tackle this as
of the highest priority.
As of 1 June, there are now two vacancies in the 7-member Appellate
Body (AB). One is to replace Prof. Seung Wha Chang, whose re-appointment
at end of his first four-year term was vetoed by the United States
at the meeting of the DSB on 23 May.
The second vacancy is for replacing Ms Yue Jiao Zhang of China, whose
second and last term also ended on 31 May.
The two replacements had figured as separate items at the DSB meeting
of 23 May. At that meeting, the DSB Chair, Ambassador Xavier Carim
of South Africa, had said he would be away from Geneva, but return
on 3 June and be available for consultations.
(See SUNS #8246 of 24 May 2016, and #8247 of 25 May 2016 for detailed
The US veto of Prof. Chang, and the US critique directed against the
AB (though clearly aimed at the AB as a whole, aiming to intimidate
or pressure its members to toe the US line in disputes) has elicited
such widespread criticisms, that the US stance and any support it
elicits, sounds like the entire world is marching out of step but
for the Exceptional Nation, USA.
If the rest of the WTO members and the DSB, having made statements
of trenchant criticism, believe they can hereafter continue with "business
as usual", they would be committing a fatal error. The DSU (Dispute
Settlement Understanding), and with it the WTO, would lose all public
credibility and legitimacy, and the WTO will soon meet the fate of
the League of Nations.
And there are only two options for WTO members to restore the credibility
of the DSU and AB:
(a) They could agree on and adopt by consensus a decision that for
the future, any retiring member of the AB, eligible otherwise for
reappointment, should be automatically re-appointed, unless there
are some serious questions of the retiring eligible person's health,
misconduct or inability or unwillingness of retiring member to continue
for another term; or
(b) Alternatively, they should appoint AB members for one fixed term,
as Brazil, and past AB members have suggested. However, if the six
or seven years mooted by Brazil is viewed as too long, a compromise
can be reached with a 5-year term.
Another suggestion for option (a), posted at US trade lawyers' IELP
blog, is that re-appointment should be automatic, unless there is
positive consensus against.
Option (a) as an immediate decision, and considering and deciding
on option (b) as part of the mandated DSU review process could also
be considered (More on the DSU in a subsequent article in future issues
The US stance over the re-appointment of Prof. Chang from Korea has
resulted in widespread trenchant criticism, amongst US trade lawyers,
former members of the Appellate Body, the six remaining members of
the AB, and a range of WTO members at the DSB at its meeting on 23
Though there were suggestions at that DSB meeting of some US-Korea
informal consultations to take place and resolve issues, it is not
a bilateral one but one concerning the entire membership.
With the United States having staked out a public stance on the issue,
and after its varying explanations, first at the level of US trade
officials in Washington, and at the DSB on 23 May, it is extremely
unlikely that it could reverse its stance, and agree to Prof. Chang's
getting a second term. And even if it does, it still leaves the AB's
reputation in tatters, and every future ruling of the AB or of a panel
will be suspect and tainted.
Having dealt with the immediate issue of restoring the credibility
of the AB, and the WTO's dispute settlement system by one of two ways
cited above, it is also time for the WTO to come to grips with and
tackle the Marrakesh mandated DSU review, and complete it in a time-bound
and fresh manner before the next Ministerial Conference (more on changes
to be effected in the DSU in a subsequent article).
This is an equally important long-term issue of the WTO, ensuring
the credibility of its functioning in its role of dispute settlement,
long proclaimed as the jewel in its crown, more so as the WTO as a
negotiating forum has been already impaired by the United States unilaterally
viewing itself to be no longer bound to engage in "good faith"
negotiations on the Doha Work Programme - a US stance that has been
supported by other developed countries.
In raising the issue of the AB's role and in this way (by vetoing
a second term for one member) by blaming him for the AB rulings, namely,
that instead of "clarifying" existing rules and leaving
interpretations to the Ministerial Conference or General Council,
the AB has been engaging in rule-making and adding to obligations
of Members and curtailing their rights, the US is repeatedly exhibiting
the double standards it plays by on international questions.
So long as it benefited from such AB rulings, as in the early days
of the WTO, it was praising the AB. However, once its own favourite
protectionist actions, use of "zeroing" in anti-dumping
investigations and taking counter-measures by levying anti-dumping
duties, was found WTO-illegal, the US began crying foul and is yet
to implement them.
