The WTO Appellate Body Deadlock and the Way Ahead
Updated: Oct 10, 2021
About the Author: Nimisha Thomas is a Lecturer and Assistant Dean at Jindal Global Law School. She is a researcher in the field of International Dispute Resolution and WTO laws.
"WTO Public Forum 2014, Day 3" by World Trade Organization is licensed under CC BY-SA 2.0 available at here.
The World Trade Organization (WTO)'s Dispute Settlement System, often referred to as the “jewel in the crown” of the WTO, is facing an existential crisis despite being the most solicited international adjudicatory system. While dispute resolution through consultations and panels continue to move forward, the working of the Appellate Body (AB) has come to a grinding halt, with 16 pending cases for appeal as of December 2020.
For two years, the US has blocked the appointment of new judges to the AB, preventing the AB from reaching the quorum necessary to hear appeals. The US’s obstructions are rooted in two allegations. First, the US alleged that the AB exceeded its mandate and misinterpreted the WTO agreements in several cases concerning the US and other member nations. Second, the US alleged that the AB contravened the WTO rules by extending its mandate after its term had expired. The US claimed that the discretion of extending the mandate of the AB lies with the WTO members rather than the AB itself. Further, the US objected to the AB’s failure to adjudicate appeals within the 90-day-window required by the Dispute Settlement Understanding (DSU), the main WTO agreement on settling disputes. The US also raised concerns regarding the obiter dicta that constitute a major part of the AB reports, which would create complexity with the AB’s unprompted precedents. Additionally, rather than limit itself to its original mandate of deciding on questions of law, the AB overstepped its mandate in reviewing factual findings. The US also objected to the AB placing importance on precedents, which might be blindly followed by panels in deciding disputes without considering the relevant merits of the dispute in hand.
Impairment at the appellate level threatens the survival of the multilateral trading system. The implication of this deadlock is grim; a signatory member dissatisfied with an AB decision could prevent the decision from becoming binding by seeking an appeal. Without an Appellate Body to adjudicate the dispute, the decision would remain in limbo. WTO members now face the risk of other signatories reneging on trade obligations and commitments established by WTO agreements.
While the AB’s operations remain suspended, the European Union and 24 other WTO members, including Australia, Brazil, and China, entered into a multi-party interim appeal arrangement (MPIA) on April 30, 2020. Amid the current AB impasse, MPIA members have the alternate option of appealing trade disputes between themselves. There are three main features that differentiate the MPIA from the AB. First, the MPIA attempts to strictly limit the time window for adjudicating appeals to 90 days. Extensions are only granted if the contending parties agree. Second, the MPIA advances interests of judicial economy by allowing the exclusion of claims. Third, the MPIA requires the tribunal to only address the issues necessary for resolving disputes.
Although the MPIA may appear to be the way forward, it is too early to comment on its viability as a temporary solution, or even as a replacement for the AB in the long run. Its distinguishing features from the AB might also encourage the US to join the body, as it partially addresses some of its concerns. But neither the US nor the majority of the WTO signatories have joined the MPIA. Any appeals by such non-signatory members of the MPIA continue to be in limbo. Therefore, to find a comprehensive and permanent answer to this issue, alternate solutions based on the spirit of mutual cooperation and consensus are necessary.
Like the MPIA, bilateral treaties have been perceived as striking solutions by academics and jurists. These treaties may resolve the problems of unilateral actions and violations by member countries because they require mutual agreement of terms. However, participation in such treaties could present hurdles for developing and least developed countries due to power imbalances. For example, Ecuador recently terminated all of its bilateral investment treaties (BITs) in part because it ceded its regulatory powers .
Moreover, entering into such treaty agreements would deprive developing and developed nations of the special and differential treatment that the multilateral trading system provides. Lastly, arbitrations involving bilateral agreements can result in enormous and unfair awards.
The Way Forward
To overcome the impasse, the WTO should adopt the Walker Principles, which set out policies to resolve the conflicts with the AB that the US has raised. Additionally, this article proposes the following reforms to complement the Walker Principles:
Greater clarity in the text of the DSU
This has been a point of contention since the 1990s, with failed attempts even as late as 2001 during the Doha Round. Since the dispute resolution process is guided by the DSU rules, it is essential that the rules be defined with more clarity.
2. Formation of a specialised body of experts in trade law, dispute resolution, and the WTO
Experienced members with a proven track record should be appointed through the consensus of the Dispute Settlement Body (DSB) for the resolution of disputes. The body of experts should be the sole entity responsible for reviewing issues involving interpretation of agreements. It should review issues on a case-by-case basis, and its decisions should be binding for member nations.
3. Establishment of an extended standard time window for resolving decisions on appeal
All DSB members should reach a consensus on an extended standard time window for resolving decisions on appeal because the existing 90-day-window has proven insufficient.
The WTO and its internationally relied upon dispute resolution mechanism are under serious threat because the US continues to block new appointments to the AB. While the impasse continues, WTO members have continued to demonstrate their faith in the 25-year-old institution by engaging in consultations and seeking panel formations. However, the threat to the AB cannot be ignored. AB alternatives, like the MPIA, are already in effect, but most WTO nations are not participants. Scholars and jurists have also proposed solutions like bilateral agreements. However, these agreements suffer from power imbalances. Therefore, to reinstitute the smooth functioning of world trade, it is imperative to either remove the current issues that led to the US’ blockage of appointees, or devise alternative solutions with the consensus of member states. Instituting the Walker Principles, clarifying the text of the DSU, establishing a body of experts, and extending the time windows for issues on appeal are concrete steps that would bring the WTO closer to a resolution.