Guest Post: Are the ‘Lester Principles’ too ‘neo-liberal’ for a WTO consensus?

In his Post of 19 April 2020, Simon Lester made three proposals in order to satisfy the most significant US concerns with the WTO Appellate Body in ways acceptable for the rest of the WTO membership: ‘(1) limiting the scope of appellate review; (2) providing more deference on “trade remedies”;  and (3) giving more powers to WTO members to object to the reasoning in dispute settlement reports.’ As Simon and most other people believe that the ‘Trump administration is not likely to change its view or approach’, Simon’s proposals are made in case ‘Joe Biden becomes president’. Let me start by congratulating Simon for his timely proposal. I fully support his pragmatic argument that ‘(i)f we want to get the Appellate Body up and running again’, WTO lawyers all over the world ‘need to be thinking about what sort of compromise might work’. The needed compromise is unlikely to come from WTO diplomats alone. We are all affected by illegal WTO power politics, and we are all democratically responsible!

Unfortunately, the ongoing WTO negotiations on DSU reforms since 1998 suggest that WTO diplomats risk remaining incapable of agreeing on reforms that are also acceptable to democratic institutions and civil societies in more than 160 WTO member countries affected by the US assault on the rule of law in international trade. Hence, before engaging in a discussion of the details of the DSU reforms as proposed by Simon, we should ask broader ‘constitutional questions’ – notably taking into account the reality that US hegemonic nationalism is driven by domestic business interests and ‘neo-liberal values’ (like ‘market fundamentalism’, utility-maximization by the homo economicus, Chicago school economics neglecting social inequalities inconsistent with economic and social human rights) that are fundamentally different from those of European, ordo-liberal constitutionalism (proceeding from more comprehensive protection of fundamental rights and public goods, viewing markets as legal constructs that cannot protect general consumer welfare without legal limitations of ‘market failures’, ‘governance failures’ and ‘constitutional failures’). State-capitalist WTO members may have even less reasons for accepting hegemonic US proposals for ‘special deference to trade remedies’. The more the normative contradictions between US neo-liberalism (e.g. denying global public goods like climate change and worldwide ‘courts of justice’), European ordo-liberal constitutionalism (e.g. committed to a ‘New Green Deal’ aimed at mitigating climate change and endorsing climate change litigation) and totalitarian state-capitalism affect regulatory WTO challenges, the more their diverse conceptions of ‘embedded liberalism’ risk rendering WTO negotiations difficult (as explained in a forthcoming article of mine in the JIEL 2020).

As DSU amendments ‘shall be made by consensus’ (Article X:8 WTO Agreement): What are the reasonable self-interests of the 164 WTO members that must be taken into account in order to enable ‘WTO consensus’ on DSU reforms, beyond the technical legal details that have been deliberated in special sessions of the DSB since 1998? Have the more than 120 WTO members insisting – at each DSB meeting – on the filling of the WTO Appellate Body vacancies, and the DSB members supporting the ‘Walker principles’ for resolving the Appellate Body crisis, not better reasons to use the multilaterally agreed ‘appellate arbitration’ under Article 25 DSU than to agree to the ‘Lester principles’ for reducing the judicial Appellate Body functions? Article 3.2 DSU rightly recognizes that the ‘dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system’ (Article 3.2 DSU). How can DSU reforms help to protect rule of law in international trade, reduce global transaction costs, and secure supply of goods and services demanded by billions of people? The nationalist focus on US protectionism in the 2020 USTR Report on the WTO Appellate Body has ignored such broader, systemic WTO challenges affecting all WTO members and the future of humanity. Would WTO negotiations on the ‘Lester principles’ risk, likewise, getting lost in technical DSU discussions based on conflicting value premises provoking further, democratic backlash against WTO power politics? What kind of DSU does the WTO need to realize its declared ‘objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development’ (WTO Preamble)?

