TWN Info Service on WTO and Trade Issues (Nov24/16)
26 November 2024
Third World Network

WTO: “Short shrift” given to core issues in reform of dispute settlement system
Published in SUNS #10125 dated 26 November 2024

Geneva, 25 Nov (D. Ravi Kanth) — The “work in progress” report on the ongoing discussions on dispute settlement reform at the World Trade Organization suggests that several core issues in adjudicating/resolving global trade disputes, namely, the scope of review, the standard of review, reducing/changing incentives to appeal, and clarifying members’ expectations of adjudicators, are seemingly being given a “short shrift”, said people familiar with the development.

The restricted “work in progress” report (Job/GC/DSR/3) was issued on 20 November by the facilitator overseeing the dispute settlement reform discussions, Ambassador Usha Dwarka-Canabady of Mauritius.

Going by the data provided in the 35-page restricted report, seen by the SUNS, it appears that a fully and well- functioning dispute settlement system”, akin to a binding enforcement function that was negotiated at the end of the Uruguay Round to ensure that current as well as future negotiated agreements are implemented, seems almost impossible, said people familiar with the discussions.

At the WTO’s 13th ministerial conference (MC13) that concluded in Abu Dhabi on 2 March this year, trade ministers instructed their officials “to accelerate discussions in an inclusive and transparent manner, build on the progress already made, and work on unresolved issues, including issues regarding appeal/review and accessibility to achieve the objective by 2024 as we set forth at MC12.”

However, several core issues, particularly in the pillar of the appeal/review mechanism, are in varying levels of movement, and seem unlikely to be concluded by the end of this year, said people familiar with the discussions.

The core issues under the appeal/review mechanism include (a) scope of review; (b) standard of review; (c) form of the mechanism; (d) reducing/changing incentives to appeal; (e) clarifying members’ expectations of adjudicators; and (f) accessibility.

(The form of the mechanism was covered in SUNS #10123 dated 22 November 2024.)

SCOPE OF REVIEW

The scope of review under the current practice includes that a dispute settlement panel makes an objective assessment of the facts (Article 11 of the Dispute Settlement Understanding).

If a panel report is appealed, the Appellate Body, before it was paralyzed in December 2019 by the United States, focused on appeals that are limited to issues of law covered in the panel report and legal interpretations contained in the panel report, as per Article 17.6 of the DSU.

In their technical reports, the co-convenors proposed three reforms:

1. Clarify that a panel’s objective assessment of the facts is only reversible on appeal to the extent that there is an egregious error in the panel’s assessment (i.e. an error that undermines the objectivity of the panel’s assessment). Only an error of this nature would be sufficient to rise to the level of an issue of law. This reform would operate as a standard of review for claims relating to the panel’s objective assessment of the facts. The party making the claim at the appeal/review stage would be required to identify the specific error made by the panel. An “egregious error” must be evident from the panel record. If the correction of an egregious error by the panel impacts another panel finding or conclusion, the appeal/review adjudicators may uphold, modify or reverse that finding or conclusion. Members’ expectations of adjudicators in applying the standard would be clarified through examples or categories of errors.

2. Clarify that the parties should not resubmit factual arguments from the panel stage under the guise of challenging the objectivity of the panel’s assessment of the facts. (This appears to be one way of tying the hands of the adjudicators).

3. Clarify that questions of fact, including the meaning and effect of “municipal law”, are not within the scope of appeal/review (this is what the United States wanted in a dispute that it had lost to China).

According to the co-convenors, reform ideas 1-3 are “to ensure the panel’s role as the trier of the facts is respected; to ensure that appeal/review focuses only on legal issues; and to reduce the complex and number of appeal/review claims” (this seems to be the US objective).

The observations made by members are not clearly reflected by the co-convenors as key words are missing in the tables. Despite lack of clarity on the three reform ideas, “they have been moved to drafting.”

FILTERS, CRITERIA, OR ADMISSIBILITY TESTS

Under current practice, parties to the dispute may appeal any issues of law covered in the panel report and legal interpretations developed by the panel (DSU Articles 17.4, 17.6) without seeking leave.

Adjudicators shall address each of the issues raised as per Article 17.2 of the Dispute Settlement Understanding (DSU).

The co-convenors are suggesting to “limit the appeal/review mechanism that would be assessed on their merits to those errors of law, if established, have a material impact on the respondent’s implementation obligations with respect to a measure.”

Further, the adjudicators, according to the reform idea, “would be required to make an assessment of all claims at the outset by considering whether, if the claims were to be successful, there would be a “material impact on implementation (MII)”. The assessment would be [by] submission and would not examine the merits or substance of the claim. Only claims that would have MII in that they would materially change what the respondent would have to do to implement the recommendations and rulings would be assessed on the merits. For those claims that have MII, the adjudicators would determine the most efficient order in which to analyse the claims.”

Though the reform idea has been moved to the drafting stage, members’ observations are not clearly indicated in the technical tables. Despite several questions being raised by members as to how the reform idea would differ from judicial economy, there is little clarity, as the observations seem to be “confounded”, said people familiar with the discussions.

STANDARD OF REVIEW

The standard of review is the key component of appeals which are limited to issues of law covered in the panel report under current practice. Also, there is no deferential standard of review in the DSU.

Normally, the adjudicators apply the customary rules of interpretation of public international law and give no deference to the panel’s decision on legal issues under Article 3.2 of the DSU.

