ince its inception in 1995, the World Trade Organization (WTO) dispute settlement system (DSS) has evolved into a prime instrument of judicial conflict management in international law. Between 1995 and 2019, 593 disputes were filed. More than 350 disputes were dealt with by panels and the Appellate Body (AB) — more than in any other area of public international law. The overall process of legalization in dispute resolution was remarkable. While the General Agreement on Tariffs and Trade used to be dominated by trade policy experts, lawyers and due process of law increasingly played a crucial role. It became tempting to address in dispute settlement what international negotiations failed to settle.
Over time, the lack of effective legislative response exposed the final word of the AB. In its tradition of exceptionalism, the United States increasingly took issue with rulings in the field of trade remedies and objected to the reappointment of AB members. Finally, under the Trump administration’s mercantilist and protectionist agenda, the United States, claiming national sovereignty and backed by the importance of the US market and the US dollar for world trade, unduly blocked in principle the appointment of new members, rendering the AB non-operational by the end of 2019.
The AB brought the WTO much closer to public international law and other regulatory areas.
While majority voting in the appointment of new AB members could legally overcome the current impasse in the General Council, the roots of the problem go somewhat deeper, beyond trade remedies and the United States’ “America first” approach to trade. The problem, instead, stems from the crucial relationship between WTO panels and the AB. Whatever the outcome of the current WTO AB crisis, this relationship deserves consideration.
Evolution and Original Design
The first 25 years of the DSS were characterized by increased prominence and influence of the AB. As a new institution, the AB had to build its reputation and influence, step by step. Within a decade, the AB developed the attitudes of a full court of law, both in terms of proceedings and legal reasoning. Composed of eminent trade diplomats, lawyers and experienced judges, the AB brought the WTO much closer to public international law and other regulatory areas. The AB left reasoning limited to the WTO agreements behind, recognized the application of the Vienna Convention’s rules on treaty interpretation, and engaged with panels in completing lacunae on procedural and substantive law. The AB famously held that WTO law cannot be dealt with in clinical isolation (US–Gasoline). The case law in particular relating to environmental concerns spearheaded legal developments. And the AB’s findings are of lasting importance in view of the challenges of climate change mitigation and adaptation today, preparing the ground to properly deal with process and production methods in coming years.
Beyond the great constitutional questions, the AB also made its mark in more specialized areas of WTO law, often adopting a narrowly focused textual and literal interpretation, even referring to English language dictionaries, despite the three lingual settings of the WTO, including French and Spanish. The AB often confirmed panel findings on particular points. Frequently, the AB overruled panels, and even more frequently (reflected in the number of times the AB “modified” as opposed to “upheld” or “reversed” panel findings), it substituted its legal reasoning without changing outcomes. The judicial attitude of the AB toward the panels’ work and reports clearly was shaped by what lawyers call full de novo review of panel findings on legal issues, while it practised deference on procedural issues and had to accept factual determinations made by panels.
As a result, by 2014, 72 percent of all panel reports since 1995 were appealed and cross-appealed by the parties1 — a much higher rate than in any other system of appeal. More frequently, panels came to be considered as a first step of legal assessment, following failed consultations, and panel reports were deemed preliminary. The interim review increasingly focused on factual amendments, while keeping legal arguments for the appellate stage, thus prolonging settlements. Increasingly, panels assumed a role comparable to the administrative law judge in US law in preparing — but not disposing — the case. Indeed, parties were almost bound to appeal, just in order to gain time for the defendant, and to make sure that all legal remedies were exhausted before legal or policy changes could be successfully implemented at home. Financial incentives to refrain from appealing do not exist. Except for parties’ own costs, including external lawyers, no fees arise. The costs of increasing appeals are borne by the membership, including growing staff needs in the AB Secretariat in order to handle the case load.
The resulting system — which places the AB at the heart of the system and works toward a fully independent International Trade Court — is impressive, but not in line with the original design. At the time, negotiators had a more modest role in mind, which is evident in a number of existing AB characteristics. For example, members of the AB are not full-time, but operate under a retainer fee. Appeals should ideally focus on particularly contentious points — they were not designed to be of a general nature. As stated in article 17.5 of the Dispute Settlement Understanding (DSU), cases should be dealt with in three months, which practically excludes the perception of comprehensive appeals in complex cases. The original AB Secretariat was small. The main function assigned to the new body was intended to make sure that the authorization of suspension of concessions was well-founded in law. It was not meant to replace the central importance of the panel stage.2
Panels: The True Heart of the System
A crucial question of WTO reform as it relates to dispute settlement emerges: should the AB or panels be at the heart of the system? Defenders of current practices strongly build upon the AB, as it brought about the necessary balance of market access, non-trade concerns and domestic policy space, overcoming the neoliberal logic of the Uruguay Round results following the Seattle protests. To the extent that reforms are considered necessary in response to US criticism, they mainly relate to the appellate stage. Much less attention is paid to the panel stage.
