Unappealable but not Unappealing: WTO dispute settlement without the Appellate Body

The World Trade Organization’s (WTO’s) dispute settlement system has entered a kind of limbo since the Trump Administration killed the Appellate Body by blocking appointments of new members to replace those retiring. The Biden Administration hasn’t reversed Trump’s moves, signalling instead that the future of WTO appellate review should be reconsidered as part of broader talks on dispute settlement reform. Some feel the United States has simply turned its back on the WTO, and without an Appellate Body, the future for a rules-based WTO order is dim. This pessimism was reinforced when the Biden Administration explicitly repudiated panel rulings against it where U.S. trade officials had invoked national security; it has been a longstanding U.S. view, through various administrations, that the national security exception in Article XXI of the General Agreement on Tariffs and Trade (GATT) is effectively self-judging, or entirely non-justifiable.

At the WTO’s 12th ministerial last year, where progress was made on a range of issues, including fisheries subsidies, members committed to a fully functional dispute settlement system by 2024. To understand what might be expected of that process, we need to have a sober view of the current situation. As well, our judgment should not be clouded by excessive nostalgia for the original arrangements that Trump disrupted.

That the system is not as broken as often claimed is reflected in the confidence of WTO members in the panel process (the first-instance ad hoc arbitration of disputes) even in the absence of an appellate body. Members have continued to bring a steady stream of disputes to the panel process. For all the panic and despair expressed in much of the recent commentary on the state of dispute settlement, there has been no rigorous analysis of this striking development. (In the first year or so after the Appellate Body’s demise, members might have brought disputes on the reasonable optimism that a new U.S. administration would move quickly to unblock the Appellate Body. But this does not explain the more recent flurry of claims.)

Appellate Body Precedents Live On

But another striking fact is the extent to which panels, well after the Appellate Body’s demise, have followed its jurisprudence. And this may indeed explain some of the continued confidence in panel proceedings. A close reading of all the panel rulings since the end of the Appellate Body reveals that its absence has not really altered the precedential value of its rulings. These reports have addressed many different areas, from safeguards to food safety to national security justifications for trade measures. There is a certain irony here because those in Washington who cheered the Trump Administration’s destruction of the Appellate Body saw it as an opportunity to break free of case law they regarded as illegitimate judicial overreaching.

Another striking fact is the extent to which panels, well after the Appellate Body’s demise, have followed its jurisprudence.

Instead, to not disrupt the legal security that Appellate Body precedents provided, panels have tended to apply that case law faithfully, give or take a few nuances. At least as summarized by the panels, the arguments of the parties to the disputes have also not invited panels to take advantage of the Appellate Body’s absence to boldly reconsider some of its precedents—even the more controversial ones.

Despite the absence of a functioning Appellate Body, controversies over the WTO legality of new types of regulations revolve largely around readings of Appellate Body case law. Nowhere is this more the case than in the European Union’s (EU) Carbon Border Adjustment Mechanism. There is hardly an academic article or policy paper that does not cite, or indeed rely on, the landmark shrimp/turtle decisions, where the Appellate Body held that unilateral measures for the purposes stated in Article XX of GATT—including conservation of exhaustible natural resources—could in principle be justified, provided they are applied in an even-handed manner as required by Article XX’s chapeau (preambular paragraph).

Even if the future of appellate review, and indeed precedential rulings in general, is unclear, no one is reverting to open-ended speculations about whether measures regulating other countries’ process and production methods are generally compatible with the multilateral trading system. The main lines of Appellate Body jurisprudence (albeit not necessarily the fine print) have become part of what could be called the WTO’s informal constitution. A good example of this is the post-Appellate Body ruling in the dispute about avocados between Costa Rica and Mexico. Before applying the legal rules to the facts of the case, the panel deftly synthesized the Appellate Body’s approach to the standard of review under the Sanitary and Phytosanitary Agreement as if it were a foundational starting point for any panel interpreting the agreement.

Going Beyond Appellate Body Jurisprudence

Thus, for post-Appellate Body panels, Appellate Body case law remains vital and implicitly authoritative. At the same time, some WTO members are experimenting with a form of ad hoc appellate review using the arbitration provisions of the WTO’s Dispute Settlement Understanding. The EU and several other members have sought to institutionalize this practice through the Multi-Party Interim Appeal Arrangement (MPIA).

So far, one case, the frozen fries anti-dumping dispute between the EU and Colombia, has been decided under the MPIA, though a handful are pending. One other appeal has been undertaken through arbitration agreed between the parties, albeit not under the MPIA, on local manufacturer requirements for sales of pharmaceuticals in Turkey. In the former case, while largely reinforcing Appellate Body jurisprudence, the arbitrators evolved in an important way, bringing to life a special rule for deferential review of domestic agency legal and factual determinations in anti-dumping cases (Article 17.6 of the Anti-Dumping Agreement). The Appellate Body had ignored this provision because it could not, in the case of legal determinations of domestic agencies that concerned WTO rules, reconcile it with general public international law rules of interpretation of treaties. On this score, the MPIA arbitrators arguably did a better job than the original Appellate Body while (at least in one particular respect) answering U.S. concerns about the Appellate Body reading out of the law the deference required to domestic authorities in these kinds of cases.

