Resolving WTO Appellate Body Crisis: A Life Vaccine to the Infected Rule-Based Global Trade?
With each departing Appellate Body judge, the “central pillar of the multilateral trading system”, as described by the WTO Director-General, Renato Ruggiero, back in 1997, was coming closer to its sunset. After nearly two decades of consistent dispute mediation in the area of international trade, on December 10, 2019 the WTO Appellate Body lost its quorum with the expiration of the term of two of the three remaining judges, as a result of blockage of appointment of new judges by the United States of America. This already largely debated crisis with its numerous international negotiations and tabled proposals of legal and institutional resolutions were meant to be advanced during the Twelfth Ministerial Conference of ETO (MC12) in June, 2020, when the hopes of the EU and the international community were frustrated by the sudden spread of a global pandemic. The WTO’s predictions of “a very sharp decline in trade” and “a worse economic downturn and job loss than during the global financial crisis” due to the COVID-19 and the disruption of complex supply chains through the massive restrictions and emergency regulations aimed at social distancing by some of the most important world economic hubs made it clear that the real international trade crisis is no longer contained inside the judicial branch of the World Trade Organisation. In particular, the global trade fall in 2020 is forecasted to be between 13% to 32%, when it dropped only 12.5% at the height of the financial crisis. The recent developments of the global economic turnover, together with the world health crisis dictate a complete review of not just the WTO dispute settlement body, but a comprehensive relaunch of the global economic governance system. It is clear that a handicapped WTO will not be able to save the rule-based fair international trade. These circumstances make the WTO reforms more crucial than ever
The Appellate Body of WTO was created in 1995 as a response to growing frustration in the previously existing GATT dispute settlement system. After several years this appellate system has been crowned as the most successful experiment amongst the international dispute settlement mechanisms. The Marrakesh Agreement’s Dispute Settlement Understanding (DSU) represented a major step forward in trade dispute settlement from the largely ineffective and heavily diplomatic pre-1995 General Agreement on Tariffs and Trade (GATT) system. Under the less legalised GATT system there were a number of major issues. For instance, responding parties were able to block the establishment of dispute-settlement panels, losing parties were able to block the adoption of the reports. Such ineffectiveness resulted in far-reaching consequences, such as unilateral trade sanctions threats by the US.
The DSU fixed problems with the panel processes and supplemented it by creating a standing Appellate Body. With these changes the binding nature of the reports on the parties was solved together with granting the DSB the right to authorise trade sanctions in case of non-compliance. WTO Members who disagreed with certain aspects of a panel report were now able to lodge an appeal limited to issues of law. Adoption of a binding Appellate Body 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 since 2017 the US has criticised a number of Appellate Body actions and decisions, and blocked new appointments, slowly bringing the system to collapse.
There seem to be a number of underlying issues. The broader problem, however, remains in international dispute settlement i.e. whether to empower independent international panels at the expense of state sovereign powers to resolve disputes unilaterally or to leave that power on states through diplomatic channels. In the recent years, the US international dispute settlement practice seems to have shifted from more legalized to more diplomatic and negotiation-based approach. The abandoning of established norms of trade policy became more apparent in the explicit protectionist unilateral actions of the Trump Administration. Such practice is seen in renegotiated United States-Mexico-Canada Agreement, which provides for less legally binding and more unilateral enforcement mechanisms in case of trade disputes. Another recent example can serve the dispute settlement mechanism in the US-China trade deal, which provides for nothing more than a series of negotiations, and if unable to resolve, the parties are entitled to enact trade remedies (tariffs) without the possibility of appeals. The main issue of the weakening of WTO Appellate Body and the shifting from the legalized dispute settlement mechanisms is not only the underenforcement of fair international trade rules and standards, but also the overenforcement of rules driven by and encouraging more unilateral retaliatory actions.