To some extent, the dominant role that the AB assumed during the first decades of its work can be partly attributed to weaknesses at the panel stage. These weaknesses should be openly addressed. It is submitted that both stages in reform need to be considered in tandem.
While panels are ad hoc, supported and advised by the WTO Secretariat, the AB is permanent in composition. This creates an institutional imbalance in the sense that the AB has no ongoing relationship with particular panels in a way that would inform its consideration of the issues before it. Except for article 21.5 DSU arbitrations, the same panel composition is unlikely to return to the file. It would seem that the AB, for such reasons, never looked at longer-term institutional costs of reversing panel findings. An important argument to support the role of the AB lies in the alleged risk of weak ad hoc panel composition and too much power being thus given to the WTO Secretariat, which, in turn, could influence or steer the process behind closed doors. Members do not fully trust ad hoc panels and therefore insist on a process of trial and error being potentially subject to appeal. It is for such reasons that I suggested3 introducing permanent panel chairs, which provide continuity and respect by the Secretariat and the AB alike. Partial professionalization of the panel stage would also allow for introducing remand powers in complex cases. As for the eligibility of members of the panel, current restrictions due to third country participation should be left behind; members or panels work in their personal capacity. Much like members of the AB, panel members do not represent governments. As I argued in a 2007 article,4 the Secretariat should be represented by legal counsel in defence of the public interest of the multilateral trading system. This would give a voice to the institution, which the reports would officially reflect in a transparent manner.
Views of the AB prevail because it institutionally claims the last word on the matter, and not because the interpretation inherently is more convincing.
Reshaping Standards of Appellate Review
The DSU clearly entails powers of full and de novo review of panel findings by the AB. Article 17.6 of the DSU provides for review of legal issues covered in the panel report and legal interpretations developed by the panel. The question is whether full powers should be used in all cases and at all times, or whether a certain degree of deference should be contemplated in relation to the reasoning and findings of panels. Full review of the AB should focus on what we termed constitutional issues at the outset, while exercising more restraint on more technical questions such as trade remedies or tariff issues. Interpretative differences between panels and the AB often remain within the margin of possible reasonable interpretations. Views of the AB prevail because it institutionally claims the last word on the matter, and not because the interpretation inherently is more convincing.
In the same vein, Robert McDougall suggests,5 as a minimum, that the AB might employ a higher (and more deferential) standard of review of factual findings under article 11 of the DSU, exclude interpretations of national laws and avoid statements of interpretation dispensable to the case at hand (obiter dicta). More ambitiously, he suggests considering certiorari powers of the AB, “based on broadly defined circumstances such as when panel reports risk creating inconsistency, demonstrate evidence of manifest legal error, involve matters of significant public interest or of systemic interest to the trading system, or disputes over imprecise obligations.”6
A number of factors, therefore, can be considered in adopting and defining an appropriate appellate standard on a case-by-case basis:
- the constitutional importance of the issue for the multilateral system;
- the number of third parties presenting views on the legal issues involved as an indication of the systemic relevance of, and interest in, the matter; and
- the political sensitivity of the case in the context of ongoing negotiations.
Judicial restraint vis-à-vis panel rulings, on the other hand, may be indicated in disputes of a typical bilateral nature and interest, less involving third-party interests, and those relating to technical matters in the field of tariff and non-tariff barriers unrelated to issues of non-discrimination. In such situations, the AB should respect and protect interpretations developed by the panel. Upon review, legal reasoning and findings are upheld if found to be properly argued and substantiated, even though a different — and perhaps even preferable — view exists. In other words, the AB could adopt what lawyers call a “rule of reason” in such cases, specifically tailored to the two-tier WTO system. Such a standard would balance the system and reduce unsustainable rates and incentives to appeal for the sake of winning time, exhausting legal remedies at the expense of the WTO’s scarce resources. At the same time, this allows parties to challenge panel findings and recommendations they consider to be inconsistent and demonstrably incorrect.
