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TWN Info Service on WTO and Trade Issues (Jun16/21)
29 June 2016
Third World Network

 
WTO Members scold an isolated US over AB veto
Published in SUNS #8269 dated 24 June 2016


Geneva, 23 Jun (Kanaga Raja) - Several members of the World Trade Organisation (WTO) on Wednesday (22 June) accused the United States of undercutting the Members' trust - a basic premise that the rules-based WTO system is built upon - in vetoing the re-appointment of Prof. Seung Wha Chang of Korea to the Appellate Body (AB).

This charge was in a joint statement made by Korea on behalf of Brazil, Canada, European Union, Guatemala, India, Indonesia, Israel, Jamaica, Korea, Mexico, Morocco, Sri Lanka, Switzerland, Thailand and Vietnam at a meeting of the Dispute Settlement Body (DSB).

(Once again reportedly no Member expressed explicit support for the US at the meeting.)

In their joint statement, the fifteen WTO Members said while they recognise that a Member may disagree with re-appointment, "we are deeply worried that the reasons provided by a Member for disagreeing with the reappointment are undercutting a basic premise that the rules-based WTO system is built upon: the Members' trust."

Without naming the United States, the fifteen Members expressed "grave concerns that linking reappointment of an AB Member with rulings in specific cases is tantamount to interfering with the Appellate Body's deliberations and thus risks undermining its impartiality and independence."

"Moreover, singling out one AB Member for criticisms directed at the Appellate Body reports is unjustifiable; the reports are those of the 'Appellate Body' and not of an individual AB Member."

These concerns were pointed out in unison by the sitting and former Members of the Appellate Body, they noted.

"We agree that such actions risk creating a dangerous precedent and should not be repeated."

The joint statement said dispute settlement is the central pillar of the multilateral trading system. The impartiality and independence of the Appellate Body is crucial to ensuring the proper functioning and credibility of the WTO dispute settlement mechanism and, in fact, of the entire multilateral trading system.

The fifteen WTO Members said they are also mindful of growing concerns over the possibility of a prolonged vacancy on the Appellate Body, and in this regard, they supported the Chair's efforts to find a solution in a balanced way.

"We look forward to working with all Members to find a constructive path that addresses the systemic concerns raised by Members, bearing in mind the critical role that dispute settlement plays in safeguarding the multilateral trading system."

"Finally, we take this opportunity to reaffirm our trust and confidence in the Appellate Body," they stressed.

In a separate, somewhat more hard-hitting statement, Korea, speaking for itself, said that its concern - first and foremost - is about "a large and influential WTO Member" imposing its own views on the system - and the manner in which it is doing so.

Korea said that a leading Member of the WTO and the dispute settlement system is expected to set an example by acting responsibly and constructively.

"Creating a systemic problem that is more serious and fundamental than the one it is trying to fix is not an appropriate exercise of this important responsibility."

Referring to the four AB reports that the US pointed to at the May DSB meeting in order to justify its unilateral approach, Korea said that "there can be, and in fact are, two sides to the story."

First, regarding DS453 (Argentina - Measures relating to trade in goods and services), it was stated by the Member that in the Appellate Report "more than two-thirds of the Appellate Body's analysis - 46 pages - is in the nature of obiter dicta."

Korea said that what the Member neglects to mention is that Panama actually appealed the Panel's interpretation and application of several key provisions of the GATS, including "treatment no less favourable" - the legal matter in question analysed in the AB report.

DSU Article 17.6 directs the AB to review "issues of law covered in the panel report and legal interpretations developed by the panel". Article 17.12 requires the AB to address each of the issues raised in the appeal.

Korea said that the AB's interpretation of the GATS provisions including the "treatment no less favourable" requirement is a legal interpretation developed by the panel.

"We expect there to be Members in this room who would have questioned why the AB had not addressed the matter, had the AB not done so," it said.

In fact, it said, at the DSB meeting on 9 May where the AB report was adopted, the usefulness of the AB's ruling was acknowledged by a Member in the following: "[R]egarding the "treatment no less favourable" standard to be applied under GATS Articles II:1 and XVII, we welcome the Appellate Body's clarification, at para 6.111, that the analysis should assess whether the measure at issue modifies the conditions of competition to the detriment of like services or service suppliers in question. ..."

Moreover, said Korea, DSU Article 3.2 makes it clear that the dispute settlement mechanism serves to "clarify the existing provisions of [the covered] agreements."

Clarification of the agreements can be helpful in providing guidance to Members, traders and future panels.

It may, contrary to what one Member implies, actually lessen the AB's workload by promoting the predictability of the agreements and lowering the desire or the need to re-litigate the same legal issues, Korea underlined.

Regarding DS430 (India - Measures concerning the importation of certain agricultural products), it was stated that "the appellate report engaged in a lengthy abstract discussion of a provision of the SPS Agreement without ever tying that discussion to an issue on appeal."

According to Korea, the "abstract discussion" that is being criticised here is the AB's overview of Article 6 of the SPS Agreement.

In this dispute, India specifically appealed the issue of the relationship between Articles 6.1 and 6.3 of the SPS Agreement.

