TWN Info Service on WTO and Trade Issues (Oct18/02)
8 October 2018
Third World Network

EU's proposed changes to DSU unlikely to be accepted by US
Published in SUNS #8758 dated 24 September 2018

Geneva, 21 Sep (D. Ravi Kanth) -- The European Union on Tuesday proposed several changes to the World Trade Organization's Dispute Settlement Understanding (DSU) in an attempt to appease the United States. But the proposed amendments are unlikely to be accepted by Washington, particularly on preserving and strengthening the Appellate Body (AB) by increasing its strength to nine members and maintaining binding rulings, trade envoys told SUNS.

The EU discussed its concept paper called "WTO Modernization" on Thursday (20 September) at the Canadian mission with senior officials from Japan, Canada, Norway, Switzerland, Australia, New Zealand, Singapore, Korea, Kenya, Mexico, Chile, and Brazil among others.

The changes proposed by the EU in the Dispute Settlement Understanding are aimed at addressing a range of concerns repeatedly raised by the Trump administration for moving away from the Appellate Body-driven adjudicating process to the pre-1995 GATT system of negotiating panel rulings among the winning and losing parties.

Ironically, it was the EU which had an established track record of blocking the panel rulings during the GATT phase while the US became the champion for bringing the binding adjudicatory process through the AB at the end of the Uruguay Round negotiations in 1994.

After losing several major trade disputes, including the anti-dumping disputes on the "zeroing" methodology and subsidy disputes on the interpretation of what would constitute a "public body", the US launched a war against the Appellate Body almost 15 years ago.

The Obama administration blocked the reappointment of a sitting South Korean member of the AB Seung Wha Chang in 2016, and the Trump administration took the war against the AB to a new high.

The US not only demanded abandoning the negative consensus principle that guided the adoption of rulings but raised several other charges against the manner in which the AB functioned, including the failure to issue rulings within 90 days.

The EU says that "the dispute settlement function of the WTO is at grave danger, and swift action by Members is needed to preserve it."

"If the United States' blockage of Appellate Body appointments continues, it will undermine the WTO dispute settlement at the latest by December 2019," the EU has argued.

The US has already blocked the reappointment of the existing AB member Shree Baboo Chekitan Servansing whose first term is expiring by end of this month. Effectively, the AB would be reduced to three members from 1 October if the US continues to block the extension for Servansing.

And by December 2019, the AB would have just one member after the completion of the second term of two sitting members - Ujal Singh Bhatia and Thomas Graham. That would be the end for the AB to exist as the highest adjudicating limb of the Dispute Settlement Body which is often projected as the "jewel" in the crown of the WTO.

At that point in time, there will be less than three Appellate Body members left, which is the minimum number required for the Appellate Body to hear an appeal. Without a functioning Appellate Body, any party to the dispute may attempt to block the adoption of panel rulings (by appealing it), so - if no action is taken - this may undermine the operation of WTO dispute settlement as a whole.

The EU has listed all the concerns raised by the US in the US President's 2018 Trade Policy Agenda. The EU says some of the blockages at the AB were already raised by the previous Obama administration.

According to the EU, the US concerns include:

(i) The AB's disregard for complying with the 90-day deadline for issuing rulings under Article 17.5 of the DSU appeals - this is one of the core concerns raised by successive American administrations.

(ii) The continued blocking of rulings on grounds that they are issued by persons who are no longer AB members (i. e. Rule 15).

(iii) The AB's issuance of Advisory Opinions on "Issues Not Necessary to Resolve a Dispute": Washington points to "the tendency of WTO reports to make findings unnecessary to resolve a dispute or on issues not presented in the dispute". They point in particular to "one egregious instance" where "more than two-thirds of the Appellate Body's analysis - 46 pages - was in the nature of obiter dicta".

(iv) The AB's Review of facts and review of a Member's domestic law de novo: "The US criticises the Appellate Body's approach to reviewing facts. Under Article 17.6 of the DSU, appeals are limited to "issues of law covered in the panel report and legal interpretations developed by the panel". Yet, in the view of the US, the Appellate Body has "consistently reviewed panel fact-finding under different legal standards, and has reached conclusions that are not based on panel factual findings or undisputed facts"." In US' view, this is particularly the case for Appellate Body review of panel findings as to the meaning of domestic legislation (which should be an issue of fact).

