TWN Info Service on WTO and Trade Issues (Nov18/05)
7 November 2018
Third World Network

Dedicated process to begin addressing AB crisis
Published in SUNS #8788 dated 5 November 2018

Geneva, 2 Nov (D. Ravi Kanth) - Trade envoys from select countries on Wednesday gave their approval for initiating a dedicated process on a "non-negotiating framework" at the World Trade Organization (WTO) General Council for addressing the current crisis caused by the United States at the Appellate Body (AB), which has now been reduced to three members, trade envoys told SUNS.

At an urgently convened "green room" meeting attended by several trade envoys on Wednesday, the WTO Director-General Roberto Azevedo informed the participants about starting a dedicated process for discussing the proposals raised by several members - the European Union, Canada, and Honduras among others - for addressing the current crisis at the AB, including reforms to the Dispute Settlement Understanding (DSU).

Close on the heels of the just-concluded Ottawa ministerial meeting on 25 October, the DG suggested that issues involving DSU reform could be addressed at the General Council (GC) on a sustained basis, said several trade envoys who asked not to be identified.

The DG urged the participants at the green room meeting to come up with proposals in addition to those proposals that were circulated by some members.

He suggested that the EU will soon circulate a non-paper to start the discussions at the GC meeting in December, trade envoys said.

Azevedo said that he had held discussions with the US on the DSU reforms but did not divulge what the US Trade Representative Ambassador Robert Lighthizer or his deputies had conveyed until now, according to the trade envoys present at the meeting.

The US deputy trade representative and envoy to the WTO, Ambassador Dennis Shea, who took part in the meeting, insisted that his country would discuss issues concerning reforms of the dispute settlement system only on the basis of a "non-negotiating framework", without committing what the US plans to do, said trade envoys present at the meeting.

Ambassador Shea said it had already listed several concerns about the functioning of the Appellate Body, the highest adjudicating arm for resolving global trade disputes.

Significantly, the US has only raised concerns about the functioning of the AB and how the AB members went beyond their mandate until now, while blocking proposals for launching an expeditious selection process for filling the four vacancies at the AB.

"The US, however, did not offer any concrete suggestions or proposals for addressing the DSU reform," said a trade envoy from an industrialized country.

"So far, we only heard about the US concerns on the AB but not what it wants in terms of concrete changes at the AB or in the DSU," the envoy added.

"Nobody knows whether the US will allow the resurrection of the AB that will become ineffectual and dysfunctional from December 2019, when the AB will be reduced to one member," said another trade envoy, who asked not to be quoted.

"Besides, the US insistence on having discussions for DSU reforms on the basis of a non-negotiating framework is somewhat puzzling," the trade envoy said.

At a closed-door meeting convened by the WTO DG Azevedo on Wednesday, trade envoys from more than two dozen countries agreed, for the first time, to start a dedicated process on a stand-alone basis at the General Council for discussing proposals that would address reforms of the dispute settlement system, including the solutions for breaking the logjam at the Appellate Body.

The DG's decision to hold the green room meeting all of a sudden after the Ottawa informal ministerial meeting in which he took part cast serious doubts about the integrity of the process that will be taken up at the GC meetings for the next several months.

"Perhaps the dedicated, stand-alone discussions on DSU reforms is a red herring for carrying out the proposed reforms in two areas - negotiating function and the enhanced role for the WTO Secretariat - stealthily at the WTO's 12th ministerial conference," said another trade envoy, who asked not to be quoted.

"While the discussions on the DSU reform will go on endlessly, the other two sides of reforms - the negotiating function and the WTO Secretariat - could be sewed up by the time trade ministers congregate at Astana, Kazakhstan, in June 2020," the envoy maintained.

The US, which has consistently blocked repeated attempts by a large majority of countries for launching an expeditious selection process for filling four vacancies at the AB, said it had already listed several concerns about the functioning of the AB, such as the AB's failure to meet the 90-day limit for issuing rulings and the AB's rulings that went beyond the mandate among others, according to trade envoys who asked not to be quoted.

The US has raised various concerns about the AB at the DSB meetings over the past several months.

According to the Washington Trade Daily of 2 November, the US concerns include:

* AB interpretations that significantly restrict the ability of members to counteract trade-distorting subsidies provided through state-owned enterprises;

* Creation of a new category of prohibited subsidies that was neither negotiated nor agreed by WTO members;

* Ignoring the 90-day deadline for completing the appeals;

* Disregarding the requirement in the DSU to provide within 60 days an estimate of the period within which it will submit its report;

* Continued service by persons who are no longer AB members;

* Failure to follow rules that prohibit non-AB members from deciding appeals;

* Issuing advisory opinions on issues not necessary to resolve a dispute. The United States has been increasingly concerned by the tendency of WTO reports to make findings unnecessary to resolve a dispute or on issues not presented in the dispute. The purpose of the dispute settlement system is not to produce reports or to "make law," but rather to help members resolve trade disputes among them;

* The AB's approach to reviewing facts. Article 17.6 of the DSU limits an appeal to "issues of law covered in the panel report and legal interpretations developed by the panel." Yet the Appellate Body has consistently reviewed panel fact-finding under different legal standards, and has reached conclusions that are not based on panel factual findings or undisputed facts.

* The United States has also noted with concern the Appellate Body's review of the meaning of the member's domestic law that is being challenged. In a WTO dispute, the key fact to be proven is what a member's challenged measure does (or means), and the law to be interpreted and applied are the provisions of the WTO agreements. But the Appellate Body consistently asserts that it can review the meaning of a member's domestic measure as a matter of law rather than acknowledging that it is a matter of fact and thus not a subject for Appellate Body review;

* Without basis in the DSU, the AB has asserted that its reports effectively serve as a precedent and that panels are to follow prior AB reports absent "cogent  reasons. ... This is not consistent with WTO rules."

At the closed-door meeting, South Africa sought a clear roadmap and timetable for addressing the grave crisis affecting the functioning of the Dispute Settlement Body, particularly the AB that is now reduced to three members.

Unless the AB crisis is resolved, it is meaningless to discuss or talk about new issues, South Africa suggested.

South Africa also posed a question whether any amendments to the provisions in the DSU will need prior parliamentary approval, according to trade envoys present at the meeting.

The EU said that it will suggest clear ideas for the discussion while China welcomed the proposed discussions, including the EU's non-paper.

In conclusion, the developing and poorest countries must remain cautious about the dedicated discussions on DSU reform which could be a Penelope ruse to intensify discussions on the negotiating side for launching plurilateral discussions and enhancing the role of the WTO Secretariat, trade envoys said.

[In 1994 at Marrakesh, in setting up the integrated dispute settlement system at the WTO (the DSU as part of the WTO treaty), the ministerial meeting agreed that the DSU needs to be reviewed in the light of its working, and this must be taken up within four years from entry into force of the WTO Agreement.

[This issue was on the agenda of the WTO's Seattle ministerial, but that meeting ended in failure or rather got aborted, as a result of some deliberate staged demonstrations by the Clinton administration that however lost control over the demonstrations.

[Since then the review of the DSU has been on the WTO agenda, reiterated at Doha in 2001, but separated from the Doha single undertaking. However, the reforms, even modest proposals from developing countries (such as requiring any Secretariat brief to a panel to be made available to parties for comment), were blocked by the US, EU and their camp followers. The Secretariat from behind played an important role in blocking any review. It is thus ironical that the DG and the Secretariat are now pushing this issue. See also "The World Trade Organisation and its Dispute Settlement System: Tilting the balance against the South" by Chakravarthi Raghavan, TWN Trade & Development Series No. 9. - SUNS]