"Zeroing" as used by the US is a controversial methodology
for calculating anti-dumping duties against foreign products. The
foreign domestic price (FDP) of the product is compared with its US
import price (USIP) adjusted for transportation and handling costs.
Under zeroing, the United States sets at zero the negative differences
(that is whenever FDP minus USIP is less than zero).
This "zeroing" methodology, or its application in particular
ways, has been repeatedly found by the AB as WTO- illegal. Ever since
such rulings, and its inability to comply (because of powerful domestic
lobbies and Congress), the US began to cry foul, and has so far failed
to implement any of the rulings and DSB recommendations involving
such anti-dumping measures.
The way the issue relating to the reappointment of AB members has
come up in public (in two earlier cases, the US vetoed appointment
or reappointment, but did not voice its views openly), is now forcing
WTO members to come to grips with the mandated Ministerial Decision
at Marrakesh, for a review of the DSU to be completed within four
years of entry into force of WTO treaty, that is by end of 1998, and
for the next Ministerial Conference to take a decision "to continue,
modify or terminate the DSU".
At Marrakesh, in a Ministerial Decision that is part of the Legal
texts, the Ministers said:
"Recalling the Decision of 22 February 1994 that existing rules
and procedures of GATT 1947 in the field of dispute settlement shall
remain in effect until the date of entry into force of the Agreement
Establishing the World Trade Organisation,
"Invite the relevant Councils and Committees to decide that they
shall remain in operation for the purpose of dealing with any dispute
for which the request for consultation was made before that date,
"Invite the Ministerial Conference to complete a full review
of the dispute settlement rules and procedures under the World Trade
Organization within four years of the entry into force of the World
Trade Organization, and to take a decision on the occasion of the
first meeting after the completion of the review, whether to continue,
modify or terminate such dispute settlement rules and procedures"
(p 465 of the Legal texts).
This is a Ministerial mandate that WTO members have avoided or evaded
so far. This issue of the mandated review of the DSU initially was
on the agenda of the Seattle Ministerial Conference in 1999, but that
Conference broke up in utter confusion and chaos, engineered by the
host country, and failed to reach any decision.
In the run-up to Seattle, the developing countries, in particular
a like-minded group, coordinated by Egypt and its ambassador Mounir
Zahran, consulted past GATT and UR negotiators, and sought help from
one of them, Mr. Bhagirath Lal Das, formerly Indian Ambassador to
GATT, to write a paper with concrete recommendations.
Mr. Das, for personal reasons, was not able to complete the task,
and entrusted it to this writer, and the draft was presented and discussed
in 1999, at a consultation meeting of developing countries (attended
by most of them at ambassador level, and with participation of UNCTAD
Secretary-General, Mr. Rubens Ricupero, formerly Brazilian ambassador
to GATT during the Uruguay Round).
After the collapse of the 1999 Seattle MC, the draft paper was finalised
and published in the TWN Trade & Development Series No. 9 (http://www.twn.my/title/tilting.htm).
The DSU review mandate surfaced again in para 30 of the Doha Ministerial
Declaration in 2001, but under para 47 of the Doha Ministerial Declaration,
that mandate for "improvement and clarifications" of the
DSU (the Marrakesh mandate that included "termination" of
DSU rules was quietly dropped) was made an independent negotiating
item, outside the Doha Work Programme's Single Undertaking.
Paragraph 30 of the Doha Ministerial Declaration stipulated: "We
agree to negotiations on improvement and clarifications of the Dispute
Settlement Understanding. The negotiations should be based on the
work done thus far as well as any additional proposals by Members,
and aim to agree on improvements and clarifications not later than
May 2003, at which time we will take steps to ensure that the results
enter into force as soon as possible thereafter."
The DSB, meeting since then in special sessions, has been considering,
off and on, small procedural changes on sequencing of ‘retaliatory'
actions etc, that would at best tinker with DSU rules, but has not
taken up or come to grips with the review in any substantial way.
It is perhaps time for the Membership to take a fresh look and do
so, and this does need to cover the role and extent of AB rulings,
accepted by negative consensus, in terms of where "clarification"
of WTO and its accords end, and the role of "interpretations"
reserved solely to Ministerial Conferences or General Council begin.
