Ending the WTO Dispute Settlement Crisis: Where to from here?

World Trade Organization (WTO) dispute settlement is in the midst of a serious crisis. Its appeals mechanism is not functioning because the United States blocked appointments to the Appellate Body, which has led to most panel reports being appealed “into the void” and leaving the dispute unresolved. As a result, it is extremely difficult right now for WTO members to enforce WTO obligations through complaints against measures they believe are in violation.

Is it possible to solve the Appellate Body crisis by putting more issues into the mix?

When pressed on what it would take to remove the U.S. block, U.S. Trade Representative Katherine Tai has not offered concrete proposals for how the Appellate Body should be reformed to assuage Washington’s concerns. Instead, she has pointed to broader problems with the dispute settlement system and encouraged WTO members to think about those issues.

Is it possible to solve the Appellate Body crisis by putting more issues into the mix? In theory, such an approach can be an effective way to resolve differences, as there are more opportunities for tradeoffs. In this situation, though, the U.S. efforts lack specific proposals on both the narrow and the broader issues, and therefore may not have much success.

The Appellate Body Crisis

The United States has expressed concerns about the Appellate Body for many years, pointing to issues such as “judicial overreach.” Eventually, the United States moved beyond words and took action. During the Obama administration, the United States decided not to reappoint the U.S. Appellate Body member for a second term, and put forward a different candidate instead. And taking this forceful approach even further, it later objected to the reappointment of a Korean Appellate Body member about whom it had concerns and insisted on a replacement.

Despite these assertive actions, it came as a surprise when the Trump administration refused to agree to the appointment of any Appellate Body members as members’ terms expired. Ultimately, that led to a situation where there was no Appellate Body in operation to hear appeals.

At this point, members involved in disputes could have agreed to let panel reports be adopted, which would have avoided some of the harmful effects of the Appellate Body’s demise. Instead, though, losing members have generally appealed the panel report into the void left by a non-operational Appellate Body, leaving many disputes in a state of limbo.

A number of WTO members (not including the United States) have put together an alternative appeals mechanism, the Multi-Party Interim Appeal Arbitration Arrangement. It has not yet heard any appeals, however. At best, this would be a partial solution, because it would not apply to the United States or several other prominent WTO members that seem reluctant to join.

What are the Broader U.S. Concerns with WTO Dispute Settlement?

When asked what it would take to restore the Appellate Body, U.S. officials have tended to deflect the question and focus on broader issues related to dispute settlement. Tai recently offered the following thoughts (see also statements she made in Geneva last October). She first said that “I know there’s a lot of focus on the Appellate Body, and I completely understand why it’s there on the Appellate Body and why it’s there on us.” But she then said: “I want to expand the conversation to say that...as the WTO needs to be reformed to be responsive, so too does its dispute settlement function need to evolve as part of the institution.”

The U.S. trade chief suggested three specific areas for reform: (1) “We think most fundamentally it should facilitate the settlement of disputes between members;” (2) “I think that fundamentally as an institutional matter, it should reinforce and facilitate the functioning of the other aspects of the WTO, the negotiating function and also the monitoring function at the WTO, as opposed to stifling them;” and (3) “when we talk about dispute settlement, let’s...ground it in the settlement of disputes and separate it out from the litigation aspect, which is only one method of settling disputes.”

Let’s consider these issues one by one to see how Dispute Settlement Understanding (DSU) rules operate and to what extent reform is needed.

The Existing DSU Balance Between Settlement and Litigation

Tai’s first statement was “[W]e think most fundamentally it should facilitate the settlement of disputes between members.” It is worth noting at the outset that “settlement of disputes” is in the DSU’s title, rather than a reference to something more adversarial, such as “litigation system.” More substantively, the DSU has numerous provisions that are clearly designed to facilitate settlement. First of all, before requesting the establishment of a panel to hear a dispute, the DSU requires that a complainant request “consultations.” These consultations are intended to be used for settlements, with Article 4.5 stating: “In the course of consultations in accordance with the provisions of a covered agreement, before resorting to further action under this Understanding, members should attempt to obtain satisfactory adjustment of the matter.” And Article 4.3 talks about “enter[ing] into consultations in good faith.”

Article 3.7 reinforces these ideas. It says: “[b]efore bringing a case, a Member shall exercise its judgement as to whether action under these procedures would be fruitful.” It notes that “[t]he aim of the dispute settlement mechanism is to secure a positive solution to a dispute” and says that “[a] solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred.”

It is clear that the DSU as it is currently written is designed to “facilitate the settlement of disputes between members,” and provides many opportunities to do so.

In addition, Article 5 provides for a less litigious approach to settling disputes, referred to as “good offices, conciliation, and mediation.” Under this mechanism, the director-general, acting in an ex officio capacity, may help members settle a dispute.

And Article 25 sets out a general arbitration provision, which can also be used to avoid what is sometimes a more public and confrontational litigation approach.

Taking all of these provisions into account, it is clear that the DSU as it is currently written is designed to “facilitate the settlement of disputes between members,” and provides many opportunities to do so.

Second, Tai said that WTO dispute settlement “should reinforce and facilitate the functioning of the other aspects of the WTO, the negotiating function, and also the monitoring function at the WTO, as opposed to stifling them.” This point about negotiations is one that the United States has made for several years now. The theory behind the argument may be that governments are less likely to negotiate seriously if they think they can achieve their objectives through litigation that results in favourable interpretations of existing provisions.

It cannot be ruled out that governments have on occasion tried to obtain interpretations in litigation that give them a result they could not have won in a negotiation. However, the failures of WTO negotiations in recent years are almost certainly due to other reasons. Most fundamentally, in an organization with 164 members, and a wide range of diverse views, it is very difficult to reach consensus on anything of significance.

As to the monitoring functions of the WTO, they seem to be working fairly well, and it is not clear what exactly the U.S. concern is here.

Finally, Tai said that “when we talk about dispute settlement, let’s...ground it in the settlement of disputes and separate it out from the litigation aspect, which is only one method of settling disputes.” This point seems tied to her first point to some extent. However, it is not clear exactly what she means, because the litigation aspect is separated out from the settlement aspect in the provisions of the DSU. There is an overlap, but there are also separate paths to be taken, and it is easy to veer off the litigation path and get on the settlement path at any time.

Time for the United States to Suggest Fixes

It is certainly true that there are problems with dispute settlement. For example, I have made the case for shortening the process considerably, as “justice delayed is justice denied.”

But the key here, regardless of whether it is the Appellate Body specifically or dispute settlement more generally, is to make actual proposals for reform. It is fine for the United States to have objections to the functioning of the Appellate Body or the broader system. But if it has specific concerns, it needs to propose solutions. This applies whether we are talking about the narrow “Appellate Body crisis” or the broader “WTO dispute settlement reform.”

It is fine for the United States to have objections to the functioning of the Appellate Body or the broader system. But if it has specific concerns, it needs to propose solutions.

Whichever the issue, the first step to a solution is for the United States, as the government imposing the appointments block, to offer concrete suggestions for the changes it would like to see. If it does not offer any ideas for new language to address the points it has raised, the system is in danger of decaying further, and the United States itself is at risk of being left out as others move forward.

Simon Lester is President of WorldTradeLaw.net and China Trade Monitor. He also worked for two years as a Legal Affairs Officer at the World Trade Organization.