The need for such broader questions is illustrated by the facts of global climate change, global health pandemics, and one-sided government responses in many countries (at least here in Italy, where I remain confined to staying at home since 6 weeks). The obviously inadequate governance responses now risk triggering even worse economic, social, food and health crises than post-1929. Unless we acknowledge that our governments have failed to prevent climate change, global health pandemics and the global economic crises as now predicted by the IMF, also the DSU negotiations risk to fail in responding to the existential challenges of our time. If we compare the ‘Walker principles’ discussed in the DSB with the ‘Lester principles’: Aren’t the latter not far too narrow responses to the peculiar US context of neo-liberal interest group politics? Climate change mitigation will not be possible without introducing carbon taxes, border carbon adjustments and economic restrictions (e.g. on fossil fuel subsidies) in the near future that are bound to provoke hundreds of WTO disputes in the coming years. Does Simon’s first proposal to limit the judicial functions of the WTO Appellate Body protect the global interest in transnational rule-of-law, e.g. in view of the fact that the USA has never demonstrated that the Appellate Body has not complied with its mandate ‘to clarify the existing provisions of (WTO) agreements in accordance with customary rules of interpretation of public international law’ (Article 3.2 DSU) in its ‘prompt settlement’ of WTO disputes? If the Appellate Body ‘may uphold without further comment’ panel findings (as proposed by Simon): would this not further ‘politicize’ and undermine the legitimacy of Appellate Body findings? If WTO members cannot prevent US governments from engaging in illegal, national protectionism (e.g. for US steel and aluminum industries and their lobbies): Will other WTO members be convinced by Simon’s second proposal to reduce the judicial accountability for ‘trade remedies’ even further by taking away the rights of adversely affected WTO member states to maintain their multilaterally agreed ‘reciprocal balance of concessions’? Will such promotion of unilateral protectionism not adversely affect future WTO negotiations?

Simon’s third proposal touches the true, most fundamental failure of the WTO Appellate Body crisis. Simon adds to the many proposals made by WTO lawyers over the past decades (e.g. by the International Law Association’s ‘International Trade Law Committee’ under my chairmanship from 2000-2014) in order to induce WTO diplomats and the DSB to exercise stronger political control over WTO jurisprudence. Both the USTR and the DSB have failed to ‘institutionalize critical public reason’ in the WTO disputes settlement system in ways that could have improved WTO jurisprudence (e.g. through majoritarian ‘authoritative interpretations’ pursuant to Article IX:2 WTO Agreements, majoritarian procedural decisions pursuant to Article IX:1 WTO on filling Appellate Body vacancies ‘as they arise’ in conformity with Article 17.2 DSU). The WTO ideology of ‘member-driven governance’, the illegal power politics in the DSB, the interest-group driven neo-liberalism of the USTR, and the WTO neglect for its ‘sustainable development’ objectives have all contributed to the fact that – since 1998 – the DSU reform negotiations have failed to adjust the WTO dispute settlement system and jurisprudence to the obvious, regulatory and judicial problems that have arisen in WTO practices (like the much criticized ‘public body’ case-law of the Appellate Body).

The supporters of a rules-based international trading system should be grateful to Simon for provoking a global debate beyond WTO diplomats on how the necessary compromise for reforming the WTO dispute settlement system could look like. This debate must continue. Yet, ordo-liberal critics of power-oriented ‘member-driven WTO governance’ – if it remains disconnected from effective democratic control, rule-of-law, the regulatory challenges of climate change and from other global emergencies - may be forgiven for suggesting that the global priorities for WTO reforms should be different from those proposed in the ‘Lester principles’. The purpose of this ‘European response’ to Simon’s good intentions is to broaden our perspective in this time of global governance failures, which reasonable citizens find as difficult to understand as Trumpian nationalism and power politics. For instance, why are the ‘Covid-19 health risks’ for primarily elderly people so much more important than the 9 million poor, and often much younger people dying every year from hunger and unnecessary poverty? Is it justifiable that now thousands of people are dying from other diseases because many hospitals currently admit only Covid-19 patients? We should recognize ourselves as vulnerable ‘citizens of the world’, who have learnt that the WTO history is not a never-ending march towards human progress and protection of human rights that remain neglected inside many WTO member states. Shouldn’t we transcend nationalism and learn from the current global governance crises (e.g. in the WTO and WHO) in order to prevent even worse crises like the unfolding climate catastrophe and the economic and social world crises now predicted by the IMF? Just as local mistakes in a fish-market in Wuhan can trigger global health crises that risk ushering in global economic crises if health policies are mishandled, so risk nationalist US assaults on global trade, health and environmental institutions to aggravate our current environmental, health and social crises to the detriment of citizens all over the world. DSB diplomats and WTO lawyers should avoid ‘sleepwalking’ and use the needed DSU reforms for strengthening transnational rule of law in order to better respond to the existential threats, which billions of citizens are facing today