Last week I blogged about U.S. concerns with DSU Article 11. In the U.S. view, the Appellate Body has set the standard for such appeals too low (if such appeals should be allowed at all), leading to a proliferation of such appeals and contributing to the slowdown in the timetable of the Appellate Body's work. I am sympathetic to the U.S. concerns here, although I would have taken a very different approach to addressing those concerns.
As I've watched the developments with Article 11 appeals over the years, I've also worried about DSU Article 12.7, which can serve as a basis for similar appeals related to the quality of a panel's analysis. The second sentence of Article 12.7 states:
the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes.
(emphasis added)
This "basic rationale" requirement seems like it could be interpreted broadly, and I worry about its abuse. I count 13 such appeals over the years in our case law index (plus one more that I'm about to mention), so it has been mostly kept in check so far. But if Article 11 is scaled back, I could see how people might try to use Article 12.7 as a replacement.
So I was surprised to see the U.S. rely on Article 12.7 in the recent Supercalendered Paper appeal (the report is here). Here is an excerpt from the U.S. appellant submission in the case:
39. Article 12.7 of the DSU provides that “the report of a panel shall set out the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes.” Here, the Panel failed to explain how the so-called “ongoing conduct” is inconsistent with Article 12.7 of the SCM Agreement. Specifically, the Panel did not identify the legal obligations of Article 12.7 of the SCM Agreement with respect to “ongoing conduct,” nor did it apply the elements of the “ongoing conduct” to any legal requirements. Consequently, the Panel breached its obligations under DSU Article 12.7 and as a result, the Appellate Body should reverse the Panel’s findings.
40. The Appellate Body has found that Article 12.7 of the DSU “establishes a minimum standard for the reasoning that panels must provide in support of their findings and recommendations,” and “the reasoning of the panel must reveal how and why the law applies to the facts.” It has explained that Article 12.7 of the DSU promotes procedural fairness, particularly “in cases where a Member has been found to have acted inconsistently with its obligations under the covered agreements, that Member is entitled to know the reasons for such finding as a matter of due process.” And, that “the requirement to set out a ‘basic rationale’ in the panel report assists such Member to understand the nature of its obligations and to make informed decisions about: (i) what must be done in order to implement the eventual rulings and recommendations made by the DSB; and (ii) whether and what to appeal.”
Confusingly, the U.S. DSU Article 12.7 appeal relates to the panel's findings on SCM Agreement Article 12.7. Once you get your ahead around the multiple 12.7s, here's part of the U.S. argument:
42. Here, there is neither an explanation as to how Article 12.7 of the SCM Agreement should be interpreted nor a discussion as to how the identified measure is inconsistent with Article 12.7 of the SCM Agreement. Instead, the Panel simply concludes that “an investigating authority may not simply infer that a respondent’s failure to respond fully to the ‘other forms of assistance’ question resulted in a failure to provide information necessary to establish the existence of additional subsidization of the product under investigation.”
43. The paragraph lacks any analysis revealing how the Panel reached its conclusions, and does not identify how the United States breached its specific obligations under the covered agreement. The best guess for the Panel’s reasoning is that the Panel improperly generalized its findings on the specific application of facts available in the supercalendered paper investigation to the separate measure it has called “ongoing conduct.” But even this is uncertain. The only reference to its “as applied” analysis in the “ongoing conduct” section is found in the opening clause of paragraph 7.333 that reads: “in line with the findings in Section 7.4.1.4 above.”
...
48. As explained above, the Panel has not provided any basic rationale for its finding that the purported “ongoing conduct” is inconsistent with Article 12.7 of the SCM Agreement. Accordingly, the United States requests that the Appellate Body reverse the Panel’s findings.
In my view, the various issues related to appeals of a panel's reasoning or objectivity need to be addressed together. If we are thinking about whether there should be appeals under DSU Article 11, and if so what the standard should be, we should be thinking about the same questions in relation to DSU Article 12.7.
When considering these issues, I think it's worth noting that both provisions have predecessor provisions in the Tokyo Round Dispute Settlement Understanding, at a time when there was no appeals mechanism. The Article 11 predecessor provision is in paragraph 16: "a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the General Agreement and, if so requested by the CONTRACTING PARTIES, make such other findings as will assist the CONTRACTING PARTIES in making the recommendations or in giving the rulings provided for in Article XXIII:2." With regard to panels providing a "basic rationale," an Annex entitled "Agreed Description of the Customary Practice of the GATT in the Field of Dispute Settlement" says the following in para. 6(v): "Panel reports have normally set out findings of fact, the applicability of relevant provisions, and the basic rationale behind any findings and recommendations that it has made."