This is Part B of a guest post from Vinayak Panikkar*, Prakhar Bhardwaj+, Akhil Raina†
IV. Instituting a complaint for a violation of DSU Article 17.2.
While bringing the US tariff dispute to the WTO on January 29, 2019, China asserted that the US’s actions to block AB appointments are arguably “illegitimate” because DSU Article 17.2 requires that “[v]acancies shall be filled as they arise”. On a plain reading, DSU Article 17.2 read with DSU Article 2.4 would appear to indicate that the mandatory obligation to fill vacancies in the Appellate Body must be fulfilled by the DSB by consensus. However, no provision in the DSU prescribes norms relating to the political process of appointments to the AB or states that individual members are under an obligation to cooperate to arrive at a consensus.
a. The right to block appointments must be balanced with an obligation to reach consensus
How then do we proceed against an individual member, when the obligation is on the DSB as a whole? Admittedly, this is complex and an analysis relating to this question must begin by considering the possible arguments that the US may formulate against the institution of such a complaint.
The US may argue that the failure by the DSB to arrive at a consensus cannot be legally attributed to the acts of the US. Indeed, all Article 17.2, DSU states is that DSB must fill vacancies as they arise – neither does it prescribe norms relating to how the DSB arrives at a consensus to fulfil its duty nor does it state that individual members are under an obligation to cooperate to arrive at a consensus. Seen from a textual perspective, the US may argue that where the drafters intended that individual members exercise their rights in good faith, it explicitly provided for it in Articles 3.10 and 4.3, DSU. The duty to act in good faith, is then conspicuous by its absence in Article 2.4, DSU and an interpretation that reads in a duty of good faith in Article 17.2, DSU would render the relevant parts of Articles 3.10 and 4.3 of the DSU inutile.
These arguments may seem persuasive but a member’s right arising out the consensus-based decision-making system of the WTO to veto AB appointments has to be balanced with its obligation (as a part of the DSB) to fill vacancies. The DSB may be larger than the sum of all of its parts (the Members), but the multilateral system would crumble if members consistently block appointments. Consider an extreme counter-factual to illustrate this point. What if a Member consistently blocks the appointment of an AB member because its domestic government was undergoing a transition and it did not have available legal capacity or a government officer who could sign-off on the appointment? What if this unilateral blocking led to the strength of the AB falling below the minimum number required to hear an appeal from a Panel Report? An objective analysis of this question would make the following conclusion incontrovertible: a Member State’s exercise of rights during the consensus-building formation cannot be unfettered.
This is definitely an unorthodox interpretation because balancing veto powers against the obligation to fill vacancies might be seen to have systemic implications for the WTO membership. Along the same lines, one could argue that veto powers have been used politically by developing countries leading to the failure of many negotiating rounds – by doing so, they paid no heed to any systematic concern for the WTO as a whole - so why should the United States’ exercise of veto be limited?
The simple answer to this is that WTO members are not obligated, whether individually or as a collective, to arrive at a consensus relating to “further negotiations … concerning their multilateral trade relations”. Article III:2 of the Marrakesh agreement merely states that a function of the WTO is to provide a “forum for negotiations”. It does not characterise the result of such negotiations. Article 17.2, DSU is different. The mandatory obligation is to “fill vacancies as they arise” – the desired result that the contracting parties wanted to achieve is already prescribed. Therefore, the exercise of veto rights in the process of appointment – is to achieve a defined obligation/objective – and cannot be unfettered. The correct question then is: what reasonable restrictions can be placed on a WTO member that do not unduly curtail its freedom and still ensure that consensus can be achieved?
b. Evidence of bad faith as a factor in balancing rights and obligations relating to consensus-building
In the current context, the question before a panel constituted for this dispute would be whether the US’s use of its veto on appointments, to the point that the AB ceases to function, leads to an impairment of benefits under the DSU or an impediment in the objective of the DSU (and the Marrakesh Agreement).
A possible argument of abuse of rights or the failure to exercise the veto in good faith may be made. While there is no explicit obligation under the DSU to act in good faith while participating in the consensus-based decision-making system, the principles of good faith and abuse of rights as general principles of public international law may be borrowed, as the WTO covered agreement cannot “be read in clinical isolation from public international law” (Appellate Body Report, US-Gasoline, page 17). In US – Shrimp, the AB imported the general principles of international law of good faith and abus de droit (abuse of rights) in interpreting the Chapeau of GATT Article XX. The relevant extract from paragraph 158 is set out below:
“The chapeau of Article XX is, in fact, but one expression of the principle of good faith. This principle, at once a general principle of law and a general principle of international law, controls the exercise of rights by states... An abusive exercise by a Member of its own treaty right thus results in a breach of the treaty rights of the other Members and, as well, a violation of the treaty obligation of the Member so acting. Having said this, our task here is to interpret the language of the chapeau, seeking additional interpretative guidance, as appropriate, from the general principles of international law.”
