The Appellate Body Of The WTO And Its Reform 9811502544, 9789811502545, 9789811502552

Table of contents :
Preface......Page 5
Contents......Page 6
Editors and Contributors......Page 8
The AB in the WTO Governance and Its Reform—Broader Perspectives......Page 11
1 From Being the Jewel in the Crown to Encountering a Survival Crisis......Page 12
2 Polishing the Jewel from Broader Perspectives on Governance and Reform Issues......Page 14
3 Polishing the Jewel by Addressing the Basic Function of the Appellate Body......Page 16
4 Identifying Options to Let the Jewel Shine Again......Page 18
2 Between “Member-Driven Governance” and “Judicialization”: Constitutional and Judicial Dilemmas in the World Trading System......Page 23
1 Introduction: “Rule of Law” in Transnational Economic Relations?......Page 24
2 “Member-Driven” WTO Governance and Its Constitutional Limits......Page 27
2.1 Illegal US Blocking of the Filling of AB Vacancies in Violation of the DSU......Page 28
2.2 US Failure to Legally Justify Its “Blocking Strategy”......Page 30
2.3 “Constitutional Limits” of “Member-Driven WTO Governance”?......Page 33
3 Need for Distinguishing Political, Administrative and Judicial Functions of “Member-Driven” WTO Governance......Page 36
3.2 Different WTO Administrative and Judicial Decision-Making Procedures......Page 37
4.1 US Unwillingness to Resolve the AB Crisis Through DSU Reforms......Page 39
4.3 Administrative Majority Voting on the Filling of the AB Vacancies?......Page 41
5 Outlook: The Limits of “Judicialization” and “Public Reason”......Page 43
5.1 The Systemic Conflicts Caused by the US Trade Wars Test the Limits of “Judicialization”......Page 45
5.2 Can Ordo-Liberal WTO Reforms Avoid a Power-Oriented Fragmentation of the WTO Legal System?......Page 46
References......Page 48
1 Is the WTO Appellate Body an International Trade Court?......Page 50
2 Automaticity of Decision-Making......Page 51
3 Compulsory Jurisdiction......Page 52
4 Concern for Judicial Activism......Page 54
5 Need for Stable and Effective Dispute Settlement Mechanism......Page 55
6 Checks and Balances......Page 56
7 Different Forms of Dispute Settlement Mechanism......Page 57
8 Conclusion......Page 58
References......Page 59
4 The AB Crisis as Symptomatic of the WTO’s Foundational Defects or: How I Learned to Stop Worrying and Love the AB......Page 60
1 Introduction......Page 61
2 As an Initial Matter—The WTO’s AB Is not at Fault......Page 63
3 The Faults Lie Within the WTO......Page 67
4 Conclusions......Page 70
References......Page 72
1 Introduction......Page 73
2 Dispute Settlement in the GATT Years......Page 74
3.1 Institutional Changes......Page 75
3.2 Systemic Importance of the AB in the WTO System: Contractarian Versus Constitutional Views......Page 79
3.3 Failure of the WTO’s Legislative Arm......Page 80
3.4 Summary......Page 83
4.1 General Criticism Against the WTO......Page 84
4.2 Specific Criticism by the US Concerning the Role of the AB and WTO Members’ Responses......Page 86
References......Page 91
1 Introduction......Page 97
2 The Crisis in Context and the US Justification......Page 99
3 The “Exclusive Authority to Adopt Interpretations” in the WTO Framework......Page 100
4 Judicial Overreach and the Crisis in the Making......Page 103
5 Maintaining Negotiated Balance and Restoring State-Centric Nature of the WTO......Page 105
5.1 Legitimizing DSB Interpretation and Reexamining Consensus Decision-Making Practice at the General Council......Page 106
5.2 Providing Systemic Checks and Balances......Page 108
6 Conclusion......Page 109
References......Page 111
Reforms in Relation to the Basic Functions of the AB......Page 114
1 Mismatch Thesis......Page 115
2.1 Not Merely a Trumpian Phenomenon......Page 116
2.2 “Judicial Activism” and Its Two Elements......Page 117
3.1 DSU Reform Ideas......Page 120
3.2 Mismatch Between EU Proposals and “Judicial Activism” Elements......Page 121
3.3 Mismatch Between Canadian Proposals and “Judicial Activism” Elements......Page 124
4 Concluding Observations About Textual Interpretation and Stare Decisis......Page 125
References......Page 126
1 Introduction......Page 128
2.1 The Power-Oriented Feature of GATT 1947......Page 130
2.2 “Collective Parties-Driven” Versus “Single-Party-Driven”......Page 131
2.3 The Assisting Role of the Dispute Settlement Panel......Page 132
3.1 The Rule-Based Features Under the WTO Dispute Settlement......Page 133
3.2 The “Collective Members-Driven” Idea Is Emphasized, but Some “Single-Member-Driven” Elements Are Still Seen......Page 135
3.3 The Appellate Body’s Mixed Roles of Assisting WTO Members and as an Adjudicator......Page 136
4.1 The Imbalance—Ignoring Members-Driven Nature Leading to Undesirable Judicial Activism......Page 137
4.2 A Rebalance—The Adjudicating Role to Assure Constitutionalism for Fundamental Values Vs. the Assisting Role for Other Issues to Maintain “Members-Driven” Nature......Page 139
5 Concluding Remarks—Careful Exercise of Judicial Activism......Page 140
References......Page 141
9 The Judicial Style of the Appellate Body......Page 143
1 Introduction......Page 144
2 What is Style?......Page 145
3 The Appellate Body’s Style......Page 150
4.1 The Appellate Body’s Nature as an International Tribunal......Page 156
4.2 Language......Page 158
4.3 Common Law or Civil Law Styles......Page 159
4.4 Collegiality......Page 162
4.5 The Importance of Candour......Page 163
4.6 Personality......Page 164
5 Conclusion......Page 165
References......Page 166
1 Introduction......Page 168
2 Seven Errors in the Criticisms by the United States of the Appellate Body’s Interpretative Approach......Page 169
2.1 First Error: The Exclusive Authority of WTO Members to Adopt Authoritative Interpretations......Page 170
2.2 Second Error: Analogy to a Common Law System......Page 172
2.3 Third Error: Customary Rules of Interpretation of Public International Law......Page 173
2.4 Fourth Error: Departure from the Appellate Body’s Own Approach......Page 175
2.5 Fifth Error: Objective Assessment by Panels......Page 177
2.6 Sixth Error: Hierarchical Structure in the WTO Dispute Settlement System......Page 179
2.7 Seventh Error: Support by Other Members......Page 181
3 Conclusion......Page 182
References......Page 183
11 Judicial Economy and Advisory Opinions of the Appellate Body–Potential Reform of Article 17.12 of the DSU......Page 185
1.1 Concerns Raised by the United States that are Relevant to Reform of Article 17.12 DSU......Page 186
1.2 The Problem of Advisory Opinions Stated in the Report by the Appellate Body......Page 187
2.1 Judicial Economy as a Tool to Reduce Advisory Opinions......Page 188
2.2 Judicial Economy Under Article 17.12 of the DSU......Page 189
3 The Appellate Body’s Adoption of Judicial Economy......Page 190
4.1 The Goals for the Article 17.12 DSU Reform......Page 193
4.2 EU Proposal......Page 195
4.3 The Reform Proposal......Page 196
References......Page 197
12 The Use of Panel Process to Improve the Function of the Appellate Body: A Proposal to Utilize the Expert Review Group......Page 199
1 Introduction......Page 200
2.1 Options Already Proposed......Page 201
2.2 Viability of Proposals Involving Amendment to the DSU......Page 202
3.2 Looking Upside Down: Using Panel Process to Incorporate the Thrust of Functions of the AB......Page 205
4 Conclusions......Page 209
References......Page 210
Options to Address the Crisis and Wider Implications Beyond the WTO......Page 212
1 Disruptive Construction: The U.S. Criticisms......Page 213
2 A System of Precedents?......Page 217
2.1 Common Law System?......Page 218
2.2 System of Precedents......Page 222
3 Prohibition of Obiter Dicta or Advisory Opinion?......Page 227
4 Disruptive Construction or Constructive Destruction?......Page 230
References......Page 234
1 Introduction......Page 237
2 The U.S. Position and Interests......Page 238
3.1 Option 1: At Least Two Members of AB Should be Appointed......Page 242
3.2 Option 2: Use of FTA Dispute Resolution Forum......Page 243
3.3 Option 3: Use of Good Offices, Conciliation and Mediation in WTO and FTA......Page 244
3.4 Option 4: Interim Appeal Through Arbitration Under WTO......Page 245
3.5 Alternative: Use of a Forum Outside WTO......Page 248
References......Page 250
15 Appointment and Reappointment of the Appellate Body Members: Judiciary or Politics......Page 253
1.1 Appointment......Page 255
1.2 Reappointment......Page 258
2 The Distribution of the AB Membership......Page 259
2.1 The Turbulences in 2014–16......Page 261
2.2 The Crisis in 2016–18......Page 264
3 Conclusion......Page 267
References......Page 268
1 The Appellate Body in Theory: A Part-Time Job......Page 270
2 The Appellate Body in Practice: A Full Time Commitment......Page 275
3 Searching for Consensus......Page 281
4 Weighing the Pros and Cons......Page 286
5 Final Remarks......Page 292
References......Page 294
1 Introduction—Appellate Body’s Contribution and Ripple Effect......Page 299
2 International Adjudicative Bodies with Appellate Review Systems......Page 301
2.1 International Courts with Appellate Mechanisms......Page 302
2.2 Other Forms of (Quasi)-appellate Judicial Review......Page 309
2.3 Non-interstate Dispute Settlement Mechanisms......Page 311
2.4 The WTO’s Appellate Body as a Unique Example......Page 316
3.1 Enhancement of Rule of Law......Page 317
3.3 Confidence in a Multilateral Arrangement......Page 319
4.1 Scope of Appeals—Legal Issues Only Versus Both Legal and Factual Issues......Page 320
4.2 Standard of Appellate Review......Page 321
4.3 Remand Issue......Page 322
References......Page 324
1 Introduction......Page 327
2 Historical Proposals......Page 329
3 Institutional Design and Adjudicatory Powers......Page 331
4 Procedural Transparency......Page 335
5 Status and Enforceability of Rulings......Page 338
6 Concluding Remarks......Page 341
References......Page 342

Citation preview

Chang-fa Lo Junji Nakagawa Tsai-fang Chen   Editors

The Appellate Body of the WTO and Its Reform

The Appellate Body of the WTO and Its Reform

Chang-fa Lo Junji Nakagawa Tsai-fang Chen •

•

Editors

The Appellate Body of the WTO and Its Reform

123

Editors Chang-fa Lo Constitutional Court of Taiwan, ROC Taipei, Taiwan

Junji Nakagawa Chuo Gakuin University Tokyo, Japan

Tsai-fang Chen School of Law National Chiao Tung University Hsinchu, Taiwan

ISBN 978-981-15-0254-5 ISBN 978-981-15-0255-2 https://doi.org/10.1007/978-981-15-0255-2

(eBook)

© Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

The Appellate Body of the World Trade Organization (WTO) is in crisis. This not only affects its operation, but also decides its future existence. The reform of the Appellate Body is critical in ensuring the most important component of the WTO. Considering the critical timing and the importance of the issues, we decided to coordinate this book to comprehensively examine the reform of the Appellate Body in light of the current crisis. The book covers various aspects of the crisis and its reform. Some of our contributors address certain fundamental questions of WTO’s governance of dispute settlement. Some contributors discuss the reform from the perspective of the Appellate Body’s functions. Various reform options and wider implications are also proposed by some other contributors. We thank the contributors for sharing their sense of urgency regarding the Appellate Body crisis and for providing various insights regarding the reform of the Appellate Body. Their efforts make this book unique and timely. We also like to thank our editorial assistants, led by Ms. Chia-Ying Chien. With dedication and efficiency, Chia-Ying Chien directed a small but devoted group of assistants from National Taiwan University and National Chiao Tung University to check footnotes, references, and format. They are Xin-Wei Huang, Yi-Chen Yang, Saw Angelique, Li-Ching Tzeng, Chia-Yu Yao, Chi-Hsuan Liu, Yung-Han Yang, Yi-Ting Li, Wei-An Hung, and Yun Jou Kuo. We hope that our works not merely add to the existing discourse of the Appellate Body reform issues, but also provide substantial contributions leading toward the ultimate solution for the crisis. Taipei, Taiwan Tokyo, Japan Hsinchu, Taiwan September 2019

Chang-fa Lo Junji Nakagawa Tsai-fang Chen

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Contents

Part I

The AB in the WTO Governance and Its Reform—Broader Perspectives

1

Introduction: Let the Jewel in the Crown Shine Again . . . . . . . . . . Chang-fa Lo, Junji Nakagawa and Tsai-fang Chen

2

Between “Member-Driven Governance” and “Judicialization”: Constitutional and Judicial Dilemmas in the World Trading System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ernst-Ulrich Petersmann

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Reforming the Appellate Body . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mitsuo Matsushita

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The AB Crisis as Symptomatic of the WTO’s Foundational Defects or: How I Learned to Stop Worrying and Love the AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colin B. Picker

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The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic? . . . . . . . . . . . . . . . . . . . . . . Markus Wagner

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WTO Appellate Body Overreach and the Crisis in the Making: A View from the South . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Rajesh Babu

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Part II 7

3

Reforms in Relation to the Basic Functions of the AB

Why the WTO Adjudicatory Crisis Will Not Be Easily Solved: Defining and Responding to “Judicial Activism” . . . . . . . . . . . . . . 111 Raj Bhala

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A Proper Balance Between WTO’s Members-Driven Nature and the Appellate Body’s Role as an Adjudicator—Careful Exercise of Judicial Activism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Chang-fa Lo

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The Judicial Style of the Appellate Body . . . . . . . . . . . . . . . . . . . . 141 Niall Meagher

10 Interpretative Authority of the Appellate Body: Replies to the Criticism by the United States . . . . . . . . . . . . . . . . . . . . . . . 167 Yuka Fukunaga 11 Judicial Economy and Advisory Opinions of the Appellate Body–Potential Reform of Article 17.12 of the DSU . . . . . . . . . . . . 185 Tsai-fang Chen 12 The Use of Panel Process to Improve the Function of the Appellate Body: A Proposal to Utilize the Expert Review Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Tomohiko Kobayashi Part III

Options to Address the Crisis and Wider Implications Beyond the WTO

13 Disruptive Construction or Constructive Destruction? Reflections on the Appellate Body Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Henry Gao 14 WTO Appellate Body at Cross Roads: Options and Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Rajesh Sharma 15 Appointment and Reappointment of the Appellate Body Members: Judiciary or Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Po-Ching Lee 16 Should Appellate Body Members Work Full Time? . . . . . . . . . . . . 273 Fernando Dias Simões 17 The WTO Appellate Body as a Trailblazer—Facilitation of Appellate Mechanism Discussion in Other International Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 Jaemin Lee 18 WTO AB as a Model for Other Adjudicatory Bodies—The Case of EU’s Investment Court System . . . . . . . . . . . . . . . . . . . . . . . . . . 331 Joanna Lam

Editors and Contributors

About the Editors Chang-fa Lo was Justice of the Constitutional Court of the ROC (Taiwan) between October 2011 and September 2019. Prior to his judicial position, he was Chair Professor and Lifetime Distinguished Professor at National Taiwan University (NTU); Dean of NTU College of Law; Founding Director of the Asian Center for WTO and International Health Law and Policy of NTU College of Law (ACWH); Founding Director of the Center for Ethics, Law and Society in Biomedicine and Technology of NTU; Commissioner of Taiwan’s Fair Trade Commission; Commissioner of Taiwan’s International Trade Commission; and legal advisor for Taiwan’s GATT/WTO accession negotiations. In his capacity as Director of the ACWH, Prof. Lo launched two English journals, namely, the Asian Journal of WTO and International Health Law and Policy (AJWH, an SSCI listed journal) and the Contemporary Asia Arbitration Journal (CAA) in 2006 and 2008, respectively. During his tenure as Dean of NTU College of Law, he also launched the English journal, the NTU Law Review. He was appointed by the WTO as a panelist for the case of DS332 Brazil—Measures Affecting Imports of Retreaded Tyre in 2006, and the case of DS468 Ukraine—Definitive Safeguard Measures on Certain Passenger Cars in 2014, and appointed as a member of the Permanent Group of Experts under the SCM Agreement of WTO in 2008. He was Chairman of the Asia WTO Research Network (AWRN) from 2013 to 2019. Prior to his teaching career, he practiced law in Taipei. He received his S.J.D. degree from Harvard University Law School in 1989. He is the author of 13 books (including “Treaty Interpretation under the Vienna Convention on the Law of Treaties—A New Round of Codification” published by Springer) and the editor of eight books (including this book), and he has authored more than 100 journal papers and book

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chapters. He was granted the “National Professorship Award” by the Ministry of Education and the “Outstanding Scholarship Chair Professorship Award” by the Foundation for Advancement of Outstanding Scholarship. Junji Nakagawa is Professor at the Faculty of Liberal Arts, Chuo Gakuin University, and an Advisor at Anderson, Mori & Tomotsune LLP. He is also a Professor Emeritus of the University of Tokyo. He got B.A., M.A., and LL.D from the University of Tokyo. He has over 40 years’ experience of teaching/research on international economic law. He is Chairperson of the Asian International Economic Law Network (AIELN) and the Asian WTO Research Network (AWRN). He also worked for the Society of International Economic Law (SIEL) as a Member of its Council (2008 to 2018) and a Co-Treasurer (2015 to 2018). His major publications include: Commentary on Trans-Pacific Partnership (TPP), Japan Tariff Association, 2019; International Economic Law, 3rd ed., Yuhikaku, 2019; Nationalization, Natural Resources and International Investment Law, Routledge, 2017; WTO: Beyond Trade Liberalization, Iwanami Shoten, 2013; Transparency in International Trade and Investment Dispute Settlement, Routledge, 2013; and International Harmonization of Economic Regulations, Oxford University Press, 2011. Tsai-fang Chen is Associate Professor of National Chiao Tung University School of Law. His main areas of research are international economic law, international commercial arbitration, international investment law, and patent law. Tsai-fang Chen has obtained his S.J.D. degree in University of Wisconsin Law School, LLM degree at Columbia University School of Law and National Taiwan University, and LLB degree at National Chengchi University. He has worked in Wisconsin Alumni Research Foundation on patent law issues. Tsai-fang Chen has also practiced law at Wu and Partner, Attorneys-at-law, Taipei, Taiwan on antidumping cases. Tsai-fang Chen has lectured in the intensive Course “IP in Asia” in Advanced Master in Intellectual Property Law and Knowledge Management (LLM/M.Sc.), Maastricht University. He has also worked as a consultant to Office of Trade Negotiations, Ministry of Economic Affairs in Taiwan. Tsai-fang Chen has published articles on international economic law in Asian Journal of WTO & International Health Law and Policy and Contemporary Asia Arbitration Journal. Tsai-fang Chen has also published an article on patent law in Wake Forest Intellectual Property Law Journal. Tsai-fang Chen is a member of the Asian Center for WTO & International Health Law and Policy. Tsai-fang Chen is a committee member of the Editorial Committee of the Contemporary Asia Arbitration Journal and the Asian Journal of WTO & International Health Law and Policy.

Contributors Raj Bhala The University of Kansas School of Law, Dentons U.S. LLP, Bloomberg Quint, Lawrence, KS, USA

Editors and Contributors

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Tsai-fang Chen National Chiao Tung University, Hsinchu, Taiwan, ROC Fernando Dias Simões Faculty of Law, Chinese University of Hong Kong, Sha Tin, Hong Kong Yuka Fukunaga Waseda University, Tokyo, Japan Henry Gao School of Law, Singapore Management University, Singapore, Singapore Tomohiko Kobayashi Otaru University of Commerce, Otaru, Japan Joanna Lam Faculty of Law, Centre of Excellence for International Courts (iCourts), University of Copenhagen, Copenhagen, Denmark; Kozminski University, Warsaw, Poland Jaemin Lee School of Law, Seoul National University, Seoul, Korea Po-Ching Lee Permanent Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Geneva, Switzerland Chang-fa Lo Constitutional Court, Taipei City, Taiwan, ROC; Constitutional Court, Taiwan, Republic of China Mitsuo Matsushita Tokyo University, Tokyo, Japan Niall Meagher Advisory Centre, WTO Law (ACWL), Geneva, Switzerland Junji Nakagawa Chuo Gakuin University and Anderson, Mori & Tomotsune LLP, Abiko, Japan Ernst-Ulrich Petersmann European University Institute, Florence, Italy Colin B. Picker University of Wollongong, Wollongong, Australia R. Rajesh Babu Indian Institute of Management Calcutta, Kolkata, India Rajesh Sharma RMIT University, Melbourne, Australia; Xiangtan University Law School, Xiangtan, China; Academy of International Dispute Resolution and Professional Negotiation, Hong Kong, China; Social and Global Studies Centre, Melbourne, Australia; Hong Kong WTO Research Institute, Hong Kong, China Markus Wagner University of Wollongong, Wollongong, NSW, Australia

Part I

The AB in the WTO Governance and Its Reform—Broader Perspectives

Chapter 1

Introduction: Let the Jewel in the Crown Shine Again Chang-fa Lo, Junji Nakagawa and Tsai-fang Chen

Abstract This chapter explains that the dispute settlement system of the WTO and its Appellate Body (AB) used to be considered as the Jewel in the Crown. But now the AB is encountering a survival crisis. There will not be enough AB members to hear an appeal case after 10 December 2019 if the blockage of the appointment of AB members still continues. There are a lot to be done in order to address the concerns of WTO members. This chapter summarizes various approaches and specific reforms proposed by the contributors in their respective chapters. The ultimate purpose is to ensure that the AB will operate properly and the jewel will shine again.

1 From Being the Jewel in the Crown to Encountering a Survival Crisis When the World Trade Organization (hereinafter WTO) was established in 1995, trade negotiators, international political leaders, policymakers, international economic law scholars and practitioners were so pleased to have a promising dispute settlement system created. The system is sophisticated but not overly complicated. Hence, although the Understanding on Rules of Procedures for the Settlement of Disputes (hereinafter DSU) includes 27 detailed articles, the core components of the system (including the panel procedure and the appellate procedure) are clear and straightforward.

C. Lo (B) Constitutional Court, Taipei City, Taiwan, ROC e-mail: [email protected] J. Nakagawa Chuo Gakuin University and Anderson, Mori & Tomotsune LLP, Abiko, Japan e-mail: [email protected] T. Chen National Chiao Tung University, Hsinchu, Taiwan, ROC e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_1

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The system emphasizes on the rules, but not merely the rules. Hence, there are a lot of rule-based aspects in the DSU, such as requiring the interpretation of the WTO agreements based on the customary rules of international law (i.e., the Vienna Convention on the Law of Treaties; hereinafter VCLT) as provided in Article 3.2 of the DSU, and requiring not to add to or diminish the rights and obligations under the WTO agreements as provided in Articles 3.2 and 19.2. But there are also non-rulebased features, such as requiring disputing parties to go through the consultation stage in order to ensure both sides understand each other’s position and have an opportunity to settle their dispute, and providing the good offices, mediation and conciliation mechanisms as alternatives to facilitate the settlement of the disputes. The combination of rules-based and non-rule-based features in the DSU look like a perfect design. WTO Members had very high expectation on this very well-crafted dispute settlement system. During the first ten years of the WTO, the system had performed its excellent work. Because of the high expectation on the dispute settlement system under the WTO and because of its efficient performance, the system was usually referred to as the Jewel in the Crown. In particular, the Appellate Body was the shining focal of the jewel, due to its high-quality work and its professional and authoritative interpretation of the WTO agreements as well as its trustworthy decisions. Some other international dispute settlement systems imitated the DSU or referred to the WTO jurisprudence (which is mainly composed of the views stated in Appellate Body’s reports) as guidance or for inspiration. The Appellate Body enjoyed glory for less than two decades. The situation was gradually changed. The United States started complaining about the system (especially the Appellate Body’s practice) and taking actions to reflect its dissatisfaction. For instance, the Obama administration decided in 2011 not to reappoint Professor Jennifer Hillman (whose term with the Appellate Body was from 2007 until 2011) to serve her second 4-year term as Appellate Body member, and blocked the reappointment of Professor Seung Wha Chang (whose term was from 2012 until 2016) to continue serving as Appellate Body member. The blockage of new Appellate Body members’ appointment continues during the Trump administration. It is approaching to the critical point that after 10 December 2019, there will be fewer than three members to serve on any one appeal case as required by Article 17.1 of the DSU. This would lead to the disruption of the Appellate Body’s function. As a result, the whole dispute settlement system will be vastly disturbed. If both disputing parties in a case decide not to appeal, the panel report will be adopted by the Dispute Settlement Body (as provided by Article 16.4) and hence the case is concluded. But if there is any one of the disputing parties decides to appeal, the case could be pending forever because there will not be enough Appellate Body members to hear the case (if the blockage of the appointment continues), and the dispute can never be resolved. This becomes a serious threat to the existence of the Appellate Body and an imminent crisis to the proper function of the WTO’s dispute settlement system.

1 Introduction: Let the Jewel in the Crown Shine Again

5

In the meantime, many other issues were raised in relation to the roles and works of the Appellate Body. These issues concern some broader problems (such as whether the member-driven idea has been deviated and whether there is an undesirable practice of judicial activism) as well as some specific/technical issues (such as whether an “outgoing” Appellate Body member should be allowed to complete his/her unfinished cases; how to deal with the systemic failure to meet the requirement of not exceeding 90 days (from the date of notifying an appeal) to submit an Appellate Body report as required by Article 17.5 of the DSU; and how to deal with the increased workload of the Appellate Body, among other things). Some of the issues are old ones; some others are newly emerged. WTO Members have conducted intensive discussions on various issues. There has not be a promising outcome. We thought that scholars are obliged to offer our neutral views to be added to the discourse to help find a proper solution and to save the Jewel in the Crown. In this book, we will revisit and elaborate some fundamental aspects of the dispute settlement system of the WTO and, more specifically, the function of the Appellate Body in order to build up the foundation of possible reforms. We will also review some specific issues concerning the operation of the Appellate Body and propose our suggestions from broader perspectives. The ultimate purpose of this book is to help the Jewel in the Crown shine again.

2 Polishing the Jewel from Broader Perspectives on Governance and Reform Issues In Part I of this book, we examine the governance of the WTO, the crisis of the Appellate Body and the overall reform issues. Ernst-Ulrich Petersmann in his Chap. 2 observes that the power-oriented GATT/WTO traditions of “member-driven governance” risk undermining the dispute settlement system of the WTO, its judicial administration of justice and rule of law. Through United States’ blockage of the WTO Appellate Body system, Petersmann explains that the “republican imperative” of protecting public goods (res publica) requires respect for democratic governance, rule of law and judicial remedies. He observes that WTO law limits power politics by judicial remedies and by administrative majority decisions for filling vacancies in WTO institutions (like the Appellate Body) if consensus is arbitrarily vetoed. Such administrative decisions and authoritative interpretations of WTO rules preventing illegal de facto amendments of WTO institutions legitimize “member-driven governance” by protecting rule of law as approved by parliaments when they authorized ratification of the WTO Agreement and delegated limited powers for implementing and reforming—rather than destroying—WTO rules for the benefit of citizens, their equal rights and social welfare. He concludes that the “strategic rivalry” between WTO members indicates the political limits of “judicialization” of international economic law and the need for systemic, “ordo-liberal” reforms of the WTO.

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Mitsuo Matsushita in his Chap. 3 observed that the Appellate Body has been criticized, on the one hand, for exercising “judicial activism” on the one hand, and, on the other hand, for being too literalistic in its interpretation of the WTO agreements. He suggests that this reflects the question of whether the Appellate Body is an international court of trade. After reviewing the judicial features of the Appellate Body, i.e., automaticity of decision-making and compulsory jurisdiction, He examines the United States concern for Appellate Body’s judicial activism and for the Appellate Body’s practice that may adversely affect the sovereignty of WTO Members. He argues that the problem lies at the fact that there is no mechanism for checks and balances in regard to the Appellate Body in the WTO. Accordingly, he reviews several potential institutional reforms that may put some discipline on the Appellate Body, including optional Dispute Settlement Body jurisdiction, reduction of the threshold of the exclusive authority of the Ministerial Conference and the General Council to adopt interpretations, and establishment of an informal peer group to review Appellate Body reports. Colin B. Picker in his Chap. 4 observes that the Appellate Body of the WTO is in crisis as a result of attacks on the Appellate Body’s processes, decisions and approaches brought by the United States. He suggests that if the United States approach is not countered or reversed, this will result in the Appellate Body being unable to operate, effectively permitting WTO rule breaking to go unchecked. Therefore, the very rule of law character of the WTO is consequently under threat. He argues that it is not inconceivable that the demise of the Appellate Body could quickly and all too easily lead to the death or death-like stagnation of the WTO. He suggests that the current concerns about the Appellate Body and the WTO more generally reflect deeper fundamental flaws and disconnects within the WTO and therefore suggests that proposed Appellate Body reforms by some WTO members are too superficial and hence likely irrelevant to the real, inevitable and likely fatal challenges to the WTO. He argues that the crisis therefore is not really the fault of the Appellate Body, neither in its structure, function or outputs, but rather a result of deeper fundamental faults within the WTO. He also suggests that Appellate Body’s behaviours and approaches are entirely consistent with what one would expect from a rule of law Dispute Settlement Body—be it international or domestic. Markus Wagner in his Chap. 5 discusses the current crisis engulfing the multilateral trading system that has crystalized in the dispute over the (re-)appointment of the members of the Appellate Body. He observes that while the legislative arm of the organization has never lived up to its potential, its dispute settlement arm with the Appellate Body at its apex was seen as a lodestar for other international courts and tribunals. He further observes that the United States has taken issue not only with individual decisions of the Appellate Body (as well as individual Appellate Body members), but with the institution as such. He recounts the important institutional redesign that has led to the Appellate Body becoming the WTO’s institutional “centerpiece”. He argues that these very same developments are now destined to lead to the Appellate Body’s downfall with potential reverberations for the entire WTO’s

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dispute settlement process. Moreover, he suggests that it threatens the institution as a whole, unless some last-minute compromise can be found between various competing visions of global economic governance. R. Rajesh Babu in his Chap. 6 discusses the concern for the Appellate Body overreach from the perspectives of the South. He observes that the WTO Appellate Body is facing an existential crisis that threatens to impair the institutional edifice of the entire multilateral trading system. He suggests that the immediate reason for the crisis is the United States blocking of the appointment and reappointment of the Appellate Body members on the ground that the Appellate Body has exhibited a pattern of “judicial over-reaching” by going beyond the strict bounds of permissible interpretation thereby indulging in judicial law-making. He investigates whether these allegations are founded on facts and whether this could be another effort by the United States to dismantle legitimately established multilateral institutions/processes. He argues that while one may concede the United States blockade as largely motivated by self-interest, an analysis of the WTO jurisprudence is replete with occasions where the panels and the Appellate Body have misused their discretion and improperly engaged in creating new WTO rules and procedures through techniques of “filling legal gaps”, “completing the analysis”, or “clarifying ambiguity”. This trend has been viewed by a large section of the WTO member states and trade scholars as detrimental to organizational legitimacy of the WTO. He concludes that the current crisis, though precipitated by the United States self-interest, offers an opportunity for the WTO member states and the Appellate Body members to introspect and restore democratic deficit and prevent judicial overreach. He also perceives that the current crisis also owes to the inability of WTO political bodies to check and correct actions of other WTO bodies that have undermined the state-centric nature of the WTO law-making.

3 Polishing the Jewel by Addressing the Basic Function of the Appellate Body In Part II of this book, we address some basic functions of the Appellate Body. Raj Bhala in his Chap. 7 discusses the WTO adjudicatory crisis, namely, the specific blockage over the approval of candidates to fill vacancies on the Appellate Body, and general impasse over changes to the DSU. He suggests that there is a mismatch between the proposals to reform Appellate Body and DSU reform proposals, on the one hand, and central criticisms the United States raises, on the other. He observes that the United States arguments are about the right way to interpret disputed texts in a trade treaty, and about the right weight to give prior decisional rulings. He further argues that none of the reform proposals raised by the European Union or Canada, squarely address the United States’ arguments. He explains that the Euro-Canadian

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suggestions are about procedures, whereas America challenges foundations of multilateral trade adjudication. Therefore, he concludes that the crisis will not be resolved easily or quickly. Chang-fa Lo in his Chap. 8 discusses the issue of Appellate Body’s exercise of judicial activism. He stresses that it is a critical issue about whether the Appellate Body is practicing judicial activism and has gone beyond the control of the WTO Members collectively. He discusses this issue from the perspectives of “collective members-driven” design of the WTO and the Appellate Body’s role as an adjudicator or as merely holding an assisting role to help WTO Members’ decision-making. He suggests that the Appellate Body must be very careful in exercising judicial activism. He argues that only in the situations where it is necessary to maintain important human values, to avoid a major leak or disruption of the WTO’s operation or to coordinate with other major international treaties, the Appellate Body should be expected to play an active role as an adjudicator in order to ensure the constitutionalism of international trade norms under the WTO. Whereas in the situations where there involve merely technical issues and commercial interests, he argues that the Appellate Body should avoid practicing judicial activism. Instead, it should play an “assisting role” in order to help the WTO Members as a whole to discharge their decisions-making duties. Niall Meagher in his Chap. 9 observes that judicial style can be enormously important in achieving credibility and acceptance for a tribunal’s decisions. He explains that for the Appellate Body, it is difficult to identify a particular style in their work. He finds that the DSU influences the judicial style of the Appellate Body, but does not mandate a particular stylistic approach. He suggests that the Appellate Body’s reliance on the dictionary in its interpretation seems to contribute to lengthy and not always easy to read reports, and to lead to a reliance on multi-factor tests. In addition, he also finds that the Appellate Body has generally eschewed the kind of rhetorical or dramatic flourishes. He therefore suggests that the style of the Appellate Body appears to tend towards the formalistic. He concludes that factors affecting the style of the Appellate Body includes the textualist approach of the VCLT, language, differences in legal tradition, collegiality, and the importance of candour. Ultimately, he suggests that the style of a tribunal like the Appellate Body may depend mostly on the predilections of its members. Yuka Fukunaga in her Chap 10 observes that the United States has been blocking consensus of the Members of the WTO on the appointment and reappointment of Appellate Body members by raising several concerns with the practice of the Appellate Body. At several recent meetings of the Dispute Settlement Body, the United States has outlined in detail its specific concerns, one of which pertains to the interpretative authority of the Appellate Body. More specifically, the United States criticizes the Appellate Body for treating its previous interpretations as “binding and controlling” and for insisting that they must serve as precedent “absent cogent reasons.” She analyzes the criticism and points out seven specific errors in it. She argues that the United States wrongly or deliberately alters what the Appellate Body in fact stated in the past decisions with a view to discrediting the Appellate Body.

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Finally, she warns that the Appellate Body impasse would not be broken, as long as the United States maintains its erroneous views. Tsai-fang Chen in his Chap. 11 observes that the current blockage of the Appellate Body member appointments by the United States has created a crisis for the WTO dispute settlement system. He observes that the United States has raised several issues with regard to the Appellate Body practices. One of the main United States concerns is that the Appellate Body has repeatedly issued findings, from the perspectives of the United States, that were not necessary for the resolution of the dispute. In addition, he also observes that the United States has raised complaint regarding the difficulty of the Appellate Body to observe the 90-day requirement provided for under article 17.5 of the Dispute Settlement Understanding (DSU). He reviews the relationship between article 17.12 DSU and the relevant concerns raised by the United States, and analyzes the limit of the European Union (EU) proposal. He suggests an alternative, narrower, version of the amendment that would further address the concerns over the advisory opinions issued by the Appellate Body. Tomohiko Kobayashi in his Chap. 12 observes that there is a significant risk of losing the functioning of the Appellate Body of the WTO in the near future. He suggests that the WTO is under a serious threat of being dismantled, not because of external factors, but because of internal ones. He elaborates practical, although unusual, options to save the functioning of the WTO dispute settlement mechanism. With regard to the options to amend the DSU, he addresses three key questions. First, can WTO member states amend the DSU by a simple majority vote where a decision cannot reach consensus? Second, if so, when does the amendment approved by the Ministerial Conference takes effect? Third, if the answer to the first question is negative, can the Members amend the consensus requirement by voting? He finds that amending the DSU without consensus is a high bar and almost impracticable unless the United States notifies the WTO of its intention to withdraw. As an alternative way to save the function of the appeal mechanism, he proposes to transplant the thrust of the appeal function into the panel phase by using expert review groups (ERG) under Article 13.2 and Appendix 4 of the DSU. His proposal intends to strike a thin balance between legitimate concerns from sovereign nations against the power of treaty organs, on the one hand, and maintaining invaluable functions of the panel and Appellate Body stages that have evolved for two decades, on the other hand. He concludes that incorporating a quasi-appeal mechanism into the panel process is not the panacea, but can be a feasible option along with the use of DSU Article 25 arbitration.

4 Identifying Options to Let the Jewel Shine Again In Part III of this book, we explore some options to address some selected crisis issues in relation to the Appellate Body. We also elaborate the value and importance of the WTO’s appellate procedure by showing the Appellate Body as a model for

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other international dispute settlement systems. These reconfirm the importance of letting the Jewel in the Crown shine again. Henry Gao in his Chap. 13 observes that over the past few months, the blockage of the Appellate Body member’s appointment process by the United States has emerged as the biggest existential threat to the WTO. In response to the criticisms from other WTO Members, the United States justified its action as a way to raise people’s attention on long-standing problems in the Appellate Body. He reviews whether the United States criticisms are valid, and assuming that the United States allegations are correct, he examines whether the specific approach that the United States has taken is legitimate. Drawing from both the treaty text and jurisprudence of WTO law, he argues that the United States criticisms, especially those concerning the systemic issues in WTO dispute settlement, are deeply flawed. Moreover, he also argues that, regardless of the validity of the substantive claims of the United States, the United States has chosen the wrong approach by holding hostage the entire Appellate Body appointment process. He concludes with practical suggestions on how to overcome the Appellate Body crisis and restore its functions. Rajesh Sharma in his Chap. 14 observes that the crisis of the Appellate Body has been triggered by the United States stalling the process of appointment or reappointment of the Appellate Body members. He examines the United States position and interests behind its complaint, and argues that the real United States interests may prevent a successful outcome of the negotiations regarding the crisis. Therefore, he proposes several options to the Appellate Body crisis, including appointment of at least two members of the Appellate Body, use of FTA dispute resolution forum, use of “Good offices, Conciliation and Mediation” in the WTO and FTA, and interim appeal through arbitration under the WTO. Alternatively, he proposes an alternative to use of a forum outside of the WTO, such as ARMO and APCAM. Po-Ching Lee in his Chap. 15 provides a detailed narrative of the WTO Appellate Body appointment and reappointment processes. He further depicts the increasing politicization of the selection of Appellate Body members over the past 25 years. He suggests that as Appellate Body gradually established itself as a capable and authoritative adjudicator of sensitive and complex disputes, states kept stepping up their attempts to exert control over ideologies of individual Appellate Body members through the appointment process. He observes that political tensions arising from the process mounted up over time. He observes that in the selection processes in 2013 and 2016, Members’ veto or threat of veto became frequent and apparent, pushing the processes into near-deadlock while the Selection Committee could still manage to broker the consensus. He suggests that the United States’ rejection to reappointment in 2016 and its prolonged blockage to the launch of selection processes since 2017, however, mark a new peak of the politicization progress. He argues that the politicization of the Appellate Body selection processes would not stop or be reversed even if the present impasse is solved. He concludes that the escalating demand for Appellate Body seats will lead to more reckless and unscrupulous strategy-thinking from Members, in particular when some have demonstrated how fragile the mechanism could be.

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Fernando Dias Simões in his Chap. 16 observes that while the WTO’s Appellate Body is a permanent body, its members are not appointed full-time. He suggests that this regime was based on the assumption that members would be called upon to hear only a small number of cases per year. He argues that the reality, however, is that the workload of the Appellate Body is completely different from what was originally assumed. He argues that there is an evident gap between the expectations of the creators of the Appellate Body, back in the year 1995, and the reality of our time and age. He therefore calls on WTO member states to seriously consider the overall impact of the current arrangement in the effectiveness and credibility of the dispute settlement system. He concludes that appointing members on a full-time regime is a minor yet imperative change to address the challenges facing the Appellate Body. Jaemin Lee in his Chap. 17 discusses the WTO’s appellate mechanism. He suggests that the successful introduction and operation of the mechanism is one of the most important contributions of the WTO regime. He explains that in the past 24 years of operation, the Appellate Body has accumulated important experience in various areas of appellate review. He observes that it has also encountered a variety of practical and legal issues associated with appeal. He further observes that it has clarified critical jurisprudence and found solutions to practical issues. He argues that the Appellate Body’s accumulated experience and jurisprudence have provided and will continue to provide useful guidance and benchmark for states and other international organizations for the formulation, administration and operation of appellate proceedings in other international dispute settlement proceedings. He concludes that its trial and error, and success and failure present the international community with a reliable springboard for the discussion of a better and more workable dispute settlement proceedings in the international community. Joanna Jemielniak in her Chap. 18 discusses the Appellate Body’s role for other adjudicatory bodies. She observes that the Appellate Body has over the years served as a point of reference as an efficient institutional design for investor-state dispute resolution. In particular, replacement of arbitration with a judicial institution has been considered as possible remedies to the weakness of the existing ISDS regime, the reform proposals of which have often adopted the Appellate Body as an inspiration. She reviews historical proposals of the reform of investor-state dispute resolution standards in order to identify sources of such inspiration. In particular, she compares the Investment Court System (ICS) and the Appellate Body regarding institutional design and the status of adjudicators. She then discusses the issue of procedural safeguards of transparency, and the status and enforceability of rulings under both regimes. She concludes that this comparison reveals a number of similarities and differences between both regimes, which sheds light on the design of the ICS. From the discourse of the book, readers can find that critical problems are identified, and wide range of fundamental and technical solutions are proposed. We very much hope that these would help reform the Appellate Body, keep the jewel shine and make the appellate mechanism a model for many more other international dispute settlement systems.

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Chang-fa Lo was Justice of the Constitutional Court of the ROC (Taiwan) between October 2011 and September 2019. Prior to his judicial position, he was Chair Professor and Lifetime Distinguished Professor at National Taiwan University (NTU); Dean of NTU College of Law; Founding Director of the Asian Center for WTO and International Health Law and Policy of NTU College of Law (ACWH); Founding Director of the Center for Ethics, Law and Society in Biomedicine and Technology of NTU; Commissioner of Taiwan’s Fair Trade Commission; Commissioner of Taiwan’s International Trade Commission; and legal advisor for Taiwan’s GATT/WTO accession negotiations. In his capacity as Director of the ACWH, Prof. Lo launched two English journals, namely, the Asian Journal of WTO and International Health Law and Policy (AJWH, an SSCI listed journal) and the Contemporary Asia Arbitration Journal (CAA) in 2006 and 2008, respectively. During his tenure as Dean of NTU College of Law, he also launched the English journal, the NTU Law Review. He was appointed by the WTO as a panelist for the case of DS332 Brazil—Measures Affecting Imports of Retreaded Tyre in 2006, and the case of DS468 Ukraine—Definitive Safeguard Measures on Certain Passenger Cars in 2014, and appointed as a member of the Permanent Group of Experts under the SCM Agreement of WTO in 2008. He was Chairman of the Asia WTO Research Network (AWRN) from 2013 to 2019. Prior to his teaching career, he practiced law in Taipei. He received his S.J.D. degree from Harvard University Law School in 1989. He is the author of 13 books (including “Treaty Interpretation under the Vienna Convention on the Law of Treaties—A New Round of Codification” published by Springer) and the editor of eight books (including this book), and he has authored more than 100 journal papers and book chapters. He was granted the “National Professorship Award” by the Ministry of Education and the “Outstanding Scholarship Chair Professorship Award” by the Foundation for Advancement of Outstanding Scholarship. Junji Nakagawa is professor at the Faculty of Liberal Arts, Chuo Gakuin University, and an Advisor at Anderson, Mori & Tomotsune LLP. He is also a Professor Emeritus of the University of Tokyo. He got B.A., M.A. and LL.D from the University of Tokyo. He has over 40 years’ experience of teaching/research of international economic law. He is Chairperson of the Asian International Economic Law Network (AIELN) and the Asian WTO Research Network (AWRN). He also worked for the Society of International Economic Law (SIEL) as a Member of its Council (2008 to 2018) and a Co-Treasurer (2015 to 2018). His major publications include: Commentary on Trans-Pacific Partnership (TPP), Japan Tariff Association, 2019; International Economic Law, 3rd ed., Yuhikaku, 2019; Nationalization, Natural Resources and International Investment Law, Routledge, 2017; WTO: Beyond Trade Liberalization, Iwanami Shoten, 2013; Transparency in International Trade and Investment Dispute Settlement, Routledge, 2013; and International Harmonization of Economic Regulations, Oxford University Press, 2011. Tsai-fang Chen is associate professor of National Chiao Tung University School of Law. His main areas of research are international economic law, international commercial arbitration, international investment law, and patent law. Tsai-fang Chen has obtained his SJD degree in University of Wisconsin Law School, LLM degree at Columbia University School of Law and National Taiwan University, and LLB degree at National Chengchi University. He has worked in Wisconsin Alumni Research Foundation on patent law issues. Tsai-fang Chen has also practiced law at Wu and Partner, Attorneys-at-law, Taipei, Taiwan on antidumping cases. Tsai-fang Chen has lectured in the intensive Course “IP in Asia” in Advanced Master in Intellectual Property Law and Knowledge Management (LLM/MSc), Maastricht University. He has also worked as a consultant to Office of Trade Negotiations, Ministry of Economic Affairs in Taiwan. Tsai-fang Chen has published articles on international economic law in Asian Journal of WTO & International Health Law and Policy and Contemporary Asia Arbitration Journal. Tsai-fang Chen has also published an article on patent law in Wake Forest Intellectual Property Law Journal. He is the editor of two books. He has also authored several articles and book chapters on the issues of international economic

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law, international investment law, international commercial arbitration, and patent law. Tsai-fang Chen is a member of the Asian Center for WTO & International Health Law and Policy. He is a committee member of the Editorial Committee of the Contemporary Asia Arbitration Journal and the Asian Journal of WTO & International Health Law and Policy.

Chapter 2

Between “Member-Driven Governance” and “Judicialization”: Constitutional and Judicial Dilemmas in the World Trading System Ernst-Ulrich Petersmann Abstract The power-oriented GATT/WTO traditions of member-driven governance risk undermining the dispute settlement system of the WTO, its judicial administration of justice and rule of law. US trade policies, the “Brexit”, and non-democratic rulers challenge multilateral treaties and judicial systems by populist protectionism prioritizing “bilateral deals”. This contribution uses the example of the illegal US blockage of the WTO Appellate Body system for explaining why the “republican imperative” of protecting public goods (res publica) requires respect for democratic governance, rule of law and judicial remedies (Part 1 of this chapter). WTO law limits power politics by judicial remedies and by administrative majority decisions for filling vacancies in WTO institutions (like the Appellate Body) if consensus is arbitrarily vetoed (Part 2 of this chapter). Such administrative decisions and judicial clarifications of WTO rules preventing illegal de facto amendments of WTO institutions legitimize member-driven governance by protecting rule of law as approved by parliaments when they authorized ratification of the WTO Agreement and delegated limited powers for implementing, clarifying and reforming—rather than destroying—WTO rules for the benefit of citizens, their equal rights and social welfare (Part 3 of this chapter). The hegemonic abuses of trade policy powers indicate the political limits of “judicialization” of international economic law and the need for systemic, “ordo-liberal” reforms of the WTO in order to avoid disintegration of the world trading system (Part 4 of this chapter). Keywords Appellate Body · China · Constitutionalism · Judicialization · Treaty interpretation · Voting in WTO

E.-U. Petersmann (B) European University Institute, Florence, Italy e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_2

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1 Introduction: “Rule of Law” in Transnational Economic Relations? Law and governance require justification vis-à-vis citizens in order to be socially accepted as legitimate and voluntarily complied with in civil society. Since ancient times, citizens invoke their “social contracts” for challenging abuses of power—in local communities, cities, states, and transnational cooperation—by invoking “moral principles of justice” (e.g. as proposed in Aristotelian and Confucian theories of justice), democratic constitutionalism (e.g. since the ancient Athenian democracy), “republican constitutionalism” (e.g. since the ancient Italian city republics) and other agreed rules and “principles of justice” as restraints on governance powers. Following World War II, all “United Nations” (hereinafter “UN”) have accepted multilateral treaties and additional legal instruments recognizing “inalienable” human rights, democracy, rule of law and national Constitutions (written or unwritten) as restraints on multilevel governance of public goods (PGs).1 This postwar constitutionalism tends to be based on constitutionally agreed rights and rules of a higher legal rank limiting post-constitutional lawmaking by legislative, executive and judicial powers and providing for judicial remedies aimed at protecting rule of law.2 In contrast to the state-centered focus of the UN Charter on sovereign equality of its 193 UN member states and on optional jurisdiction of the International Court of Justice (hereinafter “ICJ”) as the “principal judicial organ of the United Nations” (Article 92 UN Charter), the Agreement establishing the WTO admits also sub- and supra-national members (like Hong Kong, Macau, Taiwan, the European Communities); the compulsory jurisdiction of the multilevel WTO dispute settlement system for legal and judicial protection of transnational rule of law at international and domestic levels of trade governance reflects a historically unique achievement of legal civilization.3 International trade and investment agreements have been concluded since ancient times in order to limit “market failures” in private self-regulation (e.g. based on private commercial law, property rights and arbitration) and “governance failures” in state regulation (e.g. the Roman lex mercatoria and praetor peregrinus protecting transnational trade and rule of law). Democratic and republican constitutionalism limiting monarchical abuses of power and protecting rule of law for the benefit of citizens and their individual rights emerged first in the ancient Greek and Roman city republics. The “rule of law theories” of Greek and Roman philosophers (like Plato, Aristotle and Cicero) contributed to the emergence of transnational republicanism and of multilevel judicial protection of transnational commercial law (e.g. in the “Holy Roman empire” and its transnational “imperial court” with jurisdiction over trade and investment disputes involving many states, cities and citizens). Yet, it is only due to the universal postwar recognition of human and democratic rights that modern international trade and investment law is increasingly founded on “republican 1 Petersmann

(2017). Tushnet (2018), Rosas and Armati (2018). 3 On the often neglected, multilevel nature of the WTO dispute settlement system, see Petersmann (1997, p. 233 ff). 2 Cf.

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constitutionalism” protecting trading and investor rights against arbitrary abuses of power.4 The continuing “struggles for justice” lead to progressive “constitutional” and “judicial reforms” and converging developments in both international trade and investment law and adjudication such as: • The constitutional insight of ‘bounded rationality’ (e.g. that governments cannot rule legitimately and effectively unless their powers are restrained by constitutional rules of a higher legal rank) promoted progressive limitations of intergovernmental power politics under the General Agreement on Tariffs and Trade (GATT 1947), which had been applied only “provisionally” as an intergovernmental agreement. The 1979 Tokyo Round Agreements and the 1994 WTO Agreement were approved by national parliaments and introduced democratic and judicial reforms of modern trade and investment rules for the benefit of citizens and their legal rights. • “Principles of justice”, as explicitly acknowledged in numerous multilateral treaties, increasingly influence the design of judicial remedies (e.g. of “violation”, “non-violation” and “situation-complaints” pursuant to Article XXIII:1 GATT) and the jurisprudence of international trade and investment courts. The reality of “constitutional pluralism” requires judicial deference vis-à-vis competing conceptions of “justice as virtues” (Aristotle), “justice as entitlement” (Nozick), “justice as fairness” (Rawls), “justice as human rights” or as agreed “democratic constitutionalism”.5 • The convergence of international trade and investment jurisprudence (e.g. protecting sovereign rights and duties to protect PGs and due process of law)6 and the multilateral treaty commitments to transnational rule of law reflect the emergence of “constitutional” (e.g. judicial and democratic) restraints on power-oriented conceptions of “member-driven governance” of trade and investments. The humanism underlying modern human rights law (hereinafter “HRL”), UN law and international economic law (hereinafter “IEL”) leads to legal and democratic protection of ever more individual and democratic rights and judicial remedies in international investment and trade law, as illustrated by the “human rights clauses” and multilevel judicial remedies in the trade and investment agreements inside the European Union (hereinafter “EU”), in the external EU agreements with more than 100 third states, and by the parliamentary approval and civil society support of such agreements. Trade and investment jurisprudence on reconciling trade and investment rights with HRL increasingly acknowledges the need for protecting also “positive freedoms” (like human rights of access to food, clean water, housing, health protection, “access to justice”) rather than only “negative freedoms” (e.g. from arbitrary domination, expropriation of property rights). The more democratic and “cosmopolitan” rights are recognized in trade and investment agreements (notably 4 Cf.

Petersmann, supra note 1, at p. 174 ff.; Besson and Marti (2009).

5 On the neglect by most textbooks on international economic law (IEL) to clarify the “principles of

justice” underlying IEL, see Petersmann (2012), Chaps. II and III. On Chinese challenges of human rights, see Petersmann (2018a). 6 Cf. Stoll (2018), Cho and Kurtz (2018).

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of European states), the more national and regional courts (notably in Europe) construe IEL no longer only as “international law among states”, but also as multilevel governance of PGs deriving its legitimacy from “constitutional contracts” among citizens delegating limited governance powers for “government of the people, by the people and for the people” subject to constitutional rights and judicial remedies of citizens. • Anglo-Saxon neoliberalism (e.g. prioritizing trade and investment liberalization without adequate regulation of “market failures” and “governance failures”) and totalitarian “state capitalism” (e.g. in authoritarian states like China) are increasingly challenged by “ordo-liberal insistence” on constitutional restraints on abuses of public and private economic power (like arbitrary restraints of labor rights, intellectual property rights, data privacy rights, freedom of the internet, anti-competitive practices of state-trading enterprises and other restraints of competition). The more trade and investment law and adjudication evolved in response to business interests prioritizing trading and investor rights, the more investor-state arbitration and GATT/WTO dispute settlements were challenged by adversely affected civil society interests and democratic institutions insisting on legal and judicial reforms, like more inclusive access to justice (e.g. by admitting amicus curiae briefs), more transparent procedures, control of “judicialization” by appellate review procedures, extensive interpretation of “annulment procedures” under Articles 51 and 52 of the Convention establishing the International Centre for the Settlement of Investment Disputes (ICSID), and elaboration of “codes of conduct” limiting conflicts of interests of trade and investment adjudicators. • The incorporation of investment rules and “sustainable development” commitments into trade agreements, judicial cross-references among trade and investment case-law, the emergence of common judicial “balancing methods” and standards of review promote converging trends in trade and investment regulation, adjudication and multilevel conceptions of coherent, non-discriminatory rule of law inside and beyond states.7 Compared with the multilevel legal and judicial protection of common market rights and related fundamental rights inside the EU and in the wider European Economic Area (EEA), the multilevel WTO and ICSID dispute settlement and rule of law systems remain less developed in many respects. Examples include – the limited access to WTO dispute settlement bodies (e.g. excluding nongovernmental actors), their limited legal remedies (e.g. excluding the customary international law rules on reparation of injury caused by violations of international law), and their lack of mutual cooperation (judicial comity) with domestic courts; and

7 Cf.

Stoll; Cho and Kurtz, supra note 6; Petersmann (2018e) and supra note 1, at p. 165 ff.; Van den Bossche, In: de Baere and Wolters (2015).

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– the privileged access of only foreign investors to ICSID arbitration procedures (e.g. due to exclusion of other non-state actors), and the only limited review of arbitration awards through ICSID annulment proceedings and national courts enforcing arbitral awards. Yet, as discussed in Sect. 1, in both WTO law and many other, modern trade and investment agreements, executive regulatory powers have not only become subject to democratic and judicial restraints aimed at protecting transnational rule of law. This separation of powers and multilevel, legal and judicial protection of rule of law (rather than rule of executive powers) have also become embedded into domestic constitutional systems and institutional “checks and balances” aimed at protecting citizens and their constitutional rights against long-standing abuses of discretionary foreign policy powers. The specific mandates of separation of legislative, executive and judicial powers and protection of rule of law in the WTO Agreement (e.g. Articles III, XVI:4) and in its Dispute Settlement Understanding (“DSU”)—as democratically approved by parliaments and interpreted and enforced not only by governments, but also by national and international courts of justice—are under threat by intergovernmental power politics.

2 “Member-Driven” WTO Governance and Its Constitutional Limits Article IX:1 of the WTO Agreement provides: ‘The WTO shall continue the practice of decision-making by consensus followed under GATT 1947. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter shall be decided by voting. At meetings of the Ministerial Conference and the General Council, each Member of the WTO shall have one vote’…. ‘Decisions of the Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise provided in this Agreement or in the relevant Multilateral Trade Agreements’.

Paragraphs 2–5 of Article IX prescribe specific majorities and procedures for voting on authoritative interpretations (“three-fourths majority of the Members”), waivers from WTO obligations, and decisions under “plurilateral trade agreements”. Decision-making in GATT’s Uruguay Round (1987–1994) had been based on the three principles of “member-driven governance”, “single undertaking” and consensus: governments dominated the negotiations and rule-making processes and delegated only few powers to the GATT Director-General (e.g. to chair the Trade Negotiations Committee); majority voting was avoided by consensus practices so as to protect “sovereign equality” of states; and the “single undertaking principle” aimed at avoiding legal fragmentation and free-riding, as it had resulted from the Tokyo Round Agreements. These three decision-making principles contributed to the successful conclusion of the Uruguay Round negotiations. Yet, they are widely criticized for impeding the successful conclusion of the Doha Round negotiations

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since 2001 and the solution of the WTO Appellate Body crisis since 2017, for instance due to abuses of “veto powers” by some WTO members. When parliaments in WTO members approved the 1994 WTO Agreement and adopted legislation “to ensure the conformity of (their) laws, regulations and administrative procedures with (their) obligations as provided in the annexed Agreements” (Article XVI:4 WTO Agreement), most parliaments limited the trade policy powers of their respective government executives to implementing and modernizing WTO rules without granting executive powers to destroy the WTO legal, dispute settlement and trading system. For instance, the Lisbon Treaty on European Union requires the EU’s external policies to contribute to “the strict observance and development of international law” (Article 3) and “support democracy, the rule of law, human rights and the principles of international law” (Article 21 TEU), without conferring powers on EU institutions to violate treaties approved by parliaments inside the EU. The US Trade Act of 1974 (as extended in 1979 and amended in 1984, 1988, 2002 and 2015) conditions the grant of negotiating authority for non-tariff measures by special objectives, benchmarks and procedural requirements to consult with Congress and private sector committees so that parliamentarians and civil society discuss the trade negotiation issues from the beginning of trade negotiations rather than only during the negotiating process or ex post during the approval of draft agreements reached8 ; due to the congressional incorporation of the WTO Agreement into US domestic law and the limited delegation of trade policy powers to the executive, Congress has not granted the President executive powers to unilaterally withdraw from the WTO Agreement or destroy the WTO legal and dispute settlement system.9 Yet, such constitutional principles of separation and limited delegation of powers have not prevented WTO diplomats from engaging, since 2017, in illegal power politics undermining the functioning of the WTO Appellate Body (hereinafter “AB”) in manifest violation of the WTO’s “DSU”.

2.1 Illegal US Blocking of the Filling of AB Vacancies in Violation of the DSU US President Trump has repeatedly threatened to withdraw from what he perceives as “the terrible WTO Agreements”, inter alia based on his erroneous belief that the US loses most WTO disputes—notwithstanding the fact that the US has won more than 75% of its WTO dispute settlement complaints and, also as a defendant, has been more successful than other WTO members.10 US Trade Representative (hereinafter 8 On

the “Congressional Trade Priorities and Accountability Act” of June 2015 (H.R. 2146) and related US trade legislation, see VanGrasstek (2019). 9 Cf. Trachtman (2017). US Presidents have, however, claimed inherent foreign policy powers to withdraw from international agreements. 10 Cf. Shaffer et al. (2017), refuting television statements by US President Trump (“The WTO … was set up for the benefit of everybody but us. They have taken advantage of this country like you

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“USTR”) Lighthizer and other members of the US government (like Security Adviser Bolton) are declared opponents of restraining the use of US hegemonic power by international courts.11 US trade diplomats explain their vetoing of the appointment of WTO AB members in deliberately ambiguous ways: – the reappointment of AB members from the US (like Merit Janow 2003–2007, Jennifer Hillman 2007–2011) was opposed by the USTR because their participation in AB rulings against US legal positions was criticized as “unpatriotic”12 ; – trade law professors proposed by other WTO members (like Kenya in 2013) were ruled out almost immediately by the USTR, even if they had taught at US universities; – in 2016, the reappointment of the Korean AB member Chang Seung Wang was blocked by the USTR on grounds of alleged judicial “over-reach”; – in the beginning of 2017, the US blocked the consensus in the WTO Dispute Settlement Body (hereinafter “DSB”) for filling WTO AB vacancies for reasons related to the ongoing transition in the US political leadership; – subsequently, the replacement of AB members Kim, Ramirez and van den Bossche in 2017, and of AB member Servansing in 2018, was vetoed by the USTR on grounds of “systemic” legal USTR concerns about, inter alia, “Rule 15” of the AB Working Procedures as elaborated by the AB in conformity with Article 17.9 DSU and practiced in WTO dispute settlement practices since 1996.13 Such blocking of the filling of AB vacancies on grounds not related to the personal qualifications of proposed AB candidates violates the WTO legal obligations to comply with DSU rules in good faith (cf. Articles 3.10, 23 DSU) and protect the AB as legally prescribed in Article 17 DSU (e.g. as being “composed of seven persons”, with vacancies being “filled as they arise” so that AB membership remains “representative of membership in the WTO”).14 As US trade diplomats have not wouldn’t believe… As an example, we lose the lawsuits, almost all of the lawsuits in the WTO … Because we have fewer judges than other countries. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States”) as “fake news”. 11 For references to various speeches by USTR Lighthizer, see Slobodian (2018a), Bacchus (2018a), Petersmann (2018b). 12 Statement by J. Hillman; cf. also Dunoff and Pollack (2017, pp. 225, 267 ff). 13 Cf. Kuijper (2018). Rule 15 authorizes the AB to permit its outgoing members to complete the disposition of pending appeals similar to the working procedures for many other international courts. 14 Understanding on Rules and Procedures Governing the Settlement of Dispute art. 17.2, 15 Apr 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401. The text of Article 17:2 (“The DSB shall”…), numerous other DSU provisions (like Article 3:10) and the customary law requirement of interpreting treaty rights and obligations in good faith make clear that obligations addressed to the DSB entail legal good faith obligations for each DSB member. According to the AB jurisprudence, an “abusive exercise by a Member of its own treaty right … results in the breach of the treaty rights of the other Members and, as well, a violation of the treaty obligation of the Member so acting”. See Appellate Body Report, United States— Import Prohibition of certain shrimp and shrimp products, para 158, WT/DS58/AB/R (12 Oct 1998) [hereinafter US-Shrimp Appellate Body Report].

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revealed the final objective of their blocking strategy, many observers of US trade policies interpret the US blocking of AB vacancies as being aimed at unilaterally terminating the functioning of the AB and the related “judicial restraints” on US trade protectionism, a strategy which previous US governments had already used in order to prevent NAFTA chapter 20 panel proceedings against the US.

2.2 US Failure to Legally Justify Its “Blocking Strategy” In 2019, the US continued to state in DSB meetings that it is not in a position to support the launching of the selection processes for new AB members; it considers that the first priority is for the DSB to discuss and decide how to deal with reports being issued by persons “who are no longer members of the AB”.15 Even though the AB Working Procedures had been adopted in 1996 in conformity with Article 17 DSU and had been applied in WTO practice for more than 20 years, the US reiterates that Members need to resolve the AB’s use of “Rule 15” in the AB Working Procedures as a priority. In some DSB meetings, the US also voiced other “systemic concerns” relating to the functioning of the AB, such as criticism of a Korean AB member for having raised issues (“obiter dicta”) that, in the view of the USA, had not been necessary for the resolution of the dispute.16 These “US concerns with WTO dispute settlement” and with “the approach by the AB” have been summarized in the President’s 2018 Trade Policy Agenda17 by focusing on the following cross-cutting issues: • Disregard for the 90-day deadline for appeals: The US criticises the AB for not respecting Article 17.5 of the DSU, according to which “(i)n no case shall the proceedings exceed 90 days.” In the US view, this raises concerns of transparency, inconsistency with “prompt settlement of disputes”, and uncertainty regarding the validity of the report issued after 90 days. • Continued service by persons who are no longer AB members: The US claims that, notwithstanding “Rule 15” of the AB Working Procedures and its consistent application in WTO dispute settlement practices to date, the AB “does not have the authority to deem someone who is not an Appellate Body member to be a member”. In the view of the US, only the DSB—not the AB—has the authority and responsibility to decide whether a person whose term of appointment has expired should continue serving. • Issuing advisory opinions on issues not necessary to resolve a dispute: The US criticizes “the tendency of WTO reports to make findings unnecessary to resolve a dispute or on issues not presented in the dispute”. • Appellate Body review of facts and review of a member’s domestic law de novo: The US criticises the AB’s approach to reviewing facts. Under Article 17.6 of the 15 Cf.

Hillman (2018), (listing the concerns expressed by the US in DSB meetings since 2017). the legal inconsistency of this US criticism, see Gao (2018), Sacerdoti (2018). 17 The President’s Trade Policy Agenda (2019). 16 On

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DSU, appeals are limited to “issues of law covered in the panel report and legal interpretations developed by the panel.” Yet, in the view of the US, the AB has “consistently reviewed panel fact-finding under different legal standards, and has reached conclusions that are not based on panel factual findings or undisputed facts”. In the US’ view, this is particularly the case for Appellate Body review of panel findings as to the meaning of domestic legislation (which should be an issue of fact). • Appellate Body claims its reports are entitled to be treated as precedent: The US claims that the AB has asserted its reports effectively serve as precedent and that panels are to follow prior AB reports absent “cogent reasons”, which lacks a basis in the WTO rules. The US puts forward that “[w]hile Appellate Body reports can provide valuable clarification of the covered agreements, Appellate Body reports are not themselves agreed text nor are they a substitute for the text that was actually negotiated and agreed”. • Adding or diminishing of rights and obligations by the AB in various disputes: The US exemplifies these concerns by AB rulings on the following issues: the interpretation of the notion of “public body” under the Subsidies Agreement; the interpretation of the non-discrimination obligation under Article 2.1 of the TBT Agreement; certain interpretations relating to safeguard measures (notably on “unforeseen developments”); outcomes in the cases launched by the EU against the “Byrd amendment” (giving the proceeds from anti-dumping/countervailing duties to US industry) and on tax treatment for “Foreign Sales Corporations” (that was considered to be an export subsidy). In the view of the US, the findings in those disputes departed from the relevant WTO agreements as negotiated. All these US concerns relate to long-standing AB legal interpretations18 and judicial practices19 that had been justified on the basis of (1) the customary rules of treaty interpretation and (2) the quasi-judicial mandates given by the DSU to WTO panels, the AB and to WTO arbitrators, and (3) had been accepted in the legal practices of the DSB, albeit subject to occasional expressions of concerns by the US. Notwithstanding the continuing DSU reform negotiations since 1998, all the (more than 140) AB reports since 1996 were consistently adopted by the DSB without politically agreed corrections of this jurisprudence, as would have been legally possible through “authoritative interpretations” (Article IX:2), amendments (Article X) of the WTO Agreement, or by overruling dispute settlement findings through DSB decisions. The above-mentioned US justifications of its “blocking” of AB vacancies are based on interpretative US claims that disregard the customary rules of treaty interpretation and the judicial functions of the AB; they are not shared by most other WTO members. They also violate the legal obligation under Article 23 DSU not 18 E.g. of Article 3:2 DSU regarding treatment of AB case-law as precedent absent “cogent reasons”; Article 17:5 DSU regarding the 90 days deadline; Article 17:6 regarding “issues of law” and legal qualifications of facts; Article 17:12 DSU regarding obiter dicta. 19 E.g. elaboration of AB Working Procedures as prescribed in Article 17:9 DSU; judicial “administration of justice” in applying the incomplete DSU rules to disputes over political disagreements on WTO rules.

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to “make a determination to the effect that a violation has occurred that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding.”20 Moreover, some of the legal problems (like disregard for the 90 days deadline for appeals) were caused by the USA itself, for instance: • by insisting on the insertion of such an unreasonably short and—in most pending AB disputes—impossible deadline into the DSU in order to avoid changing the corresponding deadlines for administrative remedies in US trade laws; no other international or domestic court has been constrained by a similar deadline! • by disregarding the DSU obligations to provide the AB “with appropriate administrative and legal support” (Article 17:7) and fill “vacancies … as they arise” (Article 17:2); and • by contributing to the increasing number and complexity of appeals (e.g. more than 13 pending AB disputes in November 2018) which—de facto—render compliance with the 90 days deadline impossible without introducing radically new, politically agreed procedures (like “summary judgments” prior to publication of the full AB report, publication of AB reports in the language of the dispute before translation into the other official WTO working languages). The US has submitted no evidence for its political claims that the judicial AB interpretations have engaged in “persistent over-reach”,21 for instance by violating • the customary rules of treaty interpretation (e.g. by arbitrarily misinterpreting “the terms of the treaty”, or by misapplying the duly interpreted treaty terms to the relevant facts established by the panel), or • the quasi-judicial mandate of WTO dispute settlement bodies (e.g. by not addressing “each of the issues raised in accordance with paragraph(s) 6” and 12 of Article 17 DSU).

20 See

below section III.2. meeting of 21 November 2018 (summary reported on the WTO website). US Ambassador Shea’s claim (e.g. during the WTO Public Forum session 111 on 4 October 2018) that the US does not recognize a “judicial function” of the AB, illustrates that the US claim of “AB over-reach” rests on very subjective DSU interpretations which are not shared by most AB and DSB members, just as the related US claim that one WTO member’s rights or obligations may be clarified by a Panel without regard to the AB’s clarification (“precedent”) of the same rights or obligations in previous WTO disputes. The different “institutional choice” perspectives (e.g. legal interpretations by political vs judicial institutions) affect the “cognitive dimension” of legal interpretations—a fact, which is often overlooked in the criticism of WTO dispute settlement findings by diplomats and economists. 21 DSB

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2.3 “Constitutional Limits” of “Member-Driven WTO Governance”? The US insistence on its own “hegemonic interpretations” of WTO rules—disregarding the customary rules of treaty interpretation, the “authoritative” interpretation methods provided for in the WTO Agreement (e.g. Article IX:2) and the quasi-judicial interpretations prescribed in the DSU (e.g. Articles 3, 23)—reflects not only what participants in the Uruguay Round negotiations have criticized as “bad lawyering” by US trade diplomats attempting to impose domestic, US interpretation methods (e.g. in Article 17.6(ii) Antidumping Agreement) notwithstanding their inconsistency with the customary methods of treaty interpretation.22 It is also widely interpreted as reflecting US political strategies to render the WTO AB dysfunctional as of December 2019 when two additional AB positions become vacant and the legally prescribed “quorum” of “three persons” serving on any new AB case (cf. Article 17:1 DSU) can no longer be fulfilled. This power-oriented US approach is further reflected in the insistence of US trade diplomats on the contractual nature of WTO commitments, their denial of “constitutional” (e.g. judicial) dimensions of WTO law, their disregard for the dynamic evolution of multilateral treaty systems through “argumentative” and “judicial practices” progressively clarifying and developing WTO rules and principles since 1995, and the refusal of the US to accept other, compulsory worldwide and regional jurisdictions like the ICJ, the International Tribunal for the Law of the Sea, the International Criminal Court or the InterAmerican Court of Human Rights.23 Notwithstanding the inevitable disagreements between complainants and defendants on the respective merits of third-party adjudication, international lawyers inside and outside the WTO institutions have persistently celebrated the WTO jurisprudence as the “crown-jewel” of WTO legal practices fulfilling the quasi-judicial mandate for “prompt settlement” of WTO disputes, “providing security and predictability to the multilateral trading system” through impartial, independent third-party adjudication, and clarifying “the existing provisions of those (WTO) agreements in accordance with customary rules of interpretation of international law” (Article 3.2 DSU). The customary rules of treaty interpretation require application also of general rules and principles of international law “applicable in the relations between the parties”,24 including “due process of law”, “judicial administration of justice” in third-party adjudication of WTO disputes, and good-faith-compliance by all WTO members with DSU rules (cf. Article 3.10 DSU) and with dispute settlement rulings adopted by the DSB (cf. Article 23 DSU). The DSU avoids describing WTO dispute settlement panels, the AB and WTO 22 Cf.

Kuijper, supra note 13, at pp. 6–7. the longstanding reluctance of the US to limit US foreign policy powers by submitting to international courts, see Romano (2009). 24 Cf. Article 31.3(c) of the Vienna Convention on the Law of Treaties (VCLT), which is widely recognized as codifying customary rules of international treaty interpretation, and the specification of applicable, universally recognized “principles of justice” in the Preamble of the VCLT; on this “systemic interpretation” of WTO rules in WTO dispute settlement practices, see Cook (2015). 23 On

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arbitration as “courts of justice” and WTO adjudicators as “justices”. Yet, the DSU rules, WTO working procedures for panels and the AB, and WTO “rules of conduct” prescribing impartiality and independence of WTO panelists, AB members and arbitrators have been persistently interpreted by WTO adjudicators and WTO members as providing for quasi-judicial mandates.25 The US claims of “judicial overreach” are also criticized as being opportunistic: in many WTO disputes, the US itself suggested and welcomed “creative interpretations” of indeterminate procedural WTO rules (e.g. on admission of amicus curiae briefs, making panel and AB meetings open to the public) as well as of substantive WTO rules (e.g. on recognizing living organisms as “exhaustible natural resources” in terms of Article XX(g) GATT, interpreting a GATS prohibition of “anti-competitive practices” as prohibiting government support for price-fixing cartel agreements). As US trade diplomats have made no effort at demonstrating that the AB jurisprudence has disregarded its quasi-judicial mandate for “prompt settlement” of WTO disputes by clarifying the disputed meaning of WTO provisions through use of the customary rules of treaty interpretation, no other DSB member has so far supported the politically motivated US blocking of the filling of AB vacancies. American trade law experts—like former US Congressman and WTO AB chairman Bacchus—have interpreted US President Trump’s blockage of the WTO AB system—and the discriminatory import tariffs imposed by the Trump administration in 2018 in violation of WTO law (e.g. GATT Articles I and II)—as an “American assault on the rule of law in world trade”.26 These legal assessments concord with academic and social media observations that “the top US trade officials are disdainful of any supranational bodies that might constrain US sovereignty—from WTO rules and dispute settlement panels, to arbitration tribunals used by companies to challenge unfair government policies when they invest abroad”.27 In DSB deliberations, WTO members have persistently criticized the blocking of AB nominations by the US; the discriminatory US tariffs on the importation of steel and aluminum have been challenged in WTO dispute settlement proceedings by numerous WTO members—like Canada, China, the EU, India, Mexico, Norway, Russia and Turkey—on the ground that, inter alia, their legal inconsistencies with GATT Articles I and II could not be legally justified on national security grounds (Article XXI GATT) or

25 WTO AB members have persistently characterized the AB as a (quasi)judicial institution, for instance in their annual AB Reports and academic publications (e.g. by WTO AB members. Bacchus (2018b) and Van den Bossche, in Baere and Wouters, supra note 7, pp. 176–202). The Handbook on the WTO Dispute Settlement System prepared by the WTO legal services (CUP 2004) describes WTO panels and the AB as “quasi-judicial bodies, in a way tribunals, in charge of adjudicating disputes” (e.g. p. 21). 26 See Bacchus, supra note 11. 27 Politi (2018): “For Mr Lighthizer, as well as Peter Navarro, the chief trade hawk in the White House, the goal is not only to disentangle the US from its Chinese supply chains, and to shift production back home, but to do the same with the rest of America’s traditional trading partners as well”.

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as safeguard measures (Article XIX GATT).28 Many adversely affected WTO members also adopted retaliatory suspensions of market access commitments vis-à-vis the USA, which some of these WTO members justified by invoking Article 8 of the WTO Agreement on Safeguards. As the US import tariffs on aluminum and steel had been introduced for economic rather than national security reasons29 and not “in time of war or other emergency in international relations” (Article XXI:c(iii)), and US imports of aluminum and steel had not increased over the past 2 years, the affected exporting countries claimed to be free to suspend “substantially equivalent concessions” of other obligations as permitted by Article 8:2 of the WTO Agreement on Safeguards in order to maintain the “reciprocity principles” underlying WTO law. China criticized the discriminatory US import tariffs imposed under Section 301 as a ‘trade war’ violating WTO law (e.g. Articles I and II GATT, 23 DSU). The limited mandate given by parliaments to trade diplomats for implementing and modernizing, but not for blatantly violating WTO legal obligations (as incorporated into domestic legal systems in the EU, the USA and in many other WTO member), and the legal constraints imposed on executive WTO violations by the multilateral WTO dispute settlement rules and institutions, reveal institutional “checks and balances” and “constitutional restraints” of the WTO legal system, notwithstanding their limited effectiveness vis-à-vis hegemonic power politics. These constraints operate not only at the international level (e.g. inside WTO institutions); the simultaneous domestic court proceedings (e.g. inside the US Court of International Trade) challenging violations of WTO rules by the US trade administration reflect the multilevel nature of the WTO dispute settlement system prescribing judicial remedies also inside WTO member states.30 Even if the “member-driven” DSU reform negotiations since 1998 have so far failed to enable consensus on agreed DSU amendments, politically agreed reforms of the incomplete and imperfect DSU rules remain certainly desirable. Yet, the mere discontent of US trade diplomats with some adverse dispute settlement findings and with the AB does not legally justify the “US blockage”, which is widely criticized as a “sinister distraction” from President Trump’s political objective of unilaterally blocking WTO AB jurisdiction over US trade restrictions 28 Cf. United States—Certain Measures on Steel and Aluminium Products, WT/DS544 (5 Apr 2018);

United States—Certain Measures on Steel and Aluminium Products, WT/DS547 (18 May 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS548 (1 June 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS550 (1 June 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS551 (5 June 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS552 (12 June 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS554 (29 June 2018); United States—Certain Measures on Steel and Aluminium Products, WT/DS556 (9 July 2018). All these complaints convincingly challenge the US claim that “economic security” is part of “national security” and justifies violating all WTO rules without WTO jurisdiction for reviewing such unilateral invocations of Article XXI GATT in WTO dispute settlement proceedings aimed at protecting the non-discrimination and reciprocity obligations of WTO law (e.g. Articles XIX, XXVIII GATT). 29 E.g. in view of the very small amount of US production of steel and aluminum “for the purpose of supplying a military establishment” in terms of GATT Article XXI(b). 30 See Petersmann, supra note 3 and Petersmann (2018c, p. 179 ff).

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and judicial interpretations of WTO rules restraining US trade policy discretion.31 As the US blocking of the filling of AB vacancies risks rendering the AB—and, in the absence of appellate review, also the adoption of WTO panel reports (cf. Article 16:4 DSU) —dysfunctional as of December 2019, the WTO legal, dispute settlement and trading system risks breaking down in 2020, without any democratic mandate and coherent legal justification of this illegal undermining of the DSU.

3 Need for Distinguishing Political, Administrative and Judicial Functions of “Member-Driven” WTO Governance The worldwide recognition of “inalienable” human and democratic rights, rule of law principles, “republican constitutionalism” aimed at protecting PGs, and the transformation of most national into transnational PGs as a result of “globalization” (e.g. of mutually beneficial trading, monetary, environmental, communications and security systems) entail that state-centered “horizontal conceptions” of “international law among states” must be supplemented by citizen-oriented conceptions of international law as multilevel governance and regulation of transnational PGs.32 From the perspective of citizens as “constituent powers” and “democratic principals” of legitimate governance agents, parliaments in WTO member states have delegated only limited executive powers to WTO diplomats and WTO institutions. Treaties constituting international organizations for multilevel governance of transnational PGs—like mutually beneficial world trading, environmental protection and transnational rule of law systems—should be construed by “constitutional interpretation” methods as principal-agent relationships based on limited delegation and separation of governance powers that must remain accountable to citizens and their democratic institutions. “Member-driven WTO governance” will continue to dominate the political function of the WTO as “the forum for negotiations among its Members concerning their multilateral trade relations” (Article III WTO Agreement). Yet, Article III distinguishes these “legislative functions” from the different administrative and judicial decision-making in the WTO, which are based on different “institutional choices” and WTO decision-making procedures responding to diverse administrative and judicial mandates and governance functions.

31 Cf. 32 Cf.

Luce (2018). Petersmann, supra note 1.

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3.1 Member-Driven WTO Governance as a Political Rule-Making Procedure In view of the “sovereign equality” of all UN member states and the “republican imperative” of self-governance without arbitrary domination, the WTO as a “forum for negotiations among its Members” on new WTO rules (Article III:2 WTO), negotiations among WTO members on free trade agreements (e.g. pursuant to Article XXIV GATT) and “plurilateral trade agreements” (pursuant to Annex 4 of the WTO Agreement), “authoritative interpretations” and “waiver decisions” pursuant to Article IX WTO Agreement, WTO amendments and accessions, and many decisions in intergovernmental WTO institutions will continue to be dominated by “member-driven”, often consensus-based governance. Yet, as explained in Sects. 1 and 2, parliaments have delegated limited rule-making powers to WTO diplomats and WTO institutions. The WTO dispute settlement rules and procedures provide for international and domestic legal restraints of intergovernmental decision-making by WTO representatives, for instance by prescribing quasi-automatic adoption of WTO panel and appellate reports subject to “negative consensus” by the DSB (i.e. limiting veto-powers) and prohibiting undue governmental interferences into judicial decision-making (e.g. ex parte communications with panel and AB members undermining judicial independence and impartiality).

3.2 Different WTO Administrative and Judicial Decision-Making Procedures While law-making procedures must be inclusive and representative of all affected citizens and states, administrative and judicial decision-making powers tend to be allocated to different institutions applying different decision-making procedures. For example, the DSU allocates the elaboration of dispute settlement findings to panels, the AB and arbitration and protects the respective independence and impartiality of these dispute settlement bodies through, inter alia, “working procedures” (e.g. as codified in Appendix 3 to the DSU) and “rules of conduct”. The WTO General Council Decision adopted 10 December 2002 on “Procedures for the Appointment of Directors-General” provides in para 20: Recourse to a vote for the appointment of a Director-General shall be understood to be an exceptional departure from the customary practice of decision-making by consensus, and shall not establish any precedent for such recourse in respect of any future decisions in the WTO.33

Article 8:7 DSU allocates administrative decision-making powers to the DirectorGeneral to nominate members of WTO panels even against the will of the parties to the dispute: 33 Procedures

for the Appointment of Directors, WT/L/509 (20 Jan 2003).

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E.-U. Petersmann If there is no agreement on the panelists within 20 days after the date of the establishment of a panel, at the request of either party, the Director-General, in consultation with the Chairman of the DSB and the Chairman of the relevant Council or Committee, shall determine the composition of the panel by appointing the panelists whom the Director-General considers most appropriate in accordance with any relevant special or additional rules or procedures of the covered agreement which are at issue in the dispute, after consulting with the parties to the dispute. The Chairman of the DSB shall inform the Members of the composition of the panel thus formed no later than 10 days after the date the Chairman receives such a request.

The wording of Article 8:7 DSU (“shall”) makes clear that the Director-General has a legal obligation to complete the composition of the panel without administrative discretion to decline such a request. Similarly, Articles 2:4 and 17 DSU make clear the legal obligations of the DSB (“shall”) to appoint—by consensus—seven AB members and fill vacancies “as they arise”. Yet, the text of Article IX:1 of the WTO Agreement34 confirms that the WTO Ministerial Conference and General Council are legally required (“shall”) to overcome illegal blocking in the DSB of the filling of AB vacancies by majority decisions in order to meet the collective WTO legal duties to maintain the AB as prescribed in Article 17 DSU (e.g. being “composed of seven persons”, with “Appellate Body membership (being) broadly representative of membership in the WTO”). The practice of the WTO General Council—e.g. the convening of a General Council meeting in order to discuss the contested Appellate Body findings on admission of amicus curiae briefs after proposals for a consensus-based DSB decision on this legal interpretation had been vetoed in the DSB—confirms this legal interpretation of the residual decision-making powers of the WTO General Council and WTO Ministerial Conference.35 Allowing individual WTO members to abuse “veto powers” for rendering administrative and judicial WTO institutions dysfunctional would entail de facto amendments of WTO rules that run counter to the democratic mandate given by parliaments to implement and modernize, but not to destruct WTO rules and institutions. 34 Marrakesh Agreement Establishing the World Trade Organization art. IX:1, 15 Apr 1994, 1867 U.N.T.S.154 [hereinafter WTO agreement]. “The WTO shall continue the practice of decisionmaking by consensus followed under GATT 1947. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting” … “Decisions of the Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise provided in this Agreement or in the Multilateral Trade Agreements”. The “exceptions” for consensus-based decision-making by the DSB (e.g. pursuant to Articles 2.4, 16.4, 17.14 DSU) do not prevent the Ministerial Conference or General Council from meeting collective WTO legal obligations by voting if “a decision cannot be arrived at by consensus” in the DSB due to illegal blocking of consensus in the DSB. 35 Note 3 to Article IX:1 WTO (“Decisions by the General Council when convened as the Dispute Settlement Body shall be taken only in accordance with the provisions of paragraph 4 of Article 2 of the Dispute Settlement Understanding”) is no legal obstacle to majority decisions by the WTO Ministerial Conference or by the General Council deliberately not convening as DSB in order to meet the collective duties of WTO members to comply with Article 17 DSU. Such convening of the WTO General Council in order to overcome disagreements in the DSB has been practiced already in the past, for instance when WTO Members wanted to censure the AB for its handling of amicus curiae briefs (cf. General Council, Minutes of Meeting—Held in the Centre William Rappard on 22 November 2000, WT/GC/M/60 (23 Jan 2001); Kuijper, supra note 13, at p. 10).

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4 Four Options for WTO Members to Respond to Illegal “Blocking” of WTO Appellate Body Nominations How should WTO members interested in realizing the DSU reform objective of preserving and further strengthening the WTO dispute settlement system respond to the US attempt at rendering the functioning of the WTO AB impossible by blocking the filling of AB vacancies? Sections 1 to 3 suggest that—just as the US withdrawal from the 2015 Paris Agreement did not provoke other UN member states to abandon climate change prevention, and 11 signatory states of the Trans-Pacific Partnership Agreement responded to President Trump’s withdrawal from this FTA by renegotiating and applying this Agreement among themselves (as from December 30, 2018) in order to enhance their economic welfare—WTO members must comply with their legal obligations to maintain the WTO dispute settlement system for “the willing world”, i.e. those citizens and democratic governments who are reasonable enough and “democratically capable” to protect and modernize the WTO trading and legal system as a global PG of existential importance for realizing the universally recognized “sustainable development goals”. This rule-of-law objective may be promoted through (1) member-driven DSU reforms, (2) WTO dispute settlement procedures, (3) administrative majority decisions on the filling of the AB vacancies, and (4) through pragmatic use of Article 25 DSU as an agreed substitute for appellate review as long as the US continues blocking the AB so as to increase US leverage to impose more fundamental “WTO reforms”.

4.1 US Unwillingness to Resolve the AB Crisis Through DSU Reforms At the WTO General Council meeting on 12 December 2018, Australia, Canada, China, the EU, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland presented joint proposals for overcoming the current deadlock in the WTO AB by amending the DSU in order to accommodate the concerns expressed by the US, notably by • negotiating new DSU rules for outgoing AB members which make clear on which cases they can stay on to complete the appeal proceedings they are working on; • ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in Article 17 DSU, unless the parties in the dispute agree otherwise; • clarifying that the legal issues subject to appeal by the AB do not include the meaning of domestic legislation; • specifying that the AB should only address issues necessary to resolve the dispute;

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• and introducing annual meetings between WTO members and the AB to discuss in an open way systemic issues or trends in jurisprudence.36 Three features of these DSU amendment proposals are characteristic: • They respond to the concerns raised by the US Trump administration so as to strengthen member-control over the AB. • They were coordinated and initiated without inclusion of the US delegation so as to avoid US obstruction. • As US trade diplomats fail to indicate under which conditions they are willing to stop their illegal blocking of the filling of AB vacancies, the proposal includes a footnote that, “(i)f the amendment of the DSU proves to be impracticable to achieve this objective swiftly, we will consider other legal instruments appropriate for that purpose”. In an additional “Communication from the EU, China and India to the General Council”,37 these three largest WTO members propose additional DSU amendments to reinforce the AB’s independence and impartiality and to improve its efficiency, for instance by • providing for a single, longer term of AB members of 6–8 years; • increasing the number of members from 7 to 9 working full-time, to support the AB’s capacity to deliver; and • ensuring that the selection process of AB members starts automatically when a post is vacant, and that there is an orderly transition with outgoing members. Also this communication was initiated and elaborated without US trade diplomats, as they no longer seem to support the objective of reinforcing the AB’s independence, impartiality and efficiency. Both proposals were rejected by the US delegation at the General Council meeting on 12 December 2018. At the DSB meeting on 22 July 2019, the US, once again, objected to the proposal by Mexico—on behalf of 114 WTO members—to establish a selection committee for filling the AB vacancies. In response, more than 20 WTO members reiterated their concerns that the legal obligations of WTO members to fill the four AB vacancies should not be linked to DSU reform negotiations or to controversial US interpretations of Article 17 DSU; and the US representatives should indicate under which conditions the USA would be willing to participate in the nomination of the vacant AB positions. Yet, many WTO representatives now seem to pragmatically accept that—even if the AB risks being reduced to one single AB member as of December 2019 and new appeals will no longer be possible—the AB will continue to resolve the pending appellate disputes based on “Rule 15”; also WTO panels might continue to work pragmatically (e.g. based on bilateral agreements to refrain from appeals, or to use bilaterally 36 See

Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico to the General Council, WT/GC/W/752 (26 Nov 2018). 37 Cf. Communication from the European Union, China and India to the General Council, WT/GC/W/753 (26 Nov 2018).

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agreed arbitration pursuant to Article 25 DSU as a pragmatic substitute for AB proceedings). Many WTO members hope that—if President Trump could be replaced by a democratic US President in 2021—the WTO AB system could still be saved.

4.2 Recourse to WTO Dispute Settlement Proceedings? Article 1:1 DSU clarifies that the DSU applies also to “consultations and the settlement of disputes between Members concerning their rights and obligations under the provisions of the Agreement Establishing the World Trade Organization… and of this Understanding”. Both Article III WTO Agreement and the DSU make clear that the “dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system” and “serves to preserve the rights and obligations of Members under the covered agreements” (Article 3:2 DSU). Hence, WTO members could challenge the US violations of Articles 3:2, 17:2 and 23:1 DSU also by invoking WTO panel proceedings against the USA, independent of or in combination with the numerous complaints by WTO members challenging the discriminatory US tariffs imposed on aluminum, steel and numerous Chinese products. Yet, as the US prevention of the filling of AB vacancies is likely to render the AB dysfunctional as of December 2019 and, thereby, to enable the US also to prevent the adoption of adverse WTO panel reports on such legal complaints (e.g. by means of appeals leading to the non-adoption of any such panel reports in view of Article 16:4 DSU), this option will not enable a timely resolution of the “AB crisis”.

4.3 Administrative Majority Voting on the Filling of the AB Vacancies? As the US Trump administration seems to be unwilling to engage in good faith negotiations on DSU amendments responding to the US concerns, the above-mentioned footnote in the first communication of 26 November 2018—and its reference to “other legal instruments” available under WTO law for protecting the WTO legal and dispute settlement system—needs to be clarified. Such other legal instruments include, inter alia: • Initiation and completion—“by a majority of the votes cast” (Article IX:1 WTO Agreement) in the WTO General Council or WTO Ministerial Conference rather than in the DSB—of the WTO procedures for selection and timely appointment of vacant AB positions. This legally prescribed majority voting by the WTO Ministerial Conference or General Council is justified by the illegality of the US blockage of the administrative DSB duties to maintain the AB as prescribed in Article 17

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DSU.38 The text of Article IX:139 confirms that the WTO Ministerial Conference and General Council are legally required (“shall”) to overcome illegal “blocking” in the DSB of the filling of AB vacancies by such majority decisions in order to meet the collective WTO legal duties to maintain the AB as prescribed in Article 17 DSU, similar to the existing WTO procedures for appointing the WTO DirectorGeneral through a majority decision “where a decision cannot be arrived at by consensus”.40 Such administrative decisions aimed at protecting the functioning of existing WTO institutions—and at preventing their power-oriented de facto amendment—do not set any precedent for the different GATT/WTO traditions of avoiding majority voting on political and legislative, discretionary decisions. • In order to pre-empt objections (e.g. by the US) to such a majority decision as mandated by Article IX:1 WTO, the WTO Ministerial Conference or General Council could also adopt an “authoritative interpretation” based on “a three-fourths majority of the Members” (Article IX:2 WTO) confirming their collective legal duties and existing WTO powers to fill “vacancies … as they arise” (Article 17 DSU) through majority decisions, for instance in view of Article XVI:3 WTO Agreement.41 This “authoritative interpretation” could also confirm that such majority decisions on meeting collective legal obligations of all WTO members do not establish a precedent for WTO decision-making on discretionary trade policy issues. • As such majority decisions of WTO bodies require diplomatic preparation in order to overcome resistance by US trade diplomats, WTO members might further confirm, and temporarily resort to, the availability of “arbitration within the WTO as an alternative means of dispute settlement” (Article 25.1 DSU)—also for agreed appellate review of WTO panel reports. Yet, such mutually agreed use of arbitration under Article 25 DSU to ensure the availability of appeals entails numerous problems42 that risk further undermining the WTO dispute settlement system. As consensus-based DSU reforms continue to be out of reach, and in order to pragmatically accommodate US power politics, a WTO majority decision on filling the 38 As

explained above in section 2.2. WTO Agreement, supra note 34 and related text. 40 See Procedures for the Appointment of Directors, supra note 33. The text of Article IX:1 confirms that the same “exception” must be applied to illegal blocking of the appointment of AB members. 41 WTO Agreement, supra note 34, art. XVI:3 provides: “In the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provisions of this Agreement shall prevail to the extent of the conflict.” If the US should claim that Article 2:4 DSU (“Where the rules and procedures of this Understanding provide for the DSB to take a decision, it shall do so by consensus”) protects a veto-power of the US for indefinitely blocking the filling of AB vacancies (and, thereby, de facto amending the DSU), the “authoritative interpretation” could clarify that— according to its Article XVI:3—the legal duties under Article IX:1 of the WTO Agreement must prevail and require overcoming any “conflicting interpretations” of WTO rules so as to prevent illegal abuses of veto-powers and protect the collective WTO obligations of maintaining the AB as legally prescribed in Article 17 DSU. WTO members have no legal and democratic mandate to amend the DSU de facto by rendering the exercise of AB jurisdiction impossible. 42 On the problems of using Article 25 DSU as a bilaterally agreed substitute for AB review of WTO panel reports (such as non-adoption of the panel and arbitration reports by the DSB) see the analysis by former US congressman and former AB chairman (Bacchus 2018b; Anderson et al. 2017). 39 See

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AB vacancies could also acknowledge that—if the US government fails to support the filling of AB vacancies and does not propose a US AB member—the other WTO members will submit disputes to the newly composed AB only among each other without initiating AB proceedings against the USA.

4.4 Hegemonic WTO Reforms Imposed by the USA? In his testimony before the US Senate Committee of 12 March 2019, USTR Lighthizer explained the US strategy of “vetoing” the filling of AB vacancies as a means for enhancing US leverage to strengthen the WTO rules on, inter alia • the current imbalance of market access commitments (e.g. comparing the average US bound tariff rate of 3.4% for all goods with that of India of 48.5%); • non-compliance by many countries (like China) with WTO notification requirements (e.g. for subsidies); • the unjustified self-declaration of many WTO members (like China, India, Turkey, South Korea) as “developing countries”; and • on prevention of “judicial activism” by the AB. Until summer 2019, the prevailing preference among WTO representatives remained to pragmatically avoid provoking the US hegemon (e.g. by majority voting on the filling of AB vacancies, which could provoke a possible US withdrawal from the WTO) in the hope that US President Trump may be replaced by a democratic US President in 2021. A different USTR (like former US Congressman and WTO AB chairman J. Bacchus) might be more willing to protect the WTO legal and dispute settlement system and to cooperate with market-oriented WTO members in adjusting the existing WTO legal system to the regulatory challenges of the twenty-first century, including China’s state capitalism. The transition from GATT 1947 to the WTO suggests that replacing the existing WTO by a new “WTO 2.0” (e.g. with more comprehensive competition rules and more WTO disciplines on market-distorting “state capitalism”) may be politically easier to realize than consensus-based, formal amendments of the existing WTO Agreement.

5 Outlook: The Limits of “Judicialization” and “Public Reason” According to the legal philosopher J. Rawls, independent and impartial judges should use their constitutional mandate for administering justice by interpreting and clarifying the applicable law and adjudication as “exemplars of public reason”; through their rules-based settlement of disputes and judicial justifications of legal interpretations, courts of justice contribute to institutionalizing “public reason” among all

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legal subjects, which is a precondition for promoting legal security and democratic support of democratic legal systems.43 This is essential not only inside, but also beyond states for maintaining an “overlapping consensus”, “legal socialization” and shared commitments among free, equal and reasonable citizens cooperating in the worldwide division of labor, and also among government representatives with often diverse self-interests and political conceptions of justice.44 In the WTO legal and dispute settlement system, “public reason” has dynamically evolved in response to WTO jurisprudence, as illustrated by the today generally accepted AB justifications of why, inter alia, – WTO law cannot be interpreted “in clinical isolation” from general international law; – consistent AB interpretations of “fair price comparisons” in dumping calculations must be taken into account by WTO panels in their interpretation of the WTO Agreement on Article VI GATT; – WTO judges may accept amicus curiae briefs and, with the consent of the parties, open oral proceedings to the public; or – why judicial reconciliation of WTO market access commitments with noneconomic “general exceptions” in WTO law requires proportionate “legal balancing”.45 WTO panel, AB and arbitration procedures serve multiple functions, for example for (1) dispute settlement through third-party adjudication; (2) impartial and independent rule-clarifications enhancing legal security; (3) judicial rule-making (e.g. by elaborating panel, AB and arbitration working procedures as mandated by the DSU); (4) clarification and legitimization of “public reason” in multilevel trade governance through WTO jurisprudence and its critical discussion in the DSB; (5) protection of transnational rule of law and, thereby, (6) also of democratic legitimacy of trade policies as prescribed by democratic institutions in WTO member states when they approved the WTO legal and dispute settlement system for the benefit of their citizens and peoples. The “principles of justice” justifying these multiple judicial functions also justify the specific DSU provisions that panel and AB reports “shall be adopted by the DSB and unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the … report” (cf. Articles 16:4, 17:14).46 Yet, democratic constitutionalism and WTO law have not prevented US President Trump from systematically violating WTO rules and dispute settlement procedures based on US claims that, inter alia, the lack of adequate WTO legal disciplines on Chinese market distortions (e.g. by means of non-transparent subsidies, stateowned enterprises and “forced technology transfers”) undermines the rules-based market foundations of the WTO legal and trading system and requires power-oriented “bilateral deals”. 43 Cf.

Rawls (1993, p. 231 ff). Petersmann (2015, p. 208 ff). 45 Cf. Van den Bossche and Zdouc (2017, e.g. p. 60 ff., p. 560 ff., p.710 ff). 46 Such “positive consensus” has so far never emerged in WTO dispute settlement practices. 44 Cf.

