The "cogent reasons" standard set out by the Appellate Body in U.S. - Stainless Steel (Mexico) (see paras. 154-162) has come under a great deal of criticism. But I think it's worth taking into account what the Appellate Body was hearing from the participants to the appeal (this comes from the summary of the participants' arguments -- it would be nice to see the full submissions, but most of these are not online. The U.S. appellee submission is here).
Here is Mexico, the appellant:
19. Finally, Mexico argues that the Panel acted inconsistently with Article 11 of the DSU by refusing to follow Appellate Body reports adopted by the DSB that address identical issues with respect to the same party—the United States. More specifically, Mexico asserts that, by making findings and reaching conclusions that are "identical" to those that have already been rejected or reversed by previous Appellate Body reports adopted by the DSB, the Panel has failed to comply with its duty under Article 11 of the DSU to assist the DSB in discharging its responsibilities under the DSU.45
20. Mexico acknowledges that, in the WTO dispute settlement system, a panel is generally not bound by previous Appellate Body findings or conclusions. However, quoting the Appellate Body Report in US – Oil Country Tubular Goods Sunset Reviews, Mexico asserts that "following the Appellate Body's conclusions in earlier disputes is not only appropriate, but is what would be expected from panels [...] where the issues are the same."46
21. Furthermore, Mexico emphasizes that a panel's duties under Article 11 are underpinned by Articles 3.2 and 3.3 of the DSU, which establish that the dispute settlement system is "a central element in providing security and predictability to the multilateral trading system", and that the "prompt settlement of situations", in which a Member considers that any benefits accruing to it are being impaired by measures taken by another Member, is "essential to the effective functioning of the WTO".47 Mexico suggests that the Panel's failure to follow established Appellate Body precedent has forced it to appeal findings and conclusions of the Panel that are identical to those that have already been overturned by the Appellate Body in previous disputes that involved the same measures and the same responding party. According to Mexico, this is inconsistent with the Panel's function to assist the DSB in discharging its responsibilities under the DSU because it interferes with the prompt settlement of this dispute, thereby frustrating the effective functioning of the WTO dispute settlement system and undermining its security and predictability. The Panel's failure to follow previous Appellate Body reports, if left uncorrected, would diminish Mexico's rights under the covered agreements relative to other WTO Members.
Here is the U.S. response as appellee:
38. The United States disagrees with Mexico that the Panel failed to fulfil its responsibilities under Article 11 of the DSU by not adhering to previous Appellate Body findings. The United States refers to the Appellate Body Report in Japan – Alcoholic Beverages II, stating that adopted reports "are not binding, except with respect to resolving the particular dispute between the parties".80 In the case before it, the Panel "carefully considered and took into account the Appellate Body's previous rulings on zeroing and explained in detail why it did not believe they should apply in this case."81 In the view of the United States, "treat[ing] DSB rulings as fully binding and definitive, even in a situation where experts have openly and cogently disagreed, would only undermine the legitimacy of the system".82
(Note the word "cogently" here.)
And here are the third participant views:
Chile:
41. Chile notes that this appeal raises the critical questions of whether panels are required to follow previously adopted Appellate Body reports addressing the same issue, and whether the Appellate Body should follow its own prior interpretation when reviewing a panel report that disregards that interpretation. Chile suggests that the Appellate Body should exercise caution in relation to Mexico's claim that the Panel violated Article 11 of the DSU by not following previous Appellate Body findings on the same issue covered in this dispute. Chile agrees with Mexico that the Panel's conclusions undermine the security and predictability of the multilateral trading system and, if upheld by the Appellate Body, would prejudice Mexico in relation to other WTO Members. Nevertheless, the Panel's findings cannot be considered a failure to conduct an objective assessment of the matter pursuant to Article 11 of the DSU. Chile stresses that the Appellate Body itself has only suggested that it would be "appropriate" and is "expected"86 that panels follow previous Appellate Body findings, but has not found that they are bound to do so.
