Info Service on WTO and Trade Issues (Oct18/05)
9 October 2018
Third World Network
US continues to stymie WTO efforts over AB appointments
Published in SUNS #8765 dated 3 October 2018
Geneva, 2 Oct (Kanaga Raja) -- The United States, at a meeting of
the Dispute Settlement Body (DSB) of the World Trade Organisation
(WTO) on 26 September, again blocked the consensus to launch the selection
processes to fill four vacancies on the seven-member Appellate Body
At the meeting, the US again declared that it was not in a position
to agree to a joint proposal sponsored by some 68 WTO Members that
called for the simultaneous launch of the selection processes to fill
the four vacancies on the Appellate Body as soon as possible.
Two Appellate Body members whose second and final four-year terms
have expired are Mr Ricardo Ramirez- Hernandez and Mr Peter Van den
Mr Ramirez-Hernandez's second term expired on 30 June 2017, while
that of Mr Van den Bossche expired on 11 December 2017.
Another vacancy pertains to Mr Hyun Chong Kim from South Korea who
had tendered his resignation with immediate effect on 1 August 2017,
prior to taking up his appointment as a minister in the Korean government.
A fourth vacancy concerns the departure of Appellate Body member Mr
Shree Baboo Chekitan Servansing, whose first term ended on 30 September
At the last meeting of the DSB on 27 August 2018, the US had informed
that it was not in a position to agree to the reappointment of Mr
Servansing to a second term, given that its longstanding concerns
about the Appellate Body's alleged disregard for the rules set by
WTO Members have not been addressed. (See SUNS #8743 dated 30 August
At the DSB meeting on 26 September, a proposal on Appellate Body appointments
was introduced by Mexico, on behalf of the 68 co-sponsors.
The co-sponsors of the joint proposal included Argentina; Australia;
Bolivia; Brazil; Canada; Chile; China; Colombia; Costa Rica; Dominican
Republic; Ecuador; Egypt; El Salvador; the European Union (28 member
states); Guatemala; Honduras; Hong Kong-China; Iceland; India; Indonesia;
Israel; Kazakhstan; Korea; Mexico; New Zealand; Nicaragua; Norway;
Pakistan; Panama; Paraguay; Peru; the Russian Federation; Singapore;
Switzerland; Chinese Taipei, Ukraine; Uruguay; Venezuela; and Viet
According to the joint proposal (WT/DSB/W/609/Rev. 5), given the urgency
and importance of filling the vacancies in the Appellate Body, in
compliance with the DSU and so that it can carry on its functions
properly, the delegations above, proposed that, at its meeting, the
DSB takes a decision with regard to the following:
(1) to launch: (i) one selection process to replace Mr. Ricardo Ramirez-Hernandez,
whose second four year term of office expired on 30 June 2017; (ii)
a second selection process to replace Mr. Hyun Chong Kim, who resigned
from the Appellate Body as of 1 August 2017; (iii) a third selection
process to replace Mr. Peter Van den Bossche, whose second four year
term of office expired on 11 December 2017; and (iv) a fourth selection
process to replace Mr. Shree Baboo Chekitan Servansing, whose four-year
term of office expires on 30 September 2018;
(2) to establish a Selection Committee, consistent with the procedures
set out in document WT/DSB/1 and with previous selection processes,
composed of the Director-General and the Chairpersons of the General
Council, the Goods Council, the Services Council, the TRIPS Council
and the DSB, to be Chaired by the DSB Chair;
(3) to set a deadline of a 30-day period after the date of its decision,
for Members to submit nominations of candidates; and
(4) to request the Selection Committee to carry out its work in order
to make recommendations to the DSB within 60 days after the deadline
for submitting nominations of candidates, so that the DSB can take
a decision to appoint four new Appellate Body members as soon as possible.
In its statement at the DSB, the United States said that as it has
explained in prior meetings, "we are not in a position to support
the proposed decision."
"The systemic concerns that we have identified remain unaddressed,"
said the United States.
"For example, at the DSB meeting in August of 2017, we made clear
our concerns with the issuance of appellate reports by individuals
who are no longer members of the Appellate Body. Yet, one year later,
an individual who is not currently a member of the Appellate Body
continues to decide appeals."
"As we have explained many times, it is for the DSB, not the
Appellate Body, to decide whether a person who is no longer an Appellate
Body member can continue to serve on an appeal."
The United States referred back to its statements at earlier DSB meetings
for more elaboration on its concerns.
"We therefore will continue our efforts and our discussions with
Members and with the Chair to seek a solution on these important issues,"
said the United States.
