Appeal by other Means: The European Union and other WTO Members Search for Alternatives to the Organization’s Paralyzed Appellate Body

Joseph Lordi

Vol. 41 Associate Editor

On January 24, 2020, in Davos, Switzerland, the European Union, and 16 other WTO Member States declared their intent to establish a multi-party interim appeal arrangement in wake of the current WTO Appellate Body paralysis.[1] This interim appeal arrangement will be based on Article 25 of the WTO Dispute Settlement Understanding (DSU), which provides for alternative arbitration for WTO disputes.[2] According to the parties involved, the interim appeal arrangement will be in place until a reformed Appellate Body becomes fully operational.[3] While this strategy poses certain limitations, it does provide a temporary solution while WTO parties attempt to determine the reforms necessary to restore the Appellate Body. However, critical to this strategy is the WTO parties’ ability to reach a timely consensus on reform. For approximately two years, the United States has blocked the appointment of new judges to the WTO’s Appellate Body in an attempt to force reform of the WTO’s dispute settlement process.[4] This tactic reached a critical stage on December 10, 2019 when the terms of two of the three remaining Appellate Body members expired and the Appellate Body lost the necessary quorum to hear appeals.[5] As a consequence, members which lose at the panel phase of the dispute settlement process can exercise their right to appeal and prevent a final resolution to the trade dispute.[6] Article 25 of the DSU provides for “expeditious arbitration within the WTO as an alternative means of dispute settlement [to] facilitate the solution of certain disputes.”[7] The European Union and other WTO members are using this provision to develop a plurilateral general arbitration agreement which would provide a means of appealing panel decisions while the Appellate Body is paralyzed. For this alternative process to be effective, certain aspects are necessary. First, the parties must determine the procedures for this alternative appeals process in the initial plurilateral agreement.[8] Outlining procedural matters at the outset would prevent members from setting up procedures favorable to their specific trade disputes. Second, the agreement must be designed to prevent individual members from paralyzing the system similar to how the United States paralyzed the Appellate Body.[9] Third, the agreement should be confined to the appellate process.[10] If the plurilateral agreement extends to the initial panel phase, then this agreement begins to look more like an total alternative to the WTO dispute settlement system. This poses several problems. Specifically, an alternative dispute settlement system with only a portion of the WTO members is unsustainable. More broadly, an alternative system would undermine the WTO and runs counter to restoring the WTO’s dispute settlement system, which should be the ultimate goal. The greatest concern with this alternative appeals process is the uncertainty it creates. It would be a new and untested process and no one can be certain whether contesting parties will necessarily abide by its decisions.[11] Aggravating this uncertainty, the United States is unlikely to enter into such a plurilateral agreement.[12] The US has been one of the WTO’s most active members and its absence will limit the appeals process’s utility in resolving key trade issues.[13] For example, US tariffs are at the heart of a trade issue concerning the scope of the Article XXI Security Exception.[14] The alternative appellate process will be most successful as long as it is understood as an interim measure. The broader goal must be to restore the WTO Appellate Body’s ability to adjudicate trade disputes. There are two possible ways this could be achieved. The first is through a change in United States policy toward the WTO. The United States’ block of Appellate Body judges is a policy unique to the current Trump administration and it’s unclear whether this strategy would be sustained by future US leaders. The second possibility is through reforming the WTO to the extent acceptable to the United State so that they remove their block. The United States’ complaints toward the WTO Appellate Body are centered on the contention that the body has overstepped its mandate in the Dispute Settlement Understanding.[15] According to the US, the Appellate Body has reversed factual findings of panel reports and created new obligations or reinterpreted existing obligations.[16] The United States also criticized the Appellate Body for judicial overreach and its frequent failure to produce reports in a timely manner.[17] There have been several reform proposals, however, none have been proven successful in convincing the US to remove their block. The EU proposed reforms that would require the Appellate Body to consult with the involved parties if it anticipates to exceed the 90-day deadline, to limit the body’s findings to those necessary for the resolution of the dispute, and to limit Appellate Body members to one, longer term.[18] The US rejected this proposal, arguing that it fails to effectively address the concerns it has outlined.[19] It is critical to the effectiveness of the interim appeals process that a compromise on WTO reform is reached; the alternative process can only be used temporarily. The longer WTO dispute resolution relies on alternative or interim measures, the more likely it is that such measure will be proven ineffective to resolve trade disputes and provide understanding on legal questions such as the scope of the Article XXI Security Exception. WTO members will have an opportunity to find a compromise at the upcoming Ministerial Conference in June.[20]

[1] European Commission Press Release IP/20/113, Trade: EU and 16 WTO Members Agree to Work Together on an Interim Appeal Arbitration Arrangement (Jan. 24, 2020). [2] Understanding on Rules and Procedures Governing the Settlement of Disputes art. 25, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU]. [3] European Commission supra note 1. [4] Keith Johnson, How Trump May Finally Kill the WTO, Foreign Policy (Dec. 9, 2019, 9:58 AM), https://foreignpolicy.com/2019/12/09/trump-may-kill-wto-finally-appellate-body-world-trade-organization/. [5] William Reinsch, Ongoing Goings On: A News Update on WTO, Ctr. for Strategic & Int’l Stud. (Jan. 31, 2020), https://www.csis.org/analysis/ongoing-goings-news-update-wto-0. [6] Id. [7] DSU art. 25. [8] William Reinsch, Article 25: An Effective Way to Avert the WTO Crisis?, Ctr. For Strategic & Int’l Stud. (Jan. 24, 2019), https://www.csis.org/analysis/article-25-effective-way-avert-wto-crisis. [9] Id. [10] Id. [11] Id. [12] The United States is preventing appointment of new judges to the WTO’s Appellate Body in an attempt to enforce WTO reform. It’s unlikely to accept an alternative appellate process unless it addresses the issues the United States has with the current system. [13] Reinsch supra note 8. [14] Charlene Barshefsky et. al., WTO Issues Groundbreaking Decision on GATT National Security Exception, WilmerHaler (April 9, 2019), https://www.wilmerhale.com/en/insights/client-alerts/20190409-wto-issues-groundbreaking-decision-on-gatt-national-security-exception. [15] Ambassador Dennis Shea, Statement at the WTO General Council on Selection of New Appellate Body Members (May 8, 2018) (transcript available at https://geneva.usmission.gov/2018/05/08/ambassador-dennis-sheas-statement-at-the-wto-general-council/). [16] Id. [17] Id. [18] General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico to the General Council, WTO Doc. WT/GC/W/752 (Dec. 12, 2018). [19] Reinsch supra note 8. [20] WTO, Twelfth WTO Ministerial Conference, https://www.wto.org/english/thewto_e/minist_e/mc12_e/mc12_e.htm (last visited Feb. 4, 2020). The views expressed in this post represent the views of the post’s author only.