TWN Info Service on WTO and Trade Issues (Nov19/16)
27 November 2019
Third World Network

DSB chair to report on AB crisis later this week
Published in SUNS #9027 dated 26 November 2019

Geneva, 25 Nov (D. Ravi Kanth) -- The chair of the World Trade Organization's Dispute Settlement Body (DSB), Ambassador David Walker of New Zealand, is expected to inform members on Friday (29 November) about his consultations on "matters related to the functioning of the Appellate Body", even as the United States upped the ante for making the AB dysfunctional, trade envoys told the SUNS.

In an email sent to trade envoys on Friday (22 November), the chair of the WTO's General Council, Ambassador Sunanta Kangvalkulkij of Thailand, said "as in the previous open-ended informal meetings in the Informal Process of solution-focused discussion on matters related to the functioning of the Appellate Body, I will invite the Facilitator, Ambassador David Walker, to provide a report on his consultations ahead of the General Council meeting on 9-11 December."

By 29 November, it would become clear as to what the US intends to do at the WTO's budget committee meeting on Wednesday (27 November) about the biennial budget for 2020 and 2021.

The US had already blocked the budget for 2020 and 2021 at a meeting of the Committee on Budget, Finance, and Administration (CBFA) on 12 November. Whether it will continue with the same stand this week is not clear, said a trade envoy, who asked not to be quoted.

More importantly, there is mounting confusion on whether one of the retiring AB members - Thomas Graham - will continue to provide his services for addressing some of the pending 13 appeals before the AB.

Apparently, Graham has not indicated one way or the other about his continuation to address the pending appeals under Rule 15 of the Working Procedures for Appellate Review, said a trade envoy who asked not to be quoted.

"If Graham decides to withdraw from the pending appeals, then, the "supply side" of having a quorum of three AB members for adjudicating any appeal will remain unfulfilled," the trade envoy said.

At present, there are two confirmed members - Ujal Singh Bhatia (who will retire on 10 December) and Hong Zhao for adjudicating pending appeals, but Graham's continuation remains doubtful, the trade envoy said.

At the DSB meeting on Friday, the DSB chair Ambassador David Walker did not inform members about his ongoing consultations with a small group of countries which he had held last week, said another trade envoy.

Ambassador Walker told trade envoys at the small group last week that three AB members are needed for addressing the pending appeals from the "supply side", the envoy said.

"If for some reason Graham chooses to opt out because of pressure from the US, then, automatically there will not be a quorum to adjudicate any dispute," the envoy suggested.

The DSB chair, however, told members that he is still continuing his consultations with members.

Within hours of the chair's statement at the DSB meeting on Friday, the GC chair sent an email informing members that she is convening a meeting on 29 November to enable Ambassador Walker to present a report on his consultations on matters relating to the AB.

At the DSB meeting on Friday, the US trade envoy Ambassador Dennis Shea made a hard-hitting statement on "systemic concerns regarding the compensation of the AB members."

Based on the replies the US had received from the WTO Secretariat about the questions it had raised about the expenses incurred by the AB and its members (see SUNS #9019 dated 14 November 2019), the US trade envoy asked why the AB members felt free to depart from the clear rules agreed by WTO members on their compensation.

The US said its statement is not directed against any "particular AB member".

Ambassador Shea said that the US sought information from the WTO secretariat about the "compensation arrangement and practices" of AB members.

He said "we have learned that, in practice, ex-Appellate Body members continuing to decide appeals past the end of their terms also received the retainer fees."

The US trade envoy said that "so long as any appeal to which they are assigned remains active, an ex-member receives CHF 9,415 (around $9,500) per month", while AB and ex-AB members working on appeals also received a fee of CHF 791 per day worked.

"Taken with the monthly retainer fee, these two elements alone result in annual compensation of approximately CHF 300,000 for an Appellate Body member [and] the same is true for ex-Appellate Body members, depending on their level of activity," the US complained.

The US envoy argued that each AB member has earned significantly more than the annual salary of a WTO deputy director-general and "taken together, the amount of compensation and other payments realized per member has remained steady and at a high level."

However, the number of reports circulated over recent years by AB members has remained steady at about five to six reports per year, he noted.

Despite receiving remuneration beyond the mandated levels, the AB members failed to issue reports in the requisite period of 60 days or exceptionally, 90 days, the US said.

"We would question whether this approach to compensation creates the appropriate incentive", as "an appeal that extends beyond the 90-day deadline may benefit Appellate Body members in a way that strict adherence to that deadline would not," the US alleged.

The benefits are much more substantial in case of an ex-AB member, the US argued.

"A system that provides a financial reward for violating DSU rules and prolonging the duration of an appeal would appear inconsistent with the objective behind the DSU rule of providing for the prompt resolution of disputes," the US said.

It asked, "does the current structure create the correct incentive, or a negative one?"

