The United States has made it clear that it objects to the Appellate Body's view that a panel must follow a prior Appellate Body interpretation unless the panel has “cogent reasons” for departing from that interpretation. One of the longer U.S. explanations of its position is here. This is a key passage:
59. More fundamentally, however, the Appellate Body’s statement concerning “cogent reasons” in US – Stainless Steel (Mexico) is profoundly flawed in several respects. These include:
(1) a failure to properly appreciate the functions of panels and the Appellate Body within the WTO dispute settlement system;
(2) an erroneous interpretation of Article 3.2 of the DSU that does not reflect the text of that provision;
(3) a reliance on reports that do not support a “cogent reasons” approach;
(4) a misunderstanding (or misstatement) of why parties cite prior reports;
(5) inappropriate and incomplete analogies to other international adjudicative fora; and
(6) incorrect assumptions concerning the existence of a hierarchical structure that does not reflect the limited task assigned to the Appellate Body in the DSU.
I was curious about the origins of the "cogent reasons" approach in the US – Stainless Steel (Mexico) case, so with the help of current Cato intern Francisco Campos, I put together this timeline (some original footnotes are included, some are not). Let me know if we have missed anything important.
The issue of the precedential value of Appellate Body reports was a crucial one before the panel, so let's start with the discussion there. In the executive summary of its first written submission (Annex A-1, p. A-3), Mexico stated:
7. Mexico argues that there is an expectation that panels will respect prior Appellate Body rulings on the same issues, which is derived from Article 3.2 of the DSU which expressly requires panels to promote the systemic values of "security and predictability" in "the multilateral trading system". Mexico points to the Panel decision in US – Zeroing (EC), recognizing this expectation, in which it is stated that "although previous Appellate Body decisions are not strictly speaking binding on panels, there clearly is a legitimate expectation that panels will follow such decisions in subsequent cases raising issues that the Appellate Body has expressly addressed". Mexico notes that the Appellate Body has further supported this principle in, among other cases, US – Oil Country Tubular Goods Sunset Reviews, wherein the Appellate Body stated that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".
In its first written submission, the United States argued the following on this point in response:
5. …the Appellate Body has adopted an interpretation of the AD Agreement that includes a general prohibition of zeroing. … Mexico’s claims in this dispute rely entirely on that conclusion in these Appellate Body reports. The United States respectfully disagrees with the reasoning in these Appellate Body reports… Accordingly, the United States requests that this Panel refrain from adopting Mexico’s interpretation.
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23. Article 11 of the DSU requires panels to make an objective assessment of the matter before it, including an objective assessment of the facts and the applicability of and conformity with the relevant covered agreements. The Appellate Body has explained that the matter includes both the facts of the case (and the specific measures at issue in particular) and the legal claims raised.27 [footnote omitted] Articles 3.2 and 19.2 of the DSU contain the fundamental principle that the findings and recommendations of a panel or the Appellate Body, and the recommendations and rulings of the DSB, cannot add to or diminish the rights and obligations provided in the covered agreements.
24. …While prior adopted panel and Appellate Body reports create legitimate expectations among WTO Members29 [citing Japan – Alcohol Taxes (AB), par. 14], the Panel in this dispute is not bound to follow the reasoning set forth in any Appellate Body report. …
25. …The appellate Body itself has stated that its reports are not binding on panels30 [citing US – Softwood Lumber Dumping (AB), para. 111]….
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28. Additionally, Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization confers the authority to adopt interpretations of the covered agreements exclusively upon the Ministerial Conference and the General Council.35 [citing Japan – Alcohol Taxes (AB), p. 13]. Therefore, while the dispute settlement system serves to resolve a particular dispute, and to clarify agreement provisions in the context of doing so, neither panels nor the Appellate Body can adopt authoritative interpretations that are binding with respect to another dispute.
In its third party submission, the European Communities then offered the following thoughts, including the first reference I see to "cogent reasons":
IV. PRECEDENTIAL VALUE OF THESE APPELLATE BODY FINDINGS
A. Introduction99. The European Communities notes that in their submissions before WTO panels and the Appellate Body parties often cite Appellate Body reports in support of their arguments. In its first written submission in this case Mexico makes abundant reference to previous panel and Appellate Body reports regarding zeroing. In addition, it must be noted that the Appellate Body itself regularly cites its own previous decisions in support of its findings and conclusions. The reports discussed under heading III are no exception: in its findings on the issues raised, the Appellate Body frequently invokes earlier decisions.
