WTO Appellate Body: Impending Hiatus

The World Trade Organization Appellate Body is facing an impending crisis as two of its three Members have terms set to expire on 10 December 2019 and the Trump administration unilaterally blocked appointments of new Members.

By: Archana Vasa, Staff Member

The World Trade Organization (WTO) Appellate Body is facing an impending crisis and will be unable to meet quorum and review appeals, as two of its three Members have terms set to expire on 10 December 2019.

The Appellate Body can be composed of up to seven members, each of whom is elected by the Dispute Settlement Body (DSB) and serves a four-year term. But, for the past two years, the Trump administration has unilaterally blocked appointments of new Appellate Body Members, leaving just three members remaining to review cases that have been decided by panel report. This is the minimum number of Members required for the Appellate Body to meet quorum and review appeals. With the looming expiration of terms of service for two Members, the Appellate Body will grind to a halt if new Members are not appointed.

To be sure, the Appellate Body has its imperfections. There has been a laundry list of complaints voiced by critics, including judicial activism and subsequent infringement upon national sovereignty, treatment of Chinese state-owned enterprises, and the lengthy process exceeding the mandated ninety days. The United States, an outspoken critic of the Appellate Body, has alleged that the Appellate Body has engaged in an interpretation of WTO rules that transcends the remit of what was originally contemplated under the Dispute Settlement Understanding (DSU).

While some of these criticisms have merit, this does not mean the Appellate Body is not worth maintaining. If new Members are not appointed, there will be consequences affecting the WTO’s entire legal system. Article 16.4 of the WTO’s DSU empowers parties to appeal the panel report that is generated when a case is initially reviewed. The DSB cannot adopt resolutions outlined in panel reports until appeals are resolved. If the Appellate Body is not functioning, each dispute that is appealed will remain in legal limbo. Defendants could appeal panel reports into a metaphorical void, making the finality on valid legal claims impossible to reach.

Because panels can still generate reports through an Appellate Body shutdown, the impact of this shutdown would be limited if cases were rarely appealed. However, since 1996, the aggregate percentage of panel reports appealed now stands at 67%. Given the likelihood that this high rate of appeals will continue, the shutdown of the Appellate Body could potentially paralyze the system as a whole and cripple the world’s largest multilateral trade organization.

A number of solutions proposed might present a path forward though the crisis. There is, of course, the possibility of reconstituting the appeals process and cutting the United States out of the picture. However, WTO Members may understandably be hesitant to marginalize one of the system’s largest players. And given the upcoming election in the United States, it would make more sense to wait for results rather than cut the United States out completely.

Another option is to adopt multilateral agreements to arbitrate disputes that are appealed. The EU and Canada adopted an agreement to this effect in July. This agreement, grounded in Article 25 of the DSU, provides an interim appeal arbitration mechanism that closely resembles WTO procedures, including the binding nature of WTO decisions. This arrangement could be replicated by other WTO members seeking a way to continue dispute resolution when the Appellate Body cannot operate. However, critics have noted this solution is contingent upon other WTO Members following the EU and Canada’s example by agreeing to bind themselves to arbitration even when an outcome is unfavorable. Further, if the United States does not agree to participate in any of the alternative arbitration agreements, trade disputes with the world’s largest economy would remain unresolved.

One early proposal was for the Appellate Body to use its authority granted under Article 17.9 of the DSU to amend the Working Procedures for Appellate Review to allow panel reports to be automatically adopted by the DSB. This is one way to potentially sidestep U.S. objections, as the Appellate Body does not need US approval to exercise this authority. This solution would allow the WTO’s dispute resolution system to continue operating, but has garnered little political backing among WTO member states.

Critics claim these solutions are untenable, pointing out that each solution would both alienate the United States and fail to generate the will necessary for substantive change. One proposal calls for constructive discussions and negotiations as a solution to the crisis. Theoretically, these discussions would result in greater U.S. engagement and backing, as well as clear and revised WTO procedures, rights, and obligations.

While none of these solutions have appeared feasible in light of the serious disagreements among WTO Members, many could provide an effective procedural stop-gap measure to the inevitable upcoming Appellate Body hiatus. While it is clear that substantive change is critical for the long-term survival of the Appellate Body, in order to reach that stage, short-term compromise must first be reached.

Archana Vasa is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. Archana graduated from George Washington University in 2017 with a B.A. in International Relations.