There is a justified fear that, once the WTO Appellate Body goes out of business in a few days, the entire edifice of WTO dispute settlement will collapse like a house of cards. The key concern from a structural perspective is not the demise of the Appellate Body per se, but rather the loss of the right to the quasi-automatic adoption (via negative consensus) of dispute settlement reports that will come with it. The right to have panel (and AB) reports adopted by negative consensus was arguably a key part of the bargain underlying the DSU: it guaranteed WTO Members a remedy for a violation of WTO law. The other side of that bargain is embodied in DSU Art. 23: with the guarantee of a remedy in hand, WTO Members were willing to give up their right to implement unilateral retaliation. To the extent that WTO Members stand to lose their right to a remedy, there is a good chance that the flipside of that bargain will unravel as well: it would be unrealistic to expect complainants to refrain from unilateral retaliation if they are unable to vindicate their rights through WTO dispute settlement. Some WTO Members are already working on legislation that would give their governments powers akin to those of the US President under Section 301 of the US Trade Act of 1974 (see Politico’s reporting on the European Commission’s forthcoming “trade bazooka”).
The question is: how should WTO Members implement unilateral retaliation? I argue that WTO Members could use unilateral retaliation in a way that, far from further unraveling the system, would reinforce the bargain underlying the WTO dispute settlement system. If the key to keeping the WTO dispute settlement system alive after the demise of the Appellate Body is the routine adoption of panel reports by the Dispute Settlement Body, and if the threat of unilateral retaliation is employed by a critical mass of WTO Members with the sole purpose of achieving the objective of the routine adoption of panel reports, then unilateral retaliation can play a crucial role in ensuring the survival of the WTO dispute settlement system and with it the rules-based multilateral trade regime.
What would this require in practice? WTO Members would need to provide in their domestic legislation that they will implement unilateral retaliation only if and when a respondent “vetoes” the adoption of a panel report by appealing the report while the Appellate Body remains defunct. Respondents that are faced with the choice of immediate and unilateral retaliation vs., at worst, the eventual possibility of legally constrained and supervised retaliation, will have a strong incentive not to prevent the adoption of panel reports and to allow the dispute to work its way through the WTO dispute settlement system.
This proposal would leverage two of the great advantages that the WTO DSU has over the GATT to ensure that we do not return to the 1980s. These advantages are (1) the quasi-automaticity of the establishment of panels under the DSU and (2) the procedures for the surveillance of implementation and the authorization of retaliation in DSU Arts. 21 and 22. Under the GATT, it would not have been practicable to use the respondent’s veto of the adoption of a panel report as a trigger for unilateral retaliation, since the respondent could veto even the establishment of the panel (or distort the panel’s terms of reference). And under the GATT, the lack of compliance panel proceedings and arbitrations of the type we now have under DSU Art. 21.3(c) and Art. 22.6 meant that retaliation implemented within the system was not significantly more constrained than retaliation implemented outside the system. There was thus little to motivate the respondent to keep the dispute within the system. By contrast, a respondent who confronts a credible threat of unilateral retaliation if it vetoes the adoption of a panel report, coupled with a commitment by the complainant only to retaliate in accordance with DSU procedures if the panel report is adopted, will find the later course of action considerably more attractive.
The proposal to use the threat of unilateral retaliation in this way strikes me as superior to “no appeal” agreements in two ways. First, the proposal does not depend on the good will of the respondent, but rather confronts the respondent with concrete economic incentives not to appeal the panel report. Second, the proposal does not prevent the complainant from “vetoing” the report, which is the functional equivalent of suspending the panel proceedings (something that the complainant can request at any time pursuant to DSU Art. 12.12) and does not present a concern from a systemic perspective.
Retaliation implemented under the proposal would remain illegal under WTO law. However, since such retaliation would withhold the protection of DSU Art. 23 only from respondents who have decided to deprive the WTO Member implementing the retaliation of its right to a remedy under the DSU, such illegality could arguably be justified as the lesser of two evils, as it simply seeks to uphold the basic bargain underlying the DSU.