EU:
51. The European Communities argues that the Panel erred by not following previous Appellate Body findings on the same issues of law and legal interpretations involved in this dispute. In so doing, the Panel attributed to previous Appellate Body findings that have been adopted by the DSB the same legal significance as it attributed to previous panel findings that have been reversed by the Appellate Body. This subverts the hierarchical structure provided in the DSU, which confers to the Appellate Body the "final say"106 on issues of law and legal interpretations developed by a panel. For the European Communities, panels are not only "expected" to follow Appellate Body conclusions in earlier disputes, "especially where the issues are the same"107, but are also "de jure" 108 obliged to follow the findings of the Appellate Body where the Appellate Body has interpreted the same legal questions. This is consistent with the need to provide security and predictability to the multilateral trading system, as well as the need for prompt settlement of disputes. Moreover, the Panel's view on the value of precedent defeats the object and purpose of the appeal mechanism provided in the DSU, because panels would be entitled to examine all legal issues "afresh"109 in every dispute. The European Communities suggests that, in performing its treaty interpretation task under the DSU, the Appellate Body seeks to ascertain the common intent of all WTO Members in relation to the provisions of the covered agreements. For this reason, the Appellate Body's interpretation "necessarily transcends the particular facts of one case, and is not confined to the Members who are parties to a particular dispute."110 A rule whereby panels must follow Appellate Body findings on legal questions would not prevent panels from departing from earlier decisions, provided there are "cogent reasons"111 for doing so. In this dispute, however, such departure on the part of the Panel was not justified, because it was grounded solely on the Panel's disagreement with previous Appellate Body findings. While panelists might not always agree with the findings of the Appellate Body on particular legal issues, the role of the Appellate Body is "to definitively settle such disagreements over points of law".112 Therefore, the Appellate Body should reaffirm that all panels are not only expected, but are "obliged"113 to follow its findings in relation to the issue of zeroing.
Japan:
58. Finally, Japan submits that the Panel's refusal to follow previous Appellate Body reports addressing "exactly the same measures and claims"130 amounts to a failure to conduct an objective assessment of the matter as required by Article 11 of the DSU. The adoption of Appellate Body reports by the DSB creates "legitimate expectations among WTO Members"131, and reflects a clarification of all WTO Members' rights and obligations with respect to the matter addressed in those reports. By setting aside adopted Appellate Body findings on the same matter, the Panel "d[id] not bring the required degree of objectivity to its work, substituting its subjective assessment of the matter for one that carries the approval of the DSB."132 In addition, Japan asserts that the Panel's assessment of the matter compromised the objectives of the WTO dispute settlement system under Articles 3.2, 3.3, and 3.7 of the DSU, because it "introduce[d] uncertainty and unpredictability into the law, disturbing the stability of the rules-based system"133, and prevented the prompt resolution of this dispute.
Thailand:
59. Thailand agrees with Mexico that the Panel erred in finding that simple zeroing in periodic reviews is not inconsistent with Articles VI:1 and VI:2 of the GATT 1994 and Articles 2.1, 2.4, and 9.3 of the Anti-Dumping Agreement. Thailand also submits that the Panel's failure to follow previous Appellate Body findings on the issue of zeroing raises systemic concerns in relation to the functioning and credibility of the WTO dispute settlement system. Although strictly speaking not binding, previous Appellate Body findings "create legitimate expectations among WTO Members"134, and therefore panels are "expected" to follow previous Appellate Body conclusions, "especially when the issues are the same".135 Thailand emphasizes that a panel's failure to observe the hierarchy between panels and the Appellate Body, especially where the Appellate Body has repeatedly decided on the same issue, impairs the effective functioning of the WTO dispute settlement system, and undermines its security and predictability. Moreover, if WTO Members cannot be reasonably confident that the decisions of panels will be consistent with the jurisprudence of the Appellate Body, they "will begin to see the dispute settlement process as requiring both panel and Appellate Body proceedings in order to obtain an objective assessment of the matter at issue."136 According to Thailand, "[t]his will increase the costs of using the system and decrease the efficiency of the system in promptly resolving disputes between Members"137 and discourage participation by developing country Members.138
In the face of these views from the participants, the Appellate Body had to say something about the issue. For those who don't like what the Appellate Body did say, I'd be curious to hear what they would have wanted the Appellate Body to say instead.
ADDED:
This is from the U.S. appellee submission:
11. The United States fully recognizes that the reversal by any judicial body of an earlier ruling is a serious matter, and that it is not something to be done lightly. However, even in common law systems, where the doctrine of stare decisis applies, rulings can be overturned in exceptional circumstances.9 ...
9 Japan – Alcohol (AB), p. 14 (rejecting the application of “aim and effect” test adopted by earlier GATT 1947 panel to Article III of GATT 1994). Accordingly, there is even more flexibility to depart from an earlier finding if the Appellate Body concludes that a mistake was made. In contrast, Mexico’s proposed approach, which would treat DSB rulings as fully binding and definitive, even in a situation where experts have openly and cogently disagreed, would only undermine the legitimacy of the system and this Body’s credibility.
I can see how the Appellate Body would take this to mean that a system of "fully binding and definitive" prior rulings was unacceptable to the United States, but that the United States would be OK with a standard under which departing from past rulings could occur where there were "cogent" reasons.
