Introduction

The game without an umpire continues only at the expense of its identity. The World Trade Organisation (WTO) is grappling with a significant crisis stemming from the dysfunction of the Appellate Body (AB) within its Dispute Settlement Body (DSB). This impasse arises from the failure to meet the minimum requirement of three judges to hear appeals, owing to the United States (US) consistently obstructing the appointment process. The DSB is crucial, being the highest adjudicating body in international trade with its unique features of mandatory jurisdiction and pre-litigation consultations, as well as compliance enforcement. The AB was envisaged to give binding awards during appeals based on findings of any panel established to address complaints by members for violation of an agreement. Over 600 disputes have been tabled since its inception in 1995, making it far more active than other international dispute resolution bodies like the ICJ or the ITLOS.

In this context, this article considers the necessity for reviving the WTO’s appellate body. However, prior to such engagement, a brief background: the dispute settlement process of the WTO involves parties to the case, the DSB panels, arbitrators, the WTO Secretariat, independent experts, etc. The General Council, which is the apex body for decision-making, discharges its functions under the DSU through the DSB. Akin to the General Council, the DSB comprises of representatives of all member States. The DSB is primarily responsible for administering the DSU and settling disputes. Additionally, parties to a dispute have the right to appeal against decisions of the DSB panel. Every appeal must be heard by three members of a permanent seven-member AB set up by the DSB. An appeal has the authority to affirm, adjust, or overturn the legal determinations and conclusions made by the panel. Typically, appeals should be resolved within a timeframe not exceeding 60 days, with an absolute limit of 90 days. The present condition of the AB is of imminent concern, as 29 appeals have been left in limbo since 2019, and only 5 out of 29 panel reports released have been adopted by the DSB, while other aggrieved countries have ultimately been appealing ‘into the void’.

Deconstructing the US’ Concerns

In a report published by the US Trade Representative in 2022, the US propounded a plethora of reasons to justify its actions against the AB. Its main concern was that the AB operates outside of its mandate, through judicial overreach and disregard of procedural rules, particularly the AB’s repeated violation of the 90-day limit for furnishing a report without the consent of the parties involved, as stipulated under Article 17.5 of the DSU. It cited para 5.63 of the 2017 AB report on Indonesia – Importation of Horticultural Products, Animals and Animal Products, which recognized that addressing a certain claim would have had no effect on the ruling, and yet the AB engaged with every issue, leading to a delay in the production of the final report. 

According to Article 17.12 of the DSU, the AB is required to ‘address each of the issues’ raised in the proceedings. In its 2022 report, the US relies upon the Oxford Dictionary’s meaning of ‘address’ (as used in Article 17.12) to mean “think about and begin to deal with (an issue or problem)”. Based on this, it has contended that every issue in front of the AB merely requires consideration and disposal, and not a written interpretation, which subsequently leads to a delayed report.  Although this violation is a justified concern highlighted by the US, it is to be noted that the AB has simply been adhering to the literal text of Article 17.12 since its inception.

Exploring Prospects

Interpreting every issue by the AB and reporting the same becomes important to set a precedential example for future appeals, as the interpretation serves as a cornerstone of the reason based on which a prior ruling was passed. Even if subsequent panels are not bound by the conclusions and reasoning of a previous panel report, the AB is most likely to incorporate the same reasoning if the interpretation is well-founded and persuasive, unless there is a cogent reason not to do so. This idea is also in accordance with a fundamental objective of the dispute settlement mechanism – to enhance the security and predictability of the multilateral trading system as enshrined within Article 3.2 of the DSU. 

The authors acknowledge the fact that when the interpretation of an issue by the AB is recognised by both the parties as well as the AB as irrelevant to the ruling, and yet it is compelled to do so because of its obligation under Article 17.12, the potential for violation of the 90-day limit brings to light issues addressed in the Walker principles. Adopting some measures from the principles, such as the creation of a specific monitoring and audit committee that oversees compliance with the principles such as adherence to the 90-day limit, could be beneficial. Coupled with this, another solution could be to amend Article 17.12 of the DSU, to read as “The Appellate Body shall address only those issues relevant to the ruling in accordance with paragraph 6 during the appellate proceeding”. Although, this might be challenging considering that any amendment to the DSU requires the consensus of all WTO members. 

Further, arbitration of disputes can be the primary resort over the AB mechanism. Under Article 25 of the DSU, parties can choose “expeditious arbitration” as an alternative means of dispute settlement. The parties are free to depart from the rules stipulated in the DSU, and even choose their arbitrators. Surprisingly, only two disputes to date have been settled by invoking Article 25 (The US had opted for arbitration in one of the cases). However, parties generally do not prefer arbitration when they expect an unfavourable outcome. The multi-party appeal arbitration agreement (MPIA) too can serve as an effective model. The agreement incorporates innovative measures to tackle some of the US criticisms. It suggests that arbitrators can be allowed to extend the 90-day limit with the support of the parties in dispute. Additionally, para 10 of Annexure 1 notes that arbitrators should limit the interpretation and legal assessment of issues only to the extent that they are necessary for the settlement of the dispute. 

Conclusion

While the majority of the WTO members don’t deny the legitimacy of US concerns, they have consistently expressed discontentment over paralysis of the AB. This is demonstrated by the fact that WTO members have repeatedly been requesting the revival of the appointment process without delay along with submitting multiple position papers proposing amendments that address shortcomings of the AB. In June 2022, Ministers adopted the MC12 Outcome Document through which they committed to having a fully and well-functioning DS system in place by 2024. This commitment was reaffirmed in the recently concluded MC13. Members recognised the progress made over the past year towards reaching this end through the ‘Molina Process’ of informal meetings, wherein the US is also a participant. There is dearth neither of solutions nor of will to reform. The dispute-settlement system of the WTO is an epitome of global justice in the trading sphere, and its speedy revival is crucial for cooperative international trade. 

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Mustafa Topiwala is a student of law at  Rajiv Gandhi National University of Law, Punjab. His interests lie in the fields of arbitration and commercial law.

Kashika Jain is pursuing her BA LLB degree at  Rajiv Gandhi National University of Law, Punjab. She is keenly interested in international trade law and intellectual property rights. 

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Image: Illustration by Paul Windle (for NY Times)