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5.1 The Systemic Conflicts Caused by the US Trade Wars Test the Limits of “Judicialization” The increasing conflicts—as illustrated by discriminatory, illegal US trade protectionism, trade wars and US obstruction of the WTO dispute settlement system— between hegemonic, neo-liberal US approaches, ordo-liberal European approaches, and authoritarian Chinese approaches to the multilateral trading system illustrate the political limits of the progressive “judicialization” of the WTO legal system since 1995. The hegemonic domination of the development of GATT/WTO law by the USA since 1948 entailed that many problems of American democracy, neoliberalism and interest group politics progressively undermined also GATT/WTO law and practices.47 The US claims that “economic security” is part of “national security” justifying violations of all WTO rules without WTO jurisdiction for judicial review, illustrate the legal inconsistency of the “neo-liberal” trade and security strategies of the Trump administration with a rules-based, multilateral WTO legal system; even though they are convincingly challenged by numerous WTO members, the currently pending WTO panel proceedings risk failing to settle these disputes, for instance if adverse panel findings are likely to be appealed by the US administration and not being adopted in the absence of a functioning WTO appellate review system. Also the US proposals for bilateral trade agreements with China and with the EU risk further undermining the multilateral WTO system (e.g. in view of their apparent inconsistencies with Articles I, XI, XXIV GATT). The 2018 US Trade Policy Agenda describes China’s market distorting policies (e.g. regarding state-trading enterprises, subsidies, communication services, intellectual property rights, government procurement, competition and monetary distortions) and its “unreasonable and discriminatory efforts to obtain US technologies and intellectual property” as one of the biggest challenges to the US economy, US security and the WTO system.48 The US “Section 301 trade sanctions” vis-à-vis China were 47 Examples include (1) protectionist abuses of trade remedy rules; (2) excessive, unilateral interpretations of “national security’ in US trade laws (e.g. Section 232); (3) hegemonic recourse to “aggressive unilateralism” (e.g. Section 301); (4) disregard for the customary rules of treaty interpretation in favor of alleged historical intentions of US negotiators; (5) politicization of appointments of judges; (6) political interferences into third party adjudication disregarding the democratically defined separation of executive and judicial powers (e.g. of the AB); (7) abusive “blocking” of the nomination of judges; or (8) of the adoption of impartial dispute settlement rulings; and (9) nonimplementation of legally binding dispute settlement rulings. The less US governments succeed in limiting such “domestic governance failures”, the more “populist protectionists’ inside the US (e.g. US steel lobbies and their former advocates like R. Lighthizer) call for adjusting WTO rules to US protectionism, as illustrated by the long-standing US calls for using Article 17.6 Antidumping Agreement as a legal restraint on WTO review of trade remedy measures (Article 17.6(ii) was inserted into the Antidumping Agreement at the request of the US in late 1993 in the US hope of incorporating the “Chevron doctrine” of US constitutional law—prescribing judicial deference vis-à-vis regulatory agencies controlled by the US Congress—into WTO law). On the threat posed by President Trump’s trade mercantilism for democracy in the US and the WTO trading system see Petersmann (2018d). 48 Cf. The President’s Trade Policy Agenda, supra note 17, at p. 4.

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introduced unilaterally without compliance with WTO rules (e.g. GATT Articles I and II) and WTO dispute settlement procedures (e.g. Article 23 DSU). The 2019 US proposals for concluding a bilateral trade agreement with China without third-party adjudication, and the US “blocking strategy” enabling the Trump administration to prevent adoption of WTO panel and AB reports as of 2020, reflect the US rejection of third-party adjudication in the context of the US trade wars directed not only against China, but also against other countries adversely affected by US import restrictions (e.g. on steel and aluminum) on grounds of national security. Even if WTO panels should find these US invocations of GATT Article XXI legally unjustifiable, USTR Lighthizer has repeatedly stated that the US does not accept third-party adjudication of its rights under WTO “security exceptions”. The systemic challenges of the WTO legal and dispute settlement system by market-distorting US and Chinese power politics render it uncertain whether the ordo-liberal, multilateral principles underlying the WTO legal and dispute settlement system49 and the progressive clarification and “judicialization” of WTO law, since 1995, through more than 380 WTO panel, AB and arbitral reports can survive the current WTO governance crises.

5.2 Can Ordo-Liberal WTO Reforms Avoid a Power-Oriented Fragmentation of the WTO Legal System? The current WTO governance crises resemble the GATT crises of the 1980s, when an increasing number of “voluntary export restraints” (hereinafter “VERs”) imposed by US power politics (some of them negotiated by then Deputy USTR Lighthizer) led to increasing legal challenges by adversely affected third countries and to the replacement of GATT 1947 by the 1994 WTO Agreement explicitly prohibiting VERs. Postwar European “ordo-liberalism” emphasizes that non-discriminatory market competition maximizing general consumer welfare requires systemic legal limitations of “market failures” (e.g. by competition, environmental and social laws) and of “governance failures” (e.g. by limited delegation and separation of governance powers, institutional “checks and balances” among legislatures, executives and judiciaries, judicial remedies). Both neo-liberal American trade protectionism driven by domestic interest-group politics, and ‘totalitarian Chinese state-capitalism’ risk undermining the WTO objectives of non-discriminatory market competition 49 For a discussion of the ordo-liberal “Geneva school of law and economics”, its influence on the design of the WTO Agreement, and its comparison with other schools of “law and economics”, see Slobodian (2018b, at p. 7 ff., p. 183 ff., p. 208 ff., p. 260 ff.), who describes the WTO as “the paradigmatic product of Geneva School neoliberalism” (p. 25), and the “creation of the WTO (as) a crowning victory of the neoliberal project of finding an extra-economic enforcer for the world economy in the twentieth century” (p. 23). See also my review of this book and of its inadequate distinction between Anglo-Saxon neo-liberalism and European ordo-liberalism in: 21(4) J Int Econ Law (2018d). On using the ordo-liberal principles of competition policy, social policy, rule-of-law and democratic constitutionalism for reducing the systemic conflicts in the WTO, see Petersmann (2019).

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and sustainable development. Also bilateral trade sanctions imposed by the USA in response to Chinese market distortions offer no substitute for the lack of comprehensive, multilateral WTO competition rules (e.g. limiting trade distortions by state-trading enterprises, subsidies, forced transfers of intellectual property rights, restrictions of internet services, discriminatory government procurement practices). The longer the trade wars between China and the USA, and the US “blockage” of the AB, undermine the WTO legal and dispute settlement system, the more important becomes leadership by other WTO members for protecting the WTO legal, dispute settlement and trading system in relations among countries willing to defend the global PGs of sustainable development and a rules-based, multilateral trading system. This contribution has argued that the “Geneva ordo-liberalism” underlying some of the multilevel WTO legal and dispute settlement rules offers coherent principles for overcoming the WTO governance, dispute settlement and regulatory challenges, including for modernizing WTO rules through additional legal disciplines for nondiscriminatory competition, “special and differential treatment” of less-developed economies, and transnational rule of law—i.e. the three main targets of US criticism of inadequate WTO rules and practices. De-escalating the 2018 “tariff wars” by progressively transforming the 1994 WTO Agreement into a “WTO 2.0 fit for the twenty-first century” requires leadership by adversely affected WTO members and their democratic institutions, notably by the EU and its member states, which are already committed to protecting a “competitive social market economy” and transnational “rule of law” inside and beyond the European common market (cf. Articles 3, 21 TEU). Unfortunately, such leadership continues to be lacking—not only in the WTO (e.g. due to the lack of interest of US President Trump in reforming the WTO’s DSU), but also in the UN governance crises relating to climate change and sustainable development. China continues to support the WTO legal and dispute settlement system; but it may only be a matter of time until the US assault on the worldwide WTO system might prompt China to give priority to developing its own Eurasian trading system, for instance by deepening its bilateral “Silk Road Agreements” with more than 70 WTO member states and with the resource-rich, former Soviet republics cooperating in the “Eurasian Economic Union”, and by pushing for the conclusion of the draft agreement on the Regional Comprehensive Economic Partnership among 16 Asian countries. China’s totalitarian rulers might appreciate becoming “rule-makers” in a-symmetric, Eurasian trade and investment agreements (rather than remaining “rule-takers” in the WTO). They might also prioritize China’s traditional preference for political (i.e. power-oriented), bilateral dispute settlement methods rather than continuing independent third-party adjudication in the WTO. This could further reduce the systemic importance of the WTO dispute settlement system.

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References Anderson S et al (2017) Using arbitration under Article 25 of the DSU to ensure the availability of appeals. The Graduate Inst Geneva. https://repository.graduateinstitute.ch/record/295745. Accessed 22 Mar 2019 Bacchus J (2018a) Might unmakes right. The American Assault on the Rule of Law in World Trade, Centre for International Governance Innovation CIGI Papers No. 173 Bacchus J (2018b) How to solve the WTO judicial crisis. Cato Institute. https://www.cato.org/blog/ how-solve-wto-judicial-crisis. Accessed 22 Mar 2019 Besson S, Marti JL (eds) (2009) Legal republicanism: national and international perspectives. Oxford University Press Cho S, Kurtz J (2018) Convergence and divergence in international economic law and politics. EJIL 29:169–203 Cook G (2015) A digest of WTO jurisprudence on public international law concepts and principles. CUP de Baere G, Wolters J (eds) (2015) The contribution of international and supranational courts to the rule of law. Elgar, USA Dunoff JL, Pollack MA (2017) The judicial trilemma. Am J Int Law 111:225–276 Gao H (2018) Dictum on dicta: obiter dicta in WTO disputes. World Trade Rev 17:509–533 Hillman J (2018) Three approaches to fixing the WTO’s Appellate Body: the good, the bad and the ugly? Institute of International Economic Law, Georgetown Univ Law Center Kuijper PJ (2018) The US attack on the WTO Appellate Body. Leg Issues Econ Integr 45:1–11 Luce E (2018) Donald Trump’s circus act is a sinister distraction. Financial Times. https://www.ft. com/content/1683fb06-a791-11e8-926a-7342fe5e173f. Accessed 22 Mar 2019 Petersmann EU (1997) The GATT/WTO dispute settlement system. International Law, International Organizations and Dispute Settlement. Kluwer, USA Petersmann EU (2012) International economic law in the 21st century. Constitutional Pluralism and Multilevel Governance of Interdependent Public Goods. Hart, London Petersmann EU (2015) The establishment of a GATT office of legal affairs and the limits of “public reason” in the GATT/WTO dispute settlement system. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO. CUP Petersmann EU (2017) Multilevel constitutionalism for multilevel governance of public goods— methodology problems in international law. Hart, London Petersmann EU (2018a) International economic law without human and constitutional rights? Legal methodology questions for my Chinese critics. J Int Econ Law 21(1):213–231 Petersmann EU (2018b) The 2018 trade wars as a threat to the world trading system and constitutional democracies. Trade Law Dev 10(2):179 Petersmann EU (2018c) The Crown Jewel of the WTO has been stolen by US Trade diplomats—and they have no intention of giving it back. In: Prévost D et al (eds) Restoring trust in trade—Liber Amicorum for Peter Van den Bossche. Hart, London, pp 105–118 Petersmann EU (2018d) A comment on Globalists: The end of empire and the birth of Neoliberalism. J Int Econ Law 21(4) Petersmann EU (2018e) How to Reconcile Human Rights, Trade Law, Intellectual Property, Investment and Health Law? WTO Dispute Settlement Panel Upholds Australia’s plain packaging Regulations of Tobacco Products. EUI Working Paper Law 2018/19 Petersmann EU (2019) How WTO members should respond to their WTO governance crises. World Trade Rev 18:503–525 Politi J (2018) Donald Trump’s China pivot. Financial Times. https://www.ft.com/content/ b771c85c-b4a4-11e8-bbc3-ccd7de085ffe. Accessed 22 Mar 2019 Rawls J (1993) Political liberalism. Harvard UP Romano CPR (ed) (2009) The sword and the scales. In: The United States and international courts and tribunals. CUP Rosas A, Armati L (2018) EU constitutional law: an introduction. Bloomsbury, London

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Prof. Dr. Ernst Ulrich Petersmann studied law and economics at the Universities of Berlin, Heidelberg and Freiburg (Germany), Geneva and the London School of Economics before receiving his doctor juris utriusque from the Law Faculty of Heidelberg University (1976) and his admission to the bar in 1977. He taught constitutional law at the Universities of Hamburg and Heidelberg and was a Professor of international law and European law at the Universities of St. Gallen, Fribourg, Geneva, the Geneva Graduate Institute of International Relations, the European University Institute (EUI) at Florence and the EUI’s Robert Schuman Centre for Advanced Studies. As a visiting professor, Dr. Petersmann taught international economic law at the Hague Academy of International Law, the EUI Academy of European Law, the Xiamen Academy of International Law, and at numerous Universities in Germany, Switzerland, Italy, Spain, the USA, Colombia, South-Africa, China, India and Singapore. He published more than 30 books and 350 contributions to books and journals in German, English, French and other languages focusing on international law, European law and comparative constitutional law. His most recent monograph is: Multilevel Constitutionalism for Multilevel Governance of Public Goods—Methodology Problems in International Law, Hart Publishing, Oxford 2017, 400 pages. In parallel to his academic career, Professor Petersmann worked as legal counsel for the German government representing Germany in European and UN institutions (1978–1980), as well as legal counsel in GATT and legal consultant for the WTO (1981–2019). He was a secretary, member or chairman of GATT and WTO dispute settlement panels. He served as Head of the Law Department of the EUI (2006–2009), rapporteur (1993–1999) and chairman of the International Trade Law Committee of the International Law Association (2000–2014), and former secretary of the Uruguay Round Negotiating Group which negotiated the Dispute Settlement Understanding (DSU) of the World Trade Organization, Emeritus professor of International and European Law and former head of the Law Department at the European University Institute, Florence, Italy.

Chapter 3

Reforming the Appellate Body Mitsuo Matsushita

Abstract The Appellate Body (hereinafter AB) has been criticized for exercising “judicial activism” on the one hand, and, on the other hand, for being too literalistic in its interpretation of the WTO agreements. This reflects the question of whether the Appellate Body is an international court of trade. After reviewing the judicial features of the AB, i.e., automaticity of decision-making and compulsory jurisdiction, this chapter considers the U.S. concern for AB’s judicial activism and for the AB’s practice that may adversely affect the sovereignty of WTO Members. The problem is that there is no mechanism for checks and balances in regard to the AB in the WTO. Accordingly, this chapter considers several potential institutional reforms that may put some discipline on the AB, including optional DSB jurisdiction, reduction of the threshold of the exclusive authority of the Ministerial Conference and the General Council to adopt interpretations, and establishment of an informal peer group to review AB reports. Keywords Appellate Body · Judicial activism · Checks and balance · AB reform

1 Is the WTO Appellate Body an International Trade Court? Although the WTO Appellate Body has been praised for its good performance since its establishment in 1995, at the same time, it has been faced with criticisms. Criticisms to the Appellate Body can be divided into two groups, e.g., that it has engaged in “law making” rather than strictly limiting itself to interpreting provisions of WTO

M. Matsushita (B) Tokyo University, Tokyo, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_3

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agreements and overstepped the boundaries imposed on the role assigned to it.1 This is the criticism based on the idea that the Appellate Body has exercised “judicial activism” either in engaging in a de facto legislation or in excessively interpreting WTO agreements even when it is not necessary to interpret them to resolve a particular dispute before it. Another criticism is that the Appellate Body has been too literalistic or narrow in interpreting them, i.e., that it interprets WTO agreements according to their literal or grammatical meaning without considering the relevant contextual connotations and implications.2 In other words, the Appellate Body has been criticized as interpreting WTO agreements just like a translating machine and has not given sufficient attention to their legislative purposes and the issue of balancing of interests that may be involved in them. Both of those seemingly opposite criticisms may be true in a sense. Those two opposing criticisms reflect the position in which the Appellate Body is placed. This raises a question of whether the Appellate Body is an international court of trade. The Appellate Body is a unique creature among international organizations and is perhaps unprecedented. A question can be raised as to whether this curious animal called the Appellate Body is a judicial organ or a court.3 Generally, courts are independent from other decision-making bodies of the government, i.e., the legislative branch and the executive branch. Their decisions are made independently from any other organ and they enjoy the independence of decision-making. Their decisions are enforced through the mechanisms of judiciary. This is true with international courts such as the International Court of Justice (the ICJ) and the International Tribunal for the Law of the Seas (the ITLOS). Although the effectiveness of their decisions largely depends on the willingness of the parties to comply with them, this does not deprive them of the basic feature that they are judicial bodies which make their decisions independently and without interference of any other body.

2 Automaticity of Decision-Making Compared with such features of judicial bodies, the function of a panel and the Appellate Body is to submit reports to the DSB (the Dispute Settlement Body which is the General Council of the WTO acting as the Dispute Settlement Body) based on legal judgments. Whenever, in a dispute before it, the Appellate Body finds that a conduct of a WTO Member is inconsistent with a WTO agreement, the Appellate Body issues a report in which it reviews the panel report and either upholds, modifies 1 When the Shrimp/Turtle ruling by the Appellate Body was adopted (Appellate Body Report, United

States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 Nov 1998), Chile and Mexico criticized the appellate report and stated that the Appellate Body read between line of WTO agreements and this is simply not allowed. For details, see Donaldson (2005), pp. 1277–1339. 2 For details, see Matsushita (2005, pp. 1389–1403). 3 For details of this discussion, see Matsushita (2015, pp. 547–58).

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or reverses the report.4 In doing so, the Appellate Body lays out detailed legal analysis why the panel report should be upheld, modified or reversed as the case may be. This Appellate Body report is submitted to the DSB and the DSB adopts it unless the negative consensus not to adopt it is established. However, the winning party in a dispute is always in favor of adoption of the report which is favorable to it and so there is at least one vote in favor of adopting the report and, in this way, the negative consensus is never established. Therefore, an Appellate Body report is always adopted and this process is referred to as “the automaticity”. As stated above, the automaticity guarantees that an appellate report is always adopted and, in this way, the Appellate Body has the ultimate power to decide cases before it. There is no higher organ in the WTO to which the losing party can appeal and, in this sense, the Appellate Body acts just like a supreme court in a nation-state.

3 Compulsory Jurisdiction Another feature of the WTO dispute settlement process composed of two-tier stage of panel/Appellate Body is that it has a compulsory jurisdiction over WTO Members. The dispute settlement mechanism in the WTO has a compulsory jurisdiction in that a WTO Member cannot avoid the jurisdiction of the WTO by refusing to accept it. This is different from other dispute settlement procedures in other international tribunals such as the International Court of Justice where a party can avoid the jurisdiction of the court by simply refusing to adopt it. In the WTO dispute settlement mechanism, the jurisdiction is compulsory in that a WTO Member cannot escape the jurisdiction simply by refusing to accept it. If a Member who has been named as a respondent refuses to respond to a claim, still the proceeding takes place without that party present. A judgment is rendered against that party and, even if that party refuses to react, still the DSB can authorize suspension of concessions to the claimant against the respondent if the respondent refuses to take a measure to remedy the wrong. This compulsory jurisdiction of the WTO dispute settlement mechanism makes it a unique dispute settlement process among dispute settlement procedures of international tribunals in the sense that it is equipped with teeth to bite. One must say that the power of the Appellate Body as the final decision-maker in deciding cases in the WTO is only de facto in nature and formally the Appellate Body remains as an auxiliary body or recommending body because its power is limited to submitting its report to the DSB and not making its own decision which becomes a WTO decision. In this sense, there is a curious dichotomy between the formal structure of the Appellate Body in which it is only an auxiliary agency to the DSB and the substantive power of it to make a final decision in the dispute settlement procedures of the WTO.

4 Article 17(13) of the Dispute Settlement Understanding states: “The Appellate Body may uphold,

modify or reverse the legal findings and conclusions of the panel”.

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As touched upon below, this dichotomy of form and substance originated from the political situation at the time when the WTO and the DSB came into being. It also means that the Appellate Body is based on a delicate balance between the two seemingly opposing requirements, e.g., that, in order to guarantee the stability of the dispute settlement process at the WTO, the Appellate Body should have the ultimate power to decide cases (albeit its power is de facto in form) and that the Appellate Body’s decision is subject to adoption and approval of the DSB and the DSB has the ultimate power (even though a formal power) to decide cases. This position of the Appellate Body reflects a compromise that was reached in the Uruguay Round Trade Negotiation in respect of the dispute settlement process at the WTO. This indicates a unique position of the Appellate Body. The Appellate Body should be strong and yet it should not be too strong to the extent where it acquires its total independence and decide matters that bind other bodies of the WTO. Negotiators at the Uruguay Round Trade Negotiation did not wish to create an independent court of international trade which is empowered to make its own judgment and “hand down” decisions on WTO Members. Their belief was that the WTO is a Memberrun organization and any organ in the WTO should not be given the authority to pass-on wrongs that they may commit outside the limit of power granted to it by the DSU (The Dispute Settlement Understanding). If a wrong has been committed by a Member of the WTO, it should be the Member themselves which decide what judgment should be made on that member and not an independent body whether it is called a court or not. Therefore, the power of panels and of the Appellate Body should remain as auxiliary to the powers of the WTO Members to decide cases at their own decision. Their concern was aggrandizement and judicial activism on the part of the Appellate Body with the power to decide cases independently of the powers of WTO Members. This is somewhat akin to the circumstance when the International Trade Organization (the ITO Charter or the Havana Charter), the predecessor of the GATT 1947, was discussed shortly after the end of the Second World War.5 The United States proposed the ITO Charter which included a wide range of trade liberalization measures such as elimination and reduction of tariffs, mitigation of non-trade barriers of trade, competition policy and so on. The International Trade Organization to be established on the basis of the ITO Charter would be a subsidiary organization under the United Nations Economic and Social Council. The ITO Charter was signed by many countries but ultimately the United States Senate refused to give the President of the United States an approval to ratify the ITO Charter. As the result of it, the ITO Charter was relegated to limbo and did not surface again. After the failure of the ITO Charter, 23 trading nations engaged in a negotiation for a temporary and yet a comprehensive trade agreement. The result was the establishment of the General Agreement on Tariffs and Trade in 1947.

5 For

a history of the GATT including that of the International Trade Organization, see Van den Bossche (2005, p. 79) et seq.

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4 Concern for Judicial Activism The frustration of establishing the ITO Charter was due to a deep-seated misgiving on the part of the United States Congress that the sovereign rights of the United States to control the foreign commerce of the United States by U.S. laws might be compromised by this international agreement. This concern was shared by the negotiators of the Uruguay Round Trade Negotiation and the concern that panels and the Appellate Body of the WTO might overstep their powers and unduly infringe sovereignty of Members was widely shared among them. As a consequence, the Dispute Settlement Understanding (the DSU) provides twice that panels and the Appellate Body shall not add to or diminish the rights of Members: i.e., once in Article 3.2 stating that “Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements” and again in Article 19.2 stating that “In accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and the Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements.” The fact that negotiators at the Uruguay Round Trade Negotiations made sure twice in the DSU that panels and the Appellate Body cannot add to or diminish rights and obligations of the WTO Members shows that negotiators wanted to ensure that rights and obligations of WTO members should be jealously safeguarded against encroachment of the dispute settlement bodies of the WTO. This concern of the United States government was more recently expressed in March 2017 when the new administration under the President Trump announced in the Trade Agenda that the United States government would not necessarily be bound by rulings of panel and the Appellate Body.6 It states clearly that when a panel and/or the Appellate Body rendered rulings which go against the interests of the United States, the United States is not bound to comply with it. Technically the United States has taken the position that the WTO law would not override a U.S. federal law which is inconsistent with it ever since the establishment of the WTO in 1995. On the contrary, the United States has taken the position that a U.S. federal law would be given priority to the WTO law.7 In this sense, this position is not surprising. However, what is important is that the United States has taken the policy of complying with WTO rulings when U.S. laws come into conflict with the WTO.

6 Office of the u.s. trade representative, national trade estimate report on foreign trade barriers (2017,

pp. 1–7). fact, the Uruguay Round Implementation Act enacted by the United States Congress to implement the contents of WTO agreements states clearly to that effect. See, for details, Sect. 102 (a) Relationship of Agreements to United States Law and State Law states: “(1) United States Law To Prevail in Conflict—No provision of any of the Uruguay Round Agreements, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United State shall have effect”. See, for details, Uruguay Round Agreements, Texts of Agreements, Implementing Bill, Statement of Administrative Action and Required Supporting Statements Message from the President of the U.S. (24 Sept 1994), 103d Cong., 2d Sess. House Doc. 103–316, Vol. 1–2.

7 In

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Examples include such cases as the U.S. 1916 Antidumping Act Case8 and the Byrd Amendment Case9 where the United States changed its domestic U.S. laws when the WTO Dispute Settlement Body declared that U.S. laws were inconsistent with the WTO mandates. The above statement by the Trump Administration may mean a change of policy in this regard and, in this sense, is worthy of attention. A potential tension between U.S. laws and the WTO law is especially acute in respect to the Appellate Body. Whereas, in the panel proceedings, Members who are dissatisfied with findings of a panel can make an appeal to the Appellate Body and seek for remedy, the Appellate Body wields the ultimate power to made a decision on any dispute and, even if the Appellate Body rendered a judgment which goes against the interest of a WTO Member, there is no recourse against it any more.

5 Need for Stable and Effective Dispute Settlement Mechanism On the other hand, there was a strong desire in negotiators of the Uruguay Round Trade Negotiation to establish a strong and effective dispute settlement mechanism in the WTO. There was a trade dispute system under the old GATT 1947. Although the dispute settlement mechanism under the GATT 1947 worked reasonably well, there was a structural problem in it. In the GATT dispute settlement mechanism, the ruling of the Contracting Parties had to be based on a consensus rule. In other words, under this regime, when a panel submitted its report to the Contracting Parties, the resolution to adopt it was made by a consensus rule. Therefore, any party could block the adoption of the report by casting a vote for not adopting it. Since it was to the advantage of the losing party not to adopt the report, the losing party was likely to vote against the adoption. This would mean that the losing party had the right to veto the resolution. This would cripple the dispute settlement mechanism. In order to overcome this defect, negotiators at the Uruguay Round decided to device the mechanism in which a panel and appellate report is adopted by a negative consensus. In this system, as indicated already, a panel and the Appellate Body still remain as auxiliary or advisory body in relation to the DSB which is the decisionmaking body. It is the DSB which makes a decision by adopting the panel/appellate report and yet the adoption of the report prepared by the panel and the Appellate Body is de facto guaranteed. One would wonder why negotiators did not decide to create an independent court of international trade which would be endowed with the power to decide cases so that WTO Members would be obligated to comply with the decision. Then there would be no need to create an unusual system where a panel and the Appellate 8 Appellate

Body Report, United States—Anti-dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R (adopted 26 Sept 2000). 9 Appellate Body Report, United States—Continued Dumping and Subsidy Offset Act of 2000, WT/DS217/AB/R, WT/DS234/AB/R (adopted 27 Jan 2003).

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Body recommend how to resolve disputes and yet that recommendation is always adopted. However, the negotiators did not want to go so far as to create a court of international trade to pass upon judgment on the conducts of Members. Quid pro quo for an automatic adoption of a panel and appellate report as prepared by the panel and the Appellate Body is the power to make a formal decision in regard to the dispute resolution to be retained by the DSB. Implied in the statement made by the Trump Administration in its Agenda of Trade Policy is a concern that the Appellate Body endowed with the power to make an independent decision which imposes on WTO Members rules of conduct may adversely affect the sovereignty of WTO Members (such as the United States) and unduly encroach upon their domestic matters. Although this concern is particularly acute in the United States, it is perhaps shared among some other Members of the WTO, especially developing countries. In this perspective, it is necessary to think about whether some changes or reforms may be made to the dispute settlement procedures of the WTO. The core of the issue is the position of the Appellate Body and so we turn to this issue.

6 Checks and Balances A problem is that there is no mechanism for checks and balances in regard to the Appellate Body in the WTO. In the domestic jurisdictions, the Supreme Court is given the power to decide cases which arise for interpretation of domestic laws of a country and, since the Supreme Court is the highest judicial authority in a country, there is no legal recourse to challenge the decision of the Supreme Court. However, if a decision of the Supreme Court is unreasonable, the legislature can enact a law to overturn it and, in this way, checks and balances operate to restore the balance. In the WTO, the bodies commissioned to act as the legislature are the Ministerial Conference and the General Council. However, in the WTO system, the Ministerial Conference and the General Council hardly function to provide such checks and balances. Checks and balances are necessary in any human institutions. Any human institution is not infallible and liable to mistake and the Appellate Body cannot assume infallibility. In this regard, the lack of checks and balances in relation to the Appellate Body is an institutional defect of the WTO. This is not just an academic question but has a practical consequence. As touched upon earlier, the U.S. seems to have a concern on the aggrandizement of the power of the Appellate Body and overstep the boundary within which it should operate. This concern stems from the lack of checks and balances in the decision-making of the Appellate Body. In light of the above, it is worthwhile to consider some institutional reforms intended to put some disciplines on the Appellate Body and rein in their conducts. The question is in what way the Appellate Body system can be changed.

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7 Different Forms of Dispute Settlement Mechanism How about changing the WTO dispute settlement system with compulsory jurisdiction to a system where the DSB jurisdiction is optional? Then disputes arising among WTO Members are dealt with by the WTO Dispute Settlement Body if the disputing parties agree to submit the case to the WTO. In this system, parties need to agree to submit their cases to the DSB, e.g., the jurisdiction of the WTO dispute settlement system accrues only when the parties to a dispute have agreed to submit the case to it. This system is like the proceeding at the International Court of Justice where the Court can render a judgment on the subject matter where the parties have agreed to submit the case to the Court. One has to say that this is a regress from the unique dispute settlement system in the WTO today where all of the WTO Members have to submit to the jurisdiction of the dispute settlement procedures at the panel and the Appellate Body. This will greatly weaken the effectiveness of the WTO dispute settlement process because the jurisdiction of the DSB would be contingent upon the submission of all of the parties to a dispute to the jurisdiction of the DSB. Another alternative is to make use of Article IX: 2 of the Marrakesh Agreement (the WTO Agreement) which states: “The Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements”. This Article provides the Ministerial Conference and the General Council the exclusive authority to adopt interpretations of WTO agreements. Therefore, the Ministerial Conference and the General Council have already the exclusive jurisdiction to rule on an issue in a dispute arising between WTO Members and, by using this authority, the Ministerial Conference and the General Council are authorized to adopt an interpretation which overrules that of the Appellate Body. However, the third sentence in Article IX: 2 of the Marrakesh Agreement states: “The decision to adopt an interpretation shall be taken by a threefourths majority of the Members”. A 3/4 majority is not easy to establish and it is difficult to invoke this provision. Then why not change this requirement from a 3/4 majority to a 2/3 majority or just a simple majority? The Ministerial Conference and the General Council are political bodies commissioned to make political and policy decisions. To confer the power to the Ministerial Conference and General Council to adopt interpretation to overturn rulings of the Appellate Body easily would mean that interpretation of WTO agreements ultimately depends on political needs of WTO Members. This will deprive the WTO dispute settlement mechanism of stable interpretation and application of WTO agreements. How about establishing an informal peer group within the WTO commissioned to review and make assessment of reports of the Appellate Body. It would consist of a relatively small number of distinguished persons in the field of international trade laws such as 10 members or even less. It would be appointed by the Director General of the WTO at a recommendation of a selective committee established within the WTO Secretariat. Membership consists of eminent professional persons such as judges, lawyers, diplomats or academics. This group reviews reports of the Appellate

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Body regularly (such as annually) and announce the evaluation of them. However, this group review is different from an appeal to a higher legal authority with the power of reversing reports rendered by the Appellate Body. This group has no power to review reports and cancel them if it thinks reports are not valid. Its function is limited to just make evaluation and express views on reports of the Appellate Body and the scope of review is limited to legal interpretation of WTO agreements by the Appellate Body. At present, academics play such a role of making evaluation academically. However, such review is sporadic and lacks regularity. On the other hand, the peer group review system recommended here has regularity and, since it is a group of experts specifically appointed by the WTO to review appellate reports, it will carry authority. Although, as mentioned earlier, its reports have no effect of upholding or reversing appellate reports, views expressed therein will be respected by the Appellate Body and will act as checks so that they will not go too much toward one direction.

8 Conclusion As stated above, the writer opined that the lack of checks and balances in respect to the working of the Appellate Body may be a source of uneasy feeling among some Members of the WTO that the Appellate Body may be prone to judicial activism. This concern seldom occurs in respect to domestic jurisdictions where the Supreme Court has the highest and ultimate power to decide cases. The reason is that, in domestic jurisdiction, there is a solid community which give trust to the Supreme Court and the legislature. Also, in most domestic jurisdictions, the legislature operates as the organ to exert checks and balances and come up with remedial laws which heal the wound inflicted by a mistaken judicial decision. Compared with the domestic situation, the WTO dispute settlement mechanism is grounded on a shaky basis. There is no comparably solid community which backs up the dispute settlement mechanism. The Appellate Body should realize that it is based on a delicate balance of interests, e.g., the sense among WTO Members that a strong and stable dispute settlement mechanism is necessary and also that the sovereign rights of Members should be jealously safeguarded. On the other hand, nothing in this chapter is intended to underestimate the performances of the Appellate Body in the past 20 or so years in resolving dispute among WTO Members and also in creating solid and stable jurisprudence on many aspects of WTO agreements. The performance of the Appellate Body in resolving dispute since the establishment of the WTO has been truly remarkable. It is not too much to say that its performance has been the most successful among many international tribunals entrusted to resolve international disputes in one way or another. The writer only wishes to note that any human institution is liable to mistake and the only way to correct it is to establish a system that a mistake of one institution can be corrected by the function of another institution.

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References Matsushita M (2005) Some thought on the Appellate Body. In: Patrick FJ Macrory et al (ed), The World Trade Organization: legal, economic and political analysis. Spring, New York, Vol 1, pp 1390–1403 Matsushita M (2015) Reflections on the functioning of the Appellate Body. In: G Marceau(2015) (ed), A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 547–558 Office of the U.S. trade representative (2017) National Trade Estimate Report on Foreign Trade Barriers Van den Bossche P (2005) The law and policy of the World Trade Organization: text, Cases and Materials. Cambridge University Press, New York Victoria D (2005) The Appellate Body: institutional and procedural aspects. The World Trade Organization, Springer, Boston

Mitsuo Matsushita is a professor emeritus of Tokyo University and a counsel to Nagashima, Ohno & Tsunematsu, a leading international law firm in Tokyo. Having earned a Ph.D. degree from Tulane University (1962) and a D.Jur degree from Tokyo University (1968), he went on to be internationally acknowledged as a Japanese expert in the field of competition law and international economic law. In his academic career, he has held professorships in Japan at Sophia University, Tokyo University and Seikei University. He has been a visiting professor, among others, at Harvard Law School, Michigan Law School, Columbia Law School, Monash University (Australia), the University of British Columbia (Canada) and at the College of Europe in Bruges, Belgium. He has written many books and articles on various aspects of international trade and competition and investment law. He is admitted to Tokyo Bar (Daiichi Tokyo Bengoshi Kai). In his public career, he served as one of the founding members of the Appellate Body of the World Trade Organization from 1995 to 2000. He has been attached to the Ministry of Finance, the Ministry of Economics, Trade and Industry and the Ministry of Telecommunications and Posts of the Japanese Government as a member of various councils dealing with telecommunications, customs and tariffs, export and import transactions, competition policy and industrial property. In 2005, he was awarded Certificate of Merit from the American Society of International Law in recognition of the book The World Trade Organization: Law, Practice and Policy (The Oxford University Press, 2003, 1st Ed., 2006, 2nd Ed. and 2015 3rd Ed.) which he co-authored with Thomas Schoenbaum, Petros Mavroidis and Michael Hahn. In 2008, he was awarded Certificate of Accomplishment by the Minister of Foreign Affairs of the Japanese Government for his contribution to the international dispute settlement and, in 2013, was conferred Decoration of Honour by the Emperor of Japan for his professional and social accomplishments.

Chapter 4

The AB Crisis as Symptomatic of the WTO’s Foundational Defects or: How I Learned to Stop Worrying and Love the AB Colin B. Picker Abstract The Appellate Body (AB) of the WTO’s Dispute Settlement Body is in crisis as a result of attacks on the AB’s processes, decisions and approaches. These attacks are predominantly, but not entirely, being brought by the United States. The crisis is being brought to a head by the refusal of the US to agree to the appointment of new AB members. If the US approach is not countered or reversed, this will result in the AB being unable to operate, effectively permitting WTO rule breaking to go unchecked. The very rule of law character of the WTO is consequently under threat. Most critically, it is not inconceivable that the demise of the AB could quickly and all too easily lead to the death or death-like stagnation of the WTO. This chapter’s fundamental thesis is, however, that the current concerns about the AB and the WTO more generally reflect deeper fundamental flaws and disconnects within the WTO and therefore suggests that proposed AB reforms by some WTO members are too superficial and hence likely irrelevant to the real, inevitable and likely fatal challenges to the WTO. This chapter argues that the crisis therefore is not really the fault of the AB, neither in its structure, function or outputs, but rather a result of deeper fundamental faults within the WTO. This chapter further argues that for the most part the AB structure, function and outputs are generally without serious fault, and instead represent acceptable and effective approaches to the resolution of trade disputes between sovereign states in the context of the WTO. Critically, the chapter also notes that the AB’s behaviours and approaches are entirely consistent with what one would expect from a rule of law Dispute Settlement Body—be it international or domestic. Keywords Trade law · Dispute settlement · Comparative constitutional law · International law · International organisations

C. B. Picker (B) University of Wollongong, Wollongong, Australia e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_4

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1 Introduction The collection of scholarly articles in this book is largely focused on one very specific crisis at the WTO—the potential demise of the Appellate Body (hereinafter AB) of the Dispute Settlement Body (hereinafter DSB). The AB is under threat as a result of attacks by WTO members, especially by the United States, on its processes, decisions and approaches.1 These attacks have been visible over the years through a number of different settings and postures, but the current crisis is being brought to a head by the refusal of the US to agree to the appointment of new AB members.2 Those new members are needed to replace the outgoing AB members whose appointments have expired or for the remaining few whose appointments are expiring. If the US approach is not countered or reversed, the US approach will result in the AB being unable to operate as it needs a minimum of three AB members to sit on its review panels.3 Without an AB, disputes that have proceeded through the initial panel process cannot be appealed, which means that disputes cannot be forced to a conclusion for the right of appeal is provided within the Dispute Settlement Understanding (hereinafter the DSU).4 This will effectively permit WTO rule breaking to go unchecked. The very rule of law character of the WTO is consequently under threat. Most critically, however, given the centrality of the dispute settlement mechanism (hereinafter the DSM) to the WTO, it is not inconceivable that the demise of the AB could quickly and all too easily lead to the death or death-like stagnation of the WTO.5 The US challenge to the AB is based on their view that there are deep flaws within the process, procedures and approaches of the entire DSM. This chapter, however, will just focus on the issues related to the AB. The US argues that until those perceived flaws are addressed they will not agree to the appointment of any further members for the AB.6 Conceivably, the US challenge to the AB may be more about a challenge to the entire multilateral trading regime or perhaps to the fundamental nature of the WTO (that of being a rules-based organisation). Regardless of their underlying motivations, the challenge to the AB is the most serious threat to the WTO since its inception over twenty years ago. It should be noted that while the US is leading this attack on the AB, it is far from the only voice within the WTO that is critical of the processes and approaches of the AB over the last twenty-plus years of its operations.7 1 See, e.g., 2019 Trade Policy Agenda and 2018 Annual Report of the President of the United States

on the Trade Agreements Program. https://ustr.gov/sites/default/files/2019_Trade_Policy_Agenda_ and_2018_Annual_Report.pdf. Accessed 30 May 2019. 2 Id. 3 Understanding on Rules and Procedures Governing the Settlement of Disputes Article 17(1), Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU]. 4 Id. Article 16(4). 5 A “death-like” stagnation being worse than the last twenty years of “normal” stagnation caused by the almost complete inability within the WTO to update or revise the WTO agreements. 6 See, e.g., Panels established to rule on US, Turkish tariff measures. https://www.wto.org/english/ newse/news19_e/dsb_28jan19_e.htm. Accessed 30 May 2019. See also, Gantz (2018). 7 See Gantz, supra note 6, at p. 2.

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A number of the most active members of the WTO (including the EU, China, India and others) proposed a number of changes to the DSU and DSB in order to respond to the criticisms of the AB.8 Their proposals respond to criticisms not just laid by the US but, given the role of the US in stopping AB appointments, the proposals are substantially aimed at appeasing the US and resolving the AB appointment standoff. This chapter’s fundamental thesis is that the current concerns reflect deeper fundamental flaws and disconnects and therefore suggests that the proposed changes are too superficial and hence likely irrelevant to the real and inevitable and likely fatal challenges to the WTO discussed below. Relatedly, this chapter will also argue that the crisis is not really the fault of the AB, neither in its structure, function or outputs. Rather, this chapter argues that for the most part the AB structure, function and outputs are generally without serious fault, and instead represent acceptable and effective approaches to the resolution of trade disputes between sovereign states in the context of the WTO. Of course, some of those approaches and processes could have been managed differently, and for sure could have been communicated differently so as to perhaps head off or ameliorate the current criticisms. Though, the thesis of this chapter suggests that any such efforts would merely have bought time for the AB and the WTO, and that the WTO’s inherent and fundamental flaws and disconnects would have brought a crisis of this magnitude to the fore eventually. Before beginning the analysis, it should first be noted that this chapter’s main methodological approach is comparative—both across legal systems and across time. Comparative analyses are among the most powerful if done right. The two bedrock comparative approaches, of functionalism and contextualism, provide powerful insights that would not otherwise be discernible when conducting examinations within one system and one time.9 Of course, it could be argued that a comparative approach is not merited here, unless it is with other international organisations or fields. But that would be an unjustifiably narrow approach and leave the examinations incomplete. However, there are a few reasons to support such a narrow approach. As an initial matter, there is really no comparable international organisation. It is not that the WTO is sui generis, it is rather that all other trade organisations and agreements are not so very multilateral (with the exception of the GATT) or are significantly less robust or comprehensive (the GATT and the general international system with its International Court of Justice (hereinafter ICJ) were or are simply less dynamic and strong). But, one can still draw useful insights from such examinations (e.g., comparisons of the ICJ with the WTO’s AB), though such comparative examinations are likely of less utility than that of comparisons with comprehensive and functional domestic legal systems, and in particular with their dispute settlement systems (their judiciaries). Indeed, concededly at first glance comparisons with domestic legal systems might appear inapplicable, after all the WTO is an international organisation 8 See WTO 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 (11 Dec 2018). 9 See Brand (2007).

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with 164 members, most of whom are independent states. In contrast, a typical state has tens or hundreds of millions of citizens—each with less relative power than that of a state within an international organisation. But, the legal structures and powers within those states have centuries, sometimes millennia of experience that is both relevant and applicable for a comparative analysis of the WTO’s AB. True, there are difficulties and challenges, but so long as they are identified up front, the comparisons generated may be very insightful and helpful.10 This chapter will thus draw on some of those comparisons to help discern the character of the WTO, in the process of which foundational flaws that would not be permitted in a rule of law domestic system are laid bare. Furthermore, comparisons of the AB’s behaviours and approaches will suggest that the WTO’s AB has been entirely consistent with what one would expect from a rule of law Dispute Settlement Body—be it international or domestic.

2 As an Initial Matter—The WTO’s AB Is not at Fault As noted above, this chapter argues that the actions of the AB are not the reason for the current crises. Furthermore, this chapter takes the position that the WTO’s DSB has performed tremendously well over the last twenty years. Despite the preceding statement, it would be remiss of me not to note that I have criticised the WTO’s DBS on many occasions—across many aspects, though most relevantly here with respect to its “constitutional” role within the WTO.11 But, as the AB is now being presented with a fatal challenge from the US or being challenged by the “scattergun” assault on it even from those seeking to save it through their proposed amendments, 12 I was forced to truly look at the DSB and the AB in particular and decide, on balance and from a macro perspective, how it has fared since its inception in the mid-nineties. The subtitle of this chapter, “How I learned to stop worrying and love the AB” is borrowed from a classic 1960’s dark comedy by Stanley Kubrick, “Dr. Strangelove or How I learned to stop worrying and love the bomb”. So too, I have learned to love the AB. No longer, or not at the moment, will I “sweat the small stuff” about the AB, not when its life is on the line and when the consequences of its demise are a step (or jump) away from the rule of law and back to naked power politics. And so, I took a long hard look at the WTO’s AB, especially in comparative perspective, to see if it really is so awful and to see if it really is so much worse than what one would expect of a Dispute Settlement Body and its appellate body—especially given the circumstance within which it has been operating. Have its behaviours and approaches really been that far off acceptable standards and expectations? As discussed below I found that the AB’s approaches, behaviours and decisions were largely

10 See,

e.g., Picker (2014a, pp. 54–83). See also, Picker (2010). (2014b). 12 See WTO General Council, supra note 8. 11 Picker

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consistent with other like bodies—best identified as other constitutional courts (and within which I would include international courts, such as the ICJ).13 Indeed, I would go further and argue that not only has the AB specifically and comparatively not acted outrageously, but rather from an objective viewpoint many of those very contested approaches are either without fault or minimally problematic. Most of the criticisms of the AB are either without merit or insufficient to support the attacks it has endured and hence also insufficient to support significant amendments to the DSU. For example, claims that the quality of the decisions are deficient fails to take into account that it has performed admirably given the hand it was dealt. That hand includes the absence of a legislative negotiating arm or executive to provide guidance (through amendments to the substantive obligations). That hand also includes the fact that the development of the law that the AB could rely on was therefore only developed as a result of the cases brought to it by the members. Furthermore, the AB has had to work with a set of agreements that were written in the pre-internet period by negotiators schooled in 1970s and 1980s international business approaches—and that were, as is always the case in international law, the product of the usual compromise negotiations that would then include deliberately ambiguous text. The AB has also had to interpret and apply the provisions of those antiquated agreements to situations where there was often likely no “meeting of the minds” when the members signed onto those commitments (e.g. developing country members forced to agree to the “single undertaking” or not to be a member). Similarly, the AB has had to interpret accession agreements that may be entirely out of date where the price of admission was “WTO plus” commitments applied to a country that bears little resemblance to the country twenty years on (e.g. China). And the AB has done this with almost no helpful prior case law or precedent to go on (though see below discussion on criticisms aimed at them when they did rely on the little precedent that came into existence). I believe the high quality of their decisions are all the more remarkable for these challenges. That quality is evidenced by the overall high levels of compliance by the WTO members that lost at the DSB.14 Another criticism of the DSB, and the AB in particular, is that they have routinely exceeded the mandated time limits for determination of cases.15 In my opinion, the 13 One could quibble about the exact applicability of the definition, but for purposes of this chapter it is sufficient, after all Constitutional courts are courts of limited jurisdiction, tasked with interpreting the constitutive laws—including structural and rights questions. This is what we see with the DSB, the ICJ, etc. 14 See, e.g., WTO Dispute Settlement Body developments in 2012. https://www.wto.org/english/ tratop_e/dispu_e/bashir_13_e.htm. Accessed 30 May 2019. (“My investigations led me to conclude that there is no objective means of determining whether and when Members comply with DSB recommendations … Bearing all of this in mind, I am pleased to report that my investigations revealed that all Members generally comply with their DSB recommendations and rulings and that the overall compliance rate for WTO disputes is remarkably high. In fact, I estimate the compliance rate to be about 90 percent.”). 15 Arie Reich, The effectiveness of the WTO dispute settlement system: A statistical analysis 31 (European Univ. Inst., Working Paper No. 2017/11, 2017) (“We found that the average duration from the request for consultations to adoption of the DSB recommendations was much longer than

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concerns with the length of time for decisions to be released is one of the most ridiculous criticisms of the AB. While as a formal matter the DSB has many times failed to comply with the strict time limits for resolution of disputes, in my opinion those time limits should never have been a part of the DSU. That is because they place an artificial and indefensible limit on the DSB. They are artificial limits—for each case will take as long as each case requires to be resolved. No two cases are alike. Hence, some could be disposed of quickly and some less quickly. While a time limit on parties’ time to submit their arguments and respond to each other may make sense to discourage stonewalling and other delaying tactics, it is a different matter with respect to the panellists and AB members who have been selected to resolve disputes as best and as fast as they are able. Time limits on the panellists and AB members serves no purpose other than to undermine the DSM—forcing decisions to be made under conditions that are likely to lead to errors or mistakes. Such a time limit arguably is also indefensible as it undermines the rule of law by introducing an unnecessary yet constraining limit on the fair resolution of disputes. Similarly, the criticism of the AB’s use of precedent16 is misplaced. Precedence does not have to mean the rigid and unthinking application by a High, Supreme or Constitutional Court of prior decisions that automatically mandates a result not otherwise supportable in the context of the case. In most legal systems the highest court has substantial latitude whether and how it employs or applies prior case decisions that have similar facts or legal issues to a case under review by the court. Hence, attacking the AB, arguably akin to a highest court in a jurisdiction, for using precedent is ridiculous, for the highest courts in legal systems around the world employ some form of precedent (e.g. jurisprudence constant in the civil tradition17 ). Indeed, if the converse were true, that the high courts did not employ some form of precedent, then disputes would be resolved in inconsistent and unpredictable ways. Considering and sometimes using lessons learned from similar previous disputes is not only the natural way to resolve disputes, it is the correct way to do so. The use of precedent does not take away the flexibility inherent in a human serving on a Dispute Settlement Body, for judges, panellists and arbitrators invariably work within the nuances of the individual problem, but they should resort to precedence to provide time tested potential solutions. Furthermore, and perhaps most critically, the use of precedence in some form (be it the soft or hard form) is a necessary part of the rule of law and hence demanding it not be employed within the WTO’s DSB is indefensible. After all, the rule of law includes notions of predictability, consistency and equality of application. Those three rule of law attributes are the very essence of the use of precedence in dispute resolution. If the DSB and AB specifically had not employed

the maximum prescribed by the DSU, namely: 23.21 months for disputes that started between 1995–1999, and 28 months for those that started between 2007–2011. What is worrying is that the duration of proceedings is increasing steadily over the years, and has reached an average of almost 34 months for disputes that started in 2013.”). 16 See, e.g., Gantz, supra note 6, at p. 9. 17 See, e.g., González (2016).

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some form of precedence then they would have been acting in a manner inconsistent with the rule of law. Another criticism of the AB has been that they have engaged in “gap filling”.18 Which is itself an admirable goal for a judiciary for it promotes efficiency and supplements the necessarily vague provisions within laws. Though it may be a more contestable approach when the litigants are sovereign states and the DSU clearly notes that the decisions cannot add to or detract from the original rights and obligations.19 And yet–while gap filling may have been more problematic in the early years of the WTO when a new Round was still a possibility, in the last few years given the inability of the membership to come to any agreements on updating or reforming the commitments, the only WTO participant able to respond to changed conditions since the Uruguay Round was the DSB. In that situation, where there is a vacuum of legislation, one wonders whether the DSB would have been remiss to not gap fill. Certainly, the AB’s use of gap filling is not so sufficiently problematic as to support the proposed amendments or potential demise of the AB. The last criticism of the AB (and the DSB) that this short chapter will consider concerns the view that the DSB has been acting as an unchecked power. The claim that it is unchecked comes from the fact that its decisions are automatically adopted as the process proceeds through the DSB under a reverse consensus rule20 and that the membership has been unable to agree to changes to the WTO Agreements that would respond to AB decisions that are viewed negatively. The very criticism itself provides its own response in that it is clear that it is the failure of the members to check the power of the AB that is at fault, not any failure of the AB. Admittedly, the reverse consensus rule is a formidable barrier, just as the need for a single undertaking and decisions by consensus are also almost absolute blocks to change. But those are not the fault of the AB. Rather those problems are the fault of the Uruguay Round drafters (their responsibility will be further discussed below). Another response to the claim that the AB is an unchecked power is that, like courts around the world, its power in fact is quite limited. There are entirely too many ways in which the final application of a decision of the AB may not, as a practical matter, end up being implemented—from domestic legislative time delays to the failure of authorised sanctions to be effective or applied by weaker states to partial or superficial compliance, and so on. The power of a “court” like this is even more limited when the litigants are sovereign states and must be respected and assumed, even if the evidence suggests otherwise, to be acting in good faith. The state members might also be considered to be the “bosses” of the DSB given it is a “member run organisation” and that the DSB formally comprises the members. Thus, it is far from clear that the AB actually has the power that some critics might believe or argue that it possesses. 18 See

Gantz, supra note 6, at p. 7. supra note 3, Article 3(2) (“Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”). 20 See DSU, supra note 3, Article 16(4) (“Within 60 days after the date of circulation of a panel report to the Members, the report shall be adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adopt the report.”). 19 DSU,

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As the above argues, the WTO’s AB has not acted so offensively that it has deserved to have the appointment of its members delayed—rather the opposite as it has stepped up to answer the needs of the system.21 Nor do its actions and behaviours support the criticisms that would be the basis for most of the proposed amendments recently suggested by the coalition led by the EU. For the most part, despite exceptionally difficult background circumstances, the AB has acted substantially like one would expect from a rule of law legal system’s dispute resolution bodies or courts. Furthermore, as noted before, its practice has been entirely consistent with dispute resolution bodies and judiciaries around the world—be they civil, common or international dispute resolution bodies or courts. Indeed, I believe it can be argued that the WTO’s DSB and its AB in particular have performed admirably, entitling them, as Pascal Lamy a former Director General of the WTO frequently would note, to continue to be called the “jewel in the crown” of the WTO.22

3 The Faults Lie Within the WTO So, if the current crisis cannot truly be laid at the feet of the DSB, and more specifically at the AB, then what is the source of what may prove to be a fatal challenge to the WTO? Perhaps the first place where blame might be laid are the current leaders and statesmen of the member states. Specifically, it could be argued that the many crises and challenges have been stirred up to create yet another villain for Trump’s war on international institutions as he tramples multilateralism in his efforts to support his fictional effort to “make America great again”. But that is too simple and neat an explanation. Clearly, there is more going on than simply one rogue world ruler. Indeed, the recent attacks on the AB began under Obama23 —and he can hardly be described as an isolationist or demagogue. Similarly, to the extent Brexit is a manifestation of similar anti-multilateral sentiments, it would not be fair to lay the fault on Theresa May—she is hardly a demagogue and hardly acting in isolation. Indeed, focusing on individuals or single events to explain the reason for the current WTO crises will clearly fall short in capturing the greater complexities surrounding the WTO that are the causes of the current crises. For example, the fragmentation of the international economic order—both physically (e.g. Brexit reflects a move away from multilateralism), competitively (e.g., the continuing growth of RTAs, especially the mega RTAs, may end up being a competitive pressure that the WTO cannot withstand, especially in its weakened state), and conceptually (e.g., the continuing threats from anti-globalization or anti-liberalised trade approaches). 21 See,

e.g., Howse (2016). The Place of the WTO in the International Legal Order. https://www.wto.org/engish/news_ e/sppl_e/sppl94_e.htm. Accessed 30 May 2019. 23 See, e.g., (2016) Statement by the United States at the Meeting of the WTO Dispute Settlement Body. https://www.wto.org/english/news_e/news16_e/us_statment_dsbmay16_e.pdf. (statement by the US explaining the decision not to support the reappointment of AB member Seung Wha Chang). Accessed 30 May 2019. 22 E.g.,

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There is no question that these exogenous forces are a major factor in the weakening and erosion of support for the WTO, but they are not necessarily so new or unprecedented that they can alone, or even in large part, explain the current potentially fatal crises facing the WTO. So, if exogenous factors cannot provide a sufficiently strong explanation for the current deep crises, then endogenous factors should be considered. As the AB has above already been eliminated as a sufficient cause for the current crises that then leaves two other major endogenous “parties”—the membership from 1995 to the present and the “founders” whose will lives on in the Agreements and constitutive structure itself.24 First the members. It is often claimed that it is the members who are at fault for failing to agree on amendments and new approaches, via an official Round or otherwise. Or they are at fault for failing to control the DSB. But, in fairness to the members, they are working in a complex international organisation run through consensus while seeking to produce binding commitments across a wide range of contentious issues that have direct implications for their citizens. There is arguably no other major international body with such a difficult governance system like this in the world. The UN General Assembly produces non-binding resolutions,25 while the UN Security Council rarely issues its chapter VII obligations,26 and even so, it is run by a small number of participants in comparison with the very large membership of the WTO. To expect more of the WTO members given the WTO governance structure was likely always unrealistic—with consensus and single undertaking being the dominant approaches meant that it was always unlikely that progress would be made—especially once the membership began to truly reflect the diversity of states around the world (unlike the situation in the GATT period). Similarly, getting around the DSM reverse consensus rule was always going to be essentially impossible. Thus, it is unfair to blame the members for their failure to drive change at the WTO or their failure to provide a check on the DSB. Rather, the blame should be entirely laid at the last of the three endogenous forces—at the feet of the architects of the WTO. The fault of the founders goes back of course to the 1990s and the decision to make the WTO a strongly democratic and rule of law or a rule-led organisation as opposed to the GATT’s supposed diplomatic nature with its undemocratic “Green Room” decision making process. The founders’ fault lies both in the structures and processes they created to fulfil that democratic and rule of law promise as well as the very idea itself of building an institution premised on those ethoses but without

24 In addition, the secretariat could also have been considered—they could be viewed a little like the civil servants of an executive branch. But, the powers of the secretariat are quite limited and while there have been occasional concerns raised about their actions it is hard to see that it rises to the level that it could be sufficient cause to play a role in the development of the current crises. See, e.g., Howse, supra note 21, at p. 41. 25 See U.N. Charter Articles 10, 14 (referring to “recommendations” only). 26 See id. at ch. VII (especially Article 48(1) “The action required to carry out the decisions of the Security Council for the maintenance of international peace and security shall be taken by all the Members of the United Nations or by some of them, as the Security Council may determine.”).

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taking into account that those then prevailing views might not withstand the test of time. As an initial matter, and as noted above multiple times, the very governance structure of the WTO was unbalanced as it created a rules-based (not power-based) institution but without the necessary balanced architecture to make it work. True, a “judiciary” was created, and given power (reverse consensus). But, the failure to provide effective legislative and executive offsetting authority/power to what became a powerful DSB (the reverse consensus meant nothing could challenge it) set up an inherently unstable and vulnerable system. Added to this was the democratic consensus “rule” for adoption of new commitments (new law) or for legislative responses to law/approaches that resulted inevitably from the decisions of the AB (despite a formal but unrealistic requirement that the DSB not add to or diminish the Agreements’ commitments of the members). These approaches should have been seen to be obviously problematic—for such straightjacketed systems do not appear in stable domestic systems. In those systems legislatures do not use consensus rules to legislate and courts’ decisions are not only able to be overturned through complete consensus of the legislature or electorate. Courts are not permitted to achieve this level of unchallenged power. Legislatures are not structured to be so very weak. Though, concededly I do not believe that the WTO’s founders could ever have provided the necessary balanced architecture as it would have been steps too far for most states who were jealous of their sovereignty and unhappy or worried about the geopolitics that would likely try to interfere in the operations of such an international organisation. Consensus rules in the development of new rules protected them. Reverse consensus of the DSB ensured that weaker states’ victories in the DSB would not be easily overturned. As difficult as it was then in the 1990s to bring the WTO into being—even with these inherent weaknesses, it is unlikely that today such an organisation could be created for the times have changed. Indeed, the changed environment today is the second major endogenous reason to help explain the current foundational crises of the WTO. Or rather, it is the failure of the founders to construct a system that both predicted and could withstand such a change. The optimism inherent in the WTO was misplaced. That optimism was a product of a unique moment in time. The second half of the Uruguay Round took place against the backdrop of the end of the Cold War, the resurgence of the Rule of Law in the international legal order (as exemplified by the use of the UN Security Council and the coalition of the willing to force Iraq out of Kuwait following its illegal invasion of Kuwait). The new world order was one of laws, not power. The adoption of a rules-based (rule of law) approach for the WTO was a product of its time. That was a time when belief in rule of law rode high. Belief in international coalitions and institutions also were at an unprecedented high. Today, and likely at most times in history, things are different from that unique period that birthed WTO. Today is, as is usually the case, a more divided and uncertain time. States have increasingly turned their backs on multilateralism and rules and law-based approaches. Power and its manifestation within diplomacy more and more seem to be the preferred approached. As such, the WTO and the DSB in particular doesn’t reflect today. The failure was in believing that it would be a legal system.

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Not just an occasional body. Or that rule of law, in President George HW Bush’s new world order of laws, would survive reality. It does not appear to have done so. And as a product of its time, of an unjustified optimistic belief in the rule of law and democratic governance, it is now vulnerable in a world where those views are rare and assailed. For example, it is probably not unfair to believe that the US regrets the move from power to law that the advent of the WTO’s DSB and in particular its AB reflected. While it “may” not consciously think that way, its subconscious (if a state has such) actions suggest otherwise, and it certainly appears to be backing away from it, and doing so through the guise of unjustified criticisms of the AB. But, it is not the only one. Brexit in some ways reflects the same underlying tension. I strongly suspect other countries also no longer buy into the ideal of a rules based system. Their reflection of the different views of today and the actions that follow those views have presented significant challenges to the WTO—ones it may not survive. Concluding this section—the above arguments strongly suggest that the current DSB crisis cannot be blamed on the behaviours or approaches of the AB. Rather, two fundamental flaws have led to the current crisis: (1) the changed attitude towards a system of rules and laws, in other words, a desire to return to power politics and diplomacy; and (2) fundamental flaws within the architecture of the WTO that resulted in an unbalanced system with only one functional branch—the DSB. Both of those factors made the current crisis inevitable. That then means that while the US and Trump may be the instigators of the current crisis, if it wasn’t them then it would have been someone or something else that laid low the WTO and on essentially the same grounds—the fundamental disconnect with prevailing approaches to international interactions (away from legal regimes). As an institution that cannot modernise and respond to changed conditions, especially geopolitical, commercial and technological conditions, the WTO is an institution that risks becoming obsolete.

4 Conclusions With the benefit of hindsight it really does appear as though the WTO was set up to fail, albeit not intentionally. The current attacks on the AB are hence not then surprising— just as is the current inability to fix it in a way that would survive future similar challenges arising from those fundamental flaws. In part this is, as has been discussed above, due to the fact that at a day-to-day level, the comparative insights provided here support the view that the DSB and the AB in particular are not aberrations. They are like all dispute settlement systems—neither perfect nor fatally flawed. They can only do as well as the constitutional and legal contextual settings within which they sit. The WTO setting is a complex one—and so we should expect concerns about its functioning within that complexity. We need to normalise that in the main the DSB (and AB) are neither flawed nor at fault. If these conclusions are correct, then a whole series of other related questions must then be considered. They include:

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• If the crises were inevitable, is the demise of the WTO better done now than later, so we can move on and construct a more workable international economic legal order? • If the issues are foundational, are the recent DSB reform proposals likely to impact the fundamental problems? Are the proposed reforms too little too late or just completely irrelevant? And if so—are they distracting and should be ignored? • Is the current broken and/or slowly failing system better than no system? Or better than any likely successor regime/system, given the prevailing or dominating views within the international economic order? • Are these crises really signs of failure, or rather signs of development, growth and modernization? If so, is the growth an adoption to fit the prevailing approaches of the current period? • Might liberalised trade through other fora and approaches have been set back by the WTO “experiment”? • Will we in the future look back at the WTO simply as the vehicle for supporting and protecting the hundreds of RTAs and BITs that were born in its shadow, legitimised by its Article XXIV (even if not technically compliant), and which will now carry the weight of the international economic order? The last of these questions, concerning the role of the RTAs in a post-WTO future, is perhaps for me the most interesting question for it provides a potentially positive path into the future of our international economic system in a post-WTO world. Might these hundreds of RTAs and thousands of BITS, even though they may have weakened the WTO, actually be able to fill the hole left by the demise of the WTO? Are they able to do so as they are in fact so conceptually related to each other as to make up one whole?27 The “noodle bowl” or “spaghetti bowl” is often used as the metaphor to show the nightmare that results from numerous different regimes’ rules that must be complied with by companies engaging in international trade. But might it be that the numerous and different strands, all of the same material (be it noddle or spaghetti), while superficially different are at their fundamental core substantially similar in concepts and approaches. If so, then could they complement each other and tangle together to make a solid mass able to support the weight of world trade and commerce? In any event, the questions raised by the analysis presented in this chapter are troubling while at the same time suggesting potential approaches—some more positive than others. They are troubling because the WTO is for so many a cherished institution that may be failing for reasons out of its control. And for reasons that are inherent and so which may resurface even if the WTO escapes the current AB member reappointment crises. That may only put off the inevitable demise of the WTO. If true, then the entire system is unstable and cannot be counted on for the long term. Luckily, and to end the chapter on an optimistic note, humans society is used to surviving and thriving in such systems—slowly but surely improving its lot with every decade gained before the inevitable collapse of the unstable system, typically in a two steps forward, one step backward advance. 27 See,

e.g., Picker (2017).

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References 2019 trade policy agenda and 2018 annual report of the president of the United States on the trade agreements program. https://ustr.gov/sites/default/files/2019_Trade_Policy_Agenda_and_2018_ Annual_Report.pdf. Accessed 30 May 2019 Brand O (2007) Conceptual comparisons: towards a coherent methodology of comparative legal studies. Brook J Int Law 32(2):405–466 Gantz DA (2018) An existential threat to WTO dispute settlement: blocking appointment of Appellate Body members by the United States. Arizona Legal Stud Discussion Paper No 18–26 González RC (2016) From jurisprudence constante to stare decisis: the migration of the doctrine of precedent to civil law constitutionalism. Transnatl Legal Theory 7(2):257–286 Howse R (2016) The World Trade Organization 20 years on: global governance by judiciary. Eur J Int Law 27(1):9–77 Panels established to rule on US, Turkish tariff measures. https://www.wto.org/english/news_e/ news19_e/dsb_28jan19_e.htm. Accessed 30 May 2019 Picker CB (2010) A framework for comparative analyses of international law and its institutions: using the example of the World Trade Organization. Comp Law Hybrid Legal Syst Picker CB (2014a) Comparative legal cultural analyses of international economic law: insights, lessons and approaches. Indian J Int Econ Law 6:54–83 Picker CB (2014b) An Introduction to comparative analyses of international organizations. In: Solenik D (ed) Comparative law & international organizations: cooperation, competition and connections. Swiss Institute of Comparative Law, pp 11–38 Picker CB (2017) The coherent fragmentation of international economic law: lessons from the transpacific partnership agreement. In: Lo CF (ed) The paradigm shift in the rule-making of international economic law: TPP as a new model for trade agreements? Springer Statement by the United States at the meeting of the WTO Dispute Settlement Body (2016). https:// www.wto.org/english/news_e/news16_e/us_statment_dsbmay16e.pdf The place of the WTO in the international legal order. https://www.wto.org/engish/news_e/sppl_e/ sppl94_e.htm. Accessed 30 May 2019 WTO Dispute Settlement Body developments in 2012. https://www.wto.org/english/tratop_e/ dispu_e/bashir_13_e.htm. Accessed 30 May 2019

Professor Colin B. Picker joined the University of Wollongong (UOW) in 2017 as Law Dean, to which he added the position Pro Vice Chancellor (South Western Sydney) in July 2018, helping to lead the establishment of UOW’s new campus in Liverpool, South Western Sydney. From 2010–2017 he was at UNSW Law where he was Director (and founder) of the China International Business and Economic Law (CIBEL) Initiative (a multi-million dollar university funded project to research and teach on IEL related to China and to the China/Australia relationship) at UNSW Law in Sydney. In addition, at UNSW Law he was its first Associate Dean (International). Before UNSW he was the Daniel L. Brenner/UMKC Scholar & Professor of Law at the UMKC School of Law in Missouri. He entered academia in 2000, after practice in the DC law firm Wilmer, Cutler & Pickering. Professor Picker was a founder of the Society of International Economic Law, the only global academic organization for international economic law. He served as founding executive vice president (the actual leader) of the organization from its founding in 2007–2014. Professor Picker has likewise served as a leader in his other research field of comparative law. In addition to being a co-author of one of the main textbooks for the field, he was responsible for the creation of the Younger Comparatists Committee (“YCC”)—now the primary global body working with new and young law comparatists. The YCC annual conference is the world’s preeminent conference for those scholars. He has published widely in the areas of IEL, International Law, China and IEL, and Comparative Law. His other more than forty publications have appeared in leading publishers and journals around the world, including in the Yale Journal of International Law, many Oxford and Cambridge University Press books and so on.

Chapter 5

The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic? Markus Wagner

Abstract The current crisis engulfing the multilateral trading system has crystalized in the dispute over the (re-)appointment of the members of the World Trade Organization’s Appellate Body. While the legislative arm of the organization has never lived up to its potential, its dispute settlement arm with the Appellate Body at its apex was seen as a lodestar for other international courts and tribunals. The United States has taken issue not only with individual decisions of the Appellate Body (as well as individual Appellate Body members), but with the institution as such. The article recounts the important institutional redesign that has led to the Appellate Body becoming the World Trade Organization’s institutional “centerpiece”. These very same developments are now destined to lead to the Appellate Body’s downfall with potential reverberations for the entire World Trade Organization’s dispute settlement process. Moreover, it threatens the institution as a whole, unless some last minute compromise can be found between various competing visions of global economic governance. Keywords Appellate Body · Dispute settlement · International trade · Trade · Multilateralism

1 Introduction Shortly after the creation of the World Trade Organization (hereinafter WTO) the newly created Appellate Body (hereinafter AB) started to occupy a position of centrality in the governance of international trade law. Through its position at the apex of WTO dispute settlement (unforeseen at the time of its creation), its jurisprudence concerning non-economic values, and its realization of the importance of open and more transparent processes the AB has contributed greatly towards improving the legitimacy of the WTO in general and the dispute settlement pillar in particular. The current impasse over the appointments (or lack thereof) for vacant positions on the AB threatens to relegate its remarkable success story to a historical footnote. M. Wagner (B) University of Wollongong, Wollongong, NSW, Australia e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_5

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The article shows how the AB developed from an afterthought to the “centrepiece” in WTO governance and how the current situation threatens not only the dispute settlement mechanism within the organization, but also wider trade governance. The article recounts the development of the dispute settlement process under the GATT (Sect. 2), highlights how the AB currently occupies a central position within the WTO (Sect. 3), before turning to the criticism leveled against the AB by the United States (hereinafter US) as well as other WTO Members’ responses (Sect. 4). Section 5 offers concluding thoughts.

2 Dispute Settlement in the GATT Years The General Agreement on Tariffs and Trade (GATT) dispute settlement process operated not only without an appellate mechanism, but its dispute settlement mechanism was—at least in comparison to that of the WTO—rudimentary. Articles XXII and XXIII GATT formed the basis for dispute settlement, but did not mention the term dispute and it could even be argued from the wording of these provisions that adjudicatory proceedings were not contemplated at the outset. Article XXIII GATT provides that in cases of nullification or impairment (read: at least violation of the GATT1 ), “the contracting party may […] make written representations or proposals to the other contracting party or parties […]”. The only concrete obligation for the addressee laid down in this provision is that “[a]ny contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it.”2 Given the scant provision for formal dispute settlement, the GATT’s resulting dispute settlement process was remarkable for both its widespread use and track record.3 That said, the GATT dispute settlement process suffered serious shortcomings—at least from today’s perspective: the establishment of panels and the adoption of reports could be blocked, which in essence meant that at least in the beginning it was hard to call the GATT dispute settlement process an independent legal system. This was best expressed by Robert Hudec who famously characterized the GATT dispute settlement process as “a diplomat’s concept of legal order. At least, that is the way it started out.”4 After a promising start, dispute settlement under the GATT feel into disuse during the 1960s5 and was only resurrected in the 1970s and 1980s. The DISC cases—a series of disputes involving subsidies—laid bare the need for reform beyond what GATT Contracting Parties had agreed to in the Tokyo Round Agreement on 1 Jackson

(1998, p. 67).

2 Article XXIII:1 GATT. A similar provision exists with respect to the consultation stage, see Article

XXII:1 GATT. Hudec et al. (1993, pp. 1–113). The authors call the GATT dispute settlement “accomplishments […], if not unique, are at least rare in the history of international legal institutions”, see id. at p. 97. See also Jackson, supra note 1, at p. 64. 4 Hudec (1993, p. 7), Davey (1987, p. 61). See generally Reich (1997, pp. 775–849). 5 Hudec, supra note 4, at pp. 31–34. 3 See

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Dispute Settlement.6 What emerged during that time was a proto-legal system with a legal division within the GATT Secretariat in the early 1980s which led to a higher degree of consistency among the dispute settlement reports and a higher degree of proceduralization of the dispute settlement process.7 The subsequent discussions identified the consensus requirement—including the party that lost the case—as a major obstacle, as a negative vote would frustrate the entire purpose of the dispute settlement system. Problems connected with expertise, blockage, delays, fragmentation and implementation hampered effective dispute settlement in the GATT years. This found expression in the Punta del Este Ministerial Declaration, which urged that “[i]n order to ensure prompt and effective resolution of disputes to the benefit of all contracting parties, negotiations shall aim to improve and strengthen the rules and the procedures of the dispute settlement process […]”.8

3 The WTO Dispute Settlement System’s Central Reforms: Reasons for Its Downfall It is well-known that the WTO Dispute Settlement Understanding (hereinafter DSU) changed the dispute settlement process considerably. Because a full examination of the manifold changes is beyond the scope of this chapter, the following section will highlight institutional changes brought about through the DSU as well as some more evolutionary modifications of the dispute settlement process.

3.1 Institutional Changes Among the most important institutional changes are what has come to be known as reverse consensus as well as the very creation of the AB composed of individuals who hold their positions for once-renewable four-year terms.

3.1.1

Reverse Consensus

One of the characteristics that hampered the GATT dispute settlement process was that a government was able to block not only the creation of a dispute settlement panel, but could block the adoption of the report. This gave the losing party a veto, leading to blockage of several dispute settlement processes and reverting the process to political 6 For

an overview of the disputes, see Jackson (1978). See also Hudec, supra note 4, at pp. 53–57, 130. 7 Hudec, supra note 4, at pp. 137–138. 8 GATT Contracting Parties, see General Agreement on Tariffs and Trade (GATT) Punta del este Declaration, 20 Sep 1986, GATT B.I.S.D.

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dispute settlement. It was seen by many commentators as the most significant defect in the GATT dispute settlement procedures.9 The DSU takes the opposite approach: not only do WTO members have a right under Article 6.1 DSU to request a panel. A panel or AB decision, while formally requiring adoption by the Dispute Settlement Body (hereinafter DSB) and thus a political organ,10 will by default be the final result as the winning party would have to object to the adoption of a ruling in its favor.11 This has never happened in the history of the WTO, the closest case being Australia—Automotive Leather involving subsidies.12 Similarly, the authorization of retaliations follows this reverse or negative consensus rule.13 The move from consensus to reverse consensus has important institutional implications: not only did it portend a “quasi-judicialization”14 of dispute settlement or the emergence of the AB as a “World Trade Court”.15 Potentially even more importantly, it was also a power shift from the political arena of the DSB to the more judicialized processes before panels or the AB.16 This power shift is at the center of criticism leveled by the US against the AB.

3.1.2

Creation of the Appellate Body

The drafters of the DSU did not foresee how crucial dispute settlement in general and the AB in particular would become in international trade governance. The AB functioned—from the very beginning—quite differently from how it was originally envisioned. The very institution of the AB as an appeals mechanism created a cultural change in how adjudication worked in the newly created WTO. For one, AB members showed considerably greater independence compared to panel members—notwithstanding the repeated attempts by the US to undermine AB independence. This is due to AB members being appointed for once-renewable four year terms,17 compared to the ad 9 Jackson,

supra note 1, at p. 68. Agreement Establishing the World Trade Organization, 15 Apr 1994, 1867 U.N.T.S. 154, Annex 2: Understanding on rules and procedures governing the settlement of disputes, Article 2.1 [hereinafter DSU]. 11 See id. at Articles 16.4, 17.14 and 22.6, respectively. 12 Panel Report, Australia—Subsidies provided to producers and exporters of automotive leather— Recourse To Article 21.5 of the DSU by the United States, para 6.48, WT/DS126/RW (21 Jan 2000). The result was heavily criticized by WTO members, including both parties to the dispute and appellate proceedings were only not instituted as both parties had agreed not to do so. See Van den Bossche and Zdouc (2017, p. 208). 13 DSU, supra note 10, at Articles 6.1, 16.4, 17.14, and 22.6. 14 Petersmann (1997, p. 186). 15 See generally Ehlermann (2002). 16 See generally on the difference between dispute settlement under the GATT and the WTO, Weiler (2001), Lang (2011, p. 18). 17 DSU, supra note 10, at Article 17.2. 10 Marrakesh

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hoc appointments at the panel stage.18 The long-term appointments, combined with institutional mechanisms such as the so-called exchange of views, further contributed to a consistent AB jurisprudence. AB decisions are taken by a division of three AB members.19 The exchange of views involves all sitting AB members and takes place prior to the finalization of a division’s report.20 Based on the principle of collegiality, the idea underlying the exchange of views is to “draw on the individual and collective expertise of all seven Members”.21 In the words of a former AB member, these meetings can be “bruising” and “certainly expose weak reasoning”, with “every argument carefully assessed”.22 Once the exchange of views has run its course, the division finalizes its report. It is not bound to follow the views of the AB members that are not part of the division deciding a case. The process has however been credited with providing a higher quality to AB reports, ensuring a higher degree of consistency of the AB case law on systemic, substantive and procedural issues, and the limited number of separate or dissenting opinions.23 The exchange of views thus also contributes to one of the fundamental goals of WTO dispute settlement, i.e. to “providing security and predictability to the multilateral trading system”.24 Perhaps most importantly, the AB functioned as a true appeals mechanism vis-àvis panel decisions. Initially, there was considerable apprehension about the prospect of a judicial system that would become overly powerful. According to one commentator, the negotiators’ purpose in introducing the appellate procedure was that the quasi-automatic adoption of panels reports described above would undergo a light touch check: an appellate mechanism against the occasional “bad” panel report.25 This was the tradeoff that some negotiating parties—particularly the European Union (hereinafter EU) and the US—were willing to make in order to remedy “bad” panel reports that both had been exposed to at the time.26 It is worth bearing in mind that the AB was not envisioned as a standing institution at the time, but was to be used on an exceptional basis. This is evidenced by the fact that the members of the AB were not considered to have to work full-time, but rather could be remunerated on a retainer basis.27 But it quickly became clear that the AB took its role as a true appellate mechanism seriously. While mindful that its findings 18 Id.

at Article 8. at Article 17.1. 20 Appellate Body, Working Procedure for Appellate Review, at Article 4(3), WT/AB/WP/6 (16 Aug 2010) [hereinafter Working Procedure]. 21 Id., at Article 4(1). See also Steger (2015, p. 457). 22 Unterhalter (2015, p. 471). 23 Ehlermann (2005, pp. 477–478), Steger (2004, p. 44). 24 DSU, supra note 10, at Article 3.2. 25 Van den Bossche (2005, p. 64). See also Jackson (1997, p. 127). 26 Van den Bossche (2006, p. 7). 27 Dispute Settlement Body, Establishment of the Appellate Body, Recommendations by the Preparatory Committee for the WTO approved by the Dispute Settlement Body on 10 February 1995, para 11–12, WT/DSB/1 (19 June 1995). 19 Id.

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did not formally possess the power of stare decisis, the AB increasingly made it clear that prior decisions “provid[e] interpretative guidance for future panels”.28 Subsequent decisions reinforced this position with the AB making its most commanding statement in this regard when it suggested that a panel decision deviating without reason from AB jurisprudence constituted a “[failure] to discharge its duties under Article 11 DSU.”29 In addition to the institutional reforms just outlined—and partially because of these changes—the AB jurisprudence with respect to the relationship between the classic economic pursuits of the GATT era, namely trade liberalization, with negative externalities such as threats to human health or the environment, are additional hallmarks of the post-1995 era. This development was evident in the elevation of Article XX GATT as a counterpoint to the non-discrimination clauses of e.g. Articles I and III GATT,30 but also upon closer analysis of the quite different jurisprudence of the panels and AB in most SPS cases.31

3.1.3

Summary

Both reverse consensus and the creation of the AB are institutional mechanisms that had a profound effect on the WTO dispute settlement process. While this may not have been the “reflection of a grand design to create a strong, authoritative court that would be at the epicentre of the new WTO dispute settlement system”,32 it certainly has occupied that position from an early stage. Aware of the potential for a power shift from governmental decision-making that was at the heart of the GATT to one that balances power among different branches of the WTO’s constitutional system, AB members, from the very beginning, had an eye on balancing internal and external legitimacy.33 This included grounding its jurisprudence—which was oftentimes quite far-reaching and sophisticated—as “textual” and thus resulting from the “ordinary meaning of words”, even though in practice the jurisprudence very much took account of the context in which its decisions were embedded. From its earliest decisions—in terms of style, content and self-understanding—the AB behaved like a high court.34

28 Appellate Body Report, United States—Import of Certain Shrimp and Shrimp Products, para 107, WT/DS58/AB/RW (22 Oct 2001). 29 Appellate Body Report, United States—Final Anti-Dumping Measure on Stainess Steel from Mexico, para 162, WT/DS344/AB/R (30 Apr 2008). 30 Cho and Kurtz (2014, p. 187). 31 See generally Wagner (2011). 32 Peter Van den Bossche, From Afterthought to Centrepiece: The WTO Appellate Body and its Rise to Prominence in the World Trading System 67 (Faculty of L., U. of Maastricht Working Paper, 2005). See also 67–79 for the reasons of the AB’s increased prominence. 33 Weiler, supra note 16, at p. 200 et seq. 34 See generally Ehlermann (2002).

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Thus its critique of the panel’s reasoning in the very first case that reached the AB— the Gasoline case35 —was a harbinger of things to come. Over time the AB created— through a sophisticated jurisprudence—a heightened level of authority within the WTO, albeit one that was going to have to be continuously maintained.36

3.2 Systemic Importance of the AB in the WTO System: Contractarian Versus Constitutional Views As pointed out above, the systemic importance of the AB within the WTO dispute settlement system cannot be overstated. But it is precisely this elevation of the apex institution of WTO dispute settlement compared to the GATT dispute settlement institutions that has caused considerable debate between almost exclusively the US on one side and the overwhelming number of remaining WTO members. The current debate about the future of the AB goes—in the words of a former AB member—to “the core and the nature of what the AB is or should not be”.37 The former position holds that the WTO agreement is best viewed as a contractual obligation, with the consequence that the language in any of the organization’s agreements should be interpreted narrowly and interpreters should be hewing closely to the negotiator’s intentions at the founding of the WTO.38 Most other WTO members view the WTO Agreement as part of a trade constitution with the dispute settlement organs performing an independent function from the membership, empowered to resolve textual ambiguities.39 This debate is not as arcane as it may seem at first sight40 : the former regards international agreements as perpetually negotiable instruments, while the latter considers the system working towards shared, collective goals of a global community. It is also not a criticism that is new to the WTO, but had already been leveled at GATT dispute panels in the early years of GATT dispute settlement.41 If WTO law—as opposed to the early stages of the GATT era—was ever properly characterized as a contract,42 its founding treaty and the jurisprudence that was built on that foundation has moved well beyond that stage, and as far as can be 35 Appellate Body Report, United States—Standards for Reformulated and Conventional Gasoline,

WT/DS2/AB/R (29 Apr 1996). generally Unterhalter, supra note 22. See also Graham (2014, p. 322), Shaffer et al. (2016, p. 257). 37 Ramírez-Hernández (2018). 38 Lighthizer (2017a) [hereinafter Robert Lighthizer]. 39 Steinberg (2004, p. 271). 40 Cohen (2018). 41 Jackson, supra note 1, at p. 67. But see Steinberg, supra note 39, at pp. 256–257. 42 One could read the AB’s finding in Japan–Alcoholic Beverages II, stating that “[t]he WTO Agreement is a treaty—the international equivalent of a contract”, in such a light. Appellate Body Report, Japan–Taxes on Alcoholic Beverages, p. 15, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (4 Oct 1996). 36 See

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observed, without principled opposition. Several factors are important in this context: the combination of institutional design factors laid out above; the imposition of constraints against unilateral action43 ; a jurisprudence that takes the justifications contained in e.g. Article XX GATT seriously; and WTO Members’ acceptance of such jurisprudence—notwithstanding disagreement in particular cases.44 These factors are an indication that the WTO is qualitatively different from the GATT not only institutionally, but also substantively and procedurally.45 This is particularly true for an institution which is dynamic and adapting to changing circumstances—be that actual (such as accession of new members) or jurisprudential developments (as has been the case with Article XX GATT).46

3.3 Failure of the WTO’s Legislative Arm The elevated position of the dispute settlement organs within the WTO are at least partially due to an almost complete lack of legislative action.47 This failure in the separation of powers within the WTO has arguably greatly contributed to the current impasse. The “crown jewel” of the WTO, its dispute settlement process could—and can—only shine as brightly because the other pillars within the WTO have not been fully functional. Since 1995 there has been little progress in updating the corpus of WTO rules. The Doha Round of Negotiations is formally still ongoing and according to the WTO, “its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules”.48 However, a closer look at the legislative achievements in this period is sobering.

3.3.1

Doha Ministerial Declaration on TRIPS and Public Health

One of the major achievements is the Doha Ministerial Declaration on The Agreement on Trade-Related Aspects of Intellectual Property Rights (hereinafter TRIPS)

43 Steinberg,

supra note 39, at p. 250. and Godzimirska (2016, p. 320), Howse (2016, pp. 11–12). 45 See generally Bogdandy and Wagner (2006). Article III WTO Agreement is a positive reflection of the division of functions within–and thus the constitutional design of–the WTO. It outlines the–albeit rather limited–executive (Article III:1 and III:4), as well as the legislative and adjudicative functions (Article III:2 and III:3, respectively). Article III:5, together with Article V, concerns the external relations of the WTO. 46 Van Damme (2009, p. 313). 47 See in this sense remarks by the WTO AB Chair Ujal Singh in 2018 on the occasion of the release of the 2017 AB Report. World Trade Organization (2018b). 48 World Trade Organization (2018a). The latter element is geared towards improving the relative position of developing countries within the WTO and international trade in general. 44 Creamer

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and Public Health.49 The Declaration “recognizes the “gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics”, and WTO Members “agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health”.50 On that basis, WTO Members have “the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted”.51 The result of the Declaration was an increase in the use of compulsory licenses for some time after its adoption, but there now appears to be a low probability of continued such activity.52 That said, the Declaration—with the exception of provisions pertaining to developing countries without production capacity53 —clarifies rather than changes the existing provisions of the TRIPS Agreement. It does however set an interpretive baseline for WTO Members to find the proper balance between IP rights holders on the one hand and governments facing situations of epidemics on the other.54 This is evident when WTO Members “affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.”55

3.3.2

Trade Facilitation Agreement

The most significant new agreement since the WTO’s inception in 1995 is the Trade Facilitation Agreement (hereinafter TFA), which was concluded in 2013 and entered into force in February 2017.56 The TFA aims to facilitate the cross-border movement of goods (this includes expediting the movement, release and clearance of goods across borders as well as goods in transit), to cooperate more effectively between domestic authorities concerning customs compliance matters, and to provide for technical assistance and capacity building.57 This was predicted to reduce the time for border clearance for both imports and exports, thus decreasing the costs by 14.3 per cent58 —with the largest gains being made by developing countries.59 The TFA

49 DOHA

WTO Ministerial 2001, Declaration on the TRIPS Agreement and Public Health, 20 November 2001, WT/MIN(01)/DEC/2 (20 Nov 2001). 50 Id. at para 1. 51 Id. at para 5 b. 52 Beall and Kuhn (2012). 53 WTO Declaration on the TRIPS Agreement and Public Health, supra note 49, at para 6. 54 Gathii (2002, p. 316). 55 WTO Declaration on the TRIPS Agreement and Public Health, supra note 49, at para 4. 56 World Trade Organization (2017a). 57 See trade facilitation agreement, Nov. 28, 2014, Articles 1 and 5, 7, 8–12, and 13–22, respectively. 58 World Trade Organization (2017b). See also Arvis et al. (2013, p. 472). 59 World Trade Organization (2015).

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replicates developments at the regional level where trade facilitation has played a more prominent role since the 1980s.60 When the TFA came into force, the WTO Director-General welcomed this development almost effusively, calling it “the greatest trade reform for a generation”.61 While the TFA is a sign that the legislative mechanism of the WTO has not withered completely, it is far less ambitious than what appeared possible. If an agreement such as the TFA is considered “ground-breaking”,62 it is clear that the ambition of the WTO has been scaled back considerably.

3.3.3

Environmental Goods Agreement

The Environmental Goods Agreement (hereinafter EGA) is an initiative that was launched in 2014, the underlying idea being the reduction of tariffs for goods that have environmental benefits on a plurilateral basis.63 These include solar panels, wind turbines and other energy-efficient products, but also technologies that address issues such as air pollution, waste and water management.64 Building on an existing list of 54 environmental goods that was developed under the aegis of the Asia-Pacific Economic Cooperation hereinafter APEC,65 it was to further the goals of the Paris Agreement on climate change as well as the United Nations Sustainable Development Goals by reducing the costs for these products.66 18 participants (representing a total of 46 WTO Members through the participation of the EU) were engaging in the negotiations which accounted for the majority of global trade in environmental goods.67 While the benefits of the EGA were to accrue to the entire WTO membership, the EGA’s future is unclear at this point as talks stalled in late 2016 over which goods should be covered by the agreement as well as phasing out periods.68 But even the agreed upon list of goods (comprising of roughly 300 products) was 60 See

generally Neufeld (2014). Trade Organization (2017c).

61 World 62 Id.

63 This idea was already included in the 2001 Doha Ministerial Declaration, which called for the “the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services”. See Ministerial Conference, Ministerial Declaration, at para 31, WT/MIN(01)/DEC/1 (20 Nov 2001). 64 Australian Government, Department of Foreign Affairs and Trade (2019). For a more expansive definition of environmental goods, see OECD and Statistical Office of the European Communities (1999, p. 9). The OCED posits: “The environmental goods and services industry consists of activities which produce goods and services to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems. This includes cleaner technologies, products and services that reduce environmental risk and minimise pollution and resource use”. 65 Asia-Pacific Economic Cooperation (2012). 66 Araya (2016). 67 World Trade Organization (2014). 68 Reuters (2016), International Centre for Trade and Sustainable Development (2016).

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modest: first, tariffs on most of these goods were low to begin with; second the EGA negotiations did not tackle non-tariff barriers, subsidies, anti-dumping policies, or intellectual property protections; finally, the environmental benefits were calculated as modest.69 There is little doubt that lower tariff on environmental goods would be beneficial in order to allow for the easier spread of e.g. climate change averting technologies. It does not appear however that the major countries involved in this effort will be able to agree on a way forward in the near future.70

3.3.4

Other Legislative Efforts

Further efforts are currently underway, including an initiative on e-commerce71 (following the broad and rather aspirational Chap. 14 CPTPP) and there appears to be space for more ambitious efforts to expand services negotiations.72 Progress in both areas would be especially important given the increasing importance of services in global value chains and the relative decline of trade in goods-producing value chains.73

3.4 Summary Taken together, these efforts—while laudable—are and this is putting it mildly, modest in comparison to the work that was carried out in the dispute settlement arm of the WTO. The US has suggested that language in some of the agreements within the WTO embodies “constructive ambiguity”, i.e. situations “where the negotiators leave unresolved particular issues by agreeing on language that does not resolve the issue and is capable of more than one interpretation”.74 Apart from the difficulty in determining where such “constructive ambiguity” exists (and where it does not), Article 3.2 DSU makes it clear that the “dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system”. Panels and the AB would fall short of their duty to provide such security and predictability if they were to engage in selectively picking and choosing when an instance of “constructive ambiguity” actually exists (and where it does not). Rather than blaming the dispute settlement organs for engaging what the DSU mandates them to do, it is incumbent on WTO Members to engage in meaningful discussions on legislative reform. 69 Cosbey

(2014), Wooders (2009). (2017). 71 Kihara (2019). 72 World Trade Organization (2019). 73 Lund et al. (2019). 74 Dispute Settlement Body, Negotiations on Improvements and Clarifications of the Dispute Settlement Understanding, TN/DS/W/82/Add.1 (25 Oct 2005). 70 Sell

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It goes without saying that reaching political consensus was a difficult task once the WTO was created in 1995. That said, the relatively meagre results of the legislative arm and the extensive jurisprudence—partially because WTO Members made considerable use of the WTO dispute settlement process—are evidence of the imbalance between these two pillars of the WTO. It is also worth bearing in mind that the judicial view and that of negotiators can sometimes be at odds: what AB members may rightly perceive as a clarification (as opposed to adding to or diminishing rights and obligations of WTO Members75 ) has sometimes been understood as interpreting treaty language different from what was originally intended.76

4 US Criticism over the AB The US has raised specific points of criticism vis-à-vis the WTO AB in late 2018. However, the US has had concerns about the role of the adjudicatory bodies well before the Trump administration came into power in January of 2017.77 This section will analyze the more general criticism of the WTO before turning to the specific concerns the US has regarding the AB. Some of these issues are genuine concerns that are best dealt with through a reform of the WTO. Other concerns appear less valid and are likely best understood as distractions.

4.1 General Criticism Against the WTO Beyond dispute settlement-specific issues, the US has made more general remarks critical of the multilateral trade governance currently in place within the WTO. Its criticism of the AB are best seen in light of these wider-reaching institutional as well as geostrategic concerns. These include the aforementioned imbalance between the legislative and judicial arm by stating that “WTO is losing its essential focus on negotiation and becoming a litigation-centered organization”.78 In as much this criticism is valid, it can also be seen as an attempt to return to the power-based system that existed in the GATT years and that was at least partially overcome with the creation of the WTO in 1995.79 A second concern is the unclear definition of the term development within the

75 DSU,

supra note 10, at Article 3.2. in this sense Robert Lighthizer, supra note 38. 77 See only Executive Branch Strategy Regarding WTO Dispute Settlement Panels and the Appellate Body: Report to Congress Transmitted by the Secretary of Commerce 7 (30 Dec 2002), cited in Stewart (2017). 78 Lighthizer (2017b). 79 Jackson (2000, pp. 6–10). 76 See

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WTO.80 This is a long-standing issue within the WTO, as WTO Members self-declare whether they are developing countries. It is not only that drawing lines between these two categories is difficult, but the current system has ossified the divisions that existed at the founding of the WTO. A third criticism is the lack of notifications and transparency, which—in the eyes of the US—makes it impossible to negotiate new trade rules as the existing ones are not being followed.81 This is presumably an issue geared at WTO Members who fail to notify and provide transparency over their SPS, TBT and trade remedies obligations.82 Finally, the US urges reforms of the substantive rules pertaining to “chronic overcapacity and the influence of state-owned enterprises” as well as “addressing real-world problems such as SPS barriers”.83 The latter is an agricultural sector interest-driven appeal for less stringent SPS rules, such as those embodied in the Trans-Pacific Partnership Agreement and which have remained unchanged in the re-christened and slightly altered Comprehensive and Progressive Trans-Pacific Partnership Agreement.84 The former is a plea against the rise of mercantilism, specifically China’s pursuit of an economic model with a stronger emphasis on state involvement and control as well as the pursuit of these policies through subsidies, the creation of national champions, technology transfer, etc.85 The United States Trade Representative (hereinafter USTR) does not believe that the existing WTO rules enable other WTO Members to handle China’s rise and its accession to the WTO, arguing that more efficient markets are the way forward.86 It is this very issue that is at the heart of discussions currently underway between the China and the US in their bilateral trade negotiations and will likely be the defining issue for years to come.87

80 Lighthizer,

supra note 78.

81 Id. 82 See in this regard General Council, Procedures to Enhance Transparency and Strengthen Notification Requirements under WTO Agreements—Communication from Argentina, Costa Rica, the European Union, Japan, and the United States, JOB/GC/204 & JOB/CTG/14 (1 Nov 2018). In response, WTO Members acknowledged the importance of a transparent multilateral trading system, but also pointed out capacity constraints, in particular for developing countries. See also World Trade Organization (2017d). 83 Lighthizer, supra note 78. 84 See on the approach towards scientific evidence and uncertainty in the TPP/CPTPP, Wagner (2017). 85 USTR Lighthizer was more specific in his criticism towards China on a different occasion, see Robert Lighthizer, supra note 38. 86 Id. 87 Mitchell (2019):

While the Chinese side has focused on drafting new laws and regulations related to technology transfer and intellectual property protection, US negotiators are demanding an overhaul of Chinese industrial policies, regulatory approvals and concrete steps to combat alleged instances of state-sponsored corporate cyber espionage. See also Wolf (2019), Mitchell and Dunkley (2019), Rappeport and Landler (2019).

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4.2 Specific Criticism by the US Concerning the Role of the AB and WTO Members’ Responses While there has been discontent by the US for some time, it raised the most poignant and comprehensive set of criticism in a DSB meeting in late 2018. In that meeting, the US representative pointed out the following areas in which the US thought the AB overstepped its mandate. The US raised the following objections: (1) individuals who are no longer formally members of the AB continue to adjudicate disputes; (2) non-adherence to the 90-day deadline for issuing AB reports; (3) the use of obiter dicta in AB reports; (4) the AB’s misapplication of the standard of review; and (5) taking the view that AB reports have precedential effect.88 A further set of objections have been made in other fora, including “transparency issues”, “issues with the staff”, and the view that the “dispute-settlement process over the years has really diminished what we bargained for or imposed obligations that we do not believe we agreed to”.89

4.2.1

Constitutional Backsliding I: Non-(re)appointments

As mentioned before, US criticism towards the WTO overall and the AB in particular is not new. This is best exemplified through what can be seen as the beginning of the constitutional backsliding in the WTO, namely the history of non-appointments or non-reappointments of individuals to the AB.90 In all three instances, the US prevented the reappointment of an existing AB member or blocked the appointment process from the very beginning. Like most other decisions within the WTO, appointment and reappointment decisions are by consensus.91 The first controversial case was that of US national Jennifer Hillman. Initially appointed in 2007 after serving as a member of the US International Trade Commission, the US refused to support her reappointment in 2011. To be sure, there is no guarantee for reappointment for AB membership. However, until then no sitting AB member had not been reappointed and Hillman could not serve another four year term ostensibly because she failed to defend US perspectives.92 This is despite the unambiguous language in the DSU and the working procedure for appellate review that AB members are “unaffiliated with any government”, that members “shall exercise [their] office without accepting or seeking instructions from any international, governmental, or non-governmental organization or any private source”, and that “[t]he members constituting a division shall be selected on the basis of rotation,

88 United

States (2018). Lighthizer, supra note 38. 90 See generally on the appointment process Elsig and Pollack (2014). 91 General Agreement on Tariffs and Trade, 30 Oct 1947, 61 Stat. A-11, 55 U.N.T.S. 194, Article IX. 92 Hufbauer (2011). 89 Robert

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while taking into account the principles of random selection, unpredictability and opportunity for all members to serve regardless of their national origin”.93 The second instance of controversy was when the US blocked the appointment of Kenyan national James Gathii. The case is different from the Hillman episode in that Gathii, while teaching at a US law school, is not a US national. It is evident that the DSU and the Working Procedures for Appellate Review provisions are designed to prevent political influence on judicial decision-making. The same cannot be said for the appointment process as such, as that process has become increasingly political.94 It is worth noting that Gathii would have been the first and only black African on the AB, but appeared to not be politically palatable for the US, and specifically, the office of the USTR.95 The latest instance of US opposition to reappointment was that of former AB member Seung Wha Chang from Korea who served on the AB from 2012 until 2016. This situation was different from the two previous instances in that US blocked consensus for a non-US national who had served on the AB. The US opposed Chang because it did “not consider that his service reflects the role assigned to the Appellate Body by WTO members in the WTO agreements”.96 The US seemed particularly concerned about Chang’s participation in AB reports, citing “systemic concerns about the disregard for the proper role of the Appellate Body”. This includes what the US considered obiter dicta or academic analysis, dealing with issues not raised by parties to the dispute, inventing new legal standards, conducting independent investigations, and not exercising what the US considered proper deference to determinations under domestic law.97 Moreover, the US singled out Chang and thus one particular AB member whose term was about to expire, much to the consternation of other WTO Members as AB reports are confidential and are not attributable to any particular member of the division that has issued a report.98 The reaction, more muted in the cases of Hillman (presumably because of her national origin) and Gathii (arguably, among other reasons, because his would have been an initial appointment and because his country of origin is not politically powerful), was uncharacteristically vociferous. Korea considered that any opposition to reappointments should only be for “compelling and legitimate” reasons; the EU said that the U.S. position created a “very serious” situation that may set a negative precedent for the AB reappointment process and that reappointment of WTO AB members should be “more or less automatic” if a member is able to serve a second term.99 Similarly, the Japanese delegation said the U.S. position was “extraordinary, exceptional in nature and [had] no precedent” and furthermore that “[a]ny act by a WTO 93 DSU, supra note 10, at Article 17.3 and Rule 2(3) and Rule 6(2), respectively of Appellate Body,

Working Procedure, supra note 20. generally Elsig and Pollack, supra note 90. 95 Pruzin (2014a, p. 150), (2014b, p. 793). 96 United States (2016) [hereinafter Statement]. 97 Id. at pp. 3–5. 98 World Trade Organization (2016). 99 Id.; Baschuk (2016). 94 See

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member of this nature and magnitude must be exercised with extreme caution”.100 The Brazilian delegation said the justifications outlined by the U.S. “are very far from what would be considered acceptable reasons” and undermined the independence of AB members, suggesting that WTO Members should consider possibly amending the DSU.101 The debate was not confined to WTO members. Not only did former AB members pen a letter, but the situation was considered serious enough that current AB members took the unprecedented step to enter the debate. All living former AB members, recognizing the political nature of the (re-)appointment process, remarked that the situation endangered the “impartial independence essential to upholding the rule of law” which had been “central to the success of the WTO dispute settlement system, which has in turn been central to the overall success of the WTO”.102 The main concern raised by the former AB members was that one individual had been singled out while all AB decisions had always been rendered as a division within the AB and after having gone through the exchange of views. This, in the eyes of the former AB members, put into jeopardy “all of the accomplishments of the past generation in establishing the credibility of the WTO dispute settlement system” and opened up the “possibility of inappropriate pressures by participants in the WTO trading system”.103 The letter furthermore points out that “[t]here must be no opening whatsoever to the prospect of political interference in what must remain impartial legal judgments in the WTO’s rule-based system of adjudication” and that if Members wished to adopt binding interpretations, the WTO Agreement gives that competence to the Ministerial Conference and the General Council under Article XI:2 WTO Agreement.104 The—at the time: six—sitting AB members also addressed the DSB in a letter, albeit with a slightly more guarded tone: “The dispute settlement system depends on WTO Members trusting the independence and impartiality of Appellate Body Members. Linking the reappointment of a Member to specific case could affect that trust.”105 What is remarkable is not the substance—even though some of the points were disputed and criticized by the US representative.106 Rather and given the political nature of the process ongoing at the time, it was the fact of the intervention itself. Clearly, the sitting AB members saw the very institution that they represented threatened to the point that they felt compelled to voice their concerns.