Appellate Body Crisis
The roots of the crisis of the WTO Appellate Body, which has been described as a unique model of jurisdictionalisation of international rule of law, go deeper and beyond the appellate system itself. Indeed, legal acts can only be tested in practice. The timeline and the social developments between now and then are the defining factors of effectiveness of WTO rulebook. Seen by some of the critics as the protector of an outdated multilateral system that is no longer serving the needs of 21st century global trade (absence of proper sustainable development, digital trade standards, outdated classification of developed and developing countries, etc.), many stakeholders led by the EU disagree that paralysing the judicial branch of WTO is a proper way to address some of the shortcomings of the system. What exactly do the United States Want? The US Administrations raised a number of procedural and substantive issues related to the functioning of the Appellate Body during various WTO Ministerial Conferences and forums. The core blame was directed at the fact that WTO Appellate Body’s may have established a “judicial” global governance, a power that according to the US was never conferred by the architects of the WTO Treaty. The procedural or institutional concerns invoked by the United States include Article 17(5) of DSU on the lack of compliance of the Appellate Body with the maximum 90-day proceeding timeframe and Rule 15 of the Appellate Body Working Procedures on the reappointment of Appellate Body Members. As for the substantive issues, the main practice criticised by the US is the alleged judicial overreach through review of facts and municipal law, issuing of advisory opinions, and the precedential effect of reports.
a. Timeframe of Appellate Body Proceedings
The United States has consistently brought up the issue regarding the non-compliance of the WTO Appellate Body proceedings with the Article 17(5) of DSU. Indeed, pursuant to Article 17(5) DSU, the Appellate Body should examine the cases referred to it within the strict time limits – 60 or exceptionally 90-day timeline. One way to measure whether the WTO is simply unable to comply with the timeframe requirements or became the victim of its own success is by looking at the growing number and complexity of cases referred to it by Members. While until 2010 the Appellate Body hardly exceeded the 90-day deadline, the situation reversed in the last decade with only one out of six reports being issued within the settled timelines. The reasons for this practice can be found in both objective and subjective causes, namely the increase of cases on the panel level, two thirds of which are appealed, the complexity of the questions referred to it (for instance, Airbus and Boeing cases counted 576 and 612 pages each, respectively). In addition to the latter, the current reduction in the number of Appellate Body Members with blocked reappointment brings in even harder circumstances. A reform in this regard is indispensable to maintain the legality of WTO functioning, taking into account the new practical developments and the need to an extended timeframe needed to issue high quality reports.
b. Terms of Appointment of Appellate Body Members
The main issue regarding the terms of service of Appellate Body Members concerns the legality of the so-called transitioning rule adopted by the Appellate Body. As a general rule, the Appellate Body Members are appointed by the DSB for a four-year term and each Member may be reappointed once. In addition, Article 17.9 of the DSU states that the Appellate Body in consultation with the Chairperson of the DSB and the Director-General establishes the working procedures of the Appellate Body. The US claims that Rule 15 of Working Procedures for Appellate Review violates Art. 17.2 of the DSU.. What Rule 15 contains is nothing more than an authorisation to the particular Appellate Body judge to continue to examine the case until its completion, despite the termination of their service. According to various declarations by US officials, it is the DSB, and not the Appellate Body itself, that can appoint and reappoint Appellate Body Members and that the Appellate Body does not have the power to amend the DSU. On the contrary, what Rule 15 provides for seems to be an accepted practice within the judicial systems across the world. Such provision fills the practical need to ensure there are no unnecessary interruptions and delays in delivering the reports, especially in the case of WTO disputes where the cases are becoming more complex and restarting it due to the appointment of a new judge can be an unreasonable complication of procedure. Thus, with Rule 15 the Appellate Body does not “reappoint” or “appoint” the judges. It exclusively solves a technical procedural issue.
c. Review of Facts and Treatment of Municipal Law
The appellate system of WTO did not escape one of the eternal dilemmas of international law – the distinction between review of facts and law. The accusations of the United States in this regard are based on Article 17.6 of the DSU that limits the appellate review to issues of law as also noted in several statements made by the Appellate Body in the EC – Hormones case. According to Article 17(6) of DSU “an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel”. In practice, nonetheless, the modalities and depth of appellate review heavily relies on the content of panel reports. According to Article 11 of DSU, “a panel should 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 the EC – Hormones report, the Appellate Body stated “the consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty provision is, however, a legal characterization issue. It is a legal question. Whether or not a panel has made an objective assessment of the facts before it, as required by Article 11 of the DSU, is also a legal question which, if properly raised on appeal, would fall within the scope of appellate review”. With this move, the Appellate Body clearly tries to set a fragile delimitation between factual and legal examinations and state that not all assessments of facts are factual, if they have a value of question of law. As it pertains to the second part of the issue, the evaluation and interpretation of municipal law, the United States has consistently made clear that the “meaning” of domestic law should not be subject of review or interpretation by the panels or Appellate Body, as it is generally accepted in international law. The Appellate Body addressed this question several times. In India – Patents (US) report, it stated that “…an international tribunal may treat the municipal law in several ways”. It can view them as evidence of facts and evidence of compliance with international obligations among others, which constitutes a legal characterization by the panel and therefore is potentially subjected to appeals review. Two questions arise from this. Firstly, whether the interpretation of municipal law by the Appellate Body actually gives a meaning to it, and second, whether by doing so it exceeds the powers conferred to the judicial organ of the WTO. This recalls the long-standing issue in international law on how to and whether it is possible to strictly define interpretation of law and interpretation of fact. It is important to underline that the purpose of the Appellate Body is in fact clarifying the obligations of WTO Treaties. Therefore what it suggested in the India – Patents (US) report is that for this purpose the legal characterisation of municipal law can serve as evidence of compliance to ensure clarity on the meaning of WTO law.