It is likely that questions of good faith will figure in the Panel’s analysis regarding whether the US’s objections are in fact causing impairment of benefits under the DSU or creating an impediment to the attainment of its objectives – because one striking feature of the AB stalemate is the US’s continuous criticism of the Appellate Body and its members. Dennis Shea, US’s Deputy Trade Representative has expressed the US’s intention by saying that the US would be “disruptive, where necessary” to reform the WTO. He has also said that the reasons for blocking appointments and reappointments reflects the US’s “principled concerns”. This shows that the US’s intention is to either dismantle the multilateral trading system (by bringing the AB to a grinding halt) and/or negotiate favourable reforms. In this regard, US Trade Representative, Robert Lighthizer, has openly declared his preference for the old GATT DSS (no method for appeal; and a report could be ‘blocked’ by any Member, including one that lost the case).
c. The US’s statements to the EU DSU Proposal as determinative evidence of bad faith
In addition to this political posturing, the absence of a comprehensive response to the EU DSU Proposal clearly demonstrates the US’s unwillingness to engage in consensus-building in good faith. In contrast to the detailed and sophisticated statements made by the US here, the US statement on December 12 merely reiterates that the EU DSU Proposal does not address the issues highlighted by them. This statement is confusing because the proposals relating to the meaning of municipal law as an issue of fact and findings unnecessary for the resolution of the dispute squarely address the US’s concerns in this regard. The relevant excerpt from the US’s response to the EU DSU Proposal is as follows:
“Rather than seeking to make revisions to the text...to permit what is now prohibited, the United States believes it is necessary for (WTO) members to engage in a deeper discussion of the concerns raised, to consider why the Appellate Body has felt free to depart from what WTO members agreed, and to discuss how best to ensure that the system adheres to WTO rules as written.”
It is difficult to fathom what a reform proposal must contain other “revisions to the text” of the WTO DSU. The US must recognize that an amendment to the text of the DSU is the only legitimate means of addressing the US concerns and such amendments need active engagement from US. Further, the allegation that revisions are being made to “permit what is now prohibited” is a mischaracterisation of the EU DSU Proposal. In fact, the proposal relating to insertion of footnote 7bis to Article 17.6 and proposed amendments to Articles 17.12 and Article 17.2 are intended to prohibit what the US has demonstrated to be prevalent in the practice of the AB. To elaborate, the US considers that the AB regularly considers issues of fact, issues advisory opinions and has usurped the power of the DSB to re-appoint AB members – all of this is being sought to be prohibited by the amendments suggested by the DSU Reform Proposal. Therefore, rather than permitting “what is now prohibited”, the textual amendments set out in EU DSU Proposal prohibit certain prevalent practices of the AB.
Lastly, the request that members consider “why the Appellate Body has felt free to depart from what WTO members agreed” is esoteric. Interviewing past AB members for these alleged flaws in the reports authored by them is not feasible. If the point being made here is that the AB members are being forced to engage in judicial creativity because the WTO membership has failed to formulate rules which would effectively govern issues not currently governed by the text of the covered agreements – such an argument has not been formulated by the United States in its statements at DSB meetings in the recent past. Even if one were to agree, the failure of the General Council to reach consensus for new treaties cannot form a justification to bring a functioning dispute settlement mechanism to a halt. Therefore, the US’s response to the comprehensive EU DSU Proposal, coupled with the fact that no reform proposal has been forthcoming till now, is determinative evidence of bad faith on the part of the US.
Conclusion
This two-part post sought to explore the interpretative possibilities of recourse to the DSU to solve the current stalemate regarding appointments to the AB. Even if these arguments are successful before a Panel, such a Panel Report may not make a monumental impact on the status quo. What it would provide, however, is an objective voice that matters. The judicialization of this political dispute may force the US to constructively engage in resolving the stalemate. The authors intend to explore the implications of this possibility in a subsequent work. While the prospect of exploring these implications is exciting, we hope that such an analysis is not required due to a timely resolution of the stalemate.
* Vinayak Panikkar, currently enrolled in Geneva LL.M. in International Dispute Settlement (MIDS) programme, is an Indian-qualified lawyer (New Delhi, 2015) who has acted as junior counsel and tribunal secretary in several ad hoc and institutional arbitrations (under the rules of the ICC, the SIAC, the LCIA and the UNCITRAL) seated in Singapore, London and India.
+ Prakhar Bhardwaj is a Senior Research Fellow at the Centre for Trade & Investment Law, Ministry of Commerce & Industry, Government of India where he advises the Government of India on aspects of WTO law and international economic law.
† Akhil Raina is Marie Curie Fellow and PhD candidate at the Leuven Centre for Global Governance Studies.