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This article is written by Ritu Raj, a BA LLB student from Dr. D.Y. Patil Law College, Pune.

Introduction

It would only be reasonable to trace the birth of the World Trade Organization from the gradual progress of the economic activity in the world and the importance being placed on the maintenance of harmonious relations between countries. It is necessary to understand the rationale behind the need to maintain peace between countries which is to ensure there is no disruption in the trade between countries and since none of these countries can prosper with a closed economy, especially with the advent of globalization, which has been a significant contributor to the development of the economy.  

A notable mention of the General Agreement on Tariffs and Trade, due to its shortcoming of only being limited to the trade of goods, the WTO and its agreements also cover trade in services and intellectual property. Due to the dynamic nature of the economic activities, it became a requisite to have a uniform system of regulations and standards to measure or systematically handle the growth of the various countries by a single authoritative organization, therefore the WTO has convened various meetings that concluded in agreements which were to be considered principles which were to be followed as guidelines by member countries government’s to draft policies and laws, specifically trade related, in a transparent and acceptable way, which would be easy to regulate on a regular timely basis, by reports submitted to the WTO.

It is necessary to address that there existed a pressing need to have an unbiased international forum to handle any disputes among countries with respect to trade activities, specifically; this was one aspect that was dealt with by the WTO, by establishing the three phases or stages to resolution of such disputes, which began with the first stage being the negotiations between or among parties of any bilateral or plurilateral trade agreements, without the interference of the authorities at the WTO. It is followed by the intervention of the same in the next two stages, which is followed to ensure the resolution of the conflict.  

A safe conclusion can be made that a steady trade dispute resolution process can be one of the reasons for efficient and harmonious trade among various countries, this has been observed to be the activity undertaken by the WTO, the analysis of the authority set up by the same will be considered whether the organization has been successful in fulfilling its objectives.

In the subsequent parts of this research paper, there will be an emphasis on the authority that administers the third stage of trade dispute resolution, the issues caused by the actions of a member nation, which is backed by a small faction of other nations, which are against the working of the same, the organization managed to avoid paying heed to the same, but recently, this resulted in the worsening of the results of these actions taken by the member state, which has definitely brought about a very adverse effect, thereby bringing the working of the entire dispute settlement system to a question of continuation.   

An Overview of the Dispute Settlement System

Dispute settlement is one of the central pillars of the multilateral trading system, and it is the WTO’s unique contribution to the stability of the global economy. 

The dispute resolution process has been stated as an objective undertaken by the WTO in the main document/agreement that is attached to the 2nd Annexure of the Uruguay Round Conference, which established the organization, the Understanding on Rules and Procedures Governing the Settlement of Disputes. This contains the rules and the authorities along with their powers and duties. The objective of a well settled dispute resolution procedure can be observed in Article 3 of the same.

The members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

The dispute resolution process is limited to the protection of the rights of member states, which arise from the trade agreements, these being disturbed by the measures taken by other member states.

The entire process confers to the finality of the voluntary submission by the member nation on the dispute settlement body and the systematic solutions, originally looking to a mutual acceptance to the same, if not complied with, the aggrieved member nation may resort to making an application for the suspension of the concessions or certain rights enjoyed by the defendant party. 

A time frame has been stipulated for the prompt dealing of the disputes, but a specific clause for perishable goods has been specified in Article 4, which is to give priority and urgency to the disputes pertaining to the same.

The panel will be appointed in case the consultation does not give any fruitful solution within the 60 day time frame that has been allotted for it. The Panel will consist of three members who have been appointed on the basis of the recommendations made by member countries, who have some expertise in the areas on international trade law and other specific areas dealt with in the covered agreements. These member countries may allow their representatives/officials to be appointed as panelists.

In the immediate clause, it has been mentioned that the panelists shall serve in their individual capacities and not as government representatives, nor as representatives of any organization.  Members shall therefore not give them instructions nor seek to influence them as individuals with regard to matters before a panel.

The function of the panel is to make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements.

In order to give a brief about the time duration taken, a table explaining the time duration of the entire dispute settlement:

 A year is allotted to the resolution of the dispute, without an appeal 

Time duration

Process

60 days

Consultations, mediation, etc

45 days

Panel set up and panellists appointed

6 months 

Final panel report to parties

3 weeks 

Final panel report to WTO members

60 days 

Dispute Settlement Body adopts report (if no appeal)

In addition to the year, if an appeal is sought, then an additional tie of three months will be the stipulated time to resolve a dispute.

Time duration

Process

60- 90 days

Appeals report

30 days

Dispute Settlement Body adopts appeals report

This time has been stipulated to ensure that the disputes are resolved promptly and to replace the previous General Agreement on Tariffs and Trade (GATT) process, which could be easily circumvented, thereby allowing countries to dodge their trade commitments. 

