TWN Info Service on WTO and Trade Issues (Sept18/01)
3 September 2018
Third World Network

US blocks AB member Servansing's reappointment
Published in SUNS #8743 dated 30 August 2018

Geneva, 29 Aug (Kanaga Raja) - The United States informed the WTO Dispute Settlement Body (DSB) on Monday that it was not in a position to agree to the reappointment of Appellate Body (AB) member Shree Baboo Chekitan Servansing to a second term, effectively reducing the seven-member adjudicative body to just three.

[Of the three now in the AB - the minimum needed to hear any appeal - one is due to retire in October, and the other end of next year. Unless the AB blockage is quickly resolved, the AB will be unable to hear and dispose of any appeals from October, and by end of next year will have only a single member. Under the DSU, the moment a member notifies within the 30-day period between notification of panel ruling and its adoption, the ruling remains suspended. And with no functional AB, from October panels will rule, but the ruling may not take effect. The integrated DSU, the single enforceable dispute settlement mechanism in international agreements, will become non-functional and with it more or less the WTO. SUNS]

Also at the DSB meeting, the US continued to block a joint proposal sponsored by some 67 WTO Members that called for the simultaneous launch of the selection processes to fill three current vacancies on the Appellate Body as soon as possible.

In a related development, the US made a long statement criticizing the Appellate Body for what in the US view was its consistent review and reversal of "fact-finding" by WTO panels (see below).

Two Appellate Body members 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 that 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.

Under the agenda item on the possible reappointment of one Appellate Body member, the Chair of the DSB, Ambassador Sunanta Kangvalkulkij of Thailand, reported that she had carried out further consultations with members on whether Appellate Body member Shree Baboo Chekitan Servansing, whose first term ends on 30 September, should be given a second term as Appellate Body member.

According to trade officials, the Chair said on the basis of her consultations, she understood that there would not be a consensus to support Mr. Servansing's reappointment.

The Chair said that given that her consultation process was now concluded, she would like to confer with all delegations on the way forward. She added that her door was open for any member who wanted to discuss the matter with her.

In its statement on this issue, the United States said for more than 15 years, across multiple US Administrations, it has been raising serious concerns with the Appellate Body's disregard for the rules set by WTO Members.

Through persistent over-reaching, the WTO Appellate Body has been adding obligations that were never agreed by the United States and other WTO Members, it maintained.

It said the President's 2018 Trade Policy Agenda outlined several longstanding US concerns.

* The United States has raised repeated concerns that appellate reports have gone far beyond the text setting out WTO rules in varied areas, such as subsidies, anti-dumping duties, anti-subsidy duties, standards and technical barriers to trade, and safeguards, restricting the ability of the United States to regulate in the public interest or protect US workers and businesses against unfair trading practices.

* On procedural, systemic issues, for example, the Appellate Body has issue d advisory opinions on issues not necessary to resolve a dispute, reviewed panel fact-finding despite appeals being limited to legal issues, asserted that panels must follow its reports although there is no system of precedent in the WTO, and continuously disregarded the 90-day mandatory deadline for appeals - all contrary to the WTO's agreed dispute settlement rules.

And for the last year, the United States said it has been calling for WTO Members to correct the situation where the Appellate Body acts as if it has the power to permit ex-Appellate Body members to continue to decide appeals even after t heir term of office - as set by the WTO Members - has expired.

This so-called "Rule 15" is, on its face, another example of the Appellate Body's disregard for the WTO's rules.

"Our concerns have not been addressed. When the Appellate Body abuses the authority it was given within the dispute settlement system, it undermines the legitimacy of the system and damages the interests of all WTO Members who care about having the agreements respected as they were negotiated and agreed," the United States maintained.

The United States said that it will continue to insist that WTO rules be followed by the WTO dispute settlement system.

"In this circumstance, the United States has determined that it is not prepared to support the reappointment of Mr. Servansing to the Appellate Body. This position is no reflection on any one individual but reflects our principled concerns," it said.

According to trade officials, no other delegation took the floor on this matter.

