USTR's 121 page "Report on the Appellate Body of the World Trade Organization" is here. A lot of it seems to have been taken from U.S. statements to the DSB over the past couple years, although I have only skimmed it at this point. For now, let me just note the issue of DSU Article 11, which I've talked about before (see the comments here, and this article). USTR says the following:
1. Appellate Review of Facts is Contrary to the Appellate Body’s Limited Authority under the Dispute Settlement Understanding
The DSU reflects WTO Members’ agreement on the functions assigned to panels and the Appellate Body. DSU Article 11, which describes the “function” of a panel, provides that “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 relevant covered agreements.” In other words, “the matter” in a dispute consists of the facts and the legal claims, and panels are authorized to make both factual and legal findings.
By contrast, WTO Members agreed in the DSU to expressly limit the authority of the Appellate Body to review a panel’s legal findings, not its factual findings. Indeed, it is difficult to see how the language of Article 17.6 of the DSU could be clearer on this point: “An appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.”
The Appellate Body itself has acknowledged this limitation on its authority. In a 1998 report, the Appellate Body stated, “Findings of fact, as distinguished from legal interpretations or legal conclusions, by a panel are, in principle, not subject to review by the Appellate Body.” At the same time, however, the Appellate Body attempted to escape from this limitation by asserting that there was a standard of review applicable for panels in respect of the panel’s “ascertainment of facts” under the relevant covered agreements.
The Appellate Body’s approach erred by failing to address a critical threshold question: how, in light of the limitation of appeals in Article 17.6 of the DSU to “issues of law and legal interpretations,” was the Appellate Body authorized to “review” a panel’s “ascertainment of facts”? This question needed to be addressed and resolved before moving on to determine what would be the “standard” for any such review. But the Appellate Body did not engage on this threshold question. It did not explain the basis for its assumption that it could review a panel’s findings of fact when the DSU expressly limits the Appellate Body’s review to “issues of law and legal interpretations.”
Furthermore, the review authority claimed by the Appellate Body raises critical questions. Not surprisingly, since the DSU does not provide for the Appellate Body to conduct a review of factual findings, no provision in the DSU refers to a “standard of review” for such an assessment. Faced with this lack of any agreed “standard of review,” the Appellate Body asserted that Article 11 of the DSU provided such a standard. In so doing, however, the Appellate Body again ignored the text of the DSU and simply asserted that the DSU text said something different from what WTO Members agreed.
The Appellate Body has interpreted the phrase “should make an objective assessment” found in Article 11 as a “mandate” and a “requirement” for panels. This is plainly incorrect. The decision of WTO Members to use the word “should” makes clear that WTO Members did not intend to create a legal obligation subject to review. This conclusion is directly reinforced by the fact that Article 17.6 limits appeals to issues of law.
From its assertion that “should make” sets out a “mandate” and a “requirement”, the Appellate Body proceeded to state: “Whether or not a panel has made an objective assessment of the facts before it, as required by Article 11 of the DSU, is also a legal question which, if properly raised on appeal, would fall within the scope of appellate review.” This statement simply compounded the error described above. Over a year later, the Appellate Body flatly asserted that: “The word should’ has, for instance, previously been interpreted by us as expressing a ‘duty’ of panels in the context of Article 11 of the DSU.” Again, the Appellate Body failed to explain why the word “should” supports this reading.
Just prior to this erroneous statement, the Appellate Body had correctly explained that: “The consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty provision is, however, a legal characterization issue. It is a legal question.” This statement, however, does not eliminate the clear distinction between factual findings and legal findings – a distinction that is critical to understanding the proper role of the Appellate Body. A panel’s assessment of the facts does not become a “legal question” just because a party to the dispute disagreed with it.
In sum, the Appellate Body’s decision to undertake a review of panels’ findings of fact has no basis in the Dispute Settlement Understanding.
The Appellate Body has become more aggressive about reviewing factual findings, and it has done so under varying standards. Initially, the Appellate Body explained that for an Article 11 appeal to succeed, the party appealing a panel finding needed to demonstrate that the panel had committed “egregious error that calls into question the good faith of the panel.”
Over time, however, the Appellate Body has lowered this threshold for review of factual findings. In 2011, in EC – Large Civil Aircraft, the Appellate Body explained that “for a claim under Article 11 to succeed, we must be satisfied that the panel has exceeded its authority as the trier of facts.” The Appellate Body went on to explain this means that “a panel must provide a ‘reasoned and adequate’ explanation for its findings and coherent reasoning. It has to base its findings on a sufficient evidentiary basis on the record, may not apply a double standard of proof, and its treatment of the evidence must not lack ‘even-handedness.’”