100 World

Trade Organization, supra note 98. Baschuk B, supra note 99. 102 Appellate Body, Appellate Body Annual Report for 2016, at 103, WT/AB/27 (16 May 2017) [hereinafter Annual Report]. See already Unterhalter, supra note 22, at p. 467. 103 Annual Report, supra note 102, at p. 104. 104 Id. 105 Annual Report, supra note 102, at p. 102. 106 Statement, supra note 96, at p. 9. 101 Id.;

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Constitutional Backsliding II: The Reaction—Too Little, Too Late?

Each of these situations was, in and of itself, serious to warrant more somber consideration of the future of the WTO dispute settlement arm. The reality is that the constitutional backsliding is not a recent phenomenon but has begun quite some time ago. The damage done, other WTO members were either unable or unwilling to challenge the US which—in an ironic twist—had been the driving force behind the creation of an independent and impartial judicial arm at the WTO’s creation.107 There appeared to be a more unified opposition by WTO Members against the US tactics in the last instance, but this has not prevented the current situation in which the AB consists of only three members (Ujal Singh Bhatia, Thomas Graham and Hong Zhao).108 Numerous suggestions have emerged as to how to deal with the current situation. Some are more detail-oriented proposals such as limiting the time that AB members can serve after their term has expired or for outgoing AB members to serve until their replacement has been agreed upon109 ; the Appellate Body could refuse to hear cases110 ; a separate or modified system for trade remedies (arguably the major substantive concern for the US)111 ; Members could have recourse to majority voting instead of the default consensus option in WTO decision-making112 ; disputing Members could agree ex ante to refrain from appealing a panel decision113 ; arbitration under Article 25 DSU in lieu of appeals to the AB114 ; The introduction of a legislative remand, i.e. a requirement that panels or the AB would submit issues of legal uncertainty to WTO committees for further discussion and negotiation115 ; all the way to outsourcing appellate decision-making to an extra-WTO institution with essentially the same rules and personnel as are currently in place.116 Formal reform proposals have been lodged by various groupings within the WTO. The so-called Ottawa Group of 13 like-minded WTO Members, both developing and developed, released a statement pointing out the duty of all WTO Members to “safeguard the WTO dispute settlement system”, including “to hold solutionoriented discussions with a view to restoring a fully operational Appellate Body

107 Trebilcock

et al. (2012, p. 174). as of June 2019. 109 Institute of International Economic Law, Georgetown University Law Center (2018). 110 Charnovitz (2017). 111 See e.g. Payosova et al. (2018). See Robert Lighthizer, supra note 38. 112 Kuijper (2018, p. 9). For a counterview, see Hillman (2018). 113 Salles (2017). Salles cites three previous cases in which the parties had agreed not to appeal: DS126, DS 335 and DS383. 114 Hillman J, supra note 112, at pp. 8–9. 115 See in this sense, Lighthizer, supra note 78. 116 Kuijper, supra note 112, at pp. 10–11. 108 Correct

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without delay”.117 This document referenced an earlier proposal by various WTO Members which sets out concrete proposals on the issues raised by the US, including transitional rules pertaining to outgoing AB members; the length of appellate review; the meaning of municipal law as an issue of fact; the matter of obiter dicta in AB reports; annual meetings between the AB and the DSB “to provide an additional ‘channel of communication’ where concerns with regard to some Appellate Body approaches, systemic issues or trends in the jurisprudence could be voiced”118 ; as well as the issue of precedent.119 Another communication submitted by the EU, China, India and Montenegro contained proposals that built on and went further than the previously mentioned document, putting forth a single 6–8 year long term for AB members in order to “enhance the independence of the AB and its members”; increase the number of AB members from 7 to 9 in order to improve efficiency and geographical balance; making AB membership an exclusive occupation; expanding the resources for the AB and its Secretariat; and an automatic launch of the selection process to replace outgoing AB members.120 These proposals—in part as direct rejoinders to US criticism—received, at best, a lukewarm response from the US which went as far as stating that “[w]ith respect to the proposal advanced by the EU, China, and India, it is hard to see how it in any way responds to the concerns raised by the US, as some have alleged.”121 It furthermore responded that “on a close reading, the proposals would not effectively address the concerns that Members have raised” and rather “endorse changing the rules to accommodate and authorize the very approaches that have given rise” to its concerns.122 Given these events it seems clear that good faith negotiations on meaningful reform of the WTO dispute settlement system is challenging at best and illusive at worst.123 It is hard to reconcile these competing positions or synthesize them into a blueprint for a future dispute settlement process on the multilateral level, short of one side giving up some of their fundamental—though not necessarily genuine—demands.

117 World

Trade Organization, Joint Communiqué of the Ottawa Group on WTO Reform, Communication from Canada, WT/L/1057 (25 Jan 2019). 118 On this particular issue, see Paine (2018). 119 See generally General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic Of Korea, Iceland, Singapore, Mexico, Costa Rica and Montenegro to the General Council, WT/GC/W/752/Rev.2 (11 Dec 2018). 120 General Council, Communication from The European Union, China, India and Montenegro to the General Council, WT/GC/W/753/Rev.1 (11 Dec 2018). 121 United States, supra note 88. 122 Id. 123 In the context of the–failed, due to US opposition—re-appointment of former AB member Servansing in September 2018–one senior official was reported as saying that “the Americans are not being very lucid about what they want and what exactly it is that they will settle for. They have pointed to their grievances, but not laid out in any meaningful way what exactly are the changes they are looking for”. See Freedman (2018).

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5 Conclusion The apparent slow demise of the appellate function—and with it most likely the entire adjudicative function of the WTO—will have considerable institutional ramifications. Barring any new developments, the AB will cease to function no later than December 2019 when the number of AB members will dip below the requisite three to adjudicate disputes. If this comes to pass, the AB will have regressed—from the “centrepiece” it was after the WTO’s creation—into irrelevance. While some of the criticism raised shouldn’t be brushed aside, the AB is caught in a perfect storm of competing visions for international economic governance well beyond its control, and a US administration that appears opposed to multilateral institutions at best and belligerent towards them at worst. The US has long criticized the AB’s position in the area of trade remedies, and the ascent of Robert Lighthizer to the position of USTR has only added fuel to the fire. The attempts to dismantle the existing system of dispute settlement are therefore borne out of a sense of frustration at the AB not falling in line with the US’ position and desire to return to a power-based system of trade governance.124 But in another sense the AB is collateral damage in a larger battle over the future of international trade governance. The AB has been thrust into an exposed and vulnerable position partly because of the paralyzed negotiating function of the WTO by the very members that are unable to secure a negotiated settlement for contentious issues. Fixing technical legal issues within the DSU over the proper position of the AB in WTO dispute settlement will likely prove futile in this larger game.125 The bigger questions that have remained unresolved are indeed best dealt with at a political level, provided that they are approached in good faith.126 Some of these existed prior to China’s accession to the WTO in 2001, some have emerged since. At the heart of the current crisis lies the question of competing models: the market-oriented traditional model versus Chinese state capitalism in tandem with the specific distortions it causes.127 This central concern is not only relevant for the US, but also many of its (erstwhile) allies in the multilateral trading system.

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Markus Wagner is Associate Professor at the University of Wollongong. He joined the School of Law in 2018 from Warwick Law School, and has previously worked at the University of Miami. He obtained his law degree in 2002 and a master’s degree in international law in 2005, both from the Faculty of Law at the University of Giessen, Germany. From 2002 to 2005, he worked at the Max Planck Institute for Comparative Public Law and International Law in Heidelberg. Germany, during which time he also served as legal counsel for the Permanent Mission of Germany to the United Nations in New York. In 2006, he graduated from Stanford Law School with an LL.M. degree. Professor Wagner subsequently clerked for then-President of the Supreme Court of Israel, Aharon Barak. Starting in 2007, he worked for the Brussels office of WilmerHale. Professor Wagner currently serves as the Associate Editor for the Journal of World Investment and Trade (JWIT) and sits on the advisory boards of the International Journal of Law in Context and the Göttingen Journal of International Law (GoJIL). He is the Executive Vice-President of the Society of International Economic Law (SIEL) and past co-chair of the Junior International Law Scholars Association (JILSA). Professor Wagner has advised international organizations and has presented at academic and professional conferences in the areas of autonomous weapons and international economic law. He also holds an appointment as Visiting Research Fellow at the Mandela Institute at the Oliver Schreiner School of Law, University of the Witwatersrand in Johannesburg. He has held visiting professor positions at the Universidad Externado de Colombia in Bogota, the Universidad Los Andes in Bogota, the Max Planck Institute for Comparative Public Law and Public

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International Law in Heidelberg, the Center for Teaching and Research of WTO Disputes at the Southwest University of Political Science and Law in Chongqing and the law faculties at the University of New South Wales in Sydney, the University of Leipzig, the University of Hamburg and the Fundaçao Getulio Vargas in São Paulo.

Chapter 6

WTO Appellate Body Overreach and the Crisis in the Making: A View from the South R. Rajesh Babu

Abstract The WTO Appellate Body is facing an existential crisis that threatens to impair the institutional edifice of the entire multilateral trading system. The immediate reason for the crisis is the US blocking of the appointment and reappointment of the Appellate Body members on the ground that the Appellate Body has exhibited a pattern of “judicial over-reaching” by going beyond the strict bounds of permissible interpretation thereby indulging in judicial law-making. Are these allegations founded on facts and could this be another effort by the US to dismantle legitimately established multilateral institutions/processes? This chapter views that while one may concede the US blockade as largely motivated by self-interest, an analysis of the WTO jurisprudence is replete with occasions where the panels and the Appellate Body have misused their discretion and improperly engaged in creating new WTO rules and procedures through techniques of “filling legal gaps”, “completing the analysis”, or “clarifying ambiguity”. This trend has been viewed by a large section of the WTO Members and trade scholars as detrimental to organisational legitimacy of the WTO. This chapter also argues that the current crisis, though precipitated by the US self-interest, offers an opportunity for the WTO member states and the Appellate Body members to introspect and restore democratic deficit and prevent judicial overreach. This chapter also perceives that the current crisis also owes to the inability of WTO political bodies to check and correct actions of other WTO bodies that have undermined the state-centric nature of the WTO law-making. Keywords WTO Appellate Body crisis · WTO judicial activism · WTO interpretation and developing countries

1 Introduction The Appellate Body of the World Trade Organization (hereinafter WTO) is facing an existential crisis that threatens to impair the institutional edifice of the multilateral trading system. By December 2019, there is a high probability that there may no more R. Rajesh Babu (B) Indian Institute of Management Calcutta, Kolkata, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_6

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be a standing Appellate Body, the strength of which is already reduced to three from seven members. The immediate reason for the crisis is the United States (hereinafter US) blocking of the appointment and reappointment of the WTO Appellate Body members. The key reason cited by the US for such a “distractive” action is their belief that the Appellate Body has exhibited a pattern of “judicial over-reaching” by going beyond the strict bounds of permissible interpretation thereby indulging in judicial law-making. More specifically, the US allegation is that the Appellate Body has been “rewriting WTO agreements to impose new substantive rules Members never negotiated or agreed,” and thus lack democratic legitimacy or support. The US defended its actions as being forced only after many years of unheeded warnings. Are these allegations founded on facts and could this be another effort by the US to dismantle legitimately established multilateral institutions/processes? While one may concede that the US blockade is largely motivated by self-interest, an analysis of the WTO jurisprudence is replete with occasions where the panels and the Appellate Body had misused their discretion and improperly engaged in “judicial activism” creating new WTO rules and procedures through techniques of “filling legal gaps”, “completing the analysis”, or “clarifying ambiguity”. This trend has been viewed by a large section of the WTO member states and trade scholars as detrimental to organisational legitimacy of the WTO. Though entrusted only with the task of resolving regime specific trade conflicts, the Appellate Body has used liberal rules of interpretation and discretion to expand the WTO law beyond what the WTO Members ever contemplated. These excesses or overreach, however, went unabated owing to the structural problems that inhibit the system, including the automatic bindings of the rulings and recommendations, the ambiguity in the substantive provisions of the WTO agreements, the lack of democratic oversight of the WTO judicial bodies, and the absence of procedural protections in the system. The developing countries, more than their powerful counterparts, were often seen at the receiving end of such activism with their rights diminished and obligations enhanced. This chapter argues that the current crisis, though precipitated by the US selfinterest, offers an opportunity for the WTO Members and the Appellate Body members to introspect and restore democratic deficit and prevent judicial overreach, before losing institutional legitimacy and confidence of a vast majority of the WTO membership. The author perceives that the current crisis also owes to the inability of WTO political bodies—the Ministerial Conference and the General Council—to check and correct actions of other WTO bodies that have undermined the state-centric nature of the WTO law-making. In this context, the chapter is divided in the following manner: Part 2: the crisis in context and the US justification; Part 3: the “exclusive authority to adopt interpretations” in the WTO framework; Part 4: judicial overreach and the crisis in the making, with focus on its impact on the developing country Members rights and obligations; and Part 5: Maintaining negotiated balance and restoring the state-centric nature of the WTO, with some specific suggestions. Part 5 also offers some suggestions, for the long term and short term, on the possible ways to deal with contentious interpretations developed by the panels and the Appellate Body, restoring the confidence in the DSB process through enhancing transparency and accountability. And finally, this chapter concludes with some remarks from the perspective of the South.

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2 The Crisis in Context and the US Justification The Dispute Settlement Understanding (hereinafter DSU) is often referred to as the crowned jewel of the Marrakesh Agreement establishing the WTO.1 Since 1995, during the last 23 years, the Dispute Settlement Body (hereinafter DSB) has attracted more than 500 cases and adopted more than 350 dispute settlement decisions,2 with very few unresolved because of compliance problems. However, the biggest challenge for the WTO dispute settlement system is the current impasse regarding the Appellate Body appoints to fill its vacancies3 even after several attempts and alternative proposals.4 If the scenario continues unresolved still December 2019, the WTO DSB will be left with no standing Appellate Body to adjudicated appeals. The prime mover of this impasse is the US blockade of the appointment and reappointment of the WTO Appellate Body members that has reduced them from its full roster of seven judges down to the minimum of three needed to decide an appeal and only one judge by December 2019—not enough to hear an appeal. This action would grind the settlement of international trade disputes to a halt in the WTO, damaging in the process the cornerstone of the WTO architect. The key reason cited by the US for blocking of the judicial appointments is over the belief that WTO Appellate Body members have exhibited a pattern of “judicial overreaching” by going beyond the strict bounds of permissible interpretation thereby indulging in judicial law-making. The Deputy US Trade Representative (USTR) and US Permanent Representative to the WTO, in his statement made at the WTO General Council meeting on 8 May 20185 noted that something has gone wrong in Appellate Body as “those charged with adjudicating the rules are so consistently disregarding those very rules.” He argued that: What we are dealing with, fundamentally, is a steadily worsening rupture of trust on the part of the Appellate Body. That ruptured trust has, in turn, placed in jeopardy the political sustainability of our entire dispute settlement system. Despite years of warnings from my predecessors, and expressions of concern from respected WTO voices, including former Directors-General, the Appellate Body not only has rewritten our agreements to impose new substantive rules we Members never negotiated or agreed but has also been ignoring or rewriting the rules governing the dispute settlement system, expanding its capacity to write and impose new rules.

In other words, according to the US, the Appellate Body has been indulging in “unapproved rule-breaking and rule-making.” Further, the US alleged that the Appellate Body has “compiled a troubling track record of expansive interpretations that effectively create new WTO law, a function reserved to Members through the process of negotiation.” The US also drew a connection between lack of progress in 1 WTO

Press Releases (2009). (2017). 3 Ihara (2018). 4 WTO (2018). 5 WTO General Council (2018). 2 Reich

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WTO negotiations and the “culture in which many Members consider that certain outcomes can be most easily achieved through litigation rather than through the hard work of negotiation.” The US reiterated that they were compelled to take this position considered to be disruptive “only after many years of unheeded warnings against a dispute settlement system that ignores existing rules and writes new rules undermines the WTO as a forum for negotiation and discussion.” A dispute settlement mechanism that goes beyond existing rules do not have the approval by Members and does not have democratic legitimacy or support of all Members. The US also rejected the proposal submitted by a group of WTO Members6 stating that the proposal would not effectively address the concerns. According to Deputy USTR “with respect to the proposal advanced by the European Union, China, and India, it is hard to see how it in any way responds to the concerns raised by the United States.”7 Thus, no compromise formula seems to be in sight to overcome the impasse.

3 The “Exclusive Authority to Adopt Interpretations” in the WTO Framework The WTO as a member-driven organization has entrusted the two political bodies, the Ministerial Conference and the General Council, with the “exclusive authority to adopt interpretations” in case of conflict or ambiguities while implementing the provisions of the WTO covered agreements.8 This interpretative role reserved to the political bodies allows them an opportunity to review, refine and expand the existing trade rules.9 The authoritative interpretation once adopted by the General Council is binding on all Members.10 Further, it has been clarified that the “multilateral interpretations are meant to clarify the meaning of existing obligations,” and that “multilateral interpretations adopted pursuant to Article IX:2 of the WTO Agreement are most akin subsequent agreements within the meaning of Article 31(3)(a) of the Vienna Convention.”11

6 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, WT/GC/W/752 (26 Nov 2018). 7 Baschuk (2018). 8 Marrakesh Agreement Establishing the World Trade Organization art. IX:2, 15 Apr 1994, 1867 U.N.T.S. 154 (hereinafter WTO Agreement). 9 Ehlermann and Ehring (2006, p. 162). 10 Appellate Body Report, United States—Measures Affecting the Production and Sale of Clove Cigarettes, para 252, DS406 (4 Apr 2012). 11 Id. Panel Report, EC—Bananas III, para 7.107. See also, Ehlermann and Ehring (2005, p. 806).

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However, this provision remained redundant. An attempt to use the same was made once when the EC requested an authoritative interpretation to settle the “sequencing” problem between Articles 21.5 and 22 of the DSU. The General Council, however, did not adopt the requested interpretation, and the broad support was for reaching a negotiated solution in the discussions on the review of the DSU.12 The Article XI:2 processes could have been used as a mechanism to provide normative guidance in the case of ambiguous rules, or correct the interpretations developed by the panels and the Appellate Body, thereby providing a “check and balance” or correct jurisprudential developments. For instance, on the amicus curiae issue, a majority of the Members had expressed serious reservations.13 Many Members accused Appellate Body of using US— Shrimp (Turtle) I case14 as an instrument for extending its powers beyond those that permitted under the DSU.15 India noted that the “Appellate Body might have interpreted one of the important provisions of DSU loosely and wrongly, which could upset the balance of rights and obligations of Members… It appeared that by this approach the Appellate Body had transcended the strict boundaries of law and had entered into the political domain strictly preserved for Members.”16 However, no response from the General Council while adoption and the issues remain controversial and contested till date.17 The WTO Members have failed to exercise this very significant policy-making authority. This mechanism, though constrained by the need for consent, if effectively used would reflect the legitimate process of norm-making in international law. Whereas, the role of Panel and the Appellate Body under the WTO18 is limited to “clarification” of the covered agreements in cases where their implementation has resulted in a dispute, “in accordance with customary rules of interpretation of public international law” (Article 3.2, DSU). The Appellate Body in US—FSC noted the difference between an authoritative interpretation and an interpretation in dispute settlement:

12 See General Council, Communication from the European Communities, Request for an Authorita-

tive Interpretation Pursuant to Article IX:2 of the Marrakesh Agreement of the WTO, WT/GC/W/133 (25 Jan 1999). See Ehlermann and Ehring, supra note 11, at p. 803. See also, Desierto (2015, p. 242). 13 Umbricht (2001). 14 Panel, US—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58 (15 May 1998); Appellate Body Report, US—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (12 Oct 1998). 15 WTO, Minutes of the DSB Meeting held on 6 November 1998, DSB Special Session, at 5, WT/DSB/M/50 (14 Dec 1998). 16 Id. at pp. 7–8. 17 See General Council, Minutes of Meeting of the General Council, WT/GC/M/60 (22 Nov 2000). 18 Understanding on Rules and Procedures Governing the Settlement of Disputes, 15 Apr 1994, WTO Agreement, Annex 2, 1896 U.N.T.S.401. The Result of the Uruguay Round of Multilateral Trade Negotiations, 1994.

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R. Rajesh Babu Under the WTO Agreement, an authoritative interpretation by the Members of the WTO, under Article IX:2 of that Agreement, is to be distinguished from the rulings and recommendations of the DSB, made based on panel and Appellate Body Reports. In terms of Article 3.2 of the DSU, the rulings and recommendations of the DSB serve only “to clarify the existing provisions of those agreements” and “cannot add to or diminish the rights and obligations provided in the covered agreements.”19

Clarifications rendered by the DSB must be aimed at “achieving a satisfactory settlement” (Article 3.4, DSU) and “cannot add to or diminish the rights and obligations provided in the covered agreements” (Article 3.2, DSU). Further, “recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements” (Article 19.2, DSU). The DSU also reserves the right to seek authoritative interpretation from the political bodies notwithstanding any interpretation by the panels or the Appellate Body adopted by the DSB (Article 3.9, DSU). As Matsushita aptly puts it, the States “have parted with portions of their sovereign power to regulate international trade to the WTO only to the extent of what is inscribed in WTO agreements but no more”.20 Unfortunately, the “exclusive authority” of the political bodies to adopt interpretations has become defunct owing to (i) inability or impossibility of reaching political consensus at Ministerial Conference and the General Council level, and (ii) unchecked and automatic ratification by the DSB of the legal interpretations developed by the panels and the Appellate Body, which became the primary interpreter of the WTO text. DSU Article 17.14 states that “[a]n Appellate Body report shall be adopted by the DSB and unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following its circulation to the Members.” The positive consensus requirement in the former and negative consensus in the latter case has the resultant effect of paralyzing the political bodies, with the Appellate Body yielding de facto more power. This procedural advantage of the judicial bodies are further complimented by the scope of the power of interpretation given the ambiguity presented by the “customary rules of interpretation of international law,” a standard which is by itself is ambiguous. This offers the panels/Appellate Body considerable leeway in attributing meaning to provisions of the WTO Agreements while clarifying. Further, the de facto precedential value of the interpretation developed by the Appellate Body influences the course of WTO jurisprudence binding on subsequent panels, deviation from which become onerous.21

19 Appellate

Body Report, United States—Tax Treatment for “Foreign Sales Corporation”, n. 127, WT/DS108/AB/R (24 Feb 2000). 20 Matsushita (2006, p. 192). 21 “Adopted panel reports are an important part of the GATT acquis.” See Japan—Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (4 Oct 1996); Mora (1993, p. 163).

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4 Judicial Overreach and the Crisis in the Making Despite widely held admiration on the effectiveness of the DSB process, in particular, the Appellate Body, over the years, there has been a growing perception that the WTO panels/Appellate Body have indulged in judicial overreach in the guise of interpretation. It has been argued that the WTO adjudicating bodies are not “courts of general jurisdiction” competent to apply all applicable international law.22 Notwithstanding this, the Appellate Body, in particular, has misused their discretion and improperly engaged in the process of “judicial activism” creating new WTO rules and procedures through the technique of “filling legal gaps”, “completing the analysis”, or “clarifying ambiguity”.23 These judicial rulings by the Appellate Body have led to reading into the WTO agreements, new obligations that are neither legitimately foreseen by the member states nor the resulted of a negotiated consensus at Marrakesh. Such an attempt at norm expansion through the judicial process, it was noted, was inherently dangerous, usurping the functions of the WTO political bodies contrary to democratic legitimacy and the member-driven nature of the WTO. Ragosta et al., notes that: [S]uch judicial activism is a result of structural problems within the system, including the binding nature of the dispute settlement system, the unclear and ambiguous substantive provisions of the WTO agreements, the lack of democratic oversight of the Appellate Body and the panels, and the absence of procedural protections in the system.24

The developing countries have been mostly at the receiving end of such unauthorized norm expansion. Many criticizes of the system has supported the view that the WTO adjudicating bodies tend to favour the developed countries such as the US and EC at the expense of the rights of developing countries, thereby shifting the balance of the negotiated rules against the large majority of the States.25 Hudec, in his study on the GATT 1947 dispute settlement system, concludes that the panel was more responsive to the interests of stronger countries, which, according to him, was natural in a young legal system.26 Thus, through a steady process of interpretation, the panel and the Appellate Body have usurped the authority vested in the Ministerial Conference and the General Council and “with single-minded purpose, eroded the rights of the developing countries, increased their obligations, and tilted the balance in the system against them”.27

22 Babu

(2016, p. 502).

23 Ragosta et al. (2003), Colares (2009), Chimni (1999), von Bogdandy (2001, p. 611), Singh (2008),

Babu (2016), supra note 23. et al., supra note 23. 25 Perdikis and Read (2005, p. 41). See also Bown (2005), Hoekman and Mavroidis (2006), Holmes et al. (2003, pp. 5–6). 26 Hudec presents the most comprehensive analysis of GATT dispute outcomes from 1948 to 1989. Hudec (1993, p. 273). 27 Raghavan (2000). 24 Ragosta

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For instance, the statement of Jamaica at the DSB Meeting held on 27 January 2000 during the adoption of the Reports in US—Section 301 and the India—Patents are very illustrative of the bias in the interpretation adopted by the WTO adjudicating bodies. It commented that: In the latter the ruling [against India] was that WTO-consistent administrative instructions and practices were not sufficient enough to remove the legal uncertainty created by the existence of inconsistent primary legislation; whereas in the present case [against the US], an official statement and an oral assurance had been deemed satisfactory to cover the WTO contradictions arising out of the primary law. Jamaica firmly believed that where certain principles were set, they had to be applied universally not selectively. This consistent approach was vital to the process of building predictability and security in the multilateral trading system and towards ensuring the confidence of Members in the integrity of the dispute settlement mechanism.28 (Emphasis added)

India, which was at the receiving end of the double standards commented that it “considered that the approach of examining legal provisions in conjunction with guarantees and assurances provided by the US administration was rather unusual and unprecedented, in particular in the light of the fact that that approach was not adopted in an earlier case involving India”.29 On many occasions, such judicial overreach has been a subject of contestation at the DSB and part of the official record, which however seems have no impact on the assumed powers of the WTO quasi-judicial bodies. As the interpreter entrust with the function of clarifying the WTO rules and to bring to light the authentic meaning of the “text” as expressed in the will of the states, the panel and the Appellate Body shall neither exceed the limits of permissible interpretation nor ignore the contexts which are pertinent for attributing meaning to the provision. This limitation is inherent to the competence of adjudicating bodies, and any attempt to deviate would imply a decision ultra virus, or interpretation improper or the decision would be flawed due to excess of power. The conduct of the panels and the Appellate Body by engaging in excessive use of the discretion of interpretation thereby indulging in an improper expansion of WTO law, have raised serious questions of democratic accountability and legitimacy. The negotiators of the WTO Agreement never contemplated giving swiping power of interpretation on a select few WTO panelists and Appellate Body members. Judicial organ to function effectively must enjoy a certain level of flexibility and discretion to interpret rules, however, their primary task and focus are resolving trade conflicts within the restraints imposed by the states.30 As Trachtman notes: Judicial activism necessarily implies the selection of preferred values among the constellation of values and interests that exist in our diverse world by a small group of unelected individuals. The preferred method of resolving conflicting values and interests in democratic societies is a political process in which all interests are represented, and the decision makers are accountable to the people. There are far more interests and more effective policy alternatives 28 Statement

of Jamaica at the DSB Meeting (2000). at pp. 18–19. 30 Kelly (2002, p. 387), (2008). 29 Id.

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to resolve environmental and other social policy issues than can be represented in adjudication or within the body politic of one nation.31

The broader power to interpretive WTO text and to make such informed choices part of the WTO law is reserves exclusively to the political bodies. The absence of political consensus is no license for another body justification of such function. On this point, the issue raised by the US thus is relevant and to the context.

5 Maintaining Negotiated Balance and Restoring State-Centric Nature of the WTO Unlike the role of constitutional courts, regime specific international tribunals such as the WTO panels and the Appellate Body have the narrowly defined function of settlement of disputes without upsetting the delicately negotiated balance. States do not foresee a constitutional role for international tribunals and are reluctant to place their confidence in the capacity and independence of international tribunals coloured by nationality and power.32 Further, the interpretative freedom of international adjudicating bodies is limited by choice of the strict parameters by sovereign nations.33 The unrepresentative character of the judges/members of international tribunals, how they are elected, and lack of accountability to the people and the constitutional processes of states, make the judges of such tribunals unsuitable for entrusting, explicitly or implicitly, the liberal power of interpretation.34 In other words, it is neither contemplated nor appropriate to delegate such a crucial sovereign function to few members of an adjudicating body unaccountable for the national constitutional process.35 The panels and the Appellate Body must consciously restrain their role within the narrow bounds of case laws and allow the policy choices to the made by political bodies. However, importantly also is the failure of the General Council to respond through appropriate interventions and adopting authoritative interpretations, a necessary instrument of checks and balance vis-à-vis the WTO’s judicial bodies.36 Had the Article XI:2 process been workable, General Council could have provided normative guidance and correct jurisprudential developments. Cottier and Takenoshita observe that the lack of legislative response not only creates an imbalance but also prevents

31 Trachtman

(2000, p. 735). (2010, p. 61). 33 Bello (1996, p. 416). 34 The WTO panels and Appellate Body members have no prohibition on members’ “nationals” sitting in judgment over “measures” of one’s own country. See India’s submission to the DSB Special Session on the Review of the DSU. Proposal by India, Terms of Appointment of Appellate Body, WT/DSB/W/17 (Nov 1999). 35 Broude (2004, p. 168) and Davey (2002). 36 Ehlermann and Ehring, supra note 11, at p. 812. 32 Babu

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the law from being incrementally developed beyond the narrow confines of case laws.37 Below an attempt has been made to offer some recommendations to resolve the impasse without major systemic changes.

5.1 Legitimizing DSB Interpretation and Reexamining Consensus Decision-Making Practice at the General Council The “exclusive authority to adopt interpretations” bestowed on the highest decision making political bodies—Ministerial Conference and the General Council—entail the responsibility to ratify newly formed interpretations in case of conflict or ambiguities that may arise in the implementation of the provisions of the WTO covered agreements. If the consensus is not forthcoming, all such “authoritative interpretations” must have a three-fourth majority of members voting in favour. If the matter concerns the interpretation of GATT, GATS or TRIPS Agreement, Ministerial Conference and the General Council shall exercise their authority based on a recommendation by the respective Council overseeing the agreement. If the Council is unable to decide by consensus, the matter must be referred to the General Council.38 Such a “recommendation from the relevant Council is an essential element of Article IX:2, which constitutes the legal basis upon which the … the General Council exercise their authority to adopt interpretations of the WTO Agreement.”39 In such a situation, the Council’s “recommendation will be replaced by action of the General Council, where the prior recommendation and the authoritative interpretation itself arguably collapse into one single act.”40 The power of authoritative interpretation though constrained by the need for consensus, if effectively used would reflect the legitimate process of norm-making in the WTO.41 The provision could be revitalized to legitimising controversial interpretations adopted by the WTO DSB through negative consensus. During the adoption of the Panel/AB Report in the DSB, if a “defined” number of member states consider that the interpretation by the Panels/Appellate Body going beyond the permissible limits of interpretation or falls within the ambit of judicial overreach, the DSB refer the matter to the General Council for authoritative interpretation. Such an interpretation of the panel/Appellate Body could be adopted as “authoritative interpretation” through consensus. However, if the consensus is not forthcoming in the General Council, which most often will be the case, the resolution could be put for voting. If three-fourth majority of members voting in favour of the interpretation developed by 37 Cottier

and Takenoshita (2008, p. 185). See also, Cottier and Takenoshita (2003).

38 Rules of Procedure for Meetings of the Council for Trade in Goods, r.33, WT/L/79 (7 Aug 1995). 39 Appellate Body Report, United States—Measures Affecting the Production and Sale of Clove Cigarettes, para 254, WT/DS406/AB/R (4 Apr 2012). 40 Ehlermann and Ehring, supra note 11, at p. 806. 41 Babu, supra note 22.

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the panel/Appellate Body, the same would then become legitimized as the accurate clarification of the WTO text. However, if the resolution is defeated, such “overreach” and the understanding of the text should have only case-specific value, and the same shall not have de facto or de jure precedential value in any of the future disputes. The two-level process, one at the DSB level and second at the General Council level, will also ensure that political bodies have a say in the interpretations developed by the judicial bodies and that a vast majority of the Member States consider the interpretation acceptable. Moreover, this General Council resolution would also provide a clear message to the future panels/Appellate Body to introspect their actions while interpreting that particular text and exercise self-restraint. On the downside, however, this process would entail deviating from the practice of consensus decision making and the possibility of frivolous contestations referred to General Council for the negation of authoritative interpretation. From developing countries perspectives, the advantages of such practices that strengthen the member-driven character of the WTO surely outweigh the potential downside. For instance, deviating from the consensus decision making in practice may be disadvantageous to the developing countries is a fallacy and most often they go along with the powerful groups as silent parties to the decision. Consensus decision making was hailed as it expected to give “a certain degree of say in issues and processes” to the developing and least developed Members at the WTO.42 John Jackson notes that the consensus rule lends democratic legitimacy, and forces the richer and more powerful Members “to take into consideration the needs and opinions of all parts of the organization, including the poorer and less powerful governments.”43 The critics, however, argue that even in a consensus driven process the outcome would depend on the power equation, meaning the largest countries generally yield more weight than do small ones. Steinberg also calls consensus based decision-making rules as organized hypocrisy in the procedural context.44 Most developing countries would simply remain silent because of their fear of the consequences of expressing their objections publicly including find themselves isolated in due course.45 Deciding by consensus in a body composed of 164 very different Members is difficult, if not an impossible task. Though consensus decisions have the advantage of being more acceptable to Members, the process should give way to voting in the context of controversial interpretations developed by the panel/Appellate Body. If the majority of the member states at the General Council feels that the interpretation developed by the panel/Appellate Body is unacceptable, such interpretation must be denounced with prospective effect, and the same should not be used in future interpretation by the panels and the Appellate Body. However, for maintaining consistency and not upset the DSB process, the DSB adopted Report can stand but not the interpretation. 42 Dube

(2012, p. 5), Kapoor (2004), King (2003), and Wolfe (2005). (2006, p. 114). See also, Guan (2014). 44 Steinberg, supra note 31, at p. 365. 45 Narlikar (2001). See also Hoekman (2014). 43 Jackson

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5.2 Providing Systemic Checks and Balances Further bringing transparency and accountability to the interpretation would require putting in place checks and balance against abuses, and systems that encourage wider discourse. Such wider discourse is important in the emergence of the WTO jurisprudence that once created by the Appellate Body is difficult to correct through “legislative action” of the Members.46 There have been several suggestions to check the effects of interpretation without undermining the role of the dispute settlement system. Such checks and balance against judicial overreach could be deployed at different levels. For instance, the 2005 “Sutherland report” recommended setting up of a special expert group to review select findings of panels or the Appellate Body. This group would report to the DSB and propose an authoritative interpretation for the future to be adopted by the General Council.47 In the interim, until a permanent solution is found one away to ensure independent and impartiality of judicial functions is to ensure transparency and accountability in the functioning of the system. The following are some of the options that may be considered: Open court process: Given the public interest involved and the wider implications of Appellate Body rulings, the panels/Appellate Body proceedings should not be conducted within close doors but though open deliberations for not just the WTO members, but also the public at large. As Jeremy Bentham said publicity “keeps the judge, while trying, under trial.” Publicity automatically brings in self-accountability and is a “safeguard against judicial arbitrariness or idiosyncrasy …” This is not new to the WTO as a public hearing was conducted in the several disputes which can be converted into a new norm.48 Dissenting and separate opinions: The WTO must encourage dissenting and separate opinions particularly in Appellate Body to shape jurisprudence.49 The practice is rooted in practices of most mature legal systems as well as that of the international adjudicating bodies.50 It has been asserted that dissenting opinions, act “as a 46 Dispute Settlement Body, Negotiations on Improvements and Clarifications of the Dispute Settlement Understanding on Improving Flexibility and Member Control in WTO Dispute Settlement Contribution by Chile and the US, TN/DS/W/28 (17 Dec 2002). Ehlermann and Ehring (2005, p. 71). 47 WTO Consultative Group appointed by the Director-General in June 2003 (17 Jan 2005), at p. 57. http://www.wto.org/english/thewto_e/10anniv_e/future_wto_e.pdf. Ehlermann and Ehring though wonder whether this could become another review of the panels and the Appellate Body rulings with the potential of undermining the working of the dispute settlement system. Ehlermann and Ehring, supra note 11, at p. 822. 48 United States—Continued suspension of obligations in the EC—Hormones dispute WT/DS320; Canada—Continued Suspension of Obligations in the EC—Hormones Dispute, WT/DS321. See, Ahlborn and Pfitzer (2009, p. 22). http://www.ciel.org/Publications/Transparency_WTO_Dec09. pdf. Accessed 8 May 2019; Bonzo (2014). 49 Only 5% of panel reports and 2% of Appellate Body reports contain separate opinions of any kind. See Lewis (2006). 50 Statute of the International Court of Justice art. 57, 18 Apr 1946, 33 U.N.T.S. 993.

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safeguard of the individual responsibility of the judges as well as of the integrity of the Court as an institution.”51 It also serves as an “assurance that the case was fully considered and thoroughly argued by the bench as a whole and that the opinion of the Court was not merely adopted as written by one member”52 or that of the Secretariat. It was also found that fifty percent of the arguments raised in dissents at the panel level were adopted in whole or in part on appeal by the Appellate Body, thus illustrating dissents can and do make a difference.53 Dissenting opinions thus would considerably enhance the credibility of the interpretation and the report, apart from contributing to the growth of the WTO jurisprudence. Considering that the Appellate Body is moving towards a formulation of a WTO corpus juris, it is imperative that the option to dissent and open court system be made integral to that process. Review of concerns at the interim report stage: At the interim review stage (Article 15, DSU) of the panels/Appellate Body Report, in addition to the errors in facts and arguments, the Members parties to the dispute must be given an opportunity to raise concern on the interpretation developed by the panels or the Appellate Body. If anyone of the disputing parties objects to the interpretation, the same should be sent for reconsideration, and the Panels/Appellate Body must duly acknowledge the terms of reference and objections raised, and addressed the same in the Report before finalizing the rulings and recommendations. For instance, on many occasions, the panels/Appellate Body has conveniently ignored or provided only lip service to many of the special and differential treatment provisions, without elaborating on the rational. It is also possible to consider merging the “Sutherland report” recommendation of a DSB special expert group to review select findings of panels or the Appellate Body at this stage. Self-imposed Judicial Restrain: Self-imposed judicial restraint by the adjudicating bodies based on the feedback and comments from the Member states would be a tool in reestablishing the legitimacy crisis that the Appellate Body has now got affected with. The exercise of judicial self-restraint is imperative without which the institutional legitimacy of the panels and Appellate Body will be lost, with a large part of the membership refrain from raising their disputes with the WTO (regional approaches).

6 Conclusion History teaches us that the legitimacy of international courts and tribunals and the judges/members who occupy them is paramount for their function and survival. In the 1970s, the International Court of Justice (ICJ) suffered from deep-rooted distrust and skepticism about their impartiality by the Asian African States, which held them 51 Anand

(1965, p. 788). (1950, p. 20) cited in Anand, id. 53 Lewis, supra note 50. 52 Hudson

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back from taking their cases to the Institution.54 According to Shihata, ICJ suffered from such perception due to either “the fact that they are uncertain about the law applicable by the Court or that they are too certain about it to accept its application to them.”55 This crisis of legitimacy let to the steep decline in the work of the Court subjecting itself to the humorous expression about “there being few cases and many judges.”56 Indeed, things have turned around for the better for the ICJ. While at the WTO Appellate Body, the current crisis has been precipitated by the US, some of the contentions raised by them resonate with the long-standing concerns raised by the developing countries that had been at the receiving end of the Appellate Body interpretations and rulings. While the utility of the function of the Panels and the Appellate Body is beyond contestations, and do not justify drastic action as conceived by the US, it is also found on fact that there is a real need for reforms in the DSB process and stop unauthorised expansion of WTO law. Unfortunately, it took the US’s might to block the appoint process, to take all countries to sit and notice. Whatever may be the underlining reason for the US action, one must go into the legitimacy and merit of the claims. In other words, the concerns expressed should not be trivialised as “bad loser” or politics of power, but should be seen as an opportunity to strengthen the process, tighten the loose ends and make the DSU work for all the countries. Unfortunately, none of the proposals by the Member States submitted to the DSB addresses this core concerns. Indeed, every judicial organ to function effectively must enjoy a certain level of flexibility and discretion to interpret rules. That is central to their function. Further, the Appellate Body is entrusted with a core function of in the WTO, and the multilateral trading system will suffer if the function of the Appellate Body is not restored at the earliest. At the same time, the apprehensions of “judicial law-making” are real, and backdoor rule-making undermines the consent-based decision-making process which is the cornerstone of the WTO edifice. While some of the proposals mentioned above and by others would certainly contribute towards operational checks and balances leading to transparency and accountability. Still there exist a certain level of reluctance among the WTO membership as well as in the scholarship to address these issues. In the backdrop of the deadlock at the Doha Round of Trade Negotiations that has undermined the contemporary relevance of the WTO as an organizational, the current blockaded and possible elimination of the standing Appellate Body would ensure the beginning of the end of the multilateral trading system as we know it.

54 Shihata

(1965, p. 203–222). Also see generally, Anand (1962), (1969, p. 74). at p. 216. 56 Shahabudeen (1996, p. 20). 55 Id.

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References Ahlborn C, Pfitzer JH (2009) Transparency and public participation in WTO dispute settlement. Center for International Environmental Law. http://www.ciel.org/Publications/Transparency_WTO_ Dec09.pdf. Accessed 7 May 2019 Anand RP (1962) Attitude of the “New” Asian-African countries towards the international court of justice. Int Stud 4(1):119–132 Anand RP (1965) The role of individual and dissenting opinions in international adjudication. Int Comp Law Q 14:788–808 Anand RP (1969) The international court of justice and impartiality between nations. In: Studies in international adjudication, Chap. 4. Vikas Publication Babu R (2010) Interpretation of the WTO agreements, democratic legitimacy, and the developing nations. Indian J Int Law 50(1):45–90 Babu R (2016) Decision-making in the WTO: from negotiated law-making to judicial law-making. In: Chaisse J, Lin T-Y (eds) A “liber amicorum”: Mitsuo Matsushita. A critical assessment of the international economic law and governance. Oxford University Press Baschuk B (2018) U.S. rejects the EU’s trade reform proposal, putting WTO at risk. https:// www.livemint.com/Politics/wnKPAo3nG4j0iXx3YTBqIM/US-rejects-the-EUs-trade-reformproposal-putting-WTO-at.html. Accessed 7 May 2019 Bello JH (1996) The WTO dispute settlement understanding: less is more. Am J Int Law 90:416–418 Bonzo Y (2014) Public participation and legitimacy in the WTO. Cambridge University Press Bown C (2005) Participation in WTO dispute settlement: complainants, interested parties and free riders. World Bank Econ Rev 19(2):287–310 Broude T (2004) International governance in the WTO: judicial boundaries and political capitulation. Cameron May, London Chimni BS (1999) India and ongoing review of WTO dispute settlement system. Econ Political Wkly 34(5):264–267 Colares JF (2009) A theory of WTO adjudication: from empirical analysis to biased rule development. Vanderbilt J Transnatl Law 42:383 Cottier T, Takenoshita S (2003) Decision-making and the balance of powers in WTO negotiations: towards weighted voting in legislative response. Aussenwirtschaft 59:171–214 Cottier T, Takenoshita S (2008) Decision-making and the balance of powers in WTO negotiations: towards supplementary weighted voting. In: Griller S (ed) At the crossroads: the world trade system and the Doha Round. Springer, pp 182–229 Davey WJ (2002) A permanent panel body for WTO dispute settlement: desirable or practical? In: Kennedy DLM, Southwick JD (eds) The political economy of international trade law: essays in honour of Robert E. Hudec. Cambridge University Press, Cambridge, p 500 Desierto D (2015) Public policy in international economic law: the ICESCR in trade, finance, and investment. Oxford University Press Dube M (2012) The way forward for the WTO: reforming the decision-making process. South African Institute of International Affairs Occasional Papers, p 118 Ehlermann CD, Ehring L (2005a) The Authoritative Interpretation under the Article IX:2 of the WTO Agreement: Current Law, Practice and Possible Improvements. J Int Econ Law 8(4):803–824 Ehlermann CD, Ehring L (2005b) Decision-making in the World Trade Organization: is the consensus practice of the World Trade Organization adequate for making, revising and implementing rules on international trade? J Int Econ Law 8:51–75 Ehlermann CD, Ehring L (2006) The authoritative interpretation under the Article IX:2 of the WTO agreement: current law, practice and possible improvements. In: Georgiev D, van der Borght K (eds) Reform and development of the WTO dispute settlement system. Cameron May, London, pp 153–176 Guan W (2014) Consensus yet not consented: a critique of the WTO decision-making. J Int Econ Law 17:77–104

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Hoekman B (2014) Global trade governance. In: Weiss TG, Wilkinson R (eds) International organization and global governance. Routledge, pp 552–563 Hoekman B, Mavroidis PC (2006) WTO dispute settlement, transparency and surveillance. World Econ 23(4):527–542 Holmes R et al. (2003) Emerging trends in WTO dispute settlement: back to the GATT? World Bank policy research working paper no. 3133, World Bank, Washington, DC Hudec RE (1993) Enforcing international trade law: the evolution of the modern GATT legal system. Butterworth Legal Publishers Hudson MO (1950) The twenty-eighth year of the world court. Am J Int Law 44:1–36 Ihara J (2018) Reflection on the WTO Dispute Settlement Body—developments in 2017. https:// www.wto.org/english/tratop_e/dispu_e/ihara_17_e.htm. Accessed 7 May 2019 India’s Submission to the DSB Special Session on the Review of the DSU. Proposal by India, Terms of Appointment of Appellate Body, WT/DSB/W/17 (Nov 1999) Jackson JH (2006) Sovereignty, the WTO and changing fundamentals of international law. Cambridge University Press Kapoor I (2004) Deliberative democracy and the WTO. Rev Int Political Econ 11(3):522–541 Kelly JP (2002) Judicial activism at the World Trade Organization: developing principles of selfrestraint. Northwest J Int Law Bus 22:353–387 Kelly JP (2008) International law and the Shrinking space for politics in developing countries. Widener law Sch legal studies research paper series no. 08-31. http://ssrn.com/abstract=1104694. Accessed 7 May 2019 King LA (2003) Deliberation, legitimacy, and multilateral democracy. Governance 16(1):23–50 Lewis MK (2006) The lack of dissent in WTO dispute settlement. J Int Econ Law 9(4):903–916 Matsushita M (2006) “Sovereignty” issues in interpreting WTO agreements: the Sardines case and Article 2.4 of the TBT agreement. In: Georgiev D, van der Borght K (eds) Reform and development of the WTO dispute settlement system. Cameron May, London, pp 191–200 Mora MM (1993) A GATT with teeth: law wins over politics in the resolution of international trade disputes. Columbia J Transnatl Law 31:108–180 Narlikar A (2001) WTO decision-making and developing countries. Working Paper, South Centre. http://www.iatp.org/files/WTO_Decision-Making_and_Developing_Countries.htm. Accessed 7 May 2019 Perdikis N, Read R (2005) The WTO and the regulation of international trade: recent trade disputes between the EU and the U.S. Edward Elgar, UK Raghavan C (2000) The world trade organisation and its dispute settlement system: tilting the balance against the South. Third world network, trade and development series No. 9. http://www. twnside.org.sg/title/tilting.htm. Accessed 7 May 2019 Ragosta J, Joneja N, Zeldovich M (2003) WTO dispute settlement: the system is flawed and must be fixed. Int Lawyer 37:744–745 Reich A (2017) The effectiveness of the WTO dispute settlement system: a statistical analysis. European University Institute, Department of Law, EUI Working Paper LAW 2017/11. http:// cadmus.eui.eu/bitstream/handle/1814/47045/LAW_2017_11.pdf?sequence=1. Accessed 7 May 2019 Shahabudeen M (1996) The World Court at the Turn of the Century. In: Muller AS, Rai D, and Thuránszy JT (eds) The international court of justice: its future role after fifty years. The Hague, pp 3–29 Shihata IFI (1965) The attitude of new states toward the international court of justice. Int Organ 19(2):203–222 Singh R (2008) The World Trade Organization and legitimacy: evolving a framework for bridging the democratic deficit. J World Trade 42(2):347–365 Statement as delivered by Ambassador Dennis Shea, Deputy U.S. Trade Representative and U.S. Permanent Representative to the WTO. https://geneva.usmission.gov/2018/05/08/ambassadordennis-sheas-statement-at-the-wto-general-council/. Accessed 7 May 2019

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Statement of Jamaica at the DSB Meeting, Minutes of the DSB Meeting Held on 27 January 2000, WT/DSB/M/74 (22 Feb 2000) Trachtman J (2000) International trade as a vector in domestic regulatory reform: discrimination, cost-benefit analysis, and negotiations. Fordham Int Law 24:726–743 Umbricht GC (2001) An ‘Amicus Curiae Brief’ on Amicus Curiae Briefs at the WTO. J Int Econ Law 4:785–786 Von Bogdandy A (2001) Law and politics in the WTO—strategies to cope with a deficient relationship. Max Planck Yearb UN Law 5:611–674 Wolfe R (2005) Decision-making and transparency in the ‘Medieval’ WTO: does the sutherland report have the right prescription? J Int Econ Law 8(3):631–645 WTO Press Releases (2009) WTO disputes reach 400 mark press/578. https://www.wto.org/english/ news_e/pres09_e/pr578_e.htm. Accessed 7 May 2019 WTO (2018) Annual report of the Dispute Settlement Body, WT/DSB/76 (30 Nov 2018)

R. Rajesh Babu is Professor of Law at the Indian Institute of Management Calcutta (2009–present). Before joining academics, he worked as Senior Legal Officer (2002–2009) at the AsianAfrican Legal Consultative Organization (AALCO), an intergovernmental organization headquartered in India and as legal practitioner in the High Court and subordinate courts (1997–2000). He is currently a member of International Law Association (ILA) Study Group, Asian State Practice of Domestic Implementation of International Law (ASP-DIIL) (2018–) and have served as Indian member of the ILA Sub-Committee on International Trade Law. He is State Volume Editor (India) of Encyclopedia of Public International Law in Asia (EPILA); Member, Editorial Board, Indian Journal of International Law (IJIL); and was till recently Editor-in-Chief of the journal Decision (2014–18) published by Springer. He has authored several books, book chapters and articles in international and national journals. His books include Remedies under the WTO Legal System (Martinus Nijhoff Publishers: Leiden, 2012) and Locating India in the Contemporary International Legal Order (Springer: Singapore, 2018). He was a Global Scholar-in-Residence at the Graduate Institute (IHEID), Geneva (2011) and Fellow, Centre for Studies and Research, Hague Academy of International Law (2013). He holds M.Phil. and Ph.D. (International Law) (Jawaharlal Nehru University (JNU), New Delhi), LL.M. (Cochin University) and LL.B. (Pondicherry University). His research and teaching interest are in the areas of international economic law (trade and investment), international settlement of dispute, property rights and corporate liability.

Part II

Reforms in Relation to the Basic Functions of the AB

Chapter 7

Why the WTO Adjudicatory Crisis Will Not Be Easily Solved: Defining and Responding to “Judicial Activism” Raj Bhala

Abstract The World Trade Organization (WTO) adjudicatory crisis, namely, the specific blockage over the approval of candidates to fill vacancies on the Appellate Body, and general impasse over changes to the Agreement on Rules and Procedures Governing the Settlement of Disputes (DSU), will not be resolved easily or quickly. There is a mismatch between the (1) proposals to reform Appellate Body and DSU reform proposals, and (2) central criticisms the United States raises. America arguments are about the right way to interpret disputed texts in a trade treaty, and about the right weight to give prior decisional rulings. None of the reform proposals raised by the European Union (EU) or Canada, squarely address America’s arguments. The Euro-Canadian suggestions are about procedures, whereas America challenges foundations of multilateral trade adjudication. Keywords DSU · Appellate Body · Judicial activism · Precedent · Procedure

1 Mismatch Thesis The adjudicatory crisis at the World Trade Organization (hereinafter WTO), that is, the specific blockage over the approval of candidates to fill vacancies on the Appellate Body, and the general impasse over changes to the Agreement on Rules and Procedures Governing the Settlement of Disputes (hereinafter DSU), will not be

The author is grateful to his Research Assistants for their excellent help with this article: Nathan D.J. Kim, New England Conservatory of Music, B.A. (Clarinet Performance, 2001), University of Kansas School of Law, J.D. (2016), S.J.D. (in progress), Member, New York Bar; Dukgi Goh, University of California—Irvine, B.A. (2015), University of Kansas School of Law, J.D. (expected May 2020). R. Bhala (B) The University of Kansas School of Law, Dentons U.S. LLP, Bloomberg Quint, Lawrence, KS, USA e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_7

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resolved easily, and obviously not with alacrity.1 That is because there is a mismatch between the proposals to reform the Appellate Body and DSU, on the one hand, and the two central criticisms the United States raises, on the other hand. America arguments are about the right way to interpret disputed texts in a trade treaty, and about the right weight to give prior decisional rulings. None of the reform proposals raised by key WTO Members, namely, the European Union (hereinafter EU) or Canada, squarely address America’s arguments. The Euro-Canadian suggestions are largely procedural, whereas the United States is challenging the foundations of multilateral trade adjudication. With this mismatch, the crisis is set to last for some time. The American arguments are, perhaps, overstated, as Part 4 suggests. But, their weaknesses are not contested by the EU and Canada. Instead of saying, colloquially, “hey, you’re exaggerating matters,” and articulating a vision for the future of the Appellate Body and DSU, the EU and Canada offer up proposals that do little more than tinker at the margins of how the judges in Geneva operate. The two sides are not engaging one another; rather, they are talking past one another. Accordingly, Part 2 lays out the American view as to what must be done. Part 2 shows that the essence of the American concerns about the DSU are summarized by the term “judicial activism,” and that this term—in the view of the United States—has two elements: interpretative methodology and deference to precedent. Part 3 reviews the EU-Canadian reform ideas for what should be done. Part 3 also delineates the mismatch between the American proposals and Euro-Canadian proposals. Part 4 concludes with comments about the mismatch, and forecasts that the DSU, the crown jewel of the WTO, quite likely will remain tarnished for some time.

2 America’s Two Core DSU Criticisms 2.1 Not Merely a Trumpian Phenomenon America’s criticisms of the multilateral adjudicatory mechanism are not a Trumpian phenomenon. The Administration of President Barack H. Obama (2009–2017) made known its concerns about the DSU, and blocking Appellate Body candidates commenced during his tenure.2 However, American attacks on the WTO dispute settlement system increased in intensity and vitriol with the Administration of President Donald J. Trump (2017-present). 1 This essay presumes the reader is conversant with WTO law and the DSU. For background on those

topics, see, e.g., Bhala (2019), Chaps. 21–25. This essay also presumes the reader is conversant with the concept of stare decisis, and the author’s trilogy on the topic. See Raj Bhala: (1) Bhala (1999, pp. 845–956); (2) Bhala (Fall 1999, pp. 1–151); and (3) Bhala (2001, pp. 873–978). Finally, this essay presumes familiarity with Articles 31–32 of the 1969 Vienna Convention on the Law of Treaties. For brief background on the Convention, see Bhala (2015a, b), entry for “Vienna Convention”. 2 Bhala (2019), Chap. 24.

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That is not a surprise, given the confrontational style and incendiary tone of President Trump and his trade negotiators.3 But, the fact America’s criticisms span multiple Administrations is a clue to why the WTO adjudicatory crisis will not be easily solved: the United States has long felt its views are not being considered seriously by its fellow WTO Members, and—frustrated and exasperated—is willing to wreck the system, smash the crown jewel, as it were, if its reform demands remain unmet.

2.2 “Judicial Activism” and Its Two Elements “Judicial activism” is the term commonly used to summarize the key American concern about the DSU. This term is more often tossed around than it is carefully defined. For instance, at a December 2018 WTO meeting concerning the Trade Policy Review for the United States, Deputy United States Trade Representative (USTR) intoned: [T]he WTO dispute settlement system has strayed far from the system agreed to by Members. It has appropriated to itself powers that the WTO Members never intended to give it. This includes where Panels or the Appellate Body have, through their findings, sought to add or diminish WTO rights and obligations of Members in a broad range of areas. The United States has grown increasingly concerned with the activist approach and overreaching of the Appellate Body on procedural issues, interpretative approach, and substantive interpretations. These approaches and findings do not respect WTO rules as written and agreed by the United States and other WTO Members.4

But, upon close analysis of what Ambassador Shea said, it is apparent “judicial activism” has two core elements: (1) Appellate Body members and panellists use methods to interpret WTO treaty texts that go beyond a strict, narrow emphasis on the plain meaning of disputed terms in those texts; and (2) those members and panellists follow prior decisions as if they were precedent, adhering to stare decisis in a de facto, albeit not de jure, sense. To see that interpretative methodology and stare decisis are the two elements that define “judicial activism,” and to see “judicial activism” as the vital concern of the United States, consider the five long-standing American complaints about the DSU, which Table 1 summarizes.5 As per Table 1, the third complaint, about obiter dicta, suggests Appellate Body members are energetic in rendering findings beyond those needed to resolve a case. The United States points out the tendency of WTO decisions to be filled with dicta that is irrelevant to the resolution of the case, for example, in one case, “more than 3 See

Bhala (Fall 2018), 38–105. of the United States trade Representative (2018) Statement of the United States by Ambassador Dennis Shea at the 14th WTO Trade Policy Review of the United States of America. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/december/statementunited-states-ambassador. Accessed 8 Mar 2019. 5 The United States raises these five concerns in a variety of documents and venues, which are reviewed and analyzed in Bhala, supra note 4, at Chaps. 23–25. 4 Office

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Table 1 Summary of America’s Five DSU criticisms Concerns about WTO dispute settlement

Rules implicated/Nature of concern

1

Continued adjudication by persons who are no longer Appellate Body members (because their term on the Appellate Body has expired)

Rule 15 of the Working Procedures for Appellate Review

2

Appellate Body disregard of (i.e., failure to meet) the 90-day deadline for issuance of its Reports, thereby behaving inconsistently with the mandate for the prompt settlement of disputes, generating uncertainty as to the validity of the Report issued after 90 days, and undermining transparency

Violation of DSU 17:5

3

Appellate Body creating excessive amount of orbiter dicta in its Reports

Violation of DSU 17:6, 17:12, undermining function of Appellate Body

4

Appellate Body misapplying the de novo standard of review

Violation of DSU 17:6

5

Appellate Body claiming its Reports serve, in effect, as precedent

Violation of DSU Article 3:2, and not grounded on any WTO rules

two-thirds of the Appellate Body’s analysis—46 pages—was in the nature of orbiter dicta.”6 The United States suggests obiter dicta raises the spectre that with respect to some issues, Appellate Body members might stray beyond the commandment of Article 31 of the 1969 Vienna Convention on the Law of Treaties, that is, to render findings according to the disciplines of that Article 31, namely, the ordinary meaning of a contestable term, and even stray beyond the context of that term, and beyond the object and purpose of the WTO agreement in which the term is located. The members might go yet further, looking to supplementary means of interpretation, and lay out their own preferences about what the WTO agreement ought to mean. In effect, obiter dicta in one case may be a slippery slope to legislation by the Appellate Body for future cases. The fifth complaint Table 1 lists squarely is about stare decisis. And, in December 2018, Ambassador Dennis Shea, specifically attacked the Appellate Body “misguided insistence” that its rulings must serve as precedent “absent cogent reasons.”7 In this attack, the Ambassador said the approach to precedent was: Of fundamental importance to the WTO, the U.S. said; the Dispute Settlement Understanding (DSU), the WTO’s rule book for resolving disputes, does not assign precedential value to panel or Appellate Body reports adopted by the DSB. The right to adopt authoritative

6 Appellate

Body Report, Argentina—Measures Relating to Trade in Goods and Services, WT/DS453/AB/R (9 May 2016). 7 Quoted in World Trade Organization (2018) Statement by the United States on the Precedential Value of Panel or Appellate Body Reports. https://www.wto.org/english/news_e/news18_e/dsb_ 18dec18_e.htm (emphasis added). Accessed 8 Mar 2019.

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interpretations of WTO rules is reserved exclusively to WTO members through the Ministerial Conferences or the General Council. Nevertheless, the U.S. said, the Appellate Body has suggested that a Panel must follow a prior Appellate Body interpretation absent “cogent reasons” for departing from the earlier interpretation, without any justification or legitimate basis for this interpretation. Not treating interpretations in a ruling as controlling or a precedent is consistent with the treatment of rulings under the previous GATT dispute settlement system and something the Appellate Body initially acknowledged in one of its earliest rulings (DS 11, Japan—Taxes on Alcoholic Beverages). However, in a subsequent ruling (DS 344, U.S.—Anti-Dumping Measures on Stainless Steel from Mexico), the Appellate Body adopted a contradictory position and first introduced the concept of “cogent reasons;” specifically, the Appellate Body said that ensuring security and predictability in the dispute settlement system, as contemplated in Article 3:2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case. This approach is fundamentally flawed and at odds with the text of the DSU and the WTO Agreement, the U.S. argued. In several recent Panel reports, the U.S. said, certain Panels have simply applied the Appellate Body’s pronouncement on “cogent reason” and failed to engage with the legal text of the DSU and WTO agreements. This raises grave concerns for the dispute settlement system as it suggests that serious, systemic errors are increasingly being made without any consideration of the actual text the WTO Members have agreed to. This practice usurps the authority reserved only for WTO Members to adopt authoritative interpretations of WTO rules and is another example of the failure of the Appellate Body to follow the rules agreed to by members, the U.S. said.8

The fifth complaint, and Ambassador Shea’s statement, are reinforced by the fourth concern listed in Table 1. The United States castigates the Appellate Body for going beyond the “issues of law covered in the Panel Report and legal interpretations developed by the Panel,” thus inappropriately reviewing issues de novo. In contrast to what DSU Article 17:6 requires, the Appellate Body reviews Panel findings as to the meaning of domestic law as an issue of law (rather than as an issue of fact). Resonating in this American concern is judicial activism: the Appellate Body applies non-text based interpretative methodologies when scrutinizing domestic law, and expects its interpretation of a disputed term in a WTO agreement to be treated as precedential, when (says the United States) it should not have reviewed domestic law under a de novo standard of review. In sum, the third, fourth, and fifth American concerns that Table 1 lists, supplemented by statements from American officials such as that of Ambassador Shea, establish the two core elements of what the United States means by “judicial activism”—interpretative methodology and precedent. What about the first and second criticisms the United States raises—how do they relate to these elements of alleged “judicial activism.” The answer is they do not, at least not directly, and also that they are less significant than the core elements. With regard to the first criticism, the United States maintains that under the DSU it should be the “Dispute Settlement Body,” not the Appellate Body, to decide whether adjudication by a member of that Body after his or her 8 Quoted

in Id.

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term has is appropriate. This criticism is important. But, it is only about personnel— staffing the Appellate Body, and making sure those with valid credentials are making decisions. As for the second criticism, the United States alleges the Appellate Body fails to respect DSU Article 17:5, which mandates that all cases last no longer than 90 days. Delays in issuance of a Report beyond this deadline may mean that Report is not valid, or at least not subject to adoption by the Dispute Settlement Body (DSB) under the reverse consensus rule. Such delays also may cast doubt on the consistency and transparency of Appellate Body decision-making. This American criticism also is important. But, at bottom is a procedural one, concerning timely issuance of decisions.

3 Critical Analysis of EU and Canadian DSU Reform Proposals 3.1 DSU Reform Ideas In 2018, the EU and Canada suggested reform of the WTO adjudicatory mechanism by amending the DSU.9 The EU recommended expanding the size of the Appellate Body from seven to nine judges, re-classifying an Appellate Body judgeship from 9 The

EU’s DSU reform proposals appear in:

(1) European Commission, Directorate-General for Trade, WTO—EU’s Proposals on WTO Modernization (5 July 2018). (2) European Commission, Concept Paper, WTO Modernization (18 Sept 2018). (3) European Commission (2018) European Commission—Press Release, WTO Reform: EU Proposes Way Forward on the Functioning of the Appellate Body. European Commission Press Release Database. http://europa.eu/rapid/press-release_IP-18-6529_en.htm. Accessed 3 Mar 2019. (4) General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Korea, Iceland, Singapore, and Mexico to the General Council, WT/GC/W/752 (Nov 26, 2018). Thus, Table 2, and the discussion of these proposals, draw on these documents, all of which are available at the Univ of Kans Wheat Law Library Res & Study Guides, International Trade Law: WTO General. https://guides.law.ku.edu/c.php?g=705128&p=6121043. Accessed 8 Mar 2019. Canada’s DSU reform proposals appear in: (1) Government of Canada [Please kindly confirm the document is made by Government of Canada.], Strengthening and Modernizing the WTO: Discussion Paper (Draft, 30 August 2018 [please kindly provide the year of the document.]). (2) Government of Canada [Please kindly confirm the document is made by Government of Canada.], Joint Communiqué of the Ottawa Ministerial on WTO Reform (24–25 Oct 2018, also issued with Australia, Brazil, Canada, Chile, Japan, Kenya, Korea, Mexico, New Zealand, Singapore, and Switzerland). (3) General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Korea, Iceland, Singapore, and Mexico to the General Council, WT/GC/W/752 (26 Nov 2018).

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part-to full-time, and allotting more resources to the Appellate Body Secretariat. Canada emphasized the urgency to appoint Appellate Body members, address modern economic and trade issues, and strengthen the monitoring of Members’ trade policies by Members so as to anticipate and possibly avoid litigation. Even if the United States agreed with what the EU and Canada call for, making changes to the WTO rulebook is not easy. The general rule for amending a WTO agreement, and thus altering the rights and obligations of Members thereunder, is that two-thirds of WTO Members must agree to the changes, in which case the amendments are effective for them.10 However, the WTO Ministerial Conference may decide, by three-fourths majority, that an amendment is so important that a Member that refuses to accept it may need to withdraw from the WTO.11 Article X of the DSU sets out special rules for amending that agreement. Any Member may send a proposal to the Ministerial Conference to consider such an amendment. The decision to amend the DSU is effective for all Members, and the amendment can be approved only by consensus. The consensus rule in Article X makes it difficult to reform DSU by amendment. That is especially so in respect of the present crisis, in which the European and Canadian reform proposals are far off the mark from addressing the American criticisms. Table 2 summarizes the EU proposals, and Tables 3 and 4 summarize the Canadian proposals. These Tables also endeavor to show the relationship between each proposal, and an American concern about the DSU listed in Table 1. Regrettably, none of the Euro-Canadian proposals directly address how a treaty text should be interpreted, nor what role a prior adopted Appellate Body or Panel Report adopted by the DSB should play in subsequent cases. In other words, they fail to deal with the problems of interpretative methodology or de facto and de jure stare decisis—the core elements of “judicial activism.”

3.2 Mismatch Between EU Proposals and “Judicial Activism” Elements In specific, as per Table 2, the EU offers one proposal concerning service by Appellate Body members whose term has expired, which is unrelated to either of America’s two “judicial activism” points. The EU offers three proposals the 90-day deadline for issuance by the Appellate Body of a Report. The third of them, enlarging the size of the Appellate Body is the most notable, in part because America argues it would make that Body less, not more, accountable to WTO Members. Thus, Tables 3 and 4, and the discussion of the Canadian proposals, draw on these documents, all of which are available at the Univ of Kans Wheat Law Library Res & Study Guides, International Trade Law: WTO General. https://guides.law.ku.edu/c.php?g=705128&p=6121043. Accessed 8 Mar 2019. 10 Bhala (2015a, b), Chaps. 12, 15–16. 11 Id.

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Table 2 Summary of EU DSU reform proposals American concerns regarding WTO dispute settlement (as per Table 1)

EU’s proposals relating to American concerns

#1

Continued service by persons who are no longer Appellate Body members

Formally adopt Rule 15 into the DSU to confer legitimacy

#2

Appellate Body disregarding the 90-day deadline for issuance of Reports

(1) Modify DSU 17:5 to add “unless the parties agree otherwise” (2) Create a pre-trial consultation to streamline litigation process (3) Increase the number of Appellate Body members from seven to nine (4) Treat Appellate Body membership as a full-time position and remunerate members accordingly (5) Expand the resources of the Appellate Body division

#3

Appellate Body creating obiter dicta

Modify DSU Article 17:12, according to which the Appellate Body “shall address each of the issues raised” on appeal. For instance, add “to the extent this is necessary for the resolution of the dispute.” This modification also could indirectly address the issues of exceeding 90-day limit under DSU 17:5

#4

Appellate Body misapplying de novo standard of review

Clarify that “issues of law covered in the Panel Report and legal interpretations developed by the Panel” do not include the meaning of the municipal measures (i.e., domestic law of an individual WTO Member). For instance, a footnote could be added to Article 17:6 of the DSU “For greater certainty […]”

#5

Appellate Body claiming its Reports serve, in effect, as precedent

Create a channel for regular exchanges between the Appellate Body and WTO Members (e.g., annual meetings), in addition to the right of each Member as set out in DSU Article 17:14 to express views on Appellate Body Reports when they are adopted, but ensure this channel does not undermine the independence of Appellate Body members

The EU’s third proposal is to limit Appellate Body obiter dicta by amending DSU Article 17:12 such that the Appellate Body would address only the issues necessary to dispose of a case. This proposal says nothing about how the Appellate Body should interpret disputed words in a text, nor about precedent. The proposal also is somewhat redundant, insofar as the Appellate Body often invokes the principle of judicial economy, i.e., it exercises self-restraint by eschewing unnecessary rulings. Manifestly, the EU’s fourth proposal is about standard of review. Indirectly, a limitation on when the Appellate Body exercises a de novo review standard might reduce the instances in which it is alleged to behave in a judicially active manner. But, this proposal has no direct bearing on either the methodology for textual interpretation, nor the doctrine of stare decisis.

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Table 3 Summary of Canadian DSU reform proposals—substantive concerns Themes

Diagnosis

Actions

1

Divert some disputes or issues from adjudication

Aging trade rules, the increasing complexity of disputes, and an erosion of self-restraint combine to overburden the dispute settlement system

(1) New commitment to self-restraint (2) Improved or alternative mechanisms, such as mediation or narrow the scope (3) Exclude certain types of disputes or issues from DSU jurisdiction

2

Streamline adjudicative proceedings

The complexity and increasing length of dispute settlement proceedings undermine the accessibility of the WTO dispute settlement system, and incentivize short-term trade-distorting measures and unilateral counter-measures

(1) Make adjudicative procedures more flexible and adaptable to the diverse nature of disputes (2) Develop alternative procedures tailored to specific kinds of disputes (3) Supplement specific features of existing proceedings (4) Build a mechanism for more interaction between the Panel and the Appellate Body

3

Update and ensure Appellate Body review

No suggested diagnosis

No recommended actions

Table 4 Summary of Canadian DSU reform proposals—systemic and procedural concerns Reform proposals

Related American concern (as per Table 1)

1

Narrow the scope for “advisory opinions” by clarifying that the primary objective of the dispute settlement system is the settlement of specific disputes, and that only findings that are necessary to achieve this objective are required

#3

2

Focus Appellate Body review on legal issues by clarifying the standard of review the Appellate Body applies to Panel decisions, especially with regard to factual findings and those related to the operation of domestic law

#4

3

Promote a more robust adjudicative dialogue by allowing for the expression of minority views in Appellate Body and Panel Reports, and reiterate that interpretations adopted by the Appellate Body or Panels apply only to the disputes in which they are adopted

#5

4

Develop guidance related to consultations with complainants and respondents when the Appellate Body is unable to meet its deadline

#1

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Only the fifth of the EU proposals addresses the American concern about judicial activism, and then only the matter of precedent, not textual interpretation. However, this proposal is nearly meaningless. The EU calls for WTO Members to dialogue regularly with judges on the Appellate Body, while also ensuring the judges remain independent. There is no indication whether stare decisis should, or should not, operate in WTO litigation. Nor is there a hint that prior decisions may, or may not, serve as guidance in future cases involving the same or similar issues as those in prior cases (even if either the complainant, respondent, or both are different from the litigating Members in the prior cases). Rather, the proposal creates a “talk shop,” as it were, between judges and actual or potential litigants. That “shop” could be a venue for undue influence, even corruption, between the two sides, judges and litigants, and even within each side.

3.3 Mismatch Between Canadian Proposals and “Judicial Activism” Elements Like the EU, Canada acknowledges the importance of dispute settlement for world trading system. Alas, a critical evaluation of Canadian proposals for DSU reform shows they fare no better in addressing the two-pronged American criticism of judicial activism. Table Three summarizes Canada’s own top three DSU concerns. That is, Canada identifies three substantive themes coupled with a diagnosis and action plan, though it does not provide either a diagnosis or suggest actions for the third theme, updating and ensuring appellate review (other than to note the damage from blocking candidates to fill Appellate Body vacancies, and call upon WTO Members to work together to find agreeable solutions for the overall health of the Organization). None of them is about textual interpretation or precedent. That fact, in itself, is evidence of the mismatch between the Canadian proposals and American criticisms—the two Members do not have the same priorities for DSU reform. In addition, Canada offers proposals to address issues concerning substantive and procedural practices of the Appellate Body. Each proposal may be linked to one of the concerns America raises, as Table 4 shows. Yet, the linkage is imperfect. In fact, Table 4 furnishes further evidence of the mismatch between reform ideas and the core elements of “judicial activism.” Manifestly, none of the proposals Table 4 lists squarely deals with textual interpretation methodology. Likewise, none squarely deals with the doctrine of stare decisis. To be sure, the third proposal addresses precedent with a declaration against stare decisis, but that may end up atop a heap of several such statements and be disregarded in practice. Moreover, this proposal may encourage greater “judicial activism,” insofar as it encourages Appellate Body members and Panellists to issue dissenting or concurring opinions.

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4 Concluding Observations About Textual Interpretation and Stare Decisis The “bottom line” is the WTO adjudicatory crisis will not be easily solved because the leading proposals for DSU reform do not address either of the two elements, textual interpretation or stare decisis, that constitute the key American concern, judicial activism. This mismatch raises fascinating questions about what methodological approaches to interpreting treaty texts are valid, and what role precedent ought to play in an international adjudicatory forum. On these questions, two concluding observations are noteworthy. First, interpretative methodologies may be grouped into three broad categories: textual; contextual; and pragmatic. “Textual” methodologies stress lexicography, the ordinary meaning of a disputed term as spelled out in a credible dictionary, such as the Appellate Body’s oft-used on, the Oxford English Dictionary (OED). “Contextual” methodologies examine the place within a text in which a disputed term is situated (e.g., a specific provision, and surrounding provisions, of a particular WTO agreement), and the place of that text within an overall legal regime (e.g., the WTO agreements). “Pragmatic” methodologies encompass an array of approaches to reading a disputed text, from economic and consequentialist reasoning to Marxist and Feminist approaches. Articles 31 and 32 of the Vienna Convention certainly (indeed, expressly) calls for attention to “textual” and “contextual” methodologies.12 These Articles may be understood to allow recourse, where necessary to resolve the meaning of a contested term, to a pragmatic approach. The point is that the concern about treaty interpretation America raises may require a reexamination of what the Vienna Convention actually permits. The Convention may, in truth, not be quite as narrow in the disciplines it supposedly imposes on the Appellate Body as the United States thinks, nor may these disciplines be quite as loose as other Members may hope. Second, it is in the natural epistemological order of the human, and especially legal, mind to seek consistency, and it is a principle of both efficiency and justice to resolve like cases in a like manner. Stare decisis is not a doctrine that demands inflexible adherence to prior decisional law. Rather, the doctrine requires complainants and respondents to analogize and differentiate facts and issues from one case to another case. It asks judges to weigh the strengths and weaknesses of analogies and distinctions litigants draw. If multilateral trade adjudicatory outcomes are to have any value to the world trading community in providing certainty and predictability, while also allowing for diversity, then some adherence to precedent is inevitable. Here the point is the same: the American concern about stare decisis may require a reexamination of what this doctrine entails, in theory and practice. In truth, it may be a far more

12 In

particular, Article 31:1 of the Vienna Convention lays out three elements to be used in interpreting a treaty text in the following hierarchy: (1) ordinary meaning; (2) context; (3) object and purpose of treaty. See U.N. Vienna Convention on the Law of Treaties, Articles 31–32, opened for signature 23 May 1969, 1155 U.N.T.S. 331 (entered into force 27 Jan 1980).

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reasonable ingredient in building the international rule of law than the United States or other Members think. In turn, a reexamination of the core elements of “judicial activism” may lead the WTO community to appreciate that Members are not as far apart as their own rhetoric would have them believe.

References Bhala R (1999) The myth about stare decisis and international trade law (Part One of a Trilogy). Am Univ Int Law Rev 14:845–956 Bhala R (2001) The power of the past: towards de jure stare decisis in WTO adjudication (Part Three of a Trilogy). George Wash Int Law Rev 33:873–978 Bhala R (2015a) Dictionary of international trade law. Carolina Academic Press, Durham Bhala R (2015b) International trade law: an interdisciplinary, non-western textbook, vol 1. Carolina Academic Press, Durham Bhala R (2019) International trade law: a comprehensive textbook, vol 1. Carolina Academic Press, Durham Bhala R (Fall 1999) The precedent setters: de facto stare decisis in WTO adjudication (Part Two of a Trilogy). 9 Fla State Univ J Transnatl Law Policy 9:1–151 Bhala R (Fall 2018) Lessons about NAFTA renegotiations from Shakespeare’s Othello: from the three Amigo’s to America as Iago?. Md J Int Law 33:38–105 European Commission (2018) European commission—press release, WTO reform: EU proposes way forward on the functioning of the Appellate Body. European commission press release database. http://europa.eu/rapid/press-release_IP-18-6529_en.htm. Accessed 3 Mar 2019 Office of the United States trade Representative (2018) Statement of the United States by Ambassador Dennis Shea at the 14th WTO trade policy review of the United States of America. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/december/ statement-united-states-ambassador. Accessed 8 Mar 2019 Univ of Kans Wheat Law Library Res & Study Guides, International Trade Law: WTO General. https://guides.law.ku.edu/c.php?g=705128&p=6121043. Accessed 8 Mar 2019 World Trade Organization (2018) Statement by the United States on the precedential value of panel or Appellate Body reports. https://www.wto.org/english/news_e/news18_e/dsb_18dec18_e.htm. Accessed 8 Mar 2019

Raj Bhala is the inaugural Leo. S. Brenneisen Distinguished Professor (2017-present) at the University of Kansas School of Law, before which he held the inaugural Rice Distinguished Professorship (2003–2017). Both are university-level chairs, the highest accolade for scholarship and research in Kansas. He served as KU’s Associate Dean for International and Comparative Law (2011–2017). He is Senior Advisor to Dentons U.S. LLP, the world’s largest law firm, focusing on international and comparative legal matters. He practiced law at the Federal Reserve Bank of New York, where he twice won the President’s Award for Excellence, thanks to his service as a delegate to the United Nations Conference on International Trade Law, and to the world class New York Fed lawyers who mentored him. A Harvard Law School (J.D.) graduate, cum laude, he completed Master’s degrees at the London School of Economics, in Economics, and Oxford (Trinity College), in Management-Industrial Relations, as a Marshall Scholar. His undergraduate degree (in Economics), summa cum laude, is from Duke, where he was an Angier B. Duke Scholar and inducted into Phi Beta Kappa. He graduated from the University School-Milwaukee. At each institution, he was blessed with great teachers. Professor Bhala is author of one of the world’s

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leading textbooks, International Trade Law: A Comprehensive Textbook (5th ed., 2019, Carolina Academic Press), the 1st edition of which was published in 1996, and which has been used at over 100 law schools world-wide. He wrote the first treatise on GATT in nearly 50 years, Modern GATT Law, and first major book on the Trans Pacific Partnership, TPP Objectively. His book Trade, Development, and Social Justice applies Catholic social teaching to GATT special and differential treatment rules. Professor Bhala is the first non-Muslim American scholar to write a textbook on Islamic Law, Understanding Islamic Law (Shar¯ı‘a), which is used for law school and U.S. Special Operations Forces courses. His new book projects are Business Law of Modern India and Principles of Law, Literature, and Rhetoric. “On Point” is his column, which Bloomberg Quint (India) publishes. He has been privileged to live, work, and/or explore about 50 countries across six continents. His abiding professional goal is to educate for peace. He is an avid distance runner and has completed three of the “World’s Major Marathons” (Boston twice, Chicago, and New York), and is a (rather poor) student of Shakespeare and Hindi. His Wikipedia entry is https://en. wikipedia.org/wiki/Raj_Bhala.

Chapter 8

A Proper Balance Between WTO’s Members-Driven Nature and the Appellate Body’s Role as an Adjudicator—Careful Exercise of Judicial Activism Chang-fa Lo Abstract There is a critical issue about whether the Appellate Body is practicing judicial activism and has gone beyond the control of the WTO Members collectively. This chapter discusses this issue from the perspectives of the “collective membersdriven” design of the WTO and the Appellate Body’s role as an adjudicator or as merely holding an assisting role to help WTO Members’ decision-making. It suggests that the Appellate Body must be very careful in exercising judicial activism. Only in the situations where it is necessary to maintain important human values, to avoid a major leak or disruption of the WTO’s operation or to coordinate with other major international treaties, the Appellate Body should be expected to play an active role as an adjudicator in order to ensure the constitutionalism of international trade norms under the WTO. Whereas in the situations where there involve merely technical issues and commercial interests, the Appellate Body should avoid practicing judicial activism. Instead, it should play an “assisting role” in order to help the WTO Members as a whole to discharge their decisions-making duties. Keywords Adjudicator · Judicial activism · Members-driven · Power-oriented · Rule-based

1 Introduction One of the issues concerning the Appellate Body’s proper function in the dispute settlement mechanism (DSM) of the World Trade Organization (WTO) is whether it is too active to have gone beyond the control of the WTO Members collectively and what to do with such situation. This issue concerns the “members-driven” design of

C. Lo (B) Constitutional Court, Taiwan, Republic of China e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_8

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the WTO. It also has to do with whether the Appellate Body should consider itself as an adjudicator or as holding merely an assisting role to help WTO Members’ decision-making. In this chapter, the author will explain that in the age of the General Agreement on Tariffs and Trade (GATT) 1947, the DSM was leaning to a power-oriented system (in the sense that an economically and politically powerful country can unilaterally affect the outcome of the dispute settlement procedure). The dispute settlement panels were merely to assist the CONTRACTING PARTIES (i.e., the contracting parties as a whole) to make decisions. It can be considered as “parties-driven” mechanism (in the sense that matters are decided by the GATT contracting parties collectively, not by any separate or independent entity created under the GATT 1947). Whereas in the age of the WTO, its DSM is designed to give more power to the dispute settlement panels and to the Appellate Body. But the idea of “membersdriven” (in the sense that matters are decided by the WTO Members collectively) is still emphasized. The Appellate Body holds an assisting role from the perspective of the text of the DSU. However, in practice, it has become an authoritative institution to lead the development of the WTO. The Appellate Body has turned itself into a semi-adjudicating body. There are positive and negative implications arising from such development. Positively, the Appellate Body and the WTO’s DSM as a whole can ensure that the fundamental norms of the WTO and the key values embedded in the multilateral trading system will not be undermined. Negatively, the Appellate Body’s active engagement in many detailed and technical issues could create concerns from WTO Members which worry that it has gone beyond the control of the WTO Members. Finding a proper balance between the maintenance of “members-driven” idea (under which the Appellate Body plays merely an assisting role) and the adjudication function of the Appellate Body is needed. The author suggests that when it is necessary to maintain important human values, to avoid a major leak or disruption of the WTO’s operation or to coordinate with other major international treaties, the Appellate Body should be expected to play an active role of an adjudicator in order to ensure the constitutionalism of international trade norms under the WTO. On the other hand, if it merely involves technical issues and commercial interests, the Appellate Body should avoid practicing judicial activism. It should stick to the textual meaning of the WTO agreements and respect the collective intentions of WTO Members. In such circumstance, the Appellate Body should switch its “adjudicating role” back to its “assisting role” in order to help the WTO Members as a whole to make decisions.

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2 The Dispute Settlement in the Age of the GATT 1947—Power Oriented with Parties-Driven Features 2.1 The Power-Oriented Feature of GATT 1947 A power-oriented DSM is generally understood as a dispute settlement system which allows a politically and economically powerful disputing party to exert its overwhelming influence to unilaterally affect or distort the outcome of the procedure by putting pressure on the other party or by vetoing a result that might be fairer to the weaker party. Under a “purely” power-oriented DSM, the “substantive norms” governing the rights and obligations of the parties could be relatively rough and vague so that when a dispute arises, the parties might not be able to find a very specific provision to serve as the legal basis to resolve it. They might need to rely more on their respective economic and political strengths to resolve their problems. However, this does not mean that all DSMs of power-oriented nature lack detailed substantive rules to govern the substantive rights and obligations between the disputing parties. There could still be very detailed rules governing their relations. For example, the text of the GATT 1947 included detailed substantive provisions to govern the substantive relations among the GATT’s contracting parties. But due to the fact that under the dispute settlement procedure of the GATT 1947, a disputing party can practically veto the result through not agreeing on a consensus to resolve a dispute as recommended by a dispute settlement panel, the DSM under the GATT 1947 was generally considered as a power-oriented system. With regard to the “procedural norms” governing the dispute settlement procedures, under a power-oriented DSM, such norms are generally broad and less detailed, and most importantly, allow a disputing party to maneuver the result. As far as the DSM of the GATT 1947 is concerned, the main dispute settlement provisions under the GATT 1947 were in Article XXIII (entitled “Nullification or Impairment”), paragraph 2 of which states in part that: If no satisfactory adjustment is effected between the contracting parties concerned within a reasonable time, or if the difficulty is of the type described in paragraph 1 (c) of this Article, the matter may be referred to the CONTRACTING PARTIES. The CONTRACTING PARTIES shall promptly investigate any matter so referred to them and shall make appropriate recommendations to the contracting parties which they consider to be concerned, or give a ruling on the matter, as appropriate…

Based on this paragraph, the Chairman of the GATT Council had the position of making a ruling to resolve cases. This was actually the practice of the earlier period in the age of the GATT 1947. Later on, the CONTRACTING PARTIES (i.e., the contracting parties as a whole) decided to have disputes arising from the GATT referred to the “working parties” (which were composed of the disputing parties and all other interested contracting parties) to decide, based on consensus, whether to adopt any decisions. At the later stage of the GATT 1947, there had already been the

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“panel” practice, which was later introduced into the DSM of the WTO and becomes one of the key elements of the current WTO’s DSM. Under the GATT’s “panel” practice, a panel of three or five independent experts would draft its report to be approved by the GATT Council. The “panel” practice was supplemented by a number of documents/decisions of the GATT 1947, including the “Decision of 5 April 1966 on Procedures under Article XXIII”, the “Understanding on Notification, Consultation, Dispute Settlement and Surveillance, adopted on 28 November 1979”, the “Decision on Dispute Settlement, contained in the Ministerial Declaration of 29 November 1982” and the “Decision on Dispute Settlement of 30 November 1984”, all of which had enhanced the dispute settlement rules of the GATT 1947.1 Notwithstanding the increasingly detailed dispute settlement rules in the age of the GATT 1947, its DSM is still considered as “power-oriented” mainly because that a panel report needed to be adopted by the GATT Council, and in the adoption procedure, any contracting party (especially the losing disputing party in the relevant dispute) was able to block the adoption of the report by not agreeing to come to a consensus. Practically, only economically and politically powerful contracting parties would be capable of standing against all other contracting parties to reject the adoption of a report which was against their interests. Such power-oriented mechanism under the GATT 1947 was thought to be an uneven design and not helping the resolution of difficult disputes.

2.2 “Collective Parties-Driven” Versus “Single-Party-Driven” This chapter intends to use the term “collective parties-driven” to indicate that it was the contracting parties which collectively decided the matters and operation of the GATT 1947; and to use the term “single party-driven” to indicate that a singe party could exert decisive influence on the decision-making. The GATT 1947 had the “collective parties-driven” practice in its decisionmaking. Matters were decided by the GATT contracting parties collectively based on consensus in the context of working parties’ decision-making in the earlier GATT’s DSM and in the context of whether to adopt a panel’s report. There was no separate and independent body or entity to adjudicate the disputes or to decide the cases for the GATT contracting parties. However, it must also be noted that since the decision-making is conducted based on consensus, participating countries are in a position not to agree to come to a consensus in order to “practically” block the decision-making on any matter. Under the “collective parties-driven”, matters and the overall operation of the GATT 1947 were supposed to be directed and decided by the GATT’s contracting parties collectively. The “consensus” practice in decision-making also reflected such 1 WTO, Historical development of the WTO dispute settlement system. https://www.wto.org/ english/tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm. Accessed 23 June 2019.

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idea. The essence of “consensus” is that all parties’ positions are important. These positions collectively form the decisions. However, as explained above, since any contracting party (especially an economically and politically powerful country) can decide not to agree on coming to the consensus, practically, it could single-handedly block the decision-making on a dispute. For dispute settlement matters, the adoption of a panel report was decided by the consensus of the GATT Council. Any one of the GATT contracting parties (including the disputing party which lost case in the panel stage) could decide not to come to a consensus. Hence, if a panel report was considered as being against an important interest of the losing party which had a sufficient economic or political power to resist peer pressure from other GATT contracting parties, this party was likely to “veto” the adoption of a decision. Hence, not only the GATT 1947 DSM was basically considered as “power-oriented” DSM, it can also be considered as a partly “single-party-driven” mechanism. Accordingly, although the original design of the GATT 1947 might be “partiesdriven”, it could actually be dominated by a single disputing party to decide whether a report would be adopted and whether a dispute could be resolved in accordance with the substantive rules of the GATT 1947. This was definitely an undesirable result.

2.3 The Assisting Role of the Dispute Settlement Panel As indicated above, the dispute settlement panels during the age of the GATT 1947 were created to assist the CONTRACTING PARTIES (i.e., the contracting parties as a whole) to make decisions. Such assistance was important because when a panel was performing its duties, it must look into the facts of the case at hand and make legal analysis based on the GATT provisions. This helped the GATT Council to make its decisions in a more professional manner and to make it more in line with the GATT rules. Still, the panels were not to render judgements, nor to issue arbitral awards. They were not to make decisions for the GATT Council. They merely drafted reports to be considered by the GATT Council. Neither was there any separate or independent entity created under the GATT 1947 to make decisions or to render judgement to resolve disputes for the CONTRACTING PARTIES or for the GATT Council. The situation of the dispute settlement panels being merely given the assisting role was not changed even after the adoptions of the above-mentioned “Decision of 5 April 1966 on Procedures under Article XXIII”, “Understanding on Notification, Consultation, Dispute Settlement and Surveillance, adopted on 28 November 1979”, “Decision on Dispute Settlement, contained in the Ministerial Declaration of 29 November 1982” and “Decision on Dispute Settlement of 30 November 1984”, which enhanced the dispute settlement rules of the GATT 1947. The “assisting role” of the panels had contributed greatly in the dispute settlement system under the GATT 1947.

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3 The Dispute Settlement in the Age of the WTO-Rule-Based with “Members-Driven” Features 3.1 The Rule-Based Features Under the WTO Dispute Settlement During the Uruguay Round, negotiators intended to change the power-oriented DSM of the GATT 1947 to the rule-based DSM of the WTO. A rigid rule-based DSM was a popular idea during the Uruguay round negotiation. This was because of the fact that during the age of the GATT 1947, panel reports could actually be “vetoed” by the losing party in a dispute. It was considered that a new rule-based mechanism would prevent the dominance of economically and politically powerful countries to decide the cases and would enhance the effectiveness of the dispute settlement procedure. As a result, a single WTO Member’s power to influence the outcome is minimized. The negotiators created the Understanding on Rules and Procedures Governing the Settlement of Disputes (the DSU) to ensure the rule-based DSM. However, if we look into the DSU, we can still find many power-oriented elements in the text. For instance, Article 4 of the DSU still requires the disputing parties to conduct bilateral consultations to resolve their dispute. Article 5 still encourages the disputing parties to mutually resort to good offices, conciliation or mediation to resolve their case. In these proceedings, economically and politically powerful countries can exert their influential positions to critically affect the outcome. However, it is also true that the WTO’s DSM is considered as a rule-based system. This rule-based feature is partly reflected in the large number of very specific and detailed agreements to be based upon to decide the substantive rights and obligations of the disputing parties. This is also reflected in the detailed binding dispute settlement procedures under the DSU. Because of the DSM of the WTO, the “power-oriented” tendency of economically and politically more powerful countries can be corrected. A recent case concerning Article XXI of the GATT is an example showing a possible unilateral misuse of the national security exceptions and a proper prevention of such misuse through the DSM. Article XXI of the GATT provides in part that: “Nothing in this Agreement shall be construed … (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests … (iii) taken in time of war or other emergency in international relations …” The issues of whether and to what extent a WTO Member’s national security measure can be scrutinized under Article XXI of the GATT have a long history. Such issues reemerged in recent years staring from the dispute between Ukraine and Russia. More recently, the United States’ allegation of its tariff measures being in line with the national security exceptions provisions also created sharp confrontations between the United States on the one hand, and its trading counterparts (China, European Union and some other countries) on the other hand. As a matter

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of fact, many countries have already filed complaints against the United States’ use of national security exceptions to impose tariffs on steel, aluminum and cars, among other products.2 The argument of the United States to support the “non-justiciable” of national security measures and the wide discretion of applying this “national security exception” is that the sentence of “from taking actions which it considers necessary” in Article XXI (b) indicates that the invoking Member can unilaterally decide whether there is national security involved and whether to apply this exception. In the 2019 Panel Report of Russia—Measures Concerning Traffic in Transit,3 the panel is of the view that “invocation of Article XXI(b)(iii) is within the Panel’s terms of reference for the purposes of the DSU”4 ; that “the adjectival clause ‘which it considers’ in the chapeau of Article XXI(b) does not extend to the determination of the circumstances in each subparagraph. Rather, for action to fall within the scope of Article XXI(b), it must objectively be found to meet the requirements in one of the enumerated subparagraphs of that provision”;5 that “It follows from the Panel’s interpretation of Article XXI(b), as vesting in panels the power to review whether the requirements of the enumerated subparagraphs are met, rather than leaving it to the unfettered discretion of the invoking Member, that Article XXI(b)(iii) of the GATT 1994 is not totally ‘self-judging’ in the manner asserted by Russia”;6 and that “The Panel’s interpretation of Article XXI(b)(iii) also means that it rejects the United States’ argument that Russia’s invocation of Article XXI(b)(iii) is ‘nonjusticiable’, to the extent that this argument also relies on the alleged totally ‘self-judging’ nature of the provision”.7 The Panel Report’s rejection of the alleged “nonjusticiable” nature of national security exceptions has effectively maintained the expectation of the negotiators who designed the WTO as a rule-based system. Undesirably, after the case, trade wars are still going on. The United States is still taking trade actions against China and other countries. Some of the United States’ trading counterparts are still taking retaliatory actions to respond. These unilateral measures (including the measures allegedly based on national security exceptions and those taken as retaliations) show that the WTO (including its DSM) can still be subject to power-oriented distortions. But at least, the DSM under the WTO makes efforts to maintain the rule-based spirit expected by the negotiators.

2 Tran

(2019). Report, Russia—Measures Concerning Traffic in Transit, WT/DS512/R (adopted Apr 5, 2019). 4 Id. para 7.56. 5 Id. para 7.101. 6 Id. para 7.102. 7 Id. para 7.103. 3 Panel

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3.2 The “Collective Members-Driven” Idea Is Emphasized, but Some “Single-Member-Driven” Elements Are Still Seen Similar to the explanation above, this chapter also intentionally uses the term “collective members-driven” or “members-driven” to indicate that it was the WTO Members which collectively decided the matters and the operation of the WTO; and it uses the term “single-member-driven” or “member-driven” to indicate that a singe WTO Member can exert decisive influence on and distort the WTO’s decision-making. The WTO (including its DSM) is designed to be a “collective members-driven” organization. The “members-driven” features are reflected in the overall concept that the organization is operated by its Members and in that its major decisions are made by its Members collectively through its Ministerial Conferences, General Council, Dispute Settlement Body and other Councils or Committees, mostly based on consensus. Major decision-making powers are not delegated to any separate or independent organs (including not delegating to the Appellate Body), nor delegated to the head of the organization. New rules are negotiated by WTO Members based on consensus and are enforced by the Members collectively. This “members-driven” feature was a deliberate design by the negotiators to make the WTO different from other international organizations. The “members-driven” idea is still the basis of the WTO’s (including its DSM’s) decision-making and its operation, and should not be forgotten when we discuss any reform of the WTO or its DSM. As indicated above, the “members-driven” characteristic is also reflected in the dispute settlement system embedded in the DSU. According to Article 2, paragraph 1 of the DSU, the Dispute Settlement Body (which is composed of the representatives of all WTO Members) is established to administer the rules and procedures under the DSU and has the authority to establish panels, to adopt panel reports and Appellate Body reports, to maintain surveillance of implementation of rulings and recommendations, and to authorize suspension of concessions and other obligations under the covered agreements. In other words, the administration of the DSM is conducted by the WTO Members collectively, through convening the meeting under the name of the Dispute Settlement Body. It was also mentioned above that the exercise of the “collective members-driven” decision-making is based on “consensus”. Article IX, paragraph 1 of the Marrakesh Agreement Establishing the World Trade Organization provides in part that “[t]he WTO shall continue the practice of decision-making by consensus followed under GATT 1947.” According to Note 1 to this provision, “[t]he body concerned shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting when the decision is taken, formally objects to the proposed decision.” Although the same paragraph provides that “where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting”, actually, resorting to voting to decide a matter is rarely adopted.

