TWN Info Service on WTO and Trade Issues (Mar18/02)
6 March 2018
Third World Network
       
Impasse over AB selection continues, as US blocks latest proposal
Published in SUNS #8634 dated 5 March 2018

Geneva, 2 Mar (Kanaga Raja) - The impasse at the World Trade Organisation (WTO) over the appointment of new Appellate Body (AB) members continues with the United States once again blocking efforts to launch the selection process to fill three current vacancies on the seven-member body.

At a meeting of the WTO's Dispute Settlement Body (DSB) on 28 February, the United States said that it was not in a position to support a new joint proposal sponsored by some 63 WTO Members that called for the simultaneous launch of the selection processes to fill the three vacancies as soon as possible.

The two Appellate Body members in question whose second and final four-year terms have expired are Mr Ricardo Ramirez-Hernandez and Mr Peter Van den Bossche.

Mr Ramirez-Hernandez's second term expired on 30 June 2017, while the second term 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.

In light of these developments, the Appellate Body is now down to four members from its regular seven-member complement.

With the US once again blocking the launch of the selection processes to fill these vacancies, effectively it will become impossible for the Appellate Body to hear and dispose of appeals.

[At a meeting of EU trade ministers in Bulgaria earlier this week, the EU trade commissioner was reported in some media reports as suggesting that the EU might explore with other WTO members a "flexible response", namely of a WTO dispute settlement system excluding the US. It was not clear from these reports how this is feasible, since it will drastically and fundamentally change the rights and obligations of members vis-a-vis the US inside the WTO. SUNS]

A joint proposal on AB appointments was tabled at the DSB meeting by Argentina; Australia; Bolivia; Brazil; Canada; Chile; China; Colombia; Costa Rica; Dominican Republic; Ecuador; El Salvador; the European Union (28 member states); Guatemala; Honduras; Hong Kong (China); India; Israel; Kazakhstan; Korea; Mexico; New Zealand; Nicaragua; Norway; Pakistan; Panama; Paraguay; Peru; the Russian Federation; Singapore; Switzerland; Chinese Taipei; Turkey; Ukraine; Uruguay; and Viet Nam.

According to the proposal (WT/DSB/W/609/Rev.2), 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 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; and (iii) a third selection process to replace Mr. Peter Van den Bossche, whose second four year term of office expired on 11 December 2017;

(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 three new Appellate Body members as soon as possible.

Mexico introduced the joint proposal on behalf of the 63 WTO Members, saying that the considerable number of Members submitting this joint proposal reflects a common concern with the current situation in the Appellate Body that is seriously affecting its workings and the overall dispute settlement system against the best interest of its Members.

WTO Members have a responsibility to safeguard and preserve the Appellate Body, the dispute settlement and the multilateral trading systems.

"Thus, it is our duty to proceed with the launching of the selection processes for the Appellate Body members, as submitted today to the DSB," said Mexico.

According to Mexico, the proposal seeks to:

(i) start three selection processes: one process to replace Mr Ricardo Ramirez-Hernandez, whose second term expired on 30 June 2017; a second process to fill the vacancy occurred with the resignation of Mr Hyun Chong Kim with effect from 1 August 2017; and a third process to replace Mr Peter Van den Bossche, whose second term expired on 11 December 2017;

(ii) to establish a Selection Committee;

(iii) to set a deadline of 30 days for the submission of candidacies; and

(iv) to request that the Selection Committee issues its recommendation within 60 days after the deadline for nominations of candidates.

Mexico said that the proponents are flexible in the determination of the deadlines for the selection processes but they should take into account the urgency of the situation.

In its statement at the DSB, the United States thanked the Chair of the DSB for his continued work on these issues.

It however said: "We are not in a position to support the proposed decision."

"We have listened carefully to the interventions of other Members at the last meeting and appreciate the willingness expressed by some Members to engage on the important issues and concerns we have raised," the United States added.

However, the Dispute Settlement Body has yet to take any action to address the problem of persons continuing to hear appeals well after their terms of appointment, as set by the DSB, have expired.

According to the United States, one former Appellate Body member continues to serve on an appeal, despite ceasing to be a member of the Appellate Body eight months ago.

Another former member continues to serve on five appeals, more than any actual Appellate Body member, despite ceasing to be a member of the Appellate Body in December of last year.

