TWN Info Service on WTO and Trade Issues (May16/14)
20 May 2016
Third World Network

US body blow to DSU, creating systemic crisis
Published in SUNS #8241 dated 17 May 2016

Geneva, 13 May (D. Ravi Kanth) - The World Trade Organization's highest adjudicating body for resolving trade disputes has suffered an irreparable damage and faced its worst "systemic" crisis on Thursday (12 May), after the United States caused a chilling effect by blocking the re-appointment of a sitting member of the Appellate Body, Mr Seung Wha Chang from Korea.

This is the second time that a sitting member of the Appellate Body lost the job because of US opposition. On a previous occasion, the US had not approved a second term for Ms. Jennifer Hillman of the United States, citing in the consultations held, as a reason for that disapproval on the grounds that her rulings were not helpful.

[Chakravarthi Raghavan, Editor-Emeritus of the SUNS, comments that the US has also an unenviable record of not implementing the largest number of the AB/Panel rulings and DSB decisions and recommendations adopting such rulings. Most of the non-implemented rulings/recommendations are those in respect of anti-dumping and countervailing duty investigations and measures of the US, and mostly on the "zeroing" issue, where the US in assessing 'dumping' ignores imports that are at rates above its estimations of 'below cost' by the exporting firm.

[The AB's first ruling over this 'zeroing' was against the EU, which accepted the ruling and ceased this practice. The US, on the other hand, has consistently ignored it, inviting repeated complaints and disputes by aggrieved members, and adoption of rulings against the US.]

The US explained its refusal to agree to Mr. Chang's re-appointment, on grounds that his verdicts in trade disputes involving the US either as a complainant/respondent or third party allegedly remained inconsistent with the GATT/WTO jurisprudence, several trade envoys told the SUNS.

Mr Chang was involved in six cases in which the US was a complainant/respondent while in two cases, Washington was a third party.

The Korean member of the AB presided over the AB bench in three cases out of the eight he had adjudicated over the past four years.

This is the second time that a sitting member of the Appellate Body lost the job because of US opposition. On a previous occasion, the US did not approve a second term for Ms. Jennifer Hillman of the United States on the grounds that her rulings were not helpful.

Though the AB rulings carry the names of the three members of the AB who heard the appeal and gave the ruling, all rulings are of the seven-member Appellate Body.

Even in the very rare instances of an AB member on the bench differing from the majority, while a dissent is mentioned, the dissenter is not identified.

So it is not clear, how a particular view in an appeal that went against the US view could be attributed to Mr. Chang, unless either the AB Secretariat that serviced the appeal hearing or any other member of the AB had disclosed it to the United States.

A comment, posted on the IELP blog (www.worldtradelaw.net), a web-log of US trade lawyers and academics (run chiefly by Prof. Simon Lester, a former staff member at the WTO legal division, who has been in the secretariats, servicing panels and the AB), poses the question, "how exactly was the US able to figure out what Seung Wha Chang's line of thinking was since AB rulings are authored by the division as a whole and not individual rulings on the issues. Was it inference? Or inside info?"

On Wednesday (11 May), the US trade envoy to the WTO, Ambassador Michael Punke, held separate meetings with the WTO director-general Roberto Azevedo and the chair for the Dispute Settlement Body, Ambassador Xavier Carim from South Africa, to convey Washington's disapproval of Mr Chang for a second term of four years, trade envoys familiar with the development told the SUNS.

During these two separate meetings, the US had apparently cited three cases in which Mr Chang as a presiding member significantly deviated from the covered agreements, according to trade envoys familiar with the development.

The three cases cited by the US in which Mr Chang as a presiding member gave alleged flawed rulings include:

(i) China's trade dispute against the US over Washington's countervailing duties on 17 products in (DS 437); China won the case.

(ii) China's trade dispute against the US over Washington's anti-dumping and countervailing duties, including some systemic issues in (DS 449).

(iii) Argentina's trade dispute against Panama on goods and services restrictions in which the US was third party (DS 453).

Commenting on the favourable ruling for Argentina against Panama at a special DSB meeting this week (on 9 May), the US said the approach adopted by the three-member AB chaired by Mr Chang "does not reflect the role of dispute settlement as set out in the DSU."

Further, the US said: "It is not role of this system to make legal findings or interpretations outside the context of resolving a dispute. Indeed, as the Appellate Body itself noted in Wool Shirts and Blouses: "Given the explicit aim of dispute settlement that permeates the DSU, we do not consider that Article 3.2 of the DSU is meant to encourage either panels or the Appellate Body to "make law" by clarifying existing provisions of the WTO agreement outside the context of resolving a particular dispute.