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The constant use of “consensus” for decision-making has its positive and negative implications. Positively, it treats opinions of all WTO Members as valid and important contribution and makes every opinion count. Hence, WTO Members are more equal in participating in the operation of the WTO. Negatively, the constant use of consensus also delays the negotiations and decision-making. In addition, it becomes more possible for a single WTO Member to block the adoption of a decision which could be very important to the operation of the WTO. An example of the consensus requirement becoming a Member’s tool to block a decision-making is the appointment of Appellate Body members. Currently, an appointment (including setting the agenda for the appointment matters) of WTO’s Appellate Body member requires a positive consensus within the Dispute Settlement Body. This has created an opportunity for any WTO Member to refuse coming to a consensus on the related matters and has actually given a “veto” power to any WTO Member. This has also created a “single-member-driven” scenario, i.e., a single WTO Member being capable of jeopardizing the Appellate Body by blocking the appointment of the Appellate Body members. This is also the key concern of this Book and is addressed in some other chapters in this Book.

3.3 The Appellate Body’s Mixed Roles of Assisting WTO Members and as an Adjudicator The original design of the Appellate Body under the DSU is to give an “assisting” role to it to help the WTO Members as whole (under the framework of the Dispute Settlement Body) to make decisions. This is implied in the DSU. Concerning the function of the panels, Article 11 of the DSU provides in part that “The function of panels is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it … and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements…” (Emphasis added) Although there is no similar provision in the DSU in regard to the “assisting” function of the Appellate Body, the assisting role of the Appellate Body can still be understood from and is implied in Article 17.14 of the DSU, which requires an Appellate Body report to be adopted by the Dispute Settlement Body in order to make it become effective and to make it become the contents of the Dispute Settlement Body’s recommendation and ruling. This is similar to the provisions in Article 16 of the DSU which also requires a panel report to be adopted in order to make the report become effective and make it become the contents of the Dispute Settlement Body’s recommendation and ruling. The adoption mechanism makes the Appellate Body reports of legally non-binding nature before the completion of the adoption process.8 From this perspective, the 8 Lo

(2017, p. 8).

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whole design of WTO’s DSM, including its the Appellate Body, does not deviate from the “collective members-driven” idea. However, it must be noted that the Appellate Body also has a concurrent function as an adjudicator. This function is implied in some DSU provisions. Article 3.2 of the DSU provides in part that the dispute settlement system of the WTO (functioned through panels and Appellate) serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. As a result, the Appellate Body actively engages in interpreting WTO agreements based on the Vienna Convention of the Law of Treaties (VCLT). This is very similar to any international court which interprets international treaties in accordance with the VCLT to resolve disputes. Articles 17.1 and 17.13 provide that the Appellate Body shall “hear” appeals from panel cases and may uphold, modify or reverse the legal findings and conclusions of the panel. This is similar to the court of final appeal to “hear” appeals from lower court cases and to uphold, modify or reverse the legal findings of lower courts in the context of domestic judicial system. Very importantly, Article 17.14 provides in part that an Appellate Body report shall be adopted by the DSB and unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report. This “negative consensus” mechanism almost ensures that the Appellate Body reports will become effective to govern the disputes. It makes the reports “practically” binding. This feature is also very similar to binding decisions issued by the final court of appeal in domestic context.

4 The Imbalance and Rebalance Between the “Members-Driven” Nature and the Appellate Body’s Role as an Adjudicator 4.1 The Imbalance—Ignoring Members-Driven Nature Leading to Undesirable Judicial Activism The term “judicial activism” is generally used in a negative way to suggest that judges are not merely interpreting or applying legal text in an active manner, but are deciding cases without plausible connection to the law they purport to apply, or to blame judges acting in bad faith or in a dishonest way when making their judgments.9 In this chapter, the author uses the term in a more neutral manner: to use “undesirable judicial activism” to indicate an implausible interpretation of the WTO agreements, and to use “desirable judicial activism” to indicate a necessary wider interpretation of the WTO agreements for certain important causes.

9 Id.

at 73.

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An example in which some people consider the Appellate Body (or its members) practicing undesirable judicial activism has to do with Article 17.6 (ii) of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the Anti-Dumping Agreement). It provides that “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.” (Emphasis added). Some people consider that “zeroing” practice (i.e., aggregating the results of each margin of each sub-product category of the product under investigation, but deleting the negative margins so as not to offset the positive margins in order to come up with a higher average margin and to impose higher anti-dumping duties) is not explicitly prohibited in the Anti-Dumping Agreement and therefore it admits of more than one permissible interpretation concerning whether an investigating authority could rely on the “zeroing” method to calculate the dumping margin. However, the Appellate Body consistently declared the “zeroing” method as unlawful and not permitted by the Anti-dumping Agreement.10 The interpretation of the Anti-dumping Agreement by ignoring the provision in Article 17.6 (ii) can be considered as undesirable judicial activism practiced by the Appellate Body. It is because the Appellate Body considered itself of actively practicing justice and ignored the WTO Members’ collective intention which is expressed in Article 17.6 (ii) of the Anti-dumping Agreement (requiring finding a measure to be in conformity with the Anti-dumping Agreement if the measure rests upon one of the permissible interpretations). The Appellate Body’s practice is also a deviation from the “members-driven” design of the WTO. In this regard, the Appellate Body is quite active in exercising its powers to achieve what it considers to be right or righteous. Actually, it could be individual Appellate Body members’ personal misunderstanding or misbelief of their own role to be a real judge and of their power to be unlimited without the constraints from the WTO Members. The author is of the view that there is a basis to consider that the Appellate Body is practicing undesirable judicial activism by exceeding what the meaning of the textual wording can reach. It is undesirable judicial activism not only because the Appellate Body exceeded the textual wording of the interpreted provision and ignored the provision in Article 17.6 (ii) of the Anti-dumping Agreement, but also because the issue was not about any fundamental human value or about the prevention of the disruption of the WTO, but merely involved commercial interests, which do not justify a practice of judicial activism.

10 Id.

at 75.

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4.2 A Rebalance—The Adjudicating Role to Assure Constitutionalism for Fundamental Values Vs. the Assisting Role for Other Issues to Maintain “Members-Driven” Nature For issues which only involve commercial interests, the Appellate Body needs to respect the collective intention of the WTO Members as expressed in the relevant agreements. In this regard, the “collective members-driven” tradition should be upheld, and the Appellate Body should consider itself as playing the “assisting” role to help the WTO Members as a whole to ensure that any result from the dispute settlement procedure would not deviate from their collective intention. However, if a disputed issue involves not merely commercial interest, but mainly certain fundamental human values (including, for instance, the protection of human life and health, the respect of human dignity, the protection of other internationally recognized human rights and labor standards, the maintenance of sustainable development or preservation of exhaustible natural resources, and the protection of public health), the Appellate Body should be expected to adopt an active manner so as to protect and maintain such human values through interpreting relevant WTO agreements. Through such activism practice, the Appellate Body can ensure the “constitutionalism” of the WTO norms, in which certain fundamental human values are embedded to guide WTO Members’ practice. In this regard, the Appellate Body is not merely assisting the WTO Members. The “collective members-driven” idea should not be emphasized too much so that there will be proper room for the Appellate Body to ensure that the operation of the WTO is in line with the protection and maintenance of the fundamental human values. The Appellate Body should be permitted to conduct treaty interpretation in a “human rights friendly” or “environmentally friendly” manner based on the VCLT in order to introduce fundamental human values into the operation of the WTO. It would be undesirable to rely on the “negative” concept of “judicial activism” to prevent the introduction of such human values of high importance into the operation of a treaty so as to isolate its operation. In addition to the fundamental human values, there is another situation where the Appellate Body should be expected to adopt an active position. This is about preventing any fundamental leak or about filling any critical gap in the WTO agreements so as to ensure the proper operation of the organization. The above mentioned “national security exceptions” disputes are examples of such kind. If the view that measures concerning Article XXI of the GATT are “non-justiciable” is adopted, Members’ commitments and concessions under the WTO would vastly become meaningless, because Members adopting any alleged “national security measures” could be excepted from the scrutiny under the WTO and hence there will be critical leak concerning the assurance of the balanced concessions, and the maintenance of the balanced rights and obligations. In this regard, the DSM of the WTO, especially the Appellate Body, should stand up to uphold the proper function and operation of the organization and should avoid

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any undesirable “single-member-driven” scenario. It would be undesirable to negatively use the concept of “judicial activism” to prevent the Appellate Body from interpreting a WTO agreement to prevent a fundamental leak or to fill the critical gap. Nor would it be desirable to require the Appellate Body to leave the gap or loophole as it is, disregarding possibility that such gap or loophole could jeopardize the operation of the treaty. Yet another situation where the Appellate Body should be expected to practice its active role is when there involves coordination between the WTO and other important international treaties. There were several complaints brought by Honduras, the Dominican Republic (in 2012), Cuba and Indonesia (in 2013) to challenge Australia’s plain packaging requirement under the WTO. In the case of “Australia—Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging” (DS435, DS441, DS458 and DS467), the panel’s report was in favor of the responding party (Australia).11 The panel actively cited relevant provisions of the Framework Convention on Tobacco Control (FCTC) and certain guidelines adopted under the FCTC to support Australia’s adoption of the plain packaging requirement for the purpose of reducing the consumption of tobacco products. The case was not appealed to the Appellate Body. But if the Appellate Body were to handle the case, it should also be expected to adopt an active role in order to ensure that the legal order and important values of reducing tobaccco supply and consumption to protect human health and life established under the FCTC by the vast majority of countries throughout the world would not be destroyed or undermined because of its hesitation in actively coordinating the two treaty systems in an harmonious manner. In this regard, the Appellate Body should not be merely following the WTO Members’ intention. It should take a leading role so as to ensure a proper international legal order. It would also be undesirable to rely on the “negative” concept of “judicial activism” to prevent the coordination of different treaties and the introduction of the essence of other treaties into the operation of the WTO so as not to isolate its operation from other international treaties.

5 Concluding Remarks—Careful Exercise of Judicial Activism There are positive and negative aspects of judicial activism in relation to the role to be play by the Appellate Body and to the “collective members-driven” design of the WTO. Positively, an active position taken by the Appellate Body could help enhance human values and international legal orders. Negatively, the Appellate 11 The summary of findings is quoted from the WTO official website of DS467: Australia—Certain

Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging. https://www.wto.org/english/tratop_e/dispu_ e/cases_e/ds467_e.htm. Accessed 23 June 2019.

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Body’s practicing judicial activism in the matters of purely commercial interests could distort the WTO Members’ collective intention and undermine the WTO’s “collective members-driven” design. The Appellate Body must be very careful in exercising judicial activism. As indicated above, this chapter suggests that when it is necessary to maintain important human values, to avoid a major leak or disruption of the WTO’s operation or to coordinate with other major international treaties, the Appellate Body should be expected to play an active role as an adjudicator in order to ensure the constitutionalism of international trade norms under the WTO. In this regard, the Appellate Body’s practice of judicial activism is acceptable. Preserving such judicial activism is desirable. But if there involve merely technical issues and commercial interests, the Appellate Body should avoid practicing judicial activism. It should respect the collective intentions of WTO Members and be bound by the general principles of not deviating from the mandate of the WTO agreements and not creating the law. It should practice a certain extent of self-restraint. In such circumstance, the Appellate Body should play an “assisting role” in order to help the WTO Members as a whole to discharge their decisions-making duties. The Appellate Body members should not consider themselves as judges. This would help themselves balance the commercial interests of the parties and find proper solutions to resolve disputes of purely commercial nature.

References DS467: Australia—certain measures concerning trademarks, geographical indications and other plain packaging requirements applicable to tobacco products and packaging. https://www.wto. org/english/tratop_e/dispu_e/cases_e/ds467_e.htm. Accessed 23 June 2019 Historical development of the WTO dispute settlement system. at https://www.wto.org/english/ tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm. Accessed 23 June 2019 Lo C-F (2017) Treaty interpretation under the Vienna convention on the law of treaties—a new round of codification. Springer Panel report, Russia—measures concerning traffic in transit, WTO Doc. WT/DS512/R (adopted Apr 5, 2019) Tran H (2019) WTO in a bind over trump’s national security tariffs https://www.atlanticcouncil. org/blogs/new-atlanticist/wto-in-a-bind-over-trump-s-national-security-tariffs. Accessed 23 June 2019

Chang-fa Lo was Justice of the Constitutional Court of the ROC (Taiwan) between October 2011 and September 2019. Prior to his judicial position, he was Chair Professor and Lifetime Distinguished Professor at National Taiwan University (NTU); Dean of NTU College of Law; Founding Director of the Asian Center for WTO and International Health Law and Policy of NTU College of Law (ACWH); Founding Director of the Center for Ethics, Law and Society in Biomedicine and Technology of NTU; Commissioner of Taiwan’s Fair Trade Commission; Commissioner of Taiwan’s International Trade Commission; and legal advisor for Taiwan’s GATT/WTO accession negotiations. In his capacity as Director of the ACWH, Prof. Lo launched

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two English journals, namely, the Asian Journal of WTO and International Health Law and Policy (AJWH, an SSCI listed journal) and the Contemporary Asia Arbitration Journal (CAAJ) in 2006 and 2008, respectively. During his tenure as Dean of NTU College of Law, he also launched the English journal, the NTU Law Review. He was appointed by the WTO as a panelist for the case of DS332 Brazil—Measures Affecting Imports of Retreaded Tyre in 2006, and the case of DS468 Ukraine—Definitive Safeguard Measures on Certain Passenger Cars in 2014, and appointed as a member of the Permanent Group of Experts under the SCM Agreement of WTO in 2008. He was Chairman of the Asia WTO Research Network (AWRN) from 2013 to 2019. Prior to his teaching career, he practiced law in Taipei. He received his S.J.D. degree from Harvard University Law School in 1989. He is the author of 13 books (including “Treaty Interpretation under the Vienna Convention on the Law of Treaties—A New Round of Codification” published by Springer) and the editor of eight books (including this book), and he has authored more than 100 journal papers and book chapters. He was granted the “National Professorship Award” by the Ministry of Education and the “Outstanding Scholarship Chair Professorship Award” by the Foundation for Advancement of Outstanding Scholarship.

Chapter 9

The Judicial Style of the Appellate Body Niall Meagher

Abstract How adjudicators write their decisions can be enormously important in achieving credibility and acceptance for a tribunal’s decisions. International tribunals, such as the WTO panels and Appellate Body, face greater difficulties than domestic tribunals in developing an individual style. The DSU influences the judicial style of the AB, but does not mandate a particular stylistic approach. The AB’s approach to interpretation under Article 31 of the VCLT and its reliance on the dictionary in its interpretation seems to have contributed to the development of a formalistic writing style and, over time, longer and more complex reports. In addition, the AB has generally eschewed any rhetorical or dramatic flourishes in its writing. The chapter also discusses various factors affecting the style of the AB, includes the textualist approach of the VCLT, differences in spoken languages, differences in legal tradition, the requirement of collegiality, the importance of candour, and the personalities of the adjudicators. Ultimately, the style of a tribunal like the AB may depend mostly on the individual styles of its members. Keywords WTO dispute settlement · Appellate Body · Style · Judicial style · Common law · Civil law · Language · VCLT

The views expressed in this chapter, as well as all errors and omissions, are entirely the responsibility of the author and should not be attributed to the ACWL or its Members. I should also note that I am very much aware that I write from the perspective of a legal practitioner with longstanding experience as a litigator but only limited experience as an adjudicator. With this in mind, I have tried not to underestimate unfairly the difficulties faced by adjudicators, especially in an international context, in communicating their decisions to the world. N. Meagher (B) Advisory Centre, WTO Law (ACWL), Geneva, Switzerland e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_9

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1 Introduction I am told at times by friends that a judicial opinion has no business to be literature. The idol must be ugly, or he may be taken for a common man. —Benjamin N. Cardozo1

As I spend many hours of my working week reading WTO panel and Appellate Body reports, I frequently find myself reflecting not just on the substance of the reports but also on the style in which they are written. The subject of this chapter is the latter. As we will see, there is a close and symbiotic relationship between questions of style and questions of substance or interpretative methods. Nevertheless, as questions of interpretation and substance are covered elsewhere in this volume, I will try to set those aside and stick, to the extent possible, solely to questions of style. Before beginning, there are a couple of preliminary points to be made about the title of this chapter. First, it refers to the “judicial” style of the Appellate Body. As is frequently stated, however, the Appellate Body (or, indeed, a WTO panel) is not a court and members of the Appellate Body are not judges—indeed, some are not even lawyers.2 In assessing the “judicial” style of the Appellate Body, therefore, we must take into account both that Appellate Body Members have more diverse backgrounds and different roles than domestic judges and that they operate in an environment and have a task—international dispute settlement—that is different from judging under domestic law. As we shall see, these factors affect our consideration of the style of the Appellate Body. In many respects, it is harder for an international tribunal to develop a style—or at least a distinctive style. Unlike a domestic court, for example, an international tribunal is not made of homogenous adjudicators with a shared educational or legal-cultural background.3 Nevertheless, even though the Appellate Body is not a court of judges, and is an international rather than domestic body, I think that there are enough similarities in the adjudicative or arbitral task to enable us to discuss “judicial” style against the background of how these issues are addressed in domestic systems. Second, the title of the chapter refers to the Appellate Body of the WTO. I will focus on the Appellate Body, but it should be noted that in terms of style, the reports of WTO panels and those of the Appellate Body are broadly similar. This may be because people with similar backgrounds serve as panellists and Appellate Body Members. It may be because of similarities in the drafting process, especially in terms of the assistance provided by the relevant offices within the WTO Secretariat to both panels and the Appellate Body. And it may partly be because panels, the

1 Weisberg

(2018, p. 349).

2 For ease of reference, in this chapter I use the term “judge” to refer interchangeably to both judges

in domestic legal systems and panellists and Appellate Body members in the WTO system. domestic legal systems increasingly and properly strive for diversity among the judiciary within the domestic legal system, the judiciary of each country nevertheless presents to the world as a homogenous whole.

3 While

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lower instance tribunal, imitate the higher instance Appellate Body.4 In any event, I think that the discussion of the style of the Appellate Body in this chapter applies mutatis mutandis to the style of WTO panels. Thus, while I will refer primarily to the Appellate Body, the analysis applies equally to the panel process. This chapter begins by providing some background on the complex issue of what is “style” in judicial decisions and whether and how it affects the quality of a decision. It then examines what we know about the style used by the Appellate Body to date. Finally, various factors that affect the style of the Appellate Body are discussed.

2 What is Style? Before turning to the style of the Appellate Body, it is worth discussing what we mean by judicial style and why or how it might be important to the success of the judicial or arbitral project. “Why do judges write?” begins a well-known article on the subject by a prominent American judge, Patricia M. Wald. “Why do we not simply decree results in individual cases and, as necessary, announce broader commandments about what the law requires?”.5 This question makes perfect sense in domestic legal systems in which judges may have the option of announcing decisions either from the bench or in a summary written decision, without providing any reasons for the decision. In the WTO, however, it may seem less relevant. The WTO Understanding on Rules and Procedures Government the Settlement of Disputes (hereinafter DSU) refers to findings, rulings and recommendations, and reports of panels and the Appellate Body. It is a given, therefore, that panels and the Appellate Body must write. However, the DSU is silent on how and how much they should write in order to fulfil their mandates under the DSU. In this context, Judge Wald’s question is relevant also to the work of the Appellate Body. Judge Wald provides two main reasons why judges write. The first is “to reinforce our oft-challenged and arguably shaky authority to tell others—including our duly elected political leaders—what to do”.6 Thus, writing adds to the credibility of the judge: “one of the few ways we have to justify our power to decide matters important 4 It

could also be argued, although perhaps less convincingly, that panels also influence the style of the Appellate Body, because the panel gets to write the first version of the reports that will ultimately decide the dispute. As the saying goes, whoever writes the first draft controls the document…. 5 Wald (1995a). As will be seen, in preparing this section of the chapter, I enjoyed reviewing, and now rely heavily on, the writings of two prominent American judges, Judge Wald and Richard A. Posner, that have written extensively on how judges write. In a series of articles in the 1990 s, they sparred, directly and indirectly, on the question. In “Judges’ Writing Styles (And Do They Matter?)”, Judge Posner expounded his theories of style before criticizing a decision of Judge Wald’s in a case involving the due process rights of criminal defendants (Posner 1995). In a written response, Judge Wald referred to Posner’s general discussion of style as Judge Wald referred to this portion of Judge Posner’s article as “fifteen pages of intermittently scholarly, esoteric and impenetrable analysis of judicial style” (Wald 1995b). 6 Wald (1995a), supra note 6, at p. 1372.

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to our fellow citizens is to explain why we decide as we do”.7 This would seem to apply with equal force to the task of international adjudicators—replace the words “duly elected political leaders” with “sovereign governments” in the sentence just quoted and the importance of writing in reinforcing a WTO panel’s or the Appellate Body’s “arguably shaky authority… to tell others what to do” becomes clear. One of the primary purposes of Appellate Body review is to convince reluctant stakeholders in the political system of the defending Member that they must indeed bring challenged measures into compliance with WTO obligations. The more clearly and convincingly this can be done, the better. Judge Wald’s second main reason why judges write is “to demonstrate our recognition that under a government of laws, ordinary people have a right to expect that the law will apply to all citizens alike”.8 This may apply more to domestic legal systems than to international adjudication. Nevertheless, in a rules-based multilateral system, it is important to the credibility of the system that it be seen to apply equally to all players. In addition to credibility, this also goes to the transparency of a system. The community and the broader public “need to know why a particular judge came to a particular decision in a particular set of circumstances. That way, they can decide if the law is really a seamless web or irreparably snagged by a bunch of clumsy knitters who can’t take directions”.9 This aspect may be particularly important in the WTO if a panel or the Appellate Body reaches its decision on the outcomes of a particular case first and only then begins to articulate the best rationale to support the decision. In addition to the two primary motivations, Judge Wald offers other more specific reasons why some judges write as they do: “Transplants from academia may feel irresistibly driven to communicate their intellectual processes and products to the world”; “Refugees from the world of politics and public affairs write to persuade their colleagues and the public that they are moving the law in the right direction”; and “some judges write for the personal gratification that comes from being quoted, cited, and republished in law school casebooks, with the side benefits of invitations to lecture…”.10 As we shall see, some of these motivations are suppressed in the WTO system, where reports are issued quasi-“anonymously” by a panel or division of three Appellate Body members. Separate opinions are discouraged and, when issued, are anonymous. Thus, it is harder to give voice to the more individualistic or selfish motivations described by Judge Wald than it might be in a domestic court setting. In addition to the need for credibility and clarity/consistency described by Judge Wald, the act of writing can also contribute to the reasoning process and to the quality of the decision itself. In an oft-quoted passage, Judge Posner, a very prolific writer, explained the importance of the act of drafting itself to the judicial or arbitral process, as follows:

7 Id. 8 Id. 9 Id. 10 Id.

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In thinking about a case, a judge might come to a definitive conclusion yet find the conclusion indefensible when he tries to write an opinion explaining and justifying it. The reason is that we do not think entirely in words, and certainly not entirely in sentences and paragraphs. Inarticulable or even unconscious feelings and impressions fill in around the sentence fragments that form in our minds as we think about a problem. This silent, incompletely verbalized thinking can be insightful.… But it can also be muddy, with the result that when we try to systematize it in sentences and paragraphs that are unmistakable because written down and not just imperfectly remembered, we may find that our confident conclusion is wrong; it “will not write”. Reasoning that seemed sound when “in the head” may seem half-baked when written down, especially since the written form of an argument encourages some degree of critical detachment in the writer, who in reading what he has written will be wondering how an audience would react. Many writers have the experience of not knowing except in a general sense what they are going to write until they start writing. A link is somehow forged between the unconscious and the pen. The link is lost to the judge who does not write.11

Probably all legal writers have experienced this. Arguments and reasoning may sound great when they come to mind or are discussed with colleagues. However, they can be much less convincing when put on paper in unforgiving black and white print. Editing a document clarifies and improves the quality of the analysis. On the other hand, George Orwell cautioned against rushing to hit the keyboard: When you think of a concrete object, you think wordlessly, and then, if you want to describe the thing you have been visualizing, you probably hunt about till you find the exact words that seem to fit it. When you think of something abstract you are more inclined to use words from the start, and unless you make a conscious effort to prevent, the existing dialect will come rushing in and do the job for you, at the expense of blurring or even changing your meaning. Probably it is better to put off using words as long as possible and get one’s meaning as clear as one can through pictures or sensations. Afterwards one can choose—not simply accept—the phrases that will best cover the meaning, and then switch round and decide what impression one’s words are likely to make on another person. This last effort of the mind cuts out all stale or mixed images, all prefabricated phrases, needless repetitions, and humbug and vagueness generally.12

Orwell’s advice for patience in writing is perhaps harder to follow—and therefore arguably even more important—in an era of rapid typing and instant cut-and-paste editing. Once we know why judges write (beyond the simple answer that, in the WTO, they are required to do so), we turn to how judges write. Style, in Posner’s view, is defined “most broadly as the specific written form in which a writer encodes an idea, a ‘message,’ that he wants to put across”.13 To the extent that the message to be encoded is the judge’s decision, this definition implies a considerable degree of choice on the part of the writer on how to encode that message. A second definition by Posner narrows that choice somewhat: “‘Style’ is what is left out by paraphrase”.14 This possibility of paraphrase, in Posner’s view, distinguishes the style from the substance:

11 Posner,

supra note 6, at p. 1448. (2002, pp. 965–966). 13 Posner, supra note 6, at p. 1422. 14 Id. 12 Orwell

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“The very possibility of paraphrase demonstrates that content is compatible with a variety of styles and is therefore separable from any particular one, separable even in a sense from style itself”.15 Posner then divides judicial writing into two broad styles—the “pure” and the “impure”. He describes the pure style as follows: Judicial opinions in the pure style tend to be long for what they have to say, solemn, highly polished and artifactual—far removed from the tone of conversation—impersonal… and predictable in the sense of conforming closely to professional expectations about the structure and style of a judicial opinion.… The standard “pure” opinion uses technical legal terms without translation into everyday English, quotes heavily from previous judicial opinions, … complies scrupulously with whatever are the current conventions of citation form, avoids any note of levity, conceals the author’s personality, prefers familiar and ready-made formulations to novelty… The familiarity of the pure style makes it invisible to practitioners of the style and to the intended audience of lawyers. But it is not at all a plain or transparent style.16

In contrast, Posner described the “impure” style as follows: Impure stylists like to pretend that what they are doing when they write a judicial legal opinion is explaining to a hypothetical audience of laypersons why the case is being decided in the way that it is. These judges eschew the professionalizing devices of the purist writer-the jargon, the solemnity, the high sheen, the impersonality, the piled-up details conveying an attitude of scrupulous exactness, the fondness for truisms, the unembarrassed repetition of obvious propositions, the long quotations from previous cases to demonstrate fidelity to precedent, the euphemisms, and the exaggerated confidence corresponding to the declamatory mode of “pure” poetry. These and other devices constitute what Robert Ferguson has felicitously summarized as the “rhetoric of inevitability”.17

Posner notes that, contrary to expectation, the “impure” style may be more difficult to use: Paradoxically, the impure judicial stylists generally take more pains over style than the pure stylists do. Unless one is a particularly gifted writer, it takes much effort to make an opinion seem effortless! The pure style, despite its artificiality, comes more easily to a legally trained person than the impure style. For one of the things that law school and legal practice teach, all unconsciously but not the less effectively for that, is to forget how one wrote before one became a lawyer.18

Posner accepts that he overdoes the differences between the two styles, both because they mark the ends of a spectrum on which most judges would lie in the middle and because the differences between the two can be subtle.19 Without using the pure-impure nomenclature, Judge Wald describes the dichotomy between the two styles in similar terms. She refers to a: trend toward “natural language” in judicial opinions as opposed to hypertechnical legalistic prose. This is healthy, I think, not only as a matter of style and accessibility, but because 15 Id.,

at p. 1423. at p. 1429. 17 Id., at p. 1430. 18 Id., at pp. 1430–1431. 19 Id., at pp. 1431–1432. 16 Id.,

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it helps avoid pitfalls in judicial thinking. The older style was to express everything in formal legal terms encompassing fairly rigid categories or legal concepts and then to let those categories do all the work of deciding the case. So, for example, judges would ask, “Is this a right or a privilege?” and if it was characterized as a right plaintiff won, and if it was a privilege plaintiff lost. No need for complex analysis; just characterize, categorize, then mechanically apply the rule. Natural language loosens this up a bit; decision making becomes less rigid, more fluid and context sensitive; judges using it need to say a bit more about why the case is like (or unlike) previous ones, and there is more room for both parties and judges to maneuver. … What natural language does is to make the legal categories somewhat more open textured and less rigid, and expand the range of judicial discretion to characterize both facts and law. It also makes the exercise of judicial discretion somewhat more obvious, so that while judges still typically write as if they were absolutely certain about the rightness and soundness of their analysis and decisions, everyone (including the judges) knows that’s not necessarily the case. Consequently, I think judges are less likely to fall into the trap of believing they are merely the vessel through which some deus ex machina ineluctable version of legal truth reveals itself; they need to do more analysis, be more sensitive to context, sift the facts more carefully, and think about why this case is really like (or unlike) another. That, it seems to me, is a worthy development.20

Despite their differences, Posner and Wald seem to see similarities in the two ends of the spectrum. Wald’s “natural language” style seems very similar to Posner’s “impure” style and her reference to “hypertechnical prose” seems to match his description of the “pure” style. Posner also attributes different judicial philosophies or analytical approaches to the two styles. He associates the “pure” style with a “formalist” approach to analysis and decision making, and the “impure” to a “pragmatic” style. He describes the differences as follows: By the use of the term “formalist” I mean to emphasize the logical, impersonal, objective, constrained character of legal reasoning. The formalist firmly believes in right and wrong, truth and falsehood, and believes that the function of a judicial opinion is to demonstrate that the decision is right and true. … The pragmatist thinks that what the judge is doing in deciding the nonroutine case is trying to come up with the most reasonable result in the circumstances, with due regard for such systemic constraints on the freewheeling employment of “reason” as the need to maintain continuity with previous decisions and respect the limitations that the language and discernible purposes of constitutional and statutory texts impose on the interpreter.21

Again, notwithstanding their disagreements, this seems to coincide with Wald’s analysis—Posner’s pure, formalist writer seems more likely to “fall into the trap of believing they are merely the vessel through which some deus ex machina ineluctable version of legal truth reveals itself” than the pragmatic user of natural language. Echoing Orwell, Posner cautions against formalist reliance on formal legal doctrines: 20 Wald

(1995a), supra note 6, at p. 1417. supra note 6, at pp. 1432–1433.

21 Posner,

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We tend to believe that words enable thought. But words can also substitute for thought. The pure style is an anodyne for thought. The impure style forces-well, invites-the writer to dig below the verbal surface of the doctrines that he is interpreting and applying. What he may find is merely his own emotions, … But if the judge is lucky, he may find, when he digs beneath the verbal surface of legal doctrine, the deep springs of the law.22

But Posner argues against over-analysing a judge’s choice of style. Even if “particular styles seem to cohere with particular jurisprudential stances… stance cannot automatically be inferred from style”.23 So where does this leave us? There is a wide spectrum judicial style, ranging from a very formal approach to a more natural or pragmatic style. These may be associated with particular interpretative methods or philosophies (formal writing is associated with formalistic analysis; natural writing with more pragmatic analysis), but these associations are not fixed and may be inaccurate. Nevertheless, it seems clear that a “good” style—whatever that actually is—can be enormously important in achieving credibility and acceptance for a tribunal’s decisions. In its obituary of Lord Denning, the twentieth century English judge famous for his simple, commonplace (and often whimsical) style, the Guardian wrote that: His literary style, in fact, is perhaps his most underrated achievement. While in his many books the simplicity is studied and sometimes embarrassingly overdone, Denning’s judgments in case after case performed the feat, achieved by no other judge, of speaking directly and compellingly to ordinary people in well-constructed and lucid prose. Concepts which lawyers had struggled to articulate, clashes of doctrine which seemed insoluble, would emerge in his judgments as crystalline statements of principle.24

With this background in mind, I turn to a more specific analysis of the Appellate Body’s style over the first 24 years of its existence.

3 The Appellate Body’s Style In this section, I will discuss the Appellate Body’s approach to issues of style. Space constraints do not permit a detailed analysis of individual Appellate Body reports to identify particular stylistics traits and idiosyncrasies. Instead, this section will take a more bird’s eye view of the Appellate Body’s approach, with a particular emphasis on how former Appellate Body members themselves have described their approach to issues of style. It is noted that the DSU does not specify a particular style (although, as we will see, some of its provisions have perhaps influenced the style of the Appellate Body). Moreover, as discussed below, in writing about their time on the Appellate Body, former members have tended to focus on procedural and substantive matters and have not discussed in much detail how questions of style have affected their work. 22 Id.,

at p. 1447. at pp. 1435–1436. 24 Sedley (1999). 23 Id.,

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In terms of the reports themselves, they were originally more concise. The first Appellate Body report, US—Gasoline, was 30 pages; the second, Japan—Alcoholic Beverages II, only 33. More recently, the reports have been much longer and more complicated. The most recent report at the time of writing was in Korea—Radionuclides (Japan), a dispute involving Korean measures against imports of fish allegedly carrying health risks. The report is 77 pages, which was considered to be surprisingly short by most observers, who expected longer. It contains 571 footnotes and a three-page table of cases cited. It comes with a 40-page addendum containing the summaries of the arguments of the parties. All of this is typical. Reports are routinely over 100 pages long—another recent report, Brazil—Taxation, was 154 pages long. It would not be fair, however, to attribute any increase in the length and complexity of reports entirely to any evolution in the stylistic choices of the Appellate Body over time. Many cases, such as those involving sanitary and phyto-sanitary measures, are more complicated than, for example, the tax issues involved in Japan—Alcoholic Beverages II. There is also greater involvement of lawyers and third parties. Anecdotally, non-frequent readers of the reports with whom I talk find them to be difficult to read and inaccessible—written by and for insiders. As we will discuss, this has repercussions when we consider that much of the audience for the reports is not native in any of the three official WTO languages (English, French, and Spanish) in which the reports are circulated. Even among insiders, similar sentiments prevail. In the words of Professor Joost Pauwelyn, a leading academic in the field and a former lawyer in the WTO secretariat, [t]hese reports are, moreover, largely written for a Geneva-centered, trade audience, and they are long, complicated and replete with technical terms and abbreviations, fully reflecting and weighing member state arguments and responding to each of them, thereby further enhancing the privileged status of the handful of law firms practising WTO law and the “frequent users” of the system.25

None of this, in itself, tells us very much about the style of the Appellate Body. These are complex and technical disputes that have proven not susceptible to resolution without recourse to third-party adjudication. We cannot reasonably expect that the reports will be written in a manner that will win Booker Prizes or interest Spielberg in buying the movie rights. Nevertheless, style can affect the credibility both of the outcome of a particular dispute and, by extension, of the system as a whole. In examining the style of the Appellate Body, the first point of departure must be the DSU, from which it derives its mandate. While several of its provisions are relevant, however, the DSU does not mandate a particular “style”. Under Article 3.2 of the DSU, the Appellate Body is, like panels, charged with addressing the legal issues raised on appeal in accordance with the customary rules of interpretation of public international law. This is a reference to the Vienna Convention on the Law of Treaties (VCLT). As discussed below, the VCLT influences the stylistic approach of panels and the Appellate Body. 25 Pauwelyn

(2016, pp. 1123–1124).

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Article 3.2 of the DSU is also relevant in two other ways. First, it refers to the purpose of the system to provide “security and predictability” to the multilateral trading system. At the same time, it specifies that panels and the Appellate Body “cannot add to or diminish the rights and obligations provided in the covered agreements”. In discussions as to the role of precedent and questions as to the scope of the interpretative task in the WTO dispute settlement system, the purpose of “security and predictability” has been advanced as support for an expansive view of the role of panels and the Appellate Body and of the status of prior reports. On the other hand, the injunction against adding to or diminishing the rights and obligations in the covered agreements has been advanced to support a more narrow view of the adjudicative role in the system. The conflict between these goals (if there is one) may also constrain the purely stylistic approach of panels and the Appellate Body. Two other provisions of the DSU also seem relevant to questions of style. Article 7.1 provides that the standard terms of reference of a panel are as follows: To examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the parties to the dispute), the matter referred to the DSB by (name of party) in document… and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s).

The phrases I have italicized delineate the panel’s jurisdiction as being limited to the matter referred to—that is, the factual basis of the dispute. This is referred to as the “measure(s) at issue” in other provisions, such as Article 6.2 of the DSU. Moreover, it must examine that matter in the light of the provisions cited by the parties. Finally, Article 17.6 of the DSU provides that “an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel”. Thus, the Appellate Body may not, with one exception,26 review factual findings by a panel. It is also worth noting that in defining the scope of an appeal, the DSU does not again expressly refer to the “matter referred to the DSB”—that is, the subject matter of the dispute. However, it would seem clear that this limitation on the scope of the dispute would carry forward from the original referral of the matter to the panel. As noted, each of these provisions has been cited in debate as to the scope of the interpretative task of panels and the Appellate Body. These more substantive questions are not the subject matter of this chapter. I refer to them to provide background 26 Understanding

on Rules and Procedures Governing the Settlement of Disputes art. 11, 15 Apr 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869, U.N.T.S. 401 [DSU] provides 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 make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. The Appellate Body hears appeals as to whether a panel’s assessment of the facts in a case was not objective and therefore not consistent with Article 11.

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for the discussion as to the style of the Appellate Body. As we shall see, they do not seem to have been interpreted as mandating a particular stylistic approach, although they may have had some influence on the style. Let us turn next to descriptions by its members themselves of how the Appellate Body has approached questions of style. Claus-Dieter Ehlermann, who served from 1995 to 2001, wrote a comprehensive account of his time on the Appellate Body that touched on issues of style as well as substance. Mr. Ehlermann stated that the Appellate Body has to proceed “with extraordinary circumspection and care” not only with respect “to the final results that the Appellate Body will reach, but also to every step that it makes on the road to these results”.27 It is therefore not surprising that the reasons set out in Appellate Body reports “avoid sweeping statements, and are closely linked to the particular facts and circumstances of the case to be decided”.28 Mr. Ehlermann also took the view that the Appellate Body needed to avoid overexplaining its decisions. He continued as follows: The same kind of considerations apply, in my view, to the suggestion that the Appellate Body should explain in greater detail how and why it reached a certain solution, in discussing more openly the arguments that plead for and against the result. I recognize that there are courts that follow a more analytical approach in motivating their decisions. However, there are also highly regarded courts of last instance that give fewer reasons for their decisions. The European Court of Justice is but one of them. Compared with these latter jurisdictions, the Appellate Body is surprisingly meticulous and transparent. Going further would entail, in my view, the same risk as the one described earlier. The Appellate Body might make statements that are appropriate in the case in which they are made, but not in the context of another case. In other words, the reasoning might contain obiter dicta, which risks being too broad and being misunderstood, so that it may have to be corrected in the future. The actual “style of motivation” is thus a compromise that I consider to be absolutely justified.29

Mr. Ehlermann was writing in 2002. It is not clear that, 17 years later, all would agree with his view that the reasons set out in Appellate Body reports “avoid sweeping statements, and are closely linked to the particular facts and circumstances of the case to be decided. The primary interpretative tool of the Appellate Body has been Article 31 of the VCLT, which provides that “[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. The reliance on the ordinary meaning of the treaty terms as found in dictionaries, before looking at their context and in the light of their object and purpose, is primarily an substantive, interpretative choice, the merits of which are beyond the scope of this chaper. In the words of A.V. Ganesan, who was a member of the Appellate Body from 2000 to 2008:

27 Ehlermann 28 Id. 29 Id.

(2002, p. 638).

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It is true that the Appellate Body has chosen to adopt a highly textual approach from the very beginning of its work, and that it has attached far greater importance to what it considers to be the ordinary meaning of the words than to other factors like context, object and purpose, subsequent practice and preparatory work.30

Nevertheless, from the perspective of style, this raises the question of whether such reliance on the dictionary pushes panels and the Appellate Body towards a more formalistic style. David Unterhalter, who was a Member of the Appellate Body from 2006 to 2013, wrote as follows: [The Appellate Body] has engaged upon its interpretation of the covered agreements with scrupulous (even ritualistic) observance of the Vienna Convention on the Law of Treaties. This has sometimes resulted in interpretations that progress by way of a somewhat rigid formalism, and a primitive (if touching) belief that dictionary entries carry the truth as to the meaning of text.31

Similarly, another former Appellate Body member, Georges Abi-Saab, who served from 2000 to 2008, also referred to the reliance on the dictionary as leading to what might be described as a formalistic style: The judicial policy of the Appellate Body on interpretation appears, at first glance, as belonging to the strict constructionist school that interprets texts literally and narrowly. Indeed, there is a great emphasis on words, even individual words, greater than in any other international forum, which verges on obsession (recalling to mind the description coined by Professor René-Jean Dupuy of “obsédé textuel”). This is reflected by the abundant references to dictionaries. Indeed, the Shorter Oxford Dictionary is perhaps the most quoted title in the Appellate Body reports, in any case, more than any covered agreement.32

The choice of approach affects the written style. According to Professor Bill Davey, a former Director of the Legal Affairs Division of the WTO responsible for assisting panels in dispute settlement proceedings, “[t]he Appellate Body’s stress on that approach [VCLT] and its extensive reliance on dictionaries had a clear impact on how panel reports were drafted”.33 Thus, the reliance on dictionaries leads, in Mr. Unterhalter’s words, leads to a certain formalism. Under Posner’s categorization, this would fall under the “pure” style. It seems to contribute to lengthy and not always easy to read reports. Moreover, this formalism seems to accumulate as panels and the Appellate Body reach again for the dictionary to parse further the statements and dictionary definitions used in prior cases. Over time, it may lead to interpretation by thesaurus, as much as by dictionary. 30 Ganesan

(2015, p. 535). See also Ehlermann, supra note 29, at p. 638: [T]he Appellate Body has certainly attached the greatest weight to the first [term mentioned in Article 31 of the VCLT], i.e., “the ordinary meaning of the terms of the treaty.” This is easily illustrated by the frequent references in Appellate Body reports to dictionaries, in particular to the Shorter Oxford Dictionary, which, in the words of certain critical observers, has become “one of the covered agreements”. 31 Unterhalter (2015, p. 467). 32 Abi-Saab (2006, pp. 453, 461). 33 Davey (2015, pp. 353, 370).

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This is, of course, easy to criticize from the perspective of style. An American Supreme Court judge once said that dictionaries are “the last resort of the baffled judge”.34 But as Mr. Unterhalter explains, there are some grounds for this approach— “an agreement has meaning, and the Appellate Body is required to determine that meaning”.35 In Mr. Ganesan’s words: the balance in the package [of WTO agreements] should be preserved and not disturbed. Fidelity to the text of the agreements helps to service this cause better than expansive or narrow interpretations based on the wisdom and predilections of the treaty interpreter. Not only judicial activism, but also evolutionary or teleological interpretation, runs the risk of disturbing the balance of rights and obligations incorporated in the covered agreements under the single undertaking concept.36

Georges Abi-Saab has suggested that even if the Appellate Body refers primarily to the dictionary, it takes the object and purpose into account: Object and purpose is much less used or referred to, at least expressly. Of course, it does not sit well with strict constructionism. The object or finality is “telos” in Greek, and object and purpose lead to teleological interpretation, which is the opposite of strict constructionism. In practice, however, much of the reasoning in interpretation is informed by the object and purpose, either consciously or subconsciously, where they can be identified, even though they may not figure explicitly as such in the analysis.37

Reliance on dictionaries to interpret individual words and terms within a sentence also seems to lead to a reliance on multi-factor tests for whether a measure complies with a cited provision. These tests are a favourite of the Appellate Body. Whatever about the merits of this as a substantive matter of interpretation, Judge Posner also sees this as poor from a stylistic perspective at least: “Multifactor tests are notoriously difficult to apply, and the difficulties are not reduced by leaving the list of factors open-ended. More to my present point, multifactor tests invite tedious, meandering opinions”.38 Here, it is also worth noting that, in Judge Wald’s view, “[i]n articulating tests, judges wield power; depending on the specificity of the tests, they either encourage later and lower-tier judges to use their own judgment in weighing factors or expressing their own value preferences or seek to inhibit their discretion by tying them to tight objective indicators set out in the test”.39 Finally, it is worth noting that the Appellate Body has generally eschewed the kind of rhetorical or dramatic (or even quotidian) flourishes that Posner would describe as 34 Jordan v. De George, 341 U.S. 223, 234 (1951) (Jackson, J., dissenting) (in a case involving the meaning of the phrase “moral turpitude”). 35 Unterhalter, supra note 32, at p. 474. 36 Ganesan, supra note 31, at p. 536. 37 Abi-Saab, supra note 33, at p. 462. Cf. Learned Hand, Cabell v. Markham, 148 F.2d 737, 739 (2d Cir. 1945), aff’d, 326 U.S. 404 (1945) (“It is one of the surest indexes [sic] of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose systematic and imaginative discovery is the surest guide to their meaning”). 38 Posner, supra note 6, at p. 1439. 39 Wald (1995a), supra note 6, at p. 1379.

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typical of (the more questionable virtues of) the impure writing style. One frequently cited example of a flourish is the description of risk assessments on which sanitary and phytosanitary measures must be based as relating not only to “risk ascertainable in a science laboratory operating under strictly controlled conditions, but also risk in human societies as they actually exist, in other words, the actual potential for adverse effects on human health in the real world where people live and work and die”.40 As colourful writing goes, this is hardly excessive. While such flourishes can be overdone, they can contribute to accessibility and acceptability. As The Guardian said of Lord Denning, “[f]or all the professional smirks generated by Denning’s famous opening line in a judgment about an appalling motor accident (“It was bluebell time in Kent”), this accessibility of language was the rock on which his popularity and influence were built”.41 For better or worse, however, the subject matter of WTO dispute settlement proceedings may not lend themselves easily to whimsy. To conclude this section, the Appellate Body appears to have taken a fairly formalistic approach to questions of style, driven at least in part by a formal approach to the interpretative task under Article 31 of the VCLT. Moreover, this appears to have increased over time. However, at least in their public writings, (former) Appellate Body members have not discussed in any much detail how they approached questions of writing style, to the extent that that can be separated from the substantive questions relating to the interpretative process.

4 Factors Affecting the Style of the Appellate Body The previous section examined how the Appellate Body appears to have approached issues of “style”. This section discusses some of the most important factors affecting that style, such as it is.

4.1 The Appellate Body’s Nature as an International Tribunal The WTO dispute settlement system is, 25 years on, still relatively young. “The fact that international courts are relatively new bodies, without a tradition of acceptance of their authority, further contributes to the questioning of their legitimacy, as does the different nature of international judicial procedure compared to domestic procedure”.42 40 Appellate

Body Report, EC—Hormones, para 187 (emphasis added). supra note 25. Lord Denning began his decision in Hinz v. Berry [1970] 2 QB 40, with these sentences: “It happened on April 19, 1964. It was bluebell time in Kent”. 42 Romano et al. (2013, p. 17). 41 Sedley,

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This is a particularly important factor for the WTO. “One reason international courts are critiqued is that they operate in a more volatile political environment than their domestic counterparts. Domestic courts are able to establish their reputation for sound decision-making through their handling of many mundane cases. By contrast, many international courts focus primarily on high politics cases”.43 This is especially the case of the WTO system, where “mundane” trade controversies tend to be resolved bilaterally or through committees, “with the result that the WTO’s dispute settlement mechanism ends up dealing with the most difficult and contentious cases”.44 For this reason, the Appellate Body appears to have focused heavily on its own view of its status in its earlier years. As former Appellate Body member Georges Abi-Saab has explained, it was not originally expected that the Appellate Body would be called into action so often: “It seems, according to the recollections of some of the negotiators of the [DSU], that the Appellate Body was initially conceived as an exception recourse to harness the odd ‘rogue panel’,—not—as it turned out to be—as a genuinely self-standing organ, not standing idly, but functioning in continuum to review over half of all the released panel reports”.45 Nevertheless, given its mandate and, perhaps, as a prisoner of its own success as WTO Members increasingly brought their disputes to it, the Appellate Body became more legalized: Once established, institutions evolve according to their inner dynamics; international experience reveals that an entity, however ambiguous its institutional make-up, once it perceives itself as entrusted with the exercise of the judicial function, evolves according to a legal genetic code towards greater judicialization…. thus, in the manner of a self-fulfilling prophecy, the Appellate Body has, from the outset, consciously and systematically affirmed and consolidated its judicial character both in its modalities of functioning and in its processes of reasoning.46

It is possible to read in this “conscious and systematic” move towards “greater judicialization” an orientation towards a more formally legalistic approach and a more “pure” judicial style. This is also consistent, perhaps, with the more formalistic, dictionary-based approach to textual interpretation discussed above. Style apart, the ramifications of the judicialization of the Appellate Body can be seen clearly in the current impasse regarding the re-appointment of Appellate Body members, where the issues seem to relate not merely to questions of substance, but also to the extent to which WTO Members may expect the WTO dispute settlement system to look and sound more like a reflection of their own domestic systems. The Appellate Body seems to have tried to take its relative “newness” into account in how it has approached its work, although perhaps with different results over the years—moving from a shorter to a more formal style over the years. It is not clear at what point in time a tribunal becomes “established” and is no longer considered as “new” for the purposes of its credibility and legitimacy. Even if 43 Id. 44 Id. 45 Abi-Saab, 46 Id.,

supra note 33, at p. 454. at p. 456.

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the Appellate Body was almost at that point, the current crisis probably means that process must reboot to some extent, hopefully with a clearer shared understanding among Members as to what is expected from the Appellate Body.

4.2 Language Most WTO disputes are conducted in English. However, the texts of the WTO agreements are equally valid in all three official languages of the WTO (English, French, and Spanish) and disputes may be conducted in any of these languages.47 In addition, Appellate Body members, secretariat staff, parties, and their lawyers all come from a wide variety of linguistic backgrounds. Issues of language are, therefore, important, and may affect the Appellate Body in two ways. First, not all Appellate Body members are native speakers of any of the three official languages of the WTO (English, French, and Spanish) and indeed may not be comfortable drafting in any of them.48 This places limits on the ability of Appellate Body members to do their own drafting that would not be found in a domestic court. Luiz Olavo Baptista, a Brazilian who was an Appellate Body member from 2001 to 2009, has written that the use of English as a common language in the Appellate Body was “never an obstacle in discussions or obtaining consensus”.49 Mr. Baptista wrote that in drafting and interpreting the agreements, “I imagine the aim was to use ‘international legal English’ free from all regional characteristics, so that there was a global understanding an acceptance of the meaning…. I had the feeling that we were building a new dialect or language using some words from the English language in an internationalized way”.50 The difficulty of doing this clearly and convincingly, while remaining true to the meaning of the WTO agreements, should not be underestimated. It seems inevitable that Appellate Body members that are not sufficiently versed in drafting legal English must necessarily rely more on the assistance of the WTO secretariat (here playing a role equivalent to law clerks in countries such as Canada and the United States) than would judges in a domestic legal system not facing such constraints. Much as Posner, among others, might decry the practice of clerks drafting opinions, it may be a more necessary evil in multinational, multilingual tribunals such as the Appellate Body.51

47 For

a discussion of how interpretation is affected by language issues, see Condon (2010). practice, almost all Appellate Body proceedings have taken place in English and the reports are initially drafted in English. 49 Baptista (2015, pp. 559, 567). 50 Id., at p. 568. 51 See Posner, supra note 6, pp. 1425, 1432 (Posner considers that decisions drafted by law clerks come to reflect the “pure” style). 48 In

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The second important aspect of the language issue is that panel and Appellate Body reports should be written so that they can easily be translated into other nonofficial languages in a manner that will be readily understandable. Much of the immediate audience for WTO panel and Appellate Body reports consists of Genevabased delegates serving in their countries’ Missions to the WTO. Very frequently, these delegates are not native speakers of any of the three official languages mentioned above. Nevertheless, when a report is issued, they must be able to read it quickly and prepare summaries or policy recommendations to their authorities in capital. This is not an easy task. In some cases, the reports will take months to be translated into the languages of WTO Members such as, for example, Thailand or Viet Nam, which are frequent participants in WTO dispute settlement, but have languages and legal traditions that are very different to those in Western countries. This should affect the style of the reports, perhaps more than it currently does.

4.3 Common Law or Civil Law Styles I have the good fortune of working with excellent colleagues from a variety of linguistic and legal backgrounds. Whenever issues of style arise, one of the first questions we ask ourselves is whether our different approaches come from differences between the common law and civil law traditions. Similarly, Appellate Body members and WTO panellists come from a variety of different legal cultures and backgrounds. This raises, of course, the question of whether the style of the WTO adjudicative bodies is, or should be, more reflective of either the common law or the civil law tradition. The simple, and perhaps ultimate, answer to this question is, of course, that the task of applying the VCLT to the WTO covered agreements is neither one nor the other and therefore should not be hostage to either a common law or civil law tradition. But that is not the whole story. As previously noted, most WTO disputes are conducted in English. In addition, the United States is among the most frequent disputants52 and many of the private law firms most active in the field are American. It is, therefore, frequently suggested that the American legal tradition or style has a dominant influence in the WTO. These discussions can lead inexorably into caricature or cliché, where, for example, the American judicial opinion is “disorganized and indisciplined judicial caprice, whose authors follow no law except what they themselves create”53 and France is “the country of formalism, where the judge is charged with applying the code 52 In addition to the United States, other WTO Members with a common law legal tradition such as Australia, Canada, India, and New Zealand are also frequent disputants (as EU member States, neither the United Kingdom (for the time being) nor the Republic of Ireland participates separately in WTO disputes). Thus, “[m]uch of what is generally held to bear an American legal footprint, under closer scrutiny really bears the marks of common law” (Romano 2003, pp. 89, 92). 53 Lasser (2015) (All translations are mine. The original reads: “l’opinion judiciaire américaine peut facilement ressembler à une déclaration désorganisée et indisciplinée de caprice judiciaire, dont les auteurs ne suivent aucune loi, sauf celle de leur propre fabrication”).

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mechanically and the form of the decision seems to deny that the judge has any normative or interpretative role”.54 As discussed below, these caricatures—and they are caricatures—do not seem to reflect either the actual differences between common and civil law, either in national courts or in hybrids like the WTO. In the light of the current U.S. complaints about how the Appellate Body does its work, it may seem ironic to discuss whether the system suffers from an excess of Americanization.55 In any event, as one (European but transatlantic) observer has noted, while [O]bservers and practitioners tend to attribute to America’s ill influence the growing tendency to jump at courts, over-litigate, and procedurally tussle,… this kind of reasoning not only tends to exaggerate certain censurable features of the American legal culture, but it also deceivingly pictures the rest of the world as a merry circle of naïve tenderfeet, an epithet that can hardly characterize Europeans, or better, continental Europeans.56

In addition, while there are some differences in how the United States and the European Union litigate WTO disputes, vigour does not appear to be one of them. In reviewing differences between common law and civil law approaches, it is perhaps not surprising to see some parallels with the discussions of the pure and impure styles. Thus: The “style” of judicial decisions consists, on the one hand, of the usage of language, and on the other hand, of the use of sources or references that can support the reasoning of the judge. The first element allows us to see a big difference between common law judges—who issue individual opinions and seem rarely or never to use technical language—and civil law judges who maintain an almost total reserve and seem to confront their readers with an incomprehensible jargon.57

In these authors’ words, viewing style as a question of language and use of sources “permits us to avoid conceptual distinctions and to focus on the nature of the problems

54 Id. (“La France, c’est le pays du formalisme et de l’exégèse, où les magistrats sont censés devoir appliquer de manière mécanique les commandements codifiés du législateur … la forme même de l’arrêt judiciaire, et surtout l’arrêt de cassation, semble nier tout pouvoir normatif, voire tout pouvoir interprétatif, au juge”). 55 Among the ironies is that the United States, with its common law tradition, is taking a narrower view of the precedential value of prior reports, while the European Union, made up mostly of civil law jurisdictions, places more importance on the role of prior reports in securing the predictability of the system. 56 Romano et al., supra note 43, at p. 92. 57 Brunet et al. (2015). Again, all translations are mine. The original reads: Le «style» des décisions judiciaires recouvre, d’une part, l’usage du langage et, d’autre part, l’usage des sources ou des références susceptibles de venir au soutien de la motivation des juges. Le premier élément permet d’observer une grande différence entre les juges de common law—qui intervient à titre individuel et semblent ne jamais ou très rarement employer un langage technique— et ceux du civil law qui restent dans une réserve quasi absolue et paraissent opposer à leurs lecteurs un jargon incompréhensible).

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facing judges regardless of the type of system in which they work”.58 Nevertheless, they see differences in style based on how judges seek to address their audiences: If the style that is adopted depends on the audience that is being addressed, common law and civil law judges do not seem to be speaking to the same audience. The former strive to give a concrete dimension to their decision, while the latter remain in such an abstraction that every concrete problem becomes part of a conceptual system.59

Certainly, there are differences in style between common and civil law systems. But it seems that these can be driven as much by internal forces than simply reflecting the differences between the systems and nothing more: It cannot be concluded, however, that the differences in style between common law and civil law is fixed in history nor even that it reflects longstanding national traits… Variety in styles can also perhaps be found within a jurisdiction which, because of its recent creation and the heterogeneity of its members, has not yet been able to establish a style of its own.60

As long as lawyers with common and civil law backgrounds work together on WTO dispute settlement—either arguing or deciding the cases—there will likely be debate as to the relevance of these different backgrounds. As discussed above, however, these differences may not be as great as they appear to be at first glance. Luiz Olavo Baptista, from a civil law background, wrote as follows: My late friend John Lockhart was the epitome of a common law judge, going from the specific to the general, only to get to what mattered after that. It amused us and we had a lot of fun when, using our own and different methods of legal analysis, we would reach the same conclusions.61

Moreover, as discussed in Sect. 4.6, these differences may be less important than questions of personality.

58 Id. (“Ainsi, prendre en compte cette double dimension du style permet de se libérer de tout conceptualisme et de saisir l’identité des problèmes qui se posent aux juges quel que soit le système dans lequel ils évoluent”). 59 Id. [S]i le style que l’on adopte dépend du destinataire à qui on s’adresse, les juges de common law et ceux de civil law semblent ne pas avoir le même interlocuteur. Les premiers s’efforcent de donner une dimension concrète à leur décision, tandis que les seconds demeurent dans une abstraction telle que chaque problème concret semble s’inscrire dans un système conceptuel. 60 Id., p. 469. Il ne faudrait cependant pas croire que l’opposition de style entre common law et civil law est figée dans l’histoire ne même qu’elle correspond à des traits nationaux inscrits dans la longue durée… La variété des styles peut elle-même se retrouver au sein d’une juridiction qui, par sa création récente et l’hétérogénéité de ses membres, n’est pas encore parvenue à fixer un style propre. 61 Baptista, supra note 50, at p. 562. John Lockhart, from Australia, was one of the few Appellate Body members with prior judicial experience (Florentino “Toy” Feliciano (1995–2001), from the Philippines, was another). He served from 2001 to 2006, sadly dying before the completion of his second term.

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4.4 Collegiality The Appellate Body issues a single report in each case. Article 17.11 of the DSU provides that “opinions expressed in the Appellate Body report by individuals serving on the Appellate Body shall be anonymous”. This requirement of anonymity may discourage individuality of written style in the reports. In addition, the Appellate Body’s Working Procedures for Appellate Review place great emphasis on the need for collegiality and thus, where possible, avoiding dissents. Paragraph 4(3) of the Working Procedures provides that “the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the appellate report for circulation to the WTO Members”. This exchange of views means that not just the three Appellate Body members sitting on each division, but all seven, have input on each case. Former Appellate Body members place great importance on this collegiality. A.V. Ganesan describes it as “the bedrock for the Appellate Body reaching consensus and uniformity in its decision-making processes. It has truly been the mechanism for the establishment of consistency, coherence, continuity and certainty in the jurisprudence of the Appellate Body”.62 In order to achieve consistency, therefore, the “members of the Appellate Body were therefore willing to eschew their individual egos and engage in a constructive exploration to try to reach possible consensus”.63 This effort at consistency necessarily impacts on the style with which the Appellate Body writes. In terms of substance, it is not necessarily a negative process. In the words of Julio Lacarte-Muró,64 an original member of the Appellate Body who served from 1995 to 2001, We discovered that if a group such as ours discussed a matter in good faith, showing tolerance and a great deal of patience, opinions that appeared irreconcilable at first began to converge as the analysis advanced. Each one of us appreciated aspects that he or she had not previously taken into account, and little by little formulas that were initially unacceptable began to come together and consensus began to take shape. In short, the more we worked together, the more we agreed.

In terms of style, however, the outcome of this collaborative process may not be so positive. As any lawyer that has worked as part of a team to draft a legal document knows, the resulting compromise dilutes individuality. As Judge Wald puts it, In an appellate court composed of strong-minded men and women of different political and personal philosophies, consensus is a formidable constraint on what an opinion writer says and how she says it. Her best lines are often left on the cutting room floor …. Opinion writing among judges of widely disparate views and temperaments is, like governing, the art of the possible.65

62 Ganesan,

supra note 31, at p. 528. at p. 530. 64 Lacarte-Muró (2015, pp. 476, 479). 65 Posner, supra note 6, at p. 1377. 63 Id.,

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As a matter of style, we could regret that the process of collegiality means that the best lines in Appellate Body reports are “left on the cutting room floor”. It may be, however, that this improves, if not the literary style, at least the legal/political acceptability of the Appellate Body reports.

4.5 The Importance of Candour One of the most often repeated truisms about judicial decisions is that they must be addressed to the losing party, not the winning party. The logic of this may be stated as follows: the winning party cares only that it has won and is not particularly interested in how or why it won. The losing party, on the other hand, cares very much to know exactly why it has lost. In order to accept the decision, the losing party must feel that its arguments were fully understood and fully addressed. This truism applies, I think, in WTO dispute settlement. It is not correct that the winning party does not care how or why it won. A panel’s or the Appellate Body’s explanation of how it resolved the issue may have important ramifications for the winning party beyond the simple fact that the panel or Appellate Body has ruled in that party’s favour. But it is especially important in WTO disputes that the losing party feels that its arguments were understood and addressed, even if it disagrees with the outcome. Recall that that outcome of a dispute is to recommend that the defending Member, if its measure has been found to be WTO inconsistent, change its laws or practices to bring that measure into compliance with WTO obligations. In other words, the intended effect of a ruling is to persuade a sovereign Member that has previously been reluctant to do so to change its internal laws or practices. The system will presumably be more successful in fulfilling this role if the reports are as clear and as persuasive as possible in explaining why the changes are needed. A losing party may be reluctant to implement, or face internal pressure not to implement, if stakeholders feel that their arguments were not understood or addressed with candour. This also applies where complaining Members’ claims are rejected and a complaining Member is required to live with a market access restriction that it had challenged. For these reasons, judges “must confront the issues squarely and deal with them forthrightly. Although the [decision] need not address every case and contention, the discussion must be sufficient to demonstrate to the losing party that the essentials of its position have been fully considered”.66 This is an area in which it seems that panels and the Appellate Body sometimes fall short. Based on anecdotal evidence and experience, losing parties sometimes go away from dispute settlement proceedings not just disappointed that they lost, as is inevitable, but somewhat resentful that, in their view, their arguments were not understood and addressed on their own terms. This is particularly important in international settings, where the audience for a decision may differing expectations: 66 US

Federal Judicial Center (1991).

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But thoroughness and clarity may not themselves suffice to make a good judgment. The handing down of a judgment is a communication process, and to communicate persuasively, as we have seen, involves considering the particular qualities of the audience. If a judgment employs a conceptual framework and a mode of reasoning alien to some of the audience, it can hardly be expected that the judgment will appear convincing to those persons.67

In this context, it is important also that panels and the Appellate Body avoid falling into the trap of arguing with the parties, as if they were a party to the dispute rather than the neutral adjudicator. Thus, In addressing the main contentions of the losing side, however, an opinion should not become an argument between the judge and the lawyers, or other judges on the court, or the court below. If the losing side has raised substantial contentions, the opinion should explain why they were rejected. But it need not refute the losing party’s arguments point by point or adopt a contentious or adversarial tone.68

Reading panel and Appellate Body reports, the style sometimes appears to be one of arguing with the arguments of the parties rather than accepting them and dealing with them forthrightly. This may be partly the fault of the parties themselves, to the extent that the lawyers assisting panels and the Appellate Body are influenced by the (frequently excessively) adversarial tone of written submissions by parties. Nevertheless, it would seem important for panels and the Appellate Body to strive to avoid an argumentative tone in favour of something more candid and forthright.69,70

4.6 Personality As with any international tribunal, the heterogeneity of its members is an important feature of the Appellate Body. This is required under Article 17.3 of the DSU, which provides that the membership of the Appellate Body “shall be broadly representative of membership in the WTO”. The credibility of the WTO dispute settlement system is enhanced when WTO Members from different geographical regions and levels of development feel that the composition of the Appellate Body reflects the WTO Membership as a whole. Speaking of the original seven Appellate Body members. Claus-Dieter Ehlermann wrote as follows: Our professional backgrounds and experiences differed widely. Taken together, the group was a cocktail with ingredients from all branches of government (the legislative, the executive and the judicial branches), international organizations (regional and world-wide), academia, private law practice, and private arbitration. Some of us—like Julio Lacarte, who incarnates 67 Prott

(1970, p. 86). at pp. 18–19. 69 This applies also to how higher tribunals treat lower tribunals: “An appellate opinion need not attack a trial court’s wisdom, judgment, or even its attitude in order to reverse its decision. And it should avoid unnecessary criticism, such as for having failed to consider authority or resting on improper motives”. Id., at p. 19. 70 For a more detailed discussion of candour in judicial decisions, see Fallon (2017). 68 Id.,

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the history of GATT and the WTO—were intimately familiar with the covered agreements and the past. Others, like myself, had hardly any earlier GATT experience. However, the wealth of widely different professional backgrounds, experiences and sensitivities proved immediately to be extremely useful and has been—in my view—one of the strengths of the Appellate Body since its very first activities.71

While it is a virtue in this context, the heterogeneity of an international tribunal distinguishes it from domestic tribunals. Domestic judges can express their personal styles under the umbrella of a shared national legal tradition. Adjudicators in international tribunals, in contrast, must try to adopt their personal styles to the joint effort to forge a “house” style out of the heterogeneous personalities on the tribunal. An important issue in this context is how judges approach the issue of obiter dicta—how much to write, or when to stop.72 Here again, the discussion is perhaps more one of substance rather than style. This is an important issue in the current debate on the Appellate Body. But even viewed as a question of style, there is no clear answer as to the best approach, as “[o]ne judge’s dicta may be another judge’s coherent rationale”.73 Nevertheless, personality is probably what ultimately drives the writing style of particular judges. In Judge Wald’s words, Judges, like other writers, never succeed altogether in hiding their own personalities behind the black robes. Tightly contained, retentive personalities write abbreviated “facts and law” opinions almost daring the reader to go behind the formal facade; expansive personalities are all too eager to share their thought processes. Like Hemingway, other judges write to the bone, abhorring descriptive adjectives; still others delight in injecting exotic language in their opinions, calculated to send readers, including other judges, scurrying to the dictionary.74

If these differences are found even within Judge Wald’s domestic tradition, they will also be found to at least the same degree in an international tribunal like the Appellate Body. In other words, issues of personal style may be more important than one’s legal background. As noted, collegiality and anonymity make it harder to discern individual influences in Appellate Body reports, but nevertheless trying to do so is a popular pastime. We can, however, ultimately only guess as to which Appellate Body member(s) is/are affecting style.

5 Conclusion As legal writers, our aspirations are perhaps not as lofty as those of poets such as Yeats, who “cried, ‘Before I am old/I shall have written him one/Poem maybe as cold/And passionate as the dawn’”.75 But whatever its literary merit or ambition, 71 Ehlermann

(2003, p. 475). a discussion of the use of obiter dicta in WTO dispute settlement, see Gao (2018). 73 Wald (1995a), supra note 6, at p. 1410. 74 Id., at p. 1415. 75 Yeats (1917). 72 For

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legal drafting is a lifelong learning experience. We constantly learn from others, as we write for different legal purposes, different tribunals, and different audiences. Not all audiences want to read something “as cold and passionate as the dawn”, even if any ability one had to write such a thing had survived law school. Styles, and the requirements of style, change over time, often imperceptibly. New style manuals, and new editions of old style manuals, compete for attention. For example, Latinisms, long a mainstay of lawyers, are currently out of fashion. In one respect, this is a pity, as my favourite Latinism sums up the discussion of style perfectly—de gustibus non est disputandum, or there is no accounting for taste. With style, beauty is in the eye of the beholder, which is the audience for whom we write. All of this means that it is difficult to identify a particular “style” in a tribunal such as the Appellate Body and, perhaps, simply hubristic to try to criticize it. As we have seen, the style of the Appellate Body appears, over time, to have tended towards the formalistic, driven by factors such as the textualist approach of the VCLT, language, collegiality, and differences in legal tradition. Ultimately, however, the style of a tribunal like the Appellate Body may depend mostly on the individual preferences and predilections of its member, rather than on broader issues. In Judge Wald’s words, “[w]e write what we are, and perhaps, more than others, judges are what they write”.76 Judge Posner puts it somewhat more cynically: “All that a choice of style infallibly communicates is what the judge thinks an admirable character for a judge to have”.77

References Abi-Saab G (2006) The Appellate Body and treaty interpretation. In: Sacerdoti G et al (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge, pp 453–464 Baptista LO (2015) A country boy goes to Geneva. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, pp 559–569 Brunet P, Halperin JL, Nollez-Goldbach R (2015) «Les Styles Judiciares»: Diversité des Approches, Nécessite des Évolutions. Droit et société N 91:465–471 Condon BJ (2010) Lost in translation: plurilingual interpretation of WTO law. J Int Dispute Settl 1(1):191–216 Davey WJ (2015) The first years of WTO Dispute settlement: dealing with controversy and building confidence. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, pp 353–373 Ehlermann CD (2002) Six years on the bench of the “World Trade Court”: some personal experiences as a member of the Appellate Body of the World Trade Organization. J World Trade 36:605–639 Ehlermann CD (2003) Experiences from the WTO Appellate Body. Texas Int Law J 38:469–488 Fallon RH Jr (2017) A theory of Judicial Candor. Columbia Law Rev 117:2265–2318 Ganesan AV (2015) The Appellate Body in its formative years. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, pp 517–546 76 Wald

(1995a), supra note 6, at p. 1415. supra note 6, at p. 1436.

77 Posner,

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Gao HS (2018) Dictum on Dicta: Obiter Dicta in WTO Disputes. World Trade Review 17:509–533 Lacarte-Muró J (2015) Launching the Appellate Body. In: Sacerdoti G et al (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge, pp 476–481 Lasser M (2015) Le style judiciaire français en question: une analyse réaliste des effets de la jurisprudence européenne sur «le procès équitable». Droit et société N 91:473–489 Orwell G (2002) Politics and the English language. In: Knopf AA (ed) Essays, pp 954–967 Pauwelyn J (2016) The WTO 20 years on: ‘Global Governance by Judiciary’ or, rather, memberdriven settlement of (some) trade disputes between (some) WTO members. Eur J Int Law 27(4):1119–1126 Posner RA (1995) Judges’ writing styles (and do they matter?). Univ Chic Law Rev 62:1421–1449 Prott LV (1970) The style of judgment in the international court of justice, vol 5. Australian Year Book of International Law, pp 75–90 Romano CPR (2003) The Americanization of international litigation. Ohio State J Disput Resolut 19:89–119 Romano CPR, Alter KJ and Shany Y (2013) Mapping international adjudicative bodies, the issues and players. In: The Oxford handbook of international adjudication. Oxford, pp 3–26 Sedley S (1999) Lord denning: a benchmark of British justice. The Guardian. https://www. theguardian.com/news/1999/mar/06/guardianobituaries. Accessed 16 June 2019 Unterhalter D (2015) The authority of an institution: the Appellate Body under review. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, pp 466–475 US Federal Judicial Center (1991) Judicial writing manual, p 16. https://www.fjc.gov/sites/default/ files/2012/JudiWrit.pdf. Accessed 18 June 2019 Wald PM (1995a) The rhetoric of results and the results of rhetoric: judicial writings. Univ Chic Law Rev 62:1371–1419 Wald PM (1995b) A reply to Judge Posner. Univ Chic Law Rev 62:1451–1454 Weisberg RH (2018) Cardozo’s “Law and Literature”: a guide to his judicial writing style. Touro Law Rev 34:349–359 Yeats WB (1917) The fisherman. In: The wild swans at coole

Niall Meagher has been the Executive Director of the ACWL since July 2012. In this capacity, he manages the day-to-day operations of the ACWL and represents the ACWL externally. Mr. Meagher also serves ex officio on the ACWL’s Management Board. Before becoming Executive Director, Mr. Meagher had been Senior Counsel at the ACWL since September 2004. In this capacity, he assists ACWL Members and LDCs in over 50 WTO dispute settlement proceedings before WTO panels, the Appellate Body, and arbitrators, and prepared numerous legal opinions on issues of WTO law. He is a frequent writer and speaker on issues of trade law. Prior to joining the ACWL, Mr. Meagher was a partner in the international trade and dispute resolution practices of major international law firms in Washington, DC. He represented both governments and interested private parties in WTO dispute settlement proceedings, international investment disputes, and in domestic customs and trade remedy proceedings before national regulatory authorities and in the US Federal court system. He holds a Bachelor of Laws (LL.B.) from Trinity College, Dublin, and a Master of Laws (LL.M.) from the Law School of the University of Chicago.

Chapter 10

Interpretative Authority of the Appellate Body: Replies to the Criticism by the United States Yuka Fukunaga

Abstract The United States has been blocking consensus of the Members of the World Trade Organization on the appointment and reappointment of Appellate Body members by raising several concerns with the practice of the Appellate Body. At several recent meetings of the Dispute Settlement Body, the United States has outlined in detail its specific concerns, one of which pertains to the interpretative authority of the Appellate Body. More specifically, the United States criticizes the Appellate Body for treating its previous interpretations as “binding and controlling” and for insisting that they must serve as precedent “absent cogent reasons.” This chapter analyzes the criticism and points out seven specific errors in it. It also argues that the United States wrongly or deliberately alters what the Appellate Body in fact stated in the past decisions with a view to discrediting the Appellate Body. Finally, it warns that the Appellate Body impasse would not be broken, as long as the United States maintains its erroneous views. Keywords Appellate Body · Exclusive authority to adopt authoritative interpretations · Precedent · Vienna Convention on the Law of Treaties (VCLT)

1 Introduction The United States has been blocking consensus of the Members of the World Trade Organization (hereinafter WTO) on the appointment and reappointment of Appellate Body members by raising several concerns with the practice of the Appellate Body. At several recent meetings of the Dispute Settlement Body (hereinafter DSB), the United States has outlined in detail its specific concerns as follows: (1) the Appellate Body has exceeded its authority by deeming an individual whose term as an Appellate

This research is supported by JSPS KAKENHI grant number 18K01284. Y. Fukunaga (B) Waseda University, Tokyo, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_10

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Body member has expired to be a member1 ; (2) the Appellate Body has repeatedly issued its reports beyond the 90-day deadline mandated by the Dispute Settlement Understanding (hereinafter DSU)2 ; (3) the Appellate Body has exceeded its authority by consistently engaging in review of panel fact-finding, including the meaning of a Member’s municipal law3 ; (4) the Appellate Body has been issuing advisory opinions by making findings that are not necessary to resolve a dispute4 ; (5) the Appellate Body has been misguidedly insisting that its reports must serve as precedent “absent cogent reasons”.5 This chapter focuses on the fifth concern, which pertains to the interpretative authority of the Appellate Body. The United States elaborated on this concern at a DSB meeting in December 2018, criticizing the Appellate Body for treating its previous interpretations as “binding and controlling.” This chapter analyzes the statements of the United States at the meeting and points out seven specific errors in them. It argues that the United States wrongly or deliberately alters what the Appellate Body in fact stated in the past decisions with a view to discrediting the Appellate Body. It concludes by giving prospects for future developments.

2 Seven Errors in the Criticisms by the United States of the Appellate Body’s Interpretative Approach The statements of the United States regarding the interpretative authority of the Appellate Body has seven errors. First, the United States wrongly considers that the Appellate Body has undermined the exclusive authority of the WTO Members to adopt authoritative interpretations. Second, the analogy that the United States seeks to draw between the Appellate Body’s interpretative approach and a common law system is misguided. Third, the United States does not properly understand “customary rules of interpretation of public international law” under Article 3.2 of 1 See,

e.g., Statements by the United States at the Meeting of the WTO Dispute Settlement Body (31 Aug 2017). https://geva.usmission.gov/wp-content/upload/sites/290/Aug31.DSB.Stmt. as-delivered.fin.public.pdf; Statements by the United States at the Meeting of the WTO Dispute Settlement Body (28 Feb 2018). https://geneva.usmission.gov/wp-content/uploads/sites/290/Feb28. DSB_.Stmt_.as-delivered.fin_.public-1.pdf. 2 Statements by the United States at the Meeting of the WTO Dispute Settlement Body (22 June 2018). https://geva.usmission.gov/wp-content/upload/sites/290/Jun22.DSB.Stmt.as-delivered.fin. public.pdf. 3 Statements by the United States at the Meeting of the WTO Dispute Settlement Body (27 Aug 2018). https://geva.usmission.gov/wp-content/upload/sites/290/Aug27.DSB.Stmt.as-delivered.fin. public.pdf. 4 Statements by the United States at the Meeting of the WTO Dispute Settlement Body (29 Oct 2018). https://geneva.usmission.gov/wp-content/uploads/sites/290/Oct29.DSB.Stmt_.asdelivered.fin_.rev_.public.pdf. 5 Statements by the United States at the Meeting of the WTO Dispute Settlement Body (18 Dec 2018). https://geva.usmission.gov/wp-content/upload/sites/290/Dec18.DSB.Stmt.as-deliv.fin. public.pdf (hereinafter US Statement on Precedential Value).

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the DSU. Fourth, unlike the allegations of the United States, the Appellate Body did not depart from its previous interpretative approach. Fifth, the concern of the United States that the Appellate Body’s interpretative approach prevents a panel from making an objective assessment is unfounded. Sixth, the United States ignores the hierarchical structure in the WTO dispute settlement system, which is clearly contemplated in the DSU. Seventh, the views of the United States on the Appellate Body are not supported by other WTO Members. Each of the errors is analyzed in detail in the next section.

2.1 First Error: The Exclusive Authority of WTO Members to Adopt Authoritative Interpretations Article IX:2 of the Marrakesh Agreement Establishing the World Trade Organization (hereinafter Marrakesh Agreement) provides that the “[t]he Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of” the WTO Agreement. Article 3.9 of the DSU ensures that panel and Appellate Body findings do not undermine “the rights of Members to seek authoritative interpretation” pursuant to Article IX:2 of the Marrakesh Agreement. In other words, “authoritative interpretations” can be adopted only by the Ministerial Conference and the General Council and not by panels or the Appellate Body. The United States criticizes the Appellate Body for adopting de facto “authoritative interpretations” without the process stipulated in the DSU,6 without the authority under the DSU,7 contrary to the negotiating history of the DSU,8 and thereby undermining the exclusive authority of the WTO Members to adopt authoritative interpretations. The United States further clarifies its views by stating that “[t]o say that an Appellate Body interpretation in one dispute is precedent or controlling for later disputes would effectively convert that interpretation into an authoritative interpretation of the covered agreement” (emphasis added).9 The United States is not wrong to the extent that it underlines that the right to adopt authoritative interpretations of the WTO Agreement is exclusively reserved to the Ministerial Conference and the General Council composed of the WTO Members, and that such authority cannot be accorded to the Appellate Body by inference from the DSU.10 However, the statements of the United States are not accurate in relation to the following three points.

6 Id.

at paras 30–32. at para 34. 8 Id. at paras 40–43. 9 Id. at para 28. 10 Id. at paras 29, 64–65. 7 Id.

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First, the Appellate Body has never stated that its interpretations are “controlling” or binding on panels. It simply states that its interpretations are expected to be followed by panels.11 There is a clear difference between something “controlling” or binding and something that is merely expected to be followed. On the one hand, authoritative interpretations adopted by the Ministerial Conference pursuant to Article IX:2 of the Marrakesh Agreement are considered binding on panels and the Appellate Body. While the term “authoritative” cannot be lightly equated to “binding,” panels and the Appellate Body are considered obligated to follow the authoritative interpretations in light of Article IV:1 of the Marrakesh Agreement, which provides that “[t]he Ministerial Conference shall have the authority to take decisions on all matters under any of the Multilateral Trade Agreements.” Similarly, authoritative interpretations adopted by the General Conference pursuant to Article IX:2 of the Marrakesh Agreement can also be considered binding or at least controlling on panels and the Appellate Body, especially when such interpretations are adopted by consensus. Considering that the purpose of treaty interpretation under Article 31 of the Vienna Convention on the Law of Treaties (“VCLT”) is to ascertain the common intentions of the parties to a treaty,12 an interpretation adopted by consensus at the General Council should be controlling in determining the meaning of a relevant WTO provision. On the other hand, there is no basis to consider the Appellate Body’s interpretations controlling or binding, and the Appellate Body has never treated them as such. The Appellate Body has merely stated that its interpretations are expected to be followed. Second, the United States willfully blurs a critical distinction between “precedent” and “controlling” by using the phrase “precedent or controlling.” The term “precedent” does not necessarily signify something that must be followed, and the value of precedent differs depending on the jurisdiction. More specifically, precedent is controlling or binding only under the doctrine of stare decisis, which mandates tribunals to follow previous decisions.13 Evidently, the doctrine of stare decisis does not apply to the WTO dispute settlement system or any other international courts for that matter.14 The statement of the Appellate Body that its prior interpretations are expected to be followed by panels does suggest that the interpretations have some precedential value, but that does not mean that the interpretations are binding or controlling precedent as under the doctrine of stare decisis. In any event, the Appellate Body has wisely avoided using the term “precedent” in its past decisions. Third, the Appellate Body’ finding on the value of its prior interpretations only concerns panels. In other words, the Appellate Body does not state that the WTO Members are expected to follow its interpretations. As the United States rightly points 11 Appellate Body Report, United States—Sunset Reviews of Anti-Dumping Measures on Oil Country

Tubular Goods from Argentina, para 188, WT/DS268/AB/R (29 Nov 2004) (hereinafter US—OCTG Sunset Reviews). 12 Appellate Body Report, European Communities—Customs Classification of Certain Computer Equipment, para 84, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R (5 June 1998). 13 Cf. London Tramways Company v London County Council (1898) AC 375 (UK). 14 Cf. Statute of the International Court of Justice, art. 59, 1945 I.C.J. Acts & Docs. 21, https:// treaties.un.org/doc/source/docs/charter-all-lang.pdf#page=23.

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out, while Members may choose to take into account prior Appellate Body interpretations when adopting or modifying their domestic law to implement the WTO Agreement, they are entitled not to do so if they consider the interpretations to be unpersuasive.15 The Appellate Body has never stated that WTO Members are bound by or expected to follow its prior interpretations.16 In the meantime, authoritative interpretations adopted pursuant to Article IX:2 of the Marrakesh Agreement have a very different impact from the Appellate Body’s interpretations because they are binding not only on panels and the Appellate Body but also on the WTO Members.

2.2 Second Error: Analogy to a Common Law System The United States criticizes the Appellate Body for having “sought to change the nature of WTO dispute settlement reports from ones that assist in resolving a dispute, and may be considered for persuasive value in the future, to ones that carry precedential weight, as if WTO Members had agreed in the DSU to a common law-like system of precedent”.17 Here again, the United States blurs a critical distinction between what must be followed by panels and what is expected to be followed by panels. The Appellate Body has never stated that a panel must follow prior Appellate Body interpretations. Moreover, attaching some precedential value to a prior interpretation does not mean that the interpretation is considered as a binding precedent as it would under a common law system. A typical feature of common law countries is the doctrine of stare decisis, under which a precedent is binding18 and, in particular, a precedent of the highest court must be followed by lower courts “no matter how misguided the judges of [the lower] courts may think it to be”.19 That said, how binding or controlling a precedent may vary depending on the jurisdiction and the time even within common law countries, and a prior interpretation can have some precedential value in civil law countries as well.20 It is overly simplistic and wrong to state that the Appellate Body has turned the WTO dispute settlement system into a common law-like system by merely attaching some precedential value to an Appellate Body interpretation.

15 US

Statement on Precedential Value, supra note 5, at paras 88–89. to say, final findings adopted by the DSB are binding on the disputing parties. 17 US Statement on Precedential Value, supra note 5, at para 10. 18 Siems (2018, pp. 67–68). 19 Hutto v. Davis, 454 U.S. 370, 375 (1982). 20 See, e.g., Lundmark (2012, pp. 362–377). 16 Needless

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2.3 Third Error: Customary Rules of Interpretation of Public International Law Article 3.2 of the DSU provides that the WTO dispute settlement system serves “to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.” The Appellate Body considers that the “customary rules of interpretation of public international law” are reflected in the VCLT, in particular Articles 31 and 32.21 In US—Stainless Steel, the Appellate Body further pronounced that interpretations in adopted panel and Appellate Body have become “part and parcel of the acquis of the WTO dispute settlement system,” and that “[e]nsuring ‘security and predictability’ in the dispute settlement system, as contemplated by Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case” (emphasis added).22 The United States first takes issue with the Appellate Body’s pronouncement that panel and Appellate Body reports have “become part and parcel of the acquis of the WTO dispute settlement system,” by pointing out the ambiguity of the term “acquis”.23 The United States further criticizes the Appellate Body on the grounds that there is no basis in the DSU to justify the application of the so-called “cogent reasons” approach, under which panels are expected to follow Appellate Body interpretations absent cogent reasons.24 It also argues that customary rules of interpretation of public international law “do not assign to interpretations given as part of dispute settlement a precedential value for purposes of discerning the meaning of agreement text,”25 and that, even if they do, they could not override the text of the DSU, which does not attach precedential value to prior panel and Appellate Body interpretations.26 The criticism by the United States is justifiable in that the Appellate Body used the term “acquis” without defining it. It is far from clear what status “acquis” has in customary rules of interpretation of public international law. The Appellate Body has wisely chosen not to use the term over the last several years.27

21 See,

e.g., Appellate Body Report, Japan—Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (4 Oct 1996) (hereinafter Japan—Alcoholic Beverages II). 22 Appellate Body Report, United States—Final Anti-Dumping Measures on Stainless Steel from Mexico, para 160, WT/DS344/AB/R (30 Apr 2008) (hereinafter US—Stainless Steel). 23 Id. at para 73. 24 US Statement on Precedential Value, supra note 5, at paras 64, 68. 25 Id. at para 13. 26 Id. at para 95. 27 The Appellate Body cited its pronouncement regarding “acquis” only in the following reports: Appellate Body Report, United States—Continued Existence and Application of Zeroing Methodology, para 362, WT/DS350/R (4 Feb 2009); Appellate Body Report (Procedural Ruling) (10 Aug 2010), European Communities and Certain Member States—Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R, paras 13, 24.

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That said, it is not accurate to state that prior interpretations by the Appellate Body have no value under customary rules of interpretation of public international law or the DSU. It is true that the VCLT does not explicitly acknowledge the precedential value of prior interpretations by international courts and tribunals. However, this does not mean that prior interpretations by international courts and tribunals have no relevance in the interpretation of treaties. In this regard, it should be recalled that nothing in the VCLT suggests that the rules of interpretation explicitly stipulated in the VCLT are exhaustive.28 In other words, prior interpretations may be accorded precedential value under customary rules of interpretation that are not codified in the VCLT. In practice, international courts and tribunals regularly rely on prior interpretations in interpreting treaties regardless of whether they are explicitly authorized to do so.29 For example, while Article 38(1)(d) of the Statute of the International Court of Justice (“ICJ”) provides that the ICJ can apply “judicial decisions” only “as subsidiary means for the determination of rules of law,” the ICJ attaches more importance to prior interpretations. According to the ICJ, when a certain interpretation is sufficiently repeated in its decisions, the series of interpretations constitutes “settled jurisprudence,”30 which may not be characterized simply as “judicial decisions” under Article 38(1)(d). In addition, investment arbitral tribunals often follow prior interpretations made by other investment arbitral tribunals despite the lack of explicit provisions authorizing them to do so.31 For example, the tribunal in Churchill Mining/Planet Mining stated that it “must pay due consideration to earlier decisions of international tribunals” and that “subject to compelling contrary grounds, it has a duty to adopt solutions established in a series of consistent cases”.32 In Renta, the tribunal noted that while it “is not obliged to adopt the conclusions of other courts and tribunals,” it is “attentive to prior decisions brought to their attention” and it is “bound to do so as part of [its] basic duty to consider the Parties’ arguments”.33 The United States may criticize the Appellate Body on the grounds that the reliance of prior interpretations by other international courts and tribunals has no basis under

28 Gardiner

(2015, p. 6). is rare that an international court or tribunal is explicitly authorized to have recourse to prior interpretations. An exception to this is Article 21(2) of the Rome Statute of the International Criminal Court (“ICC”), which provides that the ICC “may apply principles and rules of law as interpreted in its previous decisions”. 30 See, e.g., United States Diplomatic and Consular Staff in Tehran, Judgement, I.C.J. Reports 1980, p. 3, para 181; CIJ arrêt (le 14 février 2002), Case Concerning the Arrest Warrant of 11 April 2000 (Dem. Rep. Congo v. Belg.), Judgement, I.C.J Reports 2002, p. 3, paras 26, 36, 40. 31 See generally, Commission (2007a, pp. 150–151). See also, Commission (2007b). 32 Churchill Mining Plc v. Republic of Indonesia, ICSID Case No. ARB/12/14 and 12/40, Decisions on Jurisdiction, para 85 (24 Feb 2014). 33 Renta 4 S.V.S.A., et al. v. The Russian Federation, SCC 024/2007, Award on Preliminary Objections, para 16 (20 Mar 2009). 29 It

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customary rules of international law and, even if there is such a basis, it is not applicable to WTO dispute settlement because nothing in the DSU accords precedential value to prior Appellate Body interpretations.34 However, this criticism ignores that the maintenance of security and stability is a fundamental requirement in most, if not all, legal systems,35 and courts play a key role in meeting the requirement by developing consistent jurisprudence. Moreover, to follow prior interpretations conforms to the fundamental principle of justice that equal cases should be treated equally.36 Considering that the requirement of security and stability and the principle of justice constitute essential parts of customary international law, to accord precedential value to prior interpretations is also an indispensable customary rule of interpretation of public international law, although it is not explicitly codified in the VCLT. Moreover, this rule of interpretation is applicable to the WTO dispute settlement system by virtue of Article 3.2, which requires the WTO Agreement to be interpreted “in accordance with customary rules of interpretation of public international law.”

2.4 Fourth Error: Departure from the Appellate Body’s Own Approach The United States points to three instances where it alleges that the Appellate Body contradicted its own approach. However, none of the instances attests to the alleged contradiction. First, the United States alleges that the Appellate Body in US—Stainless Steel contradicts its own statement in Japan—Alcoholic Beverages II. According to the United States, the Appellate Body in Japan—Alcoholic Beverages II “explicitly found that adoption of reports under the WTO did not create ‘precedent’ or assign a special status for interpretations reached in reports,”37 but “later contradicted this statement in US—Stainless Steel”38 by adopting the so-called “cogent reasons” approach. The allegation of the United States is without basis because it does not properly reflect the pronouncement of the Appellate Body in Japan—Alcoholic Beverages II. The question before the Appellate Body in Japan—Alcoholic Beverages II was whether the panel in the case rightly found that adopted GATT panel reports constitute “subsequent practice” under Article 31(3)(b) of the VCLT.39 In reversing the panel finding, the Appellate Body merely found that past GATT decisions do not constitute “subsequent practice” under Article 31(3)(b) of the VCLT.40 It did not deny that past GATT 34 US

Statement on Precedential Value, supra note 5, para 94. (1975, p. 474). 36 Cf. Duxbury (2008, pp. 170–78). 37 Id. at para 45. 38 Id. at para 47. 39 Japan—Alcoholic Beverages II, supra note 21, at pp. 12–13. 40 Id. at p. 13. 35 Lauterpacht

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panel interpretations, let alone prior Appellate Body interpretations, may become a “precedent” or be assigned a special status for interpretations. Quite the contrary, the Appellate Body in Japan—Alcoholic Beverages II acknowledged some precedential value to adopted panel reports, by stating that “[a]dopted panel reports … create legitimate expectations among WTO Members, and, therefore, should be taken into account,”41 while unadopted GATT panel reports “have no legal status”42 in WTO law. Second, the United States criticizes the Appellate Body for following the “cogent reasons” approach although the approach was mentioned by the Appellate Body merely as an advisory opinion or obiter dicta and therefore should be distinguished from ratio decidendi.43 The United States bases its criticism on the Appellate Body’s statement in US—Stainless Steel that, although Appellate Body reports are not binding, “subsequent panels are [not] free to disregard the legal interpretations and the ratio decidendi contained in previous Appellate Body reports that have been adopted by the DSB”.44 From this statement, the United States draws a conclusion that a panel is “free to disregard” the Appellate Body’s “cogent reasons” approach because it does not constitute a ratio decidendi.45 It should first be noted that the Appellate Body’s use of the term “ratio decidendi” is not appropriate considering that a distinction between ratio decidendi and obiter dicta has limited relevance where the doctrine of stare decisis does not apply.46 The United States should not be allowed to take advantage of the improper distinction for the purpose of ignoring a part of the Appellate Body’s reasoning. Moreover, even if the distinction is valid, the statement that ratio decidendi cannot be disregarded does not necessarily mean that obiter dicta can be disregarded. Third, the United States also criticizes the Appellate Body’s “cogent reasons” approach in US—Stainless Steel as contradicting its own decision in US—Shrimp (Article 21.5—Malaysia). By pointing out that the Appellate Body in US—Shrimp (Article 21.5—Malaysia) merely stated that a panel may “take into account” the Appellate Body’s reasoning in making “its own reasoning,”47 the United States alleges that the Appellate Body’s approach in US—Stainless Steel contradicted this finding, by treating previous Appellate Body reasoning as a “substitute” for a panel’s own objective assessment.48 One of the problems with this allegation is that the issue before the Appellate Body in US—Shrimp (Article 21.5—Malaysia) was not whether a panel can rely on a prior Appellate Body interpretation in another case, but whether

41 Id.

at p. 14. at pp. 14–15. 43 US Statement on Precedential Value, supra note 5, at paras 55–56. 44 Id. at para 56. 45 Id. at para 58. 46 Siems, supra note 18, at pp. 67–68. 47 US Statement on Precedential Value, supra note 5, at para 80. 48 Id. at para 58. 42 Id.

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the compliance panel under Article 21.5 of the DSU can and should rely on the Appellate Body’s reasoning in the original proceedings.49 The Appellate Body concluded that “[t]he Panel had, necessarily, to consider [the Appellate Body’s] views on this subject, as [the Appellate Body] had overruled certain aspects of the findings of the original panel on this issue”.50 Another more fundamental problem is that the United States wrongly submits that, under the “cogent reasons” approach, prior Appellate Body interpretations supplant panels’ objective assessment. This problem will be discussed in the next subsection.

2.5 Fifth Error: Objective Assessment by Panels Article 7.2 of the DSU provides that “[p]anels shall address the relevant provisions in any covered agreement or agreements cited by the parties to the dispute.” Article 11 of the DSU further mandates a panel to “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.” The United States argues that the Appellate Body’s “cogent reasons” approach “diminishes the value of the work of panels” by “inhibit[ing] the engagement of panels with the text of the covered agreements, contrary to a panel’s function to make an objective assessment of the applicability of and conformity with the covered agreements”.51 The United States points to several panel reports, which, in its views, “simply applied” the Appellate Body’s “cogent reasons” approach without “engag[ing] with the legal text of the DSU and WTO Agreement”.52 The United States expresses a concern that, under the “cogent reasons” approach, panels would be required to follow an Appellate Body interpretation even if it is not “correct”.53 The United States is correct as long as it submits that the Appellate Body does not have the authority “to … relieve a panel of the responsibility … to conduct an objective assessment”.54 However, its argument is not justifiable because it construes the term “objective assessment” too narrowly. If the views of the United States were correct, a panel would have to make a de novo review of every issue of the WTO Agreement from scratch regardless of the existence of prior relevant Appellate Body interpretations. For example, a panel would have to make a new determination even on now well-settled procedural issues such as burden of proof and standard of review. Such a de novo review is not only unnecessary but also improper. It has already been 49 Appellate

Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products Recourse to Article 21.5 of the DSU by Malaysia, para 107, WT/DS58/AB/RW (22 Oct 2001) (hereinafter US—Shrimp (Article 21.5—Malaysia)). 50 Id. 51 US Statement on Precedential Value, supra note 5, at paras 16, 27. 52 Id. at para 110. 53 Id. at para 113. 54 Id. at para 100.

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pointed out that customary rules of interpretation of public international law require prior interpretations to be taken into consideration in the interpretation of a treaty. When a panel examines an interpretative question on which the Appellate Body has already pronounced its interpretation, the panel is required to take account of the interpretation. In other words, an objective assessment of a panel should include a review of prior Appellate Body interpretations. In addition, the panels, criticized by the United States, did not simply accept prior Appellate Body interpretations without making an objective assessment, but did review them as a part of their own objective assessment and decided to follow them. The United States is not justified in criticizing them merely because they decided to follow, as a result of their objective assessment, the Appellate Body interpretation, which the United States considers wrong. Needless to say, the Appellate Body has never stated that panels are prevented from making an objective assessment under the “cogent reasons” approach. For example, in US—Stainless Steel, the Appellate Body expressed its concern about “the Panel’s decision to depart from well-established Appellate Body jurisprudence,” but it reversed the panel’s decision not simply because of the panel’s failure to follow an Appellate Body’s prior interpretation but rather because of “its misguided understanding of the legal provisions at issue”.55 In other words, the Appellate Body faulted the panel’s finding because the panel did not properly make an objective assessment as required by the DSU. The criticism by the United States of the panel and Appellate Body reports in US—OCTG Sunset Reviews is also unfounded. In this case, one of the issues for the panel was whether a policy instrument of the United State—Sunset Policy Bulletin (SPB)—was “a measure subject to WTO dispute settlement.” By citing the prior Appellate Body decision that treated the SPB as “a measure subject to WTO dispute settlement,”56 the panel decided to “proceed accordingly”.57 The United States appealed the panel’s approach, claiming that, among other things, the panel erroneously concluded that the SPB was a measure merely relying on the prior Appellate Body decision, without making its own objective assessment as required by Article 11 of the DSU.58 The Appellate Body rejected the appeal, by finding that “following the Appellate Body’s conclusions in earlier disputes is not only appropriate, but is what would be expected from panels, especially where the issues are the same”.59 The United States takes issue with the Appellate Body’s finding in its statements at the DSB meeting, by highlighting “a significant difference between stating that one would expect panels to reach similar conclusions where the issues are similar 55 US—Stainless

Steel, supra note 22, at para 162.

