Steve Charnovitz
2 June 2019
Recent reports indicate that the EU is proposing to use Article 25 of the WTO's Dispute Settlement Understanding (DSU) to provide a temporary solution to the ongoing crisis in the Appellate Body of not having enough appellators to adjudicate appeals and to render panel reports adoptable (see World Trade Online," EU Moving forward with WTO Appellate Body backup plan", 31 May 2019). Although I have not yet seen any EU paper, the urgency of the matter provides a good reason to begin an analysis of pros and cons of this backup plan.
The crisis in the Appellate Body is that its judicial bench is now down to only three appellators and two of those terms will end in December 2019. With fewer than three appellators, the Appellate Body will not be able to decide appeals. Furthermore, under DSU Article 16.4, any panel decision under appeal is not eligible for automatic adoption until the "completion of the appeal." Thus, without the possibility of appeal, any defendant in a WTO case can block the adoption of a panel report merely by appealing "into the void". Without adoptability of panel reports, the predictability and security provided by the DSU will disappear.
The reason why four of the seven seats on the Appellate Body remain unfilled is that the WTO Dispute Settlement Body (DSB) has failed in its duty under DSU Article 17.2 to fill vacancies "as they arise." The cause of this failure is that since 2017, the United States has been blocking the appointment process. The blocking of appointments was not invented by the Trump Administration -- the prior art came in the blocking of an appellator reappointment by the Obama Administration -- but the Trump Administration perfected the heinous art through the more destructive goal of attacking the tribunal itself rather than just particular judges. See Steve Charnovitz, "How American Rejectionism Undermines International Economic Law," Trade, Law and Development, Winter 2018.
Beginning in 2017, the looming danger of a halt in the adoptability on WTO panel reports led to numerous proposals being offered to address this predicament. My own proposal, published in this blog on 3 November 2017, would have headed off the problem by having the Appellate Body change its rules so as to declare ex ante that whenever the Appellate Body bench fell below five judges, then for any appealed case, the "completion of the appeal" would occur on the same day that the appeal was filed. Unfortunately, the Appellate Body did not adopt my solution for reasons that have not been publicly disclosed. Ironically, at a time when the Appellate Body is regularly criticized for "activism," the failure of the Appellate Body to adopt a DSU defense measure is an example of its inactivism. Given the procedural situation in 2017, only the Appellate Body had the power to clear the way for future panel report adoptions even in the worst-case scenario of the number of appellators falling to zero. In my view, the Appellate Body had the last clear chance (and perhaps the duty) to enable the WTO to avoid the worst aspects of the current predicament. To quote Professor Peter Van den Bossche in his recent address to the DSB, "History will not judge kindly those responsible for the collapse of the WTO dispute settlement system."
With the calendar advancing to June 2019, the EU proposal is to utilize DSU Article 25. Under DSU Article 25, WTO governments can employ arbitration as an alternative to DSU Article 6 panels. Such arbitration requires "mutual agreement of the parties" and DSU Article 25.3 states that parties "shall agree to abide by the arbitration award." Should a party not abide by the award, Article 25.4 provides for enforcement through the regular techniques of compliance review by an appealable panel report and determination of any SCOO (i.e., a suspension of concessions or other obligations) through arbitration.
As a solution to being able to achieve finality in WTO disputes, Article 25 arbitration does not offer any advantages over regular DSU panels. The Article 25 approach works only if there is ex ante agreement of the litigants to use the parallel track. But if litigants can mutually agree to arbitration without appeal, then the same litigants could also mutually agree to enter into a procedural agreement not to appeal the Article 6 panel report and the Article 21 compliance panel report. Staying within the normal panel process offers considerable advantages over ad hoc arbitration as there are already broadly accepted Working Procedures and thus no need to reinvent them for each arbitration. Staying within the regular panel process also provides a proven path for adjudicating and enforcing compliance which is absent in Article 25. (While it is true that if governments abide by an arbitration award there would not be any need for enforcement, it is similarly true that if governments followed WTO rules, then would not be any need for dispute settlement.)
The only advantage offered by Article 25 is to employ it in a way that makes improvements on regular WTO dispute settlement. Specifically, under Article 25, litigants could agree ex ante that the arbitrator may award monetary damages should violation of WTO rules be found and that the monetary award would be rendered in a manner so as to make it eligible for enforcement in domestic courts under the New York Convention (including its defenses). The use of monetary awards and domestic enforceability is not available in DSU panels, and so experimenting with Article 25 in that way would provide value added.
At this point, the best path forward for WTO members that support the rule of law is to sign on to a Non-Appeal Pact (NAP) in advance so as to agree reciprocally not to appeal WTO panel reports during the ongoing crisis. If most of the active DSU litigants were to sign this Pact, the ongoing crisis could be mitigated considerably for cooperating countries. (Obviously this Pact cannot resuscitate the Appellate Body; even my own plan of 2017 recognized that there was no back door rescue for the Appellate Body itself.)
To give concreteness to this idea, here is language that has been suggested for such a NAP:
WTO Membership No-Appeal Pact (NAP)
Recognizing that as of 11 December 2019, the Appellate Body of the World Trade Organization (WTO) may no longer have the minimum required number of members to commence an appeal, and
Being desirous to maintain, even in such situation, rule-based WTO dispute settlement and the adoption of WTO dispute settlement reports by the WTO Dispute Settlement Body (DSB) pursuant to the rule of negative consensus as set out in Articles 16.4 and 17.14 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),
We agree:
- To refrain from appealing a panel report in a dispute where all of the other parties in the dispute are signatories to this No-Appeal Pact;
- That this Pact will go into operation on the date that the number of Appellate Body members falls below three and will end on the date that the number of Appellate Body members rises above four; and
- That this Pact is an informal understanding of representatives of the Members and does not alter the rights and obligations of the Members.
Signatories:
