04 Dispute settlement in crisis
Ending the appointments impasse that has disabled the WTO Appellate Body will require addressing legitimate US concerns. However, a permanent solution also depends on revitalizing the WTO’s rule-making function.
One of the key functions of the WTO is to help members resolve trade disputes. The current crisis at the WTO Appellate Body has highlighted this role. The highest tribunal of world trade is a standing body of seven individuals that hears appeals regarding reports issued by panels in disputes between WTO members. Each Appellate Body member serves a four-year term and may be reappointed for another four-year term.
Because the Trump administration since the summer of 2017 has blocked the (re)appointment of several Appellate Body members, gradually reducing the number of serving appointees, the Appellate Body on 11 December 2019 lost its quorum of three members required to hear new appeals.29 This in effect has brought the Appellate Body’s work to a standstill. It is of some irony that the US – once the strongest advocate for the creation of the Appellate Body – has now caused its (at least temporary) demise.
It should be noted that paralysis of the WTO Appellate Body alone does not mean the end of the WTO or the rules-based international trading system. The panel stage of WTO dispute settlement continues to function. Even though the Appellate Body is non-operational, a party to a WTO dispute can still appeal to it against the report of a panel – however, new appeals are not heard and are thus left in limbo. The situation has potentially severe implications for rules-based dispute settlement. Instead of waiting endlessly, parties that win a case at the panel stage will likely take matters into their own hands and retaliate unilaterally. This could lead to increased protectionism, and a return to arrangements in which power dynamics between parties play a larger role than the rules as the basis for trade relations.
A further irony in the current situation is that the US is the most active user of the WTO’s dispute settlement system. Between 1995 and 2019, the US was a complainant in 124 out of the total of 593 WTO disputes.30 The EU was not far behind, initiating 104 cases. The US and the EU also had the highest number of WTO disputes filed against them between 1995 and 2019 – with the US being a respondent in 155 cases and the EU in 86.31 Both the US and the EU have targeted each other significantly (see Figures 1 and 2).
Figure 1. WTO disputes involving the US as respondent and complainant (number of cases), 1995–2019
— Note: Because disputes can involve multiple complainants and/or multiple respondents, this may lead to somewhat different counts compared to a calculation based only on the number of disputes.
Source: World Trade Organization (undated), ‘Disputes by member’.
Source: World Trade Organization (undated), ‘Disputes by member’.
Figure 1. WTO disputes involving the US as respondent and complainant (number of cases), 1995–2019
Source: World Trade Organization (undated), ‘Disputes by member’.
Even though President Trump has repeatedly claimed that the US loses most of its cases at the WTO, the picture is more complex. Perhaps the current administration is focused on the defensive cases, where the US has ‘lost’ approximately 86 per cent of disputes (i.e. meaning that at least one violation was found).32 But looking at the other side of the coin, in approximately 91 per cent of cases which the US has brought offensively, it has ‘won’ at least one of the claims in each case.33
Figure 2. WTO disputes involving the EU as respondent and complainant (number of cases), 1995–2019
— Note: Because disputes can involve multiple complainants and/or multiple respondents, this may lead to somewhat different counts compared to a calculation based only on the number of disputes.
Source: World Trade Organization (undated), ‘Disputes by member’.
Source: World Trade Organization (undated), ‘Disputes by member’.
Figure 2. WTO disputes involving the EU as respondent and complainant (number of cases), 1995–2019
Source: World Trade Organization (undated), ‘Disputes by member’.
This pattern of a strong record as a complainant and a weak record as a respondent holds for other WTO members as well. In part, it can be explained by the fact that bringing a case to the WTO is costly and time-consuming, so members do so only if they believe they have a legitimate claim. It is also noteworthy that not all the disputes initiated reach the panel stage, with consultation among WTO members often sufficient to settle the matter without requiring a ruling.34
For those cases in which a WTO panel made a ruling in the original proceedings, about two-thirds have been appealed.35 Thus, expectations at the time of the WTO’s creation that appeals would be rare have turned out to be inaccurate.