d. Advisory Opinions (Obiter Dicta)
The US has also expressed its concerns that the Appellate Body has consistently breached the WTO law by issuing advisory opinions, as they undermine the limits of powers conferred to the DSB by WTO Members, and create “unnecessary complexity and rendering the […] process less efficient”.  The US claims that the Appellate Body assumed interpretative and law-making functions while the will of the architects of WTO was to give such functions only to the legislative branch of WTO - Ministerial Conference and General Council. The debate on the issue of advisory opinions is part of a larger issue of judicial economy. The US contends that the Appellate Body should not rule or “make law” on the issues that are not necessary to resolve the dispute. However, the question remains how to assess “necessity”? In US – Tuna II (Mexico), the Appellate Body stated that necessity should be viewed under the light of “the specific circumstances of a given dispute”. On a broader terms, the purpose of any actions conducted by the Appellate Body should be in line with the aim of DSB - ensuring clarity to the existing WTO provisions. Indeed, the Appellate Body should not complicate its reports by addressing unnecessary for the resolution of the particular dispute issues. However, in the increasingly detailed and complex cases and arguments of parties brought in front of the Appellate Body and the purpose of DSB, as enshrined in Article 3.2 of DSU, it would not be easy to reconcile a heavily regulated “judicial economy” obligation on Appellate Body with the dynamics and complexity of specific cases.
e. Stare Decisis and Judicial Overreach
Stare Decisis is primarily a common law term that means “to stand by things decided”. In common law systems, the decision of the higher court is binding on lower courts and takes only one case to determine. WTO has never assumed having stare decisis powers – the reports of panels and the Appellate Body are not binding precedents for other disputes between the same parties on other matters or different parties on the same matter.  Article 3 of the DSU, which states that “[t]he dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system” and that it serves “to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law”. The US pointed out that the DSU does not grant the reports any precedential effect. The question is whether providing security and predictability in the multilateral rule-based trading system leads to a strict stare decisis. In US – Stainless Steel (Mexico), the Appellate Body stated, when ensuring security and predictability “absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case”. The “cogent reasons” seems to be the only test for precedence practice aimed at ensuring consistency of jurisprudence. The Appellate Body is neither a supreme court nor a highest authority giving binding legal interpretations, however, in practice, the panels, as well as Members, follow the “clarifications” of the Appellate Body when submitting legal arguments or positions. Notwithstanding that, it does not amount to a creation of law.
The aforementioned ultimately raises the question of the constitutional structure of WTO, and in particular whether the separation of powers between the judicial and legislative branches is effective enough to balance the dynamic rule-making and adjudication process. The question whether the intergovernmental bodies, namely the Ministerial Conference and General Council are effective in their modalities of voting, is of great concern. Despite its ¾ majority voting rule, these bodies have opted for a full consensus-based decision-making approach, which makes it even harder to come to an agreement among all 164 national delegations. This leaves the Appellate Body alone to deal with the existing legal gaps in order to ensure clarity of law in a pragmatic and timely manner.
Issues raised by the United States have differing levels of complexity and require different solutions. Fixing the Appellate Body problems will clearly require reaching agreement on broader reforms to the WTO system. The reforms should touch upon a number of legal as well as political issues related to the DSU and Appellate Body, including the general legislative-judiciary power balance, amongst others.
A Way Forward: Is “Article 25” A Good Solution?