Argentina, Brazil, Thailand, China, Australia, Norway, Switzerland,
Korea, Japan, Singapore, Chinese Taipei, India, Hong Kong-China, New
Zealand, Mexico (for itself), the European Union, Costa Rica (for
the GRULAC group of Latin American and Caribbean countries), Uganda,
Ukraine, Turkey, Egypt, Pakistan and South Africa took the floor on
According to trade officials, they again reiterated their concerns
over the continued impasse concerning the appointment of new Appellate
They urged all members to show flexibility in order to resolve the
deadlock as soon as possible.
Several highlighted the growing dangers that the continued impasse
posed not only to the dispute settlement system but the WTO as a whole,
and that members had an obligation under the WTO rules to initiate
the selection process.
According to trade officials, Russia accused the United States of
taking deliberate actions to undermine the WTO's dispute settlement
system and paralyze the Appellate Body.
Russia said that it was nothing more than an attempt by one member
to pursue its agenda at the cost of all members.
It also said that the refusal by the United States to engage on the
matter made it impossible to challenge the recent unilateral trade
actions taken by the US through dispute settlement, and that this
did not appear to be a coincidence.
Canada said that it was disappointed with the US decision to block
the re-appointment of Mr. Servansing to a second four-year term as
Appellate Body member and thanked him for his service.
STATEMENT BY HONDURAS ON THE APPELLATE BODY
Honduras made a statement on fostering discussion on the functioning
of the Appellate Body whereby it outlined some ideas on addressing
one of the concerns raised by the US regarding the Appellate Body,
namely the practice of allowing Appellate Body members whose terms
have expired to continue working on cases without the approval of
This practice is set out in Rule 15 of the Working Procedures for
According to trade officials, Honduras said that as a small developing
country active in dispute settlement, it attached great importance
to the Appellate Body, whose survival is at stake.
According to Honduras, there are currently no specific criteria under
Rule 15 for determining when an Appellate Body member should continue
to serve on an appeal.
In its non-paper (Job/DSB/2), Honduras outlined a number of options
for "objective and reasonable criteria" to be considered.
Regarding the issue of when an Appellate Body member can continue
to serve beyond the four-year term for the purpose of completion of
duties on an appeal:
a. An Appellate Body member shall be able to continue to serve on
cases where the oral hearing has occurred or started. [On a case where
a hearing has not been yet, the outgoing Appellate Body member should
be replaced with an alternate Appellate Body member.]; or,
b. No member of the Appellate Body shall be assigned to a new appeal
later than 60 days before the final date of his/her appointment.
Regarding the issue of who decides if an Appellate Body member should
serve after his/her four-year term has expired:
a. The Appellate Body can continue to apply Rule 15 of the Working
Procedures which allows an Appellate Body member to complete his/her
work on ongoing appeals subject to approval by the Appellate Body
and upon notification to the DSB;
b. In the event WTO Members alternatively decide that the DSB should
approve the continuation of an Appellate Body member under Rule 15,
the reverse consensus rule could apply. This would avoid a situation
where an Appellate Body member who meets the relevant criteria could
be blocked by a single WTO Member;
c. In the event WTO Members decide that the DSB should approve the
continuation of an Appellate Body member under Rule 15, an alternate
approach could be that the positive consensus or positive consensus
minus the parties of the dispute could apply.
Honduras said that it hoped to start a multilateral discussion on
the issue in-house in order to restore the full functioning of the
dispute settlement system.
According to trade officials, most of the members who took the floor
to comment on the proposal welcomed the initiative from Honduras.
They said that it was a good basis for starting a discussion on the
issue, even if some were of the view that Rule 15 was not a problem
According to trade officials, Canada, Japan, Thailand and China commented
on the details of the proposal. They asked how the different options
would work under different scenarios and expressed preference for
one option or another.
Several said that it was important for members to engage in the discussions
The United States thanked Honduras for its non-paper and for placing
this item on the agenda for the meeting.
It said that it looked forward to hearing other Members' views on
the options for addressing the concerns that the United States has
been raising for over a year.
"We appreciate that the non-paper provides some of the possible
options and that it recognizes that there may be other possible approaches.
We would be interested in hearing of other approaches that Members
are considering," it said.
CHINA'S STATEMENT ON ARTICLE 17.6 OF THE DSU
China made a statement concerning Article 17.6 of the Dispute Settlement
Understanding, in which it addressed the concerns raised by the US
at the last meeting of the DSB on 27 August over Article 17.6 and
Appellate review of panel findings of fact, including domestic law.
The US had criticized the Appellate Body for what it said was the
AB's consistent review and reversal of "fact- finding" by
WTO panels. (See SUNS #8742 dated 29 August 2018).
In its statement, China noted that at the DSB meeting on 27 August,
the US addressed two related issues: first, the scope of the Appellate
Body's review of a panel's factual findings, and second, the scope
of its review of the meaning of municipal law as part of a panel's
The US claims that the Appellate Body has exceeded its mandate, said
China said that the WTO dispute settlement system is an effective
and successful international system for dispute settlement. Over the
past 23 years, it has received 566 cases and helped the WTO Members
to address hundreds of disputes.