The AB's transgression, according to one Member, is that it looked more broadly at Article 6 before turning to the specific interpretative issue raised by India.

Korea cited the AB's reasoning for doing so: "Before addressing this interpretative issue [raised by India], we seek to situate the relationship between Articles 6.1 and 6.3 within the broader scheme of Article 6. We think it useful to begin by considering the content and structure of Article 6 as a whole, and the relationship among its three paragraphs. [T]he considerations above show the existence of important common elements throughout Article 6, which reveal the inter-linkages that exist among the paragraphs of this provision."

Korea cited the argument that the US itself presented before the Panel: "Each of the 3 paragraphs under Article 6 should be read together. That is, each paragraph provides context for the other, and Article 6 must be read so that it works as a coherent whole, while the language in each of the three paragraphs is respected."

"We would let these words speak for themselves," said Korea.

Regarding DS437 (United States - Countervailing duty measures on certain products from China), it was stated that the "approach [in the appellate report] suggest that panels and the Appellate Body are to conduct independent investigations and apply new legal standards, regardless of what either party actually argues to the panel or Appellate Body."

According to Korea, this "vague criticism" avoids mentioning that the AB in fact declined to complete the analysis with respect to many claims because it did not consider that "the participants ha[d] addressed sufficiently ... the issues that [the AB] might need to examine if [it] were to complete the legal analysis."

With respect to a limited number of other claims, the AB completed the analysis on the basis of undisputed facts and the factual findings of the Panel.

The AB did seek clarification of undisputed facts at the oral hearing, "but we fail to see how this amounts to conducting 'independent investigations'," said Korea.

Regarding DS449 (United States - Countervailing and anti-dumping measures on certain products from China), it was claimed that the AB report "risk[ed] turning the WTO dispute settlement system into one that would substitute the judgement of WTO adjudicators for that of a Member's domestic legal system as to what is lawful under that Member's domestic law."

Korea said that on ascertaining the meaning of domestic law, the US is certainly entitled to its approach, which is that it should be assessed in accordance with the domestic legal system, including US constitutional principles.

On the other hand, the AB report takes the following view: [I]n ascertaining the meaning of municipal law, a panel should undertake a holistic assessment of all relevant elements, starting with the text of the law and including, but not limited to, relevant practices of administrative agencies ... All of these assessments are subject to the circumstances of each case, including the national legal system in which the municipal law operates."

Korea believed that this approach is no less valid than the one argued by a Member. The WTO agreements reveal no preference as to how the meaning of municipal law should be ascertained.

Korea failed to see how subjecting AB assessments on the meaning of municipal law "to the circumstances of each case, including the national legal system in which the municipal law operates" is tantamount to "substitut[ing] the judgment of WTO adjudicators for that of a Member's domestic legal system."

Moreover, said Korea, the AB in this dispute closely followed the approach that was laid out repeatedly in previous disputes including US - Carbon steel (DS213).

In stark contrast to the position it says it is taking now, the US praised the AB's ruling of the issues in DS213, applauding it as a "model" decision.

"This demonstrates our point, yet again, that views on a legal matter can - and indeed do - vary across different Members, and in this case even for a particular Member. And it is telling that the AB decided in the end not to complete the legal analysis," said Korea.

Korea noted that it was stated at the last meeting that one Member is "concerned about the manner in which [an AB] member has served at oral hearings, including that the questions posed spent a considerable amount of time considering issues not on appeal or not focused on the resolution of the matter between the parties."

Korea said that this attempt to place constraints on Division Members' questioning at oral hearings is deeply troubling.

Division Members ask questions in order to better understand the issues in their appropriate context, and to provide participants a full opportunity to make their views known.

AB members must be allowed this discretion. Indeed, the AB's engagement with the issues at oral hearings is often praised by participants and third participants alike.

According to Korea, what is remarkable is not that a WTO Member is taking positions on legal matters, but that it finds it acceptable to impose its views on the Membership by ousting an adjudicator about whom it has developed a certain impression that the individual in question must take the fall for the AB's perceived failings.

"This approach is not only unbecoming of a leader of the multilateral trading system; it is also destabilising," said Korea.

Earlier, the Chair of the DSB, Ambassador Xavier Carim of South Africa, reported that there is still no agreement among members on how to fill the two vacancies.

(One vacancy was the result of the non reappointment of Mr Chang of Korea whose first term had expired on 31 May, and the other as a result of the expiry on 31 May of the second term of office of Ms Yuejiao Zhang.)

According to trade officials, the Chair held consultations on 8 and 9 June with 14 delegations.

Reporting on those consultations, the Chair said that "we are not yet in a position to move towards filling either of the two current vacancies in the Appellate Body."

"We do not have agreement among members to take action to fill the vacancy created by the non reappointment of one Appellate Body member [Mr Chang]."

He said that "the consultations also revealed that the two current vacancies may need to be considered together."

The Chair urged members to intensify the discussions so that a decision can be taken by the next DSB meeting on 21 July.

He noted that in his consultations, he had asked members not only on how the two vacancies can be filled but also what needs to be changed to avoid this situation again in the future.

