TWN Info Service on WTO and Trade Issues (Oct18/05)
9 October 2018
Third World Network

US continues to stymie WTO efforts over AB appointments
Published in SUNS #8765 dated  3 October 2018

Geneva, 2 Oct (Kanaga Raja) -- The United States, at a meeting of the Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on 26 September, again blocked the consensus to launch the selection processes to fill four vacancies on the seven-member Appellate Body (AB).

At the meeting, the US again declared that it was not in a position to agree to a joint proposal sponsored by some 68 WTO Members that called for the simultaneous launch of the selection processes to fill the four vacancies on the Appellate Body as soon as possible.

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.

A fourth vacancy concerns the departure of Appellate Body member Mr Shree Baboo Chekitan Servansing, whose first term ended on 30 September 2018.

At the last meeting of the DSB on 27 August 2018, the US had informed that it was not in a position to agree to the reappointment of Mr Servansing to a second term, given that its longstanding concerns about the Appellate Body's alleged disregard for the rules set by WTO Members have not been addressed. (See SUNS #8743 dated 30 August 2018).

At the DSB meeting on 26 September, a proposal on Appellate Body appointments was introduced by Mexico, on behalf of the 68 co-sponsors.

The co-sponsors of the joint proposal included Argentina; Australia; Bolivia; Brazil; Canada; Chile; China; Colombia; Costa Rica; Dominican Republic; Ecuador; Egypt; 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, Ukraine; Uruguay; Venezuela; and Viet Nam.

According to the joint proposal (WT/DSB/W/609/Rev. 5), 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 above, 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; (iii) a third selection process to replace Mr. Peter Van den Bossche, whose second four year term of office expired on 11 December 2017; and (iv) a fourth selection process to replace Mr. Shree Baboo Chekitan Servansing, whose four-year term of office expires on 30 September 2018;

(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 four new Appellate Body members as soon as possible.

In its statement at the DSB, the United States said that 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," said the United States.

"For example, 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," said the United States.

Argentina, Brazil, Thailand, China, Australia, Norway, Switzerland, Korea, Japan, Singapore, Chinese Taipei, India, Hong Kong-China, New Zealand, Mexico (for itself), the European Union, Costa Rica (for the GRULAC group of Latin American and Caribbean countries), Uganda, Ukraine, Turkey, Egypt, Pakistan and South Africa took the floor on this issue.

According to trade officials, they again reiterated their concerns over the continued impasse concerning 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 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.

According to trade officials, Russia accused the United States of taking deliberate actions to undermine the WTO's dispute settlement system and paralyze the Appellate Body.

Russia said that it was nothing more than an attempt by one member to pursue its agenda at the cost of all members.

It also said that the refusal by the United States to engage on the matter made it impossible to challenge the recent unilateral trade actions taken by the US through dispute settlement, and that this did not appear to be a coincidence.

Canada said that it was disappointed with the US decision to block the re-appointment of Mr. Servansing to a second four-year term as Appellate Body member and thanked him for his service.

STATEMENT BY HONDURAS ON THE APPELLATE BODY

Honduras made a statement on fostering discussion on the functioning of the Appellate Body whereby it outlined some ideas on addressing one of the concerns raised by the US regarding the Appellate Body, namely the practice of allowing Appellate Body members whose terms have expired to continue working on cases without the approval of the DSB.

This practice is set out in Rule 15 of the Working Procedures for Appellate Review.

According to trade officials, Honduras said that as a small developing country active in dispute settlement, it attached great importance to the Appellate Body, whose survival is at stake.

According to Honduras, there are currently no specific criteria under Rule 15 for determining when an Appellate Body member should continue to serve on an appeal.

In its non-paper (Job/DSB/2), Honduras outlined a number of options for "objective and reasonable criteria" to be considered.