Within this remit, comes also the issue of self-assumed powers of
the AB, under the concept of "collegiality" under Rule Four
of its "Working Procedures", enabling the 3-member Division
bench hearing an appeal and deciding the appeal on all points of law
raised, "consulting" at all stages, behind the backs of
the parties and third parties to the dispute/appeals, the four other
Members of the AB, not part of the division hearing the appeal and
present at the oral hearings.
This is something alien to the principles of natural justice, and
alien to an independent judicial process. In terms of principles of
natural justice and a judicial process, a judge or judges adjudicating
a dispute, after hearing the parties, must come to an independent
conclusion, without consulting any other person or body of persons,
not even the secretariat servicing the panel or appellate process
providing any input or draft, and write down their own judgement and
If a rules-based WTO treaty has any meaning, it involves that no instrument
created by the treaty, enjoys any power not provided for in the various
provisions of the treaty and its annexed agreements. There is no "residual"
power under which any treaty body, whether a dispute panel or the
AB, can claim inherent power to do something, on the basis that it
is not prohibited.
In this instance, the WTO's DSU, in its Article 17 has provided for
the setting up of an Appellate Review, and in its various paragraphs
sets out how the body should be constituted, its members chosen, its
remit, powers and functioning. The AB has no inherent powers that
cannot be found in the various provisions of Article 17.
In terms of substance, Art 17.1 says: "A standing Appellate Body
shall be established by the DSB. The Appellate Body shall hear appeals
from panel cases. It shall be composed of seven persons, three of
whom shall serve on any one case. Persons serving on the Appellate
Body shall serve in rotation. Such rotation shall be determined in
the working procedures of the Appellate Body".
17.2 & 17.3 set out how the AB members are to be appointed, the
duration of appointment and re-appointment, and qualifications. 17.4
sets out who can appeal, and rights of third parties in such appeals.
17.5 sets out the duration and time limitations for the work of the
AB on any appeal. 17.6 sets out that an appeal "shall be limited
to issues of law covered in the panel report and legal interpretations
developed by the panel." 17.7 provides for appropriate administrative
and legal support it requires, and 17.8 for expenses (travel and subsistence)
for AB members to be met from WTO budget.
Art 17.9 on working procedures, says: "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."
And while the AB is only to consult the "Chairman of the DSB",
in practice the DSB chair circulates the draft procedure to the DSB
members, and forward any comments from them to the AB.
In terms of the "ordinary meaning" for any words used in
a treaty (as required in public international law interpretations,
and codified in the Vienna Convention on Law of Treaties, or VCLT),
a "procedure" cannot mean "substantive". No dictionary,
not even Black's Law Dictionary, gives such a meaning. As such the
AB cannot use or derive any substantive rights or duties and responsibilities
other than those prescribed under Art. 17.1, 17.6, and 17.12 and 17.13,
neither create a substantive right for itself nor devolve substantial
responsibility on the AB members or the WTO members.
Article 17.12 stipulates: "The Appellate Body SHALL ADDRESS EACH
OF THE ISSUES RAISED (emphasis added) in accordance with paragraph
6 (17.6 cited above) during the appellate proceedings."
Thus, the use of the mandatory "shall" in 17.12 leaves no
scope for the AB not to address an issue of law raised in the appeal,
on the ground of "exercise of judicial economy" by the AB
and decide not to address a point of law raised, as the US in vetoing
the re-appointment of Prof. Chang has argued.
A comment on this posted at the IELP blog (on Prof Chang's reappointment,
and the US call for exercise of judicial economy), points out that
paragraph 12 of Article 17 of the DSU requires the Appellate Body
to address every issue raised in an appeal. This has been taken to
mean claims in an appeal. "Therefore, in effect, the Appellate
Body has less discretion under the DSU to exercise judicial economy
by ignoring claims than panels."
As the AB, on several occasions has ruled, if members wanted such
exercise of "judicial economy" for whatever reason, they
would have said so!
(* Chakravarthi Raghavan, Editor-Emeritus of the SUNS, contributed
above comment, the first in a forthcoming series, dealing with US
double standards on AB's role, and some substantive issues to be dealt
with in the DSU review.) +