100. This may seem slightly perplexing as the conventional wisdom is that there is no stare decisis in the WTO dispute settlement system, and that panel and Appellate Body reports are considered binding only on the parties to the dispute in question.
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104. … all legal systems have in common a serious interest in the continuity of their jurisprudence. Whether as a matter of doctrine or practice, a high value is placed on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Secondly, decisions rendered by the hierarchical superior court or tribunal are, in all legal systems, followed by subsidiary courts or tribunals. …
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122.Formal rejection of the doctrine of stare decisis should not be confused with the interest that all legal systems have in maintaining continuity in jurisprudence.
123. Whether as a matter of doctrine or practice, all legal systems place a high value on consistency, certainty and predictability of the jurisprudence, particularly as regards decisions rendered by the highest courts. Departures from previous decisions are carefully considered and require the identification of cogent reasons for doing so.
124. In cases where courts, in particular those dealing with international law, are not formally bound by their previous decisions, they will nevertheless consider themselves bound by the (international) law as authoritatively expressed in a decision.
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142. It must be remembered too that in most two-tier dispute settlement systems, lower courts and higher courts have different tasks. At a risk of oversimplification: the tasks of a lower court or tribunal is usually centred around fact-finding and dealing with the merits of the cases, whereas higher bodies have often much narrower tasks, centred around settling issues of law.
143. Further, a statement that a decision of a hierarchically higher body is binding on a lower body, will normally be confined to the legal principles involved, the ratio decidendi. Still, the ratio decidendi cannot be distinguished merely because the facts to which it is applied are different.
144. This is not to say that in dealing with the merits of a particular dispute or case, there would be no scope whatsoever for lower bodies to develop the jurisprudence. However, in keeping with the universally recognised principles set out above, departures from decisions taken by higher courts on issues of law must be carefully considered. There must be cogent reasons for a lower court or tribunal to depart from the legal positions taken by hierarchically superior courts. If the lower court or tribunal deviates from what the higher court has considered as the correct legal position its decision runs the risk of being struck down. This will be especially the case when the higher court has, through a series of decisions, endeavoured to create a consistent body of jurisprudence on a particular issue. A lower body may express a reasoned disagreement on legal principles with the higher body, but this will ultimately be for the consideration of the higher body.
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163. The Appellate Body's rulings must, in the view of the European Communities, be regarded as commanding particular authority for panels. This is despite the fact that there is no formal doctrine of stare decisis in the WTO dispute settlement system, and notwithstanding the fact that, according to the Article 17.14 DSU, (adopted) Appellate Body reports only bind parties to the dispute at issue.
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169. In line with what has been set out above, the European Communities acknowledges that there can be no absolute bar for panels to depart from Appellate Body decisions. However, such departures must be carefully thought through and must be based on cogent reasons. Nonetheless, the need for security and predictability does mean, in the European Communities' submission, that should a panel wish to depart from previous rulings this should be carefully considered and based on (cogent) reasons. This is especially the case when the rulings and recommendations are contained in reports which have been adopted by the DSB.
...
173. In the interest of ensuring security and predictability to the multilateral trading system, this Panel should follow the reasoning and findings contained in these Appellate Body reports.
174. Should this Panel wish to depart from previous Appellate Body findings, the European Communities submits that this should be carefully considered. The Panel would have to identify cogent reasons for why it proposes to take a different direction.
Thus, it looks like it was the European Communities (now the European Union) who introduced the notion of "cogent reasons" into the discussion of the role of past cases as precedent.
In its opening statement at the first panel meeting, the United States offered the following thoughts, and in doing so used the term "cogent reasons," noting that it had "provided cogent reasons why the findings and reasoning" in the cited cases were "seriously flawed":
4. …the Appellate Body itself has stated that its reports are not binding on panels. Prior panel and Appellate Body reports should be taken into account only to the extent that the reasoning contained in them is persuasive. In our first written submissions, we have provided cogent reasons why the findings and reasoning of the Appellate Body in US – Zeroing (Japan) and US – Zeroing (EC) are seriously flawed...
5. The security and predictability referred to in Article 3.2 is provided by a dispute settlement system that does not add to or diminish the rights and obligations of WTO Members. … In other words, a panel is not permitted to follow a prior panel or Appellate Body report in the name of “security and predictability” where that prior report has “added to or diminished rights and obligations.”