In the Turkey dispute on drugs, much turned on the interpretation of the government procurement exception in GATT, which Turkey was invoking to defend localization of production requirements. Here the arbitrators relied largely on the Appellate Body’s approach to procurement in cases such as Canada–Renewable Energy, though in subtle ways mitigating the narrow and formalistic aspects of the Appellate Body jurisprudence on this issue. The arbitrators also echoed the Appellate Body’s reluctance, arguably wrongly, to accept Article XX justifications for localization requirements, in this case, as necessary for the protection of human health and life. In both disputes, like the panels discussed above, the appellate arbitrators began from the prior Appellate Body jurisprudence as a constitutional foundation for interpretation but exercised some initiative to evolve it—arguably a positive thing. But there is a clear limit to the extent that ad hoc arbitration can adjust the established jurisprudence—though it is impressive that the MPIA now includes more than two dozen WTO members, including China, Japan, and the EU.

A New Appellate Tribunal With a U.S. Opt-Out?

The signs are that the Biden Administration is unlikely to buy into the idea of a new appellate tribunal with compulsory jurisdiction. As I have suggested elsewhere, one might have to imagine an appeals body where not all WTO members accept routine compulsory jurisdiction or where the United States has a waiver to opt out.

Still, if supported by the vast majority of WTO members and institutionalized with a secretariat within the organization, such a tribunal may acquire much of the legitimacy enjoyed by the original Appellate Body. Just as the International Court of Justice’s rulings are widely recognized as highly persuasive precedents despite the United States and many other states not accepting its jurisdiction in most kinds of disputes, my bet is that a new WTO appellate tribunal can live with the United States only accepting its jurisdiction on a case-to-case basis (or perhaps filing a reservation applying to certain types of cases, such as those dealing with national security or certain types of disputes with China, for example).

The Appellate Body issue is connected to enforcement or compliance, and that is what is seen as in jeopardy by those alarmed by U.S. behaviour.

For some, the Biden Administration’s stance in refusing to accept and implement the national security panel decisions signifies a wholesale repudiation of the rule of law at the WTO. The Appellate Body issue is connected to enforcement or compliance, and that is what is seen as in jeopardy by those alarmed by U.S. behaviour here.

The original system allowed retaliation through withdrawal of trade concessions once the Appellate Body confirmed a panel ruling if the losing party did not comply within a reasonable period of time. But this arrangement was far from perfect. In the hormones and bananas cases, the European Commission, despite retaliation from the winning parties for many years, didn’t comply. Retaliation itself is a harmful type of remedy as it involves reimposing trade barriers. In the dispute on Internet gambling with the United States, Antigua was granted the right to suspend intellectual property rights in the face of U.S. non-compliance—but given the power imbalance between the two countries, never found a way to exercise this right. In these various instances, non-compliance was not a trigger for alarm that the system of rules-based trade at the WTO was threatened with collapse.

Other Priorities, Other Tensions

There are many issues on the WTO agenda: the fate of special and differential treatment for developing countries, the accessibility of trade finance in a world of proliferating financial sanctions and in the face of debt crises in the global South, and completing the fisheries subsidies agreement are among them. Reforming or restoring something like the original dispute arrangements is far from the only priority, and given the messy but not catastrophic situation described above, it shouldn’t necessarily be the top one.

Reforming or restoring something like the original dispute arrangements is far from the only priority.

Muddling through with a little experimentation (as with the MPIA) has its merits. As was seen with the pandemic, there are trade tensions and challenges that must be tackled much faster than a multi-phase, two-level dispute system can handle. What would have been the point of bringing to litigation disputes about import and export restrictions of personal protective equipment and medical goods, which would take up to 3 years to go through the system if the Appellate Body were properly functioning? Disruption of supply chains from war and related geopolitical conflict also doesn’t seem like something that can be solved in real time through quasi-judicial settlement of disputes.

In any case, the United States and others are resorting to “friendshoring” and other resilience strategies that may be legitimate and understandable in current circumstances, but reflect a world different from that assumed by existing WTO rules, for instance, on subsidies. Pushing through disputes on these matters under current rules may create more friction and fragility in the system, rather than strengthening legal security. So would trying to change the rules by consensus, given the U.S.–China conflict as well as other North/South divides on industrial policy and development.

At the same time, there have been positive results in attempting to resolve fact- and science-intensive disputes about regulatory barriers outside the dispute settlement system, for example, through regulatory dialogue facilitated by the WTO’s Technical Barriers to Trade Committee. Finally, despite the recent drama around national security, new industrial policies, and friendshoring, the great bulk of world trade continues to go on based on the WTO framework of bound most-favoured nation tariffs and related rules on customs practices and policies. If we don’t put excessive demands on it and can accept an imperfect legalism, the system will keep on doing what it is, for the most part, supposed to do.

Robert Howse is the Lloyd C. Nelson Professor of International Law at NYU School of Law. This essay draws on his recent article co-authored with Joanna Langille, which was published earlier this year. See Howse, R., & Langille, J.  (2023, January 25). Continuity and change in the World Trade Organization. American Journal of International Law, 117(1), 1–47. https://www.cambridge.org/core/journals/american-journal-of-international-law/article/continuity-and-change-in-the-world-trade-organization-pluralism-past-present-and-future/C4D2467D46520D4E7C5D1B715D052627