Crisis in the WTO appellate body and the need for wider WTO reform negotiations

The Marrakesh Agreement’s Dispute Settlement Understanding (DSU) represented a major step forward in trade dispute settlement from the largely ineffective pre-1995 General Agreement on Tariffs and Trade (GATT) system. Under GATT, dispute-settlement panels’ establishment was frequently blocked; panels that were established frequently had their reports’ adoption blocked by losing parties; timeframes were ineffective; and American dissatisfaction often led to unilateral trade actions implemented pursuant to Washington’s s. 301 statute.

The DSU fixed problems with the panel process and supplemented those fixes by creating the seven-member Standing Appellate Body (three of whom are selected to hear an appeal). WTO Members who disagreed with certain aspects of a panel report were now able to lodge an appeal limited to issues of law covered in the report, and the panel’s legal interpretations. Adoption of the Appellate Body’s ruling is guaranteed unless the Dispute Settlement Body (DSB) decides by consensus not to adopt it. For many years, this system worked reasonably well. But for some time now the US has criticised a number of Appellate Body actions and decisions, and blocked new Appellate Body appointments. There are now just three members remaining, with two of these slated to retire at the end of 2019. At that point, the system will cease to operate, except for any ongoing appeals where Appellate Body Rule 15 permits Appellate Body members whose terms have expired to finish their work on the case in question. No new appeals will be possible.

The American complaints seem justified, and a number of other WTO Members have been sympathetic to the US position. These other Members do not, however, agree with the strategy of blocking new Appellate Body appointments. A complicating factor in all this is that solutions to most of the identified problems would probably require DSU amendments, which must be agreed by consensus. Of course, it is possible the DSB could try to discipline future Appellate Body actions in ways that do not require DSU amendment. But in such a case—and where the Appellate Body, in a subsequent report, nevertheless acts in ways Members consider inconsistent with the DSU - what would be the consequences for the Appellate Body report in question?

In this policy brief we look closely at the US complaints and potential ways of dealing with them, and conclude that resolving the current Appellate Body crisis will likely only be possible in the context of wider WTO reform negotiations.

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The views expressed here are the author’s, and may not necessarily represent the views of the Institute for International Trade.