With all this in mind, the Panel then decided not to follow the Appellate Body's reasoning on the point in question:
7.102 We recall that we are not, strictly speaking, bound by previous Appellate Body or panel decisions that have addressed the same issue, i.e. simple zeroing in periodic reviews, which is before us in these proceedings. There is no provision in the DSU that requires WTO panels to follow the findings of previous panels or the Appellate Body on the same issues brought before them. In principle, a panel or Appellate Body decision only binds the parties to the relevant dispute. Certain provisions of the DSU, in our view, support this proposition. According to Article 19.2 of the DSU, for example, "[i]n 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". In the same vein, Article 3.2 of the DSU provides that "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements".
7.103 We also note, however, the Appellate Body's pronouncement, in Japan – Alcoholic Beverages II , regarding the impact of adopted panel reports for future panels dealing with similar issues. The Appellate Body opined:
"Adopted panel reports are an important part of the GATT acquis. They are often considered by subsequent panels. They create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute. However, they are not binding, except with respect to resolving the particular dispute between the parties to that dispute. In short, their character and their legal status have not been changed by the coming into force of the WTO Agreement."[footnote omitted, emphasis in original]
7.104 The above excerpt indicates that, although adopted panel reports only bind the parties to the dispute that they concern, the Appellate Body expects future panels to take them into account to the extent that the issues before them are similar to those addressed by previous panels. In US – Shrimp (Article 21.5 – Malaysia), the Appellate Body reiterated its findings in Japan – Alcoholic Beverages II and held that the same analysis applies to adopted Appellate Body reports.78 [footnote omitted] The Appellate Body clearly stated that the panel in the implementation proceedings under Article 21.5 of the DSU in US – Shrimp (Article 21.5 – Malaysia) did not err in following the interpretative guidance provided by the Appellate Body in the original proceedings. To the contrary, the Appellate Body expected the panel to do so. More recently in US – Oil Country Tubular Goods Sunset Reviews, the Appellate Body opined that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same".80 [footnote omitted]
7.105 This indicates that even though the DSU does not require WTO panels to follow adopted panel or Appellate Body reports, the Appellate Body de facto expects them to do so to the extent that the legal issues addressed are similar. …
7.106 After a careful consideration of the matters discussed above, we have decided that we have no option but to respectfully disagree with the line of reasoning developed by the Appellate Body regarding the WTO-consistency of simple zeroing in periodic reviews. …
On appeal, Mexico argued that the Panel erred by the not following the Appellate Body's reasoning:
19. Finally, Mexico argues that the Panel acted inconsistently with Article 11 of the DSU by refusing to follow Appellate Body reports adopted by the DSB that address identical issues with respect to the same party—the United States. More specifically, Mexico asserts that, by making findings and reaching conclusions that are "identical" to those that have already been rejected or reversed by previous Appellate Body reports adopted by the DSB, the Panel has failed to comply with its duty under Article 11 of the DSU to assist the DSB in discharging its responsibilities under the DSU
In response, the United States argued the following in its appellee's submission:
10. If the new “zeroing” prohibition identified by the Appellate Body has no basis in the text of Article VI or the AD Agreement, and if it was never agreed to by the WTO Members in the Uruguay Round, it raises fundamental and deeply troubling questions about the Appellate Body’s role within the WTO system and the source of its authority to impose new non-textual obligations on WTO Members. Equally disturbing is the Appellate Body’s apparent refusal to address in any meaningful way the questions that have been raised regarding the various rationales it has put forward as a justification for its prohibition on zeroing. If these concerns cannot be satisfactorily resolved, they put the credibility of the WTO dispute settlement system at risk.
11. The United States fully recognizes that the reversal by any judicial body of an earlier ruling is a serious matter, and that it is not something to be done lightly. However, even in common law systems, where the doctrine of stare decisis applies, rulings can be overturned in exceptional circumstances.9 The United States firmly believes that this dispute presents such a circumstance.”
[Note 9: Stare decisis, of course, does not apply in WTO dispute settlement proceedings. Japan – Alcohol (AB), p. 14 (rejecting the application of “aim and effect” test adopted by earlier GATT 1947 panel to Article III of GATT 1994). Accordingly, there is even more flexibility to depart from an earlier finding if the Appellate Body concludes that a mistake was made. In contrast, Mexico’s proposed approach, which would treat DSB rulings as fully binding and definitive, even in a situation where experts have openly and cogently disagreed, would only undermine the legitimacy of the system and this Body’s credibility.]
