Brief | ‘The Appellate Body Crisis at the WTO’, following the online conference held on April 28th, 2020

Co-organised by the Centre for Trade and Economic Integration (CTEI) and the International Development Policy Journal, both based at the Graduate Institute of International and Development Studies in Geneva.

An online panel discussion on the Appellate Body Crisis at the WTO and its implication on developing countries was held on April 28th, 2020. The conference was co-organised by the International Development Policy journal and the Centre for Trade and Economic Integration (CTEI), based at the Graduate Institute of International and Development Studies, Geneva. Professor Joost Pauwelyn, co-director of CTEI, opened the panel discussion. Fernando Pierola, a senior advisor at the Advisory Centre on WTO Law and a practicing arbitrator, acted as moderator. Ambassador Santiago Wills, Ambassador and Permanent Representative of Colombia to the WTO; Ambassador Manuel Teehankee, Ambassador and Permanent Representative of the Philippines to the WTO; and Katherine Connolly, Associate at Sidley Austin LLP, were panellists. Professor Ugo Panizza, Editor-in-Chief of the International Development Policy Journal, closed the session.

I – Background on the Appellate Body Crisis at the WTO

The discussion began with Mr. Fernando Pierola providing background on the current Appellate Body (AB) crisis at the WTO. In 2017, discussions occurred around the idea of initiating the selection of new AB members in order to choose successors for two members whose terms were finishing.  One of the main users of the system, however, was not in a position to support the start of the selection process, citing the need to address long-standing issues, both substantive and procedural, in the appeal process at the WTO. The issue of selecting new AB members persists even today, since only one member is left to serve on the AB. This renders the appeal process at the WTO inoperative, as a minimum of three AB members are needed to process an appeal. However, panels continue issuing reports that may be formally appealed, but never processed at this level. The main question addressed during this event was therefore the impact this situation has on developing countries and what they can do about it.

Video 5.10 – Introduction by Fernando Pierola, senior advisor at the Advisory Centre on WTO Law and a practicing arbitrator

II – The Value of Appellate Body Jurisprudence and its Significance for Developing Countries

Ambassador Santiago Wills was asked to discuss the value of AB jurisprudence and the work of the AB. He stated three distinct points on the value of the AB reports:

  • There are intrinsic values in the AB reports in dealing with international disputes. The reports help members resolve disputes and thereby preserve the rights and obligations of each member, as well as clarify existing agreements.
  • The reports have a ‘spill over’ effect on the designs and implementations of the WTO Members’ public policies. The AB reports clarify rights and obligations set forth in WTO-covered agreements as well as their interpretations, which are relevant not only to the disputing parties but also to other members. The clarifications shape common and harmonious understandings among all members.
  • The AB reports serve as a benchmark in future trade negotiations both inside and outside of the WTO, and at all levels. Many clarifications and interpretations by the AB have been used in other Free Trade Agreements (FTAs) as well as other types of agreements.

Ambassador Manuel Teehankee agreed with Ambassador Wills on all points, specifically on the benefit for domestic reforms based on the AB reports. He also spoke of the benefits of the AB’s work for developing countries. One clear benefit of the AB system is the transition from power politics in the GATT era to a rules-based system, offering viable remedies for developing countries in addressing the complaints of their constituents. That being the case, there are several issues that must be resolved in the WTO dispute settlement mechanism, including the long delay in resolving disputes in an increasingly complex process. As such, the current AB crisis in particular will have implications on the ability of developing countries to enforce trade remedies.

Video 9.15 – Presentations by Ambassador Santiago Wills, Ambassador and Permanent Representative of Colombia to the WTO; Ambassador Manuel Teehankee, Ambassador and Permanent Representative of the Philippines to the WTO

III – The Multi-Party Interim Appeal Arbitration Arrangement (MPIA) and its Prospect for Developing Countries

Mr. Pierola noted that the current dispute settlement process currently relies mainly on the work of panels. Members decide whether a single-stage adjudication process is good or bad for the system.  However, the current option of the right to appeal with no functional appellate review is not promising because it would effectively undermine the value of panel reports and the security and predictability of trade commitments. Therefore, members must seek options to address the situation. In this context, Ms. Katherine Connolly gave insight into some practical responses available to the WTO members. One option is the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) led by the European Union. The MPIA has been signed on by 16 WTO members so far, and can help to address the crisis at least temporarily. The MPIA is an alternative appeal mechanism, pursuant to Article 25 of the Dispute Settlement Understanding (DSU), which allows parties to resort to arbitration instead of the AB for an appeal.[1]

Already, many procedural issues encountered through the AB process have been addressed in the MPIA proposal to improve procedural efficiency and expedite the process. The proposal serves as a space for experimentation and innovation, an opportunity for reform. However, as of now, it is more attractive to WTO members who often use the system. Ms. Connolly added that in order to improve the system in any meaningful way, there is a need for active participation from all WTO members, particularly developing countries, in addition to the need to resolve long-standing issues that can prevent developing countries from effective engagement with the system.