Mindful that with the flow of consistent actions carried out by the United States, December 11, 2019 would mark the end of the WTO dispute settlement system “as we know it”, several possible solutions have been considered to tackle the deadlock and the default risk of “appeals into the void” situation (i.e. no panel report adoption and lawful enforcement). The unlikeliness to come to a mutually acceptable document to reform the crisis pushed the EU to launch the “interim appeal arbitration” mechanism pursuant to Article 25 of DSU in order to tackle the post-December 11, 2019 consequences of the dysfunctional Appellate Body and, therefore, the WTO Dispute Settlement Mechanism. The other debated solutions were, first, the appointment of Appellate Body members through a majority vote of all WTO Members, second, developing a new plurilateral trade governance system that would relaunch the WTO DSB and, third, to declare the automatic completion of possible appeals and adoption of panel reports according to 16.4 of the DSU, in case of having less than four Appellate Body Members.
As a traditional supporter of rule-based international trade, the European Union decided to trigger Article 25 of DSU in order to preserve the current WTO dispute settlement structure and not risk having pending cases blocked. Canada became first country to sign an Interim Appeal Arbitration Arrangement with the EU in summer of 2019 . Another fifteen Members, including China, joined this plurilateral interim system as of now.
This solution directly relies on Article 25 of DSU and “replicates as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review”. Such arrangement fills the gap from December 10, 2019 until full reinstatement of the Appellate Body, as to ensure the continuity of rule-based international trade.
According to the Interim Arrangement, the participating Members agree to provide all administrative and legal support for the appellate arbitration process separate from the WTO Secretariat staff. The appointment of arbitrators is regulated under Annex 2 of the Interim Arrangement, according to which the arbitrators should comply with same standards as Appellate Body judges, nonetheless, the appointment of current or former Appellate Body Members is also possible. Each case should be reviewed by three arbitrators selected by the WTO Director General . Finally, the participating Members agreed to legally bind themselves to the final arbitration awards .
The plurilateral stop-gap intention is to temporarily tackle the “appeals into the void” situation of WTO DSB and allow the Members to continue to reinforce their efforts for a long-term solution i.e. reforming WTO Appellate Body. The geography of this Interim Arrangement is certainly limited as it does not include the US, which has so far been a main party in about half of all WTO disputes. As for the effectiveness of this temporary mechanism for individual cases and whether it will substantially replace and fill in the gap of Appellate Body absence is yet to be tested.
In these difficult times, a reformed WTO Appellate Body is an essential vaccine to rebuild the world economy infected from the decade long unilateral trade policies and currently struggling with COVID-19 effects. With the cancellation of the WTO Ministerial Conference in June, 2020, a political dialogue and an ultimate resolution for the crisis in WTO and its Appellate Body in particular, becomes less feasible. What is also unlikely to witness is a US lift of blockage of appointments of new Appellate Body judges. In such circumstances, the interim solution initiated by the EU and accepted by another sixteen WTO Members seems to be a pragmatic bridge to ensure continuity to the WTO dispute settlement system. As for the long-term solution to the Appellate Body crisis, it should be tackled as part of a comprehensive reform on the entire global trade governance system. The resolution to the deadlock of rule of law in global trade, in addition to minimizing the protectionist unilateral tendencies worldwide would guarantee the flow of goods and services, as well as the reestablishment of a trust-based and fair world supply chains. A paralyzed appeals mechanism of WTO is one step closer to a trade law of the jungle, which will only work for the benefit of the few during one of the most challenging times for the world economy.
 Reuters, „Coronavirus downturn will be worse than 2008, WTO says” https://www.reuters.com/article/us-health-coronavirus-trade-idUSKBN21C3B0 (accessed on 27 March 2020)
 Weforum, Philip Blenkinsop, Coronavirus could reduce world trade by up to a third, according to the WTO, 09 April 2020. Avalable at https://www.weforum.org/agenda/2020/04/wto-financial-crisis-coronavirus-covid19-recession-trade-global?fbclid=IwAR36DK15f5k_0zG3IQdjAkjvAF2I9xK3kipyjNJyLzXdBK4cI68MwcjU8CM
 Farewell Speech of Appellate Body Member Peter Van den Bossche, 28May 2019, available at https://www.wto.org/english/tratop_e/dispu_e/farwellspeech_peter_van_den_bossche_e.htm
 Jared R. Silverman, Multilateral Resolution Over Unilateral Retaliation: Adjudicating The Use Of Section 301 Before the WTO, pp. 241-242. Available at https://www.law.upenn.edu/journals/jil/articles/volume17/issue1/Silverman17U.Pa.J.Int'lEcon.L.233(1996).pdf
 Arts. 6.1 (establishment of a panel) and 16.4 (adoption of panel report) of the DSU.
