Petersmann on "How should WTO members respond to the WTO Appellate Body crisis?"

This is a guest post from professor and long-time GATT/WTO Secretariat lawyer Ernst-Ullrich Petersmann :

ERNST-ULRICH PETERSMANN *

European University Institute, Florence (Italy) 

1. The US blocking of the filling of WTO Appellate Body (AB) vacancies, since spring 2017, on grounds not related to the personal qualifications of proposed AB candidates violates the WTO legal obligations to comply with Dispute Settlement Understanding (DSU) rules in good faith (cf. Articles 3.10, 23 DSU) and protect the AB as legally prescribed in Article 17 DSU (e.g. as being ‘composed of seven persons’, with vacancies being ‘filled as they arise’ so that AB membership remains ‘representative of membership in the WTO’). The US continues to justify its ‘blocking strategy’ by 'US concerns with WTO dispute settlement' and with ‘the approach by the AB’, as summarized in the President's 2018 Trade Policy Agenda, by focusing on the following six cross-cutting issues:

• AB disregard for the 90-day deadline for appeals as set out in Article 17.5 of the DSU.
• Continued service by AB members beyond their limited terms, as authorized by the AB based on 'Rule 15' of the AB Working Procedures, to complete a pending dispute.
• AB issuing advisory opinions on issues not necessary to resolve a dispute.
• Appellate Body review of facts and review of a member’s domestic law de novo.
• Appellate Body claims its reports are entitled to be treated as precedent.
• Adding or diminishing of rights and obligations by the AB in various disputes.[1]

All these US concerns relate to long-standing AB legal interpretations[2] and judicial practices[3] that had been justified on the basis of (1) the customary rules of treaty interpretation and (2) the quasi-judicial mandates given by the DSU to WTO panels, the AB and to WTO arbitrators, and (3) had been accepted in the legal practices of the WTO Dispute Settlement Body, albeit subject to occasional expressions of concerns by the US. The continuing DSU reform negotiations since 1998 have, so far, not led to politically agreed ‘corrections’ of this jurisprudence, for instance through ‘authoritative interpretations’ (Article IX.2), amendments (Article X) of the WTO Agreement, or by overruling dispute settlement findings through DSB decisions. Moreover, some of the legal problems (like disregard for the 90 days deadline for appeals) were caused by the USA itself, for instance:

• by insisting on the insertion of such an unreasonably short and - in most pending AB disputes - impossible deadline into the DSU in order to avoid changing the corresponding deadlines for administrative remedies in US trade laws; no other international or domestic court has been constrained by a similar deadline!
• by disregarding the DSU obligations to provide the AB ‘with appropriate administrative and legal support’ (Article 17:7) and fill ‘vacancies … as they arise’ (Article 17:2); and
• by contributing to the increasing number and complexity of appeals (e.g. more than 13 pending AB disputes in November 2018) which – de facto – render compliance with the 90 days deadline impossible without introducing radically new, politically agreed procedures (like ‘summary judgments’ prior to publication of the full AB report, publication of AB reports in the language of the dispute before translation into the other official WTO working languages).

The US has submitted no evidence for its political claims that the judicial AB interpretations have engaged in ‘persistent over-reach’[4], for instance by violating

• the customary rules of treaty interpretation (e.g. by arbitrarily misinterpreting ‘the terms of the treaty’, or by misapplying the duly interpreted treaty terms to the relevant facts established by the panel), or
• the quasi-judicial mandate of WTO dispute settlement bodies (e.g. by not addressing ‘each of the issues raised in accordance with paragraph(s) 6’ and 12 of Article 17 DSU).

