This is a guest post by Prakhar Bhardwaj, Senior Research Fellow, Centre for Trade and Investment Law, New Delhi. All views expressed here are personal.
The joint communication from the European Union and 11 other nations to be tabled in the General Council meeting scheduled for 12-13 December 2018 (“EU DSU Proposal”) is of monumental importance.[1] It seeks to address one of the greatest crises that the “crown jewel” of the WTO has ever faced i.e. the stalemate in appointments to the Appellate Body. The proposal sets out specific amendments which have been endorsed by members who are active users of the WTO dispute settlement mechanism.[2] Interestingly, it also represents one of the rare instances where the EU, India and China have managed to find common ground. The EU DSU Proposal largely addresses the concerns of the United States with respect to: (i) the issue regarding “municipal law as fact”; (ii) transitional rules for outgoing AB members; (iii) compliance with the 90-days timeline in Article 17.5; (iv) the issue of precedent; and (v) the AB’s practice of arriving at findings unnecessary for the resolution of the dispute. This blog post seeks to discuss certain interpretative and operational issues in relation to proposals pertaining to (i) and (ii) above and highlight instances where the concerns of the United States have not been adequately addressed.
- “Municipal Law as Fact”: Proposed Footnote 7bis to Article 17.6
The United States has stated in many WTO DSB meetings that the “Appellate Body’s decision to undertake a review of panel’s findings of fact has no basis in the DSU”.[3] The rationale being that determination of the “meaning and operation” of municipal law falls within the mandate of the Panel as a finder of fact[4] and such factual findings should “simply taken as a given” by the AB. The EU DSU Proposal seeks to address this by adding a footnote to Article 17.6 which states the following:
“For greater certainty, the “issues of law covered in the panel report and legal interpretations developed by the panel” do not include the panel findings with regard to the meaning of the municipal measures of a party but do include the panel findings with regard to their legal characterisation under the covered agreements”.
The proposed text falls short on two counts. First, if the intent was to ensure that factual determinations by the Panel of the “meaning and operation of the municipal law” be excluded from the scope of Article 17.6, why does proposed text limit itself to the meaning? It is established practice for Panels to see the design, structure and expected operation of domestic measures to characterise the measures. If the Panel undertakes an evaluation of contextual materials such as market surveys and statistics to see operation of the measure, accompanying press notifications or other supporting material, it will be difficult to argue that all of these characterisations fall within the term of “meaning” of municipal measures. Ideally, the term “meaning” should have been replaced by “meaning, structure and operation”. However, it is also possible that this is an intentional omission which seeks to preserve the scope of appellate review. Note the proposed text would effectively overturn the confusing dictum in para 225 of the AB Report in China -Auto Parts, where the AB stated that it would not “lightly interfere with panel’s assessment of municipal measures which go beyond the text of an instrument”. If the factual determination goes beyond the “meaning” and considers operation of the measure, it will be a factual element which will not be covered by footnote 7bis and hence be included as an “issue of law” amenable to appellate review. In effect, the AB will have discretion to interfere with such factual determinations.
Secondly, the impact of Footnote 7bis on the expansive judicial standard of “objective assessment of facts” under Article 11 is not clear. What if a Panel makes a fundamental error in interpreting the “meaning of the municipal measure”? Under the status quo, whether a Panel has conducted an objective assessment of facts is itself a legal question under Article 17.6[5] regardless of whether the alleged failure to conduct such an assessment was in relation to factual or legal elements. A respondent would be able to appeal this finding as an “issue of law”. However, as per the proposed text, it may be argued that even egregious errors in evaluating the “meaning of the municipal measures” are no longer “issues of law” under Article 17.6. Avid readers of WTO law would recall that the AB overturned factual determinations by the Panel in Korea – Beef, as the Panel misinterpreted the information in Korea’s schedule. Rare as such errors may be, their occurrence cannot be ruled out. It is important to note that there is no text which specifically sets out a hierarchy between Article 11 and the proposed footnote to Article 17.6. In this context, a claimant may state that the later amendment to Article 17.6 limits the expansive judicial standard under Article 11. A technical way to address this would be to start the footnote with text such as “without prejudice to the duty of the Panel under Article 11” to preserve the substantive content of the “objective assessment” standard. It is hoped that such a modification will be proposed pursuant to the discussion in the upcoming General Council meeting.