If one assumes that the US is not systematically treated unfairly in WTO dispute settlements, why then have the cases led to so much strife in the US compared to the reaction that cases receive in other frequent users of the dispute settlement system – such as the EU?
A first notable difference arises when comparing the number of cases in which the US and the EU are complainants with the number of those in which they are respondents. As shown in Figures 1 and 2, the US has had more cases brought against it than it has brought, whereas the EU has been a complainant more often than a respondent.
A second factor is the nature of the cases. About two-thirds of the disputes against the US involve trade remedies (i.e. 110 cases have involved safeguard, anti-dumping and/or countervailing measures).36 For the EU, fewer than half of the cases brought against it have involved trade remedies. As discussed below, trade remedy cases are key to the US’s concerns regarding the Appellate Body.
US concerns regarding the Appellate Body
While a lot of political and media attention has been directed at the Trump administration’s hostility to the WTO, questions about the future of the WTO Appellate Body had already surfaced during the administration of President Barack Obama. In 2011 the US blocked the reappointment of Jennifer Hillman, a widely respected US member of the Appellate Body, in a first sign of US concerns regarding the body’s judicial independence. In May 2016 the US blocked the reappointment of Seung Wha Chang, an Appellate Body member from South Korea, on the basis that it objected to his ‘abstract discussions’ in a series of decisions that allegedly exceeded the Appellate Body’s mandate.37
The Trump administration’s concerns can be broken down into six grievances that cover a range of issues, from the procedural to more substantive areas, as well as the WTO’s interpretative approach. These are, namely:38
- A frequent failure by the Appellate Body to conclude appeals within the mandatory 90-day deadline;
- The practice of Appellate Body members serving on appeals after their term has ended;
- The Appellate Body’s exceedance of its limited authority to review legal issues by reviewing panel findings of fact, including findings related to the meaning of a WTO member’s domestic law;
- The issuance of advisory opinions on matters not relevant to the subject under appeal;
- The treatment of Appellate Body reports as precedent; and
- A propensity to reach decisions that go beyond the text of the WTO agreements, thus adding to US obligations or diminishing US rights.
These complaints have led the US to conclude that the WTO Appellate Body has overreached its mandate. According to the US, ‘the Appellate Body has departed from the dispute settlement system and rules agreed to by WTO Members’.39
Many of these six concerns have some legitimacy and are widely shared – both within the US and around the globe. Appeals often do not get concluded within 90 days. Appellate Body members have stayed on cases after their term has ended to finish an appeal that began while they were in office. According to Hillman, Appellate Body reports often go beyond the critical issue necessary to resolve a dispute. She also claims that appeals ‘frequently re-examine facts rather than solve precise legal questions’, and that ‘too much is often made of past decisions’.40 Similarly, Tom Graham, another former US member of the Appellate Body, has stated that other countries and also some WTO staff largely agree with the US criticisms of the Appellate Body.41 However, whether the alleged tendencies amount to judicial overreach is debatable. Agreeing with the specific concerns of the US does not necessarily equate to agreeing with the US assessment of the Appellate Body’s supposed overreach.
The US does not see itself as a ‘demandeur’, which explains why it has not tabled any proposals of its own for reforming the WTO Appellate Body or restoring it to operational status.
The end goal of the Trump administration’s attacks on the Appellate Body is also not entirely clear. Is it trying to take the WTO back to the way it was at its inception in 1995? Or is the US trying to go back to the GATT system that pre-dated the WTO? On balance, the evidence points to the former. Some in the Trump administration – including the US ambassador to the WTO, Dennis Shea – seem to favour an approach that would restore the dispute settlement system to what the US had agreed to in 1995.42 The fact that many of the concerns raised by the Trump administration are not new also supports this assessment. At the same time, the suspension of the Appellate Body has the effect of the latter: it essentially returns dispute settlement to the pre-1995 system in which panel decisions were not automatically binding.43
The US does not see itself as a ‘demandeur’, which explains why it has not tabled any proposals of its own for reforming the WTO Appellate Body or restoring it to operational status. The US has also not given a clear indication that it would unblock the Appellate Body even if all or most of its key complaints are resolved. As many of the recent reform proposals (outlined below) address numerous US concerns, this raises the question of how serious the US is about getting the Appellate Body back on track.