International lawyers inside and outside the WTO institutions have persistently celebrated the WTO jurisprudence as the ‘crown-jewel’ of WTO legal practices fulfilling the quasi-judicial mandate for ‘prompt settlement’ of WTO disputes, ‘providing security and predictability to the multilateral trading system’ through impartial, independent third-party adjudication, and clarifying ‘the existing provisions of those (WTO) agreements in accordance with customary rules of interpretation of international law’ (Article 3.2 DSU). These customary rules require application also of general rules and principles of international law ‘applicable in the relations between the parties’[5], including ‘due process of law’, ‘judicial administration of justice’ in third-party adjudication of WTO disputes, and good-faith-compliance by all WTO members with DSU rules (cf. Article 3.10 DSU) and with dispute settlement rulings adopted by the DSB (cf. Article 23 DSU). The DSU avoids describing WTO dispute settlement panels, the AB and WTO arbitration as ‘courts of justice’ and WTO adjudicators as ‘justices’. Yet, the DSU rules, WTO working procedures for panels and the AB, and WTO ‘rules of conduct’ prescribing impartiality and independence of WTO panelists, AB members and arbitrators have been persistently interpreted by WTO adjudicators and WTO members as providing for quasi-judicial mandates.[6] The US claims of ‘judicial overreach’ are opportunistic in view of the many WTO disputes in which the US itself suggested and welcomed ‘creative interpretations’ of indeterminate procedural WTO rules (e.g. on admission of amicus curiae briefs, making panel and AB meetings open to the public) as well as of substantive WTO rules (e.g. on recognizing living organisms as ‘exhaustible natural resources’ in terms of Article XX(g) GATT, interpreting a GATS prohibition of ‘anti-competitive practices’ as prohibiting price-fixing cartel agreements). As US trade diplomats have made no effort at demonstrating that the AB jurisprudence has disregarded its quasi-judicial mandate for ‘prompt settlement’ of WTO disputes by clarifying the disputed meaning of WTO provisions through use of the customary rules of treaty interpretation, no other DSB member has so far supported the politically motivated US blocking of the filling of AB vacancies. 

 

2. At the WTO General Council meeting on 12 December 2018, Australia, Canada, China, the EU, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore, Switzerland and other WTO members presented joint proposals for overcoming the current deadlock in the WTO AB by amending the DSU in order to accommodate the concerns expressed by the US, notably by

• negotiating new DSU rules for outgoing AB members which make clear on which cases they can stay on to complete the appeal proceedings they are working on;
• ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in Article 17 DSU, unless the parties in the dispute agree otherwise;
• clarifying that the legal issues subject to appeal by the AB do not include the meaning of domestic legislation;
• specifying that the AB should only address issues necessary to resolve the dispute; and
• introducing annual meetings between WTO members and the AB to discuss in an open way systemic issues or trends in jurisprudence.[7]

Three features of these DSU amendment proposals are characteristic:

• They respond to the concerns raised by the US Trump administration so as to strengthen member-control over the AB.
• They were coordinated and initiated without inclusion of the US delegation so as to avoid US obstruction.
• As US trade diplomats fail to indicate under which conditions they are willing to stop their illegal blocking of the filling of AB vacancies, the proposal includes a footnote that, ‘(i)f the amendment of the DSU proves to be impracticable to achieve this objective swiftly, we will consider other legal instruments appropriate for that purpose’.

In an additional ‘Communication from the EU, China and India to the General Council’[8], these three largest WTO members propose additional DSU amendments to reinforce the AB’s independence and impartiality and to improve its efficiency, for instance by

• providing for a single, longer term of AB members of 6 to 8 years;
• increasing the number of members from 7 to 9 working full-time, to support the AB’s capacity to deliver; and
• ensuring that the selection process of AB members starts automatically when a post is vacant, and that there is an orderly transition with outgoing members.

Again, also this communication was initiated and elaborated without US trade diplomats, as they no longer seem to support this objective of reinforcing the AB’s independence, impartiality and efficiency. 

 

3. As both proposals were rejected by the US delegation at the General Council meeting on 12 December 2018 and the US Trump administration seems to be unwilling to engage in good faith negotiations on DSU amendments, the above-mentioned footnote in the first communication of 26 November 2018 – and its reference to ‘other legal instruments’ available under WTO law for protecting the WTO legal and dispute settlement system – needs to be clarified. These ‘other legal instruments’ include, inter alia:

• Initiating and completing 'by a majority of the votes cast' (Article IX.1 WTO Agreement) the traditional WTO procedures for selection and timely appointment of vacant AB positions, justifying the legally prescribed majority voting by the lack of any legally coherent justification of the US disregard for the collective WTO duties to maintain the AB as prescribed in Article 17 DSU.[9] The text of Article IX:1 (‘where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting’) confirms that WTO members are legally required (‘shall’) to overcome illegal ‘blocking’ of the filling of AB vacancies by such majority decisions in order to meet their collective legal duties to maintain the AB as prescribed in Article 17 DSU, similar to the existing WTO procedures for appointing the WTO Director-General through a majority decision ‘where a decision cannot be arrived at by consensus’.[10]
• In order to pre-empt objections (e.g. by the US) to such a majority decision as mandated by Article IX.1 WTO, the WTO Ministerial Conference or General Council could also adopt an 'authoritative interpretation' based on 'a three-fourths majority of the Members' (Article IX:2 WTO) confirming (a) their collective legal duties and existing WTO powers to fill 'vacancies . . . as they arise' (Article 17 DSU) through majority decisions, for instance in view of Article XVI.3 WTO Agreement[11]; and (b) the exceptional nature of such majority decisions, which do not set any precedent for WTO decisions on discretionary, political issues.
• As such majority decisions of WTO bodies require diplomatic preparation in order to overcome resistance by US trade diplomats, WTO members might also confirm, and temporarily resort to, the availability of ‘arbitration within the WTO as an alternative means of dispute settlement’ (Article 25.1 DSU) - also for agreed appellate review of WTO panel reports. Yet, such mutually agreed use of arbitration under Article 25 DSU to ensure the availability of appeals entails numerous problems[12] that risk further undermining the WTO dispute settlement system.

 

4. Just as US withdrawal from the 2015 Paris Agreement has been no reason for other UN member states to abandon their climate change prevention policies, President Trump’s disdain for the WTO legal and dispute settlement system offers no reason for other WTO members to no longer comply with their WTO legal obligations, as democratically prescribed by parliaments when they approved the WTO Agreement. Hence, US proposals for rewarding the US provocation of the ‘AB crisis’ by exempting trade remedies from the AB jurisdiction[13], or by establishing a special AB division and AB secretariat for reviewing WTO panel reports on trade remedies[14], reflect US power politics without any coherent justification of why AB jurisprudence limiting abuses of trade remedy laws, and defending compliance with WTO rules in conformity with the customary rules of treaty interpretation, should be disregarded contrary to the interests of most WTO members in maintaining non-discriminatory conditions of competition and rule of law.

 

Email: [email protected]. Emeritus professor of International and European Law and former head of the Law Department at the European University Institute (EUI), Florence, Italy. Former legal advisor in the German Ministry of Economic Affairs, GATT and the WTO. This text is based on a much longer EUI Working Paper RSCAS 2018/71 on HOW SHOULD WTO MEMBERS REACT TO THEIR WTO GOVERNANCE AND WTO APPELLATE BODY CRISES?, EUI Robert Schuman Centre, Florence (Italy).

[1] For details of the US claims see: https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf at pp. 22-28.

[2] E.g. of Article 3:2 DSU regarding treatment of AB case-law as precedent absent ‘cogent reasons’; Article 17:5 DSU regarding the 90 days deadline; Article 17:6 regarding ‘issues of law’ and legal qualifications of facts; Article 17:12 DSU regarding obiter dicta.  

[3] E.g. elaboration of AB Working Procedures as prescribed in Article 17:9 DSU; judicial ‘administration of justice’ in applying the incomplete DSU rules to disputes over political disagreements on WTO rules.   

[4] DSB meeting of 21 November 2018. US Ambassador Shea’s claim (e.g. during the WTO Public Forum session 111 on 4 October 2018) that the US does not recognize a ‘judicial function’ of the AB, illustrates that the US claim of ‘AB over-reach’ rests on very subjective, political DSU interpretations, which are not shared by most AB and DSB members, just as the related US claim that one WTO member’s rights or obligations may be clarified by a Panel without regard to the AB’s clarification (‘precedent’) of the same rights or obligations in previous WTO disputes. The US arguments seem to ignore the categorical differences between ‘political interpretations’ (e.g. pursuing ‘national interests’) and ‘judicial interpretations’ (e.g. pursuing independent, impartial rule-clarifications and ‘prompt settlement’ of WTO disputes). The DSU’s quasi-judicial mandate for third-party adjudication entails ‘institutional choices’ that affect the ‘cognitive dimension’ of legal interpretations – a fact, which is often overlooked in the criticism of WTO dispute settlement findings by diplomats and economists.  

