Dispute resolution: US efforts remove quorum of WTO’s Appellate Body

Michael D Goldhaber, IBA US Correspondent

However, even if President Trump pulls the plug, the European Union and Canada have modelled a clever way to clone the court. On 25 July 2019, they agreed to submit any second-instance trade spats between the EU and Canada to arbitration by former Appellate Body members. It’s a process that aims to replicate an Appellate Body appeal, rooted in Article 25 of the WTO’s Dispute Settlement Understanding (DSU). In the words of the former WTO appeals judge Jennifer Hillman, ‘This is a way of keeping the Appellate Body on life support until rationality returns. The EU and Canada are among those stepping into the void as the US abdicates international leadership, and they deserve to be commended.’

Having said that, DSU Article 25 arbitration is a limited solution. Because parties must opt in case-by-case, the backup system will be spurned by the US, and is likely to be spurned by weaker nations in the US trade orbit. Some doubt its legitimacy or enforceability. ‘It’s mostly a gimmick,’ says Professor Robert Howse, the Lloyd C Nelson Professor of International Law of the NYU School of Law. ‘I find it extremely difficult to see how such a mechanism would have the legitimacy and authority of the Appellate Body.’ Indeed, Howse argues that the plan only makes a diplomatic solution more elusive, by sticking a thumb in Uncle Sam’s eye.

Worst of all, the most fundamental problem created by President Trump’s brinksmanship would remain. Any nation displeased with a first-instance WTO ruling might choose to block the outcome by simply ‘appealing’ to the disembodied Appellate Body. Then they could argue that they’re not bound by the result, because they were deprived of their right to appeal. ‘The real danger is the WTO will be rendered irrelevant,’ says the former WTO Appellate Body Chair James Bacchus. ‘Any party that wishes to can insulate itself against adverse rulings by filing a notice of appeal into the abyss.’ If nations are foolish enough to choose this path, adds Hillman, then ‘WTO disputes may turn into mini trade wars.’

Bacchus fears that President Trump prefers bullying to the rule of law. He fears that the US Trade Representative (USTR) would be content to set the clock back a quarter century, and return the trade world to the discretionary and inconsistent patchwork of dispute resolution that prevailed under the General Agreement on Tariffs and Trade. That makes the 2020 US election crucial for the future of WTO dispute resolution. For while neither US party is apt to expand free trade in the current political climate, only one is rejecting multilateralism. One of the consequences of President Trump being reelected, says Bacchus, ‘would be a continued unraveling of the rule-based multilateral trading system overseen by the WTO.’

But Howse thinks a different game is afoot. Historically, the biggest US grievance with the WTO is the Appellate Body’s unwillingness to defer to domestic law on trade remedies. In particular, the Appellate Body takes the position that America’s aggressive method of calculating anti-dumping duties, known as ‘zeroing,’ is contrary to WTO law.

Howse believes that the USTR has no desire to destroy the Appellate Body and return world trade to the Stone Age; rather, the USTR is using nuclear brinksmanship to pressure the WTO to back down on the issue of trade remedies. And while Howse deplores the tactic, he thinks the US has a legitimate grievance that’s amenable to diplomacy.

One day we might even look back on the case of the vanishing Appellate Body, and conclude that it strengthened the system. For although other nations have their gripes about the WTO, America’s brutal and unilateral act of dismemberment has created a rally-round-the-flag effect. ‘I don’t think there’s any other nation in the WTO that believes the Appellate Body’s failings are so serious as to justify basically bringing it to a halt,’ says Howse. ‘Perversely, the whole episode has revealed a strong consensus within the WTO membership of the need for and legitimacy of the WTO Appellate Body.’

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