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132. Mexico accepts that Appellate Body reports are not binding, but then converts an “expectation” into a requirement for panels such that a failure to meet this expectation becomes a breach by the panel of its duties Article 11 of the DSU. Furthermore, Mexico’s approach is that a panel is required to follow findings in different disputes even where the panel considers that those findings would not be in conformity with the agreed text of a covered agreement. Accordingly, Mexico would have this non-textual “expectation” override the explicit requirement in the DSU that panel and Appellate Body reports can neither add to nor diminish Members’ rights and obligations under the covered agreements.
And in its third participant written submission, the European Communities argued as follows:
30. The single most important issue in relation to the subject-matter of precedent that arises from the Panel’s report is the question of the extent to which panels are obliged to follow rulings of the Appellate Body on questions of law and legal interpretations.
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37. The central questions that now lie before the Appellate Body are: whether it can be said that there is in the DSU a hierarchy between the Appellate Body and panels and whether panels are obliged to follow Appellate Body rulings on questions of law.
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43. The EC has no doubt that if this Panel’s views would be accepted, the WTO dispute settlement system would be seriously impaired, and perhaps even eventually more or less grind to a halt for all practical purposes. The Panel's position amounts to an open invitation to parties to re-litigate every single legal issue arising in a particular dispute. The US appears to believe that Panels would be forced to examine the Appellate Body’s jurisprudence on every possible legal question afresh and would, moreover, be obliged to justify their decision (i.e., whether to follow or not) in each case in relation to each legal issue.
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50. A further question that arises in relation to this particular Panel proceeding is on what grounds a panel may express its disagreement with a particular ruling of the Appellate Body on a legal question. As explained by the EC in its submissions before the Panel, a rule whereby panels follow the Appellate Body on legal questions does not prevent an adjudicatory system from developing its case law and departing from earlier decisions in cases where there are cogent reasons for doing so37 [citing EC third party written submission, paras 141 to 144].
51. However, the need for such departures must be thoroughly justified. Departures cannot be founded on a mere doubt about the correctness of a previous decision. Nor could they be justified on the sole basis of a disagreement by the hierarchically lower body with the reasoning of the hierarchically higher body.
52. In the present case the Panel has not demonstrated any cogent reasons for departing from the Appellate Body’s settled jurisprudence in relation to the legal issues and legal interpretations relating to the practice of zeroing. On the contrary, all the Panel has done is re-iterated the reasoning which the Appellate Body has examined and rejected, in many cases.
53. The Panel has not even engaged in an exercise of trying to 'distinguish' this case from earlier rulings of the Appellate Body. The EC acknowledges though that this would have been a futile exercise because there is no doubt that the legal questions that this Panel had to deal with are the same as those before the Appellate Body in other zeroing cases.
54. In addition, if the Panel’s views were to be accepted, the Appellate Body itself would have to reverse its earlier rulings on the legal issues and legal interpretations relating to the zeroing practice at issue in this case. The personal opinions held by particular panelists do not amount to cogent reasons for the Appellate Body to reverse the existing jurisprudence.
Here, the European Communities emphasizes again the role of "cogent reasons" in determining whether the Appellate Body's reasoning in past cases should be followed.
And finally, of course, the Appellate Body went with the "cogent reasons" standard in its conclusions on this issue:
160. Dispute settlement practice demonstrates that WTO Members attach significance to reasoning provided in previous panel and Appellate Body reports. Adopted panel and Appellate Body reports are often cited by parties in support of legal arguments in dispute settlement proceedings, and are relied upon by panels and the Appellate Body in subsequent disputes. In addition, when enacting or modifying laws and national regulations pertaining to international trade matters, WTO Members take into account the legal interpretation of the covered agreements developed in adopted panel and Appellate Body reports. Thus, the legal interpretation embodied in adopted panel and Appellate Body reports becomes part and parcel of the acquis of the WTO dispute settlement system. Ensuring "security and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.313 [footnote omitted]
Where does all this leave us? In one sense, it leaves us in a messy situation, with the United States objecting to the "cogent reasons" standard but leaving it unclear what exactly it wants instead (unclear to me, anyway -- would it accept the proposed language set out here?). But in another sense, it leaves us with an opportunity now for governments to clarify what they think the role of precedent should be. Now that everyone has had many years of experience with the "cogent reasons" standard, what do they think of it? Does it need some adjustments, or does it work pretty well as is?