56 The Appellate Body did not make a “finding” that the SPB was a measure. Appellate Body Report,

United States—Sunset Review of Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan, paras 81–89, WT/DS244/AB/R (15 Dec 2003). 57 Panel Report, United States—Sunset Reviews of Anti-Dumping Measures on Oil Country Tubular Goods from Argentina, para 7.136, WT/DS268/R (16 July 2004). 58 US—OCTG Sunset Reviews, supra note 11, at para 185. 59 Id. at para 188.

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(i.e., conducting their own objective examination, they may reach a similar outcome), on the one hand, and saying that one would expect a panel to simply follow a prior decision without conducting an objective examination of its own, on the other”.60 However, this criticism conflates two different questions. One of the questions is concerned with the value of a prior Appellate Body interpretation of a WTO rule in future cases. Under the “cogent reasons” approach, a panel is expected to follow the interpretation absent cogent reasons in making its own objective assessment and reaching its own conclusion. The other question is concerned with the value of an application of a WTO rule to a specific issue. When a panel examines an issue, on which the Appellate Body has already interpreted and applied a relevant WTO rule to it and reached a conclusion on it, the panel is expected to follow the conclusion as a part of its objective assessment. Doing otherwise would be contrary to the hierarchical structure contemplated in the WTO dispute settlement system. The Appellate Body in US—OCTG Sunset Reviews addressed the latter question. The Appellate Body concluded that the panel was justified in fulfilling its obligation to make an objective assessment by relying on the Appellate Body’s conclusion.61

2.6 Sixth Error: Hierarchical Structure in the WTO Dispute Settlement System The United States takes issue with the Appellate Body’s pronouncement in US— Stainless Steel that “[e]nsuring ‘security and predictability’ in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case,” (emphasis added) and alleges that this pronouncement says nothing about the relevance of the “cogent reasons” approach to a different adjudicatory body. In other words, in the view of the United States, this pronouncement does not answer the question of whether a panel, an adjudicatory body, will resolve the same legal question in a subsequent case in the same way as did the Appellate Body, a different adjudicatory body. The statements of the United States cite only a part of the Appellate Body’s pronouncements and willfully disregard the following paragraph where the Appellate Body highlighted the “hierarchical structure contemplated in the DSU” and the “distinct roles” of panels and the Appellate Body.62 The Appellate Body points out that the creation of the Appellate Body in the Uruguay Round “shows that Members recognized the importance of consistency and stability in the interpretation of their

60 US

Statement on Precedential Value, supra note 5, at para 84. Sunset Reviews, supra note 11, at para 188. 62 US—Stainless Steel, supra note 22, at para 161. 61 US—OCTG

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rights and obligations under the covered agreements,” which “is essential to promote ‘security and predictability’ in the dispute settlement system, and to ensure the ‘prompt settlement’ of disputes”.63 The United States also criticizes the Appellate Body in US—Stainless Steel for stating that “the hierarchical structure [is] contemplated in the DSU,”64 and suggesting that it is “vested with authority” “to develop ‘a coherent and predictable body of jurisprudence.’”65 The United States seeks to argue that there is no hierarchy between panels and the Appellate Body by stating that “panel findings adopted by the DSB are of equal legal status as findings by the Appellate Body that are adopted by the DSB”.66 On the basis of this argument, the United States suggests that a panel may freely choose whether to take into account prior Appellate Body interpretations.67 The argument of the United States distorts the discussion by making a comparison between panel findings adopted without appeals or supported by the Appellate Body and Appellate Body findings instead of between panel findings modified or reversed by the Appellate Body and Appellate Body findings. Obviously, “panel findings” adopted by the DSB without appeals or supported by the Appellate Body are of equal legal status to “findings by the Appellate Body adopted by the DSB” in the sense that the adopted findings are binding on the disputing parties to a given dispute. This is a natural consequence of the superiority of the DSB over panels and the Appellate Body in the WTO dispute settlement system.68 However, in order to reveal the hierarchy between panels and the Appellate Body, the comparison has to be made between the legal status of a (unadopted) panel finding and that of an Appellate Body finding that modifies or reverses the panel finding. Pursuant to the DSU, the DSB adopts an Appellate Body finding (in an Appellate Body report) that modifies or reverses a panel finding (in an appealed panel report), but not the original (pre-modification) panel finding. This clearly shows that the DSB considers the Appellate Body findings structurally superior to panels and that therefore the DSB adopts the Appellate Body’s findings when panels and the Appellate Body make different findings. If, as the United States seems to suggest, there is no hierarchical structure between panels and the Appellate Body and their findings are of equal legal status, the DSB would be entitled to choose whether to adopt a panel report or an Appellate Body report that reverse or modifies findings in the panel report in a given case. The fact that the DSB has never adopted an original panel finding that is modified or reversed by the Appellate Body clearly demonstrates that the WTO Members agree that the Appellate Body is a hierarchically superior body to panels.

63 Id. 64 Id. 65 US

Statement on Precedential Value, supra note 5, at para 98. at para 101. 67 US Statement on Precedential Value, supra note 5, at para 36. 68 The United States rightly points out that the DSB is structured at a higher level than panels and the Appellate Body in the sense that the latter two are established to assist the former. US Statement on Precedential Value, supra note 5, at para 101. 66 Id.,

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It should be noted that the concern of the United States is not without reason in that the Appellate Body in US—Stainless Steel did not sufficiently explain why it can transpose the “cogent reasons” approach, which has been adopted by the Appeals Chamber of the International Criminal Tribunal for the Former Yugoslavia (“ICTY”), into the WTO dispute settlement.69 Relying on a finding by the European Court of Human Rights,70 the Appeals Chamber had found that “the Appeals Chamber should follow its previous decisions, but should be free to depart from them for cogent reasons in the interests of justice”.71 In examining the effect of decisions of the Appeals Chamber on Trial Chambers, the Appeals Chamber of the ICTY had further found that “the right of appeal is … a component of the fair trial requirement” which “will not be achieved if each Trial Chamber is free to disregard decisions of law made by the Appeals Chamber, and to decide the law as it sees fit”.72 The Appellate Body should have explained in more detail why an analogy can be drawn between the ICTY and the WTO dispute settlement system. Nevertheless, considering the similarity between the mandate of the Appeals Chamber under Article 25 of the Statute of ICTY and the mandate of the Appellate Body under Articles 17.6 and 17.13 of the DSU, the Appellate Body was not wrong in finding that panels are expected to follow interpretations of the Appellate Body, the higher dispute settlement organ in the WTO dispute settlement system, absent cogent reasons.

2.7 Seventh Error: Support by Other Members The United States also seeks to demonstrate that its critical views on the Appellate Body are shared by other Members by quoting statements of Chile and Colombia at the DSB meeting where the Appellate Body report on US—Stainless Steel was adopted.73 However, neither Chile nor Colombia stated that the Appellate Body in US—Stainless Steel treated its previous decisions as “binding” as the United States seeks to argue. It is true that Chile insisted at the meeting that panels were not obliged to follow previous Appellate Body reports and cautioned against the possibility that the “cogent reasons” approach could be used to “constrain panels in future disputes.” (emphasis added)74 However, Chile did not state that the Appellate Body did overly constrain panels in US—Stainless Steel. Quite the contrary, Chile “thanked the Appellate Body for” “confirm[ing] that its reports created legitimate expectations among Members 69 US

Statement on Precedential Value, supra note 5, at paras 92–93.

70 Cossey v. The United Kingdom, 16/1989/176/232, Council of Europe: European Court of Human

Rights, 29 August 1990, para 35. 71 Prosecutor v. Aleksovski, Case No. IT-95-14/1-A, para 107 Judgement (24 Mar 2000). 72 Id. at para 113. 73 US Statement on Precedential Value, supra note 5, at para 106. 74 Dispute Settlement Body, Minutes of Meeting—Held in the Centre William Rappard on 20 May 2008, at para 68, WT/DSB/M/250 (1 July 2008).

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and should, therefore, be taken into consideration, although they were not … binding” (emphasis added).75 Moreover, Chile “concurred” with the Appellate Body that the hierarchical structure is contemplated in the DSU and that the Appellate Body has a distinct role from panels.76 Similarly, Colombia merely made a general statement at the meeting that panels are not required to follow previous panel or Appellate Body reports, but it nowhere stated that the Appellate Body in US—Stainless Steel found otherwise.77 Moreover, the United States omits the fact that several other Members expressed their agreement with the Appellate Body at the same DSB meeting. For example, Japan, Hong Kong, India, and Norway shared the Appellate Body’s concern in US— Stainless Steel about the panel’s decision to depart from the well-established Appellate Body jurisprudence.78 Australia, while insisting on the need to “strike a balance between security and predictability, on the one hand, and maintaining the parties’ rights and obligations under the covered agreements, on the other,” endorses “the distinct roles of panels and the Appellate Body in the hierarchical structure contemplated in the DSU”.79 Furthermore, the European Communities expressed support for the “cogent reasons” approach, by underlining the importance of “the rules-based nature of the WTO, and the multilateral aspects of dispute settlement”.80 In fact, at that DSB meeting, it was only the United States, which criticized the Appellate Body in this case for suggesting that Appellate Body reports should be treated as authoritative interpretations and that therefore panels must follow them.81 As has already been discussed above, the Appellate Body did not make such suggestions.

3 Conclusion This chapter has pointed out seven errors in the criticisms by the United States of the Appellate Body’s interpretative approach. It should be added though that some of the criticisms are worth considering. In particular, the United States is justified in pointing out that the Appellate Body may make a wrong interpretation of the WTO Agreement. Given the extremely high threshold to adopt an “authoritative interpretation” under the Marrakesh Agreement, the WTO Members have little means to correct the wrong interpretation, and panels tend to follow the interpretation unless they have found “cogent reasons”.82 The 75 Id.

at para 67.

76 Id. 77 Id.

at para 72. at paras 60, 62, 69, 71. 79 Id. at paras 63–64. 80 Id. at para 57. 81 Id. at paras 52–54. 82 US Statement on Precedential Value, supra note 5, at para 113. 78 Id.

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problem here is not that the Appellate Body’s interpretations have precedential value in the sense that panels and the Appellate Body are expected to follow them in future cases, but that Members may not be able to correct the Appellate Body’s interpretation, even if it is wrong. This problem should be resolved, and several proposals have already been made to address it.83 The current crisis created by the United States is not without merit if it leads to reform of the Appellate Body and the WTO dispute settlement system. However, considering the egregious nature of the errors, one cannot help but be skeptical of whether the United States is and will sincerely engage in the discussions on reform of the Appellate Body. Its genuine intention rather seems to be to discredit the Appellate Body and bring the WTO dispute settlement system back to a single-tier dispute settlement system under GATT. In fact, the United States has been successful in achieving its goal by blocking consensus of the WTO Members on the appointment and reappointment of Appellate Body members and throwing the Appellate Body into dysfunction. As long as the United States maintains its erroneous views on the Appellate Body, no reform proposals could satisfy it. Perhaps, all we can do in this crisis is to learn how precarious our global trading system is and to prevent another irresponsible act from further ruining it.

References Commission JP (2007a) Precedent in investment treaty arbitration: a citation analysis of a developing jurisprudence. 24 J Int Arbitr 129:150–151 Commission JP (2007b) Table A: precedent in ICSID arbitration 1972–2006. Transnatl Disput Manag 4 Duxbury N (2008) The nature and authority of precedent. Cambridge University Press, England Fukunaga Y (2018) The Appellate Body’s power to interpret the WTO agreement and WTO members’ power to disagree with the Appellate Body. In: Society of International Economic Law (SIEL), Sixth Biennial global conference. SSRN: https://ssrn.com/abstract=3209915 Gardiner R (2015) Treaty interpretation. Oxford University Press, England Lauterpacht E (ed) (1975) International law: being the collected papers of Hersch Lauterpacht, vol II. Cambridge University Press, England Lundmark T (2012) Charting the divide between common and civil law. Oxford University Press, England Siems M (2018) Comparative law. Cambridge University Press, England Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 18 Dec 2018. https://geneva.usmission.gov/wpcontent/uploads/sites/290/Dec18.DSB_.Stmt_. asdeliv.fin_.public.pdf Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 22 June 2018. https://geneva.usmission.gov/wpcontent/uploads/sites/290/Jun22.DSB.Stmt.asdelivered. fin.public.rev.pdf

83 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, WT/GC/W/752 (26 Nov 2018). See also Fukunaga (2018), available at SSRN: https://ssrn. com/abstract=3209915.

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Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 27 Aug 2018. https://geneva.usmission.gov/wpcontent/uploads/sites/290/Aug27.DSB.Stmt_. asdelivered.fin_.rev_.public.pdf Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 28 Feb 2018. https://geneva.usmission.gov/wp-content/uploads/sites/290/Feb28.DSB_.Stmt_.asdelivered.fin_.public-1.pdf Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 28 Oct 2018. https://geneva.usmission.gov/wpcontent/uploads/sites/290/Oct29.DSB.Stmt_.asdelivered. fin_.rev_.public.pdf Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 31 Aug 2017. https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug31.DSB.Stmt.asdelivered.fin.public.pdf

Yuka Fukunaga is professor at Waseda University, where she teaches public international law and international economic law. She is the winner of the Waseda Research Award in 2017. She is also an Executive Council Member of the Japan chapter of the Asian Society of International Law (AsianSIL) and a Council Member of the Japan Association of International Economic Law. Professor Fukunaga was an assistant legal counsel at the Permanent Court of Arbitration (PCA) (The Hague, 2012–2013) and an intern at the Appellate Body Secretariat, World Trade Organization (WTO) (Geneva, 2002). She was also a government-appointed assistant to Mr. Shinya Murase, a Japanese member of the International Law Commission (ILC) during the ILC 68th session (Geneva, 2016). Professor Fukunaga holds an LL.D. (2013) and an LL.M. (1999) from the Graduate Schools for Law and Politics, University of Tokyo, and an LL.M. (2000) from the School of Law, University of California, Berkeley. Professor Fukunaga has published a number of articles and chapters in the field of international trade and investment law, including “Securing Compliance with International Economic Agreements and Dispute Settlement: The Role and Limits of the WTO Dispute Settlement and Investment Arbitration” (Yuhikaku 2013).

Chapter 11

Judicial Economy and Advisory Opinions of the Appellate Body–Potential Reform of Article 17.12 of the DSU Tsai-fang Chen

Abstract The current blockage of Appellate Body appointments by the United States has created a crisis for the World Trade Organization dispute settlement system. The United States has raised several issues with regard to the Appellate Body practices. One of the main United States concerns is that the Appellate Body has repeatedly issued findings, from the perspectives of the United States, that were not necessary for the resolution of the dispute. In addition, the United States has also raised complaint regarding the difficulty of the Appellate Body to observe the 90-day requirement provided for under Article 17.5 of the Dispute Settlement Understanding. This chapter reviews the relationship between Article 17.12 and the relevant concerns raised by the United States, and analyzes the limit of the European Union proposal. This chapter suggests an alternative, narrower, version of the amendment that would further address the concerns over the advisory opinions stated in the report by the Appellate Body. Keywords Appellate Body · Dispute settlement · Judicial economy · Advisory opinions · AB crisis · AB reform The current blockage of Appellate Body appointments by the United States has created a crisis for the World Trade Organization (hereinafter WTO) dispute settlement system. The United States has raised several issues with regard to the Appellate Body practices. One of the main U.S. concerns is that the Appellate Body has repeatedly issued findings, from the perspectives of the United States, that were not necessary for 1 the resolution of the dispute. In addition, the United States has also raised complaint regarding the difficulty of the Appellate Body to observe the 90-day requirement provided for under Article 17.5 of the Dispute Settlement Understanding (hereinafter 2 DSU). The joint communication from European Union (hereinafter EU) and 11 other nations proposed in the General Council meeting held on 12–13 December 2018 (“EU 1 United 2 United

States Mission to International Organizations in Geneva (2017a, b, 2018a). States Mission to International Organizations in Geneva (2018b).

T. Chen (B) National Chiao Tung University, Hsinchu, Taiwan, ROC e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_11

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DSU Proposal”) addressed these U.S. concerns, which includes an amendment to Article 17.12 of the DSU. Article 17.12 provides that “The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.” This chapter reviews the relationship between Article 17.12 and the relevant concerns raised by the United States, and analyzes the limit of the EU proposal. As will be elaborated below, this chapter suggests an alternative, narrower, version of the amendment that would further address the concerns over the advisory opinions stated in the report by the Appellate Body.

1 Concerns Over Advisory Opinions Stated in the Report by the Appellate Body Among the U.S. concerns over the Appellate Body practice, advisory opinions and the difficulty for the Appellate Body to meet the deadline set by the DSU are two major ones that are relevant to the reform of the Article 17.12 DSU. Appellate Body’s advisory opinions are findings provided by the Appellate Body that are not necessary to resolve a given dispute. This concern is at the heart of the U.S. blockage of the appointment of the Appellate Body members. In addition, one of the U.S. concerns that may be relevant to the reform on Article 17.12 is the constant struggle for the Appellate Body to meet the tight deadline set by the Article 17.5 DSU. A brief analysis of the relevant U.S. concerns is useful before addressing the potential reform of Article 17.12 DSU.

1.1 Concerns Raised by the United States that are Relevant to Reform of Article 17.12 DSU The President’s 2018 Trade Policy Agenda3 provides some details of U.S. concerns with the WTO dispute settlement system. With regard to issue of advisory opinions, the United States has argued that there is a tendency for the Appellate Body reports to contain findings “unnecessary to resolve a dispute or on issues not presented in the dispute.”4 The United States cited Appellate Body report in Argentina—Measures Relating to Trade in Goods and Services, and argued that more than two-thirds of the Appellate Body’s analysis, which amount to 46 pages, was in the nature of obiter dicta.5 The United States suggested that advisory opinions are in the nature of “making law”, which is beyond the mandate of the Appellate Body.6 3 The

Office of the U.S. Trade Representative (USTR) (2018). at 26. 5 Id. at 27. 6 Id. at 26. 4 Id.

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With regard to the difficulty to conform to the 90-day deadlines for appeals, the United States has criticized the Appellate Body’s failure to respect Article 17.5 of the DSU which requires that “in no case shall the proceeding exceed 90 days.” The United States argued that the problem raises concerns of transparency, inconsistency with “prompt settlement of disputes,” and uncertainty regarding the validity of the report issued after 90 days.7

1.2 The Problem of Advisory Opinions Stated in the Report by the Appellate Body Advisory opinions are findings provided by the Appellate Body that are not necessary to resolve a given dispute. DSU does not explicitly prohibits advisory opinions. Indeed, the WTO dispute settlement system does not adopt the precedent system, nor does it contain rules against dicta.8 However, advisory opinions can indeed create legitimacy concerns. As the WTO dispute settlement system does not adopt the concept of binding precedents, there is no explicit concept of obiter dicta, the purpose of which is to determine the appropriate binding effect of the particular part of the ruling at issue. However, the findings of the Appellate Body do have de facto binding effects. The Appellate Body held that “[w]hile the application of a provision may be regarded as confined to the context in which it takes place, the relevance of clarification contained in adopted Appellate Body reports is not limited to the application of a particular provision in a specific case.”9 The Appellate Body itself held that absent “cogent reasons”, panels are expected to follow the previous findings of the Appellate Body on a different case.10 Therefore, the future panels will be affected by the findings of the Appellate Body, dicta or not. The lack of official binding effects of precincts does not prevent the findings of the Appellate Body become de facto binding, and the findings would in effect become part of the WTO law. From this perspective, the lack of a rule of precedence makes the situation worse. As there is no concept of obiter dicta, the binding effects may extend to the whole Appellate Body findings, even to the parts that were supposed to be obiter dicta if the concept was recognized in the WTO dispute settlement system. In another words, the lack of an official concept of obiter dicta does not mean the issue of advisory opinions is moot. If the WTO dispute settlement system recognizes the concept of advisory opinions, at least these opinions may not become binding to the future panels. Now, advisory opinions may still create de facto binding effects even though they are not necessary for the resolution of the disputes. Accordingly, considering de 7 Id.

at 25. (2018, pp. 523–532). 9 Appellate Body Report, United State—Final Anti-Dumping Measures on Stainless Steel from Mexico, para 161, WT/DS344/AB/R (30 Apr 2008). 10 Id. at para 160. 8 Gao

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facto binding effects of the Appellate Body’s rulings, advisory opinions that are not necessary for the resolution of the dispute may exacerbate legitimacy questions as they may unnecessarily create rights and obligations beyond what have been agreed by the Members of the WTO. Certainly, the part of the Appellate Body’s ruling that is necessary for the resolution of the dispute may well have the same legitimacy problem. However, the necessary part of the ruling may have undergone a more thorough argumentation from the parties, and the due process concern is less. In addition, even though the necessary part of the Appellate Body’s ruling may create legitimacy issues, it is not preventable due to it being the most fundamental part of the Appellate Body’s function to rule, which should be addressed elsewhere. On the contrary, advisory opinions are not necessary for the resolution of the dispute. Considering the de facto binding effects of these opinions, they should be prevented to the extent practical to ensure that only the necessary part of the ruling would create such effects.

2 Judicial Economy at the Appeal Level Under the DSU 2.1 Judicial Economy as a Tool to Reduce Advisory Opinions Judicial economy and advisory opinions are two separate but related issues. Advisory opinions refer to the part of the rulings that are not necessary for the resolution of the dispute. Judicial economy is a tool the adjudicating bodies could use to avoid issues that are not necessary for the resolution of the dispute at hand. Judicial economy, therefore, if properly used, could reduce the concerns related to advisory opinions. At the panel level, the concept of judicial economy allows a panel discretion not to rule on every claim made by complainants, or every defense made by respondents.11 At the appeal level, the Appellate Body could likewise avoid to rule on an issue that has been raised by an appellant.12 Adjudicating body, including the Appellate Body, could actively use judicial economy to avoid the issuance of unnecessary advisory opinions.13 Therefore, judicial economy should be a tool that is encouraged by the procedure rules. It is not the case under the DSU, however. Instead, the apparent restriction of the Article 17.12 DSU may lead to an interpretation that judicial economy at the Appellate Body level should be considered prohibited. Even though the practice of the Appellate Body has modified overtime, the provision could still be considered one of the reasons for the under-utilization of judicial economy at the appeal level. Accordingly, whether an amendment of this provision could help reduce the issue of advisory opinions could be considered. 11 Appellate

Body report, United States—Measures Affecting Imports of Woven-Wool Shirts and Blouses from India, 18–19, WT/DS33/AB/R (25 Apr 1997). 12 Alvarez-Jiménez (2009, p. 399). 13 Davey (2005, p. 177) (“For me, the Appellate Body could appropriately deal with more issues on the basis of judicial economy”).

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2.2 Judicial Economy Under Article 17.12 of the DSU Article 17.12 provides that “The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.” This provision provides the scope of the appellate review conducted by the Appellate Body. According to this Article, as long as an issue is raised by an appellant, and it is an “issue of law covered in the panel report and legal interpretations developed by the panel” as required by Article 17.6, the Appellate Body “shall” address the particular issue. As Article 17.12 requires the Appellate Body to address each and every issue raised during the appellate proceeding, it limits the Appellate Body’s discretion in determining its appellate review. Its interpretation would decide the extent to which the Appellate Body is able to exercise judicial economy and to refrain from issuing advisory opinions. Therefore, to deal with the concern raised by the United States regarding the advisory opinions, Article 17.12 should be addressed. For this purpose, an analysis of the Appellate Body practice with regard to judicial economy is needed. Earlier understanding of the provision among some of the Appellate Body members seems to suggest that they took the wordings of the provision literally, i.e., it limits the Appellate Body’s utilization of judicial economy.14 As James Bacchus, an original Appellate Body member, pointed out, “under Article 17 of the DSU … the Appellate Body is required—‘shall address’—every legal issue that is raised on appeal.”15 As the provision requires, the Appellate Body “shall address each of the issues raised” by the appealing party to the dispute, the Appellate Body itself cannot determine its scope of review. Therefore, under this interpretation, the Appellate Body does not have the discretion to choose which issues it sets out to address. To be sure, there could still be some flexibility in how the Appellate Body should actually deal with each issue raised, even under this strict reading of the Article 17.12. Even when the Appellate Body is required to address any given issue, the Appellate Body could still decide the manner of its review with regard to that particular issue. As an original member of the Appellate Body, Mitsuo Matsushita, pointed out, “as far as the practical aspect is concerned, if you have, say, twenty issues, you might deal with some important issues heavily and deal with some others lightly.”16 Therefore, it has been argued that an Appellate Body’s statement that having addressed certain issues, it need not consider the remaining issues separately itself might be considered having “addressed” the remaining issues.17 Even though the Appellate Body does have the discretion to deal with certain issues more lightly, the interpretation that the only requirement to address an issue under Article 17.12 is to mention that there is no need to address the particular issue may be inconsistent with a strict reading of the Article. It could be argued that the Appellate Body does not have the discretion to discard an issue entirely under Article 14 Alvarez-Jiménez,

supra note 12, at 394. et al. (2005, p. 179). 16 See comments by Mitsuo Matsushita, id. at p. 187. 17 Davey, supra note 13. 15 Bacchus

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17.12 DSU. Indeed, a formalistic handling of an issue without providing substantial legal conclusion could still be considered a violation of Article 17.12. After all, the requirement to address an issue should not be considered being satisfied if the issue being appealed was not actually dealt with at all. Under Article 17.12, the Appellate Body is mandated to address an appealed issue without considering whether the issue is indeed necessary to resolve a dispute. The utilization of judicial economy would accordingly still be limited by this provision. It is therefore natural for the Appellate Body to sometimes tend to provide opinions that might not be necessary with regard to the resolution of the dispute. Perhaps based on this understanding, in the Appellate Body’s earlier decisions, the Appellate Body understood Article 17.12 DSU as requiring it to set out in its decision a formal legal conclusion on every issue raised.18 It may be the reason, for example, that the Appellate Body would question a panel’s legal interpretation without considering the interpretation’s effect on the actual outcome of the case.19

3 The Appellate Body’s Adoption of Judicial Economy Under the earlier, more strict view of Article 17.12 DSU, the Appellate Body may be considered to have very limited, if at all, discretion to utilize judicial economy. However, the Appellate Body has developed a more flexible interpretation of the provision, which provides room for it to utilize judicial economy when it considers appropriate. In United States—Subsidies on Upland Cotton (hereinafter US—Upland Cotton Case), the Appellate Body held that “Although we recognize that there may be cases in which it would be useful for us to review an issue, despite the fact that our ruling would not result in rulings and recommendations by the Dispute Settlement Body (DSB), we find no compelling reason for doing so in this case.”20 The Appellate Body added that an interpretation of a particular phrase in the SCM Agreement was “unnecessary for purposes of resolving” that dispute.21 In relation to another claim in that case, the Appellate Body stated that it failed to see how an examination of that “claim would contribute to the ‘prompt’ or ‘satisfactory settlement’ of this matter or would contribute to ‘secure a positive solution’ to this dispute.”22 Under this interpretation, the Appellate Body freed itself from a more strict interpretation of Article 17.12 DSU. To utilize judicial economy, the Appellate Body considered itself not mandated to deal with issues that were “unnecessary for purposes of resolving” a dispute. This interpretation, if applied consistently, could limit the Appellate Body’s 18 McRae

(1998, p. 107).

19 Id. 20 Appellate Body Report, United States—Subsidies on Upland Cotton, para 510, WT/DS267/AB/R

(3 Mar 2005). at para 511. 22 Id. at para 747. 21 Id.

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scope of review, and could address the issues of advisory opinions in a meaningful way. In the India—Certain Measures Relating to Solar Cells and Solar Modules (hereinafter India—Solar Cells Case), the Appellate Body further demonstrated its willingness to utilize judicial economy. It has been observed that the Appellate Body was particularly cautious in this case to avoid questions going beyond the claims of the parties.23 In the case, India appealed certain issues related to elements under Article 20(j), 20(d), as well as the requirements of the chapeau of Article 20 of the GATT 1994. As the panel of the case has determined that India’s invocation of Article 20 did not satisfy other elements of that provision, and that the Appellate Body has upheld the panel’s decision, the Appellate Body considered that it was not necessary to examine those particular issues raised by India.24 These issues were not necessary for the disposition of the case because it has been confirmed that India could not justify its measures under Article 20(j) or (d) of GATT 1994, the interpretation of the other elements raised by India did not in any event help India in this case. Specifically, the Appellate Body held that, Given these findings, we do not consider it necessary further to examine India’s claims on appeal pertaining to the Panel’s “limited review and analysis” of whether the DCR measures are “essential” to the acquisition of solar cells and modules for the purpose of Article 20(j), or whether they are “necessary” within the meaning of Article 20(d). Nor do we consider it necessary to examine India’s arguments as they relate to the requirements of the chapeau of Article 20 of the GATT 1994.25

Similar to the US—Upland Cotton Case, the Appellate Body did not clarify its position on Article 17.12 DSU. In this case, one Appellate Body member provided a separate opinion. The separate opinion recognized that it is the legal duty of the Appellate Body to address each of those issues raised in appeal.26 However, the separate opinion argued that guiding principles elsewhere would guide the Appellate Body in deciding how to address each of the issues raised by the parties.27 Here, the separate opinion referred to the relevant guiding principle that the Appellate Body, as a part of the WTO dispute settlement mechanism, “contributes to the objectives of the ‘prompt settlement’ of a dispute or ‘positive solution to a dispute.’”28 Therefore, the separate opinion stressed that “the Appellate Body may … decline to make specific findings regarding an issue raised on appeal, and ‘address’ the issue only to the extent necessary to ascertain that, in light of the other rulings under a different, but related, claim on appeal that resolve the dispute, there was no need to rule on the particular additional issue in question.”29 Here, for the issue that was appealed but was actually 23 Karttunen

and Moore (2018, pp. 222–223). Body Report, India—Certain Measures Relating to Solar Cells and Solar Modules, paras 5.152–5.155, WT/DS456/AB/R (16 Sept 2016). 25 Id. at para 5.155. 26 Id. at para 5.157. 27 Id. at para 5.158. 28 Id. 29 Id. 24 Appellate

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not necessary for the disposition of the case, the separate opinion interpreted Article 17.12 as only requiring the Appellate Body to address the appealed issue for the purpose of ensuring that there was no need to rule on the particular issue. In addition, the separate opinion discussed other potential guiding principles that may be relevant here. On its comparison of the adjudicatory function and clarification function of the Appellate Body, the member noted that there is nothing in Article 3.2 that would encourage “the Appellate Body to ‘make law’ by clarifying existing provisions of the WTO Agreement outside the context of resolving a particular dispute.” In addition, the member noted, The Appellate Body cannot be expected to offer interpretative guidance regarding provisions of the covered agreements in an abstract manner beyond the scope of what is required in a particular dispute …. To do so would go beyond the AB’s adjudicatory function as contemplated under the DSU.30

Therefore, for the Appellate Body member, Article 3.2 does not serve as a guiding principle to require the Appellate Body to make specific findings for issues it considers not necessary in order to facilitate the prompt settlement and effective resolution of the dispute. For the Appellate Body member, therefore, the Appellate Body’s adjudicative function, together with Article 17.12 DSU, determines the scope for the Appellate Body’s judicial review. In essence, the Appellate Body’s adjudicatory function works to limit the scope provided under Article 17.12 DSU. The theoretical extension of the separate opinion would suggest that this could be a mandatory limit as the member noted that offering interpretative guidance beyond the scope of what is required in a particular dispute “would go beyond the AB’s adjudicatory function as contemplated under the DSU”. However, the separate opinion did not go that far. The Appellate Body member simply suggested that the Appellate Body “may” decline to make specific findings regarding an issue that it determines unnecessary.31 In addition, the separate opinion also noted that whether a finding on a particular issue “is a matter for the Appellate Body to decide in light of the particular circumstances of each case.32 Accordingly, it seems that the separate opinion acknowledged that how to address an appealed issue should be a matter of Appellate Body’s discretion, instead of a mandatory limit for the Appellate Body to follow. There may be a certain level of tension between the utilization of judicial economy and the requirement under Article 17.12 DSU. Recognizing this issue, the Appellate Body member noted that while the Appellate Body is not required to provide reasons as to why it adjudicates a particular issue properly raised by the parties on appeal in accordance with Article 17.6 of the DSU, under the the express language contained in Article 17.12 of the DSU, “when the AB considers, for example, that further findings on issues appealed are not necessary in order to facilitate the prompt settlement and effective resolution of the dispute, it will explain in its report.”33 30 Id. 31 Id.

at para 5.161. at para 5.158.

32 Id. 33 Id.

at para 5.160.

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Under one view, the duty to explain is sufficient to support the utilization of judicial economy. It is because for issues that are not necessary for the resolution of the particular dispute at hand, the Appellate Body’s duty to address could be reduced, and a duty to explain simply clarifies such lowered obligation. Under another, more strict view, however, this duty to explain might not sit comfortably with the explicit requirement of Article 17.12 DSU. It is because under the provision, there is no “explanation exception” to the duty to address. Explanation of the reason not to address is not addressing, which in itself is not an act to address. The Appellate Body is legally obligated to address the appealed issue. If it failed to do so, the explanation would not justify such inconsistency. In any event, at the heart of this tension between the utilization of judicial economy and the requirement under Article 17.12 DSU is that the guiding principle cited by the separate opinion may not be sufficient to resolve the legal duty under Article 17.12 DSU. After all, the guiding principle regarding the facilitating the prompt settlement and effective resolution of the dispute is not an explicit requirement limiting the mandate of the Appellate Body, and it does not speak directly to the Appellate Body’s scope of review. The guiding principle is simply too ambiguous to meaningfully restrain the scope of review provided under Article 17.12 DSU. Moreover, when understanding this guiding principle as simply providing some kind of direction for the Appellate Body’s discretion, instead of providing a mandatory limit, whether this principle could be interpreted to limit the scope of Article 17.12 DSU is doubtful. This chapter is of the view that the guiding principle of facilitating the prompt settlement and effective resolution of the dispute itself is too ambiguous to provide a hard limit on the Appellate Body’s scope of review. However, this also demonstrates that the principle, by itself, is not sufficient to promote the use of judicial economy or to discourage the issuing of advisory opinions by the Appellate Body. Accordingly, a further reform on the Article 17.12 may be warranted. Below this chapter analyzes the potential direction for such amendment and reviews the reform proposal by the EU.

4 Potential Reform of Article 17.12 DSU 4.1 The Goals for the Article 17.12 DSU Reform Article 17.12 is a provision that provides the scope of the Appellate Body’s judicial review. It allows the parties to the dispute to determine the issues the Appellate Body shall address. This contributes to the ever-increasing volume and complexity of the Appellate Body reports. It is also one of the reasons that it may be difficult for the Appellate Body to avoid issuing advisory opinions, as after all, the Appellate Body cannot control issues that are appealed by parties, and the Appellate Body is required to address those issues that are appealed.

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In a way, therefore, the current provision of Article 17.12 DSU makes the problem worse. As discussed above, even though the Appellate Body has developed practices to utilize judicial economy despite the mandate of Article 17.12 DSU, it may not be sufficient. As the duty to explain noted by the separate opinion in the India— Solar Cells Case suggests, the utilization of the judicial economy under current Article 17.12 DSU requires the Appellate Body to overcome the presumption of this provision to justify its decision to resort to judicial economy. More over, as the utilization of judicial economy is a discretion of the Appellate Body, this practice developed by the Appellate Body itself is not sufficient to discourage the issuance of advisory opinions. Therefore, the reform of Article 17.12 DSU is warranted. Accordingly, this chapter argues that Article 17.12 DSU should be reformed to narrow the Appellate Body’s scope of review. The amendment of the provision could potentially achieve several goals, which can contribute to the reform of the Appellate Body. This chapter argues that an amendment of Article 17.12 DSU in this direction could achieve the following purposes. First, an amendment of Article 17.12 DSU could promote judicial economy at the appellate level. This is the most obvious function of a reform on this provision. The current text of Article 17.12 restricts the Appellate Body’s utilization of judicial economy in that it sets up a default of addressing every issue raised by the parties, without considering whether the appealed issue is necessary for the resolution of the dispute. Even though the Appellate Body has established a practice of applying judicial economy, an amendment of Article 17.12 could send a clear signal to support, encourage, or even require the Appellate Body to resort to judicial economy, which could further support the application of judicial economy at the appellate level at the WTO dispute settlement. Second, an amendment of Article 17.12 DSU that narrows the scope of appellate review could encourage more focused Appellate Body reports and could help reduce work load of the Appellate Body. This would help the Appellate Body achieve the tight time-frame imposed by the DSU. The speed of the appellate review has been considered one of the Appellate Body’s greatest strengths, which is an important feature that distinguishes the Appellate Body from other international adjudicative bodies.34 However, as the issues appealed by parties become more complex, and Appellate Body reports are getting thicker and thicker, more efforts and time is required for each Appellate Body reports. The workload of the Appellate Body is one of the main reasons that the DSU time limit cannot be met.35 The amendment of Article 17.12 DSU could contribute to the Appellate Body’s capacity to finish the work within the time frame envisioned by the DSU. Third, an amendment of Article 17.12 DSU could enhance the function of the panel stage by limiting the scope of appellate review. The function of the dispute settlement system under the WTO to secure a positive solution to the disputes between parties require a strong panel level. Currently, some of the issues that associate with the appellate level may be caused by a panel stage that does not function as well as 34 Hughes 35 Walter

(2008, p. 477). (2006, p. 459).

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it should be. The overwhelming workload of the Appellate Body is caused partly by the ability of the parties to appeal on too wide a range of issues, which may exceed the original vision of the DSU, as its tight time frame suggests. Therefore, a narrow scope of the appellate review could support the direction of renewed focus on the panel stage by the parties, which may contribute to the overall reform of the Appellate Body. With these potential reform goals of Article 17.12 DSU in mind, this chapter turns to the proposal made by EU with regard to this provision.

4.2 EU Proposal EU’s proposal for Article 17.12 DSU is to reduce the legal duty of the Appellate Body to address issues raised on appeal by the parties “to the extent that is necessary for the resolution of the dispute”. EU argues that this could address concerns about the Appellate Body making long advisory opinions or obiter dicta not necessary to resolve the dispute. In addition, EU suggests that it could indirectly address the concern related to Article 17.5 DSU, the 90-day time limit for the Appellate Body to issue its findings. The EU proposal signals an important direction, and may be helpful in the margin with regard to the two concerns identified by the EU. It is important in that it modifies the default set by Article 17.12 DSU. Under the amendment, the Appellate Body no longer has the legal duty to address each and every issue raised by the parties. The legal duty only extents to the issues that are appealed and are necessary for the resolution of the dispute. If an issue raised in appeal is not necessary for the resolution of the dispute, the Appellate Body does not need to address it. Certainly, the Appellate Body still needs to determines whether the issue is necessary for the resolution of the dispute, but it is a discretionary exercise of a judicial economy, and entails a much lighter burden. The EU proposal, however, does not provide meaningful changes beyond current Appellate Body practice. As demonstrated in the Appellate Body practices, the Appellate Body has already utilized discretionary judicial economy. As the EU proposal only limits the legal duty of the Appellate Body to address the appealed issues without providing any restraint on the Appellate Body’s scope of review, this proposal did not go far enough to deal with the concerns regarding long and unnecessary advisory opinions. Since the Appellate Body has utilized judicial economy, a meaningful reform should include a restraint on the Appellate Body’s scope of review, not just reduce extent of the legal duty to address the appealed issue. This chapter, therefore, suggests the following proposal to provide a more meaningful restraint on the advisory opinions to be made by the Appellate Body.

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4.3 The Reform Proposal This chapter argues that the Appellate Body’s scope of review should be limited to issues that are necessary to the resolution of the dispute at hand. The adjudicatory function of the Appellate Body should define the scope of the Appellate Body’s scope of review. While the Appellate Body does at the same time fulfill its function of clarifying the WTO agreements, it should be a function that is carried out when it is fulfilling its adjudicatory function. Therefore, a limit on the Appellate Body to restrict its judicial activity to the actual dispute at hand does not reduce its clarifying function. Instead, it could address the legitimacy concerns of the advisory opinions, reduce the workload of the Appellate Body, and enhance the function of the panel stage at the WTO dispute settlement. Therefore, this chapter proposes that Article 17.12 could be amended to “The Appellate Body shall address each of the issues raised in accordance with paragraph 6 during the appellate proceeding ‘only to the extent necessary for the resolution of the dispute’”. By limiting the Appellate Body’s scope of review only to issues that are necessary for the resolution of the dispute, the proposed amendment could create a legal duty for the Appellate Body, which can achieve two functions. First, the Appellate Body has the legal duty to address the issues that are raised in appeal by the parties that are necessary for the resolution of the dispute. Second, and more importantly, the Appellate Body has the legal duty not to address the issues that are not necessary for the resolution of the dispute. This provides a positive legal duty for the Appellate Body to consciously determine whether a particular issue raised in appeal is necessary for the resolution of the dispute, which could meaningfully reduce the issuance of advisory opinions, and lead to more focused Appellate Body reports. There could be concerns that this legal duty might unduly restraint the Appellate Body’s ability to issue opinions addressing issues involving a legal question that is of principle importance, or issues raising a novel or unsettled legal question that are important to other Members. However, if these issues are not necessary for the resolution of the dispute, it is best left to another day when the issues are truly necessary for the resolution of a given dispute, which is a more appropriate timing for the Appellate Body to address this issue. One possible criticism of this proposal is that it may still not go far enough. After all, it is the Appellate Body who would determine whether an issue is necessary for the resolution of the dispute. Under this view, this proposal therefore does not create a meaningful constraint on the Appellate Body with regard to the issuance of advisory opinions. However, this chapter suggests that a clear signal send by a mandatory requirement under this provision should be sufficient to alleviate most of the concerns, as after all, the Appellate Body is constrained by the requirement of the DSU. A clear requirement such as the proposed amendment should have a strong effect that should be sufficient to adjust the scope of the review for the Appellate Body.

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5 Concluding Remarks Advisory opinions are not currently prohibited under the DSU. However, considering de facto binding effects of the Appellate Body’s rulings, advisory opinions that are not necessary for the resolution of the dispute may exacerbate legitimacy questions as they may unnecessarily create rights and obligations beyond what have been agreed by the Members of the WTO. Since advisory opinions do not contribute to the Appellate Body’s adjudicatory function, and it also creates unnecessary legitimacy issues, they should be discouraged. The Appellate Body’s discretionary practice of judicial economy that go beyond the apparent constraint of Article 17.12 DSU is a positive trend which may be helpful in reducing advisory opinions. However, the current practice of the Appellate Body does not sufficiently alleviate the concerns associate with advisory opinions stated in the report by the Appellate Body. Therefore, this chapter argues that Article 17.12 DSU should be amended so that the Appellate Body should be restrained from making findings that are not necessary for the resolution of the dispute. This would not only reduce the workload of the Appellate Body that is necessary for reaching the time limit envisioned by the DSU, but also prevent the issuance of advisory opinions, which would lead to a more focused Appellate Body reports.

References Alvarez-Jiménez A (2009) The WTO Appellate Body’s exercise of judicial economy. J Int Econ Law 12(2):393–415 Bacchus J et al (2005) WTO Appellate Body roundtable. In: Helfer LR, Lindsay R (eds) New world order or a new world disorder? Testing the limits of international law: proceedings of the ninety-ninth annual meeting of the American society of international law. The American Society of International Law, Washington, DC, pp 175–188 Davey WJ (2005) Has the WTO dispute settlement system exceeded its authority? A consideration of deference shown by the system to member government decisions and its use of issue-avoidance techniques. In: Mavroidis PC, Sykes AO (eds) The WTO and international trade law/dispute settlement. Edward Elgar, Cheltenham, pp 162–177 Gao H (2018) Dictum on dicta: obiter dicta in wto disputes. World Trade Rev. 17(3):509–533 Hughes V (2008) The strengths, weaknesses, and future of wto appellate review. In: Janow ME et al (eds) WTO: governance, dispute settlement & developing countries. Juris Publishing, New York, pp 471–504 Karttunen MB, Moore MO (2018) India—solar cells: trade rules, climate policy, and sustainable development goals. World Trade Rev 17(2):215–237 McRae DM (1998) The emerging appellate jurisdiction in international trade law. In: Cameron J, Campbell K (eds) Dispute settlement in the WTO. Cameron May, London, pp 98–110 The Office of the U.S. Trade Representative (USTR) (2018) The president’s trade policy agenda. https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual% 20Report%20I.pdf. Accessed 7 May 2019

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United States Mission to International Organizations in Geneva (2017a) Statements by the United States at the meeting of the WTO Dispute Settlement Body, pp 7–8 (on DS 442), https://geneva.usmission.gov/wp-content/uploads/sites/290/Sept29.DSB_.Stmt_.asdelivered.fin_.public.pdf. Accessed 7 May 2019 United States Mission to International Organizations in Geneva (2017b) Statements by the United States at the meeting of the WTO Dispute Settlement Body, pp 10–12 (on DS 447/DS 448), https://geneva.usmission.gov/wp-content/uploads/sites/290/Nov22.DSB_.pdf. Accessed 7 May 2019 United States Mission to International Organizations in Geneva (2018a) Statements by the United States at the meeting of the WTO Dispute Settlement Body, p 18 (on DS 486), https://geneva.usmission.gov/wp-content/uploads/sites/290/May28.DSB_.Stmt_.aseliv.fin.public.Rev.pdf. Accessed 7 May 2019 United States Mission to International Organizations in Geneva (2018b) Statements by the United States at the meeting of the WTO Dispute Settlement Body, pp 19–20, https://geneva. usmission.gov/wp-content/uploads/sites/290/Jun22.DSB_.Stmt_.as-delivered.fin_.public.rev_. pdf. Accessed 7 May 2019 Walter C (2006) Article 17 DSU. In: Wolfrum R et al (eds) Dispute settlement in the World Trade Organization. Martinus Nijhoff Publishers, Leiden, pp 445–472

Tsai-fang Chen is associate professor of National Chiao Tung University School of Law. His main areas of research are international economic law, international commercial arbitration, international investment law, and patent law. Tsai-fang Chen has obtained his SJD degree in University of Wisconsin Law School, LLM degree at Columbia University School of Law and National Taiwan University, and LLB degree at National Chengchi University. He has worked in Wisconsin Alumni Research Foundation on patent law issues. Tsai-fang Chen has also practiced law at Wu and Partner, Attorneys-at-law, Taipei, Taiwan on antidumping cases. Tsai-fang Chen has lectured in the intensive Course “IP in Asia” in Advanced Master in Intellectual Property Law and Knowledge Management (LLM/MSc), Maastricht University. He has also worked as a consultant to Office of Trade Negotiations, Ministry of Economic Affairs in Taiwan. Tsai-fang Chen is a member of the Asian Center for WTO and International Health Law and Policy, and a committee member of the Editorial Committee of Asian Journal of WTO and International Health Law and Policy and Contemporary Asia Arbitration Journal.

Chapter 12

The Use of Panel Process to Improve the Function of the Appellate Body: A Proposal to Utilize the Expert Review Group Tomohiko Kobayashi Abstract There is a significant risk of losing the functioning of the Appellate Body of the World Trade Organization (WTO) in the near future. WTO is under a serious threat of being dismantled, not because of external factors, but because of internal ones. This chapter elaborates practical, although unusual, options to save the functioning of the WTO dispute settlement mechanism. With regard to the options to amend the Dispute Settlement Understanding (DSU), we should address three key questions. First, can WTO Members amend the DSU by a simple majority vote where a decision cannot reach consensus? Second, if so, when does the amendment approved by the Ministerial Conference takes effect? Third, if the answer to the first question is negative, can the Members amend the consensus requirement by voting? We found that amending the DSU without consensus is a high bar and almost impracticable unless the US notifies the WTO of its intention to withdraw. As an alternative way to save the function of the appeal mechanism, we propose to transplant the thrust of the appeal function into the panel phase by using expert review groups (ERG) under Article 13.2 and Appendix 4 of the DSU. This proposal intends to strike a thin balance between legitimate concerns from sovereign nations against the power of treaty organs, on the one hand and maintaining invaluable functions of the panel and Appellate Body stages that have evolved for two decades. Incorporating a quasi-appeal mechanism into the panel process is not the panacea, but can be a feasible option along with the use of Article 25 DSU arbitration. Keywords Dispute settlement panels · Expert review group · Right to appeal · Dispute settlement understanding (DSU) A house divided against itself cannot stand. […] I do not expect the Union to be dissolved – I do not expect the house to fall – but I do expect it will cease to be divided. It will become all one thing or all the other. Abraham Lincoln 1858

T. Kobayashi (B) Otaru University of Commerce, Otaru, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_12

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1 Introduction There is a significant risk of losing the functioning of the Appellate Body (hereinafter AB) of the World Trade Organization (hereinafter WTO) in the near future. The WTO is under a serious threat of being dismantled, not from the outside, but from within. The US President has broad discretion in administering trade issues and can independently decide to withdraw from the WTO.1 However, the WTO rules or the constitutional restraints of the US legal system have prevented the President from harnessing this power.2 We must consider what we can do to address this worst-case scenario. This chapter tries to suggest practical, although unusual, options to save the functioning of the WTO dispute settlement mechanism. Since August 2017, the US has continuously blocked the consensus decision to appoint AB members to fill the vacancies,3 which has reduced the number of active members to three, leaving four seats vacant. Article 17.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding, hereinafter DSU) requires the service of three AB members to hear a case. If the US, or any other WTO Member, continues to block the appointment of new members, the AB stage will be rendered dysfunctional as early as December 2019, when the term of two of the current AB members expires, leaving only one active AB member. It is true that parties can still proceed with the panel process, and the Dispute Settlement Body (hereinafter DSB) can adopt the report by reverse consensus in accordance with Article 16.4 DSU. However, once a disputing party notifies the WTO of its decision to appeal to the AB, the panel report will not be “considered for adoption by the DSB until after completion of the appeal,” as is set forth in Article 16.4 DSU. Obviously, parties that lost their cases in the panel stage have the incentive to appeal to prevent the panel reports from being adopted by the DSB.4 Thus, a functioning AB stage is critical for an effective WTO dispute settlement mechanism,5 which has been called the “jewel in the crown.”6 Although US Trade Representative Robert Lighthizer explained that blocking the appointment of AB members is a tool to urge other Members to proceed with reforms,7 there remains a significant risk of collapse of the AB without a deal. What can we do to save the

1 Bradley

and Goldsmith (2018), p. 1225, Mulligan (2018).

2 E.g., Yale Symposium on Trade Law Under the Trump Administration (2019), Petersmann (2018).

Accessed 26 Mar 2019. Settlement Body (2018). 4 Confusingly, the US continues to file multiple cases to the panels and five cases to the Appellate Body. 5 See also Ala’i (2019, p. 88). 6 WTO (2009). Accessed 26 Mar 2019. 7 Lighthizer (2019). 3 Dispute

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WTO dispute settlement mechanism, not only for the AB stage but also for the panel stage?8 This chapter assumes the situation that the AB ceases to function due to desertion resulting from appointee blocking and that the Members cannot reach consensus for the breakthrough. Using these assumptions, this chapter explores what kinds of means would be available to salvage the functioning of the WTO dispute settlement mechanism over strong objections by one or more Members. Section 2 examines existing proposals for amending the DSU or pursuing alternative means. Section 3 proposes another approach to incorporate quasi-AB functions into the panel stage, followed by the concluding Sect. 4.

2 Options to Amend the DSU to Save the Function of the Appellate Body 2.1 Options Already Proposed We need an institutional safeguard to ensure the effective functioning of the AB during political turmoil. In this sense, this is not solely a matter of foreign policy of the US administration, but a matter of systemic concern. There are several formal proposals submitted to the WTO bodies to amend the DSU.9 There are also proposals to create non-binding guidelines.10 There are also many academic contributions to address this issue, including the workshop held in Taipei in January 2019. Among others, Jennifer Hillman’s article in December 2018 provides options to disregard, interpret, and amend the DSU provisions.11 In addition, Mitsuo Matsushita’s chapter in this book mentions possible amendments to the DSU to make the appeal mechanism optional, reduce special majority threshold, or create a peer review group that assesses the AB’s works.12 The options proposed can be divided into two groups: those that require an amendment to the DSU and those that do not. Proposals that include an amendment to the DSU include the secured process of appointing AB members and clarification and/or limitation of powers of the AB, which would accompany revisions of subsidiary rules. Section 2 looks into the practicability of amending the DSU as a precursor to evaluate specific proposals to solve the current problems. Alternative means that do not require DSU revision will be addressed in Sect. 3. 8 Disputing

parties can always use arbitration under Article 25 DSU or any ad hoc arbitration as they agree. However, arbitration is highly unpredictable and less attractive in terms of enforcement. What we desperately need to determine is how to salvage the panel and AB functions. 9 See e.g., General Council, WT/GC/W/752/Rev.1 (2018), and General Council, WT/GC/W/753 (2018). 10 See e.g., General Council, WT/GC/W/763 (2019). 11 Hillman (2018, pp. 12–14). 12 Matsushita, [in this book (Section 7)], pp. 8–9.

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2.2 Viability of Proposals Involving Amendment to the DSU 2.2.1

Does Article X:8 Allow Voting to Amend the DSU?

The US is very reluctant to commit to the negotiation to amend the DSU.13 Can we amend the DSU over the persistent objection by the US, with binding force on the US? First, does Article X:8 of the Marrakesh Agreement allow Members to amend the DSU by a simple majority vote (i.e., a half plus one vote cast) in the case where a decision cannot be arrived by consensus, in accordance with Articles IX:1 thereof? Second, if the answer to the previous question is affirmative, when does the amendment approved by the Ministerial Conference takes effect? Can a simple majority vote at the Ministerial Conference automatically force dissenting voters to accept it in accordance with Article X:8? Third, if the answer to the first question is negative, can the Members amend the consensus requirement under Article X:8 by voting? The second sentence of Article X:8 of the Marrakesh Agreement Establishing the World Trade Organization (hereinafter Marrakesh Agreement) states: The decision to approve amendments to the [DSU] shall be made by consensus, and these amendments shall take effect for all [WTO] Members upon approval by the Ministerial Conference.14

In contrast with Article X:9 of the Marrakesh Agreement that expressly requires decisions to be made “exclusively by consensus,” Article X:8 of the Marrakesh Agreement does not textually exclude other ways of reaching a decision, while consensus is always the priority. It allows DSB to decide by a simple majority vote if the Members failed to reach a consensus, in accordance with the second sentence of Article IX:1 thereof.15 If we assume that Article X:8 of the Marrakesh Agreement allows voting as an alternative method of decision making to amend the DSU, the second question shown above comes to our attention. In the past, under the GATT 1947, amendment to a provision except for those in Part I and Article XXIX takes effect upon acceptance by the two-thirds of the contracting parties for those who accepted it, and thereafter for each other contracting party upon acceptance by it, in accordance with Article XXX:2 GATT. In contrast, the consensus was proposed as the primary form of decision making when Article X of the Marrakesh Agreement was drafted as part of the Uruguay Round negotiations in December 1991.16 Later, both consensus and 13 Statements

by the United States at the Meeting of the WTO Dispute Settlement Body (2019, pp 13–14). 14 In accordance with Article IV:2 of the Marrakesh Agreement, the General Council acts on behalf of the Ministerial Conference during the interval of its meetings. 15 “Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting.”. 16 “Modifications to the instruments set out in [DSU and TPRM, respectively] shall be made by consensus in the Ministerial Conference or the General Council.” Draft Article X:5 (Amendments

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the two-thirds majority were presented in brackets as equal options in the May 1992 draft. At that time, the US was concerned about the possibility that countries that voted against an amendment would be forced to accept it if the amendment was adopted by voting.17 Many delegations shared the understanding that whether an amendment takes effect for all Members or only those that accepted it should depend on whether the decision to submit an amendment for acceptance was taken by consensus or by voting.18 This understanding fits the structure of Article X of the Marrakesh Agreement, where an amendment shall take effect for all Members upon acceptance by two-thirds of the Members, which is binding for all Members, including dissenters, only for amendments of a nature that would not alter the rights and obligations of the Members. Therefore, even if Article X:8 of the Marrakesh Agreement allows voting to adopt an amendment to the DSU, the amendment takes effect only for those that accepted it. Members that opposed the adoption of the amendment are free from its binding force unless they accept it.

2.2.2

Can the Consensus Requirement Be Abolished from Article X:8 by Voting?

If Article X:8 of the Marrakesh Agreement does not allow an alternative method of decision-making by voting, then, let us move on to the third question identified above: whether or not the majority of WTO Members is able to amend Article X:8 to loosen the requirement of consensus. Because of the Uruguay Round negotiations shown in Sect. 2.2.1, Article X of the Marrakesh Agreement sets different thresholds for amendment for different provisions of the WTO Agreement. Here, Article X:2 of the Marrakesh Agreement specifies that any amendment to Article X “shall take effect only upon acceptance by all Members.”19 Though Article X:1 thereof allows recourse to two-thirds special majority voting to adopt amendments if WTO Members fail to reach consensus, any amendment will not take effect if any Member failed to accept it. If the burden to amend Article X:8 is higher than satisfying the existing requirements under Article X:8, it would not be a viable option. and Modifications) of the Agreement Establishing the Multilateral Trade Organization, in Section Y, Annex IV, of the Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade negotiations, at 96, GATT Doc. No. MTN.TNC/W/FA (20 Dec 1991). 17 Stewart (ed) (1993, p. 1947, n.311). 18 Id. 19 This is also the case for Article IX thereof, Article I and II GATT, Article II:1 GATS, and Article 4 TRIPS (Article X:2). On the other hand, amendments to the TRIPS Agreement meeting the requirements of Article 71(2) thereof takes effect for all Members upon acceptance by two-thirds of the Members (Article X:6). Article X:3 governs amendment to other provisions within the WTO Agreement framework, with certain exceptions trade in services (Article X:5) and plurilateral trade agreements (Articles X:9 and X:10).

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Alternatively, can we evade the requirement of consensus in Article X:8 of the Marrakesh Agreement by “adding” an article to the Marrakesh Agreement, rather than amending Article X:8 directly or by applying for a waiver under Article IX:3? Imagine that the two-thirds majority of the Members propose to add Article Xbis to the Marrakesh Agreement by voting, which substantively (but not formally) overwrites the consensus requirement in existing Article X:8. However, adding a provision cannot avoid the requirements under Article X. The word “amendment” should be construed substantively, whether or not a new provision declares to amend existing provisions or not. The critical element is whether it “alter[s] the rights and obligations of the Members.” When Article 31bis was added to the TRIPS Agreement in 2005, a formal procedure was taken to amend it under Article X:3 of the Marrakesh Agreement, which required acceptance by two-thirds of the Members to take effect.20 Here, lowering the threshold of amending the DSU directly links the rights of Members; more specifically, it reduces the right to oppose the adoption of proposals.21 Thus, adding a provision to the Marrakesh Agreement for this purpose must abide requirements set forth in Article X:2 thereof.

2.2.3

Less Probable Scenarios: Slightly Open Window?

The DSU revision process might go forward if the US announced its withdrawal from the WTO for any reason. Assume that the US issued the notice of its intention to withdraw from the WTO in accordance with Article XV of the Marrakesh Agreement, which takes effect six months after such notice. In that case, arguably, the said Member cannot vote or block proposals at the Ministerial Conference that occurs after the effective date of the US’s withdrawal. This interpretation derives from the principle of effective interpretation of treaty provisions: otherwise, the withdrawing Member would enjoy quasi-veto power to interfere with the business of the WTO even after it leaves. The analysis above showed that amending the DSU without consensus is a high bar and almost impracticable to the extent that the US maintains its reluctance to be involved in the negotiation unless the US notifies the WTO of its intention to withdraw.

20 General

Council, WT/L/641 (2005). authoritative interpretation under Article IX:2 of the Marrakesh Agreement cannot solve the problem at hand. 21 Therefore,

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3 Alternative Options 3.1 Options that Do not Require Amendment to the DSU Proposals that pursue alternative means to make up for the loss of the current AB stage include the use of ad hoc arbitration under Article 25 DSU, authoritative interpretation under Article X:2 of the Marrakesh Agreement, a waiver under Article X:3 thereof, or agreement not to appeal. As reported by Payosova et al., most of the options are legally untenable.22 Note that seeking a waiver by voting under Article X:3 of the Marrakesh Agreement is not available in this context because a waiver can free Members from the “obligation,” but it cannot deprive Members of a positive “right” to appeal. The argument that “appointment” of AB members is different in nature from making a “decision” (Article 2.4 DSU) and that the former does not require a consensus decision23 is untenable too. It is true that the DSB was established under Article 2.1 DSU and the AB was established by the DSB in accordance with Article 17.1 DSU. So, arguably, AB members can be considered as officers appointed by the DSB for designated functions as members of a standing organ, as well as panelists who are chosen ad hoc, in principle, by disputing parties. Then, arguably, DSB may adopt an internal law, like bylaws of a partnership or corporation, to establish technical rules and procedures governing the appointment of AB members separate from the DSU itself. In this sense, the appointment of AB members can be distinguishable from “decisions” that are governed directly by Article 2.4 DSU that require consensus by the DSB. However, there must be a “decision” to adopt such bylaws or subsidiary rules that must be made by consensus, which does not exist in this context.

3.2 Looking Upside Down: Using Panel Process to Incorporate the Thrust of Functions of the AB 3.2.1

Revisiting the Role of Panels

In contrast to the widespread academic and political focus on the AB, no sufficient attention has not been paid to the panel stage in the WTO dispute settlement mechanism. This is partially due to the frequency of appeals. As early as 1989, concerns were raised during the Uruguay Round that, once the Appellate Body was created, a strong inclination to appeal would develop on the side that is less satisfied by the

22 Payosova 23 Hillman,

et al. (2018, p. 10). supra note 11, at 12.

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panel’s findings, which would eventually diminish the role of the panel stage.24 Consistently since the establishment of the WTO, about two-thirds of panel reports have been appealed as of 2016.25 However, we should not disregard the role of the panel process. For instance, 90% of the cases filed to the WTO between developed countries are settled in the consultation or panel stage without going to the AB.26 In disputes fought between developing countries, almost three-fifths of the panel reports were adopted by the DSB without appeal.27 Although the dysfunction of the AB has a significant impact on the WTO at large, it does not terminate the WTO dispute settlement mechanism. In other words, we should not throw the entire crown away even if there are cracks in the jewel on top of it. Why do parties appeal so often although they can appoint panelists of their choice? One of the significant differences between panelists and AB members is that parties can choose persons they think fit the case at hand. In nearly two-thirds of the cases, however, panelists have been appointed by the Director-General of the WTO due to the failure to reach an agreement between the disputing parties. Common sense might indicate that in these types of high stakes cases with severe disagreements among parties about the selection of panelists that the likelihood of an appeal by one or both parties would increase. In reality, however, almost three-fourths of panel reports issued by panels composed of party-selected panelists have been appealed. The appeal rate of panel reports issued by party-chosen panels amounts to 40%, which is higher than those in non-appealed disputes, where less than 30% of panels were composed based on the agreement by the parties. Thus, agreement on panelists by disputing parties, by itself, does not make a panel more accountable or satisfactory to the disputing parties. Another difference between the panel and AB processes is the strictness of the deadline requirement. Strangely enough, a panel’s failure to meet the maximum period of nine months for panel deliberation under Article 12.9 DSU is not seen as problematic by the DSB and individual member states, in contrast to the stark criticisms against the failure by the AB to meet the 90-day deadline.28 Although the nature of deadlines might be different between the panel and AB processes,29 persistent delays in the panel process should cause delays in the entire dispute settlement proceeding. 24 “This same delegation, however, cautioned against a standing appeal procedure, noting that the availability of such a procedure would result in virtually every case being appealed.” Meeting of 28 September 1989 (1989). See also Petersmann (1997, p.188). 25 For statistical data, see Johannesson and Mavroidis (2016, p. 3). 26 Kobayashi (2014, p. 182). 27 In contrast, in disputes between developed countries, only one-fourth of the panel reports were adopted by the DSB without appeal. Id. 28 See e.g., US Statement at the DSB on 25 February 2019, supra note 13, at 13. 29 Article 12.9 DSU reads “In no case should the period from the establishment of the panel to the circulation of the report to the Members exceed nine months” (emphasis added) for the duration of panels; Article 17.5 DSU reads “In no case shall the proceedings exceed 90 days” (emphasis added) for duration of the AB’s proceedings.

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Against this background, how can we use the panel stage to save the AB phase? Hiring “more” qualified and reliable panelists is highly desirable. For more than a decade, there have been proposals to set up rosters of chairpersons, adding to the indicative list of non-governmental panelists under Article 8.4 DSU. The DSB can create non-binding rosters without amending DSU at any time. However, just like the similar indicative list under the Agreement on Subsidies and Countervailing Measures (SCM Agreement), they would be less influential in practice. In addition, due to the length of time and high probability of appeal, as well as the nationality requirement (Article 8.3 DSU), retaining experienced and busy experts to the panel process is becoming increasingly difficult. Finally, as mentioned in the introduction, we do not have convincing legal reasoning to prevent a Member from exercising the right to appeal against the panel report to block its adoption by the DSB, even though it is futile or impracticable. We need a new approach to revitalize the role of the panel process and save the WTO dispute settlement mechanism as a whole.

3.2.2

The Proposal for an Alternative Approach

An alternative way to save the function of the appeal mechanism is to transplant the thrust of the appeal function into the panel phase by using “expert review groups” (hereinafter “ERG”) under Article 13.2 and Appendix 4 of the DSU. Paragraph 2 of Article 13 DSU (Right to seek information) reads as follows: Panels may seek information from any relevant source and may consult experts to obtain their opinion on certain aspects of the matter. With respect to a factual issue concerning a scientific or other technical matter raised by a party to a dispute, a panel may request an advisory report in writing from an expert review group. Rules for the establishment of such a group and its procedures are set forth in Appendix 4. (Emphases added.)

The ERG is supposed to handle “a factual issue concerning a scientific or other technical matter,” not a legal analysis conducted by the AB. It is more of a confirmation of the customary elements of the panel procedure under the GATT 1947: the Understanding regarding Notification, Consultation, Dispute Settlement and Surveillance as part of the Tokyo Round agreements (so-called DSU 1979) states, “[p]anels often consult with and seek information from any relevant source they deem appropriate, and they sometimes consult experts to obtain their technical opinion on certain aspects of the matter.”30 However, there was a different origin during the drafting of the DSU under the Uruguay Round negotiations. As early as April 1990, when there were still disagreements about the need to establish the appeal mechanism, a delegation suggested creating a review mechanism inside the panel process as an alternative means to establishing a standing Appellate Body as follows: One delegation suggested that in order to improve the quality of the legal reasoning by panels, draft panel reports could be submitted to an expert body and that changes proposed by such 30 Understanding regarding Notification, Consultation, Dispute Settlement and Surveillance (1979).

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Fig. 1 Place of the expert review group in the panel stage

a body would be incorporated by the panels automatically or, if not accepted, submitted to the contracting parties along with the panel reports. (Emphases added.)31

According to a commentary of the Uruguay Round, “[m]any [delegations] generally supported” this idea at that time.32 This idea was not included in the Chairman’s text in October 1990 that contained the idea to establish a standing Appellate Body33 or the final version of the DSU. Nonetheless, the idea of using a group of experts to review the interim panel report would make sense when the appeal mechanism does not function properly (Fig. 1). Using the ERG has several practical advantages. Above all, an ERG is a panel’s subsidiary, which is “under the panel’s authority” and “shall report to the panel” in accordance with paragraph 1 of Appendix 4 (Expert Review Groups) to the DSU. The relationship between the panels and the AB is reversed, which would alleviate Members’ concerns about its power. Secondly, members of the ERG should be experts of “professional standing and experience in the field in question” (paragraph 2 of Appendix 4 DSU). Although ERG members must, in principle, not be the citizens of the disputing parties, this requirement can be lifted if “the panel considers that the need for specialized scientific expertise cannot be fulfilled otherwise” (paragraph 3 of Appendix 4 DSU). In contrast to the selection of the panelists that the disputing parties have the discretion to lift the non-citizenship requirement (Article 8.3 DSU), the panel has full discretion in the composition of the ERG. To facilitate integrity in the selection of ERG members for individual cases, the DSB might create and maintain an indicative list of qualified individuals at its discretion under Article 2.1 DSU,34 possibly selecting from the indicative list for panelists maintained under Article 8.4 DSU. Thirdly, with regard to the mandate of the ERG, the panel may require the ERG to report findings, by providing either factual or legal analyses since “factual issues concern scientific or other technical matter” under Article 13.2 DSU refers to the issue on the side of the panel, not the ERG. Compared to the AB, ERG can make new factual findings, along with a review of legal reasoning made by the panel. The ERG can hear opinions from both parties as quasi-appellant and quasi-appellee, in accordance with its power to “seek information […] from any source” (paragraph 4 of Appendix 4 DSU). Confidential information will be protected under paragraph

31 Meeting

of 5 April 1990 (1990). (ed), supra note 17, at 2768. 33 Chairman’s Text on Dispute Settlement (1990). 34 This can be an action that falls outside of the “decision” under Article 2.4 DSU, which can be made by voting. 32 Stewart

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5 of Appendix 5. Finally, the ERG submits the final “advisory report” (Article 13.2 DSU) to the panel that “shall be advisory only” (paragraph 6 of Appendix 4 DSU). In this vein, ERG’s institutional subordination to panels and non-binding nature of ERG reports would alleviate concerns of the Members over the abusive exercise of the ERG’s authority, which would enable disputing parties to agree not to appeal against the panel report. Therefore, removing the risk of procedural stalemate under Article 16.4 DSU, while incorporating the essence of the appeal mechanism with less political concerns over abuse of power, is the key to this proposal. Theoretically, the panels can agree on the working procedures to incorporate ERG’s findings by negative consensus, i.e., incorporate the ERG report unless they determine not to by consensus. The Secretariat is able to create a standard template for ERG’s working procedures, preferably with consultation and input from the DSB. Alternatively, the DSB may act proactively to draft standard working procedures under Article 2.1 DSU, which would fall outside of the “decision” under Article 2.4 DSU. A standard format does not force all the disputing parties to adopt it for the individual dispute. However, once the number of AB members falls short of three, there is no institutional safeguard to ensure adoption of the panel report. Use of a quasi-appeal review mechanism would be a valuable safeguard to abstain the right to appeal for both sides of the dispute. Though the use of ERG would lead to further prolongation of the panel process, it would not be an issue, as shown in the previous Sect. 3.2.1.

4 Conclusions Lincoln’s House Divided speech was delivered a few years before the outbreak of the American Civil War. Today, we do not know precisely how much time we have to improve the unstable political situation. Unfortunately, the most viable opportunity to reform the AB mechanism by amending the DSU provisions appears only when the US becomes so unsatisfied with the issues that they withdraw from the WTO. Obviously, ostracizing the US is hardly a desirable option; maintaining the WTO without the US, or any major trading power, would not be viable as an overarching global institution. My proposal to use expert review groups intends to strike a thin balance between legitimate concerns from sovereign nations against the power of treaty organs, on the one hand and maintaining invaluable functions of the panel and AB stages that have evolved for two decades. There is no panacea that solves all the problems the WTO is facing. With all shortages and uncertainties in the proposals shown above, shouldn’t we act proactively rather than sit back and do nothing? Still, we need to consider as many options as possible to choose the lesser of many evils. Things will not always become “all one thing or all the other.”

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References Ala’i P (2019) The vital role of the wto Appellate Body in the promotion of rule of law and international cooperation: a case study. Yale J Int Law Online 44:86–95 Bradley CA, Goldsmith JL (2018) Presidential control over international law. Harv Law Rev 131:1201–1297 Chairman’s Text on Dispute Settlement, CGT/607-14 (NG/13) of 19 October 1990, reprinted in GATT Doc. No. MTN.GNG/NG5/WGSP/W/26/Rev.1/Corr. (30 Oct 1990) Dispute Settlement Body, Minutes of meeting, Held in the Centre William Rappard on 29 September 2017, WT/DSB/M/402 (24 Jan 2018) General Council, Communication from the European Union, China and India to the general council, WT/GC/W/753 (26 Nov 2018) General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore, Mexico and Costa Rica to the general council, WT/GC/W/752/Rev.1 (10 Dec 2018) General Council, Decision of 6 December 2005—Amendment of the TRIPS Agreement, WT/L/641 (8 Dec 2005) General Council, Guideline development discussion—Communication from the separate customs territory of Taiwan, Penghu, Kinmen and Matsu to the general council, WTO Doc. WT/GC/W/763 (12 Feb 2019) Hillman J (2018) Three approaches to fixing the World Trade Organization’s Appellate Body: the good, the bad and the ugly? 3-2018 Georgetown University Law Center, IIEL Issue Briefs series Johannesson L, Mavroidis PC (2016) The WTO dispute settlement system 1995–2016: a data set and its descriptive statistics. EUI Working Paper RSCAS 2016/72 Kobayashi T (2014) Revisiting the role of panel process in the WTO dispute settlement mechanism. In: Asada M, Kato N, Sakai H (eds) International adjudication and the development of contemporary international law. Sanseido, pp 167–190 Lighthizer (2019) Appellate Body blocks the only way to ensure reforms. Inside US Trade’s Daily Report. https://insidetrade.com/daily-news/lighthizer-appellate-body-blocks-onlyway-ensure-reforms Matsushita M (forthcoming) Reforming the Appellate Body. In: (this book). Springer, pp 8–9 (Waiting for exact information about this book) Meeting of 28 September 1989, Note by the Secretariat, GATT Doc. No. MTN.GNG/NG13/16 (13 Nov 1989) Meeting of 5 April 1990, Note by the Secretariat, GATT Doc. No. MTN.GNG/NG13/19 (28 May 1990) Mulligan SP (2018) Withdrawal from international agreements: legal framework, the Paris agreement, and the Iran nuclear agreement. US Library of Congress. https://www.hsdl.org/?view& did=810432 Payosova T et al (2018) The dispute settlement crisis in the World Trade Organization: causes and cures. Peterson Institute for International Economics Policy Brief 18-5 Petersmann EU (1997) The GATT/WTO dispute settlement system: international law, international organizations, and dispute settlement. Kluwer Law International Petersmann EU (2018) Petersmann on “How should WTO members respond to the WTO Appellate Body crisis?”. International Economic Law and Policy Blog. https://worldtradelaw.typepad.com/ ielpblog/2018/12/ulli-petersmann-on-how-should-wto-members-respond-to-the-wto-appellatebody-crisis.html Statements by the United States at the meeting of the WTO Dispute Settlement Body (2019) https:// geneva.usmission.gov/wp-content/uploads/sites/290/Feb25.DSB_.Stmt_.as-deliv.fin.public.pdf Stewart TP (1993) The GATT Uruguay round: a negotiating history (1986–1992), vol 2. Kluwer Law and Taxation Understanding regarding notification, consultation, dispute settlement and surveillance, GATT Doc. No. L/4907 (28 Nov 1979)

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WTO (2009) Remarks by the director-general Pascal Lamy in 2009. WTO Disputes Reach 400 Mark. WTO. https://www.wto.org/english/news_e/pres09_e/pr578_e.htm Yale symposium on trade law under the trump administration. http://www.yjil.yale.edu/featuressymposium-international-trade-in-the-trump-era/. Accessed 26 Mar 2019

Tomohiko Kobayashi is professor of international economic law at the Department of Law, Otaru University of Commerce. His recent research focuses on emerging risks of “circumvention” of international norms, because legal subjects tend not to violate laws, but they do try to avoid laws by manipulating measures to make their actions beyond the scope of the disciplines, thereby reducing the applicability of the disciplines and undermining their fundamental purpose. These phenomena are prevalent in multiple fields of international law, especially international trade law such as antidumping, agricultural export subsidies, and dispute settlement that he addressed in his chapter of this book. He taught international trade law at Jagiellonian University, Poland (2019), National Chung Hsing University, Taiwan (2016–17) and Far Eastern Federal University, Russia (2014) as visiting professor, along with several Japanese universities. He was visiting researcher at the Fletcher School of Law and Diplomacy, Tufts University, US (2008–09) (fully funded by the Fulbright grant). Before coming back to academia, he was deputy director at the Japanese Ministry of Economy, Trade and Industry (METI) (2005–07), where he engaged in Doha Round rules negotiations and WTO dispute settlement. He holds two LL.M. degrees from Kyoto University (2001) and University of California at Berkeley (2015). His recent publications include “Sustainable Resource Development in the Arctic: Using Export Trade Agreements to Restrict Environmentally Harmful Subsidies,” Polar Record, Vol.55 (2019 forthcoming); “Memento Mori: Membership Issues in the Entry into, Modification of, and Withdrawal from the TPP,” in J. Chaisse, H. Gao and C. Lo (eds.), Paradigm Shift in The Rule-Making of International Economic Law: TPP as a New Model for Trade Agreements? (Springer, 2017), pp. 458–473; “Revisiting the Legal Nature of “Un-Signing” an Unratified Treaty: Broader Implications of U.S.’ Withdrawal from the TPP,” Asian Journal of WTO & Int’l Health Law and Policy, Vol. 12, No. 2 (2017), 381–403; “Running Many FTAs is Like Balancing between Many Bicycles: A Multidimensional Comparison of Institutional Provisions in Japan’s FTAs,” in Shotaro Hamamoto, Hironobu Sakai and Akiho Shibata (eds.), L’Etre Situé, Effectiveness and Purposes of International Law: Essays in Honour of Professor Ryuichi Ida (Brill, 2015), pp. 115–143; and, “Revisiting the Role of Anti-Circumvention Provisions Under the WTO Agreement: Lessons for East Asia,” Korean Journal of International and Comparative Law, Vol. 2, No. 2 (2014), 139–163.

Part III

Options to Address the Crisis and Wider Implications Beyond the WTO

Chapter 13

Disruptive Construction or Constructive Destruction? Reflections on the Appellate Body Crisis Henry Gao

Abstract Over the past few months, the blockage of the Appellate Body appointment process by the United State (U.S.) has emerged as the biggest existential threat to the World Trade Organization (WTO). In response to the criticisms from other WTO Members, the U.S. justified its action as a way to raise people’s attention on long-standing problems in the Appellate Body (AB). Are the U.S. criticisms valid? Even if assuming that the U.S. allegations are correct, is the specific approach that the U.S. has taken legitimate? Drawing from both the treaty text and jurisprudence of WTO law, this chapter argues that the U.S. criticisms, especially those concerning the systemic issues in WTO dispute settlement, are deeply flawed. Moreover, this chapter also argues that, regardless of the validity of the substantive claims of the U.S., the U.S. has chosen the wrong approach by holding hostage the entire AB appointment process. This chapter concludes with practical suggestions on how to overcome the AB crisis and restore its functions. Keywords Appellate Body · Dispute settlement · Stare decisis · Precedent · Common law · Civil law

1 Disruptive Construction: The U.S. Criticisms The U.S. blockage started on 11 May 2016, when the U.S. government announced that that they would block the reappointment of AB member Prof. Seung Wha Chang. In a joint statement issued by Deputy United States Trade Representative (hereinafter USTR) Michael Punke and USTR General Counsel Tim Reif, the U.S. stated that: [T]he United States is strongly opposed to Appellate Body members deviating from their appropriate role by restricting the rights or expanding the obligations of WTO Members under the WTO agreements…. The United States will not support any individual with a 1 record of restricting trade agreement rights or expanding trade agreement obligations. 1 Caporal

(2016).

H. Gao (B) School of Law, Singapore Management University, Singapore, Singapore e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_13

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At the Dispute Settlement Board (hereinafter DSB) meeting held later the same month, the U.S. explained its actions by naming four reports in which Prof. Chang allegedly “add[ed] to or diminish[ed] the rights and obligations provided in the covered agreements.”2 In three of the four reports, the U.S. accused Prof. Chang of addressing issues which were moot (Argentina—Financial Services), not appealed (India—Agricultural Products), or not raised by parties (US—Countervailing Measures (China)).3 According to the U.S., these amounted to obiter dicta as they are not related to “issues necessary to resolve the dispute”.4 As to the fourth report (US— Countervailing and Anti-Dumping Measures (China)), the U.S. claimed that the AB has adopted “a very problematic and erroneous approach to reviewing a Member’s domestic law” by “substitut[ing] the judgment of WTO adjudicators for that of a Member’s domestic legal system as to what is lawful under that Member’s domestic law”.5 However, the U.S. opposition turned out to be short-lived, as the U.S. agreed to the launch of the appointment process for the vacancy left by Prof. Chang. On 23 November 2016, Mr. Hyun Chong Kim of Korea was appointed as the successor to Prof. Chang.6 After Donald Trump took the office of U.S. president in January 2017, however, things started to take wrong turns. 2017 witnessed the departure of two AB members, i.e., Mr. Ramirez-Hernandez and Prof. Van den Bossche, whose terms expired on 30 June 2017 and 11 December 2017 respectively. Initially, the selection process for their replacements were held up as WTO Members debated over whether a single selection process or two separate processes should be launched.7 When a consensus started to emerged in June 2017, the U.S. indicated that it “was not in a position to support the proposed decision to launch a process to fill a position on the Appellate Body that would only become vacant in December 2017” due to “the ongoing transition in the U.S. political leadership and the recent confirmation of a new U.S. Trade

2 Mission

of the United States, Statement by the United States at the Meeting of the WTO Dispute Settlement Body (23 May 2016), 1, 12–13. DSB. https://geneva.usmission.gov/wp-content/ uploads/sites/290/May23.DSB_.pdf. These four reports: Appellate Body Report, Argentina—Measures Relating to Trade in Goods and Services, WT/DS453/AB/R and Add.1 (adopted 9 May, 2016), at 431; Appellate Body Report, India—Measures Concerning the Importation of Certain Agricultural Products, WT/DS430/AB/R (adopted 19 June, 2015), at 2459; Appellate Body Report, United States—Countervailing Duty Measures on Certain Products from China, WT/DS437/AB/R (adopted 16 Jan 2015), at 7; and Appellate Body Report, United States—Countervailing and AntiDumping Measures on Certain Products from China, WT/DS449/AB/R and Corr.1 (adopted 22 July 2014), at 3027. 3 Id. at 13–15. 4 Id. at 15. 5 Id. 6 WTO Appoints Two New Appellate Body Members, World Trade Organ (23 Nov 2016). https:// www.wto.org/english/news_e/news16_e/disp_28nov16_e.htm. 7 See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 20 February 2017, para 11, WT/DSB/M/392 (20 Feb 2017).

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Representative”.8 In July, however, the U.S. softened its approach by announcing that “despite the ongoing transition in its political leadership, it had received guidance that it would be acceptable to launch a process given the expiry of Mr. Ramírez’s second term on 30 June 2017.”9 Then on 1 August 2017, Mr. Kim tendered his resignation with immediate effect as he was tapped to be Korea’s Minister of Trade, a position he formally assumed 3 days later.10 When the DSB reconvened later that month, the U.S. raised several concerns. First, Mr. Kim had been a member of the AB division in the appeal on “European Union—Anti-Dumping Measures on Imports of Certain Fatty Alcohols from Indonesia (DS442)”, the report of which would only be issued on 5 September 2017.11 Since the report would bear the name of Kim, who would no longer be an AB member by then, the U.S. is concerned with a potential violation of Article 17.1 of the Dispute Settlement Understanding (hereinafter DSU), which stated that “three [AB members] shall serve on any one case”. Similarly, Mr. Ramírez was serving on the same appeal, even though his term had expired on 30 June 2017.12 Thus, when the AB report is circulated, only one signatory would still be a sitting AB member. The U.S. considered these to be “unprecedented circumstances” and urged the DSB to “consider the implications and decide how to handle this situation”. Moreover, in addition to this dispute, Mr. Ramírez also continued to serve on 2 other appeals after expiration of his term13 pursuant to Rule 15 of Working Procedures for Appellate Review, which provides that “A person who ceases to be a member of the Appellate Body may, with the authorization of the Appellate Body and upon notification to the DSB, complete the disposition of any appeal to which that person was assigned while a member”. While recognizing the expediency of the Rule, the U.S. argued that the power to appoint and reappoint an AB member remained the prerogative of the DSB according to Article 17.2 of the DSU. In summary, the U.S. insisted that the DSB should consider these systemic issues first before moving forward with the AB appointment process.14 When other Members criticized the U.S. for linking up the two seemingly separate issues, the U.S. defended its position by stating that these are all part of its “long-standing concerns frequently expressed in the DSB” and “simply moving forward with filling vacancies risked perpetuating and leaving unaddressed the concerns that the United States believed required the urgent attention of the DSB”.15 8 See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 19 June 2017, para 8.3, WT/DSB/M/398 (19 June 2017). 9 See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 20 July 2017, para 5.14, WT/DSB/M/399 (20 July 2017). 10 See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 31 August 2017, para 5.1, WT/DSB/M/400 (31 Aug 2017). 11 Id. at para 5.3. 12 Id. at para 5.4. 13 Id. at para 5.5. 14 Id. at para 7.3. 15 Id. at para 7.11.

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In the ensuing months, the U.S. continued its blockage of the AB selection process, but its “long-standing concerns” regarding the AB remained elusive. These concerns were finally spelt out in detail when the USTR published the 2018 President’s Trade Policy Agenda on 28 February 2018.16 Since then, these concerns have been repeated by the U.S. in several DSB meetings,17 including most recently the DSB meeting on 25 February 2019.18 So far, the U.S. criticisms have been dropped like a laundry list every time they were mentioned and the U.S. has shown no intention to organize them in a meaningful way. In an effort to make some sense out of the U.S. concerns, I have grouped them into three areas: 1. Procedural issues: These include the AB’s disregard of the 90-day deadline for appeals,19 and the AB’s frequent reference to Rule 15 since 2017 to allow the continued service of AB members on appeals even after their terms have formally expired.20 2. Substantive issues: These are mainly issues arising from decisions of panels and the AB which the U.S. regarded as adding to or diminishing the rights and obligations of WTO Members under the WTO Agreements.21 Some of the leading examples include prohibition of zeroing practices in antidumping, the “public body” jurisprudence in subsidies and countervailing duties, the addition of “unforeseen development” requirement in safeguards, and consideration of factors unrelated to national origins when deciding whether a treatment is “less favourable” under Article 2.1 of the Technical Barriers to Trade (hereinafter TBT) Agreement. 3. Systematic issues: The U.S. also identified systemic problems relating to the judicial approach of the AB. For example, the AB has required the panels to treat their reports essentially as precedents and follow them absent “cogent reasons”.22 Another related problem is the increasing tendency of the AB to issue “obiter dicta” or “advisory opinions” which are unnecessary to resolve disputes.23 According to the U.S., such practices lack proper basis under the DSU and encroach on the exclusive power of the Ministerial Conference and 16 Office

of the United States Trade Representative (2018). for example, Mission of the United States (29 Oct 2018) Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 1, 53–54. DSB. https://geneva.usmission.gov/ wp-content/uploads/sites/290/Oct29.DSB_.Stmt_.as-delivered.fin_.rev_.public.pdf; Mission of the United States (21 Nov 2018), Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 1, 38–39. DSB. https://geneva.usmission.gov/wp-content/uploads/sites/290/ Nov21.DSB_Stmt_.as-deliv.fin_.public.pdf. 18 Mission of the United States (25 Feb 2019) Statements by the United States at the Meeting of the WTO Dispute Settlement Body, 1, 12–14. DSB. https://geneva.usmission.gov/wp-content/uploads/ sites/290/Feb25.DSB_.Stmt_.as-deliv.fin_.public.pdf. 19 Id. at 24–25. 20 Id. at 25–26. 21 Id. at 22–24. 22 Id. at 28. 23 Id. at 26–27. 17 See

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General Council to “make laws” and adopt interpretations. The U.S. also raises concerns regarding the AB’s review of the factual findings of the panel, which goes against the DSU as Article 17.6 explicitly limits the scope of appeals to legal issues only.24 Similarly, the AB regards the meaning of a Member’s domestic measure as a matter of law reviewable on appeal, while the U.S. argues that it should be a matter of fact and thus non-reviewable by the AB.25 To be fair, many of the U.S. criticisms are not illegitimate and they do raise important questions under WTO law. However, in my view, it is one thing to say that what the AB did was wrong, it is a totally different matter to expect a solution to the issue just by pointing fingers at the AB. To start with, some of the problems are not of the AB’s own creation. Take the procedural defects identified, for example: The disregard of the 90-day limit is because the deadline is simply impossible to meet in many cases due to the complexity of the legal issues and human resources constraints of the AB and its Secretariat. Similarly, Rule 15 was also introduced on grounds of expediency, as involving another AB member would only cause further delay to the appeal process. The proper solutions to these problems should have been increasing the resources available to the AB or, if that is not possible, relaxing the 90-day rule. As to the complaints on the substantive jurisprudence of the AB, I would note, first of all, that not all WTO Members share the U.S. view that these decisions are wrong. Even if we, for the purpose of argument, assume that there indeed are some jurisprudences that all WTO Members regard as problematic, the more appropriate action should be seeking official interpretation by the WTO General Council or Ministerial Conference. One might argue that this is not possible due to the difficulty for WTO Members to achieve consensus in recent years, but then it is a problem with the legislative branch of the WTO that should not be blamed on the AB. The systemic issues, however, are much more difficult to tackle. This is because they reflect deeper questions about the nature of the WTO dispute settlement system. Moreover, issues of judicial approach are often part of the judicial style of a tribunal, and it is hard to dictate rules beforehand without severely limiting the judicial discretion accorded to the tribunal. In this chapter, I will address these issues by first discussing whether the WTO has a system of precedents, then analysing whether the current WTO rules prohibit “obiter dicta” or “advisory opinion”.26

2 A System of Precedents? There are two possible ways to argue that the WTO has a system of precedents. The first is arguing that the WTO legal system adopts the Common Law system, which implies the existence of a precedent system as it is a hallmark of Common Law. Even 24 Id.

at 27. at 27–28. 26 Some of the arguments in the following sections are based on Gao (2018). 25 Id.

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if this argument does not work, one may still argue that the WTO has rules allowing precedents. In this section, I will prove that neither argument is valid.

2.1 Common Law System? It has long been debated whether the nature of WTO dispute settlement system is more similar with the Common Law System or Civil Law System. In my view, the WTO dispute settlement system has, on balance, more resemblance with the Civil Law System for the following reasons. First, the main difference between the two legal systems lies in the source of law. While Civil Law countries only recognize formal legislation as the only source of law, Common Law jurisdictions tend to include judicial decisions or judge-made law as a source as well.27 In the WTO, the paramount role of formal legislations has been repeated ad nauseam. These legislations are known, in the WTO parlance, as “covered agreements”, i.e., agreements listed in Appendix 1 of the DSU.28 In the DSU, the phrase “covered agreement” appeared 72 times in the main text and seven times in the Appendixes and footnotes in either singular or plural forms. The key provision is Article 3.2, which emphasizes that the purpose of the dispute settlement system is “to preserve the rights and obligations of Members under the covered agreements”. It also warns that the DSB “cannot add to or diminish the rights and obligations provided in the covered agreements” in its recommendations and rulings, which is repeated verbatim in Article 19.1. Similarly, according to Article 7.1 and 11, the function of the panel is confined to examine the consistency of the challenged trade measure with the relevant provisions in the “covered agreements”. Such slavish reliance on legislations can only be found in the Civil Law system. The second difference is the role of the judge. While Common Law judges assume an active role as potential law-maker, the role of the judiciary in Civil Law countries is reduced to that of a technical29 or even grammatical30 interpreter within rigid parameters because of the monopolization of the law-making power by the legislature.31 This approach is grounded in the idea that the Codes provide a complete and perfect set of legal text that can encompass “all cases that life could possibly offer”32 and judges are “merely applying pre-existing rules—the rules laid down in the code”.33 Again, such an approach is adopted by the WTO legal system, which 27 See

Dainow (1966–1967), pp. 423–424. See also Sacerdoti (2011). Understanding on Rules and Procedures Governing the Settlement of Dispute Article 1.1, 15 Apr 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401 [hereinafter DSU] and Appendix 1 of the DSU. 29 Dainow, supra note 27, at p. 421. 30 Lasser (1995, p. 1327). 31 Sacerdoti, supra note 27, at p. 4. 32 Benayas (1982, p. 1645). 33 Posner (2008, p. 144). 28 See

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does not recognize any source of law other than the sacred “covered agreements”. The role of a WTO panel, according to Article 11.1 of the DSU, is to make “an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements”. The wordings suggest that all that a WTO panel needs to do is to mechanically apply the covered agreements and then determine the conformity of the challenged measure accordingly. Indeed, it could even be argued that, strictly speaking, WTO panel and Appellate Body do not even have the power to “interpret” the covered agreements. Instead, according to Article 3.2 of the DSU, they only have the power to “clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law”. On the other hand, one could argue that such approach is naive and unworkable and may even point to the reference to “legal interpretations developed by the panel” under Article 17.6 as an implicit acquiescence of the interpretive power of the panel. But any faith one might place on such implicit interpretive power must be severely shattered in the face of the explicit warning under Article 3.9 that “[T]he provisions of [the DSU] are without prejudice to the rights of Members to seek authoritative interpretation of provisions of a covered agreement through decision-making under the WTO Agreement”. In other words, here the WTO legal system is again taking the traditional Civil Law approach. One could even say that it is much stricter than that of most modern Civil Law countries, and only falls an inch short of the explicit ban on the interpretive power of judges by the Roman emperor Iustinianus in his Codex.34 Third, another key difference between Common and Civil Law systems is whether the judicial decisions are made on a collective or individual basis. In Civil Law jurisdictions, “judicial decision is rendered by the entire court as a unit” with judges remain “anonymous”.35 Individual opinions such as “[d]issenting and concurring opinions are forbidden”36 or at least discouraged.37 In contrast, a defining feature of Common Law courts decisions is the “personalisation” of views,38 with each judge given the freedom to expound on his own point of view.39 Indeed, it could even be said that a Common Law judgment is “the sum of the decisions of the individual judges”.40 While the WTO legal system does not directly address the issue, we can find the following hints pointing to stronger influence from the Civil Law system: A. Under the DSU, strictly speaking, it is not the panel or the AB which decides individual disputes. Their role is limited to making recommendations to the

34 Sacerdoti,

supra note 27, at n.11. supra note 27, at p. 432; Terris et al. (2007, p. 123). 36 Lasser, supra note 30, at p. 1342. 37 Sacerdoti, supra note 27, at p. 4. 38 Id. 39 Dainow, supra note 27, at p. 432. 40 Terris et al., supra note 35, at p. 123. 35 Dainow,

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DSB,41 which is the WTO Membership acting on a collective basis.42 As argued by Debra Steger: [T]he Appellate Body only has jurisdiction for a particular appeal once a notice of appeal has been submitted to the DSB, and that jurisdiction is lost once its report has been circulated and adopted by the DSB. It does not have any continuing jurisdiction outside of these periods during particular appeals. There is no true separation of powers in the WTO. The DSB (a political body) governs the dispute settlement system: it decides to establish panels, adopt panel and Appellate Body reports (which have no legal status until they are “blessed” by the DSB) and authorize suspension of concessions.43

In other words, “[i]t is the DSB that makes decisions, and the role of the Appellate Body is to advise the DSB on what to do”.44 Thus, “[t]heir status is clearly subsidiary to that of the Dispute Settlement Body”.45 Such approach could not be further from the individualist approach in the Common Law system. B. In the DSU, reference to the panel or AB decision in a given case always refer to “the report”, implying that it is the decision by the panel or AB as a whole rather than the sum of individual opinions. The Working Procedure of the AB made this explicit, by stating that the AB shall “make every effort to take their decisions by consensus”46 as the appellate process is a collegial process that is designed to “ensure consistency and coherence in decision-making, and to draw on the individual and collective expertise of the Members”.47 One may argue that this is not the case, as Article 17.1 of the DSU states that only three out of seven AB members shall “serve on any one case” as a Division. However, one should not mistake this to mean that the other four Members play no role as there is the practice of “Exchange of Views”,48 whereby “the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the appellate report for circulation to the WTO Members”.49 To ensure even members who are not part of a Division would make meaningful contributions, the Working Procedures also explicitly state that “each Member shall receive all documents filed in an appeal”. As explained by former AB Secretariat Director Valerie Hughes and former AB Chairman Claus-Dieter Ehlerman, such exchange of views is not merely rubberstamping the decision of the Division but has been “of enormous benefit to the work of the Appellate Body” by allowing 41 See

e.g., Article 11 of the DSU, which states that “[t]he function of panels is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements”. 42 Marrakesh Agreement Establishing the World Trade Organization Articles. IV:2 & 3, 15 Apr 1994, 1867 U.N.T.S.154 [hereinafter WTO agreement]. 43 Steger (2017, p. 448). 44 Matsushita (2017), supra note 43, at p. 548. 45 Bartels (2004, p. 864). 46 WTO Appellate Body, Working Procedures for Appellate Review, at Rule 3(2), WT/AB/WP/6, (16 Aug 2010). 47 Id. at Rule 4(1). 48 Hughes (2004, pp. 127–128). 49 WTO Appellate Body, supra note 46, at Rule 4(3).

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Divisions “to draw on the individual and collective expertise of all members”.50 This is confirmed by the first AB Secretariat Director Debra Steger, who noted that: [i]n one particular early appeal, the exchange of views took five days, including two days during which the Appellate Body members listened with tremendous respect to a member who was not part of the division for that particular case as he tried several different ways to convince the division of his point of view.51

C. Under the DSU, there is no explicit prohibition of dissenting or individual opinions like in the European Court of Justice.52 The only implicit reference to dissent can be found in Rule 3(2) of the Working Procedure, which states that the AB shall “make every effort to take their decisions by consensus”.53 While there have been calls to allow dissenting opinions by some scholars,54 they remain extremely rare in both Panel and AB reports.55 In practice, as the DSB always adopts the panel or AB report as a whole, the Common Law approach of allowing individual and sometimes conflicting opinions could create difficulties for WTO Members. If a report with dissent is adopted, does it mean that the dissenting opinion is accepted by the WTO Membership as well? Thus, it seems safer to follow the Civil Law tradition of not allowing dissents, or at least not encouraging them. Steger provided some hint into the origin of the AB’s aversion of dissent when she noted that one of the reasons for the lack of dissents is because “some of [the Appellate Body members] emphasises that in their legal systems dissents were not common”. Apparently, these members must be from Civil Law countries. D. The fourth hint for the Civil Law influence can be found under Article 14.3 and 17.11, which mandates that opinions expressed in the panel or AB report by individual panellists or AB members “shall be anonymous”. Instead, the reports are issued by the “faceless foreign judges”56 and nobody is supposed to know who authored particular parts of the decision. This again is a hallmark feature of the Civil Law system.

