The Role of the European Union in the Dissolution of the Appellate Body Crisis

Vivian Daniele Rocha Gabriel

Vol. 40 Guest Editor

One of the most considerable challenges for the survival of the World Trade Organization (WTO) is the requirement imposed by its charter that it have at least three Appellate Body members to analyze an appeal.[1]  The United States has been blocking new nominations to the Appellate Body, compromising the WTO’s ability to settle disputes.[2]  The situation will become critical in December 2019.[3]   At the time, there will be fewer than three members in the Appellate Body, and if no action is taken until the end of 2019, the Appellate Body of the WTO will be doomed. Because of this, the European Union decided to propose emergency changes. On July 5, 2018, the European Commission published a position paper launching several proposals to modernize the WTO and one of those addresses solutions to the Appellate Body’s nomination crisis.[4] The American Complaint Since 2016 the U.S. has been making efforts to review the Appellate Body’s procedures, and it has developed a number of criticisms that it asserts must be resolved before it can support the selection of new Appellate Body members.[5]  The first criticism is related to the authorizations given to former judges finishing their dispute settlement reports even after the end of their mandates.[6]  For the U.S. this de facto prorogation of judges’ terms violates the current rules prohibiting an extension of judges’ mandates. Another criticism lies in the Appellate Body’s lack of adherence to deadlines for analyzing appeals. According to article 17.5 of the Dispute Settlement Understanding (DSU), the judges have 90 days to analyze appeals. However, the U.S. notes that the Appellate Body has been ignoring this period of time and has authorized judges to spend as much time as they believe is necessary for analyzing individual appeals.[7]  Besides that, in the last few years, the Appellate Body has refused to fulfill the requirement of presenting an estimate, within 60 days of beginning a case, of when it will finish the report if not within the period of 90 days.[8] The U.S. also attacks the institution’s judicial activism and its creation of new obligations for WTO members.[9]  Articles 7.1, 11, and 19.1 of the DSU allow both the panels and the Appellate Body to analyze any issue that helps in the settlement of the dispute. But, according to the U.S., the Appellate Body reports have exceeded their intended scope, handling unnecessary legal issues and encompassing topics that will not properly resolve the dispute in some cases or covering material unaddressed by the Panel (prohibited by DSU article 17.6) or unappealed by the parties in other cases – creating what courts in the United States would consider dicta.[10]  These overly broad opinions just add to the problems of delays in the reports´ conclusion and the extended terms of judges who are at the end of their mandates.[11] The last disagreement is with the Appellate Body’s ability to create precedent at all, something without legal justification in the WTO rules, according to the U.S. The increase or decrease of rights and obligations provided in the WTO agreements through Appellate Body decisions allows the institution to act in a legislative function.  However, these decisions cannot replace or modify the text of the agreements, which are the necessary tools for this.[12] European Union Proposals Focused on dismissing the American criticisms, the EU has tried to rebut all arguments.  First, the EU proposes increasing the number of Appellate Body judges from seven to nine[13] to improve the Appellate Body´s efficiency and the geographical representation of the institution.[14]  Another proposal is to split the organ into three independent divisions, each with three full-time members to analyze appeals anytime.[15]  Moreover, each judge’s mandate would be for a single term of between six and eight years, compared to the four-year term, with one potential re-appointment, that each has currently.[16] Additionally, the EU proposes transition rules for members who are almost finished with their mandates. If a member is at the end of his mandate, he can only keep working on those pending reports for which he had a hearing while his mandate was still in force.[17] Concerning the Appellate Body’s supposed violation of art. 17.5 of the DSU, the EU proposes an amendment prohibiting the extent of the proceedings beyond 90 days, except if the parties agreed to the contrary.[18]  As part of this process, the Appellate Body shall analyze before the appeal proceedings whether the case is complex enough to be extended for more than 90 days, and it shall have a hearing with the parties to consider their opinions.[19]  If there is no consensus between the parties about the length of the proceedings, then the Appellate Body will adapt the proceedings to comply with the 90-day deadline.[20]  For example, the Appellate Body could propose that the parties use a page limit for their submissions and could set the language of the appeal, since it is time consuming to translate proceeding documents into all the official languages of the organization.[21] The EU also suggests modifying art. 17.12 of the DSU, which provides that the Appellate Body “shall address each of the issues raised” on appeal.[22]  The EU’s amendment would specify that issues not raised in the appeal could be examined only “to the extent this is necessary for the resolution of the dispute.” Indirectly, by keeping the panel focused on a narrower set of issues, this could also resolve the U.S.’s concern about the Appellate Body meeting its 90-day decision deadline.[23] Another suggestion is a new provision in the DSU requiring that legal interpretations developed by the Appellate Body will not include interpretations of domestic policies,[24] even though they must be included in the parties’ submissions to the WTO when a party argues some inconsistency between the other party’s domestic policy and the WTO rules.[25]  The EU also encourages more communication between Appellate Body members and WTO members through annual meetings to enable WTO members to express their views, questioning precedents and developments of the case-law simultaneously as the reports are adopted. Conclusions As EU Trade Commissioner Cecilia Malmstrom pointed out, “it’s high time to act to make the system able to address challenges of [] today’s global economy and work for everyone again. And the EU must take a lead role in that.”[26]  The EU’s proposals were drafted with the intention of being pragmatic rather than just abstract. At the 2018 WTO Forum, an annual event held in October and open to civil society, the U.S. Deputy United States Trade Representative and Chief of Mission in Geneva Dennis Shea stated that the U.S. could not accept EU ideas to reform the WTO’s Appellate Body.[27] The Appellate Body’s criticized judicial activism, non-compliance with the 90-day deadline for the completion of its reports, and the extension of judges’ mandates after the end of their terms makes it appear that exceptions are becoming unwritten rules. The best solution, based on the U.S complaint, is changing the rules. Though the U.S. rejected the EU’s proposal, adapting the rules to practice, extending the deadline for issuing the Appellate Body’s reports in general, and applying a transition rule for retiring members are the most remarkable features of the European proposal and should be supported by all members. From my point of view, the EU proposal will at least have a palliative effect while states collaborate on the nomination process, taking into account that the enlargement of the number of members or the length of their mandates.

