With just a few days to go for WTO’s 11th ministerial conference at Buenos Aires, members are staring at a deep and serious crisis. No, it is not the stalemate at the Doha Round. Instead, certain actions of the US threaten to paralyse one of the pillars of this organisation — the appellate review wing of its dispute resolution mechanism.

Before we discuss the origins of the crisis confronting the WTO and its implications, it is relevant to understand the structure, function and achievement of WTO’s appellate body.

Justice platform A unique contribution of the Uruguay Round negotiations, the appellate body is the court of appeal for issues of law and legal interpretation arising from decisions rendered by the dispute resolution panels. The appellate body is composed of seven permanent members appointed by WTO members by consensus. The initial appointment of an appellate body member is for a four-year term, with possible reappointment for a second term.

The appellate body’s role is remarkable in that it has issued over 140 reports since 1995. It is unique as its judgments are enforced through gentle suasion and the stick of authorised trade retaliation. Barring a few exceptions, appellate body reports have been perceived to be fair and objective.

As part of the dispute settlement mechanism, the body has correctly been viewed as the central element in enforcing the rights and obligations of WTO members. In a world dominated by power play, the appellate body has become crucial for the continued survival of the rules-based multilateral trading system.

American intransigence

Now, to the crisis confronting the appellate body. While the process of appointment of its members was generally smooth in the past, in recent months the US has blocked the selection of all new members of body and precipitated a precarious situation. If the US continues with its recalcitrant approach, by the end of this month only four members will be left to serve the appellate body.

By January 2020, the appellate body would be rendered pretty useless, as only one member would be left. Thus, the body and the rules-based WTO face a bleak future on account of the action of the US.

What explains the peculiar behaviour of the US in seeking to wreck the dispute settlement process from which it has made substantial gains? There are two layers of explanations: the concerns explicitly articulated by the US and the latent reasons behind the action.

One of the two main concerns expressed by the US is the appellate body’s alleged overstepping of boundaries leading to judicial activism. Ironically, the US itself has benefited from such judicial activism in trade and environment disputes such as shrimp-turtle, to the detriment of developing countries.

Washington’s second concern pertains to the practice of the appellate body members continuing to adjudicate an appeal even after expiry of their tenure. This is a pragmatic practice, which the US does not appear to have formally opposed when these appeal reports were discussed by the WTO members.

Though both the concerns of the US warrant an informed discussion, these issues are not of such a nature as to bring the entire dispute settlement system to a standstill. Clearly, there are unstated and latent reasons for Washington’s action.

Power-play restrained

It is no secret that the US has been uncomfortable with a trading system that does not suit its interests. Its approach at the GATT/WTO has been best described by some trade experts as “aggressive unilateralism”. The dispute settlement mechanism — particularly, the functioning of the appellate body — has imposed some restrictions on the ability of the US to resort to power-play at the WTO.

The latent reason behind the intention of the US to shut down the appellate body is, in effect, to force the WTO members to revert to a power-based system of settling disputes that prevailed in the GATT era, and unravel the current rules-based system, which the Uruguay Round negotiators so carefully sought to achieve.

By seeking to dismember the appellate body, the US is trying to break some of the fetters imposed by the rules-based WTO against unilateral trade action.

While one may be tempted to attribute the approach of the US to appellate body appointments as yet another manifestation of the current US administration’s larger dissatisfaction with the multilateral trading system, the reality is different.

Over the past two decades, the US has sought to preserve the primacy of its domestic laws over its obligations under the WTO. This has resulted in conflicts, most visible in WTO disputes in which the appellate body struck down certain domestic laws of the US, including the Anti-Dumping Act of 1916 and the so-called Byrd Amendment.

Further, Washington has not been able to reconcile itself with the findings of the appellate body against some of its domestic practices in anti-dumping, countervailing duty and safeguard proceedings. It is loudly whispered in WTO corridors that the US blocked the reappointment for a second term of one of its own nationals to the appellate body — an astute lawyer with impeccable credentials — for the reason that she refused to toe the US line in some disputes in which certain of its practices in anti-dumping investigations were successfully challenged.

Pressure tactics

It is perhaps no coincidence that in the Doha Round negotiations seeking improvements in the dispute settlement mechanism, some of the proposals of the US could undermine the rule-based nature of this system. By resorting to brinkmanship on the critical issue of appointment of new members to the appellate body, the US is trying to bend WTO members to agree to its wishes so that WTO reverts to a power-based system of settling disputes.

How the WTO members respond to the crisis will determine whether the appellate body, which has acquired a remarkable standing in the international adjudicatory system, retains its credibility or gets diminished in stature.

Das is head, and Ram a research fellow at the Centre for WTO Studies. The views are personal

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