"Some WTO Members may be comfortable with this situation, but it is not legal under our multilaterally agreed rules. Under the Dispute Settlement Understanding, it is the DSB that has the authority to appoint Appellate Body members and to decide when their term in office expires," the United States maintained.

It would also be for the DSB to decide whether a person who is no longer an Appellate Body member can continue to serve on an appeal.

The Appellate Body simply does not have the authority to "deem" someone who is not an Appellate Body member to be a member.

The United States said: "Appointing Appellate Body members, or determining that a private individual can nonetheless serve on an appeal, is not a power we WTO Members have assigned to the Appellate Body."

"We have heard a few Members say that Rule 15 does not raise any legal concerns for them because the DSU does provide to the Appellate Body the authority to establish its working procedures, or because it represents long-standing practice."

But those assertions are in error, said the United States, adding that neither the Appellate Body's authority to draw up its working procedures nor "practice" can amend the DSU.

[Rule 15 of the Working Procedures for Appellate Review states: "A person who ceases to be a Member of the Appellate Body may, with the authorization of the Appellate Body and upon notification to the DSB, complete the disposition of any appeal to which that person was assigned while a Member, and that person shall, for that purpose only, be deemed to continue to be a Member of the Appellate Body."]

The United States said that as the Appellate Body itself noted many years ago: "Although panels enjoy some discretion in establishing their own working procedures, this discretion does not extend to modifying the substantive provisions of the DSU. To be sure, Article 12.1 of the DSU says: "Panels shall follow the Working Procedures in Appendix 3 unless the panel decides otherwise after consulting the parties to the dispute". Yet that is all that it says. Nothing in the DSU gives a panel the authority to disregard or to modify other explicit provisions of the DSU."

Just as a panel may not disregard or modify the DSU through adoption of its working procedures, so too the Appellate Body may not disregard or modify the DSU through its working procedures.

Similarly, the fact that the Appellate Body has taken the same action repeatedly does not change the rules in the DSU.

"The DSU sets out our multilaterally agreed rules for WTO dispute settlement. If those rules are to be modified, this could only occur through agreement of all WTO Members," said the United States.

It also recalled that the Appellate Body provided Members with a Background Note on Rule 15 (JOB/AB/3).

As the United States noted previously, that communication appears to raise more questions than it answers.

In several respects, this document fails to provide a correct or complete presentation and therefore does not contribute to Members' consideration of this issue.

First, said the United States, the Appellate Body nowhere addresses the legal basis for including Rule 15 in working procedures that otherwise relate to the consideration of appeals by Appellate Body members - not persons who are not Appellate Body members.

Nor does the document address how continued service by an ex-Appellate Body member relates to the DSB's appointment decision under Article 17 of the DSU.

Instead, the Appellate Body appears to rely on policy considerations of efficient functioning.

Second, the Appellate Body asserts that "[u]ntil recently, the application of Rule 15 has never been called into question by any participant or third participant in any appeal, nor has it been criticized by any Member in the DSB when an Appellate Body report signed by an AB Member completing an appeal pursuant to Rule 15 was adopted by the DSB."

Unfortunately, the United States maintained, the Appellate Body appears to have very carefully crafted this language in a manner to avoid mentioning that in fact Rule 15 was "criticized by [a WTO] Member in the DSB" and was "called into question" at the time of its adoption.

That WTO Member stated explicitly that Rule 15 raised a "systemic concern" and "was contrary to Article 17.1 of the DSU".

"The omission of this statement from the AB Background Note is misleading at best. WTO Members deserve to be fully informed of the facts, including that Rule 15 has been a serious concern from the very beginning," said the United States.

Third, the Appellate Body states that Rule 15 "as initially conceived was intended to apply for relatively short periods of transition."

If this is the case, the Appellate Body has acted inconsistently with its own understanding of this provision in the past, not just the present. In some cases, an Appellate Body member was appointed to a division shortly before their term ended.

According to the United States, in one case, the Appellate Body member was appointed to a division just three days before the term ended - meaning almost the entirety of the appeal was expected to occur after the individual had ceased to be a member.

Fourth, it is misleading for the Appellate Body Background Note to analogize to the rules of "some international tribunals" that remain unnamed.

The rules for those other tribunals are based on their constitutive texts. For example, the transition rule for the International Court of Justice is set out in its Statute, which is annexed to and an integral part of the United Nations Charter.

