WTO members scold an isolated US over AB veto

The US has come under fire at the WTO for blocking reappointment of an Appellate Body member, a move which several countries saw as “unjustifiable” and undercutting states’ trust in the WTO system.

by Kanaga Raja

GENEVA: Several members of the WTO have accused the United States of undercutting the members’ trust – “a basic premise that the rules-based WTO system is built upon” – in vetoing the reappointment of 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, the European Union, Guatemala, India, Indonesia, Israel, Jamaica, Korea, Mexico, Morocco, Sri Lanka, Switzerland, Thailand and Vietnam at a 22 June meeting of the WTO’s Dispute Settlement Body (DSB).

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

In their joint statement, the 15 WTO members said while they recognize that a member may disagree with reappointment, “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 US, the 15 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 AB, the 15 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 AB 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 15 WTO members said they are also mindful of growing concerns over the possibility of a prolonged vacancy on the AB, and in this regard, they supported the DSB 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.

Systemic problem

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 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 rulings that the US had pointed to at the DSB in May in order to justify its veto of Chang’s reappointment, Korea said that “there can be, and in fact are, two sides to the story.”

First, regarding dispute DS453 (“Argentina – Measures relating to trade in goods and services”), it was stated by the member that in the AB 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 had actually appealed the original dispute panel’s interpretation and application of several key provisions of the General Agreement on Trade in Services (GATS), including “treatment no less favourable” – the legal matter in question analyzed in the AB report.

Article 17.6 of the WTO’s Dispute Settlement Understanding 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 as follows: “[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, Article 3.2 of the Dispute Settlement Understanding 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 dispute 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 [Sanitary and Phytosanitary Measures] Agreement without ever tying that discussion to an issue on appeal.”

According to Korea, the “abstract discussion” that is being criticized 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 had 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.

“Vague criticism”

Regarding DS437 (“United States – Countervailing duty measures on certain products from China”), it was stated that the approach in the appellate report suggested 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 judgment 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 DS213 (“US – Carbon steel”). 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 DSB meeting that one member was “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 AB 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 destabilizing,” said Korea.

Unfilled vacancies

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

(One vacancy was the result of the non-reappointment of Chang, whose first term of office had expired on 31 May. The other was a result of the expiry on 31 May of the second term of 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 [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 how the two vacancies can be filled but also what needs to be changed to avoid this situation in the future. On the latter question, he said that consultations showed that a separate session should be held to look into what changes are needed and how reappointments are reviewed.

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. Pragmatism and flexibility should be shown, 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 AB members.

Linking the reappointment of an AB member to the rulings in specific cases could have serious consequences on the independence and impartiality of AB members and on the WTO members’ trust and confidence in the AB, said China. It invited WTO members to carefully consider the systemic impact of this matter, and urged them to maintain the efficiency, impartiality, stability and predictability of the system.

Noting the increasing concerns over the AB vacancies 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 AB 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. (SUNS8269)          

Third World Economics, Issue No. 619/620, 16 June – 15 July 2016, pp9-11, 13