 Art. 17 of the DSU.
 Art. 22 of DSU.
 Chapter 7 of ECONOMIC AND TRADE AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE PEOPLE’S REPUBLIC OF CHINA, https://ustr.gov/sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade_Agreement_Between_The_United_States_And_China_Text.pdf
 Chapter 31 of Agreement between the United States of America, the United Mexican States, and Canada, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between
 Gabrielle Marceau, “Evolutive Interpretation by the WTO Adjudicator” Journal of International Economic Law, 2018, 21, 791–813, doi: 10.1093/jiel/jgy042.
 See Ricardo Meléndez-Ortiz, Christophe Bellmann and Miguel Rodriguez Mendoza, “The Future and the WTO: Confronting the Challenges: A Collection of Short Essays”, ICTSD Programme on Global Economic Policy and Institutions, 2012. Available at https://www.ictsd.org/sites/default/files/research/2012/07/the-future-and-the-wto-confronting-the-challenges.pdf
 The President’s Trade Policy Agenda, p. 24-25. Available at https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf. See also, DSU Article 17.5. Statement by the United States Concerning Article 17.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes, Meeting of the DSB on June 22, 2018, available at: https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun22.DSB_.Stmt_.as-delivered.fin_.public.rev_.pdf
 Article 17(5) of DSU: “as a general rule, the [appellate] proceedings shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate Body circulates its report. … When the Appellate Body considers that it cannot provide its report within 60 days, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report. In no case shall the proceedings exceed 90 days.”
 Jens Lehne, Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified? Bern, Carl Grossmann Verlag, 2019, pp. 41-42.
 Article 17.2 of the DSU.
 US Trade Policy Agenda, p. 25-26. See also Statement by the United States at the Meeting of the Dispute Settlement Body of 31.08.2017, doc. WT/DSB/M/400, paragraph 5.5.
 Rule 15 of Working Procedures for Appellate Review. Available at https://www.wto.org/english/tratop_e/dispu_e/ab_e.htm
 Minutes of the DSB meeting of 31 August 2017 (WT/DSB/M/400), para. 5.5. And Minutes of the DSB meeting of 28 February 2018 (WT/DSB/M/409), para. 7.5.
 DSU Article 17.6. Statement by the United States Concerning Article 17.6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes and Appellate Review of Panel Findings of Fact, Including Domestic Law, Meeting of the DSB on August 27, 2018, available at: https://geneva.usmission.gov/wp-content/uploads/sites/290/Aug27.DSB_.Stmt_.as-delivered.fin_.rev_.public.pdf
 Appellate Body report, EC – Hormones, paras. 133.
 United States Trade Representative Report on the Appellate Body of the World Trade Organisation, February 2020, pp. 40-54. Available at https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf See also Statement by the United States at the Meeting of the Dispute Settlement Body of 31.08.2017, doc. WT/DSB/M/400.
 India – Patents (US), para. 65, 105.
 Article 3 of DSU.
 United States Trade Representative Report on the Appellate Body of the World Trade Organisation, February 2020, pp. 47-51. Available at https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf
 Article IX:2 of Marrakesh Agreement Establishing the World Trade Organisation, Available at https://www.wto.org/english/docs_e/legal_e/04-wto_e.htm
 US – Tuna II (Mexico) (Article 21.5 – US), para. 6.138.
 Art. 3.2 of DSU.
 Legal Effects of Panel and Appellate Body Reports and DSB Recommendations and Rulings, Available at https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c7s2p1_e.htm
 Minutes of the DSB meeting of 18 December 2018 (WT/DSB/M/423).
 US – Stainless Steel (Mexico), para. 160.
 WTO Agreement Article IX :2, “2. The Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements. In the case of an interpretation of a Multilateral Trade Agreement in Annex 1, they shall exercise their authority on the basis of a recommendation by the Council overseeing the functioning of that Agreement. The decision to adopt an interpretation shall be taken by a three-fourths majority of the Members. This paragraph shall not be used in a manner that would undermine the amendment provisions in Article X.”