50 Hughes,

supra note 48, at pp. 127–128; Ehlermann (2002, pp. 612–613). supra note 43, at p. 453. 52 Terris et al., supra note 35, at p. 123. 53 WTO Appellate Body, supra note 46, at Rule 3(2). 54 Matsushita, supra note 44, at pp. 556–57. See also Lewis (2006). 55 This does not mean that there are no disagreements among Appellate Body members, but the Appellate Body worked very hard to reach consensus. See e.g., Lacarte-Muró (2017, pp. 478–479). 56 Bacchus (2002). 51 Steger,

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2.2 System of Precedents While most commentators agree that the WTO dispute settlement system was initially designed more like a Civil Law system, many of them have argued that a system of precedents have been developed over time through the decisions of the WTO’s adjudicative bodies, especially those of the AB.57 Again, I find such view unconvincing. At the outset, we should recall, as John Jackson has pointed out, “the international legal system does not embrace the common law jurisprudence… which calls for courts to operate under a stricter ‘precedent’ or ‘stare decisis’ rule.”58 Thus, it is no surprise that most international tribunals do not follow the rule of stare decisis.59 Some courts explicitly reject the idea. For example, the Statute of the International Court of Justice made it very clear that “[t]he decision of the Court has no binding force except between the parties and in respect of that particular case.”60 While other tribunals do not have such explicit language in their constituting documents, they usually do not recognize the binding authority of previous decisions.61 There has been some suggestions that the International Criminal Court is different in this regard, as Article 21.2 of the Rome Statute states that “[t]he court may apply principles and rules of law as interpreted in its previous decisions.”62 In my view, however, this is far from acceptance of the doctrine of stare decisis, as it merely uses the permissive language “may”, which still falls far short of granting binding force to precedents. Similarly, the concept of precedent is also far from uncontroversial in the multilateral trading system. During the General Agreement on Tariffs and Trade (hereinafter GATT) era, the Contracting Parties took differing views on the issue. The European Economic Community (hereinafter EEC), for example, argued that Panel findings shall be “limited to the specific measures under examination” and should not have precedential effect.63 The U.S., on the other hand, argued that “when the Council adopted a report, those interpretations became GATT law”.64 Moreover, even GATT panels themselves have not recognized the precedential effect of previous panel 57 See Picker (2008,

p. 1083), Bhala (1998, pp. 849–850). [The page seems wrong, since the beginning page of this article is 845. Please kindly check it.]. 58 Jackson (1998, p. 178). 59 For example, in his comprehensive review on the treatment of precedents by international adjudicators, former ICJ President Gilbert Guillaume notes that, while international courts “construct an entire jurisprudence based on their own precedent”, they all “distance themselves in principle from the rule of stare decisis”. Similarly, while “[t]he arbitration tribunals are… inclined to rely on precedent… with rather excessive zeal”, “stare decisis rule is no more applied in ICSID than it is in other international jurisdictional instances.” See Guillaume (2011, pp. 7–16). See also Pauwelyn (2016), at n.1, which notes that “[t]he only international tribunal to date that was set up with a binding rule of precedent (stare decisis) is the Caribbean Court of Justice.”. 60 Statute of the International Court of Justice Article 59, 18 Apr 1946, 33 U.N.T.S. 993. 61 Sacerdoti, supra note 27, at pp. 7–10. 62 Rome Statute of the International Criminal Court, 17 July 1998, 2187 U.N.T.S. 3. 63 Chua (1998, p. 177). 64 Id.

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reports. For example, in the 1989 case of EEC—Restrictions on Imports of Dessert Apples—Complaint by Chile, the Panel refused to follow the 1980 Panel report on EEC—Restrictions on Imports of Apples from Chile,65 even though it involves “the same product and the same parties as the present matter and a similar set of GATT issues”.66 When the WTO came into being, the Ministerial Conference and the General Council was bestowed exclusive authority to adopt interpretations of the covered agreements.67 With such explicit grant of the interpretive power, it is not unreasonable to infer that such authorities cannot be exercised by other institutions.68 This in turn means that, in principle, the legal interpretations adopted by the Panel and AB do not have precedential power. Notwithstanding this, many commentators have argued that stare decisis does exist69 and WTO AB reports do have “precedential value”.70 In the paragraphs that follows, I will investigate the validity of this claim with a detailed survey of the key WTO cases. The first WTO case to address the precedential effect of panel reports is the 1996 case Japan—Alcoholic Beverages II. In its report, the Panel stated that “panel reports adopted by the GATT CONTRACTING PARTIES and the WTO Dispute Settlement Body constitute subsequent practice in a specific case by virtue of the decision to adopt them. Article 1(b)(iv) of GATT 1994 provides institutional recognition that adopted panel reports constitute subsequent practice. Such reports are an integral part of GATT 1994, since they constitute ‘other decisions of the CONTRACTING PARTIES to GATT 1947’”.71 This view was rejected by the Appellate Body, which noted that, first, under GATT 1947, adopted panel reports only bound “the parties to the dispute in that particular case”, but not subsequent panels; second, only “the conclusions and recommendations in an adopted panel report” are binding, but not the “legal reasonings” in the report.72 Citing the grant of exclusive authority to adopt interpretations by the Ministerial Conference and General Council under Article IX:2 of the WTO Agreement, the AB also held that Panel reports would not “constitute a definitive interpretation of the relevant provisions of [covered agreements]”.73 At the same time, the AB also noted that “[a]dopted panel reports are an important 65 Report of the Panel, EEC—Restrictions on Imports of Apples from Chile, L/5047 (10 Nov 1980),

GATT BISD 27S/98. 66 Report of the Panel, European Economic Community—Restrictions on Imports of Apples—Com-

plaint by the United States, para 12.1, L/6513 (2 June 1989), GATT BISD 36S/135. See also Chua, supra note 63, at p. 178. 67 WTO Agreement, Article IX:2. 68 Chua, supra note 63, at p. 174. 69 See e.g., Bhala, supra note 57, at p. 845; Pelc (2016, p. 177). 70 Chua, supra note 63, at p. 195. 71 Panel Report, Japan—Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R, WT/DS11/R (adopted 1 Nov 1996), as modified by Appellate Body Report, para 6.1, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R. 72 Appellate Body Report, Japan—Taxes on Alcoholic Beverages, para 13, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R (adopted 1 Nov 1996). 73 Id.

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part of the GATT acquis… often considered by subsequent panels”, which “create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute”.74 Even unadopted panel reports could provide “useful guidance” to future panels.75 However, to prevent any illusion on the binding effect of panel reports, the AB also made it explicit that “they are not binding, except with respect to resolving the particular dispute between the parties to that dispute”.76 In a way, it is not surprising that the AB took a cautious approach on the precedential value of panel reports in this case. The AB was barely one year old when the case was decided, thus it is better to avoid controversial statements so as not to undermine its own legitimacy as a new institution. Moreover, the AB did not address the precedential effects of its own reports, a question that is only answered in the subsequent case of US—Shrimp (Article 21.5 Malaysia). In that case, the AB expanded its approach in Japan—Alcoholic Beverages II in two very important ways. First, the AB confirmed that AB reports, just like panel reports, “provided interpretative guidance” for panels.77 This is not very surprising, because it is only natural that the AB, as the institution reviewing panel decisions, would have at least the same power as the panel. Second, in addition to confirming that “[t]he Panel was correct in using [the Appellate Body’s] findings as a tool for its own reasoning”,78 the AB went one step further by stating that the Panel “was right to use” and “rely on” the “reasoning” of the AB report in US—Shrimp.79 This is one big step towards recognizing the precedential effect of AB reports, as the key in a precedent is its ratio decidendi or reasoning. Furthermore, to dispel any speculation that the reasoning in the AB report in US—Shrimp applied to the current case only because the two cases concern the same dispute on the same measure between the same parties, the AB also made clear that such reasoning shall be relied on by not only “the Panel in this case”, but also all “future panels”.80 Some “future panels”, however, chose to ignore the AB’s edict, resulting in a tug of war between the panels and the AB. The most contentious battle is fought over the legality of “zeroing” practices by the U.S., where some WTO panels persistently refused to follow settled AB jurisprudence on the issue. In the US—Stainless Steel (Mexico) case, for example, the Panel refused to follow previous AB decisions even though it was aware that its reasoning is very similar to those of the two Panel 74 Id.

at 14. at 15. 76 Id. at 14. 77 Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products—Recourse to Article 21.5 of the DSU by Malaysia, para 107, WT/DS58/AB/RW (adopted 21 Nov 2001). 78 Id. at para 109. 79 Id. at para 107. The report referred to here is Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, WTO Doc. WT/DS58/AB/R (adopted 6 Nov 1998), at 2755. 80 Id. 75 Id.

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decisions that have been overruled by the AB.81 According to the Panel, such an approach is mandated by Article 11 of the DSU, which requires panels to carry out an objective examination of the matter at issue.82 The EU, one of the third parties in the case, became so frustrated that it asked the AB “to unambiguously re-confirm that all panels are expected and therefore also obliged, to follow its rulings on these issues” (emphasis original).83 Their frustration is shared by the AB, which stated that they “are deeply concerned about the Panel’s decision to depart from wellestablished Appellate Body jurisprudence clarifying the interpretation of the same legal issues”.84 Citing the need to ensure “security and predictability” in the dispute settlement system in Article 3.2 of the DSU, the AB held that “[w]hile the application of a provision may be regarded as confined to the context in which it takes place, the relevance of clarification contained in adopted Appellate Body reports is not limited to the application of a particular provision in a specific case.”85 Thus, the AB concluded, “absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.”86 Does this statement mean that AB reports now shall be treated as binding precedents? While WTO Members differ widely on this issue,87 the strong wordings of the AB certainly provided plenty of ammunition for the claim that the WTO now has a system of binding precedents, or stare decisis.88 However, I think that such exuberance about the existence of a precedent system in the WTO dispute settlement system is not only irrational but also premature, as the AB itself explicitly stated, at the beginning of its discussion on the issue, that “[i]t is well settled that Appellate Body reports are not binding, except with respect to resolving the particular dispute between the parties.”89 Compared to the highly cautionary language used earlier, the

81 Panel

Report, United States—Final Anti-Dumping Measures on Stainless Steel from Mexico, WT/DS344/R (adopted 20 May 2008), as modified by Appellate Body Report, para 7.106, WTO Doc. WT/DS344/AB/R (adopted 30 Apr 2008). 82 Id. 83 In the World Trade Organization before the Appellate Body AB-2008-1, DS344 United States— Final Anti-Dumping Measures on Stainless Steel from Mexico, Third participant notification and written submission by the European Communities, (25 Feb 2008), para 56. 84 Appellate Body Report, United States—Final Anti-Dumping Measures on Stainless Steel from Mexico, para 162, WT/DS344/AB/R (adopted 20 May 2008) [hereinafter US—Stainless Steel (Mexico)]. 85 Id. at para 161. 86 Id. at para 160. 87 See e.g., David’s discussion on the heated debate between WTOP Members when the Appellate Body Report in US—Stainless Steel was adopted. David (2009, pp. 8–9). 88 See Sacerdoti, supra note 27, at p. 14; Davis (2016) Deterring Disputes: WTO Dispute Settlement as a Tool for Conflict Management, 20. https://scholar.harvard.edu/files/cldavis/files/davis2016.pdf; Cho (2016, pp. 20–21); Alford (2008) The Role of Precedent at the WTO. Opinion Juris. http:// opiniojuris.org/2008/05/02/the-role-of-precedent-at-the-wto/. 89 US—Stainless Steel (Mexico), supra note 84, at para 158.

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AB has made it very clear, in a straightforward and unequivocal manner, that there is no formal or de jure system of precedents in WTO dispute settlement.90 Therefore, at most, one can only claim the existence of a de facto precedent system in the WTO, but “it is certainly not stare decisis”,91 as pointed out by John Jackson, who argued that: [the] precedent effect in the jurisprudence of the WTO… is not so powerful as to require panels or the Appellate Body considering new cases to follow prior cases, with the possible exception that once prior cases have been numerous regarding a particular issue and approach, and apparently accepted by all Members of the WTO, then the language of the Vienna Convention about “practice under the agreement,” may suggest a stronger impact. But short of that situation, it appears that the ‘flavor’ of the precedent effect in the WTO is still somewhat fluid, and possibly will remain somewhat fluid for the time being.

To paraphrase Jackson, much of the confusion regarding the precedential effect of the panel and AB reports arose because the word “precedent” is a “complex concept” with “many flavors”.92 To avoid this, Jackson proposed to view the word as “a multilayered concept, or at least as having a number of different approaches of different flavors”. However, as we can see from the foregoing discussion, such an approach could still lead to confusions. Instead, I would suggest ceasing to refer to the previous decisions of the AB as precedents, but to call them as “jurisprudence” instead. Moreover, as Beshkar and Chilton have argued, conferring binding force on AB reports could raise substantive systematic costs.93 For example, WTO Members might rush to bring cases, or at least participate as third parties, in a bid to shape the jurisprudence through litigation.94 Wrong judicial precedents might perpetuate over time as the consensus requirement makes it difficult for the legislative branch to correct them.95 All these will be unfair for the small and poorer countries as they are less likely to participate in WTO disputes.96 In addition to these practical reasons, I would add another very important constitutional reason. The Appellate Body was set up as a “safety valve”97 to check against “rogue” panels98 which might render “bad reports”.99 It was never meant to be a judicial branch that is on par with the legislative branch to safeguard the so-called 90 This view is shared by many Appellate Body insiders. For example, Unterhalter stated that “[t]he WTO dispute settlement system knows no formal system of precedent” in D. Unterhalter, supra note 43, at p. 473. Matsushita stated that “in the WTO jurisprudence stare decisis is not recognized” in Matsushita, supra note 44, at p. 552. Hughes stated that “stare decisis does not apply in the WTO dispute settlement system” in Hughes, supra note 48, at p. 421. 91 Jackson (2006, p. 177). 92 Id. at p. 173. 93 Beshkar and Chilton (2016, pp. 386–388). 94 Id. at pp. 386–387. 95 Id. at pp. 387–388. 96 Id. at p. 387. 97 Hudec (1990, p. 191). 98 Hughes, supra note 48, at pp. 121–122. 99 Steger, supra note 43, at p. 447. See also Van den Bossche (2006).

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separation of powers as under some domestic legal systems. Elevating AB reports to the status of binding precedents could seriously undermine the nature of the WTO as a “Member-driven” organization.100

3 Prohibition of Obiter Dicta or Advisory Opinion? As I have argued above, the WTO does not have a system of precedents as it is not based on the Common Law system nor recognizes the concept of precedents. From this, it naturally follows that there is no room for obiter dicta either, as the concept is unique and “essential”101 to the Common Law system. According to the doctrine of stare decisis102 or precedents, later courts are supposed to follow the holdings by earlier courts.103 Without the concept of dicta, everything stated by the earlier courts would be binding on the later courts. This might not be a problem if the court always restricts itself to what is absolutely necessary for the resolution of the case at hand, but this is rarely the case. Instead, as has been observed by Llewellyn and Aldisert, judges tend to “over-state” their case “in the heat of the argument” and “overwrite opinions”,104 with the result that “discussion outran the decision”.105 Or worse still, judges may deliberately “plant” dicta to steer the development of the law and “preempt colleagues who might later decide a further issue in a manner not to our liking”.106 These concerns make it necessary to draw the distinction. This should have been more than sufficient to conclude the debate on “dicta” in WTO dispute settlement system. However, for the sake of completeness, I’d still analyse in detail here whether the WTO might still have rules against dicta even though it does not have a system of precedent. This is more than pure academic speculation, as many WTO Members, especially the U.S., has repeatedly referred to certain parts of panel reports as “dicta” in their written submissions. Moreover, in view of the controversy surrounding the usage of the term “obiter dicta”, the U.S. has, in its more recent statements, changed its wording to “advisory opinions”, which it defined as “a non-binding statement on a point of law given by [an adjudicator] before a case is tried or with respect to a hypothetical situation.”107 This point, however, is highly contestable as what a WTO Member might view as “obiter dictum” or “advisory opinion” may often be a necessary link in the panel’s 100 For

discussions on WTO as a “Member-driven” organization, see Elsig (2016). supra note 33, at pp. 192–193. 102 According to Black’s Law Dictionary, stare decisis means “to stand by things decided”. However, there has been considerable confusion in determining what “things” have in fact been “decided”. See e.g., Steinman (2013, p. 1810), Abramowicz and Stearns (2005, p. 1094). 103 McAllister (2011, p. 161), Stanford Law Review (1952, p. 513), Greenawalt (1989). 104 Llewellyn (1996, pp. 43–44). 105 Aldisert et al. (2009, p. 19). 106 McAllister, supra note 103, at p. 177. 107 Mission of the United States, supra note 17, at p. 10. 101 Posner,

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overall analysis leading to the final findings. For example, in a case involving the nondiscrimination obligations, the panel would have to first determine if the two products are alike before deciding whether the measure at issue is indeed discriminatory. If the panel makes a negative finding on likeness, this does not mean that the panel should stop its analysis there, because such a finding might be overturned on appeal. Thus, a more prudent course of action for the panel would be to continue making findings on the discrimination issue, lest the AB do not have sufficient facts to “complete the analysis” when the likeness finding is reversed.108 Compared to the allegations from WTO Members, what is even more worrying is the usage of the concept of “dicta” by the AB itself in its own reports. What does the AB mean by “dicta” then? Again this can only be found out from the AB’s own words. The very first case where the AB mentioned dicta is the Canada—Periodicals case, in which the AB held that, the statement by the panel in EEC—Oilseeds109 that “it can reasonably be assumed that a payment not made directly to producers is not made ‘exclusively’ to them” is “obiter dicta” because the panel already found that subsidies paid to oilseeds processors were not made “exclusively to domestic producers”.110 However, the AB does not explain further why such statement is considered dicta. We can only surmise that the statement is regarded as dicta because it is about a moot issue. In the US—Shrimp (Article 21.5—Malaysia) case, the AB told us what is not dicta by stating that “[t]he reasoning in our Report in United States—Shrimp on which the Panel relied was not dicta; it was essential to our ruling”.111 This suggests that dicta is something that is not essential to the ruling of the AB. In the US—Gambling case, the AB visited the issue again, when the parties debated whether the Panel’s statement on whether “practice” as such may be challenged as a “measure”.112 The AB ruled that, as Antigua, the Complaint, was not challenging a practice as such, the Panel’s statement did not constitute a “‘finding’ of the Panel”. Thus, the AB concluded, “the Panel’s statement on ‘practice’, in our view, was a mere obiter dictum, and we need not rule on it.”113 Ironically, however, the AB followed this statement with yet another dictum on dicta, by stating that “We nevertheless express our disagreement with the Panel’s understanding of previous Appellate Body decisions. The Appellate Body has not, to date, pronounced upon 108 For

an analysis on the issue, see Yanovich and Voon (2006). Panel Report, European Economic Community—Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed Proteins, para 137, L/6627 (25 Jan 1990), GATT BISD 37S/86. 110 Appellate Body Report, Canada—Certain Measures Concerning Periodicals, para 33, WTO Doc. WT/DS31/AB/R (adopted 30 July 1997). 111 Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products—Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/AB/RW (adopted 21 November 2001), at para 107. 112 Appellate Body Report, United States—Measures Affecting the Cross-Border Supply of Gambling and Betting Services, paras 129–30, WT/DS285/AB/R (adopted 20 Apr 2005). 113 Id. at para 131. 109 GATT

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the issue of whether ‘practic’ may be challenged, as such, as a ‘measure’ in WTO dispute settlement.”114 From these three cases, we can see that the AB’s main criteria for distinguishing dicta from holding is whether the statement at issue is relevant or essential to the decision. However, like with any other legal issue, the AB’s position here must be supported by provisions in the covered agreements. Unfortunately, the covered agreements do not include any explicit prohibition of dicta. Instead, the claim that dicta are not allowed can only be inferred from WTO provisions, as the U.S. alleged in their statement at the DSB meeting on 23 May 2017. According to the U.S., “more than two-thirds of the Appellate Body’s analysis [in Argentina—Measures Relating to Trade in Goods and Services]—46 pages—is in the nature of obiter dicta” because: The Appellate Body reversed the panel’s findings on likeness and said that this reversal rendered moot all the panel’s findings on all other issues, including treatment no less favorable, an affirmative defense, and the prudential exception under the GATS. Yet, the Appellate Body report then went on at great length to set out interpretations of various provisions of the GATS. These interpretations served no purpose in resolving the dispute—they were appeals of moot panel findings. Thus, more than two-thirds of the Appellate Body’s analysis is comprised simply of advisory opinions on legal issues.115

As mentioned earlier, such a position is premised on the Common Law view that the law-making power of the court arises from its function to solve disputes, thus the rulings which are necessary to resolve the disputes become the holdings, while those which are unnecessary become dicta. Therefore, the hidden assumption of such argument is that the roles of the Panel and AB are limited to resolving trade disputes. A closer reading of the DSU reveals, however, not only there is no support for such a view in the text of the DSU, but also the DSU explicitly requires the panel and AB to go beyond merely solving disputes. First, according to Article 3.2 of the DSU, the WTO dispute settlement system serves not only to “preserve the rights and obligations of Members under the covered agreements”, but also to “clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law”. As explained by Article 3.4, the first function is achieved through “prompt settlement” of disputes. But this apparently does not apply to the second function, as clarifications of treaty provisions often have to be conducted beyond the narrow confines of individual disputes. Indeed, it could be argued that the use of the term “clarify” here widens the general roles of panels and AB and enables them to provide “guidance” to the Members’ future conducts under the covered agreements.116 Second, the panel is under an explicit obligation to “address the relevant provisions in any covered agreement or agreements cited by the parties to the dispute”.117 This means that, even if a provision cited by a party turns out to be inapplicable because the issue is moot, the panel still has to address it. Otherwise, the panel could well be 114 Id.

at para 132. of the United States, supra note 2, at p. 13. 116 Sacerdoti (2006, p. 49). 117 DSU, Article 7.2. 115 Mission

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accused of failing to fulfil its obligation under Article 7.2 and 11, especially if the AB decides to overturn the panel’s finding that the specific provision is inapplicable. Third, Article 17.12 imposes similar obligation on the AB with even more explicit language by requiring the AB to “address each of the issues raised in accordance with paragraph 6 during the appellate proceeding.” Again, failure to comply with the obligation could expose the AB to allegations of violations of its duties under the DSU. Fourth, more importantly, even for issues or provisions not raised by the parties, neither Article 7 nor Article 17 prohibits the panel or the AB from considering or ruling on such issues. To the contrary, as every lawyer knows, they often need to consider the unnamed provisions in order to assess the contexts of the provisions at issue in the litigation. One might argue that such a restriction can be found under Article 17.6, which states that “[a]n appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel.” However, this provision at best only delineates what may be appealed by the parties to the dispute, but it does not impose restrictions on what the AB may rule upon. Even though Article 17.12 refers to Article 17.6, one cannot conclude that the AB is thus subject to the same restriction as it only states that “[t]he Appellate Body shall address each of the issues raised in accordance with [Article 17.6]”. To the contrary, had the Members intended to also limit the power of the AB, they would have used the same language as Article 17.6 here by stating that “the rulings of the Appellate Body shall be limited to issues raised in accordance with paragraph 6 during the appellate proceeding.” To sum up, as the discussions above have illustrated, the covered agreements do not provide any basis for the prohibition of dicta or advisory opinion. Thus, if anything, the AB’s announcement on so-called “dicta” in panel and AB reports is nothing but dictum on dicta. This approach is dangerous not only because it lacks legal basis in the covered agreements, but also because it could backfire when Members in turn borrow the term and accuse the AB itself of rolling out dicta or “advisory opinion”, which is exactly what the U.S. has done in the reappointment saga.

4 Disruptive Construction or Constructive Destruction? To sum up the discussions above, the U.S. criticisms against the AB are only half correct. It is true, as they have claimed, that the WTO does not have a formal precedent system. However, this also means that their allegations of dicta or advisory opinions are unwarranted. Now even if we were to take a step back, and assume, for the sake of the argument, that both of the U.S. claims are correct. Does this then justify the approach the US has been taking on the issue? To senior U.S. officials, the answer has always been yes. For example, Dennis Shea, U.S. Ambassador to the WTO, stated that “for more than 15 years and across multiple U.S. Administrations, the U.S. has been raising serious

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concerns with the AB’s disregard for the rules set by WTO Members.”118 However, nobody paid any attention for all those years. Thus, as USTR Robert Lighthizer put it, blocking AB appointments is “the only leverage [the U.S. has] with the WTO”,119 because, according to Shea, “the discussion of WTO reform would not have happened but for the disruptively constructive leadership of the United States”.120 Many observers, however, have doubts as to whether the U.S. approach is really constructive. For example, while WTO Director General Robert Azevedo acknowledged that “some fruits [might] fall” when someone “begins to shake the tree pretty hard”, he also warned that “you don’t kill the tree by shaking it too hard”.121 In my view, even if the U.S. does not kill the AB, its approach is still quite destructive, as it will create a bad “precedent” of holding the AB hostage, and other countries could follow suit in the future. At the same time, it is also worth pointing out that the U.S. approach is not really constructive at all, because it fails to address the root of the problem: the inability of the legislative branch to reach decisions. Thus, even if the U.S. approach worked, which is highly unlikely, it would only create bad “dicta” as changes at the AB would not contribute to resolving the WTO decision-making crisis. How, then, should we solve the AB crisis? In a recent paper,122 former AB Member Prof. Jennifer Hillman provided three approaches to fix the AB, which she called respectively as: 1. The Good, i.e., to have a separate system for trade remedies, which involves either creating “a special AB to hear only appeals of trade remedy Decisions” or abolishing appeals from panel decisions in trade remedies cases; 2. The Bad, i.e., to bypass the AB process and channel appeals through the Arbitration proceeding under DSU Article 25; 3. The Ugly, i.e., to “fix the procedural matters readily fixable, run the selection process and then appoint new members by vote”. While I agree that the three options are the most likely solutions, I differ in my preferences among the three approaches. In my view, the first option is far from “Good”. If anything, it is a rather “Bad” solution as it defeats the very purpose of having an AB, which is to provide a set of uniform jurisprudence on WTO law. 118 Mission

of the United States, supra note 18, at p. 12. Lankford: Senator Lankford Attends Finance Committee Hearing on the World Trade Organization (12 Mar 2019). Market Screener. https://www.marketscreener.com/news/ James-Lankford-Senator-Lankford-Attends-Finance-Committee-Hearing-on-the-World-TradeOrganization–28155024/?utm_medium=RSS&utm_content=20190312. 120 The WTO: Looking Forward (12 Oct 2018). Ctr for Strategic Int Stud. https://www.csis.org/ events/wto-looking-forward. 121 Donnan and Baschuk (2018) Trump’s Threat to Leave the WTO Could Be a Saving Grace, Bloomberg Businessweek. https://www.bloomberg.com/news/articles/2018-10-12/trump-s-threatto-leave-the-wto-could-be-a-saving-grace. 122 Hillman J, Three Approaches to Fixing the World Trade Organization’s Appellate Body: the Good, the Bad and the Ugly? Geo U Law Ctr, https://georgetown.box.com/s/ 966hfv0smran4m31biblgfszj42za40b. Accessed 18 Mar 2019. 119 James

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If the U.S. can have a special AB for trade remedies cases, what prevents other WTO Members from requesting special AB chambers for other issues, such as SPS & TBT cases for the EU, or intellectual property rights cases for China? On the other hand, the second option is not really that “Bad”, but it could turn “Ugly” in many cases. This is because Article 25 itself states that “resort to arbitration shall be subject to mutual agreement of the parties”. If a Member already wins at the Panel stage, why would it agree to arbitration at the risk of losing its victory? Moreover, as such arbitrations are handled by ad hoc arbitration panels, they would not produce a consistent jurisprudence as the AB. As to the last option, while Hillman did recognize that it could be “potentially beautiful”, she argued that it can turn “Ugly” as resorting to voting would break the WTO’s long-standing consensus tradition and raise legitimacy concerns about the AB and its members appointed this way. In my view, however, this is exactly why this option is “Good”. It is not a “Bad” option as it is legally available under the existing WTO rules. Moreover, it avoids the “Ugly” implications arising from the first two options, such as raising the consensus needed to pass the DSU amendments or getting the two disputing parties to agree to arbitration. Moreover, given the urgency of the AB crisis, I would go even one step further than the Hillman proposal by suggesting that WTO Members should just jump start the appointment process by forcing a vote through the General Council without addressing the procedural issues first, as that would only further delay the process. I understand that such a move would be highly controversial. To start with, one could argue that consensus is the only decision-making rule under the DSU as Article 3.4 provides that “[w]here the rules and procedures of this Understanding provide for the DSB to take a decision, it shall do so by consensus”. Therefore, the argument goes, you can not resort to anything other than consensus. In response, I would cite to Article IX.1 of the WTO Agreement, which provides that, “[t]he WTO shall continue the practice of decision-making by consensus followed under GATT 1947. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting.” This confirms the availability of voting when consensus is not possible. As it has not been “otherwise provided” under the DSU, voting should be available for the AB appointment issue too. Again, one could counter that it has been “otherwise provided”, as the footnote to Article IX.1 provides that “[d]ecisions by the General Council when convened as the Dispute Settlement Body shall be taken only in accordance with the provisions of paragraph 4 of Article 2 of the Dispute Settlement Understanding.” As DSU Article 2.4 only refers to consensus, this means that voting is not possible. My response to this argument is twofold: First, to solve the conflict between the two provisions, we can refer to Article XVI.3 of the WTO Agreement, which provides that “[i]n the event of a conflict between a provision of this Agreement and a provision of any of the Multilateral Trade Agreements, the provision of this Agreement shall prevail to the extent of the conflict.” Applying this conflict rule to the current situation, the voting rules under Article IX.1 of the WTO Agreement would apply.

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Some might argue that the conflict rule doesn’t apply here, as it is the WTO Agreement itself which states that the only decision-making rule applicable to the DSB is DSU Article 2.4. Thus, there is no conflict between the WTO Agreement and the DSU, and the special rules under the footnote to Article IX.1 shall apply as per the lex specialis rule. This brings up my second point, which is that the General Council should take over the issue from the DSB and make a decision. The legal basis for such action can be found under Article IV of the WTO Agreement, which provides the following: 1: The Ministerial Conference shall have the authority to take decisions on all matters under any of the Multilateral Trade Agreements, if so requested by a Member, in accordance with the specific requirements for decision-making in this Agreement and in the relevant Multilateral Trade Agreement. 2: In the intervals between meetings of the Ministerial Conference, its functions shall be conducted by the General Council. 3: The General Council shall convene as appropriate to discharge the responsibilities of the Dispute Settlement Body provided for in the Dispute Settlement Understanding.

In other words, as the Ministerial Conference has the authority to decide all matters under any WTO Agreement, and the General Council assumes the functions of the Ministerial Conference when the latter is not in session, the General Council has the authority to decide issues under the DSU as well. This has happened in the past, such as the debate over amicus briefs in 2001 and the more recent discussions on AB selection in 2018.123 To sum up, my suggestion for solving the AB crisis is very simple. The Members shall first put the issue of AB appointment on the agenda of the meeting of General Council, then try to have the issue decided by consensus. If the U.S. does not block the consensus, then all is well. If, however, the U.S. decides to continue its blockage, the Members can invoke the voting provisions under Article IX.1, which provides that “[d]ecisions of the Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise provided in this Agreement or in the relevant Multilateral Trade Agreement”. As there is no special majority requirement for this issue, the matter can be decided by simple majority, which is much easier to obtain than the two-third majority requirement for DSU amendments124 or the three-fourth majority requirement for official interpretations.125 The U.S. will not be pleased, but will they withdraw from the WTO as some people fear? In a recent statement before the U.S. Senate Committee on Finance, Lighthizer stated that “[t]he WTO is a valuable institution, and offers many opportunities for the United States to advance our interests on trade. As I have said before, if we did not have the WTO,

123 Hillman, id. at p. 13. See also WTO General Council, Minutes of the Meeting Held in the Centre

William Rappard on November 22, 2000, WT/GC/M/60 (22 Nov 2000). Agreement, Article X.1. 125 WTO Agreement, Article IX.1. 124 WTO

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we would need to invent it.”126 Thus, notwithstanding angry threats from President Donald Trump to the contrary,127 it is highly unlikely that the U.S. would pull out. Meanwhile, the blockage problem will be solved, and an invaluable lesson will be taught to other Members which might contemplate the same course of action.

References Abramowicz M, Stearns M (2005) Defining dicta. Stanford Law Rev 4:953–1094 Aldisert RJ et al (2009) Opinion writing and opinion readers. Cardozo Law Rev 1:1–44 Alford R (2008) The role of precedent at the WTO. Opinion Juris. http://opiniojuris.org/2008/05/ 02/the-role-of-precedent-at-the-wto/. Accessed18 Mar 2019 Bacchus J (2002) Table talk: around the table of the Appellate Body of the World Trade Organization. Vanderbilt J Transnatl Law 4:1021–1040 Bartels L (2004) The separation of powers in the WTO: how to avoid judicial activism. Int Comp Law Q 4:861–895 de la Benayas CV (1982) Judicial method of interpretation of codes. La Law Rev 5:1643–1660 Beshkar M, Chilton A (2016) Revisiting procedure and precedent in the WTO: an analysis of US—countervailing and anti-dumping measures (China). World Trade Rev 15(2):375–395 Bhala R (1998) Myth about stare decisis and international trade law (Part one of a trilogy). Am Univ Int Law Rev: 845–956 Caporal J (2016) Debate erupts over US blocking Korean Appellate Body reappointment. Inside U.S. trade. https://insidetrade.com/daily-news/debate-erupts-over-us-blocking-korean-appellatebody-reappointment. Accessed 13 May 2016 Cho S (2016) Precedent as a social phenomenon: system, language and symbol. Chicago-Kent Res Pap Ser 1:1–28 Chua ATL (1998) Precedent and principles of WTO panel jurisprudence. Berkeley J Int Law 2:171–196 Ctr for Strategic and Int Stud, The WTO: looking forward. https://www.csis.org/events/wto-lookingforward. Accessed 18 Mar 2019 Dainow J (1966–1967) The civil law and the common law: some points of comparison. Am J Comp Law 3: 419–435 David F (2009) The role of precedent in the WTO—new horizons? Maastricht Faculty of Law Working Paper No. 2009-12: 1–24 Davis C (2016) Deterring disputes: WTO dispute settlement as a tool for conflict management. Paper presented at the annual meeting of the international political economy society Donnan S, Baschuk B (2018) Trump’s threat to leave the WTO could be a saving grace. Bloomberg Businessweek. https://www.bloomberg.com/news/articles/2018-10-12/trump-s-threat-to-leavethe-wto-could-be-a-saving-grace. Accessed 18 Mar 2019 Ehlermann CD (2002) Six years on the bench of the “world trade court” some personal experiences as member of the Appellate Body of the World Trade Organization. J World Trade 4:605–639 Elsig M (2016) The World Trade Organization at work: performance in a member-driven milieu. Rev Int Organ 3:345–363 126 R. E. Lighthizer, Testimony of Robert E. Lighthizer before the U.S. Senate Committee on Finance,

United States Senate Committee on Finance (12 Mar 2019), https://www.finance.senate.gov/ download/03122019-lighthizer-testimony. 127 C. Wang, Trump Threatens to Withdraw from World Trade Organization, CNBC (30 Aug 2018), https://www.cnbc.com/2018/08/30/trump-threatens-to-withdraw-from-world-tradeorganization.html.

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Gao H (2018) Dictum on dicta: obiter dicta in WTO disputes. World Trade Rev 3:509–533 Greenawalt K (1989) Reflections on holding and dictum. J Leg Educ 3:431 Guillaume G (2011) The use of precedent by international judges and arbitrators. J Int Disput Settl 1:5–23 Hillman J, Three approaches to fixing the World Trade Organization’s Appellate Body: the good, the bad and the ugly? https://georgetown.box.com/s/966hfv0smran4m31biblgfszj42za40b. Accessed 18 Mar 2019 Hudec RE (1990) Dispute settlement. In: Schott J (ed) Completing the Uruguay round: a resultsoriented approach to the GATT trade negotiations. Peterson Institution for International Economics, Washington, D.C Hughes V (2004) The WTO dispute settlement system: a success story. In: Lacarte J, Granados J (eds) Inter-governmental trade dispute settlement: multilateral and regional approaches. Cameron May, London, pp 121–122 Jackson J (1998) Designing and implementing effective dispute settlement procedures: WTO dispute settlement, appraisal and prospects. In: Krueger A (ed) The WTO as an international organization. University of Chicago Press, Chicago, pp 161–180 Jackson JH (2006) Sovereignty, the WTO, and changing fundamentals of international law. Cambridge University Press, Cambridge Lacarte-Muró J (2017) Launching the Appellate Body. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 476–481 Lankford J (2019) Senator Lankford attends finance committee hearing on the World Trade Organization. Market Screener. https://www.marketscreener.com/news/James-Lankford-SenatorLankford-Attends-Finance-Committee-Hearing-on-the-World-Trade-Organization–28155024/? utm_medium=RSS&utm_content=20190312. Accessed 18 Mar 2019 de Lasser MSOI (1995) Judicial (self-)portraits: judicial discourse in the French legal system. Yale Law J 6:1325–1410 Lewis MK (2006) The lack of dissent in WTO dispute settlement. J Int Econ Law 4:895–931 Lighthizer RE (2019) Testimony of Robert E. Lighthizer before the U.S. senate committee on finance. United States senate committee on finance. https://www.finance.senate.gov/download/ 03122019-lighthizer-testimony. Accessed 18 Mar 2019 Llewellyn KN (1996) The bramble bush: on our law and its study. Oxford, New York Matsushita M (2017) Reflections on the functioning of the Appellate Body. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 547–558 McAllister M (2011) Dicta redefined. Willamette Law Rev 2:161–210 Office of the United States Trade Representative (2018) USTR’s 2018 trade policy agenda and 2017 annual report. America’s trade policy. http://americastradepolicy.com/ustrs-2018-trade-policyagenda-and-2017-annual-report/. Accessed 28 Feb 2018 Pauwelyn J (2016) Minority rules: precedent and participation before the WTO Appellate Body. In: Jemielniak J et al (eds) Establishing judicial authority in international economic law. Cambridge University Press, Cambridge, pp 141–172 Pelc KJ (2016) The welfare implications of precedent in international law. In: Jemielniak J et al (eds) Establishing judicial authority in international economic law. Cambridge University Press, Cambridge, pp 173–187 Picker C, Picker CB (2008) International law’s mixed heritage. A common/civil law jurisdiction. Vanderbilt J Transnatl Law:1083–1140 Posner R (2008) How judges think. Harvard University Press, Cambridge Revisited D (1952) Stanford Law Rev 4:509–518 Sacerdoti G (2006) The dispute settlement system of the WTO in action: a perspective on the first ten years. In: Sacerdoti G et al (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge University Press, Cambridge, p 49

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Sacerdoti G (2011) Precedent in the settlement of international economic disputes: The WTO and investment arbitration models. Bocconi Leg Stud Research Paper No. 1931560: 4 Steger D (2017) The founding of the Appellate Body. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 447–465 Steinman AN (2013) To say what the law is: rules, results, and the dangers of inferential stare decisis. Va Law Rev 8:1737–1810 Terris D et al (2007) International judges and international law. In: Terris D et al (eds) The international judge: an introduction to the men and women who decide the world’s cases. Brandeis, Waltham, pp 102–130 Van den Bossche P (2006) From afterthought to centrepiece: The WTO Appellate Body and its rise to prominence in the world trading system. In: Sacerdoti G et al (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge University Press, Cambridge, pp 292–294 Wang C (2018) Trump threatens to withdraw from World Trade Organization. CNBC. https:// www.cnbc.com/2018/08/30/trump-threatens-to-withdraw-from-world-trade-organization.html. Accessed 18 Mar 2019 WTO appoints two new Appellate Body members. World Trade Organization. https://www.wto. org/english/news_e/news16_e/disp_28nov16_e.htm. Accessed 23 Nov 2016 Yanovich A, Voon T (2006) Completing the analysis in WTO appeals: the practice and its limitations. J Int Econ Law 4:933–950

Henry Gao is a tenured law professor at Singapore Management University and Dongfang Scholar Chair Professor at Shanghai Institute of Foreign Trade. With law degrees from three continents, he started his career as the first Chinese lawyer at the WTO Secretariat. Before moving to Singapore in 2007, he taught law at Hong Kong University, where he was also the Deputy Director of the East Asian International Economic Law and Policy Program. Prof. Gao’s papers are widely published in major international journals, including the top journals in trade law: Journal of International Economic Law, World Trade Review, and Journal of World Trade. He has also published many chapters in books published by some leading international publishers, including a dozen chapters in books published by Oxford University Press and Cambridge University Press. An often-quoted expert in major international media such as the Wall Street Journal, Washington Post, Financial Times, the Economist, CNN, BBC, CNBC and Channel News Asia, Prof. Gao has also been invited to speak at key international conferences in the field, including the annual meetings of the American Society of International Law, the Asian Society of International Law and the Society of International Economic Law, and the World Trade Forum organized by the World Trade Institute in Bern. In addition to his scholarly work, Prof. Gao has been a consultant to many national governments and international organizations including the WTO, the World Bank, the Asian Development Bank, Inter-American Development Bank and APEC. Prof. Gao has extensive experience in conducting executive training programs for government officials. Over the past decade, he has designed and delivered numerous training courses for the governments of China, Hong Kong, Singapore, Canada, Australia, as well as major international donors such as EU, Asian Development Bank and ASEAN. He was the Academic Coordinator of the Regional Trade Policy Course for Asia Pacific when it was first launched, and played an instrumental role in establishing the flagship WTO technical assistance program in the region. Prof. Gao sits on the Advisory Board of the WTO Chairs Program, which was established by the WTO Secretariat in 2009 to promote research and teaching on WTO issues in leading universities around the world. He is also a member of editorial board of Journal of Financial Regulation, which was launched by Oxford University Press in 2014. He is currently working on issues relating to digital trade, and China’s Belt and Road Initiative.

Chapter 14

WTO Appellate Body at Cross Roads: Options and Alternatives Rajesh Sharma

Abstract The crisis of the Appellate Body (AB) has been triggered by the U.S. stalling the process of appointment or reappointment of the AB members. This chapter examines the U.S. position and interests behind its complaint, and argues that the real U.S. interests may prevent a successful outcome of the negotiations regarding the crisis. Therefore, this chapter proposes several options to the AB crisis, including appointment of at least two members of the AB, use of FTA dispute resolution forum, use of “Good Offices, Conciliation and Mediation” in the WTO and FTA, and interim appeal through arbitration under the WTO. In addition, this chapter proposes an alternative to use of a forum outside of the WTO, such as ARMO and APCAM. Keywords Appellate Body crisis · Appointment of AB members · Good Offices · Interim appeal · ARMO · APCAM

1 Introduction There are total of 13 appeals pending before the Appellate Body (hereinafter AB) of the World Trade Organization (hereinafter WTO). In 2018, 8 appeals were filed by WTO Members. In 2019, a total of 3 appeals have been filed so far. The most

Views present here are of author’s only and they do not represent views of institutions to which the author is affiliated. R. Sharma (B) RMIT University, Melbourne, Australia e-mail: [email protected] Xiangtan University Law School, Xiangtan, China Academy of International Dispute Resolution and Professional Negotiation, Hong Kong, China Social and Global Studies Centre, Melbourne, Australia Hong Kong WTO Research Institute, Hong Kong, China © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_14

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recent appeal has been filed by the U.S. on 15 August 2019.1 All these appeals have to be decided by the three members of the AB as per the rules of AB. This number has now reached a critical level and if any member now hit by conflict of interest in any of the pending cases then the appeal process cannot continue. In any event, by December 2019, terms of two members of the AB will come to an end and therefore from then onward the AB will literally collapse or at least be paralysed. The crisis of the AB has been triggered due to the United State of America (hereinafter the U.S.) stalling the process of appointment or reappointment of AB members in WTO since 2017.2 From then the AB is losing its members and no new appointments have been made. As the current U.S. administration will remain in the power beyond December 2019, the inevitable scenario would be that the AB will have only one member left3 and thus the AB will be non-functional unless appointments are made. If the Trump administration comes back in power then from now until 2024, assuming that the attitude of the U.S. administration will be the same, the AB will be non-functional. Without the AB in place, it is likely that WTO Members will not take their disputes to the WTO and that will be disastrous for the rule based global trading system which is ensured by the WTO. Even assuming that the Trump administration will not come to power, yet there is no respite to AB as there may not be any appointment by December 2019 and therefore for a significant time AB will be non-functional. In both scenarios it is imperative that WTO Members look for options and alternatives to resolve their disputes. Though having a fully functional AB is the best scenario, there are some possible options and alternatives which should be considered in the meantime to be prepared for the worst eventualities.

2 The U.S. Position and Interests4 The U.S.’s blocking of appointment of AB members is so far known because of the following reasons inferred from the U.S. Presidents Trade Policy Agenda 20185 : 1 Current

Appeals. World Trade Organization. https://www.wto.org/english/tratop_e/dispu_e/ appellate_body_e.htm. Accessed 5 September 2019. 2 The Washington Post. https://www.washingtonpost.com/news/monkey-cage/wp/2017/09/27/ trump-is-fighting-an-open-war-on-trade-his-stealth-war-on-trade-may-be-even-more-important/? utm_term=701eb73eac60. Accessed 24 June 2019. 3 The Current Chair of the Appellate Body, Ms. Hong Zhao of China will have her term running beyond December 2019 which will end on 30 November 2020. Two other current members: Ujal Singh Bhatia and Mr. Thomas R Graham will finish their term on 10 December 2019. 4 Here “position” and “interest” has been borrowed from the concept of principled negotiation or interest-based negotiation as developed by Professor Roger Fisher and explained in the book: Fisher et al. (1982, p. 41) 5 For details of the US claims, see Office of the United States Trade Representative (2018) 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreements Program. https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual% 20Report%20FINAL.PDF. Accessed 24 June 2019.

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1. AB disregard for the 90-day deadline for appeals as set out in Article 17.5 of the Dispute Settlement Understanding (hereinafter DSU). 2. Continued service by AB members beyond their limited terms, as authorized by the AB based on “Rule 15” of the AB Working Procedures, to complete a pending dispute. 3. AB issuing advisory opinions on issues not necessary to resolve a dispute. 4. AB review of facts and review of a member’s domestic law de novo. 5. AB claims its reports are entitled to be treated as precedent. 6. Adding or diminishing of rights and obligations by the AB in various disputes.6 Ever since the U.S. has blocked appointment of the AB member, other countries are coming up with different proposals to address the U.S. concerns.7 In order to have targeted discussion, the General Council even appointed Ambassador David Walker of New Zealand as the facilitator of the information process to find the solution regarding appointment of the AB member.8 In the recent General Council meeting on 7 May 2019, the Ambassador Walker reported the work in progress.9 There were four more proposals introduced10 and about 26 countries spoke including the U.S.11 Unfortunately, it was reported that no consensus has reached, and the Chair proposed to WTO Members continue to explore possible compromise until the next General Council meeting in July 2019.12 The complaint of the U.S. should be seen as “position” in the context of negotiation and those are not explaining the “interests” of the U.S. If interests are known, then it will be easy to find the solution of the crisis. For example, in response to the U.S. first point of complain with regards the 90-day rule, Australia, Japan and Chile proposed that Members are ready “to confirm that the AB shall strictly observe the 90-day deadlines for Appellate Review”. At the same time, it was also proposed that 6 The

summary of these 6 issues have been taken from International Economic Law and Policy Blog. https://worldtradelaw.typepad.com/ielpblog/2018/12/ulli-petersmann-on-howshould-wto-members-respond-to-the-wto-appellate-body-crisis.html. Accessed 24 June 2019. 7 So far EU with China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore, Mexico, Costa Rica, Montenegro, Japan, Chile, Chinese Taipei, Thailand, Brazil, Paraguay and Uruguay have presented proposals in different groups. 8 See General Council Chair Appoints Facilitator to Address Disagreement on Appellate Body. World Trade Organization. https://www.wto.org/english/news_e/news19_e/gc_18jan19_e. htm. Accessed 18 Jan 2019. 9 The Report of the Facilitator of the Informal Process is reported in JOB/GC/217 and a hard copy of the same is in the file of the author. 10 Chinese Taipei (WT/GC/W/763/Rev.1); Brazil, Paraguay and Uruguay (WT/GC/W/767/Rev.1); Japan, Australia and Chile (WT/GC/W/768/Rev.1); and Thailand (WT/GC/W/769) introduced their communications in this area. 11 Republic of Korea, European Union, Mexico; Canada, Switzerland, Ukraine, Singapore, Colombia, Nigeria, Jamaica (ACP), Philippines, Argentina, Benin, Guyana, India, Egypt, China, Chad (LDCs), Malaysia, Peru, Indonesia, Viet Nam, Plurinational State of Bolivia, Turkey, Honduras and United States spoke. See Summary of General Council Meeting of 7 May 2019 World Trade Organization. https://www.wto.org/english/news_e/news19_e/sum_gc_may19_e.htm. Accessed 7 May 2019. 12 Id.

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WTO Members should recognize the difficulty in some cases, in particular, those involving complicated measures and/or legal claims, therefore it is necessary for the Members involved to understand and they need to resolve the resulting procedural consequences in such cases.13 From this proposal one may see that there was no disagreement on 90-day rule however the only point of negotiation is how to deal with those cases which are complicated and for which 90-day is not sufficient. If the interest of the U.S. is to strictly follow the 90-day limit, then there is no difference and there should have been an agreement. If the U.S. does not want to consider an exception to this rule, then that could have been negotiated or even taken out and hence that complain of the U.S. could have been successfully addressed. Nevertheless, the U.S. did not accept this proposal which means there is something else behind the U.S. complaint. Similarly, to address the concern that the AB claims that its reports are entitled to be treated as precedent, WTO Members are ready to confirm that an interpretation by the AB of any WTO provision does not constitute a precedent for posterior interpretations. Moreover, Members also confirm that panels may adopt an interpretation of a WTO provision that is different from the one developed by the AB.14 However, once again there was no positive move shown by the U.S. to defuse the AB crisis. Without knowing the interests of the U.S. no negotiation will be successful. At this moment it seems there is information asymmetry and parties are negotiating without knowing each other’s real interests. Who could be in a position to find out the real interests of the U.S.? I argue that Australia may play that role. Australia has a close link with the U.S. At the time when Trump administration was imposing higher duties on steel (25%) and aluminium (10%) from other countries, Australia secured exemptions from Trump’s higher duties.15 The U.S. administration considers Australia as its strategic partner and due to that Australia got tariff exemption on steel and aluminium. Moreover, while the European Union (hereinafter EU) has taken the U.S. to the WTO for the tariff hike on steel and aluminium, Australia has categorically announced that it will not take part in the WTO dispute against the U.S.16 At the same time, Australia has a unique relationship with developed and developing countries. Asian countries view Australia as a country with “Asian Heart”. African and Latin American countries also consider Australia as a friend which is seen from the support, they gave to Australia in leading the Cairns Group during WTO negotiations since 1986. Therefore, any proposal from Australia is seen by Asia, Africa and Latin America with more open mind as compared to any proposal made by the U.S. and the EU.

13 See

Proposal of Japan, Australia and Chile, WT/GC/W/768/Rev.1 (26 April 2019).

14 Id. 15 Australia exempted from US tariffs on steel and aluminium. SBS news. https://www.sbs.com.au/ news/australia-exempted-from-us-tariffs-on-steel-and-aluminium. Accessed 1 June 2018. 16 The Guardian. https://www.theguardian.com/business/2018/mar/12/australia-will-not-join-eucomplaint-wto-steel-tariffs. Accessed 24 June 2019.

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As a close ally of the U.S. and also close friend to Asia in general and particularly of China,17 Africa, Latin America and the EU, Australia can play a constructive and persuasive role to induce the U.S. to change its stance with regards to the appointment of AB members or at least find out the real interests of the U.S. This shuttle diplomacy of Australia will help the AB to revive and stop WTO from going the downhill. According to James Bacchus, former Chair and a founding member of the AB, the real interests of the U.S. President is to win electoral college votes from Michigan, Pennsylvania, Wisconsin and Ohio which are industrial area of the U.S.18 In order to win the next term of the presidency these votes will be crucial again. If this is the real interest of the U.S. government, then finding the solution of political interests through trade negotiations will be an uphill task, at least until the next U.S. election in 2020. This also means until the next election there is no hope of the appointment of AB members. This can also be inferred by the USTR Lighthizer statement in the congressional hearing that blocking appointments has provided him leverage he can use to drive reforms to the WTO. To some extent, it can be inferred that the U.S. interests in not to kill the AB at all. Because in January and in August 2019, the U.S. filed an appeal against the decision of the panel.19 If the U.S. has no trust in the AB mechanism, then U.S. would not have filed. So at least, one can say that the U.S. interests and other WTO Members interests to have the AB system are a thing in common. If we can borrow the metaphor from family dispute, then AB system is like a baby with both parents meaning the U.S. and rest of the WTO Members would like the best for the baby. The lastest appeals filed by Canada and the U.S. in June 2019 represents the positive attitude and hope of WTO Members towards the functioning of the AB beyond December 2019.20 It is never to give up attitude. At the same time, few WTO Members have decided not to appeal against the decision of panel during this turbulent time.21 Few Members have gone one step beyond, at the time of initiating panel proceedings, parties have agreed not to take recourse of Appeal mechanism. The recent 2nd report of the Ambassador Walker has shown some “convergence” of WTO Members on some issues as he gathers from the meeting. However, it is not good enough to conclude that situation has improved.

17 CNBC. https://www.cnbc.com/2019/05/24/australia-wont-take-sides-in-us-china-trade-war-expm-julia-gillard.html. Accessed 24 June 2019. 18 This political insight was presented by Professor James Bacchus in Canberra on 13 June 2019. The author was also presented in the audience. 19 See Current Appeals, supra note 1. 20 Id. 21 For example, Ukraine has not appealed against the decision of the WTO Panel against Russia in a case related to national security exception.

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3 Options and Alternatives22 In this section, I put all solutions under Options which could be negotiated with the U.S. and other WTO Members to find the solution to the AB crisis. Those solutions should be within the WTO framework and that can satisfy majority of interests of both sides. Alternatives are those which can be done without any agreement the U.S. and other Members beyond the framework of WTO system. Some solutions may fall into the mix category for example of Free Trade Agreements (hereinafter FTAs) or Regional Trade Agreements (hereinafter RTAs). FTAs and RTAs are under the WTO framework, but their dispute resolution mechanism is separate from the WTO dispute settlement system.

3.1 Option 1: At Least Two Members of AB Should be Appointed The best solution is to let the appointment of AB member to go ahead like before and then suggest some guidelines to be followed by the AB. If that is not possible then at least appoint two members of the AB so that the AB continue working until a long-term solution is found. This option will satisfy the interests of the U.S. and other members i.e. to have a functioning AB. However, one may argue that if two members could be appointed then why not all remaining members. That argument will go against the U.S. visible position and invisible interests. If only two members are appointed to manage the AB process with some changes in the system, then it would be seen as partial improvement in the system and the U.S. may be able to convince its constituents. It will also demonstrate that the U.S. is not totally against having the AB system rather it questions the problems in the system which needs to be addressed. Therefore, appointment of two AB members will be seen as satisfying the U.S. (i.e. improved AB system) and other WTO Members interests to continue with the AB system. There is no denial that WTO Members agree that WTO system needs to be fixed but having seen the dragging of Doha round of negotiation, even agreeing to improve DSU will be like opening of can of worms. However, if there is a momentum among members to fix at least the DSU or risk of losing it all together, WTO Members may agree to improve the DSU system at least without getting involved into whole set improvement in the WTO.

22 Here following the principle of negotiations advocated in the “Getting to Yes” Options relate to what parties can do together within the WTO and “alternatives” refer to what parties can do on its own beyond the WTO framework.

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3.2 Option 2: Use of FTA Dispute Resolution Forum Most of the WTO Members have signed FTAs or RTAs or Preferential Trade Agreements or Comprehensive Economic Co-operation Agreement. Most of these FTAs have dispute resolution mechanism modelled after WTO dispute settlement mechanism. If any dispute arises between FTAs partners then instead of going to WTO they may resolve their dispute under the FTA dispute settlement mechanism to which they are parties. However, when there is a violation of WTO rules, then WTO Dispute Settlement Body will have automatic jurisdiction if the complainant takes the case to WTO. Examples of such disputes are Anti-Dumping, Subsidies, Safeguards, Sanitary and Phytosanitory measures and others. If dispute is related to those issues, then even FTAs dispute resolution forum may not be able to exercise jurisdiction. At the same time going to the WTO will not make any sense in the absence of a fully functional AB system. The same will be true in the situation where disputing parties are not parties of any common FTAs. For example, Australia does not have any FTAs with Dominican Republic and Honduras so for a dispute with them there is no alternative but to go to the WTO which again will not make sense without fully functional AB. In the FTAs which has WTO plus issues e.g. CPTPP and if any dispute arises relating to those WTO plus issues then the dispute resolution forum of the FTA will be the right forum to take that dispute and there will no jurisdictional problem with WTO dispute settlement system. Therefore, in some situations even FTAs dispute resolution forum will not be adequate forum to resolve their disputes. If disputes which fall within the scope of FTA and WTO, the choice of forum clause in the FTAs may create cause of concerns. A study on the various FTAs, particularly in Asia, has indicated that in relation to the choice of forum, various options are available: (i) refrain from taking a position on this point and simply require the parties to consult; (ii) make the FTA the exclusive forum for the resolution of a trade dispute involving FTA members; (iii) allow the FTA members to choose whether to have a dispute heard before an FTA tribunal or before the WTO (make the first forum before which the dispute is brought the exclusive forum) and (iv) allow the exercise of concurrent jurisdiction.23 In general, forum selection is deemed to take place when the request for arbitration is filed. In those FTAs, it is the complaining party which selects the forum and once a forum is selected, the other forums are excluded. This type of forum selection provision is based on the old Canada–US FTA. Article 1801 of that FTA envisaged that disputes arising under both the FTA and the General Agreement on Tariffs and Trade/WTO (including the Tokyo Round Codes) could be settled in either forum at the discretion of the complaining party, but once a matter was brought before either forum, the procedure initiated shall be used to the exclusion of any other forums. A forum is not considered to have been selected unless the complaining party requests 23 Asian

Development Bank (2008, p. 96).

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for the establishment of the arbitral panel to resolve the dispute under the particular agreement. When both the WTO and an arbitral tribunal under an FTA have concurrent jurisdiction, then whether or not the jurisdiction of WTO could be excluded is a debatable point. Some experts have argued that Article 13 of the DSU grants the WTO a quasiautomatic jurisdiction over disputes.24 Therefore, a forum selection provision in an FTA cannot exclude the jurisdiction of the WTO. Conversely, if parties proceed with the FTA forum then the WTO cannot exercise jurisdiction on the dispute between the two parties unless the same subject matter is raised by other Members of the WTO. Thus, the forum selection clause, in essence, has no theoretical or practical effect. The issue relating to the overlapping jurisdiction of the WTO and an FTA is a contentious one and “in the current state of international law, no rules seem to offer any effective answer to resolve conflicts of jurisdiction in the context of the WTO Agreement and the RTAs. It is thus for States to decide how the dispute settlement mechanisms of the WTO and RTAs should operate and interact with each other.”25 Another factor, which may distract members to use FTA system, is the absence of appeal system. Most of the FTAs do not have appeal system. The Trans-Pacific Partnership and CPTPP had the opportunity to include appeal system but it did not happen. So far in Regional Comprehensive Economic Partnership (RCEP) also there is no indication of having an appeal system. One recently drafted Dispute Settlement Mechanism for the Belt and Road countries have included the appeal system based on the WTO model.26 Therefore, Belt and Road member countries can utilize a dispute resolution system which can provide everything what WTO provides. In some respect the Belt and Road Dispute Settlement Mechanism has gone steps ahead of WTO system.

3.3 Option 3: Use of Good Offices, Conciliation and Mediation in WTO and FTA The usefulness of good offices, conciliation and mediation as means of dispute resolution have been widely recognised in WTO as well as in FTAs. These processes are very flexible and yet could be very effective processes of dispute resolution within WTO and FTA. However, within WTO good offices, conciliation and mediation have not been used in WTO. The Asian Development Bank, as best practices in dispute settlement, has stated that “although good offices, conciliation, and mediation are options that are infrequently used, their inclusion in an FTA costs the parties nothing and their occasional use by the parties may, in certain cases help to avoid recourse to the formal dispute settlement proceedings”.27 24 Hillman

(2009p. 205), Kwak and Marceau (2012, p. 9). and Marceu, supra note 24, at p. 1; see also Hillman, supra note 24, at p. 197. 26 See Blue Book (2018, pp. 182–194). 27 Asian Development Bank, supra note 23, at p. 96. 25 Kwak

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The request for the use of good offices, consultation and mediation may be placed at any time by any party at any stage of the dispute settlement process under the FTA. These processes may also be used to resolve disputes when the dispute is already referred to the arbitral tribunal. They can also be suspended, terminated or withdrawn at any time with the mutual consent of the parties. Like the consultation and arbitral processes, they are also confidential and parties are bound by the confidentiality obligation. Moreover, like the consultation process, any position taken by any party under this process does not prejudice the rights of the parties in the dispute resolution forum in the same FTA as well as any other forum in any other FTAs. Though the provision of good offices, conciliation and mediation are included in all FTAs as well as in the WTO, this process is not fully utilised. Asian members of the WTO are supporters of conciliation, mediation and negotiation, may consider utilising these processes more effectively at different stages of the dispute resolution process under an FTA. The processes of good offices, conciliation and mediation may also be used at the implementation stage (this does not seem to have been envisaged by the other FTAs). For example, these processes can be effectively used for agreeing on the amount of compensation and level of suspension of benefits. By using these processes, a significant amount of time could be saved and the dispute resolution system under an FTA could be made more efficient and effective. These processes could easily be conducted before a third person or a body with the agreement of the parties. Even for the determination of agreed facts, these processes may be useful.28 In Asia-Pacific Economic Cooperation (hereinafter APEC), mediation and conciliation rather than arbitration have been emphasised as part of the dispute settlement mechanism on disputes which are not within the scope of the dispute settlement mechanism in the WTO. The reason mediation is preferred in APEC is because it is in line with the growing sense of community rather than the “win or lose” confrontation in the WTO.29 Countries having culture which emphasises alternative and more amicable means of dispute resolution, may be able to fully utilise the mediation and conciliation processes of FTAs.

3.4 Option 4: Interim Appeal Through Arbitration Under WTO One of the possible options which has been gaining momentum is the possibility to use Arbitration as an appeal mechanism based on Article 25 of DSU. This idea was initiated by James Bacchus which has been now proposed by the European Member. The EU proposal titled “Interim Appeal Arbitration Pursuant to Article 25

28 For

details about innovative use of Good Office, Conciliation and Mediation, see Sharma (2015, pp. 266–268, 285). 29 Davidson (2002), as cited in Sharma (2015, p. 267).

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DSU” provides detailed road map about its implementation.30 This interim appeal mechanism could be agreed between a WTO Member and the EU. As it is proposed by the EU, it can be safely concluded that at least the EU is ready to use this appeal mechanism if the AB becomes non-functional after December 2019. It has been emphasised by the EU that this is a stop gap arrangement and once the AB “fully composed” and resumes its function, this interim appeal mechanism will come to an end. According to the EU, this interim appeal mechanism shows its determination “to preserve the essential principles and features of the WTO dispute settlement system which include its binding character and two levels of adjudication through and independent and impartial appellate review of panel reports.”31 Therefore, this appeal mechanism is proposed as an “interim solution” in these “extraordinary” circumstances. The interim appeal mechanism is largely based on the exiting WTO appellate mechanism and parties “intend to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU”.32 In this regard, arbitrator may adapt Working Procedure for Appellate Review and timetable for appeal provided therein. The scope of appeal in this interim appeal mechanism is limited to “issues of law” covered by the panel report and legal interpretation developed by the panel”.33 The arbitrator while has the same power as the AB and it can “uphold, modify or reverse the legal findings and conclusions of the panel”.34 The arbitration award delivered upon the interim appeal process may give recommendations as it is allowed in Article 19 of the DSU. Any findings of the panel that have not been appealed will be deemed as part of the award rendered after the interim appeal process.35 In order to invoke this appeal mechanism, parties need to indicate their intention to resort to arbitration under Article 25 of the DSU for appeal purpose and also agree not to resort to the Practice of Appellate Review pursuant to Articles 16.4 and 17 of the DSU.36 In order to operationalise this interim appeal mechanism parties will include the “Agreed Procedure for Arbitration Under Article 25 of the DSU in the Dispute—DS X” which contains detailed procedures of arbitration for the purpose of discharging appellate review function.37 In order to let the arbitrator, conduct the appellate review of the panel report, parties have to jointly request the panel to (i) lifting of confidentiality with respect to the final panel report under the Working Procedures of the panel; (ii) transmit 30 Interim Appeal Arbitration Pursuant to Article 25 DSU, JOB/DSB/1/Add.11 (16 May 2019) [Hereinafter The EU Proposal on Interim Appeal]. 31 Id. at pmbl. 32 Id. at para 2. 33 Agreed Procedure for Arbitration Under Article 25 of the DSU in the Dispute—DS X, para 2, EU Proposal on Interim Appeal, supra note 30, Annex [hereinafter Procedure for Interim Appeal]. 34 Id. at para 3. 35 Id. 36 The EU Proposal on Interim Appeal, supra note 30, at para 1. 37 Procedure for Interim Appeal, supra note 33.

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panel record to the arbitrator upon filing of Notice of Appeal, following Rule 25 of the Working procedures for Appellate Review and (iii) transmit the final panel report in the official language of the WTO to the parties and the third parties.38 The interim appeal procedure is invoked after the panel report is issued to parties and before its circulation so that parties may request suspension of panel proceeding as per Article 12.2 of the DSU and confirm that their intention that the panel report not to be circulated within the meaning of Article 16 of the DSU.39 In this appeal mechanism, a third party is allowed to initiate arbitration for the purpose of appeal. However, a third party that has indicated its substantial interests before the panel may submit its written submissions and it may be given opportunity to make presentation before the tribunal conducting the appellate review. The process of allowing third party intervention is governed by Article 10.2 of DSU and Rule 24 of the Working procedure for Appellate Review.40 The EU proposal of interim appeal has converted an abstract idea into a somewhat practical by simulating an appellate review as close to the current system. However, there are some gaps which needs to be filled or thought through it. In order to make this process success support of WTO as an institution and AB Secretariat are necessary including providing of administrative and legal support. So the question may be asked whether WTO or the AB Secretariat is bound to provide administrative and legal support to arbitrators discharging duty of an appellate review. The WTO Secretariat is expected to be involved from the first step when parties file Notice of Appeal.41 The EU proposal has not clarified under what rule the WTO Secretariat is bound to discharge this role. Is it possible for the WTO Secretariat/AB Secretariat to refuse to provide such services? The Director-General of WTO is also involved in the role of selecting three persons to serve as arbitrator for the appeal purpose.42 A question may be asked, whether selecting of arbitrators comes within the scope of duty of Director-General (hereinafter DG)? This question has been raised in the context of FTAs, where selection of the Chair of the panel has been entrusted to DG or Deputy Directors-General (in absence of DG). For example, ASEAN FTAs have default provision of using DG to appoint the Chair of panel if parties do not agree. Since FTAs are under the governance of the WTO Agreement, therefore to some extent one can argue that DG of WTO may assume and discharge this role. However, the interim appeal mechanism is a new arrangement and it has not been the part of WTO system, so it is important to find justification for imposing this duty or role on the DG. The interim Appeal mechanism expects only former AB members to be selected to serve as arbitrators to perform the Appellate Review.43 It is submitted that this

38 Id.

at para 7. at para 7 and fn. 3. 40 Id. at para 10. 41 Id. at para 8. 42 Id. at para 11. 43 Id. 39 Id.

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limit is not warranted. The pool of arbitrators could be enlarged to include the best possible available people to serve as arbitrator for appeal purpose. The other important shortcoming of this proposal is that it has not addressed the mechanism of enforcement of awards resulting from the interim appeal review. It has only stated “The parties agree to abide by the arbitration award, which shall be final”.44 This proposal should also clarify that if the responding party does not follow the recommendations in the award then the requesting party may take the recourse of suspension of benefits, or retaliation. Moreover, this proposal envisages that pursuant to Article 25.3 of DSU, “the award shall be notified, but not adopted by, the Dispute Settlement Board and to the Council or Commission of any relevant agreement”.45 Therefore, it is important to describe the status of the award rendered upon the interim arbitration process. The EU proposal is a viable option available within the WTO framework, however it has to be clarified more to include all eventualities following from the interim appeal process using Article 25 of the DSU. Nevertheless, the EU and Canada have agreed (on 25 July 2019) to use this interim appeal arbitration arrangement for their disputes if the AB becomes non-functional after December 2019.

3.5 Alternative: Use of a Forum Outside WTO The other possibility is that the disputing parties agree to mediate their disputes if they do not have any FTAs between them. It is generally seen that when parties are at odds with each other then it very unlikely that they will be able to agree on anything. This can be seen from the low success rate of Consultation process within the WTO dispute resolution system. Another possibility is to agree to mediate their disputes under the auspices of an institution. Some academics of Asian WTO Research Network have envisaged this possibility and have already drafted a text of Agreement on the Establishment of the Asia-Pacific Regional Mediation Organisation,46 and Rules of Procedure for Mediation Conducted under the Asia-Pacific Regional Mediation Organisation.47 If parties sign this Agreement, then they will be able to resolve their disputes though mediation within an independent and impartial international institution such as Asia-Pacific Regional Mediation Organization (hereinafter ARMO). Any State or jurisdictions or economies, whether a Member of the WTO or having no FTA among them, may sign this agreement and use the services of ARMO to resolve their disputes by using mediation. The main aim for the establishment of ARMO is not to resolve commercial disputes, nevertheless if parties submit their trade disputes then it is possible for ARMO to supervise the dispute settlement process by using mediation. The rules of 44 Id.

at para 4.

45 Id. 46 Lo 47 Lo

et al. (2018a, pp. 5–16). et al. (2018b, pp. 17–26).

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mediation allow mediator to propose solutions for disputes for the parties to consider. With ARMO serving as an independent and objective organisation, which uses an efficient, effective and practical set of mediations rules, it is highly likely that parties will be able to reach to an amicable solution to their disputes.48 It is believed that Asian countries will be more interested in deploying mediation to resolve their disputes. Another new initiative “Asia Pacific Centre for Arbitration & Mediation” (hereinafter APCAM) has been recently launched which will be formed jointly by arbitration and mediation centres from Asia Pacific countries.49 These countries would include Australia, Bangladesh, Cambodia, China, Fiji, Hong Kong, India, Indonesia, Japan, Malaysia, Mauritius, Nepal, New Zealand, Philippines, Singapore, South Africa, South Korea, Sri Lanka, Thailand, Vietnam etc. APCAM can also develop into an institution dealing with State-to-State Arbitration in addition to commercial arbitration and mediation. The promoters of APCAM will be the arbitration and mediation centres from each country. Every promoter centre from each country will have the chapter of APCAM in their centre, which will administer their cross-border or international mediation and arbitration. This will help the business community in the Asia Pacific countries to resolve their cross-border/international commercial disputes by mediation and/or arbitration in any of the regional centres under a single Arbitration/Mediation Rule and Fee schedule. APCAM will have its Arbitration & Mediation Rules and Fee schedule which will be uniformly applied in all centres/countries. The Arbitration and Mediation rules of each regional centre will be amended to the effect that disputes arising out their institutional Alternative Dispute Resolution (hereinafter ADR) clause, will be administered by the Mediation or Arbitration Rules of APCAM in the case of international/cross-border disputes. Already many institutions in the region have agreed to join the movement and create APCAM. In order to materialise operation of APCAM before December 2019 and to finalize making the constitution of APCAM as well as the APCAM Arbitration and Mediation Rules, the Rules Committee has been formed to which the author is also a member. Further development in the area of cross border enforcement of settlement agreement through mediation under the auspices of United Nations Commission on International Trade Law (hereinafter UNCITRAL), which is widely known as the Singapore Convention, has increased the confidence in the mediation as a dispute resolution process. Although the Singapore Convention is only for the international commercial mediation, WTO type dispute will also be considered as commercial dispute and therefore the Singapore Convention may become useful to the extent that the commercial parties would like to resolve their disputes in an amicable way. Similarly, the ongoing discussion at UNCITRAL in using ADR mechanism to resolve investment disputes may also serve as a catalyst for the Members to use mediation as a

48 For 49 The

details about the operation of Mediation Rules of ARMO, see Sharma (2018, pp. 47–62). author is one of the promoters of this idea which he is inspired by the concept of ARMO.

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method of resolving their disputes. Several panel members listed on WTO have experience of mediation and they can be of good help to resolve disputes through mediation. Therefore, finding an alternative forum to resolve trade disputes is important for WTO Members if the AB impasse is not fixed before it is too late.

4 Conclusion The dispute settlement system of the WTO provides for security and predictability to the rule-based trading system. In this regard the AB and Appellate Review process play a significant role. However, blockage in the appointment of the AB members by the U.S. has created a crisis situation which is at the verge of collapse. Members have been coming up with several proposals to address the U.S. concerns, however, there has not been any positive movement from the U.S. In absence of knowing the actual interests of the U.S., it is difficult to negotiate and reach to a viable agreement to defuse the impasse. If the real interests of the U.S. is to win its vote, then trade negotiations may not be successful. Therefore, it is imperative for the Members to look for other options or alternatives. Within the WTO framework, Members may consider various options such as at least manage to get two members of the AB appointed so that the AB remain functional until a long-term solution is found. If this option is not possible then members may consider the use of FTA dispute resolution forum. The other option is to use “Good offices, Conciliation and Mediation” within the WTO framework or within FTA framework. Members may also go one step ahead and create a new interim appeal system by using Arbitration pursuant to Article 25 of DSU as proposed by the EU. Though the EU proposal requires few additions and modifications, it provides for a good roadmap. In the worst-case scenario members have alternative to resort to different forums like ARMO and APCAM. There is nothing better than having a fully functional AB, however in absence of co-operation from the U.S., WTO Members are compelled to consider these options and alternatives.

References Asian Development Bank (2008) How to Design, Negotiate, and Implement Free Trade Agreement in Asia. Asian Development Bank, Metro Manila Australia exempted from US tariffs on steel and aluminium. https://www.sbs.com.au/news/australiaexempted-from-us-tariffs-on-steel-and-aluminium. Accessed 1 June 2018 Book Blue (2018) Dispute Settlement Mechanism in Belt and Road Initiative. Zhejiang University Press, Hangzhou CNCB. https://www.cnbc.com/2019/05/24/australia-wont-take-sides-in-us-china-trade-war-expm-julia-gillard.html. Accessed 24 June 2019 Current Appeals. World Trade Organization. https://www.wto.org/english/tratop_e/dispu_e/ appellate_body_e.htm. Accessed 24 June 2019 Davidson PJ (2002) ASEAN: The Evolving Legal Framework for Economic Cooperation. Times Academic Press, Singapore

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Fisher R et al (1982) Getting to Yes. Penguin Group, London General Council Chair Appoints Facilitator to Address Disagreement on Appellate Body. World Trade Organization. https://www.wto.org/english/news_e/news19_e/gc_18jan19_e.htm. Accessed 18 Jan 2019 Hillman J (2009) Conflicts Between Dispute Settlement Mechanisms in Regional Trade Agreements and the WTO: What Should the WTO Do? Cornell Int Law J 42:193–208 International Economic Law and Policy Blog. https://worldtradelaw.typepad.com/ielpblog/2018/ 12/ulli-petersmann-on-how-should-wto-members-respond-to-the-wto-appellate-body-crisis. html. Accessed 24 June 2019 Kwak K, Marceau G (2012) Overlaps and Conflicts of Jurisdiction Between the WTO and RTAs. In: Paper presented at the Conference on Regional Trade Agreements, WTO, Geneva, 26 Apr 2002 Lo C-F et al (2018a) Draft “Agreement on the Establishment of the Asia-Pacific Regional Mediation Organization”. Asian J WTO Int Health Law Policy 13(1):5–16 Lo C-F et al (2018b) Draft “Rules of Procedure for Mediation Conducted Under the Asia-Pacific Regional Mediation Organization”. Asian J WTO Int Health Law Policy 13(1):17–26 Office of the United States Trade Representative (2018) 2018 Trade Policy Agenda and 2017 Annual report of the President of the United States on the Trade Agreements Program. https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018% 20Annual%20Report%20FINAL.PDF. Accessed 24 June 2019 Sharma R (2015) Dispute settlement mechanism in the FTAs of Asia. Wolter Kluwer, Hong Kong Sharma R (2018) Mediation Rules of the ARMO for State-to-State Disputes: Effective, Efficient and Practical. Asian J WTO Int Health Law Policy 13(1):47–62 Summary of General Council Meeting of 7 May 2019. World Trade Organization. https://www. wto.org/english/news_e/news19_e/sum_gc_may19_e.htm. Accessed 7 May 2019 The Guardian. https://www.theguardian.com/business/2018/mar/12/australia-will-not-join-eucomplaint-wto-steel-tariffs. Accessed 24 June 2019 The Washington Post. https://www.washingtonpost.com/news/monkey-cage/wp/2017/09/27/ trump-is-fighting-an-open-war-on-trade-his-stealth-war-on-trade-may-be-even-more-important/ ?utm_term=701eb73eac60. Accessed 24 June 2019

Rajesh Sharma is senior lecturer at Legal and Dispute Studies, Criminology and Justice, RMIT University, Melbourne, Australia, Adjunct Professor at Academy of International Dispute Resolution and Professional Negotiation (AIDRN), Honorary Professor at Xiangtan University Law School. Before coming to Australia, he was an assistant professor at School of Law, City University of Hong Kong. He has taught courses on arbitration, mediation, negotiation, foreign investment arbitration, WTO Law, international trade, banking law, foreign investment in Hong Kong, Macao, India, Australia, China and Africa. He has served as a legal advisor to the Macau University of Science and Technology. He has advised transnational companies on trade and investment policy in China and has done training courses with and for the WTO and UNITAR. Dr. Sharma is the Finalists for the ADR Teacher Award 2019 in Australia. He is the first Indian to hold Ph.D. in Law from China. He holds Ph.D. from the Chinese University of Political Science and Law, Beijing, Master of Business Law from Monash University, Australia, an M.Phil from City University of Hong Kong and Bachelor of Laws from the University of Delhi. He has received training for arbitrators from the World Intellectual Property Organization; International Chamber of Commerce and Chartered Institute of Arbitrators. Dr. Sharma has received training of a mediator for community conflict resolution by the Plowshares Institute, USA and the Accord Group of Australia. He has also obtained professional training in negotiation at Harvard Law School. Dr. Sharma has researched extensively on the arbitration laws of China and India and other Asian countries, Investment Arbitration, Dispute Settlement in FTAs, WTO related issues, investment law and mediation. He has publications in the areas of WTO law, international trade, arbitration and dispute resolution, commercial law, and banking law. Recently he has published a book with

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Wolters Kluwer titled “Dispute Settlement Mechanism in the FTAs of Asia”. Dr. Sharma has also conducted research and provided expert comments to UNCITRAL on mediation and conciliation. These works include conducting “An Evaluation of Mediation Law in Asia”, provided expert comments on “Draft Instrument on Enforcement of Settlement Agreement Across-boarder” and reported on “Possible Amendments in UNCITRAL Model Law on International Commercial Conciliations”. Currently, Dr. Sharma is working on the preparation of commentary on the Singapore Convention. Dr. Sharma is member, arbitrator or research fellow of many institutions.

Chapter 15

Appointment and Reappointment of the Appellate Body Members: Judiciary or Politics Po-Ching Lee

Abstract This chapter gives a detailed narrative of the WTO Appellate Body member appointment and reappointment processes. It further depicts the increasing politicization of the selection of AB members over the 25 years. As AB gradually established itself as a capable and authoritative adjudicator of sensitive and complex disputes, states kept stepping up their attempts to exert control over ideologies of individual AB members through the appointment process. Political tensions arising from the process mounted up over time. In the selection processes in 2013 and 2016, WTO Members’ veto or threat of veto became frequent and apparent, pushing the processes into near-deadlock while the Selection Committee could still manage to broker the consensus. The United States’ rejection to reappointment in 2016 and its prolonged blockage to the launch of selection processes since 2017, however, mark a new peak of the politicization progress. The author, in pessimism, claims that the politicization of the AB selection processes would not stop or be reversed even if the present impasse is solved. The escalating demand for AB seats will lead to more reckless and unscrupulous strategy-thinking from WTO Members, in particular when some have demonstrated fragile the mechanism could be. Keywords Appellate Body · Appointment process · Politicization As a part of his criticisms of the WTO, the United States President Donald Trump spoke in a Fox Business Network interview that, “…we lose the lawsuits, almost all of the lawsuits in the WTO—within the WTO. Because we have fewer judges than 1 other countries. It’s set up as you can’t win.”

1 Schwartz

(2017a, b).

The views and opinions expressed in this chapter are all those of the author and do not necessarily reflect the official position of any agency of the Taiwan government. P.-C. Lee (B) Permanent Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Geneva, Switzerland e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_15

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In terms of the factual contents, this account is completely wrong.2 Mr. Trump’s gripe, however, may well reflect how people see state’s economic and legal interests are linked to having adjudicators in the WTO. To a symbolic sense, occupying one of the seven seats in the WTO Appellate Body (hereinafter AB) may well be deemed as an indicator of a country’s lager weight in the multilateral trading system compared to the other 160 plus Members. Popular views may also entail an expectation that an AB member will act, more or less, as an agent of his or her motherland to pass through certain values, and even to “help” his or her motherland to win a case. For those that view the WTO as reflecting the value of the rule of law, AB members should be appointed through a merit-based process. However, it appears that WTO Members’ behaviors could be better explained through a populism lens as stipulated above. As I will show below, the politics played an essential, if not critical, role in the AB member appointment process and the polarization level have been increasing over time. The politicization progress is partly driven by some of the Members’, in particular the United States’, inclination to control over the AB’s ideology through the appointment process. The other driving factors come from a strong motivation to seize a position in the AB of some of the Members and their willingness to pay for higher political costs for it. This chapter intends to give a general picture of the politicization of the AB member appointment process, which could be particularly marked by a number of political turbulences in the appointment and reappointment cases in the recent years. Following this introductory section, this chapter gives a narrative of the processes through which an AB member is selected. The narration will not only eye on the codified procedures, but also on practices developed in the recent years. The second section of the chapter is about the fundamental political elements regarding the distribution of the AB seats among the Members. The representativeness of the AB membership and the unspoken permeant-seat rule mark the major political debates in the early history of the AB. The third section of this chapter demonstrates the increasing politicization of the AB member appointment process. With regards to the processes before 2012, I largely rely on Elsig and Pollack’s study3 to show how Members’ “principal-agent” perception on their relationship with AB members resulted in stringent ideology screening approaches to AB candidates. Beyond that, the long and turbulent appointment processes in 2013–14 and 2016 seem to signify an escalation of confrontations among Members on the appointment matters, which gradually have pushed the system to its extreme. The fourth section is devoted to the two extreme incidents in the recent years, i.e. the United States’ rejection to Mr. Chang’s reappointment in 2016 and the United States’ prolonged blockage on the launch of the AB member appointment processes in 2017–18. In conclusion, this chapter holds some pessimism, contending that the trend of politicization of the AB member appointment process may not be reversed, even if the United States terminates its blockage. The solutions may not be found 2 Farley 3 Elsig

(2017). and Pollack (2014, p. 391).

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by simply amending the appointment rules, but lie on more extensive reform of the WTO. The literature on the topic of the AB member appointment process was scarce. One possible reason is that most parts of the process are conducted confidentially, and therefore even some basic data such as the list of candidates are not fully available.4 This chapter primarily relies on the WTO official documents. With regard to the secondary sources, a great deal of details of the AB member appointment process are drawn from Elsig and Pollack’s study, in which the authors conducted 33 semistructured interviews with involved stakeholders, including former and present AB members, former staff of the AB Secretariat, and official candidates who were not elected and so on. These interviews provide valuable insights of the process.

1 The AB Member Appointment and Reappointment Processes: Rules and Practices 1.1 Appointment The DSU lays down only some basic principles for the appointment of AB members. Article 17.2 of the DSU provides that: The DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once. However, the terms of three of the seven persons appointed immediately after the entry into force of the WTO Agreement shall expire at the end of two years, to be determined by lot. Vacancies shall be filled as they arise. A person appointed to replace a person whose term of office has not expired shall hold office for the remainder of the predecessor’s term.

In accordance with the first sentence of this Article, it is the DSB who possesses the exclusive authority to appoint AB members. The provision does not specify who should decide on reappointment, but it should not be a problem to identify the DSB as the subject. In addition, the third sentence uses the auxiliary verb “shall”, which means that it is not only the right but also the obligation for the DSB to appoint AB members. Based on the recommendations made by the Preparatory Committee for the WTO, the DSB adopted the decision to establish the AB on 10 February 1995.5 Paragraph 13 of the decision sets out some details of the AB member appointment process. An ad hoc six-person committee is set up to carry out the appointment jobs. Being composed of the Director-General, the Chairman of the DSB, and the Chairmen of the Goods, Services, TRIPS and General Councils, the Selection Committee should formulate a proposal to enable the DSB to make the decision of appointment. Furthermore, paragraph 13 provides that individual WTO Members could forward “suggestion for 4 Paweulyn

(2007). Committee, Establishment of the Appellate Body, WT/DSB/1 (19 June 1995).

5 Prepaatory

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candidates” to the Director-General and the candidates need not to be the national of the nominating Member. In practice, the appointment process is carried out in a more organized way. A process usually commences 7–8 months prior to the expiry of the term of office of the outgoing incumbent AB member. Usually the DSB Chair is the one who shoulders the responsibility to trigger the process. The Chair would first give a “heads-up” announcement about the need to select new AB members and invite Members for consultations on the process details. Unless Members raise problems during the consultations, which is rare, the Chair would then put forward a proposal about the launch of the appointment process. The proposal would then be adopted at the next DSB meeting. The launch proposal generally contains four elements: (i) the DSB’s decision to launch the process, (ii) the deadline of nomination, (iii) composition of the Selection Committee, and (iv), the Selection Committee’s responsibilities and the deadline for it to make recommendations to the DSB. As to point (iv), the Selection Committee is obliged to conduct interviews with candidates and hear views from Members before it makes recommendations. A nomination is made by a Member’s submission of the candidate’s CV to the WTO. There are no content and format requirements about the CV. It could be a long European CV or one-page American resume. Although the rules do not prevent Members from nominating nationals from the other countries, by far there is no such a case. Moreover, there are no rules about the number of nominations. As the readers can see below, multiple nominations seem to quietly become an implication of the ownership of a permanent seat. Following the nomination, the campaign starts. In order to get support or at least non-objection from the Members, candidates usually visit a large number of delegations in Geneva. It is also usual for candidates to visit capitals of some major countries, as it is the general understanding that the decision-making power on the AB member appointment matter usually belongs to capital-based departments.6 The Selection Committee comes in at the end of the campaign. It interviews each candidate and listens to Members’ views.7 In the recent appointment processes, the Selection Committee had to meet around 50 Members individually. Members may also express their opinions in writing. The number of written opinions has been largely increasing in the recent years (Table 1). The Selection Committee should then inform the DSB of its recommendation. In practice, the DSB never turned down the Selection Committee’s recommendations.8 An AB selection process thus completes. 6 See

Elsig and Pollack, supra note 3, at p. 407. the candidate’s experience of the Selection Committee interview, please see Yang (2017). 8 An exception occurred in the 2007 selection process, where Taiwan contested the Selection Committee’s recommendation at the DSB meeting. Taiwan did not specify any candidate, but apparently the Member was concerned with the recommendation for the Chinese candidate Ms Yuejiao Zhang. However, Taiwan did not object to the appointment, but opposed the adoption of the DSB agenda. That allowed the DSB Chair to just suspend the meeting and to resume it when Taiwan dropped its objection in a few days. See Dispute Settlement Body, Minutes of Meeting Held in Centre William Rappard on 19 and 27 November 2007, WT/DSB/M/242 (11 Feb 2008). 7 For

15 Appointment and Reappointment of the Appellate Body Members … Table 1 The numbers of oral and written opinions that the Selection Committee received in the recent appointment processes are as below

259

Year of the process

Oral

Written

Sources

2011–12 (Bhatia and Graham)

43

2

WT/DSB/M/307, para 2

2014 (Servansing)

51

7

WT/DSB/M/350, para 2.2

2016, 1st time (none)

50

23

WT/DSB/M/379, para 5.1

2016, 2nd time (Zhao and Kim)

57

30

WT/DSB/M/389, para 13.2

We may use the 2011 appointment process as an example. In that year, the first term of two AB members—Ms. Lilia R. Bautista from Philippines and Ms. Jennifer Hillman—would expire on 10 December 2011, and none of them intended for reappointment. The DSB Chair therefore gave the “heads-up” announcement at the meeting on 21 April 2011.9 The four-element launch proposal was then adopted at the meeting on 24 May 2011 as below: (i)

to launch as from 24 May 2011 the selection process for appointment of two new members of the Appellate Body; (ii) to set a deadline of 31 August 2011 for Members’ nominations of candidates for the two positions; (iii) to agree to establish a Selection Committee, based on the procedure set out in document WT/DSB/1, which would consist of the Director-General and the 2011 Chairpersons of the General Council, Goods Council, Services Council, TRIPS Council and the DSB, which would be presided by the 2011 DSB Chair; [and] (iv) to request the Selection Committee to conduct interviews with candidates and to hear views of WTO Members in September/October, and to make recommendations to the DSB by no later than 10 November 2011, so that the DSB could make a final decision on this matter at the latest at its regular meeting on 21 November 2011.10 By the deadline of 31 August 2011, India and Pakistan each nominated one individual. The United States, as what a permeant-seat owner usually did, nominated two. The Selection Committee conducted interviews with the four candidates on 26 and 27 September 2011. And then on 31 October, 1 and 2 November 2011, the Committee met individually with 43 delegations. The views of two delegations were submitted to the Committee in writing. On 7 November, the Selection Committee recommended to the DSB that Mr. Ujal Singh Bhatia from India and Mr. Thomas

9 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 21 April 2011, para 9.1, WT/DSB/M/295 (30 June 2011). 10 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 24 May 2011, para 6.1, WT/DSB/M/296 (4 July 2011).

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Graham from the United States be appointed as AB members. The DSB took the decision at the meeting on 18 November 2011.11

1.2 Reappointment The AB reappointment process is subject to even more scarce rules. As said, Article 17.2 of the DSU simply provides that an AB member can be reappointed once. The DSB decision to establish the AB does not contain any rules about the reappointment process. Before the reappointments of Mr. Bhatia and Mr. Graham in 2015, the AB reappointment process relied on informal, non-public DSB Chair consultations. In practice, after confirming the AB member is willing to pursue the second term, the DSB Chair would invite interested Members to directly contact him or her on the reappointment matter. A few months later, without disclosing any details, the Chair would announce that a consensus has emerged as a result of these consultations, and would therefore propose the DSB to agree to reappoint the AB member. Such a reappointment process could be much shorter than a normal appointment process. For example, the reappointment of Mr. Ramírez in 2013 took only three months.12 In 2015, the DSB Chair, the Norwegian Ambassador Harald Neple introduced a new mechanism to the reappointment process: a very informal meeting hosted by the Chair to allow the reappointment candidates, Mr. Bhatia and Mr. Graham, to have a direct talk with WTO Members. To avoid any interventions to the individual member’s independence and impartiality, this meeting was carried out in a scrutinized manner. Each Member is allowed to pose only two questions to each AB member, and the questions should not touch upon any legal issues which had been raised in any ongoing disputes, which had been addressed by AB during the AB members’ past 4-year term, or which had not yet been addressed by the AB. The AB members may, at any time, decline to answer any questions.13 28 Members participated in the meeting. Their questions related to: (i) the AB member’s interest in reappointment and the experiences and insights gained as an AB member; (ii) the issue of workload of the AB and how to address it; (iii) the issue of collegiality; and (iv) what the AB could do on its own to improve the efficiency of the AB process.14 The DSB then agreed to reappoint Mr. Bhatia and Mr. Graham at the meeting on 25 November, 2015.

11 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 18 November

2011, paras 2, 3, WT/DSB/M/307 (8 Feb 2012). 12 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 26 March 2013, para 4.1, WT/DSB/M/330 (4 June 2013). 13 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 25 November 2015, paras 7.1, 7.2, WT/DSB/M/370 (12 Feb 2016) [hereinafter WTO Doc. WT/DSB/M/370]. 14 Id. para 7.2.

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Along with the introduction above, I would like to highlight two characteristics of the AB member appointment process, which in my view, shape a special game dynamic among the participants of the process. The first characteristic is the census-based decision-making approach and the resulting de facto veto power for each Member. This makes the AB member appointment process distinct from the system where appointment is based on majority voting. The second is the six-person Selection Committee and the reality that the DSB never rejected the Committee’s recommendations. We will see how these two characteristics affect the appointment process in the following sections. With these in mind, we should first look into the political issues at the early stage of the AB history, about the geographic distribution of AB membership.

2 The Distribution of the AB Membership The balance of geographical distribution of the AB membership is a build-in political element of the AB composition. Article 17.3 of the DSU provides that, “The Appellate Body membership shall be broadly representative of membership in the WTO.” Although the DSU does not specify what the representativeness should relate to, it is apparently that Members have reached a general agreement when the AB was established. During the selection process of the first seven AB members in 1995, the DSB Chair summarized Members’ views that: Many delegations believed that the strength of Appellate Body would lie in its diversity of representation reflecting: (i) regional, developed and developing country balance; (ii) adequate representation from regions and countries who were active participants in the trading system including smaller as well as larger countries; (iii) different legal systems, on grounds that the credibility and authority of the Appellate Body had be acceptable to all.15

According to this general understanding, it is natural for Members to expect that a new AB member could come from the same geographical area as the outgoing AB member, so that the AB’s representativeness can be maintained. The idea of “permanent seat”, on the other hand, has no legal basis in the WTO agreements. It was also originated from the selection of the first batch of AB members, where the United Stated and the European Economic Community (hereinafter EEC) each insisted on two seats in the AB. The EEC even threatened to block the selection if its request is not granted. The two largest economies finally compromised with one seat for each, which became a customary practice in the following processes. In the event that an outgoing AB member is from the European Union (hereinafter EU) or the United States, only that Member would put forward new nominations.16 15 Dispute

Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 31 May 1995, at 12, WT/DSB/M/5 (4 July 1995). See also, Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 1 and 29 November 1995, at 2, WT/DSB/M/9 (1 Feb 1996). 16 Steger (2015).

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And probably for adding some “competition”, each of these two Members usually nominated more than one individual. Until 2012, Japan is the only Member other than the EU and the United States who had a continuing AB membership since 1995. But Mr. Shotaro Oshima’s resignation in early 2012 ended this continuity. In the following appointment process, although Japan nominated two, the seat finally went to Mr. Seung Wha Chang from Korea. In the process in 2016, Japan again failed to win back the seat.17 On the other hand, in 2008, China got its first AB seat by putting forward two candidates. In 2016, China again nominated two and successfully secured one appointment. Given China’s rising trading power, some speculate that China is on its way to seek a permanent seat.18 While the distribution rule was sometimes contested,19 its application never faltered. Observing the AB’s composition over the past 25 years, it can be easily discerned how the rule works. In addition to the EU and the United States, two seats are regularly allocated to the African and Latin American countries. Japan’s privileged position might be replaced by China. The remaining two seats are shared by the Asian and Oceanian countries, with actually only five of them: Philippines, Korea, India, Australia and New Zealand.20 Such a distribution rule is not unique. Many international courts share the same rule with regard to their composition.21 The requirement of representativeness and its codified legal basis should suggest the AB’s indefensible political dimension. As an international adjudication institute, the AB’s authority cannot simply rely on the constitutional treaty and its high-quality judicial performances. A broad level of international support, in particular the support from some key players, is also a critical pillar of the AB’s well functioning. In some way, Article 17.3 of the DSU may be interpreted to mean that the membership geographical representativeness is the only justified political element in the appointment process. In reality, however, apparently Members demand more.

17 Baschuk

(2016). (2016, p. 12). 19 E.g., Canada protested the use of labels “Latin seat” or “EU seat” to discuss the positions to be vacated by Mr. Ramírez and Mr. Van den Bossche in 2017. See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 19 April 2017, para 6.5, WT/DSB/M/396 (20 June 2017) [hereinafter WTO Doc. WT/DSB/M/396]. 20 Mavroidis and Van der Borght (2006, p. 213). 21 E.g., the International Court of Justice, please see Security Council Report. https://www. securitycouncilreport.org/monthly-forecast/2017-11/international_court_of_justice_2.php. Accessed 12 Mar 2019. 18 Appleton

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2.1 The Turbulences in 2014–16 In their study on the AB member appointment processes during 1995–2012, Elsig and Pollack have observed that Member behaviors follow the principal-agent theory.22 Members tend to view AB members as “agents” rather than “trustees”. Therefore, they tend to support candidates whom they consider close to their own positions on salient issues.23 This tendency strengthened over time as the AB adopted controversial decisions with profound implications for states’ sovereignty and economic interests. The appointment process became an important and perhaps the only opportunity for Members (especially those who cannot frequently express their opinions before the AB) to inject their preferences into the system. In this regard, the focus of Members’ interviews with candidates went far beyond judicial ethics and background information. Members posed questions to test the candidates’ positions on crucial issues. For example, during the appointment processes in 2007–09, the United States’ strong criticism on the AB decisions in the zeroing disputes added to the debates about whether the AB engaged in the activity of lawmaking.24 In this sense, Members’ questions included many controversial issues, including the role of the AB vis-a-vis negotiated agreements, AB simply filling gaps or making law, agricultural policy, zeroing, and the issue of dissenting views.25 Moreover, Elsig and Pollack’s survey demonstrates that nominating Members usually actively assisted their candidates during the campaign.26 In addition to engaging in extensive diplomatic lobbying, Members coached and prepared their candidates to run the interviews.27 Furthermore, the candidates strategically provided selective information to national delegations about their views on hot-button issues.28 The authors of the above survey conclude that “… the AB nomination process has become progressively more politicized over its first decade and a half.”29 With regards to the game dynamics in the process, the authors point out that: The result is a system that resembles nothing so much as the process of appointment to the US Supreme Court, where successful candidates are likely to be those who say little or nothing controversial that might alienate the principals who hold the keys to judicial office.30

Elsig and Pollack’s observations were correct in their historical context, where although the strengthening screening for AB candidates’ ideology has raised some concerns, most the appointment processes have run smoothly. The United States’ rejection to the reappointment of its own AB member Ms. Jennifer Hillman casted 22 Elsig

and Pollack, supra note 3, at p. 410.

23 Id. 24 Id.

at p. 407.

25 Id. 26 Id.

at p. 408.

27 Id. 28 Id.

at p. 410. at p. 395. 30 Id. at p. 410. 29 Id.

