Sun | Jul 5, 2020

Delroy S. Beckford | The WTO Appellate Body crisis - A return to the law of the jungle?

Published:Sunday | December 22, 2019 | 12:00 AM

As at December 10, 2019, the World Trade Organization (WTO) Appellate Body has not been functioning as we know it because of the absence of a quorum of judges due to the United States’ blocking of appointments of appellate body members.

The US’s objection to new appointments is related to systemic and administrative issues. It has accused the appellate body of engaging in judicial activism, for example, by its not ruling in accordance with the rules of dispute settlement because it accords precedential significance to its prior rulings and by its not giving due deference to domestic investigating authorities’ findings where the language of the relevant agreement being interpreted allows for much discretion.

It has also accused appellate body members of foot-dragging in the hearing of appeals while enjoying a substantial salary, which it says is an incentive for continued delays in the hearing of appeals because the remuneration provided is linked to the time spent on a case.

The claim of judicial activism is more complicated because it challenges the legitimacy of the central pillar of the WTO dispute settlement system, often regarded as representing the ‘triumph of law over politics’.

If true, should developing countries be concerned about this development? An activist ruling doubtless affects all WTO members since previous appellate body decisions, even if not given formal precedential effect, have, in practice, been resorted to in resolving current disputes to ensure predictability to the dispute-settlement system.

The problem is knowing when there is an activist ruling. There seems to be no objective basis for making this determination. The other issue, of course, is whether this matters in how trade relations are structured globally.

It is now more than a known fact that global-trade rules reflect and maintain an international division of labour, whereby countries are already categorised according to factor endowments and utilise the rules to secure their current status as producers of primary products, industrial goods, or knowledge-based commodities.

Developing countries, for example, will ask for ‘special and differential treatment’ often to maintain preferential access to export markets in primary products. Rules on subsidies prevent countries from relying on subsidies for developing industries for export markets, safety values in rules relating to trade remedies such as those relating to safeguards exist to protect against domestic economies being over-run by market opening, and tariff escalation rules from developed countries are applied against goods higher up the value chain from developing countries.

In short, these rules are applied to maintain the existing balance of power in trade relations.

For now, the end of the appellate body portends gloom and doom not least because it suggests a return to the old GATT system when compliance with panel reports was voluntary and political considerations held sway in compliance, a period often referred to as ‘the law of the jungle’.

CONCERN ABOUT UNPREDICTABILITY

There is concern that unpredictability will reign by simply filing an appeal to a panel decision, knowing full well that an appeal cannot be heard, thereby justifying the non-observance of the ruling of a panel.

Many proposals have been put forward to address this dilemma. For example, there is the suggestion for an arbitration procedure to be utilised as final in replacing the appeal system with the appellate body as agreed by the parties to a dispute, or for a coalition of the willing to continue with the appellate body and the current system without the participation of the US.

The latter option is safely off the table for now because it is inconceivable that the US can simply be ignored from the global-trade system. Its economy represents 25 per cent of global trade, and if pushed, it will doubtless try to conclude bilateral trade agreements, even with countries opposed to its actions, instead of insisting on a multilateral option for its trade relations.

Trade relations would then become a network of fragmented rules, with no clear defining order being governed mostly by political considerations whereby the weak are at the mercy of the strong. This presents a problem if we agree that the rule of law should take precedence in the observance of trade rules.

It may appear, however, that even such a development may not affect trade relations any more than the current system. The WTO system already has fragmentation embedded in it by accommodating a plethora of regional trade agreements. The tension between trade creation and trade diversion with regional trade agreements is still a live issue, but regional trade agreements are supported nonetheless by WTO members.

Of greater concern is the prospect of increased use of unilateral trade measures by key WTO members and resulting countermeasures that can lead to overenforcement of trade rules and a reduction in global trade.

It is not clear that the US’s broader objective is to destroy the WTO system. The panel structure is to remain, and the US currently has pending disputes before panels. The maintenance of the system is also to its advantage, given that it succeeds in more than 80 per cent of its complaints brought against other WTO members.

It bears noting, however, that while the WTO Appellate Body has, in many instances, reversed or modified panel rulings on appeal, the findings of most panels have been upheld and the actual result of rulings has rarely been disturbed or affected, that is, for the withdrawal of a trade-restricting measure.

The rare disturbance to the actual result from a panel ruling is attributable to the fact that complainants usually rely on many WTO provisions in claiming a breach of the WTO Agreement, which results in a finding of breach on at least one or more of the provisions invoked when appealed.

Therefore, reliance on an exclusive panel structure would not affect the result of a complaint, that is, a recommendation for withdrawal of a trade-restricting measure. The uncertainty that results is what WTO provision is to be regarded as having been breached.

It remains to be seen what stop-gap measure will be implemented in the interim to address this conundrum before a full return to an effective appeal body post-Trump.

- Dr Delroy S. Beckford, a Fulbright Scholar, is an attorney-at-law and adjunct lecturer in the Faculty of Law, Mona, University of the West Indies. He is the author of the book ‘Power and Judicial Activism in the WTO: The Appellate Body’s Interpretation of Trade Remedy Agreements’. Email feedback to delroy.beckford@gmail.com and columns@gleanerjm.com