Also, "does this structure encourage prolonged appeals at the expense of clear WTO rules," the US sought to know.

Affirming its commitment to "independence of adjudicators", the US said it wants "institutional accountability", suggesting "independence" and "accountability" are not mutually exclusive.

Several members - the European Union and China among others - sharply differed with the US statement.

The EU said the issue of compensation for AB members would become relevant only when there is a functioning AB.

It urged the US to first agree to launching an expeditious selection process for filling the six vacancies at the AB.

The EU suggested that the daily fees and per diems have only increased by 30% since 1995 while the basic structure remains the same, and AB members do not receive retirement or other benefits.

Remuneration should be at a level which attracts the best candidates, it said.

China expressed concern over the US statement, saying that it was the first time a member had raised the issue of compensation for AB members at a DSB meeting. China argued that the right forum to raise the issue would be the WTO's General Council.

China said that the compensation for AB members is below that of peers in other international judicial bodies.

China also drew reference to other adjudicators providing similar services such as commercial and investment arbitration, and said in comparison the remuneration of AB members is significantly low.

Lastly, the oversight on compensation should be conducted based on objective and reasonable assessment of relevant facts, China said.

China lamented that the AB is being reduced from the status of WTO's "crown jewel" to a "problem child."

In a confidential two-page note "regarding the compensation of AB members," making the rounds among trade envoys and seen by the SUNS, an attempt is made to prove that the US claims are baseless and without merit.

"In recent years, there was a waiting period of 6 to 9 months until appeals could be fully staffed and ABMs [Appellate Body Members] could fully turn their attention to them," the note said.

"For example, if an appeal takes currently one year to finish and can be fully staffed - and ABMs can turn their attention to it - [in] only nine months, then the intensive appeal work period is only 3 months. (One should also discount the period when AB reports are translated, and the ABMs are no longer involved). Therefore, it would be factually incorrect to assert that ABMs are charging daily fees for a year instead of for the treaty-period of 90 days," the note argued.

It further noted that "looking at the expenditures for ABMs working under Rule 15 since 1999, such expenditures for each ABM under Rule 15 were minimal up and until 2016, when the terms of office of Seung Wha Chang (South Korea) and Yuejaio Zhang expired."

"In other words," according to the note, "Rule 15 expenditure is not an issue when the AB is composed of 7 members."

"The United States participated in many of the appeals involving Rule 15 ABMs," the note suggested.

"In the past, it (the US) requested adoption of AB report in several cases where ABMs working under Rule 15 were involved and in two cases where two ABMs worked under Rule 15," the note suggested.

Moreover, according to the note, "expenditures for Rule 15 ABMs increased substantially since 2017 when the impasse of the AB selection process began. The appeal workload in recent years was constantly at around a dozen appeals. These included some mega-appeals. Because of the blockage of the AB selection processes, the same workload had to be divided among fewer and fewer ABMs, including those completing under Rule 15 appeals assigned to them during their term of office. This increased workload results in an increase of daily fee claims."

The United States, according to the note, "has participated in many of the appeals involving ABMs working under Rule 15 as appellant or appellee since 1999."

The note exposed false and hypocritical positions adopted by the US to bring the AB to dysfunction, said a trade envoy, who asked not to be quoted.

"In 2017-2019, the US was a main party in the compliance appeals in Airbus 21.5, and Boeing 21.5 and in a US/China CVD appeal (DS 437). During the same period, it raised concerns regarding the application of Rule 15. Without the participation of two Rule 15 ABMs, there would have been no ruling that the US won the Airbus 21.5 compliance case and, consequently, no authorization of retaliation by the US against the EU in an amount exceeding 7 billion dollars," the note said.

"The ABMs' compensation is in line with the nominal income of judges at international tribunals," the note said, suggesting that "the same is true for the remuneration package of judges in a US court including the Supreme Court or the Court of International Trade."

At the DSB meeting, both Canada and Australia said budget transparency was important, with Australia saying it supported compensation that was adequate and commensurate to the important work being carried out by AB members.

Korea said it was ready to discuss the matter, while Uruguay said other factors than the compensation structure, notably lack of resources in the AB secretariat and translation delays, may be contributing to the problem of rulings being issued after the 90-day period set out under WTO dispute rules.

In a sharp comment to the US statement, Mexico said it did not understand the US link between compensation concerns and the use of Rule 15, since former members were being asked to stay on and continue cases due to the US blockage over the appointment of new members.

Mexico said what the US is discussing regarding compensation for former members is actually the result of this US blockage, and not the problem.

Meanwhile, the US blocked a request from 117 members for launching an expeditious selection process for filling the six vacancies at the AB, citing that the systemic concerns it had raised have not been addressed.

It appears that the AB is set to become dysfunctional on 11 December if the US continues with its approach against the AB. +