(v) The AB claims its reports are entitled to be treated as precedent for panels to follow: The EU says "the US has formulated a more substantive concern with the "adding or diminishing of rights and obligations" by the Appellate Body in various disputes."

Also, the US repeatedly accused the AB for "adding or diminishing rights" in "the interpretation of the notion of "public body" under the Subsidies Agreement, the interpretation of the non-discrimination obligation under Article 2.1 of the TBT Agreement, certain interpretations relating to safeguard measures (notably on "unforeseen developments"), outcomes in the cases launched by the EU against the Byrd amendment (giving the proceeds from anti-dumping/countervailing duties to US industry) and on Tax Treatment for "Foreign Sales Corporations" (that was considered to be an export subsidy)."

For addressing the US concerns, the EU has suggested a two-stage process. During the first stage, the EU has suggested that WTO members should "unblock the appointments - aim at improving the efficiency of procedures, at creating conditions for a better interaction between the Appellate Body and the WTO Members while at the same time strengthening the independence of the Appellate Body."

To achieve these goals, the EU has proposed a "comprehensive amendment", during the first stage, "of the provisions of the DSU relating to the functioning of the Appellate Body addressing all points of concern with the "approach" of the Appellate Body."

The amendment will include elements such as: (i) Article 17.5 of the DSU and the issue of 90 days, for changing the 90-days rule in Article 17.5 of the DSU by providing an enhanced transparency and consultation obligation for the Appellate Body. In particular, Article 17.5 could be amended to provide that: "In no case shall the proceedings exceed 90 days, unless the parties agree otherwise".

The EU proposed increasing the number of AB members from 7 to 9 as well as a full-time job for the AB member, and also increasing the resources to the AB.

(ii) Transitional rules for outgoing Appellate Body members that would involve "codifying Rule 15 (or similar) in the DSU, thereby addressing head on the US concern that this Rule was not approved by WTO Members. For example, the DSU could provide that an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has already taken place during that member's term."

(iii) For findings unnecessary for the resolution of the dispute which would require "modifying Article 17.12 of the DSU, according to which the Appellate Body "shall address each of the issues raised" on appeal" and by adding "to the extent this is necessary for the resolution of the dispute".

(iv) To address the meaning of the municipal law as the issue of fact by clarifying that "issues of law covered in the panel report and legal interpretations developed by the panel" do not include the meaning of the municipal measures (even though they do and should include their legal characterization under the WTO law). The EU suggested adding a footnote to Article 17.6 of the DSU "For greater certainty [...]"

(v) For addressing the issue of precedent, the EU suggested constant exchanges between AB and WTO members.

(vi) For ensuring the independence of Appellate Body members that would provide "for one single but longer (6-8 years) term for Appellate Body members." The EU says "this would address the EU concern (and that of the vast majority of the WTO Membership) with respect to the independence of the Appellate Body. It would also improve the efficiency of the Appellate Body (there would be certainty about the length of one's term and a longer term would allow to benefit from the experience on the job)."

Brussels says that all the proposed amendments would center around "Article 17 of the Dispute Settlement Understanding".

The EU said all these amendments "could be made pursuant to the applicable (simpler) amendment procedure in Article X: 8 of the WTO Agreement, according to which amendments to the DSU can be decided by the Ministerial Conference, on a proposal from any WTO Member. The decision is taken by consensus and amendments would take effect upon approval by the Ministerial Conference. In the intervals between meetings of the Ministerial Conference, amendments could be approved by the General Council (see Article IV: 2 of the Marrakech Agreement)."

The second stage of changes would involve addressing the US concerns about "the interpretations developed by the Appellate Body ("overreach") especially, but not exclusively, in the trade defence field."

The EU has noted that "once the AB appointment process has been unblocked, WTO members would engage in discussions on such possible changes or authoritative interpretations."

The moot issue is will the US agree to unblocking the appointments at the AB at this juncture.

With the US having already blocked the reappointment of AB member Servansing last month, there is little to hope that the US would change the course of its actions at the Dispute Settlement Body.

"The US will not agree to the EU's proposal for unblocking the AB selection process, nor will it accept the EU's amendments," said a trade envoy who asked not to be quoted.

Brussels is chasing a mirage with the hope that the US will come back to the WTO knowing full well that it is forced to clandestinely accept humiliating backroom demands from the US in the Section 232 measures on steel, aluminum, and probably cars. The EU's trade policy since the creation of the GATT/WTO is replete with opportunistic deals and unethical practices, several trade envoys told SUNS. +