Two things are clear, however. First, the US’s concerns about the WTO – and about the Appellate Body in particular – did not start with the Trump administration and will not end with it. Second, the US’s concerns reflect systemic issues that are shared by many other WTO members. Few, however, agree with the tactic of blocking the appointment or reappointment of Appellate Body members.
Existing reform efforts
To overcome the Appellate Body crisis, a number of solutions have been proposed and steps taken. These have included a broad range of approaches – some involving single countries and others groups of WTO members; some looking at temporary fixes and others searching for a more permanent solution; some using a bottom-up approach that entails finding shared solutions, and others taking a more prescriptive method by suggesting textual proposals. These different configurations and approaches indicate that the Appellate Body crisis has served as a catalyst for WTO reform efforts.
The EU has played a critical role in advancing the thinking and discussions for strengthening and safeguarding the WTO’s dispute settlement function. The EU is also engaged in work on multiple reinforcing pathways to WTO reform.
In September 2018, the EU issued a concept paper that outlined suggestions for overcoming the deadlock in the WTO dispute settlement system as part of broader reform efforts.44 Later that year, the EU and 11 other WTO members (Australia, Canada, China, Iceland, India, Mexico, New Zealand, Norway, Singapore, South Korea and Switzerland) presented proposals for a way forward on the functioning of the Appellate Body.45
The EU also engages with other partners in the WTO. Trilateral discussions, for instance, that were launched between the EU, the US and Japan in 2017 to address trade-distortive practices by third countries (widely understood to mean China in particular, although this is not explicit) are feeding into WTO reform efforts. Between 2017 and the beginning of 2020, seven ministerial meetings took place.
In 2018, the EU and China set up a joint working group on WTO reform. Their efforts have focused on resolving the WTO Appellate Body crisis. It is noteworthy that the EU seeks to engage with China on WTO reform at the same time as working with the US and Japan to address shared concerns regarding China’s trade practices and policies.
The EU is also part of the Canada-led ‘Ottawa Group’, which consists of a small but very diverse group of WTO members pursuing bottom-up WTO reform. Notably absent from this group are the US and China.
In general, the EU’s proposals regarding the Appellate Body can be summarized as follows:
- WTO rules should provide for the possibility of parties agreeing to exceed the 90-day time frame for the Appellate Body to conclude appeals.
- The number of Appellate Body members should be increased from seven to nine, to support the body’s capacity to deliver appeals.
- Transitional rules should be put in place in respect of outgoing Appellate Body members, outlining the specific circumstances in which a member can stay on to complete pending appeals that started during their term.
- A single, non-renewable longer term of six to eight years should be introduced for Appellate Body members.
- Legal issues subject to appeal by the Appellate Body should not include any review of the meaning of domestic legislation.
- The Appellate Body should address only the issues necessary for the resolution of each specific dispute.
- Annual meetings should be arranged between WTO members and the Appellate Body to address the issue of precedent by providing a forum to discuss Appellate Body approaches, systemic issues or trends in jurisprudence.
