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Info Service on WTO and Trade Issues (Jul23/20) Geneva, 28 Jul (D. Ravi Kanth) — Despite many members having called for a robust dispute settlement system to undergird a strong enforcement pillar at the World Trade Organization, the prospects appear to be grim due to the alleged opposition from the United States that seemingly wants strong sunset provisions and a weakened appeal/review mechanism that excludes issues concerning national security interests during the adjudication of trade disputes, said people familiar with the development. The facilitator overseeing the informal discussions on dispute settlement reform, Mr Marcos Molina, the deputy trade envoy of Guatemala, is expected to present his report to members at a meeting of the WTO’s Dispute Settlement Body (DSB) on 28 July. He is likely to provide a state of play on several issues contained in the so-called Yellow Box, which implies more refined issues for further discussions. Members are expected to get an assessment of where things stand on several issues including (1) alternative dispute resolution mechanisms; (2) streamlining the panel process; (3) accessibility; (4) accountability; (5) focus on what is necessary to resolve the dispute(s); (6) transparency; (7) panel composition and expertise; (8) no expansion of rights and obligations; (9) appeal/review mechanism and consistency; (10) Secretariat support; and (11) compliance. Surprisingly, as the informal discussions are underway, the US, which apparently objected to the transparency of the ongoing informal discussions, as is evident from its criticism of this publication for stating its proposals at one of the meetings convened by the facilitator, chose to issue its “objectives” for a reformed dispute settlement system on 5 July, opposing discussion on issues pertaining to national security interests during the adjudication of trade disputes. THE US PROPOSAL As reported in SUNS #9818 dated 10 July 2023, the US proposal of “objectives” appears to be a move to “weaponize” trade-restrictive measures/sanctions against countries with whom Washington seems to be having rather “frosty” trade and political relations, said people familiar with the negotiations. Surprisingly, the US “objectives” remain silent on preserving the existing two-tier dispute settlement system, with the Appellate Body as the final adjudicating arm of the WTO’s enforcement function. Recently, the US apparently faced “rough weather” over its ideas/proposals for the reform of the WTO’s dispute settlement system, as many members rebuffed Washington’s ideas/proposals on appellate review and sunset provisions amongst others in the ongoing informal discussions being conducted by the facilitator. Against this backdrop, the US says that it intends “to lead in all areas where we can contribute, including on dispute settlement reform, but achieving fundamental reform can only happen through a collective, Member- driven process.” Washington says that it is “determined to pursue an interest-based, inclusive process that brings in all WTO Members as we work towards fundamental reform.” The US says that it will “work towards producing a system that reinforces the principles of fairness, equity, and sovereignty that underlie support for the multilateral trading system.” While remaining somewhat silent on the central role accorded to a two-tier dispute settlement system to oversee the enforcement function of the WTO, the US says that “the dispute settlement system should preserve the policy space in WTO rules for Members to address their critical societal interests and support rather than undermine the WTO’s role as a forum for discussion and negotiation to help Members address new challenges.” MC12 MANDATE The reform of the WTO’s dispute settlement system was mandated by trade ministers at the WTO’s 12th ministerial conference (MC12) last June. In paragraph four of the Outcome Document (WT/MIN(22)/24) issued at MC12, trade ministers acknowledged “the challenges and concerns with respect to the dispute settlement system including those related to the Appellate Body, recognize the importance and urgency of addressing those challenges and concerns, and commit to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024.” Yet, the battle over the reform of the WTO’s dispute settlement system seems to be increasingly becoming one between the US on the one side, and the rest of the membership, on the other, said several negotiators familiar with the ongoing informal discussions. The US says that the “success of dispute settlement reform efforts depends on understanding each other’s interests in dispute settlement”, instead of adjudicating on disputes as set out in the existing Dispute Settlement Understanding (DSU), said negotiators. Although the US acknowledges the “contributions of all Members” in driving these discussions with the assistance of a capable facilitator, it says that “no Member dictates the terms of reform.” Washington says that it has “shared a number of ideas on dispute settlement reform in the informal discussions, with an open mind to different ways of achieving the interests that we and other Members have identified.” However, the ideas shared by the US on dispute settlement reform seem to have been opposed by many members during the informal discussions, said negotiators familiar with the discussions. The US maintains that it will “support the work of the facilitator (Mr Marcos Molina, the deputy trade envoy of Guatemala) and will not disclose information that may undermine the constructive nature of the discussions so far.” According to the US in its proposal of “objectives”, “a well functioning dispute settlement system supports all WTO Members in the resolution of their disputes in an efficient and transparent manner, and in doing so limits the needless complexity and interpretive overreach that has characterized dispute settlement in recent years.” FACILITATOR’S CONFIDENTIAL REPORT Against this backdrop, Mr Molina has issued a confidential report on all the eleven issues stated above. The