Ambassador Wills was asked to share Colombia’s experiences in the MPIA negotiation. Admittedly, engaging in this negotiation takes a lot of time and effort. Some countries may not have the human resources necessary to be involved immediately, especially since the initiative was developed recently and in only four months, from December 2019 to March 2020. Nevertheless, there is an interest in monitoring and/or being involved in the MPIA process because it serves as an accountability check for panellists in trade disputes.

Ambassador Teehankee added, from the perspective of developing countries, that some are still observing what has been developed and are waiting to see how the use and evolution of the MPIA will progress. On one hand, it is positive to keep the rules-based system alive and continue to prevent power politics. On the other hand, the possibility of a transition back to what was experienced during the GATT era may also have some value. Certain non-legal approaches like mediation could allow for more customised dialogue, creative solutions, and compromises, depending on the nature of the dispute. The deciding factor will be whether the MPIA is interesting and beneficial enough for smaller countries in maintaining the rules-based system and, at the same time, contributing to constructive reforms needed at the WTO.

[1] Under Article 25 of the DSU, parties may mutually agree to engage in an arbitration “as an alternative means of dispute settlement.” Parties can agree on the procedures as they wish, provided that they comply with the DSU.

Video 26.45 – Presentation by Katherine Connolly, Associate at Sidley Austin LLP, and comments from Ambassadors Santiago Wills and  Manuel Teehankee.

IV – Q&A Session: The Position of Developing Countries and Implications of the Appellate Body Crisis and the MPIA on WTO Jurisprudence

The discussion then focused on some questions asked by the audience. One group of questions related to how developing countries should move forward with respect to the reform of the WTO and international trade dispute in general. Ambassador Teehankee responded that there were many reform initiatives led by developing countries to solve the stalemate at the WTO, such as those spearheaded by Honduras and Mexico, and that these should take priority. Moreover, many developing countries fear that the MPIA, while a viable provisional solution, could mean the end of the AB at the WTO. There are also WTO members who would prefer to move toward a quasi-legal model for the WTO dispute settlement system. Ambassador Wills agreed: negotiations are resource-intensive and the MPIA is, as it stands, an interim agreement. Many developing countries’ priority is to fix the AB impasse, and thus to preserve the two-tier approach at the WTO. This is also true for the MPIA participants.

Alternatively, the dispute settlement system under FTA provisions could be an option for countries to resolve conflict bilaterally. This, however, is not an ideal solution. Historically, countries prefer the WTO dispute settlement rather than those under FTAs. As stated by Ambassador Wills, multilateral settings are better for developing countries to find leverage by way of support from other similarly situated WTO members, with regard to disputed trade measures.

Another question was raised on other ongoing work and negotiations at the WTO, and how the AB Crisis could potentially affect those efforts. Ambassador Wills asserted that an underlying desire to resolve the current crisis in good faith is shared amongst the WTO members, in addition to the motivation to continue other pending negotiations at the WTO. Otherwise, this crisis would undermine the overall objective of the WTO as an institution and the good-faith implementation of trade obligations under the WTO.

The last point of discussion was on the implications of appeal arbitrations under the MPIA on WTO jurisprudence as a whole. Ambassador Wills stated that there is a general understanding that there is no precedent in the WTO. Hence, legally speaking, there should be no issue of whether previous AB reports should be binding on subsequent arbitrations under the MPIA. However, as one of the roles of the appeal mechanism is to maintain security and predictability of interpretation of rights and obligations under the WTO, any outright conflicting interpretation under the MPIA should be well grounded. Conversely, the impact of arbitration reports under the MPIA on WTO jurisprudence in the future should also be considered, and if legally sound, could provide some persuasive effects.

Ms. Connolly noted that the MPIA was in the early stages of development, and it may be a matter of waiting to see how arbitrators’ reports would be treated in future WTO dispute settlements. She agreed that there is no formal system of precedent at the WTO, so it is not a question of whether future panels would be bound to follow arbitration reports. An important principle of WTO law is security and predictability. This includes consistency of interpretation of the covered agreements in dispute settlement. A well thought out, coherent and comprehensive report from MPIA arbitration could be persuasive in future WTO dispute settlements. It will ultimately be a case-by-case basis for the jurisprudential value of each MPIA arbitration report, depending on how both the parties and the adjudicators approach the issues.

Video 41.10 – Q&A Session

V – Concluding Remarks

In conclusion, panellists agreed that the MPIA, as an interim solution, is not sustainable in the long term, and that a multilateral trading system remains the preferred option. However, the AB Crisis and the MPIA itself comes at a crucial juncture amid a swing against globalisation and international cooperation. The crisis could prove to be an opportunity for the WTO members to address more assertively how best to preserve the positive aspects of the WTO multilateral system, while maintaining sensitivity to new concerns and changes. The discussion ended with the assertion that developing unified solutions to global issues that also respect the diversity of different regions and countries seems to be more important than ever before.

Video 84:15 – Closing remarks by Professor Ugo Panizza, Editor-in-Chief of the International Development Policy Journal.

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