The WTO General Council launched an informal process on matters related to the functioning of the Appellate Body in December 2018. In October 2019 the facilitator of this group, Ambassador David Walker of New Zealand, presented a report outlining a number of proposals on which members of the group converged.46 These proposals followed the list of US concerns. However, the US ambassador to the WTO, Dennis Shea, criticized some of the Walker proposals, arguing that ‘[it] simply will not work to “paper over” the problems that have been identified with new language’.47
Assessment of interim solutions
As it became clearer that ongoing efforts to reform the WTO Appellate Body would not prevent the suspension of its operations from mid-December 2019, the EU took steps to set up interim appeal arbitration arrangements. In July 2019, the EU and Canada agreed the first of such arrangements.48 This was followed in October 2019 by an agreement between the EU and Norway.49
In the wake of the suspension of the Appellate Body’s activity, the EU and 18 other WTO members set up a ‘multi-party interim appeal arbitration arrangement’ (MPIA), which became effective on 30 April 2020.50 This mechanism allows participating WTO members51 access to a binding, two-step dispute settlement system for handling disputes among them. Under this mechanism, the parties use the WTO’s arbitration rules (Article 25 of the Dispute Settlement Understanding) to replicate the substantive and procedural aspects of the Appellate Body’s functions until the body becomes operational again.
This parallel system does not include the US. However, more than 70 per cent of WTO cases involve the US (as a respondent, complainant or third party), and for many countries the majority of disputes are with the US.52 So a parallel system that excludes the US significantly limits the options for appeal. Moreover, it creates a situation in which the US is in effect a ‘free-rider’: while other WTO members follow a binding, two-step dispute settlement system, the US is able to benefit from this system without itself being subject to it.
A parallel system that excludes the US significantly limits the options for appeal. Moreover, it creates a situation in which the US is in effect a ‘free-rider’.
A parallel system also risks undermining efforts to reform the Appellate Body. So long as the US continues to benefit from the interim appeals arrangement of other WTO members, it is less likely to stop blocking the nomination process for Appellate Body members. In addition, if the parallel system remains in place over the long term, it could lead to fragmentation of the rules-based international trading system.
Other interim solutions have included agreements between WTO members to accept panel decisions and forgo the right to appeal.53 For instance, in March 2019 Indonesia and Vietnam agreed in respect of an ongoing dispute that they would not appeal the panel’s decision, should the Appellate Body not be functioning at the time.54
Some have also suggested that WTO members simply vote on appointing new Appellate Body members, though there is no agreement on whether this is legally possible.55 Regardless of its legality, however, the proposed measure does not provide a workable interim solution because it would further alienate the US (and many other WTO members).
In short, all of the above-mentioned solutions and proposals are just short-term workarounds that do little to address the US’s systemic concerns. Indeed, the measures taken or proposed by various parties could be seen by the US as further proof that the current set-up no longer serves its interests.
Towards a permanent solution and dispute settlement reform
A permanent solution to the crisis facing the WTO Appellate Body and dispute settlement system will require both the procedural and substantive concerns of the US to be addressed. The procedural concerns are more easily resolved than the substantive ones. While the former require mostly technical interventions, responding to the latter will require political solutions.
The Walker proposal is highly responsive to the US concerns. However, the US rightly questions what would guarantee that the Appellate Body will follow the principles advocated. Jennifer Hillman has argued that resetting the WTO Appellate Body could involve a three-pronged approach consisting of: (1) adopting the Walker principles; (2) establishing a new oversight committee to ensure those principles are adhered to; and (3) restricting the term limits of the WTO Secretariat’s legal staff to enable new thinking to flourish, and to allow for a better balance of power between adjudicators and staff. Such an approach has also been suggested by a group of 26 US business organizations.56
Another proposal for reforming the Appellate Body has focused on treating the most controversial types of decisions differently. Most US complaints stem from Appellate Body decisions on trade remedy actions, such as anti-dumping and countervailing actions. Some former Appellate Body members have therefore suggested creating a special Appellate Body that only hears appeals against trade remedy decisions.57 While this could potentially move the process forward in terms of partially restoring the WTO Appellate Body to operational status, it would not address the US’s fundamental complaints.
Simply focusing on getting the Appellate Body functioning again misses the point. At the root of the crisis is a breakdown in the negotiation (or rule-making) function of the WTO.
