When the Uruguay Round of multilateral trade negotiations was completed, the world trading system was transformed in several important ways: A formal institution was created, as the World Trade Organization (WTO) replaced the General Agreement on Tariffs and Trade (GATT) (which had been operating as a de facto institution); the scope of coverage was expanded considerably, with trade in services and intellectual property now included; the system was now unified under a single governing framework; and the dispute settlement system became more legalized, with an appellate review mechanism added and some diplomatic elements removed.
In its early years, the WTO and its new dispute settlement system received praise in many circles. Academics wrote about it as a successful "constitutional" system. And people in many other policy areas were jealous of its effective international enforcement mechanism.
But flaws soon became apparent. Ambitious negotiating goals were set but rarely completed. Since the Uruguay Round, no new major "round" of negotiations has succeeded, although deals on smaller issues have been concluded.
In the meantime, dispute settlement became the main engine of activity at the WTO. For most of the GATT era, governments who were the subject of a complaint could block the proceedings from even taking place. That was no longer the case at the WTO. If a WTO Member filed a complaint against another government, the case would be heard.
The United States filed a lot of complaints, and had success in using WTO dispute settlement to open foreign markets. But it also had many complaints filed against it, as a wide range of politically sensitive U.S. statutes, regulations, and administrative actions were challenged. Some influential interest groups and politicians were upset by this and expressed concern about various aspects of the WTO dispute settlement process.
The U.S. government began offering reform proposals in the early 2000s, and its critique continued quietly but forcefully for the next decade. The situation escalated under the Obama administration, first in 2011 as the United States decided not to reappoint the U.S. Member of the WTO's Appellate Body, and again when it blocked the reappointment of a Korean Appellate Body Member in 2016. Then under the Trump administration, the U.S. approach intensified, with a block on all appointments to the Appellate Body that has threatened to bring the entire dispute settlement system to a halt.
The Trump administration is not likely to change its view or approach. If, however, Joe Biden becomes president, the difference of opinion between the United States and the rest of the world might not look so stark. Differences will remain, though, and a return to the pre-Trump system is unlikely. There will be a chance for a new U.S. administration to sit down with other WTO Members and look for a way to resolve these issues, but both sides will need to be willing to compromise.
This blog post presents a possible compromise. It is not the system I would prefer (although there are some suggested changes that I have argued for previously), but I think it could be acceptable to a future U.S. administration and to the rest of the world. It considers the specific U.S. complaints about the current functioning of the system and identifies which WTO dispute settlement provisions could be modified in a way that satisfies the most significant U.S. concerns, while maintaining the core features of the system. There are three categories of changes: (1) limiting the scope of appellate review; (2) providing more deference on "trade remedies"; and (3) giving more power to WTO Members to object to the reasoning in dispute settlement reports.
The Role of Appellate Review in WTO Disputes
When creating an appellate review mechanism for WTO disputes, there are many fundamental questions that need to be answered: How many "judges" should there be? How many should hear each appeal? How long are their terms? How many terms should they have? Is it a full-time position? Should there be a permanent appeals body, or simply ad hoc bodies for each appeal? Should they get legal support from personal clerks, ad hoc assistants, or a permanent secretariat? What is the relationship of the appellate "judges" and staff with the rest of the WTO Secretariat? Should they be in the same physical location?
These are interesting questions, but putting them all up for discussion and debate now is likely to slow the process of resolving the current crisis. Instead, the focus should be on the particular issues raised by the United States over the years that are most contentious and the resolution of which could make the Appellate Body functional again.
In broad terms, the fundamental criticism by the United States is that the Appellate Body is doing too much. The United States would like to see it play a reduced role.
One of the biggest U.S. complaints is that the Appellate Body has been "overreaching," "gap-filling," and issuing "advisory opinions." According to the United States, the Appellate Body has not respected the mandate in the DSU not to "add to" the rights and obligations in the covered agreements.
The difficulty here is that Article 3.2 of the DSU says, "Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements." (emphasis added) In addition, that same provision assigns panels and the Appellate Body the task of "clarify[ing] the existing provisions of those agreements in accordance with customary rules of interpretation of public international law," which puts them in a challenging position. There will always be a range of understandings of what particular words mean. In coming up with their clarifications, panels and the Appellate Body need to explain what they think the words of the agreement mean, and in doing so try not to go outside the accepted range. But there will be a range, and as a result some party or observer is likely to object to where on the range the clarification ended up. Whichever direction a panel or the Appellate Body goes, someone will assert that they have "added to" or "diminished" the rights and obligations.
There is not much that can be done with the Article 3.2 language to help with this problem. It is inherent in the nature of third-party adjudication that interprets ambiguous legal texts.