[1] Council of European Union, WTO – EU´s Proposals on WTO Modernization (2018), http://src.bna.com/Aoe (last visited Oct. 08, 2018). [2] Id. [3] Id. [4] Id. [5] Rule 15 of the Working Procedures for Appellate Review. [6] According to the President´s Trade Policy Agenda 2018: “Recent decisions by the Appellate Body to, in its words, “authorize” a person who is no longer a member of the Appellate Body to continue hearing appeals created a number of very serious concerns, which the United States has expressed.” Cf. U.S. Trade Representative, The President´s 2018 Trade Policy Agenda, 25 (2018). [7] U.S. Mission, Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 10 (2018), https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun22.DSB_.Stmt_.as-delivered.fin_.public.rev_.pdf (last visited Oct. 11, 2018). [8] U.S. Trade Representative, The President´s 2018 Trade Policy Agenda, 24-25 (2018). [9] Marina Foltea, Options for Breaking the WTO Appellate Body Deadlock, International Centre for Trade and Sustainable Development: Opinion (Oct. 11, 2018), https://www.ictsd.org/opinion/options-for-breaking-the-wto-appellate-body-deadlock. [10] U.S. Trade Representative, The President´s 2018 Trade Policy Agenda, 27 (2018). [11] According to the President´s 2018 Trade Policy Agenda, in 2016, in the case Argentina – Measures Relating to Trade in Goods and Services (DS 453), more than two thirds of the Appellation Body analysis – 46 pages – had the obter dicta nature (in other words, a needless nature). The Appellate Body reversed the panel´s decision and extensively inferred several provisions of the General Agreement on Trade and Services (GATS). The United States asserts that these interpretations do not have any purpose in settling the dispute. Cf. U.S. Trade Representative, The President´s 2018 Trade Policy Agenda, 27 (2018). [12] Council of European Union, WTO – EU´s Proposals on WTO Modernization (2018), http://src.bna.com/Aoe (last visited Oct. 08, 2018). [13] Id. [14] Id. [15] Id. [16] European Commission – Press Release, European Commission Presents Comprehensive Approach for the Modernisation of the World Trade Organisation (Sep. 18, 2018), http://europa.eu/rapid/press-release_IP-18-5786_en.htm. [17] Id. [18] It is important to highlight that these amendments may be done through the procedure set forth in art. X: 8 of the Marrakesh Agreement, which provides that the decision on the amendment should be taken by consensus and the amendments will come into force after approval by the Ministerial Conference. Between one and another Ministerial Conference the amendments may be approved by the General Council, according to art. IV: 2 of the Marrakesh Agreement. [19] Council of European Union, WTO – EU´s Proposals on WTO Modernization (2018), http://src.bna.com/Aoe (last visited Oct. 08, 2018). [20] Id. [21] Id. [22] Id. [23] Id. [24] Id. [25] Council of European Union, WTO – EU´s Proposals on WTO Modernization (2018), http://src.bna.com/Aoe (last visited Oct. 08, 2018). [26] European Commission – Press Release, European Commission Presents Comprehensive Approach for the Modernisation of the World Trade Organisation (Sep. 18, 2018), http://europa.eu/rapid/press-release_IP-18-5786_en.htm. [27] Euractiv, US Says It Cannot Support Some of EU’s Ideas for WTO Reform (Oct. 05, 2018), https://www.euractiv.com/section/economy-jobs/news/us-says-it-cannot-support-some-of-eus-ideas-for-wto-reform. The views expressed in this post represent the views of the post’s author only.