The dispute will be handled by the panelists, in such a manner where the parties submit written and oral submissions, which would then be analysed and condensed into a report that shall be submitted within 6 months by the panel, to the parties.

The Appellate Body of the WTO’s dispute Settlement Body has been established as an authority, which is composed of seven members, shall only take up appeals of the cases that have been dealt with by the panel. For every case, the required quorum of the members from the appellate body is three.  The seven appellate body members will serve on a rotational basis and each of them is appointed originally for a term of four years and can be reappointed only once. The rotational basis is meant for only three of the seven persons appointed immediately after the entry into force of the WTO agreement, their term shall expire at the end of two years, to be determined by lot. In case of a vacancy of member positions, the Dispute Settlement Body comprising all WTO Members should timely appoint a new member through consultation and consensus to guarantee smooth operation of the Appellate Body. If another person is appointed to fill the vacancy and the official whose term of office has not expired, the newly appointed shall hold office for the remainder of the predecessor’s term.

These appointed officials will have knowledge on international trade and the affiliated laws along with the subject matter of the covered agreements. They shall not be associated to any member nations. 

It is important to note that any appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel. This limitation has been imposed, therefore restricting the ambit of inspection, inquiry.

From the authority held by the appellate body , it may be observed that the report of the appellate body is unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following its circulation to the Members, and such a meeting of the DSB would either occur during any prescheduled one or a separate meeting shall be convened for this particular purpose, thereby emphasis on the importance of the appellate body. 

The procedure of the Appellate Body is therefore self drawn and there is the discretion to consult the Chairman of the Dispute Settlement Body and the Director-General of the WTO, further it is communicated to the Members for their information. 

The Role of the United States of America: Objections on the Appellate Body 

During the establishment of the Dispute Settlement Body, the United States was one of the strongest proponents for creating an appellate body. Since the WTO rules provide for a nearly automatic adoption of panel reports, the United States sought a process to overturn any erroneous panel decisions before they became binding obligations. While appeals were expected to be rare and limited to narrow questions of law, access to the Appellate Body was considered essential both to ensure that countries could challenge decisions by ad hoc panels that they believed were wrongly made and to bring a measure of consistency across disputes over similar legal texts.

The WTO dispute settlement system succeeded initially. An increasing number of WTO members used it. Compliance with its decisions, while not perfect, was considered good. For its part, the United States filed more complaints than any other country, prevailing in 91 percent of these cases. However, the expectations that appeals would be rare and narrow proved to be wrong. Nearly 70 percent of panel reports have been appealed and the average appeal can raise a dozen or more claims, many of them going far beyond narrow legal questions.

This developed the reason for the United States to believe the Appellate Body has been making errant decisions, therefore sought to make complaints and eventually has been justifying its blockade on appointments of the appellate board. 

The objections to the working of the appellate board have ranged from the members to the working method of the Appellate Body, the same have been enlisted to understand the dissatisfaction of a member to the authority:

  • Initially, the objections were limited to the term of the members, where the practice of Appellate Body was to allow the members to stay on, after their term has expired, to finish an appeal that began while they were still in office. The United States contended that the WTO member countries, not Appellate Body members, should decide whether a term of office can be extended. 
  • USA objects to the Appellate Body’s frequent failure to complete the appeals in the required ninety days, argued that a rules-based system needs the adjudicators themselves to follow the rules. 
  • It was also contended that the Appellate Body exceeds its authority in reviewing and sometimes overruling factual findings by panels, despite a mandate that appeals be limited to issues of law.
  • In practice, it has been observed that the Appellate Body issued advisory opinions which can be viewed as statements or interpretations, these are not necessary to resolve a dispute. The issued opinions are more inclined to be considered as the formulation and interpretation of law in the abstract sense, which extends beyond the authority of the appellate body.
  •  The Appellate Body’s actions emphasize on elevation of the significance of past decisions to near-binding precedent to be followed by future panels absent cogent reasons to depart from them. Giving precedent a strong role contravenes the WTO provision placing responsibility for definitive interpretations of WTO texts on the WTO members.  
  • The United States asserts that the Appellate Body has overstepped its bounds by reaching decisions that go beyond the text of the agreements themselves, potentially taking away rights or adding to U.S. obligations.

Due to lack of response from the Appellate Body and where there is a small number of member countries who shared concerns raised by USA. However, their response has been fairly less subversive; around twenty member states – individually or in groups – have made proposals to reform the appellate review procedure and resolve outstanding issues with the AB. India, for its part, has co-sponsored such proposals along with other states, including Canada, Australia, China, Singapore and the European Union.

