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TWN Info Service on WTO and Trade Issues (Apr19/21)
26 April 2019
Third World Network


Japan, Australia proposal on AB reform comes under criticism

Published in SUNS #8894 dated 25 April 2019

Geneva, 24 Apr (D. Ravi Kanth) – Several countries on Tuesday rejected a proposal from Japan and Australia that seeks to bring about fundamental changes in the World Trade Organization’s DSU and its Appellate Body (AB) as per the unilateral demands of the United States.

But the joint proposal has failed to resolve the existential crisis for filling the current vacancies at the AB, trade envoys told the SUNS.

At a meeting of trade envoys in Room E at the WTO on 23 April, the European Union, China, and Mexico among others severely chastised the joint proposal by Japan and Australia, offering concessions on a platter to the US without securing any commitment from Washington that as a quid pro quo it would agree to the selection process for filling the AB vacancies, said a trade envoy who asked not to be quoted.

The US has been blocking for the past two years the selection process.

“Even as Japan and Australia were prepared to appease the US and offer concessions for free, the US was unmoved and remained silent during the meeting,” the trade envoy said.

The US is watching how countries such as Brazil and now Japan and Australia are willing to bend backwards to address the concerns it had raised about the functioning of the AB but is not even prepared to say whether it agrees or disagrees with the joint proposal, the envoy said.

The three-page draft proposal titled “Informal process on matters related to the functioning of the Appellate Body”, was circulated on 17 April.

It came up for discussion during a meeting convened by the facilitator Ambassador David Walker of New Zealand, who is also the Chair for the Dispute Settlement Body (DSB).

The draft decision proposed by Japan and Australia jointly says emphatically that “recommendations and rulings made by the DSB are aimed at achieving a satisfactory settlement of the matter in accordance with the rights and obligations under the DSU and the covered agreements, and cannot add to or diminish the rights and obligations provided in the covered agreements.”

It insists that “the dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system”.

The draft decision says that the Appellate Body shall consider the following issues:

1. When the Appellate Body addresses the issues raised by the parties to the dispute per paragraph 12 of Article 17 of the DSU, the scope of the Appellate Review shall be limited to issues of law covered in a panel report and legal interpretations developed by the panel in strict compliance with paragraph 6 of Article 17 of the DSU.

2. The Appellate Body shall not review panel’s fact-finding, such as meaning of municipal law, as an issue of law.

3. Members affirm that they should refrain from filing appeals to the Appellate Body beyond the remit of Appellate Body.

On the controversial issue of the 90-day deadline for Appellate Review, which is one of the repeated criticisms of the US that the AB had failed to adhere to the 90-day limit, Japan and Australia have called for “strict observance of the 90-day deadline for Appellate Review.”

It opens the door for positive consensus in cases “involving complicated measures and/or legal claims, and confirms that the Members involved [in the dispute] would need to resolve the resulting procedural consequences in such cases.”

Effectively, the draft decision does away with the existing mandatory requirement of negative consensus for extending the 90-day limit by allowing parties to decide among themselves, said a trade envoy who asked not to be quoted.

The draft decision calls for ensuring that “the prompt settlement of disputes is essential to the effective functioning of the WTO and the maintenance of the proper balance between the rights and obligations of Members, as stated in Article 3.3 of the DSU [Dispute Settlement Understanding].”

On the issue of “precedential value of interpretation by the Appellate Body,” Japan and Australia proposed that “an interpretation by the Appellate Body of any WTO provision does not constitute a precedent for posterior interpretations.”

Further, the draft decision offers full freedom to the panels for adopting “an interpretation of a WTO provision that is different from the one developed by the Appellate Body”.

In short, the draft decision seeks to undermine the pre-eminent role of the Appellate Body, the highest adjudicating body for global trade disputes, said a trade envoy from South America, who asked not to be quoted.

However, the two countries repeatedly emphasized that their proposal is aimed at reaffirming “the important role of the dispute settlement system in providing security and predictability, as stated in paragraph 2 of Article 3 of the DSU.”

Japan and Australia also mentioned “requirements that the panel and Appellate Body cannot add to or diminish the rights and obligations of Members.”

According to the draft proposal, “members confirm that recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements, in accordance with paragraph 2 of Article 3 and paragraph 2 of Article 19 of the DSU.”

Further, it says that “panels and the Appellate Body should refrain from making a finding or recommendation on any of the issues of law and legal interpretation of relevant provisions of the WTO Agreement to the extent that the finding or recommendation adds to or diminishes the rights and obligations provided in the covered agreements.”

The draft decision opens the door for the use by the US of the “zeroing” methodology in calculating anti- dumping margins, repeatedly declared by the AB as illegal under Art. 2.4.2.

For example, it says that “members confirm that panels and the Appellate Body shall interpret, in accordance with paragraph 6(ii) of Article 17 of the Anti-dumping Agreement, any provision of that Agreement that admits of more than one permissible interpretation, so as not to add to or diminish the rights and obligations provided in the covered agreements.”

The draft decision also calls for “regular dialogue between the DSB [Dispute Settlement Body] and the Appellate Body” so as to ensure the implementation of the decisions afterwards.

“Members affirm that they will also consider how to ensure the implementation of the outcomes of the regular dialogue between the DSB and the Appellate Body,” Japan and Australia suggested.

In response to the Japan-Australia proposed draft decision, the EU, China, and Mexico among others expressed sharp reservations, saying that the draft decision doesn’t guarantee that the US will agree to the selection process for filling the vacancies at the AB even if members approve the proposed changes by Japan and Australia.

“The draft decision proposed by Japan and Australia is much worse than the Brazilian proposal as it doesn’t address the Rule 15 [of the Working Procedures for Appellate Review] or the selection process,” said a trade envoy, who asked not to be quoted.

The Rule 15 of the AB’s working procedures says that “a person who ceases to be a Member of the Appellate Body may, with the authorization of the AB 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.”

Further, the draft decision makes things more difficult as it does not say that in return for extending the concession to the US, members can launch the selection process.

“Effectively, you are giving whatever the US is asking for free which goes against the cardinal principles of give-and-take,” the envoy said.

“Not only the Japan-Australia proposal drastically truncates the AB by introducing the positive consensus as regards the 90-day rule but it fails to offer concrete solutions,” said a trade envoy, who asked not to be quoted.

“With Brazil changing sides to appease the US and with the latest Japan-Australia proposal, the US can use these proposals to say that everybody now agrees that the AB has overreached and overstepped and use that argument to say why should it continue with the AB,” the envoy asked.

Effectively, in their separate proposals, Brazil, and now Japan and Australia are giving the US “ammunition to say that there is a problem with the current system – and hence it is determined to throw the baby [AB] out with the bath water,” the envoy argued.

Unless the EU, China, India, Mexico, and other countries remain united by fiercely opposing the “appeasement proposals” that allow the US to persist with its hegemonic demands at the WTO, the prospects for the continuation of the AB look grim.

 


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