However, at the appellate level, it is possible that a change in culture could help here. The Appellate Body has a tendency to re-do the panel reasoning on most issues that are appealed. This is not strictly necessary, and in many cases the Appellate Body could simply uphold the panel's rationale without going through the reasoning exercise itself. DSU Article 17.13 states, "The Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel." In practice, the Appellate Body's reasoning often constitutes a modification even where the ultimate result is the same and the Appellate Body classifies its decision as one to uphold. An explicit option to uphold without conducting any new reasoning might change how the Appellate Body approaches its task. For example, Article 17.13 could be revised to say: "The Appellate Body may uphold without further comment, modify or reverse the legal findings and conclusions of the panel." The option to "modify" would then cover the situation where the Appellate Body reaches the same result but with different reasoning.
This change could encourage the Appellate Body to take an approach that it has not been inclined to use under the existing DSU rules. Under those rules, the Appellate Body may not have thought such an approach was permitted, or it may not have wanted to do so. But with such an approach explicitly designated as an option, the appellee in a particular case could push the Appellate Body to take it, and the Appellate Body would feel justified in upholding the panel's finding without any further discussion. Doing so would limit the extent of the Appellate Body's opportunities to clarify, and thus reduce the chances of aggravating a WTO Member.
This problem could also be addressed more indirectly by enforcing the 90 day limit for issuing Appellate Body reports. Article 17.5 states, "As a general rule, the proceedings shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate Body circulates its report," and also that, "In no case shall the proceedings exceed 90 days." The Appellate Body began exceeding this limit regularly with the permission of the parties, and eventually stopped seeking permission. If the Appellate Body were forced to issue reports within 90 days, it would have less time for extensive reasoning on all the issues before it.
It is also worth putting some degree of burden on WTO Members to think carefully about whether to appeal and what to appeal. DSU Article 3.7 states: "Before bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful." A similar provision could be useful for appeals. This provision may be difficult to enforce, but it can set the tone and influence the culture.
One of the reasons for the proliferation of appealed issues is the emergence of DSU Article 11, and to a lesser extent Article 12.7, as a basis for appeal. Article 11 says 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"; and Article 12.7 says, "the report of a panel shall set out … the basic rationale behind any findings and recommendations that it makes."
Precursor provisions existed under the GATT, when there was no appeal, which suggests that these provisions were not meant to be used as a basis for appeal. Nevertheless, that is the direction WTO Members took, as they began to cite these provisions in their appeals, and the Appellate Body's response encouraged them. This has led to a broader scope for appeal and longer Appellate Body reports. The United States has objected in particular to the way factual issues have been considered in appeals through allegations of error under DSU Article 11, in relation to the "objective assessment of the facts of the case."
Reining in these appeals could take one of two forms. The first option is that it could be made clear in a new DSU provision that Articles 11 and 12.7 cannot serve as the basis for an appeal. Alternatively, these appeals could be allowed under a stricter standard. For example, a finding that a panel had not complied with Article 11 would only be made if the panel's assessment was "an egregious error that calls into question the good faith of a panel." (See para. 133 of the Appellate Body report in Hormones).
Related to the concern about consideration of factual issues on appeal through DSU Article 11, the Appellate Body has said that "municipal law" (i.e. domestic law) is a question of law that it can address on appeal. There is broad disagreement with this conclusion (although some support as well). In the Walker Principles, an effort led by New Zealand Ambassador David Walker to find a solution to the Appellate Body crisis, there is a sentence that seek tries to correct this Appellate Body finding with the following language: "The 'meaning of municipal law' is to be treated as a matter of fact and therefore is not subject to appeal." A new DSU provision to this effect should resolve this U.S. criticism.
And finally, exacerbating the problem the United States sees with "overreach" is the role of precedent. The United States worries that all this extraneous Appellate Body reasoning is now a permanent part of WTO law. It may be that the United States is exaggerating the role of past cases. Nevertheless, some new DSU language is possible to ameliorate the U.S. concerns. The following amendment to DSU Article 3.2 might resolve the issue: "Clarifications provided by panels and the Appellate Body can have persuasive value, but are of less authority than the interpretations adopted under Article IX:2 of the WTO Agreement."
Special Deference to "Trade Remedies"
The trading system has long struggled to deal with "trade remedies," which are trade restrictions used to address both "unfair" and "fair" trade. "Unfair" trade refers to imported products that are "dumped" or subsidized and cause injury to domestic industries, and anti-dumping and countervailing duties are a permitted response under WTO rules. Where imported products cause injury without an "unfairness" aspect, they are subject to "safeguard" measures, which can take the form of duties or quotas.
