Nicolas’ post on how unilateral retaliation may limit “appeals into the void” reminds me of a misleading statement I keep reading in the press these days.
Many seem to believe that with the demise of the Appellate Body (AB), the WTO will lose its “bite”, i.e., that pre-Dec. 11 dispute rulings were “binding” and enforced by “sanctions”; post-Dec. 11, as under GATT, so the thinking goes, rules and rulings will be “voluntary” and violations will no longer be enforced or sanctioned.
See, for example, here: “The difference between the GATT and the WTO formulations of dispute settlement is gigantic. Under the GATT, compliance by the defendant with dispute settlement findings was, in practice, voluntary; under the WTO, lack of compliance with dispute settlement findings may lead to the application of countermeasures on the defendant by the complainant”.
On my reading, however, the DSU was not, in the first place, created to strengthen the enforcement of WTO commitments. On the contrary, the main function of the DSU was to cap retaliation and avoid escalating “trade wars”.
Reciprocal agreements like the WTO treaty are, by nature (and even without third party adjudication), self-enforcing: If one party detects a violation by another party, the first party can suspend its own commitments toward the second party. It is this reciprocity (not the DSU or AB) that makes the enforcement of trade agreements easier (at least for parties that have the power to retaliate) than, say, human rights or environmental treaties (where torture in response to torture or carbon emissions in response to carbon emissions do not work).
The big problem is this: A party’s unilateral determination of treaty violation by another party may be wrong, and claimants may over-react in their reciprocal suspension or retaliation which, in turn, may trigger further retaliation in response. Hence, escalating trade wars …
The DSU addresses this problem by forcing parties to get allegations of breach determined multilaterally, allowing for retaliation only after such multilateral finding of breach and capping eventual retaliation to a level equivalent to the original breach (see DSU Articles 22.4 and 23). In other words, the DSU (mainly) addresses the risk of over-enforcement, not a problem of under-enforcement.
Hence, with the DSU potentially dysfunctional post-Dec. 11, the bigger risk is, once again, over-enforcement (unilateral determinations and sanctions, escalating trade wars), not the loss of “bite” …
If this view is correct, it also highlights the capital importance of timely dispute settlement: if the main goal of the DSU is, indeed, multilateral determination of breach, followed by capped retaliation (in case breach continues), quick (rather than 100% correct or predictable) results are of the essence: To ensure the stability of the system, a claimant may be willing to wait, say, 1 or 2 years before it retaliates; if it has to wait 4 or more years, frustration of under (not over) enforcement will build. This is what started to happen recently: think of the US losing patience with China on subsidies (or the EU on Airbus), but also of the EU not awaiting a WTO ruling on the US steel tariffs before retaliating (albeit under the safeguards agreement). Majorly delayed WTO rulings (only partly due to a lack of AB members) and the increasing need for 21.5 compliance proceedings (sometimes two rounds) have blunted the normal self-enforcing features of the WTO treaty. Massive delays (and WTO rules that have not been updated) have put pressure again on countries to unilaterally retaliate, in turn, leading to escalating trade wars, the very thing the DSU was meant to avoid …
In sum, what is worrying about the demise of the AB is not loss of “bite”, under-enforcement of WTO rules, or trade agreements falling into a protracted slumber. On the contrary, the bigger risk is over-enforcement of the rules, leading to escalating retaliation and general instability. No country will benefit from this. It is this realization (linked to the eventual ineffectiveness of purely unilateral enforcement) that will, in my view, bring also the US back to some form of third party adjudication of trade disputes (and capped retaliation). But to make this happen, substantive WTO rules need updating and WTO adjudicators, in turn, will need to carefully limit themselves to a decision of breach/no breach and decide quickly, consistent with the current, strict DSU timelines.