Regarding the issue of when an Appellate Body member can continue to serve beyond the four-year term for the purpose of completion of duties on an appeal:

a. An Appellate Body member shall be able to continue to serve on cases where the oral hearing has occurred or started. [On a case where a hearing has not been yet, the outgoing Appellate Body member should be replaced with an alternate Appellate Body member.]; or,

b. No member of the Appellate Body shall be assigned to a new appeal later than 60 days before the final date of his/her appointment.

Regarding the issue of who decides if an Appellate Body member should serve after his/her four-year term has expired:

a. The Appellate Body can continue to apply Rule 15 of the Working Procedures which allows an Appellate Body member to complete his/her work on ongoing appeals subject to approval by the Appellate Body and upon notification to the DSB;

b. In the event WTO Members alternatively decide that the DSB should approve the continuation of an Appellate Body member under Rule 15, the reverse consensus rule could apply. This would avoid a situation where an Appellate Body member who meets the relevant criteria could be blocked by a single WTO Member;

c. In the event WTO Members decide that the DSB should approve the continuation of an Appellate Body member under Rule 15, an alternate approach could be that the positive consensus or positive consensus minus the parties of the dispute could apply.

Honduras said that it hoped to start a multilateral discussion on the issue in-house in order to restore the full functioning of the dispute settlement system.

According to trade officials, most of the members who took the floor to comment on the proposal welcomed the initiative from Honduras.

They said that it was a good basis for starting a discussion on the issue, even if some were of the view that Rule 15 was not a problem for them.

According to trade officials, Canada, Japan, Thailand and China commented on the details of the proposal. They asked how the different options would work under different scenarios and expressed preference for one option or another.

Several said that it was important for members to engage in the discussions constructively.

The United States thanked Honduras for its non-paper and for placing this item on the agenda for the meeting.

It said that it looked forward to hearing other Members' views on the options for addressing the concerns that the United States has been raising for over a year.

"We appreciate that the non-paper provides some of the possible options and that it recognizes that there may be other possible approaches. We would be interested in hearing of other approaches that Members are considering," it said.

CHINA'S STATEMENT ON ARTICLE 17.6 OF THE DSU

China made a statement concerning Article 17.6 of the Dispute Settlement Understanding, in which it addressed the concerns raised by the US at the last meeting of the DSB on 27 August over Article 17.6 and Appellate review of panel findings of fact, including domestic law.

The US had criticized the Appellate Body for what it said was the AB's consistent review and reversal of "fact- finding" by WTO panels. (See SUNS #8742 dated 29 August 2018).

In its statement, China noted that at the DSB meeting on 27 August, the US addressed two related issues: first, the scope of the Appellate Body's review of a panel's factual findings, and second, the scope of its review of the meaning of municipal law as part of a panel's factual findings.

The US claims that the Appellate Body has exceeded its mandate, said China.

China said that the WTO dispute settlement system is an effective and successful international system for dispute settlement. Over the past 23 years, it has received 566 cases and helped the WTO Members to address hundreds of disputes.

The Appellate Body, which is the subject of this debate, is an extremely important part of the WTO dispute settlement system.

It is widely regarded as having made important contributions in clarifying WTO rules and providing security and predictability to the multilateral trading system.

However, said China, due to continuous failures to launch the Appellate Body selection process and to reappoint an Appellate Body member, the Appellate Body and the WTO dispute system is in a historically serious crisis.

China said that based on its understanding of relevant DSU provisions and practices, whether a panel makes an objective assessment of facts under DSU Article 11 is within the scope of the appellate review.

It also said that the categorization of a Member's municipal law is a long-lasting vexation among adjudicators, especially when the tribunal is called upon to assess the conformity of municipal law with relevant international obligations.

Generally speaking, said China, the meaning of domestic law is an issue of fact, but the legal characterization is a legal issue subject to appellate review.

According to China, the WTO dispute settlement system is founded on a two-tier system of review that consists of panels and the Appellate Body, which have different tasks within the system.

A panel's tasks are to make findings regarding the facts and the applicable law, and to apply the law to the facts to reach a decision. In carrying out its work, a panel should act under legal constraints prescribed by the DSU.

Article 11 of the DSU, in particular, provides that a panel "should" make an objective assessment of the matter, including of the facts.

Article 17.6 of the DSU provides that an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.

The Appellate Body has consistently recognized that it plays a limited role in the system, as compared with panels.

The Appellate Body defers to a panel's role as the "trier of fact", and the Appellate Body does not make its own factual findings.

Indeed, said China, even when the Appellate Body seeks to resolve a dispute by completing the analysis, it does not make its own factual findings. The Appellate Body has therefore undertaken only limited review of a panel's factual findings.

China noted that at the last DSB meeting (in August), the US argued that panels are not legally required to make an "objective assessment" because Article 11 uses the word "should" rather than "shall".

This argument continues that, absent a legal requirement to make an objective assessment, the Appellate Body cannot review a panel's assessment of the facts.

China said that it is surprised by the US argument.

In China's view, although "should" and "shall" may bear some difference in meaning, it is inconceivable that the Members did not impose, in the DSU, a legal requirement on panels to make an objective assessment.

The Members' use of the word "should" in Article 11 of the DSU is more than adequate to convey that panels are legally required to make an objective assessment. This word supports the position taken by the Appellate Body and Members in past appeals, it said.

Members have conferred authority on panels to resolve disputes. However, the DSU requires that panels must do so only through an objective assessment.

This limitation on a panel's authority is both appropriate and necessary to ensure that panels make decisions that are independent and neutral.

If the standard is not objectivity, China cannot imagine what other type of assessment the US would consider appropriate, it said.

Following some further detailed analysis, China concluded that a panel is under obligation to carry out an objective assessment of facts according to Article 11 of the DSU, and the Appellate Body can review whether a panel properly discharged its objective assessment obligation in accordance with Article 11.

On the issue of categorization of a Member's municipal law, China said that while municipal law is usually at the heart of international disputes, it is principally recognized as an issue of fact in various international tribunals.

However, stating the principle in the abstract is one thing, applying it to specific cases can be more complicated, said China.

In the WTO system, the proper assessment of municipal law is critical to the success of dispute settlement in a variety of ways, it added.

In an "as such" case regarding laws and regulations, the assessment of municipal law lies at the heart of the dispute.

In cases regarding ongoing conduct and measures involving systematic application, the assessment of municipal law is central to both the existence and content of the measure.

In certain "as applied" cases, the municipal law underpinning the measure at issue can also be important as part of the surrounding context of that measure, said China.

China argued that a panel's enquiry into municipal law does not end with establishing its meaning as a matter of fact.

A crucial part of the enquiry is characterizing municipal law as a matter of WTO law. Every case involving municipal law is likely to raise such a question of legal characterization which usually is very important to the heart of disputes.

For example, said China, does municipal law involve WTO-inconsistent conduct, such as the grant of a "prohibited subsidy", the "less favourable treatment" of imported goods and so on?

Or, in a dispute involving a Member's ongoing conduct, does municipal law entail conduct that can properly be characterized as a "measure" under WTO law?

According to China, countless such questions of characterization may arise. Applying the law requires a substantial factual analysis, and the fact identification and law application determinations are closely linked.

The characterization of facts, including the characterization of municipal law, is a legal issue under WTO law. In characterizing the facts, a panel is not engaged in fact-finding, but is applying the law to the facts.

Taking the examples just listed, a panel may be required to determine whether the relevant municipal law involves a "subsidy" or "less favourable treatment", or whether it amounts to a "measure", said China.

China understands that the US agrees that such questions of legal characterization are questions of law that may be appealed.

Further, these appeals do not arise under Article 11 of the DSU. They arise under the legal provision that a panel is applying.