The proposed reform ideas by the co-convenors comprise:

1. “A high or limited standard of review that gives some deference to the panel such as:

a. a standard under which an appellant must establish that the panel’s decision on a legal issue was “clearly erroneous” or “plainly unreasonable”; or

b. an approach whereby the appeal/review adjudicators would first consider whether the panel’s interpretation was reasonable/permissible based on the customary rules of interpretation of public international law. The appellant’s interpretation would only be considered if the panel’s interpretation was unreasonable/impermissible.

2. Standard of review under which an appellant must establish that the panel:

a. was guilty of gross misconduct, bias, or serious conflict of interest, or otherwise materially violated a rule of conduct;

b. seriously departed from a fundamental rule of procedure; or

c. manifestly exceeded its powers, authority or jurisdiction, and any of these acts by the panel materially affected the decision and threatens the integrity of the process.”

The underlying objective of these reform ideas is “to reduce the opportunity for “rule-making” by adjudicators,” a charge repeatedly leveled by the US against Appellate Body rulings.

OBSERVATIONS

Observations by members are as follows:

1. “One view is that reform ideas 1 and 2 would change the incentives for appeal and address concerns with judicial rule-making, de facto precedent and gap-filling. These ideas would also address a concern that the Appellate Body gave insufficient deference to panel’s decisions on legal issues.

2. Some Members have said it would be useful to clarify the standard of review and some have expressed a willingness to discuss a different or higher standard. For some Members, it is also important to ensure that panel decisions that are plainly wrong or erroneous can be reviewed. Others consider that the DSU contains a standard of review, which is interpretation in accordance with the customary rules of interpretation of public international law. Further, some Members have suggested that the abovementioned concerns can be addressed by other reform ideas (such as MII) and by some of the proposed reforms in the Draft Consolidated Text, such as the Guidelines for Adjudicators (see Title V of Draft Consolidated Text).

3. Many Members have said reform ideas 1 and 2 would not meet their interests in being able to seek correction of legal errors, as well as other interests, including consistency, coherence, legitimacy and fairness. Those Members consider that reform ideas 1 and 2 could result in inconsistent outcomes which would undermine predictability. Some Members observed that reform idea 2 is limited to situations of panel/ist misconduct and most errors of law would not be able to be corrected.

4. There are different views among Members regarding the relative benefits of reforming the scope of review.

5. (See Table A, Scope of review) and/or standard of review. Some Members view it as important that issues can be brought to the appeal/review stage but are open to a higher standard of review. Other Members consider a higher standard of review would not meet their interests and so prefer reforms to the scope of review.”

REDUCING/CHANGING INCENTIVES TO APPEAL

The confidential technical tables on “reducing/changing incentives to appeal”, according to the co-convenors, involve “many factors that may act as incentives or disincentives to seeking appeal/review of a panel decision, not all of which are included in Table D. For example, reform ideas with respect to Table E, Clarifying Members’ expectations of adjudicators may also influence incentives.”

Adjusting reasonable period of time is one of the factors which, under the current system, is impracticable for a Member to comply immediately with an adopted panel or Appellate Body decision; the Member concerned shall have a reasonable period of time in which to do so (DSU Article 21.3). The RPT (reasonable period of time) is determined after the date of adoption of a panel or Appellate Body report under Article 21.3 of the DSU.

The reform ideas for changing RPT include: (a) Change the calculation of the RPT so that the start date for RPT – in the event of an appeal by the respondent – is when an appeal is initiated by the responding party; (b) Provide the responding party with a longer RPT if it does not appeal; and ( c) when a responding party appeals and all or most of its claims are not upheld, this could be a factor to be considered when the RPT is determined.

The proposed objective of the three reform ideas on RPT is ostensibly “to reduce responding Members’ incentive to file tactical appeals to gain additional time to comply.”

Members seem to have expressed mixed observations on the reform proposals concerning RPT.

“Some Members consider that reform idea 1 may have value. However, a number of concerns with this idea were raised, including that:

* Members require sufficient time to make legislative/policy amendments and it may be politically or practically difficult to start making those changes when an appeal is underway;

* Members need to consider how a change in the RPT would work if a decision, after appeal, is changed substantially;

* in some instances, it will not be possible or politically desirable to start the compliance process until there is an appeal report;

* changes to the RPT may not be suitable for every type of case. For example, in areas such as anti-dumping, Members need to ensure that the investigating authority would have sufficient time to conclude its work before the expiration of the RPT.

It has been suggested that reform idea 1 could be limited to circumstances in which the appeal was unsuccessful, but Members do not consider this would be practical.

It was also noted that, in Title IV (Compliance) of the Draft Consolidated Text, the need to make legislative changes and the special situation of developing and least developed country Members can be considered when arbitration is requested to determine the RPT.

Regarding reform idea 2, some Members prefer it to reform idea 1 because it would give a positive incentive not to seek appeal/review and would represent a better use of the parties’ time and resources.

In the view of some Members, reform idea 2 could result in longer compliance periods in cases where the losing party had no intention to seek appeal/review, which may not be conducive to the prompt settlement of disputes.

Members have raised concerns with linking the length of the RPT or its start date to a Member’s decision to seek (or not to seek) appeal/review, as the RPT is intended to be a “reasonable period of time” for that Member to bring itself into compliance.

Under all of these reform ideas, the disputing parties would retain the ability to agree on an RPT.

In short, the “work in progress” document issued by the facilitator last week seems to “confound the issues” concerning the appeal/review mechanism.

Progressing hastily on a set of conflicting proposals would be perilous for restoring a fully functioning dispute settlement system, said people familiar with the discussions. +