For most economists, anti-dumping and safeguards are, in practice, simply forms of permitted protectionism, whereas countervailing duties try to address a real problem (trade-distorting subsidies). As a policy matter, it is important to continue to make the case against protectionism. However, as a matter of politics, preserving a system with broad benefits requires compromise. The practice of trade remedies needs to be accommodated.
The U.S. concern is that Appellate Body overreach and lack of deference has limited the ability of U.S. agencies to use all three forms of trade remedies. Here are two suggestions for changes that might satisfy the United States.
First, there need to be rules that ensure that deference is given to domestic agencies in their interpretation of WTO obligations. Article 17.6(ii) of the Anti-Dumping Agreement was intended by U.S. negotiators to provide that deference for issues of law, stating: "the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations." In the U.S. view, this provision has not worked in practice, as the Appellate Body has never considered that the (often vaguely worded) provisions of the Anti-Dumping Agreement "admit of more than one permissible interpretation."
There are ways to improve the drafting of this provision to make the additional deference more clear. For example, the provision could read as follows:
"(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations. As an illustration of a situation where more than one permissible interpretation exists, if the panel concludes that the interpretive approach set out in Article 31 of the Vienna Convention on the Law of Treaties leaves the meaning of a provision ambiguous or obscure, there shall be a presumption that the provision admits of more than one permissible interpretation, and the panel shall find the authorities' measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations."
(For more on this idea, see here). By linking the possibility of multiple permissible interpretations to the Vienna Convention interpretation rules, the provision can offer more clarity to WTO panels and the Appellate Body as to how they should apply it.
Importantly, this special standard of deference could apply to all trade remedies, including the Safeguards Agreement and the SCM Agreement. The United States has expressed concern about particular interpretations in both of these areas, and additional deference will provide the basis to correct them.
As a second change, the rules should ensure that the decision-makers at the appellate level have sufficient trade remedy expertise. At the panel level, the Legal Affairs Division of the WTO Secretariat assists with most disputes, but for trade remedies cases the Rules Division is in charge. With its focus on these issues, the staff of the Rules Division has developed special expertise and a deep understanding of the political and policy debates.
Similar expertise would be helpful at the appellate level. Jennifer Hillman has proposed a special Appellate Body just for trade remedies, or additional Members with trade remedy expertise, which is one way to achieve this goal. But if two separate Appellate Bodies is too much of a change for WTO Members to accept, it may be possible to accomplish the objective by setting up a separate section of the Appellate Body Secretariat that is staffed with trade remedy experts. In this way, the Legal Affairs/Rules split on panel assistance could be replicated at the appellate level.
The Balance Between the "Legislative" and "Judicial" Functions
One of the major topics of discussion during the Appellate Body appointment crisis has been the role of WTO Members in overseeing the dispute settlement process. One of the Walker Principles proposals is for "a mechanism for regular dialogue between WTO Members and the Appellate Body where Members can express their views on issues, … in a manner unrelated to the adoption of particular reports." Such a process could be helpful, but is not likely to satisfy the United States. In the past, the United States (in a joint proposal with Chile) went much further on "Member control," suggesting the "partial adoption" of reports: "the DSB may by consensus decide not to adopt a finding in the report or the basic rationale behind a finding." This proposal was met with resistance, but perhaps there is a variation that might work.
WTO Agreement Article IX, on "Decision-Making," provides the following in paragraph 2: "The Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements. … The decision to adopt an interpretation shall be taken by a three-fourths majority of the Members." This provision has never been used, which is not surprising given the difficulty of getting a three-fourths majority to support a particular interpretation. But it could play a role in addressing issues related to reasoning in dispute settlement reports.
Rather than have partial adoption of a panel or Appellate Body ruling, as suggested by the United States and Chile, parties to the dispute could identify reasoning in a report that they found problematic. Identifying this reasoning would not have any impact on adoption or implementation of the findings in the particular case. Instead, it would trigger a process of discussion for an Article IX:2 interpretation. Achieving such an interpretation would be a challenge, and cannot be expected to happen easily. However, in the meantime, the amended DSU would state explicitly that the particular reasoning that was identified as being of concern would not serve as persuasive authority for future disputes.
Conclusion
I have tried to come up with a balance that I think would satisfy a future U.S. administration and also be acceptable to the rest of the world. It's not necessarily the balance I would prefer, but I see how it might work as a compromise. Feel free to offer alternatives. It would be great if people with different perspectives could put ideas out there. If we want to get the Appellate Body up and running again, we need to be thinking about what sort of compromise might work.