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some more shadow over the system, but for anyhow, this rejection was made outside of the WTO and might partly be viewed as American home affairs.31 By comparing the AB member appointment process to the appointment process of the US Supreme Court justices, Elsig and Pollack might miss the two characteristics of the AB process that I have highlighted above, i.e. the consensus-based decisionmaking approach and the Selection Committee. The latter particularly deserves more discussions. As said, the DSB always follows the Selection Committee’s recommendation. In that sense, the Committee is the virtual appointment maker. However, given the Committee operates in a confidential way, there lack of any meaningful materials about the Committee’s deliberation processes. The Committee thus becomes a missing part of most of the studies on the AB member appointment topic. On the conceptual level, by directly interviewing candidates, the Selection Committee should form its own opinion about the appointment rather than simply follow Members’ preferences. The Committee therefore serves as a constraint on majority tyranny, preventing an appointment result fully based on “horse trading” deals. On the other hand, being composed of six politically savvy diplomats, the Committee may be expected to play the role of broker of consensus with the responsibility to avoid incurring any opposition to its recommendation at the DSB meeting. Under such institutional rules, the traditional election logics—have a good candidate and campaign hard for as many votes as possible—may not really work for the AB member appointment process. The value of supportive votes is uncertain, but it is clear that any single objection could be vital. It is thus reasonable for a nominating Member to set minimizing veto risk as the first priority of its political meddling list. And, as the other side of a coin, because in reality not every Member is capable of exercising its veto power, the real agenda-setting power, in a broad sense, is predicated on the capability and the will to veto a consensus, which usually belongs to powerful Members. Steinberg used to suggest that the EU and the United States have enjoyed “special privileges” before the Selection Committee, “enabling them to object to some candidates, which has amounted to a veto power”.32 Because the Committee process is confidential, it seems not possible to verify this account. However, the appointment processes in 2013–14 and 2016 may provide some circumstantial evidence. This process in 2013–14 was to select one new AB member to replace Mr. David Unterhalter from South Africa, whose second term expired on 11 December 2013. The process was launched on 24 May 2013. Four Members—Kenya, Cameroon, Australia and Egypt—put forward their nominees.33 After consulting with Members in October, the Selection Committee, for the first time, informed that it cannot identify any candidate that might enjoy consensus. The Committee thus suggested

31 For

Jennifer Hillman’s reappointment issue, see Hufbauer (2011). (2004, p. 264). 33 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 30 August 2013, para 9.1, WT/DSB/M/336 (6 Nov 2013). 32 Steinberg

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Members to, as a solution to the impasse, reopen the appointment process for further nominations.34 According to some secondary sources, the impasse was primarily caused by the United States’ objection to the Kenyan candidate Professor James Thuo Gathii, a chaired Professor at Loyola Law School in Chicago. The United States’ reason is that Professor Gathii’s legal writings have suggested that the WTO system is biased in favor of rich countries.35 It is said that the EU also objected the Egyptian candidate Mr. Abdel-Hamid Mamdouh and that some African countries objected the Australian candidate Ms. Joan Fitzhenry. Kenya also threatened to block a new consensus in favor of any nominees.36 The impasse lasted for a couple of months. The new DSB Chair managed to launch a new selection process in May 2014 under the protests of the original four nominating Members. Australia withdrew its candidate37 and four other African Members: Ghana, Mauritius, Uganda and Zimbabwe joined the competition. At the meeting on 29 August 2014, the DSB Chair, for the first time ever, made a statement to encourage Members in the consultations with the Selection Committee to “provide constructive comments on the candidates” and “only the name of the candidate they wished to see as the next member of the Appellate Body.”38 The Selection Committee could ultimately conclude its long and arduous task by recommending to the DSB Mr. Shree Baboo Chekitan Servansing from Mauritius and the DSB so appointed. A Similar battle occurred in the 2016 selection process. To replace Ms. Yuejiao Zhang from China, seven candidates were nominated by six Members: Japan, Turkey, China, Australia, Malaysia and Turkey, where, as said, China nominated two.39 In announcing the information about the consultations with the Selection Committee, the DSB Chair “strongly encouraged Members to indicate their positive preferences on the candidates”.40 However, after receiving a large number of opinions from the Members, the Selection Committee once again informed that it cannot make a recommendation by the agreed deadline.41 It is not clear how the deadlock was caused. This vacancy was not filled until November 2016 when the second vacancy left by the non-reappointment of Mr. Seung Wha Chang was considered together. The 2014 and 2016 events signify the increasing and expanding confrontations among Members on AB member appointment matters. It appears that the United States, with its increasing anxiety with the AB, has showed even stronger desires 34 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 22 January

2014, paras 9.1, 9.13, WT/DSB/M/341 (25 Apr 2014). (2018). 36 Bhala et al. (2014, p. 479). 37 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 26 September 2014, para 7.3, WT/DSB/M/350 (21 Nov 2014). 38 Id. para 2.1. 39 See Baschuk, supra note 18. 40 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 22 April 2016, para 9.1, WT/DSB/M/377 (14 June 2016). 41 WTO Doc. WT/DSB/M/370, supra note 14, para 5.1. 35 Bhala

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to control the appointee’s ideology. Other Members also gave more weight to this game and are willing to take risk exchanging fire of objections before the Selection Committee. Thankfully, at this stage, the Selection Committee played its “black box” role well, containing most the conflicts and preventing spillovers. The game players did not publicly fire bullets to each other or to the system. The system could therefore continue to operate in a shaky but persistent way—until the United States mounted up its interventions.

2.2 The Crisis in 2016–18 On 11 May 2016, several trade news media published the news about the United States’ rejection to the reappointment of the Korean AB member Mr. Seung Wha Chang, shocking the whole international trade community. Mr. Chang’s first 4-years term was set to expire at the end of May of 2016. He had expressed his willingness for reappointment and the DSB had agreed to launch the consultation process in January. The very informal meeting for the talk between Mr. Chang and Members took place on 10 May 2016. 26 Members, including the United States, attended the meeting. The next day, the United States informed the DSB Chair of its intention to object the reappointment and released the information to the press media. At the DSB meeting on 23 May, the United States expressed it objection with reasons. It listed four AB reports authored by different three-people divisions in all of which Mr. Chang had sit, and indicated a number of errors that the AB has committed, including making lengthy obiter dicta, creating arguments not asserted by parties and interpreting disputing parties’ domestic laws.42 I do not intend to go into details of the US arguments here. Most Members and commentators did not either at that time. It is the first time ever did a Member block a reappointment and the target is an AB member of another country. Spotlight is inevitably shed on the United States’ political agenda rather than its legal merits. The United States’ action was widely interpreted as a blunt intrusion to the AB, threatening the independence and impartiality of the system.43 The concern about the reappointment process being manipulated as a tool to rein in the AB has long been there. The US action simply substantiated the concern. A number of proposals were thus floated. A notable one is to repeal the reappointment mechanism and let AB members to enjoy one single, longer term of office.44 The other is to set a clearer, higher threshold for the exercise of the right to not reappoint.45 42 Dispute

Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 23 May 2016, paras 6.1, 6.6, WT/DSB/M/379 (29 Aug 2016). 43 Daugirdas and Mortenson (2016, pp. 573–579). 44 See Abi-Saab G. et al., Communication To The Dispute Settlement Body From Former Appellate Body Members Concerning Opposition to the Reappointment of an Appellate Body member, the Appellate Body Annual Report for 2016, Annex 3, at 104, WT/AB/27 (16 May 2017). 45 See Korea’s Statement at Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 22 June 2016, para 11.3, WT/DSB/M/380 (2 Sept 2016).

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None of these proposals were transformed into formal negotiations. The reappointment controversy was apparently settled in November 2016 when Mr. Hyun Chong Kim from Korea was appointed to fill the vacancy. People who were just released from the lengthy, tiring reappointment debates, did never expect the coming of another larger, longer crisis. In 2017, two AB members’ second terms of office were set to expire—Mr. Ricardo Ramírez-Hernández from Mexico in June and Mr. Peter Van den Bossche from the EU in December. The DSB Chair’s “heads-up” announcement had been made in December 2016, but the processes could not be launched because, according to the Chair’s report in April 2017, Members diverged on whether the two potential vacancies should be subject to one single selection process or two separate ones.46 To find a breakthrough, at the DSB meeting on 22 May 2017, the EU and a group of Latin American Members respectively submitted a proposal for initiating the selection process for “their own” seat. The United States took no issues with the Latin American Members’ proposal, but rejected the EU’s with the reason that the US ongoing transition in political leadership prevented it from supporting to launch a process to fill a position that would only become vacant in December 2017.47 The EU in return rejected the Latin American Members’ proposal. The situation became more complicated as the AB member Mr. Hyun Chong Kim resigned in August 2017. At the DSB meeting on 31 August 2017, the United States for the first time raised the issue about Rule 15 of the Working Procedures for Appellate Review. In accordance to Rule 15, an outgoing AB member may complete the disposition of any appeal to which he or she has been assigned. The United States argued that the authority to appoint and reappoint AB members should be exclusive to the DSB; the AB cannot extend its individual members’ terms through the working rules. The United Stated thus considered Rule 15 a priority issue and rejected to launch any process before the issue is resolved.48 When this chapter is being written in early 2019, the United States’ blockage remains. Over the past 16 months, we can observe the efforts to break the deadlock were made in three tracks. The first track is to focus on the possible amendments of Rule 15 with the hope that the United States will lift its blockage when its concern is addressed.49 The relevant discussions are ongoing while at the same the issue scope expanded as the United States raised more issues about the function of the AB over the year of 2018.50 46 Dispute

Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 19 April 2017, para 6.1, WT/DSB/M/396 (20 June 2017). 47 Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 22 May 2017, para 10.3, WT/DSB/M/397 (18 Aug 2017). 48 Dispute Settlement Body, Minutes of meeting Held in the Centre William Rappard on 31 August 2017, paras 5.3, 5.4, WT/DSB/M/400 (31 Oct 2017). 49 E.g., see Honduras’ proposal in World Trade Organization [WTO], Fostering a Discussion on the Functioning of the Appellate Body, WTO Doc. JOB/DSB/2 (23 July 2018). 50 See the proposal by the EU and several other Members at 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, WT/GC/W/752 (10 Dec

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The second track is to pursue a procedural breakthrough of the present impasse. One option is that Members resort to voting at the DSB or the General Council to either launch the selection processes or to appoint new AB members.51 The other is to argue that since Article 17.2 the DSU does not specify that the launch of an AB member appointment process requires a DSB decision, the DSB Chair may do it on his or her initiation.52 The suggestions also include the amendment of the DSU to specify that a selection process shall be automatically launched a certain period of time prior to the expiry of outgoing AB members’ term of office.53 The third track is about the “Plan B” for the worst scenario where the blockage continues, leaving the AB with less than 3 working members. Under the circumstances, the options include that the AB itself stops entertaining new appeals,54 and using the arbitration procedures under Article 25 of the DSU to form an alternative appellate tribunal.55 Again, here I do not intend to go into details of these proposals. From a macro point of view, the non-reappointment of Mr. Chang in 2016 and the US blockage in 2017 are not isolated incidents. They should be viewed as a part of the trend of increasing politicization of the AB member appointment process. The United States’ actions are in line with its long-standing skepticism of the AB, while the increasing aggressiveness is more likely to be driven by its frustration at not being able to effectively harness the AB with the previous approaches (i.e. seizing a permanent seat, placing a desirable member and vetoing undesirable candidates). From the perspective of game dynamics, the cross vetoing between the United States and the EU in the middle of 2017 suggests that the United States’ actions were, at least partially, targeting the EU’s potential nomination. It is another example of Members’ confrontation on the AB member appointment matter, though it is an upgraded one, the one between the two largest Members.

2018). See US arguments in Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, December 18, 2018 (2018), https://geneva.usmission.gov/wp-content/ uploads/sites/290/dec18.dsb_stmt_as-deliv.fin_public.pdf. 51 See, e.g., Global Governance Centre of the Graduate Institute (2017) Deadlock at the WTO: Pathways to Maintaining an Effective System for Appellate Review. The Graduate Institute Geneva. http://graduateinstitute.ch/home/research/centresandprogrammes/global-governance/ news/past-news.html/_/news/psig/2017/news-list/deadlock-at-the-wto-pathways-to. 52 See, e.g., Colombia’s statement at Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 22 June 2018, para 9.14, WT/DSB/M/414 (11 Oct 2018). 53 See, e.g., the proposal by the EU and several other Members at General Council, Communication from the European Union, China and India to the General Council, WT/GC/W/753 (26 Nov 2018). 54 Foltea (2018). 55 Andersen et al. (2017).

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3 Conclusion This chapter provides an overview of the WTO’s AB member appointment process and depicts its progress of politicization. The geographic distribution of seats should mark the major political issue at the early stage of the AB. Over the following 15 years, the empirical data show that Members have attempted to exert more control over the AB members through the appointment process, as predicted by the principal-agent theory. Through 2013–16, the competition to the AB seats got more intensive and more like a crash of state interests. Veto or threat of veto became frequent and apparent, while at the same time the Selection Committee still managed to secure the AB vacancies to be filled. The United States’ rejection to reappointment in 2016 and its prolonged blockage to the launch of selection processes since 2017 mark a new peak of the politicization progress, if not the last. For now, it is not clear how, when, and even whether the US blockage will end. However, in my view, even if the present crisis could be brought down, the politicization progress will not stop. On the one hand, under the current circumstances where the tension keeps accumulating in the trade area, Members continue to refer to the AB complicated and sensitive problems, such as non-market economy and national security. Some Members which were not frequent litigants are now increasing their engagements into the WTO dispute settlement activities. Moreover, the views exemplified by President Trump’s interview talk as cited at the beginning of this chapter appear to get more popularity around the world. All of these factors will foster Members’ demands for being represented in the AB and turn the appointment race harsh. On the other hand, the United States has shown what an extreme strategy is and how easily it could be implemented. We should not assume that Members will all refrain from considering this model in pursuing their national interest in the similar scenario. The escalating confrontations among Members in vying for AB seats should also germinate reckless and unscrupulous strategy-thinking. Though it may look like that only the United States is capable to play such a bold game, we should always bear in mind that a follower-imitator usually faces a less-steep learning curve. Here we are facing a dilemma: The AB’s potential failure stems from its success. The more successfully the AB functions as an adjudicator of international trade and even of non-trade issues, the more possible that interested parties would desire to meddle in its affairs. And it seems difficult to design any effective defensive mechanisms. In my view, the politicization progress may not be simply reversed with some technical alternations on the appointment procedures. The present crisis should force the international community to think on the more profound level. Examples include what the role the AB should play in the future multilateral system, and how the WTO can revive its legislation (negotiation) function. As the former AB member Mr. Ramírez said in his farewell speech: Many of the issues identified in the lead-up to the current state of affairs go to the core and the nature of what the AB is or should not be. If Members want to make progress and solve

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the current deadlock, maybe this is a good place to start. Or, alternatively, maybe there needs to be a pragmatic discussion that leaves these conceptual notions aside and goes to the very basic or minimal elements all Members can live with to have a fully functioning AB. But it is undeniable that there needs to be a discussion.56

References Andersen S et al (2017) Using arbitration under Article 25 of the DSU to ensure the availability of appeals, (Cent for Trade and Econ Integration Working Papers, 2017) https://repository. graduateinstitute.ch/record/295745/files/CTEI-2017-17.pdf Appleton AE (2016) Judging the judges or judging the members? Pathways and pitfalls in the Appellate Body appointment process. In: Choukroune L (ed) Judging the state in international trade and investment law. Springer, Singapore, pp 11–32 Baschuk B (2016) WTO members disagree on Appellate Body replacement, BNA Reports. https:// www.bna.com/wto-members-disagree-n57982072389/. Accessed 13 May 2016 Bhala R (2018) Chaos: recent developments in international trade law at the multilateral, regional, and U.S. Levels. Univ of Kans School of Law 1:3. https://law.ku.edu/sites/law.ku.edu/files/docs/ recent-developments/2018/bhala-materials.pdf Bhala R et al (2014) WTO case review 2013. Ariz J Int Comp L 31(2):475–510 Daugirdas K, Mortenson JD (2016) Contemporary practice of the United States relating to international law. https://repository.law.umich.edu/cgi/viewcontent.cgi?referer=https://www.google. com/&httpsredir=1&article=2808&context=articles Dispute Settlement: Appellate Body (2018) Farewell speech of Appellate Body member Ricardo Ramírez-Hernández. https://www.wto.org/english/tratop_e/dispu_e/ ricardoramirezfarwellspeech_e.htm Elsig M, Pollack MA (2014) Trustees, and international courts: the politics of judicial appointment at the World Trade Organization. Eur J Int Relat 20(2):391–451 Farley R (2017) Trump wrong about WTO record. FastCheck.Org. https://www.factcheck.org/2017/ 10/trump-wrong-wto-record/. Accessed 8 Mar 2019 Foltea M (2018), Options for breaking the WTO Appellate Body deadlock. ICTSD. https://www. ictsd.org/opinion/options-for-breaking-the-wto-appellate-body-deadlock Global Governance Centre of the Graduate Institute (2017) Deadlock at the WTO: pathways to maintaining an effective system for appellate review. http://graduateinstitute.ch/home/research/ centresandprogrammes/global-governance/news/past-news.html/_/news/psig/2017/news-list/ deadlock-at-the-wto-pathways-to. Accessed 30 Nov 2017 Hufbauer GC (2011) WTO judicial appointments: bad Omen for the trading system. PIIE. https://piie.com/blogs/realtime-economic-issues-watch/wto-judicial-appointmentsbad-omen-trading-system Mavroidis PC, Van der Borght K (2006) Impartiality, independence and the WTO Appellate Body. In: Georgiev D, Van der Borght K (eds) Reform and development of the WTO dispute settlement system. Cameron May, Cambridge, pp 201–224 November 2017 Monthly Forecast (2017) International court of justice. https://www. securitycouncilreport.org/monthly-forecast/2017-11/international_court_of_justice_2.php. Accessed 31 Oct 2017

56 See

the text of the speech at Farewell speech of Appellate Body Member Ricardo Ramírez-Hernández (28 May 2018), https://www.wto.org/english/tratop_e/dispu_e/ ricardoramirezfarwellspeech_e.htm.

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Paweulyn J (2007) L’invité. La sélection des juges à l’OMC, et peut-être celle d’un Chinois, mérite plus d’attention. LE TEMPS. https://www.letemps.ch/economie/linvite-selection-jugeslomc-peutetre-celle-dun-chinois-merite-plus-dattention. Accessed 8 Mar 2019 Schwartz I (2017a) Full Lou Dobbs interview: trump asks what could be more fake than CBS, NBC, ABC and CNN? https://www.realclearpolitics.com/video/2017/10/25/full_lou_ dobbs_interview_trump_asks_what_could_be_more_fake_than_cbs_nbc_abc_and_cnn.html. Accessed 25 Oct 2017 Schwartz I (2017b) Full Lou Dobbs interview: trump asks what could be more fake than CBS, NBC, ABC and CNN? Real clear politics. https://www.realclearpolitics.com/video/2017/10/25/ full_lou_dobbs_interview_trump_asks_what_could_be_more_fake_than_cbs_nbc_abc_and_ cnn.html. Accessed 8 Mar 2019 Statements by the United States at the Meeting of the WTO Dispute Settlement Body (2018). https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_Stmt_as-deliv. fin_.public.pdf. Accessed 18 Dec 2018 Steger DP (2015) The founding of the Appellate Body, in a history of law and lawyers in the GATT/WTO. In: Marceau G (eds) Cambridge University Press, pp. 449–450 Steinberg RH (2004) Judicial lawmaking at the WTO: discursive, constitutional, and political constraints. Am J Int L 98:247–264 Yang G (2017) The study of the appointment and operation of the WTO Appellate Body (in Chinese). http://www.iolaw.org.cn/showNews.aspx?id=65566. Accessed 7 Jan 2019

Po-Ching Lee is the Senior Legal Advisor of the Permanent Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu to the WTO in Geneva. He is in charge of WTO legal matters and has been actively engaged in the issues relating to the Appellate Body. Before joining the Mission, he was a senior lawyer of Wu and Partners, Attorneys-at-Law in Taipei, where his practices focused on trade remedy cases. He holds degrees of Bachelor of Laws and Master of Laws from National Taiwan University and LL.M from New York University.

Chapter 16

Should Appellate Body Members Work Full Time? Fernando Dias Simões

Abstract The WTO’s Appellate Body is a standing body composed of 7 members whose mandate is to hear appeals from panel cases. While it is a permanent body, the members of the Appellate Body are not appointed full-time. This regime was based on the assumption that members would be called upon to hear only a small number of cases per year. The reality, however, is that the workload of the Appellate Body is completely different from what was originally assumed. There is an evident gap between the expectations of the creators of the Appellate Body, back in the year 1995, and the reality of our time and age. This chapter calls on WTO member states to seriously consider the overall impact of the current arrangement in the effectiveness and credibility of the dispute settlement system. Appointing members on a fulltime regime is a minor yet imperative change to address the challenges facing the Appellate Body. Keywords Appellate Body · Appellate Body members · Part-time · Full-time · Appellate Body reform

1 The Appellate Body in Theory: A Part-Time Job Since it opened doors in 1995, the Appellate Body has always been bustling. In this 1 2 decade alone, the number of appeals filed has been appreciable: 3 in 2010, 9 in 2011,

1 Appellate 2 Appellate

Body, Annual Report for 2010, WT/AB/15, p. 4 (18 July 2011). Body, Annual Report for 2011, WT/AB/17, p. 6 (13 June 2012).

F. Dias Simões (B) Faculty of Law, Chinese University of Hong Kong, Sha Tin, Hong Kong e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_16

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5 in 2012,3 2 in 2013,4 13 in 2014,5 8 in 2015,6 8 in 2016,7 and 8 in 2017.8 Between 1996 and 2017, 70% of panel reports have been appealed.9 Thomas Graham, a current member of the Appellate Body, talks of a “tsunami” of cases.10 Proceedings are also becoming more complex and therefore more laborious. Some disputes require the valuation of very technical evidence and involve multiple parties.11 Disputes have become more “legalistic” and “sophisticated”,12 and the jurisprudence elaborated therein more “refined”.13 Submissions frequently run to hundreds of pages.14 Correspondingly, Appellate Body reports, including a summary of the parties’ arguments and exhibits, are often incommensurably long.15 The burdensome caseload, combined with the growing complexity of disputes, makes it difficile for Appellate Body members to conclude their work in a timely manner. As a general rule, reports must be issued within 60 days; this time limit can be prolonged but never beyond 90 days.16 These deadlines have been slammed as exceedingly short and demanding for both disputing parties and adjudicators.17 3 Appellate

Body, Annual Report for 2012, WT/AB/18, p. 12 (9 Apr 2013). Body, Annual Report for 2013, WT/AB/20, p. 12 (14 Mar 2014) [hereinafter Annual Report for 2013]. 5 Appellate Body, Annual Report for 2014, WT/AB/24, p. 11 (3 July 2015) [hereinafter Annual Report for 2014]. 6 Appellate Body, Annual Report for 2015, WT/AB/26, p. 12 (3 June 2016). 7 Appellate Body, Annual Report for 2016, WT/AB/27, p. 15 (16 May 2017) [hereinafter Annual Report for 2016]. 8 Appellate Body, Annual Report for 2017, WT/AB/28, p. 13 (22 June 2018). 9 Id. 10 Thomas Graham, Chairman, Appellate Body, World Trade Org. [hereinafter WTO], Keynote Address at the special lecture hosted by the World Trade Institute of the University of Bern, the University of Geneva Law School and the Graduate Institute of International and Development Studies: Speaking Up: The State of the Appellate Body, p. 2 (22 Nov 2016), https://www.wto.org/ english/news_e/news16_e/ab_22nov16_e.pdf. 11 Hughes (2009, p. 282) [hereinafter Hughes, The Institutional Dimension]; Hughes (2008, p. 494), [hereinafter Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review]. See also Ramírez and Castren (2015, p. 616). 12 Seung Wha Chang, Former Appellate Body member, Farewell Speech on 26 Sept 2016, in Annual Report for 2016, supra note 7 [hereinafter Chang]. See also Communication from the Appellate Body: The Workload of the Appellate Body, in Annual Report for 2013, supra note 4, at p. 32. 13 Roessler (2017, p. 113). 14 Hughes, The Institutional Dimension, supra note 11, at p. 282; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 15 Hughes, The Institutional Dimension, supra note 11, at p. 282, n.56; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 16 Understanding on Rules and Procedures Governing the Settlement of Disputes Article 17.5, 15 Apr 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869, U.N.T.S. 401, https://www.wto.org/english/docs_e/legal_e/28-dsu.pdf. [hereinafter DSU]. 17 U.N. Conference on Trade and Development, Dispute Settlement: World Trade Organization 3.1 Overview, U.N. Doc. UNCTAD/EDM/Misc.232/Add.11, p. 52 (2003), http://unctad.org/en/docs/ edmmisc232add11_en.pdf. Zdouc (2008, p. 373). 4 Appellate

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Indeed, such severe timeframes are unheard of in other international courts and tribunals.18 It is thus no wonder that Appellate Body members are struggling to submit their reports in due time.19 Delays are becoming recurrent20 and time limits have been exceeded in several occasions.21 Some consider that such “strict”,22 “unreasonably short”,23 “sometimes impossible”24 time restrictions are simply “no longer feasible”.25 These concerns are by no means new. Proposals for the reform and enhancement of the World Trade Organization (hereinafter WTO) dispute settlement mechanism have been on the table almost from its launch.26 An apparently straightforward solution to the problem would be to prolong the deadlines established in Article 17.5 of the DSU.27 However, the proposal that has received more attention is the one suggesting an increase in the number of Appellate Body members.28 The number of Appellate Body members is surprisingly low when compared with other international courts and

18 U.N. Conference on Trade and Development, supra note 17; Zdouc, supra note 17, at p. 373; Van

den Bossche and Zdouc (2013, p. 246), Steger (2015, p. 452). 19 Sacerdoti (2015, p. 285); Roberto Azevêdo, Dir.-Gen. of WTO, Speech to the Dispute Settlement

Body on 26 Sept 2014, in Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 26 September 2014, WT/DSB/M/350, p. 3 (21 Nov 2014). 20 Kennedy (2011, p. 221), Van den Bossche and Prévost (2016, p. 290); Roberto Azevêdo, Dir.-Gen. of WTO, Speech to the Dispute Settlement Body on 26 Sept 2014, in Annual Report for 2014, supra note 5, at p. 89. 21 Shoyer and Solovy (2000, p. 679), Van den Bossche and Zdouc, supra note 18, at p. 248; Davey (2014, p. 692); Roessler, supra note 13, at p. 113. 22 Former Chairman of the Appellate Body Bacchus (2002, p. 1028); Steger, supra note 18, at p. 464. 23 Parlin (1998, p. 864). 24 Thomas R. Graham, Member of the Appellate Body, WTO, Lectures at the Maurice A. Deane School of Law, Hofstra University, Philip J. Shapiro Endowed International Visiting Scholar Lecture: It Sure Looks Different from the Inside: Deciding International Disputes at the WTO, p. 4 (6 Feb 2013), http://scholarlycommons.law.hofstra.edu/lectures_shapiro/2. 25 Tanaka (2018, p. 296). Thomas Graham states: [t]he original rules still call for us to complete the consideration of appeals and to release our final reports within 90 days of the date an appeal is filed, a deadline that simply is not realistic in view of the size and complexity of appeals today, and especially considering that the first 21 days following the filing of an appeal are taken up with the filing of submissions, and that we must give the translators our final report two or three weeks before the report is to be issued, to allow adequate time for translation. Graham, supra note 10, at p. 4. et al. (2012, p. 502). For an overview of the most relevant proposals, see Georgiev and Van der Borght (eds) (2006), Zimmermann (2006), Van den Bossche (2009, p. 113 ff). 27 Frechette et al. (1998, p. 750); Parlin, supra note 23, at p. 864. 28 See Jackson (2006, p. 201), Schoenbaum (1998, p. 655), Shoyer and Solovy, supra note 21, at p. 680, Sarooshi (2003, p. 115), Ehlermann (2004, p. 503) [hereinafter Ehlermann, Six Years on the Bench of the “World Trade Court”]; Lockhart and Voon (2005, p. 474); Hughes, The Institutional 26 Bernauer

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tribunals.29 For example, there are 15 members in the International Court of Justice,30 18 in the International Criminal Court,31 and 21 on the International Tribunal for the Law of the Sea.32 Proposals to increase the number of Appellate Body members have been submitted by Thailand33 and Japan,34 but member states have failed to reach a consensus in this regard.35 One factor placing additional pressure on the work of Appellate Body members is the part-time nature of their appointment.36 Unlike panels, which are formed ad

Dimension, supra note 11, at pp. 284–285; Sacerdoti (2017, p. 167), Ehlermann (2016, p. 29) [hereinafter Ehlermann, The Dispute Settlement System of the WTO]. 29 Van den Bossche (2005, pp. 65–66), Van den Bossche (2006, p. 295), Sacerdoti (2006, p. 43), Messenger (2016b), The Development of World Trade Organization Law: Examining Change in International Law, p. 54; Messenger (2016a), The Development of International Law and the Role of Causal Language, p. 129. 30 Statute of the International Court of Justice, Article 3(1), 1945 I.C.J. Acts & Docs. 21, https:// treaties.un.org/doc/source/docs/charter-all-lang.pdf#page=23. 31 Rome Statute of the International Criminal Court, Article 36(1), https://www.icc-cpi.int/ resourcelibrary/official-journal/rome-statute.aspx. 32 Statute of the International Tribunal for the Law of the Sea, Article 2(1), https://www.itlos.org/ fileadmin/itlos/documents/basic_texts/statute_en.pdf. 33 Special Session of the Dispute Settlement Body, Proposal to Review Article 17.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes: Communication from Thailand, TN/DS/W/2 (20 Mar 2002); and Special Session of the Dispute Settlement Body, Proposal to Review Article 17.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes: Communication from Thailand, TN/DS/W/30 (22 Jan 2003). 34 Special Session of the Dispute Settlement Body, Amendment of the Understanding on Rules and Procedures Governing the Settlement of Disputes: Proposal by Japan, TN/DS/W/32 (22 Jan 2003). 35 In 2014, Robert Azevêdo, Director-General of the WTO, stated in an address to the Dispute Settlement Body: [u]nder the current situation the 7 member [Appellate Body] can handle around 10–12 appeals at most per year. That is stretching the envelope. And this is with [Appellate Body] Members working almost full-time. This operational cap is thus simply not enough given the level of demand. If, for example, Members decided to increase the number of members to 9, the maximum per year could be increased by approximately a third. This could potentially address the bottleneck at the [Appellate Body] stage to some degree. But of course this is entirely in your hands. Azevêdo, supra note 20, at p. 91. 36 Shoyer and Solovy, supra note 21, at p. 680; Steger, supra note 18, at p. 464.

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hoc, the Appellate Body is a permanent,37 standing38 body. While it is a permanent body, the members of the Appellate Body are not permanently in session—theirs is not a full-time position.39 Even though the Dispute Settlement Understanding does not expressly refer to the part-time or full-time nature of the job, its wording points to the former40 when it states: All persons serving on the Appellate Body shall be available at all times and on short notice, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.41

Instead of giving members of the Appellate Body a full-time salary, the Dispute Settlement Body opted for a system of retribution composed by two different parcels: a monthly retainer and a per diem for days worked.42 The Decision of the DSB of 10 Feb 1995 reads43 : The amount of a retainer/fee package would have to be large enough to offset a member’s opportunity cost of work foregone because of potential conflicts of interest, or incompatibility with sporadic trips to Geneva. This cost would also include the disruption of a member’s career due to the uncertain but limited length of the Appellate Body assignment (two or four years initially, with a possibility of a one further period of four years) and the uncertainty of the total remuneration actually received. Further, the compensation should be high enough to provide an incentive for a member not to take on work which might create a conflict of interest. Accordingly, it would appear that the retainer should be set at a minimum of [CHF] 7,000 per month, plus a fully-adequate daily fee, travel expenses and a per diem. The actual amounts should be set on the basis of further research on current rates for equivalent services under similar conditions. The contractual conditions for each member of the Appellate Body should be the same, reflecting the principle that all the members should have equal status.

The idea behind this binary system of payment was to attract high quality candidates while granting them enough flexibility to pursue other activities.44 While the monthly, fixed retainer is meant to compensate the fact that Appellate Body members cannot totally pursue other professional activities because they must be readily

37 Van den Bossche and Zdouc, supra note 18, at 231; Hudec (1998, p. 120), Renouf (2005, p. 115),

Hoekman and Mavroidis (2007, p. 78), Van Damme (2010, p. 643). supra note 16, Article 17.1. See Steger and Hainsworth (1998, pp. 206), 221. 39 U.N. Conference on Trade and Development, Dispute Settlement. World Trade Organization. 3.3 Appellate Review, U.N. Doc. UNCTAD/EDM/Misc.232/Add.17, p. 5 (2003), http://unctad.org/en/ docs/edmmisc232add17_en.pdf. 40 Ehlermann, supra note 28, at p. 503. 41 DSU, supra note 16, Article 17.3. 42 The expenses of persons serving on the Appellate Body, including travel and subsistence allowance, are met from the WTO budget in accordance with criteria adopted by the General Council, based on recommendations of the Committee on Budget, Finance and Administration. DSU, supra note 16, Article 17.8. 43 Dispute Settlement Body, Decision of 10 February 1995 on the Establishment of the Appellate Body, para 12,. WT/DSB/1 (19 June 1995) [hereinafter Decision of the DSB of 10 February 1995]. 44 Donaldson (2005, p. 1286). 38 DSU,

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available for WTO work45 ; the variable payment on an appeal-by-appeal basis is in line with the “on again—off again” jurisdiction of the Appellate Body.46 Members also receive a daily allowance to cover meals and accommodation and an allowance for administrative expenses.47 Because they are employed on a part-time basis, other benefits (such as health insurance) are minimal48 and, unlike WTO “staff”, they do not participate in the WTO pension plan.49 While in theory Appellate Body members are only employed part-time, the percentage of time they actually dedicate to WTO tasks depends on the (naturally) variable number of appeals being filed. That fluctuating number also determines how much time they have left to engage in other professional commitments. Amidst such uncertainty, the only thing they have for certain is that they must “be available at all times and on short notice” for Appellate Body work. Taking into account the growth in number and complexity of the WTO caseload, some authors and member states have, from the very inception of the Appellate Body, advocated that its members exercise their functions in a full-time regime. However, this proposal has not received sufficient attention. This is particularly surprising if one considers the voluminous scholarly commentary produced à propos the recurring proposal to create a permanent panel at the first level of WTO dispute settlement.50

2 The Appellate Body in Practice: A Full Time Commitment The Appellate Body has been working within an organizational structure that proved misadjusted from the very beginning.51 The growing number of disputes is putting 45 Hughes,

The Institutional Dimension, supra note 11, at p. 283; VanGrasstek (2013, p. 242). See also Letter from James Bacchus, Chairman, Appellate Body, WTO, to Joshua C.K. Law, Chairman, Comm. on Budget, Fin. & Admin., WTO, p. 3 (17 Nov 2003), https://docs.wto.org/dol2fe/Pages/ FE_Search/ExportFile.aspx?id=88355&filename=Q/WT/BFA/W109.pdf. [hereinafter Letter from Bacchus]. 46 Steger, supra note 18, at p. 449. 47 The daily allowance to cover meals and accommodation is of CHF 435, and the allowance for administrative expenses amounts to CHF 300 per month. See Letter from Bacchus, supra note 45, at p. 3. 48 Hughes, The Institutional Dimension, supra note 11, at p. 283. 49 Donaldson, supra note 44, at p. 1288; Hughes, The Institutional Dimension, supra note 11, at p. 283;Pauwelyn ( 2015, pp. 790–791). 50 See Hecht (2000, p. 657), Kingery (2000, p. 665), Bourgeois (2001, pp. 147–148) [hereinafter Bourgeois, Some Reflections on the WTO Dispute Settlement System from a Practitioner’s Perspective]; Davey (2002, p. 496, 2003, p. 177, 2006, p. 124, 2008, p. 430 ff, 2016, pp. 17–19) [hereinafter Davey, A Permanent Panel Body for WTO Dispute Settlement], Porges (2002, p. 528), Shoyer (2003, p. 187), Bourgeois (2003, p. 211), Cottier (2004, p. 31) Sarooshi (2005, p. 131 ff), [hereinafter Davey, Enforcing World Trade Rules]; Danvivathana (2006, p. 87), Busch and Pelc (2009, p. 579), Steger (2012), [hereinafter Davey, The WTO Dispute Settlement System]. 51 Graham, supra note 10, at p. 2.

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considerable pressure on existing resources,52 demanding significant efforts from Appellate Body members but also from the Appellate Body secretariat.53 This gives rise to concerns about the Appellate Body members’ ability to meet deadlines.54 Delays seem inevitable.55 While there are no magical solutions to address the problem,56 something needs to be done to ensure that the practice of the Appellate Body is in line with the time limits set out on paper.57 Action is necessary not just to meet the present backlog but also to ensure the future of the Appellate Body. Indeed, one may wonder who will be willing to serve on the Appellate Body if the current conditions remain unchanged, and whether those interested will have the proper profile.58 Because they are theoretically only working part-time, Appellate Body members do not normally reside in Geneva.59 They have to make travel arrangements whenever an appeal is filed and adjust their personal and professional agendas correspondingly.60 While some preliminary tasks can be performed at home, most of the work implies being in Geneva.61 Once a substantial number of appeals arise, Geneva becomes “the center of gravity” for Appellate Body members.62 Appellate Body members end up spending more time at the WTO headquarters than was originally projected.63 This happens for several reasons. First, as time limits are stringent, Appellate Body members spend significant periods of time—normally more than 30 days per case64 —discussing and deliberating with other colleagues.65 They normally try to save time by starting to read each case once the panel report

52 Jackson

(1998a, p. 173), Sacerdoti, supra note 19, at p. 285.

53 Graham, supra note 10, at 7; Davey, The WTO Dispute Settlement System, supra note 50, at p. 11;

Mavroidis (2008, p. 367). 54 Shoyer and Solovy, supra note 21, at p. 679. 55 Graham, supra note 10, at p. 7. 56 Ehlermann, The Dispute Settlement System of the WTO, supra note 28, at p. 29. 57 Shoyer and Solovy, supra note 21, at p. 680. 58 Bernal et al. (1998, p. 879). 59 According to Janow, in 2008 only one of the Appellate Body members was living in Geneva. Janow (2008, p. 252). 60 Id, at 252; Hughes (2005a, pp. 84–85). 61 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 62 Janow (2008, p. 252). 63 See Davey, Enforcing World Trade Rules, supra note 50, at p. 123; Davey, A Permanent Panel Body for WTO Dispute Settlement, supra note 50, at p. 515; Bourgeois, Some Reflections on the WTO Dispute Settlement System from a Practitioner’s Perspective, supra note 50, at p. 148. 64 John Jackson, Dispute Settlement in the WTO: Policy and Jurisprudential Considerations, p. 19 (Sch. of Pub. Policy, Univ. of Mich., Research Seminar in Int’l Econ., Discussion Paper No. 419, 1998), http://fordschool.umich.edu/rsie/workingpapers/Papers401-425/r419.pdf. According to Bernal, Steger and Stoler, the three Appellate Body members on a division spend an average of 30 days on a 60-day appeal and 60 or 70 days in a 90-day appeal. Bernal et al., supra note 58, at p. 875. 65 VanGrasstek, supra note 45.

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is released.66 Members also need to devote some time to reading relevant scholarly publications,67 in order to “stay abreast of dispute settlement activities and other relevant activities of the WTO”.68 Simply staying abreast of the voluminous WTO jurisprudence is close to a full-time endeavour.69 The collegiality requirement also consumes a lot of time. While only 3 of the 7 members serve on each appeal (in a “division”),70 before finalizing the appeal report the division exchanges views with the other members71 in order to “ensure consistency and coherence in decision-making, and to draw on the individual and collective expertise of the Members”.72 This means that all Appellate Body members have to read all submissions in a case, regardless of whether they are serving on that particular division.73 Collegiality plays a key role in ensuring the quality and consistency of Appellate Body rulings.74 However, it requires that all members spend large portions of time working together on cases.75 This busy workload also makes it extremely difficult for Appellate Body members to serve on multiple divisions at the same time.76 Finally, Appellate Body members may need to be in Geneva to work on institutional issues such as governance and rulemaking.77 Taking all of these tasks into account, being a member of the Appellate Body requires many more hours that those directly related to the decision of an appeal.78 The magnitude of the workload of Appellate Body members is completely different from what was originally assumed,79 and periods of intense workload have become the rule rather than the exception.80 While the creators of the Appellate Body 66 Janow, supra note 62, at p. 252. Pursuant to Article 4(2) of the Working Procedures for Appellate Review, each member of the Appellate Body receives all documents filed in an appeal. Appellate Body, Working Procedures for Appellate Review, WT/AB/WP/6 (16 Aug 2010) [hereinafter Working Procedures for Appellate Review]. 67 Janow, supra note 62, at p. 252. 68 DSU, supra note 16, Article 17.3 and Working Procedures for Appellate Review, supra note 66, Article 4(2). 69 Johannesson & Mavroidis, Black Cat, White Cat: The Identity of the WTO Judges, p. 8 (Eur Univ Inst, Working Paper RSCAS 2015/17, 2015), https://papers.ssrn.com/sol3/papers.cfm?abstract_id= 2572390. 70 DSU, supra note 16, Article 17.3 and Working Procedures for Appellate Review, supra note 66, Article 6. 71 Working Procedures for Appellate Review, supra note 66, Article 4(3). 72 Id, Article 4(1). 73 Janow, supra note 62, at p. 252. 74 Lacarte (2008, p. 326), Zdouc, supra note 17, at p. 371; Van den Bossche and Zdouc, supra note 18, at p. 234. 75 VanGrasstek, supra note 45; Stewart and Burr (1998, p. 639). 76 Azevêdo, supra note 20, at p. 89; Azevêdo, supra note 19, at p. 3. 77 Jackson, supra note 64, at p. 19. 78 Janow, supra note 62, at p. 252. 79 Hughes, The Institutional Dimension, supra note 11, at p. 282. 80 Ramírez and Castren, supra note 11, at p. 617; Jackson, supra note 28, at p. 157.

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anticipated that members would have to undertake “sporadic trips to Geneva”,81 the reality is that they have to fly there quite often, recurrently falling victims to jet lag.82 In some years the workload requires Appellate Body members to devote more than two-thirds of their professional time to the WTO work,83 with some deciding to rent accommodation in Geneva.84 All things considered, the appointment as member of the Appellate Body is anything but part-time.85 James Bacchus, former chairman of the Appellate Body, stated in 2002: “[w]e were appointed by the members of the new WTO to a supposedly part-time job that most of us do, in reality, full-time.”86 While formally Appellate Body members are employed in a part-time basis, de facto they have a full-time job,87 and, sometimes, even more than that.88 In the words of Graham, being a member of the Appellate Body is “a part-time job but a full-time commitment”.89 Appellate Body members receive a retainer meant to ensure that any other professional commitment will not affect their readiness for WTO work.90 While they are free to engage in other professional activities, they are required to give the Appellate Body their highest priority.91 During an appeal, members—even those who are not in that specific division—will hardly have any time left to engage in other professional work.92 The workload of the Appellate Body is unpredictable, as it depends on the number and timing of appeals being filed. This caseload cannot be managed as in other international tribunals.93 The Dispute Settlement Understanding does not

81 Decision

of the DSB of 10 February 1995, supra note 43, at para 12. R. Graham, Chair, Appellate Body, Farewell Speech on 22 Nov 2016: Speaking Up: the State of the Appellate Body, in Annual Report for 2016, supra note 7, at p. 114. In the words of James Bacchus, former Chairman of the Appellate Body, “members” trips to Geneva are frequent and regular, rather than “sporadic.” See Letter from Bacchus, supra note 45, at p. 3. 83 Jackson, supra note 28, at p. 200. 84 VanGrasstek, supra note 45. 85 Hughes, The Institutional Dimension, supra note 11, at p. 282; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 86 Bacchus, supra note 22, at p. 1022; APEC Study Ctr, Columbia Univ, Inside the World Trade Organization, p. 3 (Patricia Fantulin & Andy Wanning eds, 2002), https://www8.gsb. columbia.edu/apec/sites/apec/files/reports/bacchuscf.pdf. In a similar vein, see Jackson, supra note 64, at p. 19; Bernal et al., supra note 58, at p. 879; McRae (2010, p. 376), Stewart and Burr, supra note 75, at p. 639; Lowenfeld (2008, p. 179). 87 U.N. Conference on Trade and Development, supra note 39; James Bacchus, Remarks to the National Foreign Trade Council: Open Doors for Open Trade: Shining Light on WTO Dispute Settlement, p. 6 (2004), http://www.worldtradelaw.net/articles/bacchusopendoors.pdf.download; Wouters and De Meester (2007, p. 247). 88 Van den Bossche and Zdouc, supra note 18, at p. 232, n.421. 89 Graham, supra note 24, at pp. 4–5. 90 VanGrasstek, supra note 45, at p. 241. 91 Graham, supra note 24, at p. 5; Janow, supra note 62, at pp. 251–252, Steger (2004, p. 45). 92 Ehlermann (2015, p. 499). 93 Steger (2004, pp. 45–46). 82 Thomas

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provide for an Appellate Body recess,94 even though there have been proposals to introduce one.95 This means that appeals may be filed throughout the entire year, within 60 days following the issuance of a panel report.96 In addition, panel reports are frequently circulated beyond the established timelines, and time for translation work may be added.97 The only thing Appellate Body members have for certain is that they must be available at all times and at a moment’s notice—they are permanently “on call”.98 Under these circumstances, it is extremely difficult for Appellate Body members to allocate a part of their agenda for other professional commitments.99 They engage in “guessing games” to ascertain the possibility of having some free time.100 Furthermore, they need to factor in the time needed to travel between Geneva and the location of their other professional commitments.101 The demands of the job have been such that it is difficult, and at times impossible, for Appellate Body members to pursue other professional activities.102 In practice they frequently end up abandoning

94 Id, at p. 46; Hughes, The Institutional Dimension, supra note 11, at p. 282; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 95 See Donaldson and Yanovich (2006, pp. 408–409). 96 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 97 Hughes, The Institutional Dimension, supra note 11, at 282; Letter from Bacchus, supra note 45, at p. 4. 98 Steger, supra note 93, at p. 46; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 99 ‘The fact that Appellate Body Members must be “available at all times and on short notice” interferes significantly with Members’ being available for other work, especially if it is timesensitive, because they have no control over their schedules working on Appellate Body matters. The Appellate Body does not have advance notice of whether or when appeals will be filed.’ Letter from Bacchus, supra note 45, at p. 3. 100 “What is usually done is to assess the likelihood that one or more ongoing panels will end within a given period and then to assume that an appeal may be lodged within sixty days of circulation of the panel report. Based on this assessment, members need to ensure that they do not take on commitments that might interfere with their Appellate Body responsibilities. Member’s planning is thus subject to a certain degree of randomness and uncertainty and is subject to change at short notice.”Baptista ( 2015, p. 564). 101 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 102 Van den Bossche and Zdouc, supra note 18, at p. 232, n.421; World Trade Org. (2017, p. 33); Bernal et al., supra note 58, at p. 875; U.N. Conference on Trade and Development, supra note 39, at p. 5; Donaldson, supra note 44, at p. 1286; Jackson, supra note 28, at p. 200. According to James Bacchus, former chairman of the Appellate Body, “[t]he objective of pursuing ‘other activities’ has often proved to be unrealistic” as “[t]he nature of the work makes it very difficult, if not impossible, for Appellate Body Members to take on other work.” See Letter from Bacchus, supra note 45, at p. 3.

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other professional opportunities.103 This situation has also led some Appellate Body members to decide not to seek renewal of their appointment.104 More than two decades after its creation, the Appellate Body’s regulatory architecture remains untouched.105 This framework was grounded on assumptions that proved incorrect.106 The possibility of such a dramatic gap between estimations and reality does not seem to have been anticipated in the Dispute Settlement Understanding.107 The strict timeframes established therein reflect the belief that appeals would be a rare occurrence.108 With the benefit of hindsight, we can say that the combination of strict deadlines and a part-time regime does not match the reality of a sizeable, complex caseload.109 This diagnosis is not new. From the beginning of its activity, the Appellate Body has been striving to accommodate its working methods to an unexpected caseload.110 The efficiency of such efforts is, however, hampered by the structure and philosophy laid down in the Dispute Settlement Understanding.111 The Appellate Body stands as an example of how there is not necessarily a relationship between the adjudicators’ employment status and their institution’s caseload.112 The panorama described above is making the part-time status of Appellate Body members increasingly problematic. WTO member states should consider the need for structural changes in WTO dispute settlement, identify shortcomings and maladjustments, and take action.113 The appointment of Appellate Body members on a part-time basis is enough, in theory, to address a small caseload. That is clearly not the current scenario, and even if it was, being a member of the Appellate Body requires significant time and intellectual commitment.114 There is currently an “insurmountable bottleneck” at the Appellate Body.115 This workload is not likely to diminish in the near future.116 Proposals for a full-time 103 Janow, supra note 62, at p. 252; Hughes, The Institutional Dimension, supra note 11, at p. 282; Steger, supra note 93, at p. 45; Baptista, supra note 100, at p. 561; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 104 Jackson, supra note 28, at p. 200. 105 Graham, supra note 82, at p. 114. 106 Graham, supra note 10, at p. 2. 107 Chang, supra note 12, at p. 105. Still, the fact that the WTO assigned a separate office to each Appellate Body member seems to suggest that it foresaw the possibility of a need for a change in their status. See Jackson, supra note 64, at p. 19. 108 VanGrasstek, supra note 45, at p. 241. 109 Chang, supra note 12, at p. 105. 110 Graham, supra note 10, at p. 5; Ehlermann, Six Years on the Bench of the “World Trade Court”, supra note 28, at p. 503. 111 Chang, supra note 12, at p. 105. 112 Terris (2007, pp. 53–54). 113 Chang, supra note 12, at p. 105. 114 Janow, supra note 62, at p. 252. 115 Azevêdo, supra note 20, at p. 89. 116 Thomas R. Graham, Chair, Appellate Body, Foreword to World Trade Organization, in Annual Report for 2016, supra note 7, at p. 6; Azevêdo, supra note 20, at p. 89; Letter from Bacchus, supra note 45, at p. 3.

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regime have been under discussion since the creation of the Appellate Body, but have never gained momentum. More than two decades after the inception of the WTO dispute settlement mechanism, Dispute Settlement Body members should reflect on the lessons of the past and think about whether the reality of the present requires changing the nature of Appellate Body members’ appointment.

3 Searching for Consensus The question of whether Appellate Body members should be appointed on a full-time basis has been discussed for the first time by the preparatory committee, in 1994. The representative of Norway, speaking on behalf of the Nordic countries, advocated for the full-time regime117 : The Appellate Body was an extremely important body which would be a cornerstone institution in the WTO structure, and its credibility should be assured from the outset. There were good reasons to assume that the Appellate Body would be a very busy body. The Nordic countries did not agree that requiring the availability and presence in Geneva of Appellate Body members contradicted the aims of attracting high quality people to that Body. On the contrary, a full-time Body might be the best way of giving it the prestige that would attract the right type of person.

Other member states voiced doubts about the desirability of this option. The representative of Hong Kong expressed hesitation, stating that it would be too expensive to employ Appellate Body members when a high caseload was far from certain.118 Hong Kong favoured the use of a retainer and a variable fee depending on work conducted, as this approach “struck a balance between the ideal and the practical.”119 The representative of Canada said that the country was flexible as to whether Appellate Body members should be resident full-time or on call.120 This decision would depend on the anticipated case load and take into account the “very short time-frames” for the decision.121 Still, Canadian officials anticipated a heavy caseload122 : It was likely that most, if not all, cases, would be appealed. Clearly, a loser in a panel proceeding would have great difficulty in justifying to its electorate why it had not used the appeal process. Appealing a case would make it easier for the Member concerned to explain that it had exhausted all possible avenues.

The member states had the opportunity to discuss some budget estimates about the indicative costs of three different options: the seven Appellate Body members 117 Preparatory Committee for the World Trade Organization, Sub-Committee on Institutional, Pro-

cedural and Legal Matters, Minutes of the Meeting Held on 21 October 1994, para 89, PC/IPL/M/7, p. 13 (10 Nov 1994). 118 Id. at p. 14, para 90. 119 Id. 120 Id. at p. 14, para 93. 121 Id. 122 Id.

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being hired on a retainer basis and paid consultancy fees when in Geneva on a case; the Appellate Body members residing permanently in Geneva and being full-time employees; and the Appellate Body being composed of three permanent members and four retainer members.123 The discussion about a potential move to a full-time regime resurfaced in 2001 in the context of a new round of appointments to the Appellate Body.124 The chairman of the Dispute Settlement Body recalled that, during the interview process, applicants were told that the positions were very close to a full-job, an idea reinforced by some figures provided by the secretariat.125 Time records showed that, in the year 2000, 4 of 7 Appellate Body members had actually worked more than 100% of an equivalent full-time position.126 This raised the question of whether the Dispute Settlement Body should consider moving Appellate Body members from their existing parttime employment situation to a full-time employment basis.127 The member states analysed some calculations provided by the Secretariat about the potential budgetary consequences of two different options: moving to full-time Appellate Body members, and expanding Appellate Body membership. This study indicated that the cost of moving to salary plus pension would be budget-neutral and might lead to savings, whereas increasing the number of Appellate Body members would in all cases add to the expense of the Appellate Body’s operation.128 According to a 10-year simulation done by the Secretariat, the cost of moving to salary plus pension would be budget-neutral, compared with the existing part-time remuneration package, and could even produce some savings.129 This discussion occurred after the busiest year (2000) that the Appellate Body had until the moment. Still, member states could not reach consensus on potential reforms such as moving to a full-time regime or enlarging the number of Appellate Body members. A few weeks later, at a meeting of the Dispute Settlement Body,130 the chairman made a strong statement about the situation of the Appellate Body, documented in the minutes as follows131 : The Chairman hoped that all governments considering nominations for the Appellate Body would in practice recognize that these positions on the Appellate Body were in reality extremely close to full-time positions. This point was registered by the Secretariat in terms of the existing members who through the year 2000 had worked somewhere between 104 123 Id.

at pp. 14–15, para 95. Settlement Body, Minutes of the Meeting Held in the Centre William Rappard on 12 March 2001, WT/DSB/M/101 (8 May 2001). 125 Id. at p. 25, para 119. 126 Id. 127 Id. 128 Id. 129 Id. 130 Dispute Settlement Body, Minutes of the Meeting Held in the Centre William Rappard on 5 April 2001, WT/DSB/M/103 (6 June 2001). 131 Id. at p. 16, para 71. 124 Dispute

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and 117%, full-time plus. He said that he had held a first meeting with the Appellate Body members about 10 days ago and he had a clear indication, even from the new Appellate Body members, that in practice they had found it extremely difficult to add other duties to their work. They might be able to do some things but they had to work a good deal of time in Geneva and in their own places of residence. A number of the Appellate Body members had stated that while they thought they would be able to proceed with other work they had actually had to substitute other people for their work. This point had been made by the previous DSB Chairman in the earlier selection process. He was not connecting this matter with the other question to be discussed informally. He only wished to convey this message to delegations to pass on to governments.

This statement, made by none other than the chair of the Dispute Settlement Body, is a rare, puissant glimpse into the inner workings of the Appellate Body. It is a warning sign for governments about the true situation that candidates face when they take office in Geneva. The allusion to comments made by some members suggests an ounce of surprise and frustration when they realize they will not be able to pursue other professional endeavours. Since no consensus was attained on the proposal to move to a full-time regime, the chairman included this question once again on the agenda of a meeting in June of the same year.132 Malaysia and Canada underlined that the potential implications of this change required further analysis. The representative of Malaysia noted that the proposal had long-term systemic implications, and since there was no consensus on the matter and this was not a matter of urgency, no further action should be taken at that stage.133 The Canadian delegation added that, while it was ready to “‘keep an open mind’ on the proposal”, at that stage “it was not convinced that a case had been made in support of such a fundamental change.”134 The Canadian representative also stated that “the underlying rationale for the proposed conversion as well as the broader implications of some of its elements, such as the Geneva-based residency requirement, on the fundamental character of the dispute settlement system merited further consideration and discussion by Members.”135 The representative of Japan shared these concerns in a more elaborated statement136 : [Japan] shared the view that it had become necessary for Members to seriously consider how to overcome the current problem faced by Appellate Body members, namely, their heavy workload. This problem had to be examined both from the point of view of the smooth overall functioning of the dispute settlement system, and from the point of view of efficient budgetary management. As pointed out in the paper prepared by the Secretariat, the current situation of the overburden of work for each member of the Appellate Body was not foreseen by the drafters of the DSU at the outset, and it had to be rectified within a reasonable period of time. Conversion of Appellate Body members’ remuneration to full-time basis, as proposed by the Secretariat, was one of the options. However, Japan believed that the proposed changes to the system might have substantive impact on the available choice of future Appellate Body 132 Dispute

Settlement Body, Minutes of the Meeting Held in the Centre William Rappard on 20 June 2001, WT/DSB/M/106 (17 July 2001). 133 Id. at p. 13, para 61. 134 Id. at p. 13, para 62. 135 Id. 136 Id. at p. 13, para 63.

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members. Japan believed that there was a need for further discussions on the implications of the proposal on the overall functioning of the dispute settlement mechanism, as well as on future budget expenses. It might be useful to have views from actual and future Appellate Body members. As it would not be easy to come back to the old system once a decision to transform the current remuneration arrangement was taken, it would be wiser to spend more time to study the issue. Japan also believed that its proposal to increase the actual number of Appellate Body members instead of modifying the current remuneration was another option to overcome the current problem. Japan, therefore, wished to request Members to consider the usefulness of this proposal.

The representative of the (then) European Communities noted with interest the information provided by the Secretariat on the cost-neutrality of moving towards a full-time status for Appellate Body members, admitting to have a “préjugé favorable” on this proposal.137 Since it was not possible to reach a consensus, the Dispute Settlement Body decided to revert to the matter at a later date.138 In March 2002 the European Communities submitted a formal proposal to move from ad hoc to permanent panellists.139 Moving to a system of permanent panellists would have an indirect effect on the Appellate Body, as it would “most likely result in less reversals of panel reports by the Appellate Body than is currently the case, thereby reducing the total timeframe of the procedure, the workload of the Appellate Body and the costs for all the parties.”140 As regards the Appellate Body proper, the proposal states that, “[i]n view of the volume of its work and on the basis of past experience, it would appear desirable to convert the mandate of the Appellate Body Members into a full-time appointment for a given period of time.”141 This proposal was welcomed by Chile, in whose view offering the members of the Appellate Body a full-time appointment was “a matter of justice and recognition of the current practice.”142 At a meeting held in Nov 2002, Chile restated that “given the intensity of the work done by Appellate Body members, they should be employed on a fulltime basis.”143 The representative of Japan corroborated the idea that, in practice, Appellate Body members “were already working on a full-time basis.”144 However, Japan preferred to increase the number of Appellate Body members because “some

137 Id.

at p. 14, para 64. at p. 14, paras 70–71. 139 Special Session of the Dispute Settlement Body, Contribution of the European Communities and Its Member States to the Improvement of the WTO Dispute Settlement Understanding: Communication from the European Communities, TN/DS/W/1 (13 Mar 2002). See also European Commission, The Benefits of Moving from ad hoc to More Permanent Panellists, DG Trade/D/3/PG D (10 July 2002). 140 Special Session of the Dispute Settlement Body, supra note 139, at p. 2. 141 Id. at p. 8. 142 Special Session of the Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 16 April 2002, para 18, TN/DS/M/1, p. 5 (12 June 2002). 143 Special Session of the Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 13–15 November 2002, para 19, TN/DS/M/6, p. 8 (31 Mar 2003). 144 Id. at p. 22, para 66. 138 Id.

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people might not want to be in Geneva all the time and also the budgetary implications of engaging them on a full-time basis.”145 The idea of appointing Appellate Body members full-time was also supported by a report published by the Federal Trust in 2002.146 Two years later, the Report by the Consultative Board to the Director-General Supachai Panitchpakdi (known as “Sunderland Report”)147 was released. This report examined several areas of the WTO, including its dispute settlement system, and commented on specific proposals for reform. As regards the Appellate Body, the Sutherland Report discusses two options: expanding the number of members and moving them to a full-time regime. The Report states148 : Other reform proposals have given some attention to the Appellate Body, raising the question whether the Appellate Body should have more members, given that its caseload has sometimes been heavy. It has also been suggested that the Appellate Body members be considered full-time, rather than part-time, as they are currently retained. These proposals involve various pragmatic and resources questions, and the Consultative Board can see arguments on both sides. Probably more experience with the still new dispute settlement system is needed before some of these changes are made. The DSU might be changed to allow some flexibility for a later decision on the DSB (or the General Council) on these matters, after such experience has been obtained.

The report takes a cautious stance, suggesting that the Dispute Settlement Understanding might be amended to provide more flexibility in that regard, but that the case for immediate action is not made.149 In Jan 2009 the United States (hereinafter U.S.) submitted a proposal directly aimed at making the Appellate Body a full time assignment.150 One of the main elements of the proposal is to “recognize what has been obvious for some time—that although Appellate Body positions are formally considered to be part-time, Appellate Body members are working a full-time job.”151 The proposal contends152 : 145 Special

Session of the Dispute Settlement Body, supra note 143, at p. 22, para 66. Tr. for Educ. & Research, Enhancing the WTO’s Dispute Settlement Understanding: A Working Group Report, p. 25 (2002), http://fedtrust.co.uk/wp-content/ uploads/2014/12/FedT-DSU-DEC2002.pdf. 147 Consultative Board to the Director-General Supachai Panitchpakdi, The Future of the WTO: Addressing Institutional Challenges in the New Millennium (2004). See Movsesian (2005, p. 201), Matsushita (2005, p. 623), Denters (2005, p. 887), De Meester (2005, p. 209), Cass (2005, p. 153), Davey (2005, p. 321). 148 Consultative Board to the Director-General Supachai Panitchpakdi, supra note 147, at p. 57, para 258. 149 Davey, supra note 147, at pp. 327–328. 150 Dispute Settlement Body, Improvements for the WTO Appellate Body: Proposal by the United States, WT/DSB/W/398 (16 Jan 2009). See Press Release, U.S. Proposes WTO Appellate Body Reforms, Office U.S. Trade Representative (14 Jan 2009). https://ustr.gov/about-us/ policy-offices/press-office/press-releases/2009/january/us-proposes-wto-appellate-body-reforms [hereinafter USTR Press Release]. 151 USTR Press Release, supra note 150. 152 Dispute Settlement Body, supra note 150, at pp. 1–2. 146 Fed.

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When the Dispute Settlement Body (“DSB”) initially decided on the establishment of the Appellate Body, the DSB considered that “the requirement that high-calibre members be available at all times could be met, on a flexible basis, by offering Appellate Body members contracts based on a monthly retainer plus a fee for actual days worked.” However, the DSB also considered that this could be kept under review “to determine whether a move to full-time employment was warranted.” It is becoming increasingly apparent that service on the Appellate Body is not a part-time job. Under the DSU, Appellate Body members must be available “at all times and on short notice” to be able to work on an appeal, and in the meantime must “stay abreast of dispute settlement activities and other relevant activities of the WTO.” In reality, this means that Appellate Body members are severely constrained in their ability to retain other employment. In many years, members spend in excess of 100 days in Geneva alone, and spend additional time in their home working on appeals. We have been told by several Appellate Body members that they have spent as many as 200 days on DSU matters in some years. This does not include uncompensated time spent preparing for upcoming disputes, where additional preparation is required because of the Appellate Body deadlines. Yet the position continues to be considered part-time. (…) Accordingly, the United States believes it is appropriate to consider whether the position of an Appellate Body member is really a full-time one and whether the conditions of service should be changed accordingly.

The proposal also suggested expanding the Appellate Body Secretariat to provide law clerks for individual Appellate Body Members153 and requiring Appellate Body Members to undertake some form of continuing education while in office.154 Overall, these measures aimed at strengthening the permanence of the Appellate Body.155 This is, to date, the only proposal by a member state with the goal of converting Appellate Body membership into a full-time appointment. It is supported by empirical evidence provided by members, a valuable element that sometimes seems to be overlooked in the meeting of the Dispute Settlement Body, where delegations dwell on the potential implications of such a move but do not offer any data to support their views. The testimonies alluded to by the chairman of the Dispute Settlement Body156 and the U.S. representative do not seem to resonate much among WTO member states.

4 Weighing the Pros and Cons A potential conversion of Appellate Body members from part-timers to full-timers has been discussed at the Dispute Settlement Body for more than two decades. This idea has found support among some scholars157 and even former Appellate

153 Id.

at p. 2. Settlement Body, supra note 150, at p. 3. 155 Feldman (2014, p. 123); Janow, supra note 62, at p. 257. 156 Dispute Settlement Body, supra note 150, at p. 16, para 71. 157 See, e.g., Petersmann (1998, p. 193); Schoenbaum, supra note 28, at p. 655; Hughes, The Institutional Dimension, supra note 11, at p. 282; Rosas (2001, p. 144); Stewart and Burr, supra note 75, at p. 639; Steger, supra note 18, at p. 464. 154 Dispute

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Body members.158 Scholarly opinion may be persuasive, but practitioners’ empirical knowledge speaks volumes—it provides a biographical insight into the real-life environment of the Appellate Body. Any serious discussion about this proposal should invite former and current members to break from the “splendid isolation”159 of their offices and share their experience with member states. The proposal for a change of the conditions of appointment of Appellate Body members should be considered in the framework of a broader reform of the WTO dispute settlement mechanism, analyzing other options (such as increasing the number of members and moving from ad hoc to permanent panellists) and their potential combined effects.160 It is important to maintain the balance of power between panels and the Appellate Body so different proposals should be discussed at the same time.161 The possibility of extending the period of appointment of Appellate Body members should also be considered.162 A more sweeping proposal is advanced by Hudec, who posits that member states should ask themselves whether they wish to retain the two-tier adjudication system.163 Instead, they might increase the number of Appellate Body members, make membership a full-time job, and simply send all cases to the Appellate Body as a one-tier process.164 Member states should also reflect on how the current situation is affecting the system as regards the staff that supports the work of the Appellate Body.165 The Burgh House Principles on the Independence of the International Judiciary prescribe that “States parties and international organisations shall provide adequate resources, including facilities and levels of staffing, to enable courts and the judges to perform their functions effectively.”166 The Appellate Body needs to have administrative and

158 Ehlermann, Six Years on the Bench of the “World Trade Court”, supra note 28, at p. 503; Taniguchi (2009, p. 21); Bacchus, supra note 87, at p. 6; Janow, supra note 62, at p. 252; Chang, supra note 12, at p. 105. 159 Graham, supra note 10, at pp. 2, 8. 160 See the statement made by the representative of Switzerland at the meeting of the Dispute Settlement Body held on 16 Apr 2002. Special Session of the Dispute Settlement Body, supra note 142, at p. 19, para 70. See also the statement made by the representative of the European Communities, Special Session of the Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 21 May 2002, para 3, TN/DS/M/2, p. 2 (3 July 2002). 161 See the statement of the representative of Switzerland at the meeting of the Dispute Settlement Body held on 16 Apr 2002. Special Session of the Dispute Settlement Body, supra note 142, at p. 19, para 70. 162 Steger, supra note 18, at p. 464. 163 Robert (1999, p. 33). 164 Id.; Hudec, supra note 37, at p. 119. 165 Stewart and Burr, supra note 75, at p. 639. 166 Burgh House Principles on the Independence of the International Judiciary, Article 6. The Principles were drafted between 2002 and 2004 by the International Law Association (ILA) Study Group on the Practice and Procedure of International Tribunals in collaboration with the Project on International Courts and Tribunals and the Centre on International Courts and Tribunals, University College of London. The Principles are published as an annex to Sands et al. (2005, p. 251 ff).

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legal support that is appropriate to its workload.167 The Decision of the DSB of 10 Feb 1995 states168 : The number of support staff needed depends on the anticipated workload of the Appellate Body. This in turn will depend largely on the number of new panel cases and the anticipated propensity to appeal panel decisions. Under the GATT, there was an average of six new panel cases per year during the past five years, with actual annual numbers fluctuating between two and ten. At one point during that period, sixteen panel cases were under way at one time. Two additional factors could also lead to much greater dispute settlement activity: the increased scope of review resulting from services and intellectual property disputes, and the increased attractiveness of a more automatic dispute settlement system. Based on these factors, a reasonable level of support in the initial stages of operation of the Appellate Body would be one registrar, three professional assistants with legal training, and sufficient clerical staff. The registrar would be in charge of support to the Appellate Body, ensuring that there was a pool of appropriate legal and trade policy expertise, and administrative assistance, available to the Body and its members.

Taking into account the current workload, the possibility of increasing the size of the Dispute Settlement Body secretariat should also be considered.169 The U.S. has proposed assigning a staff person to each Appellate Body member, to help them with legal research and drafting, similarly to what happens in many countries where judges have individual law clerks assigned to them.170 This proposal would have the additional advantage of creating a broader pool of experts in WTO law.171 The human and legal resources of the Appellate Body are manifestly inadequate to meet its current workload.172 Only 5 years into the operation of the Appellate Body, Donald Davis questioned whether it was wise to place such high responsibility “in the hands of a small group of part-time jurists in Geneva.”173 Many years later, it seems even less reasonable to continue with a system of “serious part-timers”174 where part-time persons perform a full-time job.175 The Appellate Body is a vital piece in the functioning of the dispute settlement mechanism and member states must ensure it has optimal conditions to perform its role.176 In the words of the former U.S. Trade Representative, Susan C. Schwab177 : It is time for WTO Members to act upon the lessons gained from the experience of the past (…). Especially in light of the demands that are placed on the seven Appellate Body members 167 DSU,

supra note 16, Article 17.7. of the DSB of 10 February 1995, supra note 43, paras 15–16. 169 Shoyer and Solovy, supra note 21, at p. 680; Schoenbaum, supra note 28, at p. 655; Gaffney (1999, p. 1203). 170 Dispute Settlement Body, supra note 150, at p. 2. 171 Id. 172 Petersmann, supra note 157, at p. 193. 173 See Jackson et al. (2000, p. 232). 174 Mavroidis and Van der Borght (2006, p. 206). 175 Dispute Settlement Body, supra note 150, at p. 1. 176 See the statement by the representative of the European Communities, in Dispute Settlement Body, supra note 132, at p. 14, para 64. 177 USTR Press Release, supra note 150. 168 Decision

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to resolve disputes of crucial economic and systemic concern, we need to be sure that the Appellate Body is structured in a way that attracts the most highly qualified candidates and gives them the appropriate resources to serve the WTO membership.

While being paid on a part-time basis, Appellate Body members actually work almost if not even full-time on WTO cases. Giving them full-time status would acknowledge the tremendous workload that they have been dealing with.178 This move, if coupled with more resources, could also encourage a broader number of candidates to consider an appointment at the Appellate Body.179 In abstract, the move towards a full-time regime could have several advantages. First and foremost, appointing Appellate Body members on a full-time regime would help to deal with the excessive caseload. Delays are a major problem in the WTO dispute settlement system that needs to be dealt with.180 The part-time regime is part of a system that was not designed to handle the high number of appeals being filed every year. This scheme cannot remain in its current shape.181 If WTO states wish Appellate Body members to devote their full attention to appeals, they should pay them accordingly.182 Second, this change to the system could address some concerns about the impact that outside activities may have on the Appellate Body’s work.183 Retaining or initiating external professional activities raises the possibility of conflicts of interest.184 This situation is totally different from what happens at the International Court of Justice, for instance, where a full-time appointment is seen as a necessary safeguard for the independence of adjudicators.185 This regime has the advantage that judges do not need to engage in any external activities to complement their salary.186 While it does not appear that members have ever expressed doubts about the integrity of Appellate

178 See USTR Press Release, supra note 150; statement by the representative of Chile, Special Session of the Dispute Settlement Body, supra note 142, at p. 5, para 18. 179 USTR Press Release, supra note 150. 180 Davey, supra note 21, at pp. 691–692. 181 Ehlermann, Six Years on the Bench of the “World Trade Court”, supra note 28, at p. 503. 182 Bacchus, supra note 87, at p. 6. 183 See Dispute Settlement Body, Minutes of Meeting Held in the Centre William Rappard on 10 July 2012, para 12, WT/DSB/M/319, p. 5 (28 Aug 2012). 184 See Dispute Settlement Body, supra note 150, at p. 2. 185 Statute of the International Court of Justice, supra note 30, Article 16(1): “[n]o member of the Court may exercise any political or administrative function, or engage in any other occupation of a professional nature”. 186 See Mavroidis and Van der Borght, supra note 174, at p. 206.

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Body members,187 a move to a full-time regime could contribute to increase external perceptions of independence and impartiality.188 An exception could be made for academics, whose side jobs are less prone to conflict of interests.189 Still, if the major reason to move to a full-time regime is the need to ensure the full commitment of members of the Appellate Body, such an exception could be difficult to justify.190 Third, a full-time regime would promote collegiality.191 The collegiality requirement192 facilitates the development of a “comradery” among Appellate Body members, turning the three-member appellate panel into a seven-member fixed appellate bench.193 This helps to reinforce a ‘culture of continuity’ as well as reliance on prior decisions.194 A greater level of collegiality could be attained if Appellate Body members were working full-time for the WTO.195 Finally, working full-time for the WTO would enable Appellate Body members to fulfil their duty of staying abreast of dispute settlement activities and other relevant activities of the WTO.196 Whenever not engaged in the consideration of an appeal, members would have time to share their knowledge and exchange opinions197 but also to embrace opportunities for professional enrichment.198 Naturally, there are also potential risks and drawbacks that need to be considered. First, would this shift in the system still allow to attract members of a high calibre? The decision by the creators of the Appellate Body to appoint members only on a part-time basis was clearly motivated by the need to secure high-quality candidates and by the fear that not all candidates might wish to work in Geneva on a full-time basis.199 Requiring Appellate Body members to renounce any external professional 187 Gaffney, supra note 169, at p. 1200; James Bacchus, Chairman, Appellate Body, WTO, Address at Geneva, Switzerland to the International Bar Association: “Woulda, Coulda, Shoulda”: The Consolations of WTO Dispute Settlement, p. 7 (20 Mar 2003). http://www.worldtradelaw.net/articles/ bacchusconsolation.pdf.download; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 474; Stoler (2008, p. 528). 188 Steger, supra note 18, at p. 463; Gaffney, supra note 169, at p. 1203. Transitioning to a full-time regime could also, according to some authors, reduce the influence, or the perception of influence that member states have over Appellate Body members. See Appleton (2016, p. 31). 189 Appleton, supra note 188, at p. 31, n.30. 190 Id. 191 Steger, supra note 18, at p. 464. 192 Working Procedures for Appellate Review, supra note 66, arts. 4(1), (3). 193 Ghias (2006, p. 543). 194 Murphy (2014, p. 185). 195 Steger, supra note 18, at p. 464. 196 DSU, supra note 16, Article 17.3 and Working Procedures for Appellate Review, supra note 66, Article 4(2). 197 Hughes, The Institutional Dimension, supra note 11, at pp. 282–283. The Appellate Body generally organizes one annual retreat, but full-time membership would make this type of initiatives easier. See id. at p. 283; Baptista, supra note 100, at pp. 565–566. 198 The United States have proposed to establish a committee of WTO Members to organize professional development activities for Appellate Body members. See Dispute Settlement Body, supra note 150, at p. 3. See also USTR Press Release, supra note 150. 199 See Decision of the DSB of 10 February 1995, supra note 43, at para 11.

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activity and, possibly, to permanently reside in Geneva, might affect the number and quality of potential candidates.200 After all, these are paramount professional decisions that interested applicants will contemplate thoroughly. Still, this risk can be mitigated if the authority and reputation of the Appellate Body keeps on growing and its members are offered proper remuneration conditions.201 Second, there is naturally the question of the budgetary implications of such a reform. Currently Appellate Body members receive a monthly retainer and per diem for days worked. This compensation system was designed assuming a small workload,202 with few appeals,203 brief written submissions,204 and sporadic travels to Geneva.205 The monthly retainer fee, intended to discourage Appellate Body members from pursuing other professional activities so that they could be readily available for WTO work, is currently of CHF7,000.206 This amount is clearly insufficient.207 Appellate Body members also receive a daily fee of CHF600 for each they are required to be in Geneva on official business of the Appellate Body and for each day they are required to work on an appeal in a place other than Geneva.208 This daily fee is lower than the hourly rate of many high-level international lawyers.209 If we compare this amount with other adjudicators providing similar services in other international bodies, such as commercial and investment arbitration tribunals, these amounts are also significantly low.210 This daily amount is not especially attractive for high-level international lawyers, who can charge more than that per hour and choose to embark in more lucrative alternatives.211 The inadequacy of these amounts has been recognized by members of the Appellate Body themselves, who, in 2004, requested that the Committee on Budget, Finance 200 Stewart and Burr, supra note 75, at p. 639; Shoyer and Solovy, supra note 21, at p. 680; Ehlermann,

Six Years on the Bench of the “World Trade Court”, supra note 28, at p. 503. See also the statement made by the representative of Japan, in Dispute Settlement Body, supra note 124, at p. 26, para 121. 201 Ehlermann, Six Years on the Bench of the “World Trade Court”, supra note 28, at p. 503. 202 Bernal et al., supra note 58, at p. 875; Hughes, The Institutional Dimension, supra note 11, at p. 283; Howse (2016, p. 12), n.9; Lowenfeld, supra note 86, at p. 179; Graham, supra note 10, at p. 4; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 494. 203 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 493. 204 Id. at pp. 493–494. 205 Bernal et al., supra note 58, at p. 875; Hughes, The Institutional Dimension, supra note 11, at p. 283; Howse, supra note 202, at p. 12, n.9; Lowenfeld, supra note 86, at p. 179; Graham, supra note 10, at p. 4. 206 See Decision of the DSB of 10 February 1995, supra note 43, at para 12. 207 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 496. 208 See Letter from Bacchus, supra note 45, at p. 3. 209 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 495. 210 Hughes (2005b, pp. 30–31), 31, n.31; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 495, fn 88; Letter from Bacchus, supra note 45, at p. 4. 211 Pauwelyn, supra note 49, at p. 791.

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and Administration consider adjusting their compensation.212 Many years later, the compensation package remains unaltered. While being a member of the Appellate Body is a greatly respected position, these low levels of remuneration may fail to elicit high levels of interest among potential applicants.213 Hughes puts the problem as follows214 : Thus far, the old maxim of ‘you get what you pay for’ has not applied to the Appellate Body. WTO Members have received value far exceeding that which the compensation package would suggest. How much longer this will be the case is a question that should be on the minds of all WTO Members as they think about the future of WTO Appellate review.

The Burgh House Principles on the Independence of the International Judiciary Principles state that “[j]udges should receive adequate remuneration which should be periodically adjusted in line with any increases in the cost of living at the seat of the court.”215 This is clearly not the case at the Appellate Body. Indeed, the compensation package should be improved even if member states decide to maintain membership a part-time affair, so as to reflect the heavy workload of Appellate Body members.216

5 Final Remarks Should the Dispute Settlement Body decide to change the engagement of Appellate Body members to a full-time regime, the compensation package would have to be enhanced.217 Appellate Body members would have to be compensated for giving up the possibility of taking on other (potentially more profitable) professional activities.218 The new remuneration system would have to be attractive enough to appeal to high-quality professionals willing to commit exclusively to the Appellate Body.219 The possibility of making Appellate Body members eligible for the same health care and retirement benefits applicable to WTO staff should also be considered.220 212 See

Letter from Bacchus, supra note 45. supra note 210, at p. 31. 214 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 496. 215 Burgh House Principles on the Independence of the International Judiciary, supra note 166, Article 4(3). 216 Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 495, n.87. 217 Hughes, The Institutional Dimension, supra note 11, at p. 283; Gaffney, supra note 169, at p. 1203; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 495. 218 Fed. Tr. for Educ. & Research, supra note 146 at p. 25; Mavroidis and Van der Borght, supra note 174, at p. 219; Hughes, The Institutional Dimension, supra note 11, at p. 283. 219 Hughes, The Institutional Dimension, supra note 11, at p. 283; Fed. Tr. for Educ. & Research, supra note 146, at p. 25. 220 Dispute Settlement Body, supra note 150, at p. 2; USTR Press Release, supra note 150; Hughes, The Strengths, Weaknesses, and Future of WTO Appellate Review, supra note 11, at p. 496. 213 Hughes,

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The Burgh House Principles on the Independence of the International Judiciary state that “[c]onditions of service should include adequate pension arrangements.”221 The U.S. has, however, expressed concerns about the justification for providing pension benefits to Appellate Body members who serve only four year or, at most eight, year terms, arguing that a long term pension benefit for full-time Appellate Body members does not seem justified.222 Some member states have expressed concern over the budgetary implications of such a move.223 However, this change would probably cost less than the monetary losses currently caused by delays in the dispute settlement system.224 A 10-year simulation conducted in 2001 by the Secretariat suggested that the cost of moving to salary plus pension would be budget-neutral and might even lead to savings.225 New studies should be undertaken to offer a more accurate, up-to-date estimation of the budget implications of a move towards a full-time regime. A final question members of the Dispute Settlement Body should discuss is the following: if Appellate Body members become full-time, should they be required to be resident in Geneva? To compare, the Statute of the International Court of Justice seems to expect the presence of the judges in The Hague but makes only residency in city an express obligation for the President and the Registrar. However, as the Court if permanently in session, the judges are expected to be in The Hague at all times except in the judicial vacations and periodic leave.226 Some believe that fulltime Appellate Body members should be required to set permanent residence in Geneva.227 The U.S. has a different position, holding that this requirement may be counterproductive as it may reduce the number of high-quality professionals willing to serve on the Appellate Body.228 The potential pros and cons of this reform need to be duly considered by WTO member states. A conversion to a regime of full-time Appellate Body members would not require and amendment to the Dispute Settlement Understanding. A joint reading of Articles 17.3 and 17.8 of the Dispute Settlement Understanding confirms that this can be achieved by a decision of the General Council, after consulting the Committee on Budget, Finance and Administration.229

221 Burgh

House Principles on the Independence of the International Judiciary, supra note 166, Article 4(4). 222 Dispute Settlement Body, supra note 132, at p. 15, para 69. 223 See, e.g., Dispute Settlement Body, supra note 132, at p. 13, para 63; Special Session of the Dispute Settlement Body, supra note 143, at p. 22, para 66. 224 Petersmann, supra note 157, at p. 193. 225 Dispute Settlement Body, supra note 124, at p. 25, para 119. 226 Statute of the International Court of Justice, supra note 30, arts. 22(2), 23(1), 23(2). 227 Steger, supra note 18, at p. 463; Petersmann, supra note 157, at p. 193; Gaffney, supra note 169, at pp. 1202–1203. 228 See Dispute Settlement Body, supra note 150, at p. 2. 229 Dispute Settlement Body, supra note 124, at p. 25, para 119.

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Ehlermann C-D (2004) Six Years on the Bench of the “World Trade Court”. In: Ortino F, Petersmann E-U (eds) The WTO dispute settlement system, 1995–2003. Kluwer Law International, New York, The Hague, pp 499–530 Ehlermann C-D (2015) Revisiting the Appellate Body: the first six years. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 482–506 Ehlermann C-D (2016) The dispute settlement system of the WTO: a bright picture with a few dark spots. In: Chaisse J, Lin T (eds) International economic law and governance: essays in honour of mitsuo matsushita. Oxford University Press, Oxford, pp 26–29 Feldman M (2014) The United States as an international Litigant. In: Klein N (ed) Litigating international law disputes: weighing the options. Cambridge University Press, Cambridge, pp 106–129 Frechette S, Hathaway CM, Do Prado V (1998) Performance of the system III: Appellate Body. Int Lawyer 32:747–753 Gaffney J (1999) Due process in the World Trade Organization: the need for procedural justice in the dispute settlement system. Am Univ Int Law Rev 14:1173–1221 Georgiev D, Van der Borght K (eds) (2006) Reform and development of the WTO dispute settlement system. Cameron May, London Ghias S (2006) International judicial lawmaking: a theoretical and political analysis of the WTO Appellate Body. Berkley J Int Law 24:534–553 Hecht J (2000) Operation of WTO dispute settlement panels: assessing proposals for reform. Law Policy Int Bus 31:657–664 Hoekman B, Mavroidis P (2007) The World Trade Organization: law, economics, and politics. Routledge, Abingdon Howse R (2016) The World Trade Organization 20 years on: global governance by judiciary. Eur J Int Law 27:9–77 Hudec R (1998) The role of the GATT secretariat in the evolution of the WTO dispute settlement procedure. In: Bhagwati J, Hirsch M (eds) The uruguay round and beyond: essays in honour of arthur dunkel. Springer, Berlin, pp 101–122 Hughes V (2005a) Special challenges at the appellate stage: a case study. In: Yerxa R, Wilson B (eds) Key issues in WTO dispute settlement: the first ten years. Cambridge University Press, Cambridge, pp 80–87 Hughes V (2005b) WTO dispute settlement: an overview. In: Mitchell A (ed) Challenges and prospects for the WTO. Cameron May, London, pp 23–53 Hughes V (2008) The strengths, weaknesses, and future of WTO appellate review. In: Janow M, Donaldson V, Yanovich A (eds) The WTO: governance, dispute settlement and developing countries. Juris Publishing, New York, pp 471–504 Hughes V (2009) The institutional dimension. In: Bethlehem D, McRae D, Neufeld R, Van Damme I (eds) The oxford handbook of international trade law. Oxford University Press, Oxford, pp 269–299 Jackson J (1998a) Designing and implementing effective dispute settlement procedures: WTO dispute settlement, appraisal and prospects. In: Krueger A (ed) The WTO as an international organization. University of Chicago Press, Chicago and London, pp 161–180 Jackson J (1998b) Dispute settlement in the WTO: policy and jurisprudential considerations, school of public policy, University of Michigan, Research Seminar in International Economics, Discussion Paper No. 419. http://fordschool.umich.edu/rsie/workingpapers/Papers401-425/r419. pdf. Accessed 9 Feb 1998 Jackson J (2006) Sovereignty, the WTO, and changing fundamentals of international law. Cambridge University Press, Cambridge Jackson J, Hudec R, Davis D (2000) The role and effectiveness of the WTO dispute settlement mechanism. Brook Trade Forum 2000:179–236 Janow M (2008) Reflections on serving on the Appellate Body. Loyola Univ Chicago Int Law Rev 6:249–258

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Johannesson L and Mavroidis P (2015) Black Cat, White Cat: The Identity of the WTO Judges, Eur Univ Inst, Working Paper RSCAS 2015/17. https://papers.ssrn.com/sol3/papers.cfm?abstract_ id=2572390. Accessed 4 Mar 2015 Kennedy M (2011) Why are WTO panels taking longer? and what can be done about it? J World Trade 45:221–254 Kingery J (2000) Commentary: operation of dispute settlement panels. Law Policy Int Business 31:665–674 Lacarte Muró J (2008) The first years of the Appellate Body and the WTO dispute settlement system: a historical perspective. In: Janow M, Donaldson V, Yanovich A (eds) The WTO: governance, dispute settlement and developing countries. Juris Publishing, New York, pp 323–330 Lockhart J, Voon T (2005) Reviewing appellate review in the WTO dispute settlement system. Melb J Int Law 6:474–484 Lowenfeld A (2008) International economic law, 2nd edn. Oxford University Press, Oxford Matsushita M (2005) The sutherland report and its discussion of dispute settlement reforms. J Int Econ Law 8:623–629 Mavroidis P (2008) Legal eagles? The WTO Appellate Body’s first ten years. In: Janow M, Donaldson V, Yanovich A (eds) The WTO: governance, dispute settlement and developing countries. Juris Publishing, New York, pp 345–368 Mavroidis P, Van der Borght K (2006) Impartiality, independence and the WTO Appellate Body. In: Georgiev D, Van der Borght K (eds) Reform and development of the WTO dispute settlement system. Cameron May, London, pp 201–224 McRae D (2010) The WTO Appellate Body: a model for an ICSID appeals facility? J Int Dispute Settlement 1:371–387 Messenger G (2016a) The development of international law and the role of causal language. Oxf J Leg Stud 36:110–134 Messenger G (2016b) The development of World Trade Organization law: examining change in international law. Oxford University Press, Oxford Movsesian M (2005) The sutherland report and dispute settlement. Int Organ Law Rev 2:201–213 Murphy S (2014) International Judicial Bodies for Resolving Disputes Between States. In: Romano C, Alter K, Shany Y (eds) The oxford handbook of international adjudication. Oxford University Press, Oxford, pp 181–205 Parlin CC (1998) WTO dispute settlement: are sufficient resources being devoted to enable the system to function effectively? Int Lawyer 32:863–870 Pauwelyn J (2015) The rule of law without the rule of lawyers? Why investment arbitrators are from mars, trade adjudicators from venus. Am J Int Law 109:761–805 Petersmann E-U (1998) From the hobbesian international law of coexistence to modern integration law: the WTO dispute settlement system. J Int Econ Law 1:175–198 Porges A (2002) Comment: Step by Step to an International Trade Court. In: Kennedy D, Southwick J (eds) The political economy of international trade law: essays in honor of Robert E. Cambridge University Press, Cambridge, pp 528–536 Ramírez R, Castren K (2015) Will the increased workload of WTO panels and the Appellate Body change how WTO disputes are adjudicated? In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 616–622 Renouf Y (2005) Challenges in applying codes of ethics in a small professional community: the example of the WTO rules of conduct for the understanding on rules and procedures governing the settlement of disputes. In: De Cooker C (ed) Accountability, investigation and due process in international organizations. Martinus Nijhoff, Leiden, pp 111–128 Robert H (1999) The new WTO dispute settlement procedure: an overview of the first three years. Minn J Glob Trade 8:1–53 Roessler F (2017) Dispute settlement in the WTO: from a deliberately designed to a spontaneously grown order. In: Elsig M, Hoekman B, Pauwelyn J (eds) Assessing the World Trade Organization: fit for purpose?. Cambridge University Press, Cambridge, pp 99–119

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Rosas A (2001) Implementation and enforcement of WTO dispute settlement findings: an eu perspective. J Int Econ Law 4:131–144 Sacerdoti G (2006) The dispute settlement system of the WTO in action: a perspective on the first ten years. In: Sacerdoti G, Yanovich A, Bohanes J (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge University Press, Cambridge, pp 35–60 Sacerdoti G (2015) Panelists, arbitrators, judges: a response to Joost Pauwelyn. AJIL Unbound 109:283–287 Sacerdoti G (2017) The WTO dispute settlement system: consolidating success and confronting new challenges. In: Elsig M, Hoekman B, Pauwelyn J (eds) Assessing the World Trade Organization: fit for purpose?. Cambridge University Press, Cambridge, pp 147–174 Sands P, McLachlan C, Mackenzie R (2005) The Burgh house principles on the independence of the international judiciary. Law Pract Int Courts Tribunals 4:247–260 Sarooshi D (2003) Reform of the WTO Dispute Settlement Understanding: A Critical Juncture for Developing Countries. In: Mbirimi I, Chilala B, Grynberg R (eds) From Doha to Cancún: delivering a development round. Commonwealth Secretariat, London, pp 105–136 Sarooshi D (2005) The future of the WTO and its dispute settlement system. Int Organ Law Rev 2:129–151 Schoenbaum T (1998) WTO dispute settlement: praise and suggestions for reform. Int Comp Law Q 47:647–658 Shoyer A (2003) Panel selection in WTO dispute settlement procedures. J Int Econ Law 6:203–209 Shoyer A, Solovy E (2000) The process and procedure of litigating at the World Trade Organization: a review of the work of the Appellate Body. Law Policy Int Business 31:677–696 Steger D (2004) Improvements and reforms of the WTO Appellate Body. In: Ortino F, Petersmann E-U (eds) The WTO dispute settlement system, 1995–2003. Kluwer Law International, New York, The Hague, pp 41–50 Steger D (2012) Establishment of a dispute tribunal in the WTO. https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=2065448. Accessed 24 May 2012 Steger D (2015) The founding of the Appellate Body. In: Marceau G (ed) A history of law and lawyers in the GATT/WTO: the development of the rule of law in the multilateral trading system. Cambridge University Press, Cambridge, pp 447–465 Steger D, Hainsworth S (1998) World Trade Organization dispute settlement: the first three years. J Int Econ Law 1:199–226 Stewart T, Burr M (1998) The WTO’s first two and a half years of dispute resolution. NC J Int Law Commer Regul 23:481–644 Stoler A (2008) Enhancing the operation of the WTO panel process and appellate review: lessons from experience and a focus on transparency. In: Janow M, Donaldson V, Yanovich A (eds) The WTO: governance, dispute settlement and developing countries. Juris Publishing, New York, pp 525–542 Tanaka Y (2018) The Peaceful Settlement of International Disputes. Cambridge University Press, Cambridge Taniguchi Y (2009) The WTO dispute settlement as seen by a proceduralist. Cornell Int Law J 42:1–21 Terris D, Romano C, Swigart L (2007) The international judge: an introduction to the men and women who decide the world’s cases. University Press of New England, Hanover and London Van Damme I (2010) Treaty interpretation by the WTO Appellate Body. Eur J Int Law 21:605–648 Van den Bossch P (2005) The making of the “world trade court”: the origins and development of the Appellate Body of the World Trade Organization. In: Yerxa R, Wilson B (eds) Key issues in WTO dispute settlement: the first ten years. Cambridge University Press, Cambridge, pp 63–79 Van den Bossche P (2006) From afterthought to centrepiece: the WTO Appellate Body and its rise to prominence in the world trading system. In: Sacerdoti G, Yanovich A, Bohanes J (eds) The WTO at ten: the contribution of the dispute settlement system. Cambridge University Press, Cambridge, pp 289–325

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Van den Bossche P (2009) Reform of the WTO dispute settlement system: what to expect from the doha development round? In: Charnovitz S, Steger D, Van den Bossche P (eds) Law in the service of human dignity: essays in honour of florentino feliciano. Cambridge University Press, Cambridge, pp 103–126 Van den Bossche P, Prévost D (2016) Essentials of wto law. Cambridge University Press, Cambridge Van den Bossche P, Zdouc W (2013) The law and policy of the World Trade Organization: text, cases and materials, 3rd edn. Cambridge University Press, Cambridge VanGrasstek C (2013) The history and future of the World Trade Organization. World Trade Organization, Geneva World Trade Organization (2017) A handbook on the WTO dispute settlement system, 2nd edn. Cambridge University Press, Cambridge Wouters J, De Meester B (2007) The World Trade Organization: a legal and institutional analysis. Intersentia, Antwerpen and Oxford Zdouc W (2008) Features of the Appellate Body that have defined its performance. In: Janow M, Donaldson V, Yanovich A (eds) The WTO: governance, dispute settlement and developing countries. Juris Publishing, New York, pp 369–386 Zimmermann T (2006) Negotiating the review of the WTO dispute settlement understanding. Cameron May, London

Fernando Dias Simões is associate professor at the Faculty of Law of the Chinese University of Hong Kong (CUHK) since January 2019. Before joining CUHK, Professor Dias Simões taught for 14 years in universities in Macau and Portugal; in addition, he practiced in a major law firm and served as in-house counsel to a water concessionaire company in his native Portugal. His research interests include international adjudication (in particular, commercial and investment arbitration), investment law, and comparative contract law. He holds a Ph.D. from the University of Santiago de Compostela (Spain), an LLM from the University of Glasgow (United Kingdom) and a Bachelor degree from the University of Coimbra (Portugal). He is Senior Research Fellow at the University Institute of European Studies (Italy); Member of the Scientific Committee and Senior Research Associate at gLAWcal—Global Law Initiatives for Sustainable Development (United Kingdom); member of the Asia WTO Research Network (AWRN); and Rapporteur for the Oxford International Organizations—OXIO (Oxford University Press and Manchester International Law Centre).

Chapter 17

The WTO Appellate Body as a Trailblazer—Facilitation of Appellate Mechanism Discussion in Other International Courts Jaemin Lee Abstract One of the most important contributions of the WTO regime is the successful introduction and operation of the appellate mechanism. In the past 24 years of operation, the Appellate Body has accumulated important experience in various areas of appellate review. It has also encountered a variety of practical and legal issues associated with appeal, and has also clarified critical jurisprudence and found solutions to practical issues. The Appellate Body’s accumulated experience and jurisprudence have provided and will continue to provide useful guidance and benchmarks for states and other international organizations for the formulation, administration and operation of appellate proceedings in other international dispute settlement proceedings. Its trial and error, and success and failure present the international community with a reliable springboard for the discussion of better and more workable dispute settlement proceedings in the international community. Keywords International dispute settlement proceedings · Appellate Body · Dispute settlement understanding · Rule of law · Appellate review · Standard of review · Remand

1 Introduction—Appellate Body’s Contribution and Ripple Effect Traditionally, international dispute settlement proceedings have not been receptive to the idea of an appellate mechanism. A single-step decision-making process has been understood to be a more appropriate option to settle state-to-state disputes. For instance, the legal proceedings at the Permanent Court of International Justice (hereinafter PCIJ) and the succeeding International Court of Justice (hereinafter ICJ) have not had an appellate mechanism despite the importance of disputes brought to

J. Lee (B) School of Law, Seoul National University, Seoul, Korea e-mail: [email protected]; [email protected] © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_17

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them.1 Nor do international arbitration proceedings between two sovereign states conducted under public international law. In fact, the dispute settlement mechanism of the World Trade Organization (hereinafter WTO) and some recent Free Trade Agreement (hereinafter FTA) dispute settlement mechanisms represent rare instances in which an appellate mechanism is introduced in international litigation. Indeed, this is a relatively new phenomenon in international litigation. Setting aside faltering multilateralism at present, the relative success of the WTO’s Appellate Body now prompts states and relevant international organizations to consider introducing appellate mechanisms for other international tribunals. One conspicuous example can be found in investment arbitration. Almost 53 years after its inception, serious discussions on the possibility of introducing an appellate mechanism are now taking place in the context of international investment dispute settlement proceedings.2 In this respect, some recent FTAs even specifically mention a possibility of adopting (or considering) an appellate mechanism in the future for investment arbitration. By way of example, the Korea–U.S. FTA, which went into effect on March 15, 2012 and amended as of January 1, 2019, is premised upon the general understanding between the two countries that an appellate review mechanism will be introduced in the future.3 Likewise, the 2012 U.S. Model Bilateral Investment Treaty (hereinafter BIT) envisions the ultimate introduction of an appellate mechanism.4 The Canada–European Union Comprehensive Economic and Trade Agreement (hereinafter CETA) also contains a similar provision.5 So does the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (hereinafter

1 See

Statute of the International Court of Justice (hereinafter Statute of the ICJ), 26 June 1945, 33 U.N.T.S. 933, Article 60 (stipulating no appellate procedure at the ICJ); Legum (2005, p. 229); Likewise, State-to-State arbitrations do not have an appellate mechanism. See, e.g., Optional Rules for Arbitrating Disputes between Two States Article 32.2, 20 Oct 1992, 32 I.L.M. 572. The International Criminal Court, the International Criminal Tribunals for Former Yugoslavia and the International Criminal Tribunals for Rwanda have appellate procedures, but these are criminal courts designed to determine personal criminal liability for certain designated international crimes. See, e.g., Rome Statute of the International Criminal Court (hereinafter Statute of the ICC), 17 July 1998, 2187 U.N.T.S. 90, Article 81; Cassese (2009, pp. 344–345). 2 Bogdandy and Venzke (2014, pp. 90, 185–186), Huber and Tereposky (2017, pp. 591–592); While there are some review features contained in investment arbitrations, they are limited to specific instances requiring such reviews and do not constitute the conventional appeal mechanism where the legal issues of underlying tribunals’ decisions are challenged. See Convention on the Settlement of Investment Disputes Between States and Nationals of Other States Article 49.2, 18 Mar 1956, 575 U.N.T.S. 159 (ICSID Convention). See Measures for Review Mechanism include Rectification Article 50 Interpretation, Article 51 Revision and Article 52 Annulment. See also Lee (2014, p. 12). 3 See, e.g., North American Free Trade Agreement, United States–Mexico–Canada, Chap. 11, 17 Dec 1992, 32 I.L.M. 289. Korea–U.S. FTA, Korea–U.S., Chap. 11, 30 June 2007, https://ustr.gov/ trade-agreements/free-trade-agreements/korus-fta. 4 See United States Trade Representative, 2012 U.S. Model Bilateral Investment Treaty [BIT] Article 28.10, https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf. 5 See Comprehensive Economic and Trade Agreement [CETA], European Union-Canada, 16 Dec 2016, Article 8.29, http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/.

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CPTPP), which came into effect as on December 30, 2018.6 Furthermore, recent discussion to reform the investor-state dispute settlement (hereinafter ISDS) mechanism also contains the possible introduction of appellate mechanisms as a critical component of the project. It is noteworthy that in all these experiments and discussions the WTO’s Appellate Body has provided a background and been a stimulant. Other international courts have not yet taken specific action to consider appellate review systems. Nonetheless, the robust reaction in international investment law to scrutinize the Appellate Body in its prospective formulation of a new standing international court with an appellate layer indicates that other courts and tribunals would have to look to the Appellate Body in their own contemplation and establishment of appellate systems. An argument can be made that the recent development in the ISDS proceedings provides a rough barometer for similar discussion in other international courts and tribunals. In this respect, while serious discussions on the introduction of appellate proceedings in investment arbitration and in other courts and tribunals have yet to take place, the Appellate Body’s experiences and its legal framework contained in the WTO’s Understanding on Rules and Procedures Governing the Settlement of Dispute (hereinafter DSU) are now providing an important guideline to them so as to avoid mistakes of “reinventing the wheel”. It is critical, therefore, that a prospective introduction of an appellate mechanism to these other international litigation proceedings be prepared properly and prudently by expanding the Appellate Body’s positive experience while guarding against its negative lessons. With this in mind, this chapter is structured as follows. After the introduction, Sect. 2 offers an overview of other international adjudicative bodies with appellate review systems. Observations to be drawn from the WTO’s Appellate Body for these various adjudicative bodies are also discussed. Section 3 then looks into institutional aspects of having an appellate mechanism in international dispute settlement proceedings based on the Appellate Body’s own experience. Section 4, in turn, examines legal aspects associated with the operation and administration of appellate mechanisms in international dispute settlement proceedings, again based on the Appellate Body’s past track record. A conclusion then follows in Sect. 5.