CONTINUED US BLOCKAGE OF AB SELECTION PROCESSES

Under the agenda item of Appellate Body appointments, a joint proposal on AB appointment 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; Iceland; India; Indonesia; Israel; Kazakhstan; Korea; Mexico; New Zealand; Nicaragua; Norway; Pakistan; Panama; Paraguay; Peru; the Russian Federation; Singapore; Switzerland; Chinese Taipei; Turkey; Ukraine; Uruguay; Venezuela; and Viet Nam.

According to the proposal (WT/DSB/W/609/Rev.4), 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 ref erred to above, propose 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 ma ke 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, speaking on behalf of the 67 co-sponsors, said 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.

Mexico said 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.

"We continue to urge all Members to support this proposal in the interest of the multilateral trade and the dispute settlement systems," it added.

The United States said as it has explained in prior meetings, "we are not in a position to support the proposed decision. The systemic concerns that we have identified remain unaddressed."

For example, it said, at the DSB meeting in August of 2017, "we made clear our concerns with the issuance of appellate reports by individuals who are no longer members of the Appellate Body."

Yet, one year later, an individual who is not currently a member of the Appellate Body continues to decide appeals.

"As we have explained many times, it is for the DSB, not the Appellate Body, to decide whether a person who is no longer an Appellate Body member can continue to serve on an appeal."

The United States referred back to its statements at earlier DSB meetings for more elaboration on its concerns.

"We therefore will continue our efforts and our discussions with Members and with the Chair to seek a solution on these important issues," it said.

Argentina, Canada, Brazil, Thailand, China, Australia, Norway, Switzerland, Korea, Japan, Singapore, Chinese Taipei, Chile, India, Hong Kong-China, New Zealand, Mexico, the European Union, Guatemala, and Costa Rica (for the GRULAC group of Latin American and Caribbean countries) took the floor on this issue.

According to trade officials, these delegations reiterated their concerns with the continued impasse over the appointment of new Appellate Body members. They urged all members to show flexibility in order to resolve the deadlock as soon as possible.

Several members highlighted the growing dangers that the continued impasse posed not only to the dispute settlement system but the WTO as a whole, and that members had an obligation under the WTO rules to initiate the selection process.

Other members reiterated that the US concerns and the issue of appointment of AB members should be treated separately.

Several members said that the US should put forward concrete proposals on how to resolve the problem.

Mexico, on behalf of the 67 co-sponsors of the joint proposal, expressed regret that for the fourteenth occasion, "we have still not achieved consensus to start the selection processes for the vacancies of the Appellate Body and have failed to fulfil our duty as Members of this Organisation".

It said that no discussion should prevent the Appellate Body from continuing to operate fully and Members shall comply with their obligation under the DSU, to fill the vacancies as they arise.

"By failing to act today, we will maintain the current situation which is seriously affecting the workings of the Appellate Body against the best interest of its Members," said Mexico.

US STATEMENT ON ARTICLE 17.6 OF DSU AND APPELLATE REVIEW

The US statement concerns Article 17.6 of the DSU and Appellate review of panel findings of fact, including domestic law.

The US said that it requested this agenda item to draw Members' attention to an important systemic issue with significant implications for the operation of the dispute settlement system: Article 17.6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and appellate review of panel findings of fact, including domestic (or municipal) law.

The US said the DSU reflects Members' agreement on the functions assigned to panels and the Appellate Body. In DSU Article 11, WTO Members agreed that " a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements".

In other words, "the matter" in a dispute consists of the facts and the legal claims, and WTO panels are to make factual and legal findings.

In Article 17.6 of the DSU, Members agreed that the Appellate Body would have a significantly more limited role than panels. The DSU explicitly provides that "[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel."

Yet, despite this clear, unambiguous text of Article 17.6, the Appellate Body has consistently reviewed and even reversed panel fact-finding. It has done so under different legal standards that it has had to invent, and it has reached conclusions that are not based on panel factual findings or undisputed facts, the US cl aimed.