matrix format of proposals, options, and observations as contained in the Yellow Box on 8 July provides the direction and state of play in the discussions. The proposals contained in the Yellow Box refer to supposedly more refined provisions for further discussions. However, what is not clear and remains uncertain is the final structure of the two-stage dispute settlement system with the Appellate Body being the final adjudicating arm, said several people who asked not to be quoted. Nevertheless, a cursory glance at some of the key issues in the Yellow Box of proposals issued on 8 July, seen by the SUNS, suggests that there is a division among members on issues like (a) accountability, (b) focus on what is necessary to resolve the dispute, ( c) no expansion of rights and obligations, (d) appeal/review mechanism and consistency, (e) Secretariat support, and (f) compliance. ACCOUNTABILITY On accountability, the controversial proposal is on “Sunset provisions in which the adjudicative provisions of the dispute settlement mechanism would sunset after “X” years, unless members agreed to extend by consensus (negative consensus principle).” The facilitator seems to have made several observations concerning the sunset provision, including: * The purpose is to provide Members the ability to undertake a meaningful check on the system adherence to the agreed rules and fundamental reforms. * Strong reservations were expressed about the negative impact of such a sunset mechanism on the system, including but not limited to (a) Abuse of this provision by any Member or one Member should be able to sunset adjudicative provisions for all Members, and (b) Impact on the predictability and security of the rules-based system to be considered. * Members felt a holistic approach would be to look at the proposal above for mechanisms to ensure a meaningful check on the system. * To consider the scope of “adjudicative provisions” to which the sunset would apply. * To consider whether the extension would be by negative consensus (that is currently the rule) or by reference to another threshold. * To consider whether transitional provisions are required to apply in the event that the sunset provision is exercised. Here again, there are fundamental differences among members, according to the facilitator’s Yellow Box. For example, on the proposal on “adjudicators to address only what is necessary to resolve the dispute, including by exercising judicial economy,” several options are indicated in red colour and struck off lines. The facilitator’s observations include: (a) Delegations may want to consider whether to require adjudicators to address only what is necessary to resolve the dispute, including by exercising judicial economy, or to focus on what is necessary to resolve the dispute, including by exercising judicial economy, (b) delegations may want to consider implications on appeals and/or implementation. As regards another proposal, namely, “clarify that adjudicators should not issue “advisory opinions/ interpretations”, the options include: (1) explicit prohibition of “advisory opinions/interpretations”, (2) clarify that adjudicators “to make findings only on those claims necessary for the resolution of the dispute”, which is indicated in red colour. In his observations, Mr Molina says, “delegations recognize that the proposal to address only what is necessary to resolve the dispute also addresses advisory opinions/interpretations, and “to consider that both ideas are linked when drafting legal texts” (in red colour implying there is no consensus).” CONSISTENCY Concerning the issue of access to the mechanism, the facilitator has suggested two options, namely, (1) at the request of any disputing party, and (2) by agreement of the disputing parties (to be decided if bilaterally, plurilaterally, and multilaterally), and the timing. The facilitator says that option 1 features currently in the DSU and has broad support, while option 2 considers the implications of eliminating the right of Members to an appeal on interests expressed by Members. Surprisingly, the facilitator did not make any observations on the selection of adjudicators though he mentioned two options. The options proposed by the facilitator include an amendment to Article 17.2 of the DSU to expedite appointments to the Appellate Body. (Article 17.2 of the DSU states that “the DSB shall appoint persons to serve on the Appellate Body for a four- year term, and each person may be reappointed once. However, the terms of three of the seven persons appointed immediately after the entry into force of the WTO Agreement shall expire at the end of two years, to be determined by lot. Vacancies shall be filled as they arise. A person appointed to replace a person whose term of office has not expired shall hold office for the remainder of the predecessor’s term”.) It is important to note that the US has repeatedly blocked the selection process for the appointment of members to the Appellate Body since December 2019, thus making the Appellate Body dysfunctional. The second proposal made by the facilitator is on a “mechanism agreed by the parties”. Significantly, there are sharp differences on the scope of the appeal/review mechanism. Though the facilitator mentioned several options, he did not provide any observations, which suggest that the differences remain somewhat unresolvable, said a person, who asked not to be quoted. Finally, on both the issues of Secretariat support and compliance, the facilitator’s Yellow Box suggests that the differences remain difficult to resolve at this juncture. In conclusion, dispute settlement reform at the WTO seems to be headed towards “atrophying” the current provisions in the Dispute Settlement Understanding, thereby undermining the enforcement function of the WTO. Further, a weakened dispute settlement system could lead to some form of so-called “kangaroo courts” and a “trampled” WTO that appears to be most harmful to the interests of the developing countries, said several trade envoys, who asked not to be quoted. +
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