- Transitional rules for outgoing AB members: Amendment to Article 17.2
Rule 4(3) of the Working Procedure for Appellate Review provides that “… the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the appellate report for circulation to the WTO Members” (emphasis supplied). The current practice in relation to Rule 15, as explained by the AB, is that “outgoing members do not participate in general decision-making on general AB matters and the functioning of the AB after their term has expired.”[6] However, as per the proposed amendment in Article 17.2, an AB member “shall complete the disposition of an appeal in which the oral hearing has been held” and “shall continue to discharge his or her duties until he or she has been replaced”. The ordinary meaning of this text is that a person is still a member of the AB even if her term has expired. However, in light of the dictates of collegiality in Rule 4(3), will such a member also participate in discussions by other divisions on the disputes those divisions are engaged in? It is unlikely that this was the intent of the EU DSU Proposal. If the intent is that the outgoing member not engage in “general AB matters”, this can be clarified by adding a footnote to Rule 4(3) which states that “The division responsible for deciding each appeal shall exchange views only with Members whose term has not expired”. In the short term, this would address the US’s concerns that the function of the AB member whose term has expired is limited solely to “disposition of the appeal in which oral hearing has been held”.
Since the modified Article 17.2 and Rule 15 of the Working Procedure for Appellate Review cover common ground, Rule 15 should be deleted if the EU DSU Proposal is accepted. This will provide legitimacy to extension of the AB member’s term and be aligned with the objection of the United States. In its statement in the DSB meeting dated November 22, 2017, the US contended that Rule 15 of the Working Procedure for Appellate Review (which empowers the AB to authorise extension of terms of outgoing AB Members) was contrary to Article 17.2 of the WTO DSU. According to the United States, if Article 17.2 of the WTO DSU recognized the authority of the DSB to appoint AB Members, then it stands to reason that the DSB has responsibility to decide whether a person should continue serving beyond that term. Deletion of Rule 15 would place the authority of extension directly with the DSB and extract it from the domain of the AB thereby adequately addressing the concern of the United States.
In conclusion, even with a proposal which attempts to cover all grounds, the United States might still argue that its concerns haven’t been adequately addressed. Needless to say, such an objection will not lead to a resolution of the stalemate in AB appointments.
[1] Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico, WTO Doc. No. WT/GC/W/752 and WT/GC/W/753 (Nov. 26, 2018).
[2] As per the claimants and respondent in the WTO disputes DS401 – DS500, EU and China were the largest and third largest users of the WTO DSU. India and Australia were also prominent users. Indonesia, Russia and Argentina are also large users of the WTO DSU but have not sponsored this proposal. See Geraldo Vidigal, WTO: The First 500 Disputes and the Last 100 Disputes, EJIL:Talk! (Nov. 11, 2015) as available at https://www.ejiltalk.org/wto-the-first-500-disputes-and-the-last-100-disputes/
[3] Statements made by the United States at the Meeting of the Dispute Settlement Body, Geneva, August 27 2018, 28 as available at https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug27.DSB_.Stmt_.as-delivered.fin_.public.pdf.
[4] Id. at P. 26 where the United States cites its statements made at the DSB Meeting dated March 4 2002.
[5] Appellate Body Report, Korea - Various Measures on Beef, ¶¶97-105.
[6] Background Note on Rule 15 of the Working Procedure for Appellate Review, Annex 2 to Appellate Body Annual Report for 2017 (February 2018) https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/AB/28.pdf (last accessed Nov. 2, 2018).