China summarised that it seems that the Appellate Body has attempted to draw a line between a panel's findings on the meaning of municipal law, which must be appealed under Article 11 of the DSU and will be upheld unless the panel's assessment is not objective, and its findings on the characterization of municipal law, as a matter of WTO law, which must be appealed under the legal provision that the panel applied.

China said that in its view, in light of the DSU, the Appellate Body has been correct in its effort to draw this line.

Not surprisingly, this line is not easy to draw in practice, with questions of the meaning and characterization of municipal law very often being difficult to untangle.

There is no such clear-cut rule with respect to drawing this line. We all have to deal with the un-perfect within this system, said China.

The US said that 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, is an important systemic issue with significant implications for the operation of the dispute settlement system.

For a thorough discussion of these issues, it referred delegations to the statement that it had made at the DSB meeting on 27 August.

In providing some initial reactions to China's statement, the US said in DSU Article 11, 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, WTO panels are to make factual and legal findings.

By contrast, under DSU Article 17.6, Members agreed that the Appellate Body would have a significantly more limited role than panels. Article 17.6 of the DSU expressly limits the scope of appellate review: "[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel."

On its face, this would not include panel fact-finding and, thus, appellate review of factual findings would appear to be contrary to the Appellate Body's limited authority under Article 17.6 of the DSU, said the US.

According to the US, as previously discussed, the Appellate Body's decision to undertake a review of panel fact- finding has had a number of adverse effects on the dispute settlement system, including an increased workload due to the number of appeals under Article 11.

This, in turn, has increased the complexity of appeals, the length of submissions, and the need for the Appellate Body to devote additional time and resources to such appeals to become familiar with the basis for panels' factual findings.

With regard to municipal law, the US said that in the WTO system, as in any international law dispute settlement system, the meaning of municipal law is an issue of fact.

The interpretation and application of the relevant covered agreement would be the issues of law for the WTO dispute settlement system.

The Appellate Body's erroneous approach to municipal law eliminates the lines explicitly drawn by Members in the DSU between factual and legal issues, and 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 issues of law and legal interpretations, the US maintained.

The US said for the reasons it had explained at the DSB meeting on 27 August, and again today, "we do not see how one reconciles the Appellate Body's review of panel fact-finding with the express limitation in Article 17.6 of the DSU of appellate review to legal issues."

The US maintained that as with the Appellate Body's impermissible review of panel findings of fact more generally, the Appellate Body's treatment of municipal law represents a departure from the agreed text of the DSU and a serious waste of the limited resources of the WTO dispute settlement system.

Numerous WTO Members have regretted the complexity of and delays to WTO dispute settlement system, and here is one reason, added to the system by the Appellate Body, it said.

According to trade officials, Japan, Brazil, Canada, Mexico, the European Union and Chile spoke under this agenda item.

Most of them supported the notion that the Appellate Body could review panel fact-finding and interpretations of municipal law, albeit in limited circumstances.

Brazil said the US traces its concerns back to the Appellate Body ruling in EC-Hormones (DS26) but expressed no criticisms at the time. Likewise in US - Conditional Tax Incentives for Large Civil Aircraft (DS487), the US did not accept the panel's finding of fact on municipal law but asked the Appellate Body to review the panel's assessment of facts.

In other cases where the US has expressed criticisms, no other member supported the US objections, said Brazil.

Canada said it was open to discussion on the matter. It was appropriate for the Appellate Body to establish a standard of review for fact finding to discourage members from advancing unnecessary arguments, it said.

For those who consider that the Appellate Body should entirely refrain from any review of factual finding, Canada said they should contemplate a scenario where an egregious panel finding of fact results in an outcome that has serious and negative consequences for a key industry in that member's jurisdiction.

Mexico said it was surprised that after more than 20 years and 500 rulings, the US was now taking the view that the Appellate Body had invented the authority to review findings of fact, something with which Mexico does not agree.

The EU said it was open to discussion on the issue. It said that the issue has been raised in many cases by many members in appeals.

Chile said that it was willing to look for solutions to the matter. +