Overall, simply focusing on getting the Appellate Body functioning again misses the point. At the root of the crisis is a breakdown in the negotiation (or rule-making) function of the WTO. The distractions of the failed Doha Round not only prevented WTO members from updating the existing trade rules, but also indirectly set back efforts to agree new ones that might better reflect changes in the global economy since the WTO’s formation in 1995. In particular, the current rules are not fit for purpose in terms of addressing China’s trade policies and practices, nor do they deal adequately with digital trade (both of these issues are further discussed in Chapter 8). This failure to negotiate up-to-date rules has increased the pressure on WTO panels and the Appellate Body.
A long-term solution to the Appellate Body crisis would thus involve a new balance between the rule-making and dispute settlement functions of the WTO. To address dispute settlement, WTO members need to go back to the negotiation table. Instead of pressuring the current US administration to stop blocking nominations to the Appellate Body, engagement with the US on the rule-making aspects of the WTO’s mandate (discussed in the next chapter) and on some institutional issues (the topic of Chapter 6) might be more productive.
29 World Trade Organization (undated), ‘Appellate Body Members’, https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm (accessed 14 Jul. 2020).
30 World Trade Organization (undated), ‘Disputes by member’, https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm (accessed 14 Jul. 2020).
31 Ibid.
32 Lester, S. (2020), ‘U.S. “Wins” and “Losses” in WTO Disputes’, International Economic Law and Policy Blog, 15 March 2020, https://ielp.worldtradelaw.net/2020/03/us-wins-and-losses-in-wto-disputes.html (accessed 14 Jul. 2020). Note that Simon Lester refrains from using the terminology ‘winning’ and ‘losing’ WTO disputes because of methodological issues and efforts by governments to spin the rulings.
33 Ibid.
34 World Trade Organization (undated), ‘Dispute settlement activity — some figures’, https://www.wto.org/english/tratop_e/dispu_e/dispustats_e.htm (accessed 14 Jul. 2020).
35 Ibid.
36 Author’s own calculations. World Trade Organization (undated), ‘Follow disputes and create alerts’,
https://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm (accessed 14 Jul. 2020).
37 Murril, B. J. (2019), ‘The WTO’s Appellate Body Loses Its Quorum: Is This the Beginning of the End for the “Rules-Based Trading System”?’, Congressional Research Service Legal Sidebar, 16 December 2019,
https://crsreports.congress.gov/product/pdf/LSB/LSB10385 (accessed 14 Jul. 2020).
38 The US complaints were made in a series of statements at meetings of the WTO’s Dispute Settlement Body in 2018 and 2019. A compiled list of the grievances can be found in the following report: Office of the United States Trade Representative (2020), Report on the Appellate Body of the World Trade Organization, February 2020, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf (accessed 14 Jul. 2020).
39 Ibid.
40 Hillman, J. (2020), ‘A Reset of the World Trade Organization’s Appellate Body’, Council on Foreign Relations, 14 January 2020, https://www.cfr.org/report/reset-world-trade-organisations-appellate-body (accessed 14 Jul. 2020).
41 Graham, T. (2020), ‘The rise (and demise?) of the WTO Appellate Body’, John D. Greenwald Memorial Lecture, Institute of International Economic Law, Georgetown University, 5 March 2020, https://iielaw.org/wp-content/uploads/2020/03/The-Rise-and-Demise-of-the-WTO-Appellate-Body.pdf (accessed 14 Jul. 2020).
42 Office of the United States Trade Representative (2018), ‘Statement of the United States by Ambassador Dennis Shea at the 14th WTO Trade Policy Review of the United States of America’, 17 December 2018, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/december/statement-united-states-ambassador (accessed 14 Jul. 2020).
43 Under the GATT dispute settlement system, there needed to be consensus to adopt panel reports. This gave the losing party an opportunity to block the adoption of a report.
