Bennett Jones LLPThe WTO Appellate Body is gone, but WTO dispute settlement remains a viable mechanism for resolving trade irritants

On December 11, 2019, the United States succeeded in forcing the WTO Appellate Body to cease operations, citing concerns of overreach in its rulings and the regular flouting of procedural rules set by WTO Members. This led to several media reports and tweets proclaiming the end of the WTO dispute settlement mechanism, and even of the WTO itself because, it was claimed, its rules can no longer be enforced. Neither claim is in fact true.

There is no doubt that the dispute settlement system has been compromised. The shutting down of the WTO Appellate Body represents a significant loss to the system and, while the Appellate Body will almost certainly be replaced in time, the new version of appellate review will be different.

WTO Panel Level Has Never Been Busier

Nevertheless, the WTO dispute settlement mechanism can and does still function at the panel (first instance) level and it will continue to do so for the foreseeable future. In fact, the panel level has never been busier in 25 years of WTO dispute settlement.

Currently, there are over 30 panels working to resolve disputes brought by 19 different WTO Members. Most active cases involve trade remedies (anti-dumping, subsides, safeguards), while others address measures affecting trade in goods, trade in services, and trade-related aspects of intellectual property rights. Several panels are considering challenges to the steel and aluminum tariffs imposed by the United States, while others are examining measures taken against the United States in response. Canada is pursuing a case against the United States regarding countervailing duties on softwood lumber products. The United States is a complainant in four of the current 30 cases, including two against China—one involving tariffs, and the other intellectual property rights.

During 25 years of WTO dispute settlement, the United States has used the system frequently and effectively, bringing 124 cases, more than any other WTO Member. Despite claims by President Trump to the contrary, the United States has won the vast majority of its cases, including a notable success earlier this year against China when a panel found China’s agricultural subsidies (worth $100 billion in excess of permitted levels, according to U.S. submissions) to be inconsistent with China’s WTO obligations under the WTO Agreement on Agriculture. China did not appeal the decision and the United States and China have agreed that China will have until the end of March next year to amend its measures and bring them into conformity with WTO law.

Panel Reports Will Continue to Matter

Some argue that the current panel activity will be for naught and that losing parties will simply appeal the panel reports “into the void”, ensuring that they do not need to remove their offending measures or risk retaliation for failing to comply with a decision in favour of a complaining party. Of course, there will be examples where this occurs. However, this is unlikely to be the usual course.

Although Members appealed 70 percent of panel reports over the years, they did so because it was an automatic right and it was always worth “another kick at the can”, especially because retaliation is not retroactive according to WTO rules. But Members are unlikely to adopt the same approach as we we await the reinstatement or reformulation of WTO appellate review. To do so would undermine the very dispute settlement system that Members have confidence in and use regularly (even if they would like to see some improvements to its processes and procedures).

Members’ actions demonstrate this to be true: although the closure of the Appellate Body has been foreseen for some time, Members brought 18 new challenges this year, presumably because they believed the dispute settlement system would still be able to bring concrete results, even without a functioning Appellate Body.

Moreover, Members will be mindful that if they appeal an unfavourable decision into the void, they risk the same reaction should they win at the panel level in their next case. Members will want to preserve the effectiveness of the system for their own disputes.

WTO Dispute Settlement Still the Best Option

Finally, Members will want to keep the WTO dispute settlement process running because, frankly, there is no other system that offers the option for legal resolution. For example, Canada has no other avenue for pursuing its dispute against China regarding the stoppage of canola shipments, nor for its dispute against the United States regarding softwood lumber duties because the NAFTA state-to-state dispute settlement system does not work (although press reports indicate that the latest revisions to NAFTA’s replacement, the CUSMA, could eliminate this flaw).

The WTO dispute settlement mechanism is the best, if not the only, option for many WTO Members to seek to resolve disputes covering all manner of trade irritants, from the arbitrary imposition of sanitary and phytosanitary measures, discriminatory imposition of technical regulations and standards, improper imposition of countervailing or dumping duties, discriminatory treatment of service suppliers, and much more. The WTO dispute settlement mechanism is too good to lose or let fall into disuse, and Members will act accordingly.

"Workarounds"

Some Members have opted for “workarounds” while they await the reinstatement of appellate review. For example, Vietnam and Indonesia have signed agreements pledging not to appeal (“no appeal agreements”) should they lose a case. Canada, the European Union and Norway have agreed on an interim appeal arbitration arrangement whereby any appeals among them will be heard by three former members of the Appellate Body serving as arbitrators. Procedures will replicate as much as possible those that were used by the Appellate Body. Canada, the European Union and Norway are hoping that other Members will sign on to this arrangement for their own cases.

A New and Different WTO

As for the view that the WTO itself is dead because without the Appellate Body it is no longer possible to enforce its rules, this assessment is also misplaced. As explained above, WTO rules can still be enforced through the panel system. But in any event, while binding dispute settlement is desirable, the value of rules does not depend solely on their enforceability⁠—the Paris Agreement on Climate Change, which does not include binding dispute settlement, is a case in point. WTO rules were developed not because WTO Members wanted to punish those who flouted them, but because Members sought to create a system that would “strengthen the world economy” in order to foster “more trade, investment, employment and income growth throughout the world.”1

In sum, the WTO dispute settlement process is not dead, but it is different because an important element of its original design⁠—appellate review⁠—is no longer available. Surveys by experts suggest that many (if not most) WTO Members favour a two-tiered dispute settlement mechanism and several of them (including Canada) are working to create a replacement for the Appellate Body.

Twenty-five years of Appellate Body practice has revealed the strengths of that institution, as well as its weaknesses. These should be borne in mind as this new institution takes shape. Canada, as one of the leading users of the WTO dispute settlement mechanism (Canada has brought the third highest number of challenges behind only the United States and the European Union), is well placed to play a central role in designing a new and improved WTO appellate system.


Notes

1 Marrakesh Declaration of April 15, 1994,https://www.wto.org/english/docs_e/legal_e/marrakesh_decl_e.htm.

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