[5] Cf. Article 31.3(c) of the Vienna Convention on the Law of Treaties (VCLT), which is widely recognized as codifying customary rules of international treaty interpretation, and the specification of applicable, universally recognized ‘principles of justice’ in the Preamble of the VCLT; cf. G.Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (CUP 2015).    

[6] WTO AB members have persistently characterized the AB as a judicial institution, for instance in their contributions (e.g. by WTO AB members J.Bacchus, C.D.Ehlermann, J.Hillman, M.Matsushita, D.Unterhalter) to: G.Marceau (ed), A History of Law and Lawyers in the GATT/WTO. The Development of the Rule of Law in the Multilateral Trading System (CUP 2015). See also P. van den Bossche, The Appellate Body of the WTO, in: G.De Beere/J.Wouters (eds), The Contribution of International and Supranational Courts to the Rule of Law (Elgar, 2015), 176-202. The Handbook on the WTO Dispute Settlement System prepared by the WTO legal services (CUP, 2004) likewise describes WTO panels and the AB as ‘quasi-judicial bodies, in a way tribunals, in charge of adjudicating disputes’ (e.g. p. 21).     

[7] See document WT/GC/W/752 of 26 November 2018 as subsequently revised.    

[8] Cf. WT/GC/W/753 of 26 November 2018.  

[9] Note 3 to Article IX:1 WTO ('Decisions by the General Council when convened as the Dispute Settlement Body shall be taken only in  accordance with the provisions of paragraph 4 of the Dispute Settlement Understanding') is no legal obstacle to such decisions by the WTO Ministerial Conference or by the General Council deliberately not convening as DSB in order to meet the collective duties of WTO members to comply with Article 17 DSU. Such convening of the WTO General Council in order to overcome disagreements in the DSB has been practiced already in the past, for instance when WTO Members wanted to censure the AB for its handling of amicus curiae briefs (cf. WTO doc. WT/GC/M/60).

[10] Cf. the WTO General Council Decision adopted 10 December 2002 on ‘Procedures for the Appointment of Directors-General’ (WT/L/509 dated 20 January 2003), which provides in para. 20: ‘Recourse to a vote for the appointment of a Director-General shall be understood to be an exceptional departure from the customary practice of decision-making by consensus, and shall not establish any precedent for such recourse in respect of any future decisions in the WTO.’ The text of Article IX:1 confirms that the same ‘exception’ must be applied to illegal blocking of the appointment of AB members.

[11] Article XVI.3 provides : ‘In the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provisions of this Agreement shall prevail to the extent of the conflict.’ If the US should claim that Article 2.4 DSU (‘Where the rules and procedures of this Understanding provide for the DSB to take a decision, it shall do so by consensus’) protects a veto-power of the US for indefinitely blocking the filling of AB vacancies, the ‘authoritative interpretation’ could clarify that – according to its Article XVI.3 – the legal duties under Article IX.1 of the WTO Agreement must prevail and require overcoming any ‘conflicting interpretations’ of WTO rules so as to prevent illegal abuses of veto-powers and protect the collective WTO obligations of maintaining the AB as legally prescribed in Article 17 DSU.      

[12] On the problems of using Article 25 DSU as a bilaterally agreed substitute for AB review of WTO panel reports (such as non-adoption of the panel and arbitration reports by the DSB) see the analysis by former US congressman and former AB chairman J.Bacchus, How to Solve the WTO Judicial Crisis, in: CATO Institute 6 August 2018; S.Anderson et alii, Using Arbitration under Article 25 of the DSU to Ensure the Availability of Appeals (Graduate Institute Geneva: CTEI Working Paper 2017-17).     

[13] Cf. J. Hillman, Three Approaches to Fixing the WTO’s Appellate Body: The Good, the Bad and the Ugly? in: Institute of International Economic Law, Georgetown University Law Center, December 2018, at 7f.

[14] Hillman (note 13), at 6.