44 European Commission (2018), ‘European Commission presents comprehensive approach for the modernisation of the World Trade Organisation’, 18 September 2018, https://ec.europa.eu/commission/presscorner/detail/en/IP_18_5786 (accessed 14 Jul. 2020).
45 European Commission (2018), ‘WTO reform: EU proposes way forward on the functioning of the Appellate Body’, 26 November 2018, https://trade.ec.europa.eu/doclib/press/index.cfm?id=1945 (accessed 14 Jul. 2020).
46 World Trade Organization (2019), ‘Informal Process on Matters Related to the Functioning of the Appellate Body – Report by the Facilitator H.E. Dr. David Walker (New Zealand)’, 15 October 2019, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/Jobs/GC/222.pdf (accessed 14 Jul. 2020).
47 U.S. Mission to International Organizations in Geneva (2019), ‘Statements Delivered to the General Council by Ambassador Dennis Shea, U.S. Permanent Representative to the World Trade Organization’, 15 October 2019, https://geneva.usmission.gov/2019/10/15/statements-by-the-united-states-at-the-wto-general-council-meeting (accessed 14 Jul. 2020).
48 European Commission (2019), ‘Joint Statement by the European Union and Canada on an Interim Appeal Arbitration Arrangement’, 25 July 2019, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2053 (accessed 14 Jul. 2020).
49 European Commission (2019), ‘EU and Norway agree on interim appeal system in wake of World Trade Organization Appellate Body blockage’, 21 October 2019, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2074 (accessed 14 Jul. 2020).
50 European Commission (2020), ‘Interim appeal arrangement for WTO disputes becomes effective’, 30 April 2020, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2143 (accessed 14 Jul. 2020).
51 As of 10 August 2020, Australia, Benin, Brazil, Canada, Chile, China, Colombia, Costa Rica, Ecuador, the EU, Guatemala, Hong Kong, Iceland, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay have signed the Multiparty Interim Appeal Arbitration Arrangement.
52 As mentioned, out of the 593 disputes brought to the WTO between 1995 and 2019, the US was a complainant in 124 cases and a respondent in 155 cases. In the same period, it was a third party in 157 cases. See World Trade Organization (undated), ‘Follow disputes and create alerts’.
53 For a good overview, see Payosova, T., Hufbauer, G. C. and Schott, J. J. (2018), The Dispute Settlement Crisis in the World Trade Organization: Causes and Cures, Policy Brief 18–5, Washington, DC: Peterson Institute for International Economics, March 2018, https://www.piie.com/publications/policy-briefs/dispute-settlement-crisis-world-trade-organisation-causes-and-cures (accessed 14 Jul. 2020).
54 World Trade Organization (2019), ‘Indonesia – Safeguard on Certain Iron or Steel Products’, Understanding Between Indonesia and Vietnam Regarding Procedures under Articles 21 and 22 of the DSU, 27 March 2019, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/DS/496-14.pdf (accessed 14 Jul. 2020).
55 Centre for International Governance Innovation (2019), CIGI Expert Consultation on WTO Reform, Special Report, Spring 2019, https://www.cigionline.org/sites/default/files/documents/WTO%20Special%20Report_3.pdf (accessed 14 Jul. 2020).
56 Americans for Prosperity (2019), ‘Letter to the President’, 6 December 2019, https://americansforprosperity.org/wp-content/uploads/2019/12/WTO-AB-coalition-letter-to-president-2019-12-06.pdf (accessed 14 Jul. 2020).
57 Hillman, J. (2018), Three Approaches to Fixing the World Trade Organization’s Appellate Body: The Good, the Bad and the Ugly?, Washington, DC: Institute of International Economic Law, Georgetown University, December 2018, https://www.law.georgetown.edu/wp-content/uploads/2018/12/Hillman-Good-Bad-Ugly-Fix-to-WTO-AB.pdf (accessed 14 Jul. 2020).