By moving from a standard that required both “egregious” error and an apparent lack of good faith to justify reversal to a much lower threshold, the Appellate Body further empowered itself to second-guess a panel’s reasoning and findings and substitute its own assessment of the facts for the panel’s assessment.
The Appellate Body has also articulated other standards of review for Article 11 claims. In US – Wheat Gluten (AB) and US – Carbon Steel (AB), the Appellate Body referred to affirmative findings that lack a basis in the evidence contained in the panel record. In US – Upland Cotton (AB) (Article 21.5 – Brazil), the Appellate Body articulated the standard as whether a panel has provided “reasoned and adequate explanations and coherent reasoning” or displayed a lack of even-handedness and the application of a double-standard of proof. More recently, in Russia – Commercial Vehicles (AB), the Appellate Body articulated the standard as whether a panel’s findings and its treatment of competing evidence are internally incoherent and inconsistent.
There is no basis in the DSU for any of these standards. WTO Members never agreed that the Appellate Body would review a panel’s factual findings and therefore WTO Members never negotiated the basis or standard for such a review. Rather than trying to develop its own standard, the Appellate Body should have respected the limits on its authority imposed by Members.
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3. The Appellate Body’s Breach of Article 17.6 Has Undermined the Functioning of the WTO Dispute Settlement System
The Appellate Body lacks authority to review a panel’s findings of facts, and the Appellate Body’s invention of such authority has added complexity, duplication, and delay to WTO disputes. Moreover, the Appellate Body has compounded the error by asserting that it can review panel findings concerning the meaning of a WTO Member’s municipal law, which is often the key fact at issue.
The decision of the Appellate Body to review fact findings by panels has harmed the dispute settlement system. By creating a category of “Article 11 appeals,” the Appellate Body significantly increased its own workload. Ironically, the Appellate Body has complained about this increased workload.
The Appellate Body has complained that the number of such appeals has increased over time, and that Article 11 appeals have in turn increased the complexity of appeals, the length of submissions, and the need for the Appellate Body to devote time and resources to become familiar with the basis for a panel’s factual findings.
The graph below illustrates the increasing number of Article 11 claims raised on appeal:
[there's a nice graph here but I couldn't easily bring it over to the blog post -- sl]
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Each new standard articulated by the Appellate Body has provided litigants with additional avenues to seek review of panel findings of fact.
By expanding its power and giving itself authority to review factual determinations, and under varying standards of review, the Appellate Body has incentivized parties to re-litigate the entire case presented to the panel. Parties now often challenge panel findings, under Article 11, in addition to challenging all of the panel’s legal interpretations and legal conclusions under the relevant provisions of the covered agreements.
Ironically, commentators now point to the Appellate Body’s giving to itself authority to review panel findings of fact as a basis for why the Appellate Body cannot perform its job in the mandatory 90-day deadline. If the Appellate Body limited its work to what it is authorized to do, it would have no problem doing so in the time in which it is authorized to do so.
Appellate Body review of facts also makes the panel process less efficient. Knowing that the Appellate Body will likely review the facts, parties have an incentive to refrain from providing corrections or clarifications of the factual section of a panel’s interim report. Indeed, the party may be better off reserving its criticisms of a panel’s factual findings for an appeal that could result in reversing the panel’s determinations. Of course, such a course of action would mean that the panel’s final report does not present factual findings of as high quality as it otherwise could.
The Appellate Body’s approach in conducting its own de novo review of the meaning of domestic law is inconsistent with the appropriate functioning of the dispute settlement system. It departs from the basic division of responsibilities where panels determine issues of fact and law, and the Appellate Body may only review specific legal interpretations and issues of law. The Appellate Body’s expansion of its review authority has added complexity, duplication, and delay to almost every dispute, as a party to the dispute can now challenge on appeal every aspect of the panel’s findings. This outcome does not reflect the dispute settlement system as agreed by WTO Members in the text of the DSU.
(footnotes omitted)
I think the U.S. has a legitimate concern here. Unfortunately, the issue has gotten lost in the shuffle of the appointment crisis. Should Article 11 or some similar provision be used as the basis for appeals? Personally, I think the system would be better off without Article 11 appeals (or with a significantly higher standard), although they do have some value and most appellate review involves some degree of scrutiny of the treatment of the facts by the initial tribunal. You can design an appellate review mechanism in different ways, and it would be helpful for WTO Members to debate what they want in this regard. As far as I can tell, this was not discussed in any detail during the Uruguay Round. Now would be a good time for WTO Members to consider the experience of the last 20 years at the Appellate Body and think about the future of appellate review as it relates to this issue.