The US went on to discuss what it said are two particular issues of concern relating to the Appellate Body's review of panel findings of fact.

First, the US said that it reviewed the relevant provisions of the DSU to explain the Appellate Body's lack of authority to review a panel's findings of facts. The invention of an authority to review panel fact-finding, contrary to the DSU , has added complexity, duplication, and delay to every WTO dispute, it said.

Second, it maintained that the Appellate Body has compounded the error by asserting that it can review panel findings concerning the meaning of a Member's municipal law, which is the key fact to be demonstrated in any dispute.

According to the US, the concerns involving appellate review of municipal law are just one symptom of a broader departure by the Appellate Body from the terms agreed by Members in the DSU. The fundamental issue is that the DSU explicitly limits the scope of an appeal, and there is no basis in the DSU for the Appellate Body to review a panel's findings of facts.

Members agreed in the DSU to expressly limit the authority of the Appellate Body to legal findings by a panel, not factual ones. Indeed, it is difficult to see how Article 17.6 of the DSU could be any clearer: "An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel."

In fact, in an early report, the Appellate Body conceded as much. It stated that: "Findings of fact, as distinguished from legal interpretations or legal conclusions, by a panel are, in principle, not subject to review by the Appellate Body."

However, the Appellate Body at the same time asserted that there was a "standard of review" applicable for panels in respect of "the ascertainment of facts" under the relevant covered agreements.

The US claimed that the Appellate Body's approach skipped over the key threshold question: how, in light of the limitation of appeals in Article 1 7.6 of the DSU to "issues of law and legal interpretations" was the Appellate Body authorized to "review" a panel's "ascertainment of facts"?

This question needed to be addressed and resolved before moving on to deter mine what would be the "standard" for any such review.

But the Appellate Body did not engage on this threshold question. It did not explain the basis for its assumption that it could review a panel's findings of fact when the DSU expressly limits the Appellate Body's review to "issues of law and legal interpretations."

Then, even aside from the lack of any basis for the Appellate Body to review a panel's factual findings, there is a real question about what the Appellate Body considered to be the "standard of review" for a panel's factual findings.

Not surprisingly, there is no provision in the DSU that refers to a "standard of review" for a panel's factual findings, since the DSU does not provide for the Appellate Body to conduct any such review, said the US.

Faced with this lack of any agreed "standard of review," the Appellate Body asserted that Article 11 of the DSU provided such a standard. In so doing, however, the Appellate Body again ignored the text of the DSU and simply asserted that the DSU text said something different from what Members agreed.

The language in Article 11 of the DSU that the Appellate Body relied upon is: "a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case." Key to this text is the word "should."

Members are all familiar with the difference between "should" and "shall" and choose carefully whether to use "should" or "shall" in particular parts of the agreements they negotiate. In fact, Members have been known to spend weeks or even longer negotiating over exactly this point - whether to use "should" or "shall."

And in the DSU, Members chose to use "should" in 21 instances, and to use the word "shall" in 259 instances.

Yet, said the US, in describing the text of Article 11, the Appellate Body did not engage on this important textual issue. Instead, the Appellate Body simply referred to this "should make" language as a "mandate" and a "requirement" for panels.

To the contrary, the decision of WTO Members to use the term "should" indicates that Members did not intend to create a legal obligation subject to review, a conclusion that is directly reinforced by the limitation on appeals to issues of law in Article 17.6.

According to the US, from its assertion that "should make" sets out a "mandate" and a "requirement", the Appellate Body proceeded to state: "Whether or not a panel has made an objective assessment of the facts before it, as required by Article 11 of the DSU, is also a legal question which, if properly raised on appeal, would fall within the scope of appellate review."

Over a year later, the Appellate Body confirmed that it had failed to engage in a textual analysis of "should" in Article 11, when it stated simply that: "The word "should" has, for instance, previously been interpreted by us as expressing a "duty" of panels in the context of Article 11 of the DSU."