The Appellate Body, which is the subject of this debate, is an extremely
important part of the WTO dispute settlement system.
It is widely regarded as having made important contributions in clarifying
WTO rules and providing security and predictability to the multilateral
However, said China, due to continuous failures to launch the Appellate
Body selection process and to reappoint an Appellate Body member,
the Appellate Body and the WTO dispute system is in a historically
China said that based on its understanding of relevant DSU provisions
and practices, whether a panel makes an objective assessment of facts
under DSU Article 11 is within the scope of the appellate review.
It also said that the categorization of a Member's municipal law is
a long-lasting vexation among adjudicators, especially when the tribunal
is called upon to assess the conformity of municipal law with relevant
Generally speaking, said China, the meaning of domestic law is an
issue of fact, but the legal characterization is a legal issue subject
to appellate review.
According to China, the WTO dispute settlement system is founded on
a two-tier system of review that consists of panels and the Appellate
Body, which have different tasks within the system.
A panel's tasks are to make findings regarding the facts and the applicable
law, and to apply the law to the facts to reach a decision. In carrying
out its work, a panel should act under legal constraints prescribed
by the DSU.
Article 11 of the DSU, in particular, provides that a panel "should"
make an objective assessment of the matter, including of the facts.
Article 17.6 of the DSU provides that an appeal shall be limited to
issues of law covered in the panel report and legal interpretations
developed by the panel.
The Appellate Body has consistently recognized that it plays a limited
role in the system, as compared with panels.
The Appellate Body defers to a panel's role as the "trier of
fact", and the Appellate Body does not make its own factual findings.
Indeed, said China, even when the Appellate Body seeks to resolve
a dispute by completing the analysis, it does not make its own factual
findings. The Appellate Body has therefore undertaken only limited
review of a panel's factual findings.
China noted that at the last DSB meeting (in August), the US argued
that panels are not legally required to make an "objective assessment"
because Article 11 uses the word "should" rather than "shall".
This argument continues that, absent a legal requirement to make an
objective assessment, the Appellate Body cannot review a panel's assessment
of the facts.
China said that it is surprised by the US argument.
In China's view, although "should" and "shall"
may bear some difference in meaning, it is inconceivable that the
Members did not impose, in the DSU, a legal requirement on panels
to make an objective assessment.
The Members' use of the word "should" in Article 11 of the
DSU is more than adequate to convey that panels are legally required
to make an objective assessment. This word supports the position taken
by the Appellate Body and Members in past appeals, it said.
Members have conferred authority on panels to resolve disputes. However,
the DSU requires that panels must do so only through an objective
This limitation on a panel's authority is both appropriate and necessary
to ensure that panels make decisions that are independent and neutral.
If the standard is not objectivity, China cannot imagine what other
type of assessment the US would consider appropriate, it said.
Following some further detailed analysis, China concluded that a panel
is under obligation to carry out an objective assessment of facts
according to Article 11 of the DSU, and the Appellate Body can review
whether a panel properly discharged its objective assessment obligation
in accordance with Article 11.
On the issue of categorization of a Member's municipal law, China
said that while municipal law is usually at the heart of international
disputes, it is principally recognized as an issue of fact in various
However, stating the principle in the abstract is one thing, applying
it to specific cases can be more complicated, said China.
In the WTO system, the proper assessment of municipal law is critical
to the success of dispute settlement in a variety of ways, it added.
In an "as such" case regarding laws and regulations, the
assessment of municipal law lies at the heart of the dispute.
In cases regarding ongoing conduct and measures involving systematic
application, the assessment of municipal law is central to both the
existence and content of the measure.
In certain "as applied" cases, the municipal law underpinning
the measure at issue can also be important as part of the surrounding
context of that measure, said China.
China argued that a panel's enquiry into municipal law does not end
with establishing its meaning as a matter of fact.
A crucial part of the enquiry is characterizing municipal law as a
matter of WTO law. Every case involving municipal law is likely to
raise such a question of legal characterization which usually is very
important to the heart of disputes.
For example, said China, does municipal law involve WTO-inconsistent
conduct, such as the grant of a "prohibited subsidy", the
"less favourable treatment" of imported goods and so on?
Or, in a dispute involving a Member's ongoing conduct, does municipal
law entail conduct that can properly be characterized as a "measure"
under WTO law?
According to China, countless such questions of characterization may
arise. Applying the law requires a substantial factual analysis, and
the fact identification and law application determinations are closely
The characterization of facts, including the characterization of municipal
law, is a legal issue under WTO law. In characterizing the facts,
a panel is not engaged in fact-finding, but is applying the law to
Taking the examples just listed, a panel may be required to determine
whether the relevant municipal law involves a "subsidy"
or "less favourable treatment", or whether it amounts to
a "measure", said China.