Unlike for those other tribunals, Rule 15 is not set out in the DSU and has not been agreed by WTO Members.

Fifth, said the United States, it is not clear from the communication whether the outgoing Appellate Body member participates in the Appellate Body's decision to "deem" them to be an Appellate Body member after their term expires.

Rule 15 applies to a person "who ceases to be" a member. But some Appellate Body decisions authorizing a person to continue to work on an appeal have been taken prior to the expiry of that person's term of appointment.

This raises the question whether the Appellate Body's decision under Rule 15 would be affected by that person's participation in that very decision.

Sixth, the Appellate Body indicates that a new Appellate Body member is not permitted to participate in the exchange of views of an appeal involving a former Appellate Body member.

The Note does not explain what is the legal basis for denying a legitimate Appellate Body member appointed by the DSB the ability to participate in the exchange.

Rule 4(3) of the Appellate Body Working Procedures states that "the division responsible for deciding each appeal shall exchange views with other [Appellate Body] Members before the division finalizes the appellate report for circulation to the WTO Members."

It appears that the Appellate Body may be treating a Rule 15 situation as an exception to Rule 4(3), without having amended the Appellate Body Working Procedures, said the United States.

It reiterated that the Appellate Body simply does not have the authority to deem someone who is not an Appellate Body member to be a member.

"It is the DSB that has a responsibility under the DSU to decide whether a person whose term of appointment has expired should continue serving."

The United States said it is resolute in its view that Members need to resolve that issue first before moving on to the issue of replacing such a person.

"We therefore will continue our efforts and our discussions with Members and with the Chair to seek a solution on this important issue."

CONCERNS OVER THE CONTINUED IMPASSE

According to trade officials, some 21 members took the floor to voice their concerns over the continued impasse over the launch of the selection processes.

They expressed concern over the delay and the impact that it could have on the WTO's dispute settlement system as well as the WTO as a whole.

While they were prepared to discuss concerns about Rule 15 and other procedural matters, there should be no linkage between these discussions and the launch of the selection processes, which needed to begin as soon as possible.

According to trade officials, Panama said the impasse not only affected the dispute settlement system, but also the trade interests of all WTO members.

It said the delays have already contributed to a backlog of cases which is leading to economic losses in member countries due to the longer settlement of disputes.

Kazakhstan said it would be useful if the US could answer some questions, such as whether it expects the DSB to take a decision on continued service every time an Appellate Body member's term is due to expire or has expired, or whether new rules were needed.

The European Union said that it was still waiting for the member blocking the appointment process to set out the terms of engagement on the issue of Rule 15.

It said that it has not seen any engagement from that delegation so far.

According to trade officials, several members mentioned an eventual collapse or paralysis of the Appellate Body should the impasse continue.

Other members that spoke included Canada, Colombia (for the GRULAC group), Norway, Australia, Japan, Israel, Turkey, China, Uruguay, Pakistan, Mexico (on its own behalf), Singapore, Switzerland, New Zealand, Chinese Taipei, and Honduras.

Canada deeply regretted that the DSB has been unable to fulfil its legal obligation under DSU Article 17.2 to appoint Appellate Body members as vacancies arise.

Canada agreed that it is time to start a process or if necessary several processes to select new Appellate Body members for the three current vacancies.

It said that it is pleased to join the proposal submitted by more than 30 delegations. It urged the DSB to adopt it without further delay.

Canada said that like other Members, it is disappointed that the United States has linked the start of the Appellate Body selection processes to the resolution of certain procedural concerns it has shared with members.

At the last DSB meeting, the United States remarked that it "is resolute in its view that Members need to resolve [the Rule 15] issue before moving on the issue of replacing [outgoing Appellate Body members]."

Canada invited the United States to engage in discussions with interested members with a view to expeditiously developing a solution to the concerns that it has raised - with a view to finding a way to address those concerns so as to allow the selection processes to start and be completed as soon as possible.

Colombia, on behalf of the Group of Latin American and Caribbean countries (GRULAC), expressed its deep concern "about the situation we have reached, which affects the good performance of one of the central bodies of the WTO."

If this problem continues without being solved, it will imply, in the short term, practically the paralysis of the Appellate Body, putting the entire dispute settlement system at risk.

It noted that the delay in launching the replacement process, having already arisen with three vacancies, means failure to comply with an existing mandate, and involves a flagrant breach of a legal obligation emanating from a covered agreement.