But there was no interpretation in the EC - Hormones report on the term "should make" or how it could be understood as expressing a "duty", or legal obligation. The Appellate Body did not explain how asserting that, contrary to the plain text, the language in Article 11 was a "requirement" could transform this "requirement" into a "standard of review."

The Appellate Body had correctly explained just prior to this erroneous statement that: "The consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty provision is, however, a legal characterization issue. It is a legal question."

The US agreed, but said that it does not follow that a panel's assessment of the facts became a "legal question" just because a party to the dispute disagreed with it. It would still be an issue of "facts" and "factual findings" and would not become an "issue of law or legal interpretation."

The Appellate Body's decision to undertake a review of panels' findings of fact therefore has no basis in the DSU. And the decision to review panel fact finding has had a number of adverse effects on the dispute settlement system, the US claimed.

For instance, the Appellate Body has itself repeatedly complained about the increased workload due to appeals under Article 11 of the DSU. The Appellate Body has complained that the number of Article 11 appeals has increased over time, and that Article 11 appeals have in turn increased the complexity of appeals, the length of submissions, and the need for the Appellate Body to devote time and resources to become familiar with the basis for a panel's factual findings.

The opportunity for Article 11 appeals of the facts has also meant that a party to a dispute may try to re-litigate the entire case it presented to the panel. That is, it may challenge all the panel findings, or at least the key findings, under D SU Article 11, and then all the panel legal interpretations and legal conclusions under the relevant provisions of the covered agreements.

These developments in turn are then cited as reasons explaining the difficulties of the Appellate Body to meet the 90-day deadline mandated under Article 17.5 of the DSU. "But these difficulties are, as we have explained, significantly of the Appellate Body's own creation, and another source of serious concern with t he functioning of the Appellate Body," the US maintained.

Appellate Body review of facts also undermines the value of the interim review of panel reports and can make the panel process significantly less efficient, it said.

The Appellate Body's approach to the standard of review under Article 11 ha s also been inconsistent. Initially, the Appellate Body set a very high threshold and explained that for an Article 11 appeal to succeed, the party needed to demonstrate that the panel had committed "egregious error that calls into question the good faith of the panel."

However, over time, the Appellate Body has altered its approach. For instance, more recently the Appellate Body has explained that "for a claim under Article 11 to succeed, we must be satisfied that the panel has exceeded its authority as the trier of facts."

The Appellate Body went on to explain that this means that "a panel must provide a "reasoned and adequate" explanation for its findings and coherent reasoning. It has to base its findings on a sufficient evidentiary basis on the record, may not apply a double standard of proof, and a panel's treatment of the evidence must not lack "even-handedness"."

This would appear to be a much lower threshold that is significantly different from an "egregious error that calls into question the good faith of the panel."

The shifting nature of the Appellate Body's approach under Article 11 would appear to be a result of the fact that Members never agreed that the Appellate Body would review a panel's factual findings and therefore Members never negotiated the basis or standard for such a review.

Instead, the Appellate Body has struggled to formulate its own approach, without the benefit of guidance from Members, said the US.

Following its assertion that it has the authority to review and even revers e panel findings of fact, the Appellate Body has also asserted that it has the authority to review panel findings on the meaning of a WTO Member's challenged domestic law. This is another serious error, the US claimed.

In the WTO system, as in any international law dispute settlement system, the meaning of municipal law is an issue of fact. In a WTO dispute, the interpretation of the WTO Agreement or relevant covered agreements is the issue of law for the WTO dispute settlement system, it said.

The relevant provisions of the DSU reflect this straightforward division be tween issues of fact and law, said the US, citing in this context Articles 6.2, 1 1 and 12.7.

Thus, the DSU makes clear that the measure at issue is the core fact to be established by a complaining party, and the WTO consistency of that measure is the issue of law, the US maintained.

This proposition - that municipal law is an issue of fact - is not unique to the WTO dispute settlement system. In fact, it is well-recognized in international law generally.

The US said that it is aware of at least 10 times that WTO panels have disagreed with the Appellate Body, and instead found that the meaning or operation of a WTO Member's domestic law is an issue of fact, and not an issue of WTO law.