China understands that the US agrees that such questions of legal
characterization are questions of law that may be appealed.
Further, these appeals do not arise under Article 11 of the DSU. They
arise under the legal provision that a panel is applying.
China summarised that it seems that the Appellate Body has attempted
to draw a line between a panel's findings on the meaning of municipal
law, which must be appealed under Article 11 of the DSU and will be
upheld unless the panel's assessment is not objective, and its findings
on the characterization of municipal law, as a matter of WTO law,
which must be appealed under the legal provision that the panel applied.
China said that in its view, in light of the DSU, the Appellate Body
has been correct in its effort to draw this line.
Not surprisingly, this line is not easy to draw in practice, with
questions of the meaning and characterization of municipal law very
often being difficult to untangle.
There is no such clear-cut rule with respect to drawing this line.
We all have to deal with the un-perfect within this system, said China.
The US said that Article 17.6 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (DSU) and appellate review of
panel findings of fact, including domestic (or municipal) law, is
an important systemic issue with significant implications for the
operation of the dispute settlement system.
For a thorough discussion of these issues, it referred delegations
to the statement that it had made at the DSB meeting on 27 August.
In providing some initial reactions to China's statement, the US said
in DSU Article 11, Members agreed that "a panel should make an
objective assessment of the matter before it, including an objective
assessment of the facts of the case and the applicability of and conformity
with the relevant covered agreements".
In other words, WTO panels are to make factual and legal findings.
By contrast, under DSU Article 17.6, Members agreed that the Appellate
Body would have a significantly more limited role than panels. Article
17.6 of the DSU expressly limits the scope of appellate review: "[a]n
appeal shall be limited to issues of law covered in the panel report
and legal interpretations developed by the panel."
On its face, this would not include panel fact-finding and, thus,
appellate review of factual findings would appear to be contrary to
the Appellate Body's limited authority under Article 17.6 of the DSU,
said the US.
According to the US, as previously discussed, the Appellate Body's
decision to undertake a review of panel fact- finding has had a number
of adverse effects on the dispute settlement system, including an
increased workload due to the number of appeals under Article 11.
This, in turn, has increased the complexity of appeals, the length
of submissions, and the need for the Appellate Body to devote additional
time and resources to such appeals to become familiar with the basis
for panels' factual findings.
With regard to municipal law, the US said that in the WTO system,
as in any international law dispute settlement system, the meaning
of municipal law is an issue of fact.
The interpretation and application of the relevant covered agreement
would be the issues of law for the WTO dispute settlement system.
The Appellate Body's erroneous approach to municipal law eliminates
the lines explicitly drawn by Members in the DSU between factual and
legal issues, and is inconsistent with the appropriate functioning
of the dispute settlement system.
It departs from the basic division of responsibilities where panels
determine issues of fact and law, and the Appellate Body may be asked
to review specific issues of law and legal interpretations, the US
The US said for the reasons it had explained at the DSB meeting on
27 August, and again today, "we do not see how one reconciles
the Appellate Body's review of panel fact-finding with the express
limitation in Article 17.6 of the DSU of appellate review to legal
The US maintained that as with the Appellate Body's impermissible
review of panel findings of fact more generally, the Appellate Body's
treatment of municipal law represents a departure from the agreed
text of the DSU and a serious waste of the limited resources of the
WTO dispute settlement system.
Numerous WTO Members have regretted the complexity of and delays to
WTO dispute settlement system, and here is one reason, added to the
system by the Appellate Body, it said.
According to trade officials, Japan, Brazil, Canada, Mexico, the European
Union and Chile spoke under this agenda item.
Most of them supported the notion that the Appellate Body could review
panel fact-finding and interpretations of municipal law, albeit in
Brazil said the US traces its concerns back to the Appellate Body
ruling in EC-Hormones (DS26) but expressed no criticisms at the time.
Likewise in US - Conditional Tax Incentives for Large Civil Aircraft
(DS487), the US did not accept the panel's finding of fact on municipal
law but asked the Appellate Body to review the panel's assessment
In other cases where the US has expressed criticisms, no other member
supported the US objections, said Brazil.
Canada said it was open to discussion on the matter. It was appropriate
for the Appellate Body to establish a standard of review for fact
finding to discourage members from advancing unnecessary arguments,
For those who consider that the Appellate Body should entirely refrain
from any review of factual finding, Canada said they should contemplate
a scenario where an egregious panel finding of fact results in an
outcome that has serious and negative consequences for a key industry
in that member's jurisdiction.
Mexico said it was surprised that after more than 20 years and 500
rulings, the US was now taking the view that the Appellate Body had
invented the authority to review findings of fact, something with
which Mexico does not agree.
The EU said it was open to discussion on the issue. It said that the
issue has been raised in many cases by many members in appeals.
Chile said that it was willing to look for solutions to the matter.