On the latter question, he said that consultations showed that a separate session on what changes are needed and how reappointments are reviewed should be held to tackle those issues.

Later, in reporting on the workload of the DSB, the Chair noted that there will likely be a waiting period for resolving appeals because there is already a shortage of staff in the AB Secretariat and there is a growing number of appeals coming in.

"The two vacancies on the Appellate Body are likely to exacerbate this situation," he warned.

According to trade officials, several members including Peru, China, Chile, New Zealand, Chinese Taipei, Australia, Norway, Japan and Canada called for a pragmatic and flexible approach in order to quickly fill the vacancies.

Peru said that the responsibility is on all members to ensure the smooth functioning of the system. We should show pragmatism and flexibility, it said.

Morocco, on behalf of the African Group, said that this issue undermines integrity and rule of law of the dispute settlement system.

The Dominican Republic expressed support for Korea, while Oman said that it is high time to prevent such situations from recurring.

China said that it shares the views and concerns of many WTO members. The AB plays a fundamental role in the WTO dispute settlement mechanism which is an important and central pillar of the multilateral trading system.

In order to enhance the security and predictability of the rules of international trade embodied in the WTO Agreements, it is critical to safeguard the independence and impartiality of Appellate Body Members.

Linking the reappointment of an Appellate Body member to the rulings in specific cases could have serious consequences on the independence and impartiality of Appellate Body members and on the WTO Members' trust and confidence in the Appellate Body.

China invited WTO members to carefully consider the systemic impact of this matter, and urged Members to maintain the efficiency, impartiality, stability and predictability of the system.

Noting the increasing concerns over the vacancy on the Appellate Body and its workload, China urged WTO Members to appropriately resolve the situation as soon as possible in order to safeguard the smooth operation of the Appellate Body and the WTO dispute settlement mechanism.

According to trade officials, the US said that its position is clear and will not change. For several years, it had already raised its systematic concerns with members and it will work with the DSB for a consensus to fill the current vacancies, the US maintained.

OTHER ACTIONS

The DSB agreed to establish two compliance panels. One was at the request of the US over Chinese anti-dumping and countervailing duty measures on broiler products from the US.

The EU, Canada and Japan reserved their third party rights to the dispute.

The second compliance panel established was at the request of Mexico over measures imposed by the US concerning the importation, marketing and sale of tuna and tuna products (the 'dolphin-safe' labelling dispute).

The EU, Japan, Brazil, Australia, Canada, China, Guatemala, Korea, Norway and New Zealand reserved their third party rights to the dispute.

Meanwhile, a request for the establishment of a panel by Japan to examine Korean anti-dumping duties on pneumatic valves from Japan was blocked by Korea.

Also, a request for the establishment of a panel by Canada to examine countervailing measures imposed by the US on super-calendered paper from Canada was blocked by the US.

Both were first-time requests and panels establishment will be automatic when the requests come up again at the DSB.

Meanwhile, the DSB adopted the Appellate Body and panel reports in the dispute raised by Panama over measures imposed by Colombia relating to the importation of textiles, apparel and footwear.

CANADIAN PROPOSAL ON DISPUTE SETTLEMENT PROCEDURES

Canada made a proposal for interested members to voluntarily agree on improvements to the dispute settlement procedures.

According to trade officials, it said that previously - many years ago - there has always been attempts to amend the Dispute Settlement Understanding (DSU) to streamline processes so that the strain on the system can be lifted.

Noting that this has not resulted in any success or changes, Canada instead invited members to agree among themselves on dispute settlement procedures.

It circulated five room documents, inviting interested members to voluntarily suggest and agree to the procedural agreements.

According to trade officials, Canada said that these agreements will only be implemented in disputes involving participating members.

Canada expressed hope that this could eventually be expanded to the whole membership and codified. It invited members to signal their interest to participate by the end of this week.

The five documents are titled as follows: Statement on a Mechanism for Developing, Documenting and Sharing Practices and Procedures in the Conduct of WTO Disputes; Additional Practices and Procedures in the Conduct of WTO Disputes: Written Notifications; Additional Practices and Procedures in the Conduct of WTO Disputes: Improving and Streamlining Dispute Proceedings; Additional Practices and Procedures in the Conduct of WTO Disputes: Participation of Third Parties in Dispute Proceedings; Additional Practices and Procedures in the Conduct of WTO Disputes: Transparency of Dispute Proceedings.

According to trade officials, Switzerland, Australia, Chinese Taipei and New Zealand expressed support for this effort, while several others said that they will need to review the proposal closely on whether to participate.

WORKLOAD OF THE DSB

Under 'other business', the Chair reported that there are 17 active panels that have not yet issued a final report to the parties.

He said that we are counting multiple disputes that are being considered simultaneously by the same panel as one, citing as an example the Australia tobacco plain packaging dispute, which in fact comprises four active disputes.

This number does not include suspended panels, he said. As of today, there are two composed panels awaiting staff to assist them, both of which were composed after 31 October 2015.

As of today, there are six panels at composition stage and one matter has been referred to arbitration, the Chair said.

 


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