"It follows that if an issue on appeal is not necessary to resolve a particular dispute, because for example the panel findings have been rendered moot as a result of another legal error, then the Appellate Body should decline to make law by resolving that unnecessary issue.

"The DSU directs panels and the Appellate Body to make findings on those issues of law that are necessary to assist the DSB in helping resolve the dispute. Indeed, while the United States may consider certain of the Appellate Body's statements in the remaining 46 pages of its report correct in substance, those statements are unfortunately not findings but more in the nature of obiter dicta. Members may wish to reflect on the significant issuance of such advisory opinions would have on the functioning of the dispute settlement system."

In a fax message sent to members on Thursday, the DSB chair did not mention the US opposition to Mr Chang's continuation for another four years.

But the chair informed members that the selection committee overseeing the appointment of a new member in place of the outgoing AB member Yuejiao Zhang from China, who had completed her second term, "is not in a position to recommend a candidate that it believes would enjoy the consensus of the entire membership."

The seven candidates in the fray, who had appeared before the selection committee, include Prof Ichiro Araki of Japan, Prof Surya Subedi of Nepal, Ms Zhao Hong of China, Mr Yang Guohua of China, Mr Daniel Moulis of Australia, Mr Muhamad Noor Yacob of Malaysia, and Mr Yusuf Caliskan of Turkey.

The DSB chair said, in his fax, that the selection committee has not given up on "the possibility that it may still find a consensus nominee to replace the outgoing Mr. Zhang."

Although any member can block the reappointment of a sitting Appellate Body member after four years, the US chose to deny the second term to Mr Chang not on the grounds of "impropriety" or "malfeasance" but on his views on the "legal interpretation" of covered GATT/WTO agreements, a developed country trade envoy told the SUNS, while preferring anonymity.

"This is shocking because the US is sending a signal loud and clear to other AB members that if they do not deliver judgements that would suit the American interests, then the AB member's second term will not be granted," the industrialized country trade envoy said.

A developing country trade envoy described the US' decision to block Mr Chang's second term as a twin- pronged attack on both the negotiating authority and the adjudicating function of the WTO.

"The US can now claim credit for destroying the adjudicating authority of the WTO after hollowing out the negotiating authority over the past twenty years," the envoy said, while preferring anonymity.

Several trade envoys who spoke to the SUNS said the two developments have not only caused grave "systemic crises" but torpedoed the "independent authority" of the WTO once and for all. Only the US can be an "obiter dicta" in deciding what should happen at the WTO, the envoy said.

Deputy US Trade Representative Michael Punke and USTR General Counsel Tim Reif made their stance clear in a joint May 12 statement.

"The United States is strongly opposed to Appellate Body members deviating from their appropriate role by restricting the rights or expanding the obligations of WTO members under the WTO agreements," they said.

"The United States will not support any individual with a record of restricting trade agreement rights or expanding trade agreement obligations," Punke and Reif said.

The US trade envoy to the WTO Ambassador Michael Punke and the USTR General Counsel Tim Reif issued a detailed statement justifying the reasons for the US decision. The two senior US trade officials said the reasons include:

* The Obama Administration believes that it is critically important to honour the trade rules to which the United States and our trading partners have agreed, as well as to uphold those rules with vigorous trade enforcement actions that support American workers, farmers, and businesses.

* It is also the position of the United States that the integrity of the WTO depends on the stability of a healthy, well-functioning dispute settlement system that fairly applies the international trade rules as they are in-fact written - and that does not attempt to re-write the rules or write new rules that are inconsistent with the trade obligations that were carefully negotiated by the United States and other WTO Members.

* Recently, the United States and other WTO Members have been considering whether to reappoint various members of the WTO Appellate Body.

* The United States is strongly opposed to Appellate Body members deviating from their appropriate role by restricting the rights or expanding the obligations of WTO members under the WTO agreements.

* Our position on the appointment or reappointment of Appellate Body members reflects the seriousness of this perspective. The United States will not support any individual with a record of restricting trade agreement rights or expanding trade agreement obligations.

In short, the crisis created by the US has ensured that the DSB, which is regarded as a "jewel in the crown" of the WTO, will now become "a sanctum sanctorum for Kangaroo verdicts," according to a trade envoy from a developing country.