From the points raised by the United States, and the lack of any response or action to work on rectifying the valid objections, the government of the United States through its representative has chosen to block the appointment of the members of the Appellate Body, which may be observed from the continued attempts to block the Dispute Settlement Body from launching the procedure of appointing Appellate Body members since May 2016, when it blocked the reappointment of Seung Wha Chang, a South Korean member. From November 22, 2017 to March 26, 2019, the issue of appointing Appellate Body members was discussed at the Dispute Settlement Body meetings 15 times in a row but no consensus was reached due to the opposition of the United States and this continues in a similar fashion till the 11th of December 2019, when there shall only be one standing member due to the expiry of the two remaining members which managed to keep the quorum for an appeal , therefore bringing the capability of the functioning of the Appellate Body to a complete standstill. 

Understanding the Fine Details & Looking into the Recommended Solutions

The blockade by the United States of America is turning out to prevent the appointment of appellate body members, due to the need of the Dispute Settlement Body to convene meetings to do the same by taking votes and so it may be noted where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting. Yet, in the practice of the GATT/WTO, “consensus” in the WTO constitutional document, has currently been the only decision-making method, and the voting system has not actually been used.

An analysis of the six major complaints may leave us with the satisfied sense, that the objections have not been raised for the personal purposes and there exists a discrepancy in the functioning of the Appellate Body, with the lack of uniformity in following the terms of the members, the non adherence to the specified time allotted to an appellate body, thereby defeating the entire advantage of the prompt resolution, safe to assume this is resumption of the old  dispute resolution process followed in GATT. If the basic regulations as well as lack of respecting the provision of avoiding setting precedents, have not been followed, it is safe to assume that there is an element of hypocrisy in the dispute resolution authority and that the WTO is just an alias for the continuation of the GATT’s procedure? It is important to note that the agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out in considerable detail the procedures and the timetable to be followed in resolving disputes, but in practice it has not been followed by the very authority itself. 

The possible solutions have been considered over the passage of time, with the nearing deadline for some action to be resorted to prevent the crumbling of the dispute resolution authority and its respective wings:

The adoption of the Principles laid down by David Walker, the Representative of New Zealand to the WTO, where  the principles require the Appellate Body to make its decisions in ninety days and for Appellate Body members to leave promptly at the end of a second term of office, to treat facts as facts (not subject to appeal), to respect the more deferential standard of review for antidumping investigations, to address only issues raised by parties and only to the extent necessary to resolving the dispute at hand so that its opinions are not advisory, to take previous Appellate Body or panel reports into account only to the extent they are relevant and not as precedent, and to ensure that its rulings do not add to the obligations or take away any rights of the parties as contained in the WTO rules.  This was submitted by Walker on 28th November 2019, from his appointment to render workable and agreeable solutions to improve the functioning of the Appellate Body, in February 2019.

A few other solutions have been to appoint an oversight committee and audit to ensure compliance or restrict the term of the appointed members to a service. 

Analysis of the Solutions & Conclusions

All of the above stated solutions are very application oriented and they depend on the implementation, which may not be so effective, if we keep in mind the current status of the working of the Appellate Body, from where the initial problems faced have risen, the whole point of the objections raised by the United States.

Another solution that has been proposed is one which may be considered a solution for the inactive time of the Appellate Body, thereby not allowing the stoppage of the process of dispute resolution, this may possibly seem to have the chances of being used much more frequently and in the most far-fetched way, may also lead to the doing away with the requirement of established dispute settlement authority. Article 25 of the Dispute Settlement Agreement, which may allow the use of the arbitration as an alternative dispute settlement within the WTO, from its interpretation implies that members are given a broad scope in determining which aspects of a dispute they want to resolve using arbitration and which rules exactly that process should follow.

This solution is more time-honoured method to settle various disputes between countries turning out to be advantageous because it features the parties’ autonomy when seeking a neutral third party for dispute settlement in a relatively flexible mode.

Upon understanding the action taken by the United States to be one which may lead to the impairment of one arm of the dispute settlement process, criticism has been received by both the parties, with more emphasis on the rectification of the errors of the Appellate Body’s functioning.  This is authority crisis, may seem like it is only limited to the dispute resolution wing of the WTO, but the importance of dispute resolution being one of the core activities which define the existence of the WTO, therefore jeopardizing the very foundation of the organization and its purpose. 

Prompt action to resolve the crisis is needed primarily because the WTO had been established to cater to the trade related aspects of the economic relations shared by all the countries and the objections being valid should be rectified to uphold the purpose of the  formation of the WTO.  


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