According to GRULAC, this has serious systemic consequences and is a bad precedent for the organisation.

It inflicts damage and affects the image and credibility of the WTO, particularly taking into account the complex international scenario that today adversely affects trade multilateralism.

GRULAC said it has heard of concerns expressed in relation to the functioning of the dispute settlement system and specific issues regarding decision-making, which would be causing the impediment to launch the replacement process.

"We cannot validate that these concerns prevent a legal obligation from being fulfilled and are linked to the replacement of the vacancies already arisen or to arise. We want to be clear in pointing out that the operation of the system cannot be stopped, while the concerns of some of the members haven't been resolved."

It called attention on the seriousness of keeping blocked the replacement of vacancies. It also considers that the selection process should not be conditioned to a different process, which must be addressed on its own merits.

In this sense, GRULAC urged "the membership to find a solution that allows us to advance as soon as possible in the fulfilment of the legal obligation that we have mentioned."

Japan supported the proposal to launch the selection processes to fill three vacancies on the Appellate Body.

"Yet again, the DSB is unable to launch the selection processes," it noted.

Putting the issue in perspective, Japan said that currently, seven appeals are pending before the Appellate Body, of which one appeal was initiated in 2016 and the other six in 2017.

Of those seven pending appeals, the oral hearings are yet to take place in four appeals. For instance, as for the two appeals initiated last September, the oral hearings are not scheduled until May and June, respectively.

New appeals are expected to come, all of which must be assigned to any three of the incumbent Members of the Appellate Body, who are at present four.

This would mean that the appellate proceedings in any new appeals could be delayed further and could take a number of months to complete and likely exceed a year.

"By failing to act now, we are effectively creating a situation in which a losing party at the panel stage in a dispute can hinder the whole dispute settlement processes and further delay its possible implementation of the DSB recommendation and the ultimate resolution of the dispute, simply by filing an appeal irrespective of merits of its case."

Such a situation is wholly unacceptable and inappropriate; it belies the very principle of the prompt settlement of disputes enshrined in the DSU, said Japan.

It emphasised once again that it is the responsibility of the entire membership, acting as the DSB, to ensure the proper functioning of the dispute settlement system in a manner consistent with the DSU.

It said that the resolution of any question requires the clear understanding of what exactly the question is. The narrower the question is, the easier it may well be to find a possible solution.

In previous DSB meetings, Japan noted, the United States has raised the issue of Rule 15 as the basis for its position not to support the launching of the selection processes.

For example, at the DSB meeting of 22 January, the United States stated, "It is the DSB that has a responsibility under the DSU to decide whether a person whose term of appointment has expired should continue serving. The United States is resolute in its view that Members need to resolve that issue first before moving on to the issue of replacing such a person."

In the same meeting, the United States also questioned the applications of Rule 15 and their consequences and asked "is this reasonable or appropriate?"

The issue the United States resolutely views that "WTO Members need to resolve ... first before moving on to the issue of" the selection processes appears to be confined to the legal question associated with Rule 15 and the "reasonableness" or "appropriateness" of the way Rule 15 applies under the current circumstances facing the dispute settlement system today.

According to Japan, putting aside the modality or sequence of the issues to be addressed, as reported by the Chair at the DSB meeting of 22 January, these are precisely the issues several concerned delegations are debating and seeking to find a solution on.

From Japan's perspective, a common theme threading through both Rule 15 and the selection or appointment of new Appellate Body Member(s) is how to ensure the proper functioning of the Appellate Body during a time of "transition".

Indeed, this is a good opportunity for the DSB to take a responsibility for clarifying and improving transitional arrangements for the Appellate Body in a manner consistent with the DSU.

Japan noted that the United States acknowledged "a willingness of delegations to work together on this issue to find a way forward" and stated "We ... will continue our efforts and our discussions with members and with the Chair to seek a solution on this important matter."

Japan welcomed the engagement of the United States and, on its part, Japan will continue to work with other interested delegations to assist the DSB in this common endeavour.

According to trade officials, the Chair of the DSB, Ambassador Junichi Ihara of Japan, said it was regrettable that the DSB was not in a position to take a decision on the matter and that the sense of crisis expressed by some members should be shared by the membership as a whole.

The Chair said that he would continue consultations until his final meeting as DSB chair in March.