In this context, it cited the following panel reports: US - Section 301 Trade Act; US - Section 129(c)(1) URAA; Mexico - Olive Oil; Colombia - Ports of Entry; EC - Fasteners; US - Countervailing Measures on Certain EC Products; EC - Bed Linen (Article 21.5 - India); US - Zeroing (EC); US - Poultry (China); and US - Countervailing and Anti-Dumping Measures (China).

That so many WTO panels have come to this conclusion in light of the clear text of the DSU is not surprising. Nor is it surprising that numerous WTO Members have also come to the same conclusion in their disputes, the US maintained.

It cited the following examples: Canada in China - Auto Parts; China, in EC - Fasteners; China, in US - Countervailing and Anti-Dumping Measures (China); Colombia in Colombia - Ports of Entry; Dominican Republic in Dominican Republic - Import and Sale of Cigarettes; EU, in US - Large Civil Aircraft (21.5 - EU): EU, in United States - Conditional Tax Incentives for Large Civil Airc raft; EU in European Communities - Trademarks and Geographical Indications (Australia); EU in EU - Fatty Alcohols; Guatemala in Guatemala - Cement (Panel); Hong Kong in US - Shrimp; India in India - Patents (US); Mexico, in US - Anti-Dumping Measures on Oil Country Tubular Goods; Peru in EC - Sardines; and Philippines in Thailand - Cigarettes.

Thus, said the US, in at least 15 instances of which it is aware, other WTO Members too have disagreed with the Appellate Body's assertion that it has the authority to review a panel's factual findings on the meaning of a WTO Member's domestic law. Despite this repeated disagreement with its approach, over many years, however, the Appellate Body has not reconsidered its view. Nor, has it ever engaged with the DSU text that demonstrates that its approach is erroneous and contrary to that text.

The Appellate Body has not treated panel findings concerning the meaning of municipal law as a factual issue. Instead, it has treated the meaning of municipal law as a matter of WTO law, to be decided by the Appellate Body de novo in an appeal under Article 17.6 of the DSU, the US claimed.

"The Appellate Body's approach in conducting its own de novo review of the meaning of domestic law is inconsistent with the appropriate functioning of the dispute settlement system. It departs from the basic division of responsibilities where panels determine issues of fact and law, and the Appellate Body may be asked to review specific legal interpretations and legal conclusions."

According to the US, it also represents a serious waste of the limited resources of the WTO dispute settlement system, adding complexity and delay to the process. No purpose is served by having a panel engage in a detailed review of a factual record related to the meaning of a domestic measure, and then to have the Appellate Body engage in its own de novo review of the exact same factual issues, so that the parties have to argue all the same factual issues a second time , the US maintained.

The Appellate Body's expansion of its review authority, contrary to the DSU text, has added complexity, duplication, and delay to almost every dispute, as a party to the dispute can now challenge on appeal every aspect of the panel's finding s.

"The United States does not consider this a desirable outcome. But more importantly, it does not reflect the WTO dispute settlement system as agreed by Members in the text of the DSU. Therefore, whether or not a WTO Member considers appellate review of facts desirable, that review is neither legal nor legitimate under our agreed WTO rules," it said.

Chile, Japan, Australia, Canada, Brazil, China, the Philippines, Mexico and the European Union took the floor with regards to the US statement.

According to trade officials, most of them agreed that the issue was complex and expressed their willingness to discuss the matter with the US.

Some members urged the Appellate Body to exercise caution on review of facts or said the Appellate Body has no mandate to undertake its own independent rev iew of the meaning or interpretation of domestic law.

However, China, Brazil, Mexico and the Philippines said the line between issues of fact and issues of law was not always clear and that the Appellate Body should be able to step in to provide some clarity.

The EU said that, in its view, the Appellate Body has fully respected the relevant provisions of the DSU. It was however open to discussions on possible improvements in the operation of the dispute settlement system.

The Philippines asked the US to tell WTO members what solution it proposes to address the problem.