US rejects facilitator’s recommendations to resolve AB crisis

The futue of the WTO’s Appellate Body – which will cease to function in December if no new members are appointed – remains up in the air following US rejection of a proposed route out of the impasse.

by D. Ravi Kanth

GENEVA: The United States on 15 October rejected the recommendations made by the facilitator to address the crisis at the WTO over the Appellate Body by addressing the concerns raised by Washington about the functioning of the AB.

Washington's decision to reject the facilitator's report will pave the way for the AB to become dysfunctional from 11 December, when it will be reduced to only one member from its requisite strength of seven members. Without three members on the bench, the AB cannot adjudicate any dispute.

At the WTO General Council meeting on 15 October, Ambassador David Walker of New Zealand, the facilitator appointed to address the concerns raised by the US on the functioning of the AB, presented his report on the recommendations to improve several provisions in the WTO’s Dispute Settlement Understanding (DSU) so as to satisfy the US demands.

The six-page report proposed a decision by the General Council to make specific changes in the DSU to address Washington's concerns on various alleged breaches committed by the AB.

Walker explained that the recommendations were made in his own capacity after detailed consultations with WTO members in various formats.

Proposed decision

The draft General Council decision includes the following changes:

•   Transitional rules for outgoing Appellate Body members

1. Only WTO Members may appoint members of the Appellate Body.

2. The WTO’s Dispute Settlement Body (DSB) has the explicit authority, and responsibility, to determine membership of the Appellate Body and is obligated (this phrase was apparently introduced at the US suggestion) to fill vacancies as they arise.

3. To assist Members in discharging this responsibility, the selection process to replace outgoing Appellate Body members shall be automatically launched 180 days before the expiry of their term in office. Such selection process shall follow past practice.

4. If a vacancy arises before the expiry of an Appellate Body member's mandate, or as a result of any other situation, the Chair of the DSB shall immediately launch the selection process with a view to filling that vacancy as soon as possible.

5. Appellate Body members nearing the end of their terms may be assigned to a new division up until 60 days before the expiry of their term.

6. An Appellate Body member so assigned may complete an appeal process in which the oral hearing has been held prior to the normal expiry of their term.

•   90 days (deadline for submitting reports by the AB)

1. Consistent with Article 17.5 of the DSU, the Appellate Body is obligated (a phrase proposed by the US) to issue its report no later than 90 days from the date a party to the dispute notifies its intention to appeal.

2. In cases of unusual complexity or periods of numerous appeals, the parties may (the US apparently proposed "may" instead of "should") agree with the Appellate Body to extend the time-frame for issuance of the Appellate Body report beyond 90 days. Any such agreement will be notified to the DSB by the parties and the Chair of the Appellate Body.

•  Municipal law

1. The meaning of municipal law is to be treated as a matter of fact and therefore not subject to appeal.

2. The DSU does not permit the Appellate Body to engage in a "de novo" review or to "complete the analysis" of the facts of a dispute.

3. Consistent with Article 17.6 of the DSU, it is incumbent upon Members engaged in appellate proceedings to refrain from advancing extensive and unnecessary arguments in an attempt to have factual findings overturned on appeal, under DSU Article 11, in a de facto "de novo review".

•  Advisory opinions

1. Issues that have not been raised by either party may not be ruled or decided upon by the Appellate Body.

2. Consistent with Article 3.4 of the DSU, the Appellate Body shall address issues raised by parties in accordance with DSU Article 17.6 only to the extent necessary to assist the DSB in making the recommendations or in giving the ruling provided for in the covered agreements in order to resolve the dispute.

•  Precedent

1. Precedent is not created through WTO dispute settlement proceedings.

2. Consistency and predictability in the interpretation of rights and obligations under the covered agreements is of significant value to Members.

3. Panels and the Appellate Body should take previous Panel/Appellate Body reports into account to the extent they find them relevant in the dispute they have before them.

•   “Overreach”

1. As provided in Articles 3.2 and 19.2 of the DSU, findings and recommendations of panels and the Appellate Body and recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

2. Panels and the Appellate Body shall interpret provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 in accordance with Article 17.6(ii) of that Agreement.

•   Regular dialogue between the DSB and the Appellate Body

1. The DSB, in consultation with the Appellate Body, will establish a mechanism for regular dialogue between WTO Members and the Appellate Body where Members can express their views on issues, including in relation to implementation of this decision, in a manner unrelated to the adoption of particular reports.

2. Such mechanism will be in the form of an informal meeting, at least once a year, hosted by the Chair of the DSB.

3. To safeguard the independence and impartiality of the Appellate Body, clear ground rules will be provided to ensure that at no point should there be any discussion of ongoing disputes or any member of the Appellate Body.

Walker explained that the draft General Council decision was aimed “at seeking workable and agreeable solutions to improve the functioning of the Appellate Body and to avoid deadlock come December.”

He said that “a solution to improve the functioning of the Appellate Body can only have effect if there is a functioning Appellate Body for it to apply to.”

“So logically, the adoption of such a General Council Decision should be accompanied by an instruction from the General Council to the DSB to launch the selection process to fill vacant positions [in the AB],” the facilitator said.

The facilitator's recommendations were apparently vetted by the US after it proposed some changes before their announcement, said a trade envoy who asked not to be quoted.

Members’ reactions

In response to the facilitator's report and draft decision, many members – including the European Union, Guatemala, Brazil, Uruguay, China, Japan, Ecuador, Benin on behalf of the African Group of countries, Chad on behalf of the least-developed countries, Mexico, South Africa, Singapore, Indonesia, Russia, India, Jamaica on behalf of the ACP Group of countries, Switzerland, Argentina, Barbados, Pakistan, Nigeria and Thailand – said they would broadly approve the changes.

These members – who spoke favourably at the meeting in support of the facilitator's recommendations – said the selection process for filling six vacancies at the AB must be started while discussing the improvements. They urged the US to agree to the recommendations so as to start the selection process.

However, the US Ambassador to the WTO Dennis Shea delivered a long critique of the AB’s alleged failures and how it had deviated from the provisions of the DSU.

He acknowledged that “some progress has been made through engagement by Members and the efforts of the Facilitator and others.  But we fail to see convergence on how to ensure that those limitations are respected going forward, and what are the consequences for continued failure to adhere to those limitations”.

“To find an appropriate and effective solution, it is imperative for Members to engage in a discussion on how we have come to this point,” Shea concluded.

In short, the US chose to throw the facilitator’s recommendations out of the window, insisting instead that the root causes for the alleged breaches committed by the AB must be addressed first before considering any improvements, said a trade envoy who asked not to be quoted.

Referring to this US demand for addressing the root causes responsible for the AB's alleged failures instead of ensuring that the AB continues with its work while making the appropriate changes, Mexico reportedly said that when a house is on fire, it is important to stop the fire rather than dwell on the root causes that led to the fire. (SUNS8999)

Third World Economics, Issue No. 688, 1-15 May 2019, p5-6