2 International Adjudicative Bodies with Appellate Review Systems In this respect, this section examines other international adjudicative bodies with an appellate review system of various sorts. These adjudicative bodies are international courts with an appellate mechanism (similar to the WTO’s dispute settlement mechanism), other forms of judicial review of underlying judgments or decisions short of an appeal, and non-interstate dispute settlement mechanisms operating under international law. The contribution and limitations of the WTO’s Appellate Body have 6 See Comprehensive and Progressive Agreement for the Trans-Pacific Partnership [CPTPP], Article

9.23, 8 Mar 2018, https://www.mfat.govt.nz/assets/CPTPP/CPTPP-Text-zipped.zip.

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arguably provided a good benchmark for the discussion, formulation and improvement of these various appellate mechanisms under international law. Again, most notably, FTAs and investment arbitrations currently look to the WTO for guidance in this respect. Lessons and information are equally informative and resourceful for other international courts and tribunals as well.

2.1 International Courts with Appellate Mechanisms There are other, although not many, international courts and tribunals with appellate mechanisms. While they vary wildly in terms of forms and contents, a clear commonality is the review of a decision of the first-level adjudicators—the very essence of an appellate review mechanism. None of them, however, shows the level of detail found in the WTO’s Appellate Body. Nor have they conducted negotiations to improve, fine-tune and elaborate an existing appellate mechanism based on their actual operational experience as observed in the WTO’s Appellate Body. Both are arguably what at the moment distinguishes the Appellate Body from other adjudicative bodies even with appellate schemes. 2.1.1

The Olivos Protocol in the Southern Common Market (“MERCOSUR”)

A good example in this regard is the Olivos Protocol in the Southern Common Market (hereinafter MERCOSUR). The Olivos Protocol, which entered into force on January 1, 2004, governs the dispute settlement proceeding of the MERCOSUR. Article 18 of the protocol creates the Permanent Review Tribunal (hereinafter PRT), which reviews a decision from an underlying tribunal and then issues a final decision.7 The PRT’s 7 Olivos

Protocol for the Settlement of Disputes in MERCOSUR [Olivos Protocol] Article 18, 18 Feb 2002, 42 ILM 2 (hereinafter Olivos Protocol) provides that: Article 18 Composition of the Permanent Review Tribunal 1. The Permanent Review Tribunal shall consist of five (5) arbitrators. 2. Each Mercosur State Party shall appoint one (1) arbitrator and its alternate for a period of two (2) years, renewable for a maximum of two consecutive periods. 3. The fifth arbitrator, who shall be appointed for a period of three (3) non-renewable years, unless otherwise agreed by the States Parties, shall be unanimously chosen by the States Parties from the list referred to in this paragraph, at least three (3) months before the expiration of the term of office of the fifth arbitrator in office. This arbitrator shall have the nationality of one of the States Parties of Mercosur, without prejudice to the provisions of number 4 of this Article. If there is no unanimity, the designation shall be made by lot to be made by the Mercosur Administrative Secretariat, among the members of that list, within two (2) days following the expiration of said term. The list for the appointment of the fifth arbitrator shall be made up of eight (8) members. Each State Party shall propose two (2) members who shall be nationals of the Mercosur countries. 4. States Parties may, by mutual agreement, define further criteria for the appointment of the fifth arbitrator.

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decisions are binding on the parties and carry the force of res judicata.8 The PRT thus possesses key traits of an appellate decision-making process for an international dispute settlement mechanism. This appellate entity has been largely inspired by the WTO’s Appellate Body, and mirrors the basic structure of the Appellate Body in many respects. The PRT is composed of five arbitrators: Each State Party appoints one arbitrator for a period of two years, renewable for a maximum of two consecutive terms, and the fifth arbitrator is appointed by a unanimous vote of the State Parties for a nonrenewable period of three years.9 When the dispute involves two State Parties, the Tribunal shall consist of three arbitrators: Two will be nationals of the State Parties, and the third arbitrator shall be designated by lot to be held by the Director of the Mercosur Administrative Secretariat.10 When the dispute involves more than two State Parties, the PRT shall consist of the five arbitrators.11 A party to the dispute may raise an appeal to the PRT within a period not exceeding 15 days from the notification of the first award of the arbitration.12 The other party to the dispute shall have the right to challenge the appeal within 15 days of notification of the appeal.13 The PRT shall rule on the appeal within a maximum period of 30 days, which may be extended by a further 15 days by decision of the Court.14 The appeal shall be limited to the questions of law and the legal interpretations.15 The PRT may confirm, modify or revoke the legal basis and decisions of the Ad Hoc Arbitral Tribunal.16 The PRT, as such, also contains the basic structural limitations of the Appellate Body as well. For instance, the scope of an appellate review (whether it should strictly cover legal issues only, or can handle both legal and factual issues as necessary), the relationship between an underlying tribunal and the PRT including the authority of remand, and the (non-) application of stare decisis are not entirely clear in the 5. At least three (3) months before the end of the term of office of the arbitrators, State Parties shall express their views on their renewal or propose new candidates. 6. If the term of office of an arbitrator acting in a dispute expires, it shall remain in office until its conclusion. 7. The provisions of Article 11.2 shall apply, where applicable, to the procedures described in this Article. See Olivos Protocol for the Dispute Settlement in Mercosur (2002). http://www.sice.oas.org/ Trade/MRCSR/olivos/polivosText_p.asp#CAPI_ (original in Portuguese, translated into English by author). 8 Dispute Settlement within the Southern Common Market (MERCOSUR). Integrated Database of Trade Disputes for Latin America and the Caribbean. https://idatd.cepal.org/soluciones/iTemplateMERCOSUR-explicacion.pdf. 9 Olivos Protocol, supra note 7, Article 18. 10 Id., Article 20. 11 Id. 12 Id., Article 17. 13 Id., Article 21. 14 Id. 15 Id., Article 17. 16 Id., Article 23.

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protocol. These are the areas where the struggles and discussions of the WTO’s appellate mechanism could offer some helpful insights.

2.1.2

The Free Trade Area for the Americas

The Free Trade Area for the Americas (hereinafter FTAA) is a proposed free trade agreement between the United States and 34 countries in the Americas. Though never finalized, the draft of the FTAA proposes the creation of an Appellate Body that is also largely influenced by the WTO’s Appellate Body. Article 26.2 of the agreement, specifically, references the WTO’s solution to potential conflicts of interest in composing the Appellate Body, including candidate selection process and a full-time position arrangement.17 The standing Appellate Body is to be composed of seven persons, serving in rotation,18 to be appointed by the Executive Body for Dispute Settlement for a four-year term, renewable once.19 The FTAA, however, also repeats the basic limitations of the Appellate Body. The scope of an appellate review, the relationship between an underlying tribunal and the appellate entity, and how much legal authority is to be given to the appellate entity are not clear in the text.20 Recent discussions at the WTO to improve the Appellate Body should provide an important guidance to the FTAA as well.

2.1.3

The International Criminal Court

On a rather different note, the International Criminal Court (hereinafter ICC) was founded on July 1, 2002 to prosecute individuals for certain designated “international crimes”: genocide, crimes against humanity, war crimes, and crimes of aggression. The Appeals Chamber of the ICC exercises appellate jurisdiction over the judgments rendered by the trial court. The Appeals Chamber possesses the authority to uphold, amend, or reverse the original decision. The Appeals Chamber may “(a) reverse 17 Free

Trade Area for the Americas Article 26.2, 20 Dec 2014 provides that: 26.2. Members of the Appellate Body shall:

(a) be well-renowned for their accredited technical competence in law, experience in international trade, other matters covered by this Agreement, or in the resolution of disputes arising from international trade agreements; (b) have a well known reputation for objectivity, probity, reliability, sound judgment, and honesty; (c) be impartial in the exercise of his/her functions (not be affiliated with any of the Parties to the dispute unless the Parties to the dispute otherwise agree, or take instructions from any Party); and (d) comply with the Code of Conduct in Annex 2 (Code of Conduct). See also Gal-Or (2008, p. 64). Trade Area for the Americas, supra note 17, Article 25.1. 19 Id., Article 26. 20 Id., Article 27.4. 18 Free

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or amend the decision or sentence; or (b) order a new trial before a different Trial Chamber”, for which “the Appeals Chamber may remand a factual issue to the original Trial Chamber for it to determine the issue and to report back accordingly, or may itself call evidence to determine the issue”.21 Both the prosecutor and the defendant may appeal the judgment, and the victims and the convicted person may appeal an order for reparations.22 The Prosecutor or the convicted person may appeal on the following grounds: “(i) procedural error, (ii) error of fact, (iii) error of law, or (iv) any other ground that affects the fairness or reliability of the proceedings or decision”,23 or issues concerning the Rules of Procedure and Evidence.24 An appeal against a decision of conviction, acquittal, sentence, or reparation order may be raised within thirty days of the initial decision of the Trial Chambers.25 Instead of a set deadline, it is stipulated that the appeal “shall be heard as expeditiously as possible”.26 Granted, this court is a criminal tribunal with jurisdiction over individuals for international crimes, which is distinguishable from settling disputes between states as seen in the Appellate Body. Nonetheless, the division of authority between the Trial Chamber and the Appeals Chamber, and what the Appeals Chamber can do when it finds an error in the decision of the Trial Chamber are still closely related with the operation of the dispute settlement mechanism of the WTO. In particular, the 21 Id.,

Article 83.2. of the ICC, supra note 1, Article 83 provides that: Part 8 Appeal and Revision Article 83 Proceedings on appeal

22 Statute

1. For the purposes of proceedings under article 81 and this article, the Appeals Chamber shall have all the powers of the Trial Chamber. 2. If the Appeals Chamber finds that the proceedings appealed against were unfair in a way that affected the reliability of the decision or sentence, or that the decision or sentence appealed from was materially affected by error of fact or law or procedural error, it may: (a) Reverse or amend the decision or sentence; or (b) Order a new trial before a different Trial Chamber. For these purposes, the Appeals Chamber may remand a factual issue to the original Trial Chamber for it to determine the issue and to report back accordingly, or may itself call evidence to determine the issue. When the decision or sentence has been appealed only by the person convicted, or the Prosecutor on that person’s behalf, it cannot be amended to his or her detriment. 3. If in an appeal against sentence the Appeals Chamber finds that the sentence is disproportionate to the crime, it may vary the sentence in accordance with Part 7. 4. The judgement of the Appeals Chamber shall be taken by a majority of the judges and shall be delivered in open court. The judgement shall state the reasons on which it is based. When there is no unanimity, the judgement of the Appeals Chamber shall contain the views of the majority and the minority, but a judge may deliver a separate or dissenting opinion on a question of law. 5. The Appeals Chamber may deliver its judgement in the absence of the person acquitted or convicted. See Rome Statute of the International Criminal Court (1998). Article 81.3. 24 Id., Article 82; See also Rule of Procedure and Evidence (2013). 25 Rule of Procedure and Evidence, supra note 24, rule 150; Appeals against other decisions have different time limits. See rules 154–155. 26 Id., rule 156. 23 Id.,

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clinical severance between the sections of the WTO Secretariat assisting the panel proceedings (either the Rules Division or Legal Affairs Division), and the Appellate Body secretariat to ensure independence and neutrality of the appellate review may inform the ICC to a certain extent. The Appeals Division shall be composed of the President and four other judges, who will be assigned from the 18 judges of the Court.27 The Appeals Chamber shall be composed of all the judges of the Appeals Division, who will serve in that division for their entire term of office.28 The judges are elected by a secret ballot at the Assembly of States Parties.29 A third of the judges shall be selected by the lot to serve for three years (who will be eligible for re-election for a full term), another third for six years, and the remainder for nine years.30

2.1.4

The Court of Justice of the European Union

In addition, the Court of Justice of the European Union (hereinafter CJEU) contains an appellate procedure.31 The CJEU acts as a supreme court of the European Union exercising jurisdiction over matters relating to European Union law. Appeals here are limited to points of law in rulings and orders of the General Court.32 An appeal may be

27 Statute

of the ICC, supra note 1, Article 39. Article 39. 29 Id., Article 36. 30 Id., Article 36.9. 31 Baetens (2017, pp. 432–433). 32 Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, Article 256, 2016 O.J. C 202/01 provides that: 28 Id.,

Article 256 1. The General Court shall have jurisdiction to hear and determine at first instance actions or proceedings referred to in Articles 263, 265, 268, 270 and 272, with the exception of those assigned to a specialised court set up under Article 257 and those reserved in the Statute for the Court of Justice. The Statute may provide for the General Court to have jurisdiction for other classes of action or proceeding. Decisions given by the General Court under this paragraph may be subject to a right of appeal to the Court of Justice on points of law only, under the conditions and within the limits laid down by the Statute. 2. The General Court shall have jurisdiction to hear and determine actions or proceedings brought against decisions of the specialised courts. Decisions given by the General Court under this paragraph may exceptionally be subject to review by the Court of Justice, under the conditions and within the limits laid down by the Statute, where there is a serious risk of the unity or consistency of Union law being affected. 3. The General Court shall have jurisdiction to hear and determine questions referred for a preliminary ruling under Article 267, in specific areas laid down by the Statute. Where the General Court considers that the case requires a decision of principle likely to affect the unity or consistency of Union law, it may refer the case to the Court of Justice for a ruling. Decisions given by the General Court on questions referred for a preliminary ruling may excep-

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raised before the Court of Justice within two months of the decision in question.33 The Chamber designated to review decisions of the General Court (Reviewing Chamber) is composed of five judges, with a term of office of one year.34 The CJEU, like the ICJ, also issues advisory opinions together with judgments, and hearings are opened to the general public unless the court decides otherwise.35 CJEU’s appellate procedure is in contrast to the ICJ’s no-appeal mechanism. Although the ICJ contains a quasi-appeal system, that is, interpretation of judgments36 and revision of judgments,37 it differs from the appellate mechanism per se. When an appeal is brought against a decision of the General Court to the Court of Justice, the division of authority between the two courts also raises a similar question. The Court of Justice shall give itself the final judgment of the matter or refer the case back to the General Court.38 In other words, the Appellate Court has the authority to remand the case back to the General Court when it finds fault with the decision of the General Court. As a matter of fact, this is the only instance where an international court recognizes the right to remand as in domestic courts. Certainly, this practice of the CJEU should inform the WTO’s Appellate Body that struggles with this very question. The Appellate Body does not possess the remand authority in accordance with Article 17.13 of the DSU. That said, the discussions at the WTO regarding the introduction of a remand and how to choose a specific mechanism of remand among various options considering merits and demerits of each option, tionally be subject to review by the Court of Justice, under the conditions and within the limits laid down by the Statute, where there is a serious risk of the unity or consistency of Union law being affected. 33 See Protocol No. 3 annexed to the Treaties on the Statute of the Court of Justice of the European Union [Statute of the CJEU], Article 56, C202.210. 34 See Rules of Procedure of the Court of Justice of the European Union, Article 191, 29 Sep 2012, O.J. L 265. 35 See Petersmann (1998, p. 40). 36 See Statute of the ICJ, supra note 1, Article 60. 37 Id., Article 61. 38 Statute of the CJEU, supra note 33, Article 61 provides that:

Article 61 If the appeal is well founded, the Court of Justice shall quash the decision of the General Court. It may itself give final judgment in the matter, where the state of the proceedings so permits, or refer the case back to the General Court for judgment. Where a case is referred back to the General Court, that Court shall be bound by the decision of the Court of Justice on points of law. When an appeal brought by a Member State or an institution of the Union, which did not intervene in the proceedings before the General Court, is well founded, the Court of Justice may, if it considers this necessary, state which of the effects of the decision of the General Court which has been quashed shall be considered as definitive in respect of the parties to the litigation.

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should inform the CJEU of various aspects and implications of a remand for its own benefit and consideration.

2.1.5

The International Criminal Tribunals for the Former Yugoslavia and the International Criminal Tribunal for Rwanda

The Appeals Chambers of the International Criminal Tribunals for the Former Yugoslavia (hereinafter ICTY) and the International Criminal Tribunal for Rwanda (hereinafter ICTR) also provide respective means for an appellate review of initial decisions of an underlying court.39 As with the ICC, these two courts also exercise jurisdictions over crimes of individuals in the specific designated areas. In that regard, they are distinct from courts and tribunals exercising jurisdiction over state-to-state disputes. Both tribunals consist of a Trial Chamber and an Appeals Chamber, the latter of which is vested with the authority to affirm, reverse, or revise the decisions of the Trial Chamber.40 In the ICTY, the prosecutor and the defendant may raise appeals.41 The same system is adopted in the ICTR.42 To the extent an appellate entity is in place, these international criminal courts also raise the critical issue of how to apportion the authority between Trial Chambers and Appeals Chambers. In other words, how much an Appeals Chamber can do in the case of the unsatisfactory decision of a Trial Chamber is not clearly set forth. 39 See e.g., Huber and Tereposky, supra note 2, p. 545, and, on the international criminal tribunals, see Crawford (2012, pp. 674–687). Cited by Brown (2017, p. 596). 40 See Statue of International Criminal Tribunals for the Former Yugoslavia [Statute of ICTY] Article 25, 3 May 1993, 40 I.L.M. 1346. 41 Id., Article 25 provides that:

Article 25 Appellate proceedings 1. The Appeals Chamber shall hear appeals from persons convicted by the Trial Chambers or from the Prosecutor on the following grounds: (a) an error on a question of law invalidating the decision; or (b) an error of fact which has occasioned a miscarriage of justice. 2. The Appeals Chamber may affirm, reverse or revise the decisions taken by the Trial Chambers. 42 Criminal Tribunal for Rwanda [Statute of ICTY] Article 24, 8 Nov 1994, 33 I.L.M. 1598 provides

that: Article 24 Appellate Proceedings 1. The Appeals Chamber shall hear appeals from persons convicted by the Trial Chambers or from the Prosecutor on the following grounds: (a) An error on a question of law invalidating the decision; or (b) An error of fact which has occasioned a miscarriage of justice. 2. The Appeals Chamber may affirm, reverse or revise the decisions taken by the Trial Chambers.

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For instance, the two courts do not have an explicit authority to order a remand in this situation. However, they differ from the WTO as the Appeals Chamber of the two courts reviews both legal and factual aspects.43 These are the areas where the improvement and evolution of the Appellate Body at the WTO can contribute.

2.2 Other Forms of (Quasi)-appellate Judicial Review In addition, there are other forms of various (quasi)-appellate review mechanisms in some of the international dispute settlement proceedings. Some of them are technically not appellate proceedings they are merely additional proceedings to check the original decision in certain instances. Others provide appellate proceedings for decision-making entities of international organizations, as opposed to courts of first instance. Thus, strictly speaking, these are not appellate proceedings of international dispute settlement proceedings as the term is used in this chapter. Nonetheless, these two categories could still fall under a larger rubric of how “second-level” judicial review mechanisms are in place and in operation in the global community at the moment, even if they are not appellate proceedings per se. Examples of the first category can be found in Articles 60 and 61 of the Statute of the ICJ and Articles 40 and 41 of the CJEU Statute. These provisions envisage the possibility of “interpretation” and “revision” proceedings of original judgments.44 While distinct from and different to an ordinary appeal procedure, these interpretation and revision proceedings also offer an opportunity to examine underlying judgments. The additional review may relate to factual issues, but it may also touch upon legal issues as well.45 As a matter of fact, interpretation and revision of courts of first instance are arguably one segment of an appeal proceedings. In a sense, the WTO’s Appellate Body sometimes interprets or revises a panel decision when certain conditions are met—for example, (i) when the Appellate Body tries to understand the meaning of a particular finding of a panel decision or (ii) when new information is found during an appellate proceeding and when the disputing parties agree to the Appellate Body’s completion of the review. Likewise, interpretation and revision of findings and decisions of both a panel and the Appellate Body can be reviewed by an implementation panel and the Appellate Body afterwards. In that respect, arguably there may be a co-relation between these quasi-appeal procedures in the ICJ and CJEU, and the WTO. 43 Statute

of ICTY, supra note 41, Article 25; Statute of ICTR, supra note 42, Article 24. e.g., Asylum Case (Request for Interpretation), ICJ Reports 1950, p. 395; Tunisia/Libya Continental Shelf Case (Application for Revision and Interpretation of the Judgment of 24 February 1982), ICJ Reports 1985, p. 192. Cited by Petersmann, supra note 12, at p. 36; Hernández (2013, pp. 60–62), Cameron and Campbell (1998, p. 86). 45 For instance, in the Asylum Case, based on the Article 60 of the Statute of the ICJ, the Government of the Republic of Colombia made a request for an interpretation of the ICJ’s judgment regarding its legal effects. See Asylum Case supra note 44, p. 399. 44 See

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On the other hand, as regards the second category, some international decisionmaking bodies envisage a recourse to other reviewing tribunals. Examples can be -found in specialized agencies and organs of the United Nations (UN) that can seek an advisory opinion of the ICJ in accordance with Article 96 of the UN Charter.46 Some advisory opinions relate to a decision rendered by these agencies and organs.47 It would mean that an indirect exercise of an appellate function takes place, through advisory opinion, vis-à-vis decision-making process of these entities. Furthermore, constitutional instruments of some of these international organizations contain provisions which envisage a possibility of recourse to the ICJ for a binding opinion on decisions rendered by entities of the organizations. For example, while the Statute of the International Labour Organization (hereinafter ILO) Administrative Tribunal states that its decisions are “final and without appeal”,48 the Constitution of the ILO still adopts a procedure wherein the ILO requests a binding advisory opinion from the ICJ.49 The International Civil Aviation Organization (hereinafter ICAO) administers similar proceedings. ICAO’s key instruments—the International Civil Aviation Convention and the International Air Services Transit Agreement of 1944—contain ICJ review provisions.50 For instance, in 1971 India made an appeal to the ICJ against a 46 UN

Charter Article 96 provides that:

Chapter XIV—The International Court of Justice (Charter of the United Nations) 1. The General Assembly or the Security Council may request the International Court of Justice to give an advisory opinion on any legal question. 2. Other organs of the United Nations and specialized agencies, which may at any time be so authorized by the General Assembly, may also request advisory opinions of the Court on legal questions arising within the scope of their activities. 47 For instance, Judgments of the Administrative Tribunal of the ILO upon Complaints Made against UNESCO, ICJ Reports 1955 and udgment No. 2867 of the Administrative Tribunal of the International Labour Organization upon a Complaint Filed against the International Fund for Agricultural Development, ICJ Reports 2010. 48 Statute of the Administrative Tribunal of the International Labour Organization Article VI, 9 Oct 1946, https://www.ilo.org/tribunal/about-us/WCMS_249194/lang--en/index.htm.

Article VI (of the Statute and Rules of the Administrative Tribunal) The Tribunal shall take decisions by a majority vote. Judgments shall be final and without appeal. The Tribunal may nevertheless consider applications for interpretation, execution or review of a judgment. 49 ILO Constitution Article 37, 9 Oct 1946, 62 Stat. 3485; See Pescatore (1994, pp. 217–237). Cited

by Petersmann, supra note 12, at p. 37. Civil Aviation Convention arts. 84, 86, 7 Dec 1944, 15 U.N.T.S. 295 provides that:

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CHAPTER XVIII DISPUTES AND DEFAULT Article 84 Settlement of Disputes If any disagreement between two or more contracting States relating to the interpretation or application of this Convention and its Annexes cannot be settled by negotiation, it shall, on

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decision by the Council of the ICAO according to Article 84 of the Chicago Convention and. Article II. Section 2, of the Transit Agreement.51 Yet another example can be found in the European Convention on Human Rights: in the European Court of Human Rights, the judgments of a Chamber may be referred to a Grand Chamber.52 These quasi-appeal systems in various agreements and conventions may well offer persuasive evidence to underscore the importance and contribution of an appellate mechanism in international adjudication. Such being the case, the WTO’s active operation and administration of the appellate mechanism through its Appellate Body and the Appellate Body’s own secretariat arguably constitute a viable benchmark for these other proceedings as well. Again, a full and comprehensive appellate review is currently available and experimented with only at the WTO’s appellate system.

2.3 Non-interstate Dispute Settlement Mechanisms Availability of an appellate mechanism is not just confined to state-to-state dispute settlement proceedings. It has also become an issue in non-interstate dispute settlement proceedings. ISDS proceedings provide a vivid example . Commercial

the application of any State concerned in the disagreement, be decided by the Council. No member of the Council shall vote in the consideration by the Council of any dispute to which it is a party. Any contracting State may, subject to Article 85, appeal from the decision of the Council to an ad hoc arbitral tribunal agreed upon with the other parties to the dispute or to the Permanent Court of International Justice. Any such appeal shall be notified to the Council within sixty days of receipt of notification of the decision of the Council. … Article 86 Appeals Unless the Council decides otherwise, any decision by the Council on whether an international airline is operating in conformity with the provisions of this Convention shall remain in effect unless reversed on appeal. On any other matter, decisions of the Council shall, if appealed from, be suspended until the appeal is decided. The decisions of the Permanent Court of International Justice and of arbitral tribunal shall be final and binding. See also Petersmann, supra note 12, at p. 38. Cameron and Campbell, supra note 44, at pp. 87–88; Petersmann, supra note 12, at p. 38. 52 European Convention on Human Rights Article 43, 4 Nov 1950, 213 U.N.T.S. 222 provides that: ARTICLE 43 Referral to the Grand Chamber 51 See

1. Within a period of three months from the date of the judgment of the Chamber, any party to the case may, in exceptional cases, request that the case be referred to the Grand Chamber. 2. A panel of five judges of the Grand Chamber shall accept the request if the case raises a serious question affecting the interpretation or application of the Convention or the Protocols thereto, or a serious issue of general importance. 3. If the panel accepts the request, the Grand Chamber shall decide the case by means of a judgment.

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arbitration proceedings also explore similar options. While distinctions clearly exist between state-to-state proceedings and other proceedings, lessons and experiences might be shared between the two to the extent that they share features of international litigation operating under the general rubric of conventions and agreements.

2.3.1

Proposed ISDS Reform and Appellate Mechanism

As international dispute settlement proceedings constituted under bilateral investment treaties (BITs) and applying the BITs as a governing law, ISDS proceedings have grown in importance over the years. Notably, robust discussions have been taking place since 2015 to reform the existing ISDS mechanism. Various issues and aspects of the ISDS mechanism, spanning over both substantive and procedural areas, are now on the table for serious discussions. One of the core items of the current discussions is the very concept of an appellate proceeding in ISDS proceedings. It is widely believed that an appellate system in investment arbitration may help enhance the legitimacy of the proceedings. In the attempt to devise an appellate system, it is the WTO’s Appellate Body that states and relevant international organizations turn to for guidance. As a matter of fact, experts and scholars in international investment law have long referred to the WTO’s dispute settlement mechanism for a benchmark for an appellate system.53 In particular, the suggestion to establish permanent courts for ISDS disputes instead of ad hoc arbitration has been specifically inspired by the features of the WTO’s counterpart.54 Therefore, an argument can be made that the basic structure and operation of the Appellate Body are being perceived positively, independent of faltering and weakening multilateralism. While various forms of permanent courts are now being contemplated in the international investment sector, some recent FTAs have already made initial strides. By way of example, a two-tier court system with a permanent Appeal Tribunal is already in place in the CETA55 and the EU-Vietnam Free Trade Agreement.56 A similar feature was also proposed by the European Commission for the Transatlantic Trade 53 See

Gantz (2006, p. 39), Kalb (2005, p. 179), Steger (2013, p. 257); Cited in footnote 165 of Ameli et al. (2016, p. 43). 54 Fontanelli et al. (2016, pp. 191–263). 55 CETA, supra note 5, Article 8.29, http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_ 154329.pdf, provides that: Article 8.29 Establishment of a multilateral investment tribunal and appellate mechanism The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements. 56 EU–Vietnam

Investment Protection Agreement, EU–Vietnam, 1 Feb 2016, Article 3.41, http:// trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157394.pdf, provides that:

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and Investment Partnership (hereinafter TTIP).57 The 2015 proposal of the European Commission tabled a detailed proposal to create an Investment Court System (hereinafter ICS) within the framework of the TTIP.58 The two-tier investment court system with the Tribunal of First Instance (hereinafter TFI) and the Appeal Tribunal (hereinafter AT) proposed by the Commission mirrored the WTO dispute settlement mechanism, with necessary adjustment tailored to an international investment law regime.59 Among the various reasons provided by the European Commission, what stands out is its repeated emphasis on the expected coherence of the interpretation of treaty norms, as a result of a permanent court equipped with an appellate review system.60 This proposal of the European Commission is not just confined to the specific context of TTIP. It stands for the adoption of a new EU-wide general policy on this issue.61 In January 2019, the EU and its member states submitted a proposal for an evolved version of a permanent investment court with an appellate mechanism to the Working Group III of the United Nations Commission on International Trade Law (hereinafter UNCITRAL). The Working Group is in charge of the discussions and negotiations for ISDS reform. Robust debates are taking place in the working group on various topics and issues of the ISDS reform. The most important and contentious among them is the creation of a permanent, multilateral investment court. The EU’s proposal sets forth details about the establishment of “a standing mechanism for the settlement of international investment disputes,” which includes an Appellate Body.62 The main features and components of the proposal largely reflect counterparts from the WTO. ARTICLE 3.41 Multilateral Dispute Settlement Mechanisms The Parties shall enter into negotiations for an international agreement providing for a multilateral investment tribunal in combination with, or separate from, a multilateral appellate mechanism applicable to disputes under this Agreement. The Parties may consequently agree on the non-application of relevant parts of this Section. The Committee may adopt a decision specifying any necessary transitional arrangements. 57 Proposal

for Investment Protection and Resolution of Investment Disputes, Transatlantic Trade and Investment Partnership, European Union, 12 November 2015, Article 12, http://trade.ec.europa. eu/doclib/docs/2015/september/tradoc_153807.pdf (hereinafter TTIP proposal) provides that: Article 12 Multilateral dispute settlement mechanisms Upon the entry into force between the Parties of an international agreement providing for a multilateral investment tribunal and/or a multilateral appellate mechanism applicable to disputes under this Agreement, the relevant parts of this section shall cease to apply. The [] Committee may adopt a decision specifying any necessary transitional arrangements. 58 Id. 59 Ameli

et al., supra note 53, at p. 11. et al., supra note 53, at pp. 20–22. 61 Calamita (2017, p. 589). 62 European Union (2019), Submission of the European Union and its Member States to UNCITRAL Working Group III—Establishing a Standing Mechanism for the Settlement of International 60 Ameli

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In the meantime, bilateral investment courts have also been experimented with in EU’s FTAs. Appellate systems are all included in these bilateral court regimes as well. The proposed TTIP, the EU-Vietnam FTA, and CETA include provisions for an Appeal Tribunal, of which the jurisdiction is limited to deciding claims submitted by covered investors within the boundaries of the investment chapters.63 It is noteworthy that these new bilateral attempts are also replete with similarities with the WTO’s Appellate Body. Some logistical issues, such as the remuneration scale and conditions of appointment (except for heightened ethical codes), are directly copied from the present WTO regime.64 As a matter of fact, other International Investment Agreements (hereinafter IIAs) are also keen on the recent development. While they have stopped short of adopting court systems with an appellate feature as the EU has done in its own FTAs, they nonetheless recognize the changing trend and stand ready to get on board once a template is finalized with a critical mass of consensus. For example, the Central America Free Trade Agreement (hereinafter CAFTA-DR-US) calls upon the parties to “strive to reach an agreement” that would allow an Appellate Body to review decisions rendered by tribunals, should a separate multilateral agreement enter into force between the parties that establishes an Appellate Body.65 Similar wordings are found in other IIAs as well. The advantages of using the WTO Appellate Body as the basis for reforming the ISDS include enhanced internal consistency of the applicable law, organized division of labor between the arbitrators and the members of the appellate system, administration of a permanent appellate mechanism, and ISDS proceedings with lowered financial and logistical burden for the disputing parties.66 In its recent proposal to the

Investment Disputes, 18 Jan 2019, Article 3.3, http://trade.ec.europa.eu/doclib/docs/2019/january/ tradoc_157631.pdf, provides that: 3.3. Appellate tribunal 1. An appellate tribunal would hear appeals from the tribunal of first instance. Grounds of appeal should be error of law (including serious procedural shortcomings) or manifest errors in the appreciation of the facts. It should not undertake a de novo review of the facts. 2. Mechanisms for ensuring that the possibility to appeal is not abused should be included. These may include, for example, requiring security for cost to be paid. 63 Calamita

(2017), supra note 61, at pp. 596, 599, 601. instance, the article 9.11 of the EU’s ICS proposal stipulates that the judges of the TFI shall be “available at all times and on short notice, and shall stay abreast of dispute settlement activities”. This largely resonates the article 17.3 of DSU of the WTO. See TTIP Proposal, supra note 57, Article 9.11. 65 Central America Free Trade Agreement [CAFTA-DR-US] (2004), Chapter 10: Investment Article 10.20, para. 10, Annex 10F-Appellate Body or Similar Mechanism, https://ustr.gov/tradeagreements/free-trade-agreements/cafta-dr-dominican-republic-central-america-fta/final-text. 66 Ameli et al., supra note 53, at pp. 47–52. 64 For

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UNCITRAL Working Group III, the EU underscores that a standing appeal mechanism will enhance coherence across different fields of law, just as the WTO Appellate Body has done.67 Before the operation of the WTO’s Appellate Body there had been few, if any, instances of meaningful discussion on the appellate mechanism of international tribunals. The introduction of an appellate mechanism by the WTO and its relative success have stimulated discussions on similar attempts in other international treaties and institutions.68 With all its achievements and limitations, the WTO’s appellate mechanism serves as a basis for appellate debates in international dispute settlement at large.69 Most importantly, the operation and administration of the WTO’s Appellate Body have enabled states to look into details and specifics of appellate proceedings in the context of international tribunals, so that they can further fine-tune the system to match expectations from states and international organizations. Recent discussions in international investment law offer a vivid example in this regard. Outside observers and experts in other fields are studying the WTO’s Appellate Body and the DSU, its operating legal framework, with both envy and a critical eye. Similar studies will emerge in other areas of international law and dispute settlement proceedings when states and international organizations engage in serious discussion of an appellate review mechanism of their own. Such being the case, it is critical to put the establishment, operation and administration of the Appellate Body in perspective, and initiate interaction with other stakeholders and interest groups outside the trade sector to inform them of the clear picture of the Appellate Body based on its 24-year existence. This is one of the ways for trade experts to contribute to the larger theme of enhancing the global rule of law. The current difficulties of the global multilateral trading regime should not blind people to this important task to be performed by the WTO’s Appellate Body and experts in trade law.

2.3.2

International Arbitral Proceedings

Traditionally, commercial arbitration has not been receptive to the idea of an appeal. Considering the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter New York Convention) and the 1985 UNCITRAL Model Law on International Commercial Arbitration, which aim to achieve international enforcement of an arbitration award, it may be said that judicial reassessment

67 “A

standing mechanism will also be better positioned to gradually develop a more coherent approach to the relationship between investment law and other domains, in particular domestic law and other fields of international law. For instance, the WTO Appellate Body has made a number of pronouncements on the relationship of WTO law with other fields of international law, which have been helpful in elaborating the interactions between different fields of law.” See European Union (2019), supra note 62, at para 46. 68 See Gal-Or (2008), supra note 17, at pp. 43–65. 69 See Katz (2016).

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is effectively excluded in international commercial arbitration.70 While most arbitral institutions do not include an internal appeal mechanism, there are, however, exceptions as well. The International Institute for Conflict Prevention and Resolution (hereinafter CPR), Judicial Arbitration and Mediation Services (hereinafter JAMS) and the European Court of Arbitration (hereinafter ECA) have appeal proceedings.71 So do the American Arbitration Association (hereinafter AAA)72 and the Federation of Oils, Seeds and Fats Association (hereinafter FOSFA).73 These appeal mechanisms in commercial arbitration include rules and regulations addressing such issues as the scope of an appellate review, conflict of interest for members of the appellate panel, and administration of deadlines.74 Lessons and experiences of the WTO’s DSU could be used to enlighten those administering these appellate proceedings.

2.4 The WTO’s Appellate Body as a Unique Example Sporadic examples of appellate review notwithstanding, before the operation of the WTO’s Appellate Body there had been few (if any) instances of a meaningful discussion of an appellate mechanism of international courts and tribunals. The introduction of an appellate mechanism by the WTO has contributed to the introduction of appellate mechanisms in other international treaties and institutions.75 Arguably, the WTO’s appellate mechanism has served as the only meaningful basis for appellate mechanisms in international dispute settlement proceedings at large.76 Furthermore, the operation and administration of the Appellate Body have enabled states to look into details and specifics of the appellate proceedings in the context of international courts and tribunals. In light of this, the next two sections examine the institutional and legal aspects associated with appellate mechanisms in international litigation. These two sections do not claim to cover all relevant sectors comprehensively. Instead, they only purport to address certain, selected aspects of an appellate system.

70 Zamir

et al. (2019, pp. 79–93).

71 Id. 72 American

Arbitration Association (2013). (2019). 74 See Guide to Arbitration Clauses, 9–11. AHLA. https://www.healthlawyers.org/Events/Programs/ Materials/Documents/LTC15/r_drucker_mcdonald_guide_to_arbitration.pdf. 75 See Gal-Or (2008), supra note 17, pp. 43–65; Bogdandy and Venzke, supra note 2, at pp. 186, 206. 76 See Katz (2016), Henckels (2008, p. 574). 73 FOSFA

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3 Institutional Aspect—Benefits of Having an Appellate Mechanism The contribution of the WTO’s Appellate Body and the appellate mechanism is diverse and many-fold. The most important thing, among others, seems to be that it is the first and still the only international adjudicatory proceeding where a full-blown appeal mechanism is in place, and where state parties are indeed eager to resort to the mechanism for recourse. While there are other international courts and tribunals with appellate mechanisms and quasi-appellate mechanisms, they simply pale in comparison with the WTO system, both in terms of quantity and quality. From the institutional perspective, what stands out, among other aspects, are the following three aspects: (i) enhancement of rule of law, (ii) trust in deeper judicialization, and (iii) confidence in a multilateral arrangement seems to be the most conspicuous.

3.1 Enhancement of Rule of Law The WTO’s dispute settlement mechanism is far from perfect. It has been subject to constant criticism. Its Appellate Body has also been exposed to critical assessments. Failures to appoint new members of the Appellate Body since the middle of 2016 have exposed structural weaknesses in the entire system. The crisis still continues as of this writing in June 2019. Concerns and frustrations notwithstanding, the Appellate Body’s contributions so far should not be disregarded or underestimated. A WTO dispute is first examined by a three-member ad hoc panel.77 An appeal from a panel decision goes to the standing Appellate Body.78 It is composed of seven members serving on a quasi-full-time basis. A three-member division of the Appellate Body hears a particular appeal. The Appellate Body has played an important role in pronouncing jurisprudence in the case of conflicting decisions and the inconsistent approaches of panels. Through appellate proceedings, Members of the WTO have been able to understand what the jurisprudence in a specific area is and adjust their governmental measures in the right direction. Over the years, this process has established and spread rule of law in the global trading regime. It is true that the principle of rule of law has been tainted by the recent surge of global protectionism, and from the structural and institutional point of view, the contribution of the Appellate Body should not be overlooked. Its contribution provides a critical piece of evidence showing why an appellate proceeding would complete an international dispute settlement proceeding. It has been stated that “security and predictability” are the cornerstones of any dispute 77 See Understanding on Rules and Procedures Governing the Settlement of Disputes [DSU] arts. 6, 8, 15 Apr 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869, U.N.T.S. 401. 78 See id. Article 17; Bogdandy and Venzke, supra note 2, p. 164.

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settlement proceeding under international law.79 At the WTO, the Appellate Body has performed this very task of providing “security and predictability” for the entire membership.80 Peteros Mavroidis also explains it as follows: “the [Appellate Body] is there not only to solve a particular dispute but also to make the adjudication of similar future transactions (more predictable)”.81 One member of the Appellate Body stated in a dispute that “[when] [t]he Appellate Body has decided… there comes a time when it is more important for the system of dispute resolution to have a definitive outcome…”.82 The statement emphasizes the importance of having one legal voice at the end of the day. It would be impossible to achieve this in the absence of a robust appeal mechanism. This experience at the WTO dispute settlement proceedings may shed helpful light on the discussion of appellate proceedings in other international dispute settlement proceedings. Overall, the existence of the Appellate Body in the WTO regime contributes to a consistent and coherent interpretation of the relevant international law, which in turn leads to increased stability and predictability in the sphere of its influence. An appellate mechanism will be able to facilitate and foster the ‘rule of law’ in international adjudicative proceedings by accumulating and spreading consistent jurisprudence in the international community. In fact, a persuasive argument can be made that robust rule of law even requires putting in place an appellate procedure, through which consistent and coherent legal principles and interpretations can be pronounced.83

79 See Lauterpacht (1931,

p. 53); Prosecutor v. Aleksovski, No. IT-95-14/1-A, Judgement, para 113 ICTY, 24 Mar 2000. 80 With respect to the importance of security and stability in the WTO dispute settlement proceeding, the Appellate Body has states in a recent dispute: We consider the meaning of “[t]he function of panels” in the first sentence of Article 11 is informed by the general provisions contained in Article 3 of the DSU, which sets out the basic principles of the WTO dispute settlement system. Article 3.2 provides that “[t]he dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system”; it serves “to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.” See Appellate Body Report, United States—Final Anti-dumping Measures on Stainless Steel from Mexico, para 157, WT/DS344/AB/R (30 Apr 2008) (emphasis in original). 81 Mavroidis (2009, p. 81, n. 82). Cited by Murphy (2013, pp. 198–199). 82 Appellate Body Report, United States—Continued Existence and Application of Zeroing Methodology, paras 305–312, WT/DS350/AB/R (4 Feb 2009). 83 Refer to Nilsson and Englesson (2013, p. 561), Schill (2017, p. 4).

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3.2 Trust for Judicialization and Institutionalization In addition, the Appellate Body of the WTO has prompted states to find and build trust in deeper and further judicialization and institutionalization of dispute settlement proceedings. The Appellate Body has visualized how an appellate system can actually operate in international litigation. Its relative success over the past 24 years has imbued the states with trust in setting up a legal system where a tighter and more integrated judicial system is established. Again, the recent controversy over the Appellate Body is frustrating and worrisome. But the achievements of the past 24 years should be put into a proper perspective. What has transpired in the Appellate Body since 1995 has arguably sowed trust in a system with deeper judicialization. If anything, the recent development triggered by protectionist trends may turn out to be a useful medicine for helping develop a more practical and workable international dispute settlement proceedings. It is expected that states will try to repeat similar judicial experiments in other dispute settlement proceedings. The recent discussion in the ISDS reform forums is representative of this healthy trend. It is believed that legal proceedings can become more ‘judicialized’ and ‘institutionalized’ through relevant treaties and conventions, so as to better address various legal problems in the international community, by finding a balance between treaty obligations on the one hand and national regulatory authority and sovereignty on the other hand. Likewise, various issues arising from the operation of an appellate mechanism— such as composition, appointment, cost-sharing, regional representation, compensation, conflict of interest, and commitment to full-time engagement—have been tried and experimented by the WTO’s Appellate Body. Formulation of appellate proceedings for other international courts and tribunals may start from this point onward. States have now accumulated relevant experience in designing and operating appellate proceedings in a practical sense. It is not surprising that states are looking to the Appellate Body as the starting point of the appellate mechanism of ISDS proceedings.

3.3 Confidence in a Multilateral Arrangement Another important contribution of the Appellate Body is the confidence in a ‘multilateral’ legal system. Legal systems can be created and operated either bilaterally, plurilaterally or multilaterally. A bilateral court can still uphold rule of law. A regional or plurilateral court can still operate as a guardian of rule of law within its own jurisdiction. That said, a multilateral legal system can ensure rule of law on a global basis with regard to a particular issue or a set of issues which require global harmonization and transnational regulation. Many challenging issues in the global community at the moment arguably fall under such a category. These issues would thus arguably demand a multilateral regime to handle them. The WTO’s Appellate

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Body has helped states and international community realize the importance and feasibility of a multilateral regime in various areas. In particular, a dispute settlement proceeding operating on a multilateral basis has been offered and tested, relatively successfully by the WTO. A multilateral regime being scrutinized and harmonized by an appellate legal entity has been tried and proven by the Appellate Body. This confidence would be a critical asset for similar attempts in other fields. Again, recent developments in international investment arbitration provide an important example in this regard. In short, over time a consensus is emerging that favors an appellate mechanism under a multilateral regime. The core reason for this development can be found from the WTO’s Appellate Body that is anchored in a multilateral regime—the WTO Agreements. Stated differently, the Appellate Body has been understood to represent the importance, feasibility and effectiveness of multilateralism.

4 Legal Aspect—Testing Grounds for Legal Issues Associated with Appeal At the same time, the WTO’s Appellate Body provides a viable testing ground for various legal issues relating to the operation and administration of an appeal in international litigation. Key issues to be examined in this context include: (i) scope of appeals; (ii) standard of review; and (iii) remand authority of the appeals tribunal. These issues, together with others, have been heavily examined in the WTO context. Evolution of the WTO’s appellate jurisprudence sets forth critical legal guidelines for other international court and tribunals.

4.1 Scope of Appeals—Legal Issues Only Versus Both Legal and Factual Issues In any appellate proceeding, defining the scope of an appeal is an important issue that requires careful contemplation. Introducing an appellate review mechanism requires a determination on whether the review covers both factual and legal issues, or legal issues only.84 WTO’s DSU stipulates that only “issues of law” can be examined by an appellate review.85 But at the same time, recent experiences from WTO litigations demonstrate difficulties in segregating legal from factual issues in actual disputes. It is 84 See

DSU, supra note 79, art 17.6; Cameron and Campbell, supra note 44, at pp. 109–110. id. Article 17.13; Palmeter and Mavroidis (2004, p. 24); World Trade Organization, Special Session of the Dispute Settlement Body—Report by the Chairman, Ambassador Ronald Saborío Soto, to the Trade Negotiations Committee, Appendix B, at A-34, TN/DS/25 (21 Apr 2011) (hereinafter Report by the Chairman, Ambassador Ronald Saborío Soto); Cameron and Campbell, supra note 44, at p. 37.

85 See

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also sometimes unclear how to determine the dividing line between legal and factual issues. Factual issues sometimes translate into legal ones. Jurisprudence involving Article 11 of the DSU exemplifies the complexity and difficulty of this very question. Sometimes, legal and factual issues are intertwined such that clinical separation may not be feasible. WTO’s Appellate Body has encountered these problems on a regular basis. Notably, these experiences at the WTO provide useful discussion materials in the course of discussing appellate mechanisms in other international courts and tribunals. It may be easy to stipulate that an appellate court exercises jurisdiction over legal issues; it is, however, quite difficult to provide reliable legal parameters to the appellate court as to how to filter legal issues from factual ones or separate legal from factual issues. How to define the scope of an appellate review is a critical question for an appellate court, and it is the WTO’s Appellate Body that states and international organizations can turn to for a precedent. Likewise, other international courts will be able to derive insights from the WTO’s experience in their future discussions of appellate systems.

4.2 Standard of Appellate Review Contemplation of the scope of an appellate review also raises a question of whether the appellate court or tribunal can conduct a de novo review, i.e. examining the issues as if they were before them for the first time.86 If such a review is not permitted, the court or tribunal is then subject to a designated standard of review: for instance, its examination would be limited to determining whether a reasonable first-instance tribunal examining evidence on the record could have reached such a decision being reviewed.87 In other words, in the scenario of the latter category, an appellate court or tribunal should uphold the first-instance tribunal’s decision even if it would have reached a different conclusion as a trier of fact. Sometimes, therefore, the choice of a particular standard of review may change the outcome of the entire appellate review: the legal prism through which an appellate court or tribunal views a particular case may become entirely different depending on which concept of review is adopted. This issue has also been addressed by the WTO’s Appellate Body extensively. It is most probably the case that other dispute settlement proceedings have not had instances that require deep examinations of this issue.

86 See

DSU, supra note 79, Article 17.13; Mcrae (2010, p. 377); Palmeter (1998, p. 43).

87 For a similar discussion at the WTO, see e.g., Appellate Body Report, Canada—Measures Affect-

ing the Importation of Milk and the Exportation of Dairy Products, Recourse to Article 21.5 of the DSU by New Zealand and the United States, paras 126, 127, WT/DS103,113/AB/RW (18 Dec 2001) (hereinafter Canada—Diary DSU 21.5); Appellate Body Reports, Canada/United States— Continued Suspension of Obligations in the EC—Hormones Dispute, paras 736(c)(vi), (d)(vi), WT/DS320/AB/R, WT/DS321/AB/R (14 Nov 2008) (hereinafter Canada/United States Suspension in EC—Hormones).

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Such being the case, the Appellate Body’s experience will help other international courts and tribunals to look into this very issue and determine which scope of review to choose. WTO’s experience has also taught states that the scope of appellate review in international litigation between states may (or should) not be the same as the one applied in domestic judicial system. How much should remain the same and how much should be different can be answered, to some extent, by the WTO’s extensive experience on this issue. Future discussion of appellate court formulation in other settings should not lose sight of the struggles and achievements of the WTO’s Appellate Body in handling this legal challenge.

4.3 Remand Issue Another critical question to be addressed by states and the global community in contemplating an appellate proceeding in international litigation concerns the introduction or non-introduction of the ‘remand’ authority.88 This means what an appellate tribunal should do when the underlying tribunal has failed to apply a proper legal standard. One option is for the appellate tribunal to complete the analysis de novo and the other option is to send (i.e., remand) the case back to the original tribunal. In the former situation, the problem is when factual information on the record is lacking or insufficient. A decision on the introduction or non-introduction of a remand would therefore significantly alter the dynamics and structure of any future appellate proceeding of an international court or tribunal. If anything, most of the appellate courts in the domestic judicial systems are accorded remand authority, though with varying degrees. The appellate courts and tribunals therefore exercise this authority to complete necessary analyses and resolve specific disputes at hand. However, this mechanism has not been deeply contemplated in international litigation. In the alternative, this type of system may not have been favorably viewed in international courts. One of the reasons may be that remand proceedings could prolong the process and highlight the authority of the adjudicative body—a situation sovereign states may not necessarily favor. But at the same time, sometimes remand becomes essential when an appellate court does not possess factual information or other wherewithal to complete the review and resolve a dispute by itself. The two options for the appellate court at the particular juncture would be to either terminate the proceeding without ultimate solution or remand the case back to the original court or tribunal.

88 The remand issue has been identified as one of the “most urgent issues” since the early stages of the DSU Amendment negotiations. See World Trade Organization, Minutes of Meeting of the Special Session of the Dispute Settlement Body on 15 July 2002, para 49, TN/DS/M/3 (9 Sept 2002) (Statement of the Representative of Brazil on behalf of MERCOSUR); Gantz, supra note 53, at p. 19; Cameron and Campbell, supra note 44, at pp. 107–109; McDougall (2018, p. 890).

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The WTO’s Appellate Body has dealt with this issue since the early days of its inception. Over time, it has produced sufficient food for thought for future improvement of the WTO’s appellate proceedings and by extension those of other international courts and tribunals as well. At present, the WTO’s Appellate Body does not possess the authority of remand, for better or worse.89 All that the WTO’s Appellate Body is authorized to do under the current DSU is to “uphold, modify or reverse” the underlying panel decision.90 At the same time, the DSU also stipulates that the Appellate Body cannot engage in its own fact-finding mission.91 Fact-gathering and analyses are entirely reserved to the authority of a panel, and the Appellate Body can only review possible legal errors.92 Under these circumstances, should the Appellate Body not agree with the panel’s decision, all it can do is to modify or reverse the decision.93 The problem then arises when the Appellate Body decides to reverse the jurisprudence or methodology adopted by the panel, but somehow the necessary factual information is not on the record.94 Under the current rubric of the DSU, in this kind of situation, the Appellate Body is simply forced to reverse the panel’s conclusion without completing the necessary analyses to resolve the dispute at hand.95 This unique inability of the Appellate Body to offer finality to a dispute after lengthy and costly proceedings has been realized by the Members of the WTO.96 The WTO members have not found definitive answers to this question yet. Debates among members are still going on with regard to pros and cons of introducing such a new layer to the entire legal proceedings. These debates at the WTO, in any event, have enlightened states and governments as to what they should look for in the formulation, administration and operation of an appeal in international courts and tribunals. In the course of considering a similar appellate mechanism in other international courts and tribunals, states need to be aware of the experiences of the WTO’s Appellate Body. The struggles and efforts at the WTO’s appellate mechanism stands to provide a meaningful benchmark in this regard for other types of appellate proceedings in other settings. 89 See DSU, supra note 77, Article 17.13; Palmeter and Mavroidis, supra note 55, p. 227; Report by the Chairman, Ambassador Ronald Saborío Soto, supra note 87; Mitchell (2005, p. 195), Pauwelyn (2007), Huber and Tereposky supra note 2, at p. 560. 90 See DSU, supra note 77, Article 17.13; Palmeter, supra note 56, at p. 51; Mitchell, supra note 91, at p. 197. 91 See DSU, supra note 77, Article 17.6; Mitchell, supra note 91, at pp. 195–196. 92 See id., World Trade Organization, Minutes of Meeting of the Special Session of the Dispute Settlement Body on October 22, 2004, para 10, TN/DS/M/20 (26 May 2004) (Statement of the Representative of New Zealand); Mitchell, supra note 91, at p. 195. 93 See DSU, supra note 79, Article 17.13; Mitchell, supra note 91, at p. 197; Lockhart and Voon (2005, pp. 482–483). 94 See World Trade Organization, Minutes of Meeting of the Special Session of the Dispute Settlement Body on January 28, 2003, at 5, para 6, TN/DS/M/8 (30 June 2003) (Statement of the Representative of Jordan); Mitchell, supra note 91, at p. 200. 95 See, e.g., Canada—Diary DSU 21.5, supra note 89; Canada/United States Suspension in EC— Hormones, supra note 89; Reich (2017, pp. 26–27). 96 See id, Mitchell, supra note 91, at pp. 202–203.

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5 Concluding Thought—Importance of Maintaining and Expanding the Appellate Body’s Contribution The WTO’s Appellate Body is the first and the only full-blown appellate mechanism in the global community with a broad, active and robust operation. In the past 24 years of operation it has accumulated important experience in various areas of appellate review. The Appellate Body has also encountered a variety of practical and legal issues associated with appeal. It has clarified critical jurisprudence and come up with practical solutions, as the case may be. At the same time, members of the WTO have been examining the Appellate Body proceedings in order to further improve the system and fill the loopholes. These ongoing efforts of the WTO’s appellate mechanism explore various legal and practical issues associated with the appellate proceedings of the WTO. These continuing efforts, together with already accumulated experience and jurisprudence, provide useful guidance for the formulation, administration and operation of appellate proceedings in other international adjudicatory proceedings. More recent examples include the discussions in international investment law and arbitration, where many states look to the WTO’s Appellate Body as their future model. The contribution of the WTO’s Appellate Body and its appellate proceeding jurisprudence is indeed noteworthy, and the Appellate Body’s impact is being felt in other international courts, tribunals, areas and sectors. Indeed, the WTO’s dispute settlement proceeding is far from perfect. Nonetheless, its trial and error, success and failure, and achievements and frustrations present the international community with a reliable springboard for the discussion of a better and more workable dispute settlement proceedings in the international community. Perhaps one of the most important contributions of the WTO regime is the successful introduction and operation of the appellate mechanism, so much so that it has imbued the international community with confidence in deeper judicialization and enhanced rule of law in international adjudicatory proceedings. WTO members’ efforts to improve the Appellate Body proceedings and to revive multilateralism within which this very appellate proceeding operates is critical for not only the global trade regime but also international law generally.

References Ameli K et al (2016) Task force paper regarding the proposed International Court System (ICS). European Federation for Investment Law and Arbitration American Arbitration Association (2013) Optional appellate arbitration rules. https://www.adr.org/ sites/default/files/AAA-ICDR_Optional_Appellate_Arbitration_Rules.pdf Baetens F (2017) Judicial review of international adjudicatory decisions: a cross-regime comparison of annulment and appellate mechanisms. J Int Dis Settl 8:432–433 Bogdandy VA, Venxke I (2014) In whose name?: a public law theory of international adjudication. Oxford University Press

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Brown C (2017) Supervision, control, and appellate jurisdiction: the experience of the international court. ICSID Rev 32:595–610 Calamita NJ (2017) The (in) compatibility of appellate mechanisms with existing instruments of the investment treaty regime. J World Inv and Trade 18:585–627 Cameron M, Campbell K (1998) Dispute resolution in the world trade organisation, Cameron May Cassese A (2009) The Oxford companion to international criminal justice. Oxford University Press Crawford J (2012) Brownlie’s principles of public international law. Oxford University Press Fontanelli F et al (2016) Lights and shadows of the WTO-inspired international court system of investor-state dispute settlement. Eur Inv Law and Arb Rev Online 11:191–263 FOSFA (2019) Appeal panel. https://www.fosfa.org/arbitration/appeal-panel/ Gal-Or N (2008) The concept of appeal in international dispute settlement. Eur J Int Law 19:43–65 Gantz DA (2006) An Appellate mechanism for review of arbitral decisions in investor-state disputes: prospects and challenges. Vanderbilt J Transnatl Law 39:39–76 Henckels C (2008) Overcoming jurisdictional isolationism at the WTO-FTA nexus: a potential approach for the WTO. Eur J Intl Law 19:571–599 Hernández IH (2013) The international court of justice and the judicial function. Oxford University Press Huber M, Tereposky G (2017) The WTO Appellate Body: viability as a model for an investor-state dispute settlement Appellate mechanism. ICSID Rev 32:545–594 Kalb J (2005) Creating an ICSID Appellate Body. UCLA J Int and Foreign Aff 10:179 Katz RL (2016) Modeling an international investment court after the World Trade Organization Dispute Settlement Body. Harv Negot Law Rev 22 Lauterpacht H (1931) The so-called Anglo-American and continental schools of thought in international law. Br YB Int Law 12:53 Lee J (2014) Introduction of an Appellate review mechanism for international investment disputes. Transnatl Disp Manag 11:12 Legum B (2005) International litigation strategies and practice. American Bar Association Lockhart J, Vook Y (2005) Reviewing Appellate review in the WTO Dispute settlement system. Melb J Int Law 6:474–484 Mavroidis PC (2009) Licence to adjudicate: a critical evaluation of the work of the WTO Appellate Body so far. In: Hartigan JC et al (eds) Trade disputes and the dispute settlement understanding of the WTO: an interdisciplinary assessment. Emerald Group Publishing, pp 73–90 McDougall R (2018) The crisis in WTO dispute settlement: fixing birth defects to restore balance. J World Trade 52:867–896 Mcrae D (2010) The WTO Appellate Body: model for an ICSID appeals facility? J Int Disp Settlement 1:377 Mitchell DA (2005) Challenges and prospects for the WTO, Cameron May Murphy SD (2013) International judicial bodies for resolving disputes between states. In: Romano CPR et al (eds) The Oxford handbook of international adjudication. Oxford University Press Nilsson A, Englesson O (2013) Inconsistent awards in investment treaty arbitration: is an appeals court needed? J Int Arb 30:561–579 Palmeter D (1998) The WTO Appellate Body needs remand authority. J World Trade 32:51 Palmeter D, Mavroidis PC (2004) Dispute settlement in the World Trade Organization. Cambridge University Press Pauwelyn J (2007) Appeal without remand: a design flaw in WTO dispute settlement and how to fix it. International Centre for Trade and Sustainable Development Research Pescatore P (1994) Two tribunals and one court: some current problems of international staff administration in the jurisdiction of the ILO and UN administrative tribunals and the ICJ. In: Bokker N, Muller S (eds) Essays in honour of H. G. Schermers. Martinus Nilhoff, Dordrecht Petersmann EU (1998) How to promote the international rule of law-contributions by the World Trade Organization Appellate review system. J Int Econ Law 1:25–48 Reich A (2017) The effectiveness of the WTO dispute settlement system: a statistical analysis. European University Institute Working Paper

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Jaemin Lee is professor of law at School of Law, Seoul National University in Seoul, Korea. His major areas of teaching and research are public international law, international investment law and international trade law. He has published articles and book chapters on various topics of public international law, international investment law and international trade law. Upon graduation from the College of Law, Seoul National University in 1992, he joined the Korean Ministry of Foreign Affairs as a foreign service officer. His post in the ministry included deputy directorship of the Treaties Division and the North American Trade Division. Between 2000 and 2004, he also practiced law with Willkie Farr & Gallagher LLP (Washington, D.C. office) as an associate attorney of the firm’s international trade group. During the period of 2004 to 2013 he taught international law at School of Law, Hanyang University in Seoul, Korea. He regularly advises the Korean government on various legal matters. Since 2012, he has participated in UNCITRAL Working Groups II and III as a delegate of the Republic of Korea.

Chapter 18

WTO AB as a Model for Other Adjudicatory Bodies—The Case of EU’s Investment Court System Joanna Lam

Abstract The World Trade Organization’s Appellate Body (AB) has over the years served as an important point of reference in the ongoing debate over possibilities of reform of the existing regime of Investor-State Dispute Settlement (ISDS). ISDS, based on arbitration, has been criticized, inter alia, for lack of transparency, insufficient safeguards of adjudicatory independence and too weak representation of public interest. Replacement of arbitration with a judicial institution has been long considered by the critics among possible remedies to the deficiencies of the ISDS regime, and the resulting reform proposals have often adopted the AB as an inspiration. This chapter reviews historical and recent projects of the ISDS reform in order to identify sources of such inspirations. It focuses on the European Union’s Investment Court System (hereinafter ICS), which has so far been the politically most successful initiative of judicialization of investor-state dispute resolution. The institutional design and status of adjudicators in ICS is analyzed in comparison to the AB. The chapter then discusses the issue of procedural safeguards of transparency in both institutions, as well as the status and enforceability of rulings. This comparison reveals a number of similarities and differences between both regimes. Keywords Appellate Body · Investment Court System · Investor-state arbitration · European Union · Free trade agreements · ISDS reform

1 Introduction The World Trade Organization’s Appellate Body (hereinafter WTO AB) has over the years served as a point of reference in different academic and policy debates about efficient institutional design for international dispute resolution. An area, in which such explicit references have been particularly strongly present, has been J. Lam (B) Faculty of Law, Centre of Excellence for International Courts (iCourts), University of Copenhagen, Copenhagen, Denmark e-mail: [email protected] Kozminski University, Warsaw, Poland © Springer Nature Singapore Pte Ltd. 2020 C. Lo et al. (eds.), The Appellate Body of the WTO and Its Reform, https://doi.org/10.1007/978-981-15-0255-2_18

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investor-state dispute resolution. Over the years a creation of a permanent adjudicatory mechanism for investment disputes has been postulated, and such proposals have often been explicitly inspired by the WTO AB. The discussed projects have been formulated in a broader context of a push for a reform of the existing investor-state dispute settlement (hereinafter ISDS) system. The ISDS system, based on arbitration as a method of dispute resolution, has been subject to doctrinal critiques, focused on such issues as lack of transparency, insufficient social legitimacy, deficiencies of adjudicatory independence and inconsistent case law. Creation of a permanent Appellate Body for review of arbitral awards in investment cases, or replacement of arbitration with a judicial (or quasi-judicial) institution have been considered as possible remedies to the weaknesses of the existing regime. The reform proposals of the second type have often adopted the WTO AB as a pattern. In the following doctrinal discussions, advantages of adopting such a solution have been advocated. However, many authors have also indicated that even with similar institutional designs, essential differences between the WTO law and investment treaty law regimes would inevitably lead to divergent outcomes in terms of functioning of such institutions and character of accumulated case law. Whereas first projects of creation of a permanent investment court have been formulated as early as in the 1940s, over decades they have remained in the sphere of doctrinal and policy discussions, without gaining significant political support. This has changed in recent years, along with intensive promotion by the European Commission of a two-tier, standing adjudicatory mechanism, dubbed as the Investment Court System (hereinafter ICS), in several concluded and negotiated EU free trade agreements (hereinafter FTAs). It has also explicitly been stated that the EU aims at establishment of a multilateral investment court (hereinafter MIC), either through consolidation of the ICS mechanisms embedded in different agreements into a single institution, or by the means of a separate convention. The progress of this initiative has resulted in a renewed interest in seeking parallels between the ICS and the WTO AB. Another important international forum, which has undertaken explorations as to the possibilities of a reform of the existing ISDS regime is the United Nations Commission on International Trade Law (hereinafter UNCITRAL). In 2017 Working Group III of this institution has officially received broad mandate for conducting study on this issue. Establishment of a permanent, multilateral adjudicatory body is among the examined options. These political developments (in particular, the ICS model, which has already materialized in several FTAs and FTA proposals) call for careful analysis. In the light of important public goals, which the new institutions shall fulfill, it is particularly interesting to explore, to what extent the planned investment court-type body resembles the WTO AB and draws inspiration from its functioning. In this analysis, historical proposals of the reform of investor-state dispute resolution standards are reviewed in order to identify sources of such inspiration. The chapter then turns to the discussion of institutional design of ICS in comparison with the WTO AB. This part of the analysis is followed by an examination of status of adjudicators in both bodies, which has been an object of an intense debate in the

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context of ICS. The issue of procedural safeguards of transparency—yet another area of ISDS in which the need for reform has been indicated—are then discussed. The chapter also examines the status and enforceability of rulings under both regimes. Finally, concluding remarks are offered.

2 Historical Proposals The first initiatives, oriented at establishment of a multilateral, permanent adjudicatory body for investor-state disputes were undertaken as early as in 1940s and 1950s (including the 1948 proposal and statute for the Arbitral Tribunal for Foreign Investment and of the Foreign Investment Court, prepared under the aegis of the International Law Association1 ). Political circumstances were unfavorable though, with host states affected by decolonization processes and taking an adverse stance against creation of a uniform, multilateral regime. As a result, protection for investments in the following decades has been sought by capital-exporting states by the means of bilateral investment treaties (hereinafter BITs), with arbitration as the default mechanism of dispute resolution.2 Quick proliferation of the BITs augmented the characteristics of arbitration-based ISDS as a fragmented, decentralized regime, where dispute settlement is performed by ad hoc tribunals. ISDS, praised by many commentators for its pragmatic design,3 has also been subject to criticism. The latter has focused on opaque character of the system and legitimacy deficits, as well as on the problems with forum shopping and parallel proceedings.4 Other issues, indicated to by some authors, have been the inconsistencies of case law, perceived as disadvantageous in particular in the absence of a controlling appeal mechanism, as leading to uncertainty of the law.5 Other commentators suggested that the pro-investor bias does not allow for adequate representation of public interest in investor-state arbitration, although this view did not find support in available data.6 These concerns raised in legal doctrine have over the years led various authors to formulating programs of reform. Such programs have taken a form of proposals of introducing an Appellate Body with powers to review arbitral awards. Alternatively, establishment of permanent, on–or two-instance judicial institution has been postulated to replace—and not merely supplement—investment arbitration. The authors, 1 International

Law Association, Draft Statutes of the Arbitral Tribunal for Foreign Investment and of the Foreign Investment Court (1948), reprinted in: UNCTAD, “International Investment Instruments: A Compendium”, Vol. XI, Annex C Non-Governmental Instruments. United Nations, New York and Geneva (2003), pp. 259–272. 2 Miles (2013, p. 85). 3 Cf. Ketcheson (2016, p. 110). 4 Cf. Tereposky and Nielsen (2016, p. 123 ff). 5 Cf. Harten (2007, pp. 164–165) and Schill (2017, pp. 5–6). 6 Cf. id at pp. 172–173; Cf. Park (2009, pp. 658–661) and Schreuer (2013, p. 314).

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advocating for the second solution (and radical change of the model of investor-state dispute resolution), have been skeptical about the possibility of incremental improvement of the existing regime. In their opinion, various procedural and institutional solutions created originally for commercial arbitration, do not satisfy the standards of transparency and public accountability, which should be expected in dispute resolution, where public interest is involved. In particular, the ad hoc appointments of arbitrators, contractual foundations of arbitration, and its confidential character have been presented as inconsistent with the demands of adjudicatory independence and public scrutiny.7 The suggested solution, addressing these concerns, would be thus a permanent investment court, with tenured adjudicators.8 It could function either as a fully separate body, or as proposed by Asif H. Qureshi, as a chamber of an already existing institution (in Qureshi’s project the International Court of Justice).9 Commentators formulating such proposals have usually treated the WTO AB as a key point of reference, and a leading example of a successful institutional project. It has been observed that postulates of creating a universal adjudicatory body for investment cases, patterned after the WTO AB, were forwarded particularly intensively in mid-2000s, and later largely abandoned, due to lack of political interest and backing.10 These proposals were also met with critical responses in legal doctrine. As Mark Wu observes, it has been noted that intrinsic differences between the trade and investment regimes do not allow for drawing direct analogies in terms of legal and institutional challenges, as well as anticipated effects of multilateralization and concentration of dispute resolution in both areas.11 In particular, highly dispersed character of the regulatory framework of investment treaty law does poses adjudicatory challenges divergent from those related to decision-making based on the consolidated set of the WTO agreements.12 As one of the main goals of the multilateral investment court would be development of coherent jurisprudence (and the resulting increase of legal certainty), fragmented character of different treaties serving as legal bases for various decisions would make this task highly demanding in comparison with the WTO AB practice.13 Analogies and divergences between both systems of dispute resolution are not limited to the sphere of institutional design. Political consequences of creation of a permanent, multilateral adjudicatory body for investment disputes, estimated in connection with the WTO AB experience, have been commented upon by Marc Feldman, who observes that:

7 Cf.

Harten (2007, p. 10 ff). at pp. 180–181. 9 Cf. Qureshi (2008, p. 1165 ff). 10 Cf. Wu (2014, p. 183). 11 Legum (2006, p. 121 ff) and Schneider (2006, p. 103 ff). 12 Id. 13 Cf. McRae (2010, p. 371); Wu, supra note 10 at pp. 184–185; Legum (2015, p. 437). 8 Id.,

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[A] shift from an ad hoc to a more institutionalized international investment dispute settlement regime would significantly impact the balance of power between States and adjudicators. In general terms, standing, permanent tribunals are associated with greater levels of independence than ad hoc tribunals. The experience of the WTO Appellate Body illustrates how standing, permanent tribunals can develop as institutions through bold acts of independence. Greater levels of tribunal independence give rise to a greater need for control mechanisms to address the risk of tribunals exceeding their mandate.14

Feldman also notices, that already the existing ISDS regime provides high levels of adjudicatory independence from the States’ influence. Replacement of ad hoc tribunals with a standing body would further deepen this tendency. All these considerations and doctrinal debates have been reignited by the recent promotion of the ICS model, in which inspirations by the WTO DSM design can be traced.

3 Institutional Design and Adjudicatory Powers The suggested inspirations with the WTO system in the ICS project are notable, as the WTO AB itself stands out among other permanent, international adjudicatory bodies. The institution has been characterized by some commentators either as a court15 (or a court “in all but name”).16 As Joseph Weiler remarks, the WTO regime has been purposefully conceptualized as divergent from the existing sensu stricto international courts.17 However, such aspects of functioning of the AB, as the de facto precedent system,18 as well as appointments of adjudicators based on tenure, are often interpreted as signs of judicialization of multilateral trade dispute settlement. The ICS is the first proposal of establishment of a permanent adjudicatory body for investment disputes, which has found significant political support, and which might lead to a creation of a multilateral institution. It has been described as leading to ‘remarkable acceleration’ in the efforts for changing the current ISDS regime.19 Provisions introducing the ICS mechanism have already been included in the EU FTAs with Vietnam (hereinafter EVFTA)20 and with Canada (hereinafter CETA).21 They have also been officially proposed by the EU in the—currently stalled–negotiations 14 Feldman

(2017, p. 528). generally, e.g., Ehlermann (2002). 16 Picciotto (2005, p. 481). 17 Weiler (2002, p. 191 ff). 18 See generally Pauwelyn (2016). 19 Kaufmann-Kohler and Potestà (2016). 20 The negotiations on this agreement were successfully concluded and the text of the treaty published in February 2016. The proposal shall now be subject to legal review, translations and formal presentation by the European Commission to the Council of Ministers for approval and to the European Parliament for ratification. Cf. Eur Comm, Countries and Regions, European Commission. http://ec.europa.eu/trade/policy/countries-and-regions/countries/vietnam/. Accessred 6 Mar 2019. 21 The Canada-EU Comprehensive Economic and Trade Agreement (CETA) provisionally entered into force on 21 September, 2017. The provisions on ICS have not been subject to the provisional 15 See

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of the Transatlantic Trade and Investment Partnership (hereinafter TTIP) agreement with the United States. The European Commission has declared the intent to forward this model in ongoing and planned treaty negotiations with a number of other partners.22 Furthermore, in September 2017 President of the European Commission Jean-Claude Juncker in the annual “State of the Union” address and brochure confirmed the plan of creating a single, multilateral adjudicatory body (and not merely a set of separate mechanisms, embedded in different agreements).23 Finally, on March 20, 2018, the European Council authorized the Commission to negotiating on behalf of the EU a convention establishing a multilateral investment court (MIC), which should replace the investment court systems, established in specific treaties.24 Further analysis of institutional and procedural solutions, adopted in the ICS model, will be based on the provisions of EVFTA and CETA, with the TTIP proposal as an auxiliary source. The discussed instruments promote a two-tier mechanism, which consist of a First Instance Tribunal and an Appeal Tribunal.25 Only the TTIP proposal addresses the tribunals as courts; it also names the members of the First Instance Tribunal “judges”. Appointments of the members of the First Instance Tribunal shall be made by a joint committee. The Tribunal shall consist in one third of nationals of a Member State of the EU, in one third of nationals of Canada, Vietnam, or the United States respectively, and in one third of nationals of third countries. Cases will be heard by the divisions of the Tribunal, consisting of three members, where the third country national shall serve as a chair. A specific division shall be composed by the President of the First Instance Tribunal upon submission of a claim, on a rotation basis. Such a system aims to ensure that “the composition (…) is random and unpredictable, while giving equal opportunity to all Members to serve”.26 One of the main areas of change in the ICS model in comparison with the ISDS is the status of adjudicators. In the new EU agreements and in the TTIP proposal it resembles the position of judges rather than arbitrators due to introduction of tenure (replacing ad hoc appointments). Temporary, case-oriented and parties-driven compositions of arbitral tribunals in ISDS have been one of the main areas of its criticism by commentators, who have associated it with lack of sufficient safeguards of adjudicatory independence. In ICS provisions the Tribunals shall consist of members appointed for fixed terms, which can be renewed once. The lengths of the terms have been stipulated differently in the discussed instruments: as 4 years under the EVFTA, 5 years under CETA, and 6 years under the TTIP proposal. It should also be noted entry into force. Cf. Eur Comm, Negotiations and Agreements, Eur Comm. http://ec.europa.eu/ trade/policy/in-focus/ceta/. Accessed 6 Mar 2019. 22 European Commission (2016a). 23 Juncker (2017). 24 European Council (2018). 25 Comprehensive Economic and Trade Agreement, Can.-EU, ch. 8s. F, Oct. 30, 2016 [hereinafter CETA]; EU-Vietnam Free Trade Agreement, EU-Viet., ch. 8.2s. 3, opened for signature Oct. 17, 2018 [hereinafter EVFTA]; Transatlantic Trade and Investment Partnership, U.S.-EU, proposal ch. 2 [hereinafter TTIP]. 26 EVFTA art. 12(7); cf. CETA art. 8.27.7.

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that, as explained below, concerns about the potential one-sided orientation of the ICS have also been raised, as only the States (and not investors) shall have influence over the selection of adjudicators. Whereas shifting away the power to appoint adjudicators from investors has clearly been a goal of the drafters of the discussed agreements, the prospective process of appointment seems, as Hannes Lenk observes, highly political. Whereas ostensibly: [T]he appointment of national members of the Tribunal and Appeals Tribunal is left to the respective Contracting Parties. However, both the FTA with Vietnam and CETA have assigned the selection of all members on the Investment Court to special committees established under the agreement, respectively the Trade Committee, and the CETA Joint Committee. These committees are composed, on the one hand, of the Minister for International Trade of Canada, respectively the Minister for Trade and Industry of Vietnam, and, on the other hand, the EU Trade Commissioner; who decide in both cases by mutual consent. It is in this respect noteworthy that the Trade Committee, in the case of the FTA with Vietnam, appoints members to the Tribunal and Appeals Tribunal upon recommendation of the Committee on Services, Investment and Government Procurement. The Committee on Services and Investment in CETA, on the other hand, is not involved in the appointment of members, leaving this issue solely to the CETA Joint Committee. Although many structural and procedural details of these committees still need to be worked out, the composition of the ICS appears more akin to a politically negotiated compromise than an appointment by the respective Contracting Parties.27

The ICS structural solutions to some extent resemble those adopted in the WTO AB design: the latter body shall consist of seven Members, appointed by the DSB for a 4-year term, with a possibility of a single reappointment. The stability of functioning of the institution has been in recent years seriously threatened by the United States, due to utilizing the DSU consensus-based mechanism to block appointments of new members of the WTO AB.28 Nevertheless, prior experience of functioning of the WTO DSM may serve as a valuable point of reference. In particular, the problem of adjudicatory independence has been carefully analyzed in the context of the WTO AB appointments. For instance, Manfred Elsig and Mark A. Pollack in an empirical study of appointments covering the span of 15 years, express the view that the political ramifications of the process can be adequately explained by the means of principalagent theory.29 Elsig and Pollack argue that: [T]he Appellate Body nomination process has become progressively more politicized over time as member states, responding to earlier and controversial Appellate Body decisions, became far more concerned about judicial activism and more interested in the substantive opinions of Appellate Body candidates, systematically championing candidates whose views on key issues most closely approached their own.30

Unlike in the WTO AB, introduction of a quasi-judicial status of adjudicators in ICS (operating on the basis of procedural and enforcement regulatory framework 27 Lenk

(2016, pp. 668–669). (2018, p. 103 ff). 29 Elsig and Pollack (2014, p. 1). 30 Id. at p. 391. 28 Petersmann

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designed for arbitration) may lead to problems with enforcement of rulings. The ICS has been widely publicized as a system increasing adjudicatory independence (due to introduction of tenure) in comparison with arbitration (where arbitrators are being appointed ad hoc by the parties). However, the critics of ICS have argued that it introduces unbalanced standing of the parties, through a one-sided decrease of influence of investors. Possible consequences of adoption of such a system of appointment and financing of adjudicators in ICS for enforcement of the ICS rulings are further analyzed infra in Part 5. Another significant aspect of formalizing the role of the members of the Tribunals is the planned introduction of a code of conduct.31 ICS provisions explicitly address the issue of double-hatting, criticized in the context of ISDS32 by preventing the adjudicators from serving as counsel.33 Disclosure of conflict of interest allows the parties to challenge a member of the Tribunal.34 Failure to comply with their duties may also result with removal of the adjudicator from his or her office.35 Finally, the candidates for the members of the Tribunals must meet a number of formal criteria, focused on their competences and independence, such as lack of governmental affiliation.36 These requirements resemble the wording of DSU Article 17.3, which stipulates that the AB members shall have recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements. They shall also be unaffiliated with any government. A general prohibition of activities relevant to dispute settlement at the WTO, as well as entering into consideration of any disputes that would create a direct or indirect conflict of interest, has also been introduced. The abovementioned planned introduction of the detailed, “hard” code of conduct is a major innovation that distinguishes ICS from the WTO standards, as well as from the “soft” code for arbitrators under the EU-Singapore FTA (ESFTA).37 This initiative has been emphasized in the context of CETA: in October 2016 the parties to this agreement issued the Joint Interpretative Instrument, where they declare that they will “begin immediately further work on a code of conduct to further ensure the impartiality of the members of the Tribunals.”38 Ambitious character of the plans in this regard has also led to a debate in legal doctrine, with some commentators characterizing the demands to be posed for ICS adjudicators as “impossible ethics”.39 31 CETA, arts. 8.30.1 and 8.44.2; EVFTA, Article 14(1) and Annex II; TTIP proposal ch. 2 art. 11.1 and Annex II. 32 Langford et al. (2017, p. 301 ff). 33 CETA, Article 8.30.1; EVFTA, Article 14(1); TTIP proposal ch. 2 art. 11.1. 34 CETA, Article 8.30.2–3; EVFTA, Article 14(2)–(4); TTIP proposal ch. 2 art. 11.2–4. 35 CETA, Article 8.30.4; EVFTA, Article 14(5). 36 CETA, Article 8.27.4 and art. 8.28.4; EVFTA, Article 14(1) and 13(7); TTIP proposal ch. 2 art. 9.4 and 10.7. 37 Cf. Harten (2016), p. 145. 38 Id. at p. 6. 39 Cf. Güne¸s Ünüvar ‘Impossible Ethics? A Critical Analysis of the Rules on Qualifications and Conduct of Adjudicators in the New EU FTAs’ (forthcoming).

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4 Procedural Transparency One of the main areas in which a reform of the ISDS regime has been postulated is procedural transparency. In the opinion of many authors the traditionally opaque character of arbitration is inconsistent with the public aspect of investor-state relations and with high impact of decision-making in investment cases onto public interest.40 Ensuring transparency of processes of investor-state dispute resolution and increase of their social legitimacy has been one of the main points raised by the European Commission in the public debate on common European investment policy and promotion of the ICS model. In particular, in the communication “Towards a comprehensive European international investment policy” (following entry into force of the Treaty of Lisbon in 2009), European Commission identified problems with transparency among “main challenges” to be remedied.41 Consequently, proposals of transparency standards have been presented for negotiations of all agreements, in which the ICS model was included. The public factsheet regarding investment protection provisions in CETA highlights ‘full transparency in investment dispute settlement proceedings’ as one of the main principles of this agreement.42 Analysis of solutions, adopted in ICS in regard to transparency, may be performed on two levels: comparison with the WTO DSM (as the existing, “judicial” point of reference); and comparison with the current transparency standards in investor-state arbitration (as the status quo in the field of investment dispute resolution, useful for determining, to what extent ICS will bring about a substantive change in this area). Regarding the first level, it should be noted that the opening of WTO DSM proceedings to non-parties was not an inherent feature of the system, but has been a result of its gradual evolution, achieved primarily by the means of adjudicatory decisions. Notably, in the shift from the informal, opaque and conciliatory43 dispute settlement regime of the GATT to the adjudicatory, two-tier WTO DSM (the “crown jewel” of the WTO trading system44 ), transparency standards were not introduced. As a consequence, the original WTO DSM was described as a “closed system” with several features that prevent or hamper public scrutiny of, or participation in, dispute settlement.45 The evolution of the WTO DSM towards a less confidential and more inclusive model has started with recognition of the competence to accept amicus curiae briefs from non-party actors in the Appellate Body’s decisions in US—Shrimp46

40 Cf.

Jemielniak (2017, pp. 594–597). Commission (2011) Towards a comprehensive European international investment policy. http:// trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146307.pdf. 42 European Commission (2016b). 43 Wolff and Ragosta (1996, p. 708) and Mercurio and LaForgia (2005, p. 491). 44 Ragosta et al. (2003, p. 697). 45 Mercurio and LaForgia, supra note 43, at pp. 492–493. 46 See Appellate Body Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (12 Oct 1998). 41 European

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and in US—Carbon Steel.47 In the discussed rulings solicited, as well as unsolicited briefs were admitted, and the latter decision explicitly acknowledged the competence for their admission in both—the panels and the AB. A further important step was admission by WTO AB of a brief submitted by a WTO Member (Marocco) in the EC—Sardines case.48 Organization of hearings open to the public is another important area of procedural transparency, where an incremental change has taken place. In WTO DSM opening the hearings was ordered for the first time by the chairman of the panel in US—Continued Suspension and Canada—Continued Suspension upon the petition of the parties,49 and followed by other panels in several cases. The practice was further adopted by the WTO AB in 2008, and met with mixed reactions of the WTO Members and commentators, part of whom was critical of such a de facto modification of procedure without a former revision of the DSU, as well as due to a supposed disturbance to the proceedings.50 Regarding the latter argument, it should be noted that in cases where opening of hearings has been ordered, the audience has access to them not directly, but through a closed circuit broadcast in an adjacent room, upon a prior registration.51 As for the level of States’ acceptance of the practice, as Ehring notes, it has significantly increased over the years, and “[m]ore than a quarter of WTO disputes currently have public hearings”.52 Finally, the evolution of transparency standards in the WTO DSM included issuance of the decision of the General Council of 14 May 2002 (Procedures for the circulation and derestriction of WTO documents). The instrument introduced derestriction of all WTO documents as the general rule (with the States retaining control over the status of their own documents).53 The reform in this area has also led to shortening of the effective, average time of derestriction from 8–9 months to 6–12 weeks.54 In general, the progress of implementation of transparency standards in the practice of the WTO DSM panels and AB has been notable, and constitutes a major shift from the original GATT level. Further developments towards increase of the openness of the system could possibly be undertaken through a formal revision of

47 See

Appellate Body Report, United States—Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R (10 May 2000). 48 See Appellate Body Report, European Communities—Trade Description of Sardines, WT/DS231/AB/R (26 Sept 2002). 49 See Communication from the Chairman of the Panels, United States—Continued Suspension of Obligations in the EC—Hormones Dispute, WT/DS320/8; WT/DS321/8 (2 Aug 2005). 50 Cf. Ehring (2008, p. 20121 ff). 51 Jemielniak (2016, pp. 260–261). 52 Ehring, supra note 50, at p. 1021. 53 See Procedures for the Circulation and Derestriction of WTO Documents, WT/L/452 (May 16, 2002). 54 Cf. WTO, Explanatory note on old and new procedures. World Trade Organization. http://www. wto.org/english/forums_e/ngo_e/derestr_explane_e.htm. Accessed 6 Mar 2019.

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the DSU55 and codification of transparency standards.56 Interestingly, the successful modification of the system has been achieved predominantly de facto, through specific procedural decisions of the panels and the AB, undertaken within the general scope of discretion, granted by the DSU.57 This state of established procedural practice in the absence of detailed regulation (except derestriction of documents) is thus somewhat at odds with the abovementioned image of the WTO AB as a ‘court in all but name’. It is also notable in comparison with the ISDS area, where codifications of transparency standards have already been successfully undertaken (through the 2006 ICSID Rules reform and through introduction of the UNCITRAL Rules on Transparency).58 This leads to the second question, namely to what extent procedural solutions implemented in the ICS provisions bring a substantive change in comparison with the existing transparency standards in investment arbitration (especially considering significant reforms of the latter in recent years). The question is the more legitimate, as the discussed instruments directly incorporate the UNCITRAL Rules on Transparency, which set the standard for investor-state arbitration.59 CETA introduces only some modifications to the UNCITRAL transparency safeguards, for instance expanding the list of derestricted documents under Article 8.36(2), by recognizing that on the European side either a Member State or the entire European Union can act as a respondent.60 The treaty defines the exercise of obligation of derestriction as due ‘in a timely manner’, and stipulates that such documents are “subject to the redaction of confidential or protected information” (Article 8.36(4)). Other areas, in which modifications in regard to UNCITRAL standards have been introduced under CETA, include derestriction of expert reports and witness statements (Article 8.36(3) upon request by any person to the arbitral tribunal;61 more specific guidelines in terms of logistical arrangements for public access to hearings (Article 8.36(5)); and introduction of obligation of the respondent to follow relevant domestic laws on disclosure of information to the public (Article 8.36(6)) “in a manner sensitive to protecting from disclosure information that has been designated as confidential or protected”.62 Rights of third persons and non-disputing parties to offer submissions and to have access to documents and evidence (conferred upon

55 Fukunaga

(2013, p. 35). supra note 50, at p. 1021. 57 As in admission of amicus curiae briefs by the WTO AB in US—Shrimp, based on the general right of the panel to seek information, provided in Article 13.2 of the DSU, which grants panels the right to seek information. 58 Ehring, supra note 50, at 266. 59 Cf. CETA, Article 8.36 [Transparency of Proceedings] and EVFTA, Article 20. 60 Lam and Ünüvar (2019, p. 14); cf. CETA art. 8.21 on the Determination of the respondent for disputes with the European Union or its Member States. 61 UNCITRAL Transparency Rules, Article 3(2). 62 CETA, Article 8.36(6). 56 Ehring,

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them by UNCITRAL Rules on Transparency, Articles 4 and 5), are confirmed and further detailed by CETA.63 The solutions adopted in CETA in regard to transparency standards, as well as rights of third persons and non-disputing parties have been almost completely adopted in the TTIP Proposal as well, with explicit incorporation of the UNCITRAL Rules on Transparency as the basis.64 The TTIP Proposal adopts the same list of documents as CETA Article 8.36(2), to which it adds “all documents submitted to and issued by the Appeal Tribunal” (Article 18(2)), as well as exhibits (Article 18(3)). Analogically to CETA Article 8.36(4), also the TTIP Proposal, Article 18(4), stipulates that derestriction of documents shall be made in a timely manner, but does not require that this obligation shall be fulfilled before the constitution of the tribunal. Similar solutions have been adopted in the EVFTA. The list of documents made available to the public has also been expanded by virtue of Article 20(2) of the treaty, and—like analogical provisions in CETA–encompasses the request for consultations, the notice of challenge against an arbitrator, and the decision on such challenge. Competences of the Tribunal to further expand the list of derestricted documents have also been restated (EVFTA Article 20(3) in connection with UNCITRAL Rules on Transparency, Article 3(3)), and in the EVFTA explicitly include exhibits. A review procedure for such decisions has been stipulated in EVFTA Article 20(6). The scope of protection of confidential and protected information (as exception to publicity of documents) has been expanded in EVFTA to encompass “classified government information”,65 and is specified in EVFTA Article 20(7).66 Regulation of the rights of third persons and non-disputing parties is also highly similar to that provided in CETA, including access do documents either by default or upon request. The first category encompasses requests for consultations, determination of the respondent party (either the EU and an EU Member State), and submissions of claims. The second category includes “any documents that are made available to the public in accordance with Article 20 (Transparency of Proceedings).”67 In sum, the new EU FTAs provide a formalized set of transparency safeguards, which, however, do not significantly modify the existing UNCITRAL standards for ISDS proceedings.

5 Status and Enforceability of Rulings One of the most intensively discussed issues related to the ICS model, which also puts into question judicial (as opposed to arbitral) character of this institutional solution,

63 CETA,

Article 8.38. Proposal, Article 18. 65 EVFTA, Article 20(4), explanatory note. 66 EVFTA, Article 20(7). 67 EVFTA, Article 25. 64 TTIP

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is the status of rulings. It is also an area in which divergences between this mechanism of investor-state dispute resolution and the WTO DSM are clearly visible. The first basic difference is that—unlike in case of the WTO DSM—pursuant to current provisions the ICS tribunals will not operate on the basis of a consolidated, uniform set of procedural rules. Submission of claims can be brought under the ICSID Convention and Arbitration Rules, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules or any other rules agreed by the parties (CETA, Article 8.23.2; and EVFTA, Article 7(2)). If the claimant submits a proposal as to the set of rules, and the agreement between the parties is not reached within 30 days from its receipt, the claimant is entitled to file a claim under any of the rules listed above.68 Furthermore, administration of proceedings will be provided by an external institution: in regard to EVFTA, according to the negotiators’ note to Article 12(18); as well as pursuant to the TTIP Proposal, Article 9(16), it will be offered either by the ICSID Secretariat or by the secretariat of the Permanent Court of Arbitration. In CETA, administration of proceedings by the ICSID Secretariat has been chosen. Such a solution distinguishes the ICS adjudicatory bodies from existing international courts and tribunals, including the WTO AB.69 Another important issue is the designation of rulings rendered by the ICS tribunals as awards, and securing their enforceability under the existing regulatory framework for arbitration (which is noteworthy in the light of open criticism of ISDS, voiced in official statements by the European Commission). Whereas the enforceability of ICS awards between the contracting parties has been addressed, their effects on third parties remain disputable.70 Pursuant to CETA Article 8.41(6), a ruling rendered by a tribunal proceeding under the ICSID Convention “shall qualify as an award under Sect. 6 of the ICSID Convention”. A ruling issued under other rules of procedure shall be treated as an award relating to “claims arising out of a commercial relationship or transaction for the purposes of Article I of the New York Convention” (CETA Article 8.41(5)). Similar solutions in regard to enforcement of rulings have been adopted in EVFTA Article 31, with a 5-years transitional period reserved (during which all awards resulting from a dispute where Vietnam is the respondent will be enforced on the basis of the New York Convention).71 In comparison of the ICS and WTO DSM regimes, grounds for appeal and scope of powers of the appellate institutions are particularly interesting. Awards issued by the CETA and EVFTA First Instance Tribunals may be appealed on the grounds stated in Article 52 of the ICSID Convention, for errors in the application or interpretation of applicable law and for manifest errors in the establishment of the facts, including the establishment of relevant domestic law. As indicated above, an award may be upheld, modified or reversed. Similarly, the DSU provides for the right of the AB to 68 CETA,

Article 8.23.3; EVFTA, Article 7(2)(d). Appellate Body Secretariat, World Trade Organization. https://www.wto.org/english/tratop_ e/dispu_e/ab_secretariat_bio_e.htm. Accessed 6 Mar 2019. 70 Cf. Reinisch (2016, p. 761 ff). 71 EVFTA, Article 31(3). 69 Cf.

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uphold, modify or reverse the findings and conclusions of the panel (Article 17.13). However, pursuant to DSU Article 6, an appeal shall be limited to issues of law and legal interpretations offered in the panel report. The delineation of the enforcement regime, introduced under CETA and EVFTA, has also led to a debate over its efficiency in regard to third parties. Under Article 54 of the ICSID Convention, all the contracting parties of the Convention are obligated to “recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” As August Reinisch notes in the context of CETA, whereas the drafters of this treaty clearly aimed at classification of rulings as ICSID awards, other contracting parties of the ICSID Convention do not necessarily have to subscribe to this view, and the ICS provisions in CETA (as a modification of the ICSID Convention between the CETA partners) will remain binding among the modifying partners only.72 Enforceability of the ICS rulings as arbitral awards under the New York Convention or the ICSID Convention is also disputable due to the hybrid (and not arbitral) character of the tribunals, which combine the features typical for courts with those characteristic for arbitration.73 This problem has already been an object of discussion in the context of other hybrid adjudicatory institutions, in particular the Iran-US Claims Tribunal. While the rulings of this Tribunal were eventually enforced in third countries, legal grounds for enforcement were disputed (for instance, the English High Court in Dallal v Bank Mellat found itself unable to determine existence of a valid arbitration agreement, and as a result refused application of the New York Convention; instead, the award was enforced on the basis of international comity74 ). Analogically, the qualification of ICS rulings as arbitral awards may also prove to be problematic in practice. Another disputable issue is that in ICS it is only the States that appoint and finance the remuneration of the members of the tribunals. Adoption of such a design of a hybrid adjudicatory body (combining characteristics of arbitration and a court) had in the past led to questioning procedural fairness and impartiality of the proceedings. In the case Elmar Gundel v Federation Equestrian International, the Swiss Federal Court considered whether the standards of procedural fairness and impartiality were fulfilled by the Court of Arbitration for Sports (CAS), and concluded that the institution did not provide full guarantees of adjudicatory independence.75 The Swiss Federal Court noted that the International Olympic Committee (IOC, which can also act as a party before CAS) had a decisive influence onto the functioning of CAS. In particular, IOC was financing the operations of CAS and was instrumental in appointment of the members of this body. It was also entitled to modify the Statute

72 Id. 73 Jemielniak

(2018, pp. 243–244). Dallal v. Bank Mellat [1986] EWCA(Civ) 1 QB 441 (Eng.). 75 Swiss Federal Tribunal, Gundel v. Fédération Equestre International, 15 March 1993, BGE 119 II271.za. 74 Mark

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of CAS.76 Eventually, the Swiss Federal Court admitted that CAS was operating in a sufficiently autonomous manner, and as a consequence its awards have been determined to be enforceable. However, arguments raised in jurisprudence have led to a significant reform of CAS.77 Similar concerns might likely arise in the future in the context of awards issued by the ICS, unless the EU will succeed in negotiating the MIC convention (as indicated above), which would introduce its own, autonomous and consolidated enforcement regime.78 This second, and currently hypothetical scenario would allow for seeking possible analogies with the WTO enforcement system, based on the provisions of the DSU for implementation of recommendations and rulings, encapsulated in the panel or AB reports. Pursuant to DSU Article 17.14, the AB report shall be unconditionally accepted by the parties to a dispute (unless the DSB reaches consensus to not adopt the report). The ‘losing party’ shall promptly bring its measures in compliance with the WTO obligations (DSU Articles 3.7 and 21.1).79 As statistical analysis demonstrates, the rates of compliance by the WTO Members with the panel and AB reports up to date have been very high.80 Regarding the present ICS enforcement design, basic differences between this system and the functioning of the WTO enforcement regime do not allow for drawing direct analogies.

6 Concluding Remarks Analysis of structural and regulatory solutions, adopted in the WTO AB and in the ICS model in the examined areas, does not lead to univocal conclusions. The WTO AB has frequently been presented in the past as a direct source of inspiration by the proponents of establishment of a permanent adjudicatory body for investor-state disputes. The success of the WTO AB has been raised as an argument for seeking similar benefits in judicialization of the investment dispute resolution. Increased legitimacy of decision-making, consolidated jurisprudence and formal safeguards of adjudicatory independence were indicated as prospective gains. However, already at the time of the first wave of proposals inspired by the WTO DSM, limitations of such analogies were identified. In particular, the highly fragmented regulatory framework of investment treaty law (as opposed to the consolidated set of the WTO agreements) was indicated as a major challenge to building a uniform body of case law. A closer comparison between the WTO DSM and the ICS further reveals a number of similarities and differences between both regimes. The specific consensus-based procedure, characteristic to the appointment of the AB members may, somewhat 76 Id.

at p. 280. Casini (2012). 78 Marc Bungenberg ‘Enforcement problems of Decisions by a Multilateral Investment Court—And Solutions’ (forthcoming). 79 Matsushita et al. (2015, pp. 111–112). 80 Leitner and Lester (2017, p. 171 and ff). 77 Cf.

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surprisingly (considering the claims of depoliticization), find its remote counterpart in the compromise-based ICS system of appointments. Formal requirements to serve as an adjudicator are generally similar, with the ICS aiming at introduction of a detailed, ‘hard’ code of conduct. In regard to transparency standards and guarantees of non-party rights, ICS offers specific regulatory solutions (as opposed to the— generally case-law based WTO standards). Interestingly, the ICS provisions in this regard are based on UNCITRAL Rules on Transparency and do not significantly exceed their level of regulation—which makes the claims of notable progress in comparison with the ISDS problematic. Finally, the issue of status and enforceability of rulings illustrates very well problems with hybrid status of ICS in its current version. The system relies heavily on regulatory framework of arbitration, and heterogenous character of the latter (with the ICSID Convention and New York Convention as two separate bases for enforcement of the ICS rulings), which brings up the questions of effectiveness of enforcement in states which are non-signatories. These features have lead some authors to characterizing ICS as “arbitration in disguise”. They also definitely distinguish ICS from the—so far—coherent and efficient WTO enforcement regime, based on the DSU provisions. These differences may diminish if the ICS project will be successfully replaced by the MIC convention with an autonomous enforcement system. Possible problems of enforcement of MIC rulings in non-signatories remain, at present, a matter of speculation.

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Joanna Lam is Professor mso of International Economic Law (IEL) at the Centre of Excellence for International Courts, University of Copenhagen, Chair of the Study Hub for International Economic Law and Development (SHIELD) at University of Copenhagen and Head of the Nordic-Chinese Forum for International Economic Law. She is also affiliated with Kozminski University. Lam graduated from Harvard Law School and University of Warsaw (summa cum laude) and holds doctoral and habilitation degrees in legal studies. Her research focuses on transparency in international arbitration, new forms of investor-state dispute resolution and on the role of China in IEL. She has published in, inter alia, Cambridge University Press, Oxford University Press (forthcoming), Routledge, Journal of International Arbitration, European Business Law Review and Uniform Law Review. A former Fulbright Fellow, she completed research visiting stays at Harvard Law School; University of California, Berkeley; UNIDROIT, Rome; and Renmin University, Beijing.