WTO Appellate Body: From Birth to Death to What’s next?

• The WTO’s dispute settlement mechanism deals with trade-related legal spats among the member countries. It is made up of two tiers. The first tier is where the disputes are adjudicated by ad-hoc panels. The second tier is the WTO’s appellate mechanism, what is called the ‘appellate body’ (AB).
• Established in 1995, the World Trade Organization’s (WTO) Dispute Settlement System (DSS) is used to resolve trade-related disputes between WTO member states. It has received over 500 complaints since its inception, and utilises both political negotiation and adjudication for dispute resolution.
• Current data points out that though developed countries account for only 25% of the WTO membership, they have initiated the DSS process in nearly 60% of the disputes. Furthermore, the figures on participation are worse for LDCs as they represent one-fifth of the membership of the WTO, but constitute less than 1% of participation in the DSS.
• Since the Appellate Body of WTO has been rendered dysfunctional, it will be difficult for smaller countries to hold larger countries accountable to their trade obligations.

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The multilateral trading system is facing unprecedented challenges on multiple fronts. The trade and tariff war are deviating from the established rules of trade, and is escalating in the backdrop of a complex set of factors. These include the emerging economic rivalry between US and China, surge in protectionist measures, and deadlock between developed and developing countries regarding the future of trade negotiations. Recently, the Appellate Body (AB) got defunct. We can also use the word ‘obsolete’, as it is no more in existence or functional. There seems a vacuum in terms of the entity’s existence, which was responsible to bring justice on global trade policies.

The WTO’s dispute settlement mechanism deals with trade-related legal spats among member countries. It is made up of two tiers. The first tier is where disputes are adjudicated by ad-hoc panels. The second tier is the WTO’s appellate mechanism, what is called the ‘appellate body’ (AB).

Brief History

Established in 1995, the World Trade Organization’s (WTO) Dispute Settlement System (DSS) was set up to resolve trade-related disputes between WTO member states. It has received over 500 complaints since its inception, and utilises both political negotiation and adjudication for dispute resolution. Today the DSS faced an unprecedented crisis due to US obstruction, which made the system effectively dysfunctional since early December. It is likely and expected that any solution to the ongoing crisis would require the negotiation of wide-reaching institutional and structural reforms between WTO member states.

The US has actively blocked the appointment of new members to the WTO’s Appellate Body (AB), a seven-member permanent organ that adjudicates appeals within the DSS. Now, it is not difficult to hypothesise that with a dysfunctional DSS, countries may resort to unilateral measures to protect their trade interests. This threatens the entire rules-based trading regime. No doubt, there will be a revisiting of the era of protectionism, which used to exist three decades back & gave birth to WTO. Established in 1995, the DSS’s journey has been unparalleled in terms of the sheer numbers and variety of cases it has had to adjudicate.

However, over the years, member states have expressed concerns regarding various procedural and substantive aspects of the DSS. These include, inter alia, the term of appointments of the AB members, the acceptable standards of review in disputes, and the need to streamline the appellate procedure. Some of these concerns are shared uniformly among member states and can be rectified if countries can reach the critical threshold of consensus for decision-making.

The eight-year-long Uruguay Round negotiations (1986-1994) also resulted in the creation of the DSS and the adoption of the Dispute Settlement Understanding (DSU) to govern trade disputes between member states. The DSU embodies important principles for the functioning of the DSS, that is, to provide “stability and predictability to the multilateral trading system “and to establish a “fast, efficient, dependable and rule-oriented system to resolve disputes”. The DSU not only provides a forum for an aggrieved state to ensure its rights, but also enables a respondent state to defend its claims and to interpret, clarify and correctly apply the rights and obligations provided under the WTO agreements. Prior to the DSU, trade-related dispute resolution was governed by the provisions of the 1947 General Agreement on Tariffs and Trade (GATT 1947) and the 1979 Dispute Settlement Understanding.

Overview of the WTO Dispute Settlement System

Source: Thomas A. Zimmerman, “WTO Dispute Settlement: General Appreciation of the Role of India” in WTO and Dispute Resolution, ed. K. Padmaja, (Hyderabad: The ICFAI University Press, 2007), 151.

Out of the top 10 users, four are categorised as developed countries i.e. US, EU, Japan and Canada, while the rest are developing countries. The US and the EU, however, are the leading users of the DSS, and are involved in four to five times as many cases as any other country. Current data points out that though developed countries account for only 25% of the WTO membership, they have initiated the DSS process in nearly 60% of the disputes. Furthermore, the figures on participation are worse for LDCs as they represent one-fifth of the membership of the WTO, but constitute less than one percent of participation in the DSS.

The low participation by developing countries and LDCs may be attributed to various barriers such as legal and administrative costs associated with pursuing a dispute, possibility of creating friction in relations with respondent country i.e.  political costs and lack of capacity or knowledge of trade rules. Similar issues are also faced by India in filing disputes before the WTO, with inadequate domestic legal capacity, and conflict of interest among various stakeholders dealing in this arena such as policymakers, legal experts and trade experts.

Table: Top 10 most active users of WTO DSS

Country Complainant Respondent As Third Party
USA 124 154 151
EU 102 85 200
China 20 43 173
Canada 39 23 147
India 24 31 160
Brazil 33 16 141
Argentina 21 22 62
Japan 26 15 205
Mexico 25 15 105
Korea 20 18 126

Source: WTO Dispute Data

Since the Appellate Body of WTO is demolished, it will be difficult for smaller countries to hold larger countries accountable to their trade obligations. Moreover, the rules-based multilateral trading system will collapse with no institutional mechanism available to enforce it. The relevance of the WTO as a multilateral organisation is now on stake, as countries will begin to question the utility of concluding trade negotiations under its aegis. And last, uncertainty in resolution of trade disputes will lead to uncertainty in trade policy which will directly impact farmers, manufacturers, industries and businesses especially from developing countries and LDCs.

There is an urgent need to engage constructively to preserve the system and come up with constructive solutions. Since AB has now officially collapsed, ad hoc arrangements may provide temporary reprieve, which can continue the dispute resolving activities. Technical and legal know-how is must for the representatives of developing countries and LDCs, which will make their arguments and cases competitive. There has to be a mass scale capacity building in the said direction. Also, unbiasedly there can be equal nominees from developing countries and LDCs in the panels of an ad hoc entity so that these members should not feel biased and sceptical. India believes that developing countries need to work together to protect their interests in the WTO negotiations through preservation of the core fundamental principles of the WTO.

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