Saving the WTO’s Appeals Process

The continued intransigence of the Trump Administration in blackballing the appointment of new judges to the highest tribunal of world trade compels the 163 other countries that are members of the World Trade Organization to unite by resolving their international disputes in a way that cannot be stopped by the United States. The other, practical way should be the alternative means of trade dispute resolution currently available under Article 25 of the dispute settlement rules that are part of the WTO treaty – WTO arbitration.

The US refusal to join in the consensus needed to appoint and reappoint members of the WTO Appellate Body has now reduced the appellate tribunal from its full complement of seven judges down to the minimum of three judges required by the WTO treaty to hear an appeal. WTO member countries have an automatic right to appeal the legal rulings of ad hoc WTO panels under the treaty. If there are not three judges to hear an appeal, then the right to appeal will be denied and the WTO will be unable to adopt and enforce panel rulings.

Recently, nearly 90 percent of all panel reports have been appealed. Left with no opportunity to appeal, surely every country that loses before a panel will nevertheless seek to exercise its right to an appeal to guarantee that the verdict against it will not be enforceable. The WTO dispute settlement system will then be paralyzed. Moreover, if the rules cannot be upheld and enforced, why bother to comply with them or try to improve them? The very existence of the WTO will then be put at even graver risk than it faces now due to the illegal actions of Trump and his trade enforcers on other fronts in world trade.

If this stalemate between the US and the rest of the WTO continues, come December 11, 2019, the final terms of two of the three remaining members of the Appellate Body will end, and the tribunal will be reduced to only one member. Unlike the US, the other 163 countries in the WTO profess to see this situation as urgent. They also seem to assume they have until December 10, 2019, to resolve it. But one of the three remaining judges could at any time become ill, encounter a legal conflict, or decide to resign for family or other unrelated reasons. This could happen tomorrow.

The 163 other WTO members have endured nearly two years of largely stoic stonewalling by the United States due mainly to the US distress that the Appellate Body has had the temerity to do its job by upholding treaty rules on the use of dumping and other trade remedies that the US played a leading role in writing but now indignantly opposes under pressure from protectionist interests domestically and from within the Trump Administration.

The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement.

“Arbitration” is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.

Thus, “arbitration” in the WTO need not follow the practices of private arbitration throughout the world. WTO arbitration can mostly be the current form of WTO dispute settlement by another name – but with one important difference. The countries that choose to engage in WTO arbitration can fill the empty seats on the Appellate Body. They can decide to have the same seven appellate jurists resolve all arbitral appeals – to make certain that appellate rulings are consistent. And they can do so without the participation or approval of the United States.

There need not be any prior agreement by the 163 other WTO members before proceeding with this alternative. It would take only a mutual decision by two countries engaged in a trade dispute to get started. Before establishing a panel, those two countries could agree beforehand to use arbitration for the entirety of their dispute proceedings. Or, at some point before they knew the outcome of the panel proceedings, they could agree to use arbitration solely for purposes of an appeal. Other countries could then emulate the first two countries as this alternative approach proved its worth.

Obviously, the other 163 countries would be unable to use the option of arbitration in any of their disputes with the United States. Given the current standoff, the US would be unlikely to agree to an arbitration in which four new judges were appointed to hear an appeal. Disputes involving the US would still be at risk of not being resolved. The US might be content with such an outcome if it loses before a panel, but what of the nearly 90 percent of the cases that the US takes to the WTO and wins? (As happens so often, President Trump’s “facts” about the outcome of WTO disputes involving the US are not facts.)

When the US lost before a panel, it would doubtless be delighted that the country that prevailed would not be able to enforce its win. And, when the US won before a panel, it might sometimes be able to bully the country that lost into complying with the panel ruling. So far they seem to have gotten away with it, but can Trump and his team truly hope to achieve all their trade goals by bullying? At last count, the United States is a party to about 40 trade disputes in the WTO. A number of them involve billions of dollars in trade annually.

By engaging in WTO arbitration of their own disputes, other WTO members will significantly diminish the impact of the US blackballing, and may also generate some leverage to move the United States toward some common ground on the central issue of the survival of the Appellate Body as the independent and impartial custodian of the rule of law in world trade. As it is, the 163 other countries have no leverage and can only watch as Donald Trump destroys the rules-based world trading system.

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