Improving the Functioning of the World Trade Organization

May 31, 2016


The terms of two of the seven WTO Appellate Body (“AB”) members expire at the end of May.  For one member, a replacement must be found as the existing member has served the maximum time permitted by the rules (two four-year terms).  For the second, the AB member has sought reappointment to a second four-year term.  Because appointment and reappointment are done by consensus of the WTO Members through the Dispute Settlement Body (“DSB”), the objection by any Member can mean an inability for the AB member to be reappointed.  While no sitting AB member who has sought reappointment has previously been blocked, it has been frequently recognized that reappointment is not a right but is subject to consensus just like original appointment.

[Terrence Stewart| May 27, 2016 |Stewart and Stewart]

The United States had indicated earlier in May that it would not be supporting reappointment of the particular individual because of the view that the individual was not properly executing the functions of the AB as seen through a number of decisions on which the individual had been one of the AB members.  The other six Appellate Body members then took the extraordinary action of writing a letter to the Chair of the DSB claiming that the actions of the U.S. could put at risk the independence and impartiality of the WTO AB members.  The letter was written despite the AB members’ recognition that “there is no right of reappointment.  We understand that we do not have a role in decisions for reappointment.”  At a DSB meeting held this Monday, May 23, after several weeks of consultations with other WTO Members and despite the letter from the AB members, the U.S. indicated that the U.S. would not support the reappointment.  The WTO webpage had a summary of the meeting up the same day and summarized both the views of the United States and of a significant number of WTO Members who disagreed with the U.S.  23 May 2016, Dispute Settlement, WTO members debate appointment/reappointment of Appellate Body members, https://www.wto.org/english/news_e/news16_e/dsb_23may16_e.htm.  Assuming that the U.S. position remains as stated, there will be no reappointment of the member who has sought reappointment.  Rather the WTO DSB will have to seek consensus around another candidate.

A lot has been written by the media and various blogs on whether the action of the United States is “good” or “bad” for the WTO and the world trading system and whether it undermines the independence of the dispute settlement system (as claimed by other AB members).  There have even been claims that the U.S. is sabotaging the WTO dispute settlement system or seeking “revenge” for decisions it disagrees with. What is clear is that the U.S. is within its rights within the WTO to block consensus of a reappointment, just as many Members have prevented consensus on individual candidates looking for a first term on the Appellate Body.  While it has taken 21 years for a Member to exercise this right in the reappointment context, that is just an indication that Members have sought to send signals to the AB through comments on decisions at DSB meetings, and that at least certain members of the AB have opted to ignore the concerns of Members.

As the U.S. has historically been a major driver in the creation of the dispute settlement system and the global trading system generally, it is also not surprising that the U.S. position flows from a well-reasoned set of concerns, which are laid out in significant detail in the US statement at the DSB.  The basis for blocking consensus on the reappointment articulated by the U.S. supports a continuing, strong Appellate Body, but one that acts within the clear limits of its authority. 

To better understand the developments, consider the following background leading to this month’s actions.

Background:  As a major trading nation, the United States had been a leading advocate for an improved dispute settlement system during the Uruguay Round (1986-1994), has been a major participant in the dispute settlement system since the beginning of the WTO whether as a complainant, as a defendant or as a third party, and like nearly all of the WTO membership has generally been supportive of the dispute settlement system whether the outcome of cases has been affirmative or negative on particular issues.

A principal objective of the dispute settlement system has been to permit a relatively rapid resolution of disputes between WTO Members.  DSU Art. 3.3.  Because decisions of panels and the Appellate Body become adopted absent a negative consensus (i.e., all WTO members agree not to adopt a decision, including the winning party), it was important that limitations on the powers of panels and the Appellate Body be part of the system and be respected.  Thus, twice in the Dispute Settlement Understanding there are provisions that make clear that rights and obligations of Members under the agreements can’t be modified by the dispute settlement system.  See, DSU Art. 3.2 (“Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”) and 19.2 (“In accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements.”).

Similarly, the historic function of the GATT and intended major function of the WTO is to provide a forum for Members to negotiate modifications to existing rules or creating new rules for expanding market access.  It is not the role of the dispute settlement system to provide advisory opinions on matters not in dispute or properly before the panel or Appellate Body, or to create obligations or rights that Members have not agreed to.  Moreover, the Appellate Body is limited to hear appeals of “issues of law covered in the panel report and legal interpretations developed by the panel.”  DSU Art. 17.6.

While WTO Members have generally expressed strong support for the dispute settlement system over the years, as would be true in any dispute system, there have also been problems flagged by Members.  Specifically, over the twenty-one plus years of the WTO’s existence, various WTO members have expressed concerns in the context of specific disputes about whether the Appellate Body was properly acting within its jurisdiction – whether creating rights or obligations not found in various agreements or addressing issues not raised by the parties or necessary to a resolution of the dispute between the specific Members.  While certainly the U.S. has raised concerns from time to time, so have many other WTO Members, whether developed or developing or least developed.  The concerns have been raised by the United States not only on important issues in disputes where the U.S. was defending and found to have acted inconsistently, but also in cases where the U.S. has brought the dispute and won or in cases where the U.S. was simply a third party but actions of the Appellate Body raised institutional concerns about the proper role of the Appellate Body.

Indeed, the perceived excesses in selected cases by the Appellate Body have contributed to the difficulty of having the negotiating function of the WTO operate successfully.  Many negotiators have confirmed that their country has opted not to negotiate certain issues that are known not to be covered by existing agreements in the hope that through a dispute settlement case, they may achieve a right that is not part of the existing agreements.  This belief flows from the number of instances where rights or obligations have been found by the Appellate Body where none can be found in the underlying text.

Members of the WTO will use the rights available to them.  DSU reform has been under consideration for more than 16 years without agreement being reached, so addressing issues through modified agreement language has not yet been possible.  In a consensus-based system (even where super majority voting is technically possible), the existing tools to address erroneous AB decisions have never been used.  Repeated statements by Members in DSB meetings as to the nature of the problems being experienced have not resulted in a change in the manner in which cases are handled by the Appellate Body.  The agreement to or blockage of consensus is something which 

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