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4 years ago

Keeping the WTO dispute settlement system functional

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The dispute settlement system of the World Trade Organisation (WTO) is now technically dysfunctional. On December 10 this year, the tenure of three of the two judges of the appellate body of the multilateral organisation ended. Thus there is only one functional judge in place of a minimum of three to hear any appeal on trade dispute. As the appellate body is rendered ineffective, it comes as a big blow to the dispute settlement mechanism within the WTO.

Due to continuous objection from the United States, no new judge could be appointed to the appellate body since August 2017. As every member of the multilateral organisation has 'veto power,' the US has been exercising this to block any new appointment in the appellate body. As a result, the number of judges has now come down to one from the maximum number of seven since 2017.      

The appellate body is an essential organ of the dispute settlement mechanism of the WTO. To address and resolve trade-related conflicts and disputes among the member countries, WTO has developed a strong and balanced dispute settlement mechanism. It is a two-tier process. 

FIRST TIER: a member can lodge a complaint against another member for obstructing export or import violating any of the WTO legal provisions. After receiving the complaint, there is an effort initially to settle the dispute amicably through consultation. If   the consultation doesn't work, a panel is formed upon the request of the complainant. The panel hears two conflicting parties, analyses relevant documents and finally gives a written recommendation in the form of a report. If any party is not satisfied with the panel report, it can seek appellate review.

SECOND TIER: The appellate body calls for hearing of the disputed parties and analyses the panel report. The appellate judges then prepare their report.  Disputed parties are legally bound to follow the appellate verdict once adopted in the Dispute Settlement Body by reverse consensus. The whole process has to be concluded within a set time-frame.

BANGLADESH CASE: Small countries like Bangladesh is also a beneficiary of the WTO's dispute settlement mechanism. In the famous Rahimafroz battery case the country sought WTO intervention to fight against India's imposition of anti-dumping duty on lead acid batteries. It was in 2005 when two countries met at a consultation in Geneva and the dispute was settled amicably. Bangladesh didn't need to go to panel stage. 

JOINT APPEAL: As appellate body turned dysfunctional, 119 members of the WTO made a joint appeal on December 18 urging to start the selection processes for filling Appellate Body vacancies. 

Meanwhile, Roberto Azevedo, Director General of WTO, said that he would 'launch more intensive, high-level consultations' to resolve the prolonged deadlock on the appointment of judges at the appellate body. He, however, cautioned that it may take some months to break the impasse, mainly created by the US.

TRUMP FACTOR: The US has been complaining about the functional process of the appellate body for long. It has also expressed its dissatisfaction with appellate verdicts in many cases.

But it is Donald Trump, the current US President, who took a more aggressive stand. He alleged that the multilateral body was always against US interest and verdicts on trade disputes always went against the US.  The record is, however, different. The US won around 90 per cent of cases as complainant and lost around 89 per cent of cases as respondent so far. 

The main objections from the US are: appellate body members overstep their mandates by reinterpreting existing agreements and rules; violation of the 90-day deadline for submitting reports by the appellate body; targeted rulings against anti-dumping measures taken by the US. Though the objections are not entirely baseless, the way Trump administration forwarded these and sought reparation makes the whole thing controversial. 

The US not only blocks the appointment of judges in the appellate body, but also puts restriction on the budget of the appellate body. WTO budget is usually made for two years. But this year the US agreed to approve the WTO budget of $197.6 million for 2020 only - and with stringent conditions. The conditions include 87 per cent cut in the compensation of appellate body members and 95 per cent cut in the body's operating fund.

US BARGAINING TOOL: Blocking the appointment of judges at the appellate body is a bargaining tool of the US to reform the WTO in accordance to its proposals.  In the meeting held on December 18 in Geneva, the US clearly said that it is 'determined to bring about real WTO reform.'

There are two broad areas where the US seeks comprehensive reforms. One is in dispute settlement procedure, and the other, in the status of developing countries.

The US earlier placed a proposal for 'stopping self-designated developing nations' to avail themselves of 'flexibilities in WTO rules and negotiations.' Trump administration argued that a member of the Group of 20 (G20) major economies or a member of the Organisation for Economic Cooperation and Development (OECD) or a high-income country classified by the World Bank or a country having more than 0.50 per cent share in global trade is not eligible to benefits meant for developing nations. Countries falling into any of these four criteria should renounce developing nation status and WTO has to scrap special and differential treatment (S&DT) for these countries.

The US alleges that a number of developing countries are misusing the S&DT provisions included in the various agreements of WTO.  It, however, did not put any concrete or specific proposal for reform in the appellate body.  Moreover, Trump administration also rejected reform proposals placed by Canada and the European Union (EU).

The rendering of the appellate body dysfunctional bodes ill for dispute settlement. There is now no scope to review the disputed panel reports.

RESPONSE TO THE CRISIS: In response to the crisis, there are a number of proposals seeking to the keep alive the WTO dispute settlement mechanism. Some suggest that an alternative mechanism could be accepting the panel reports as final. It is possible on a case-by-case basis if the disputed countries agree to the idea.

As early as June, EU-Canada proposed resorting to Article 25 arbitration under the DSU (Dispute Settlement Understanding) which provides a legal scope to expedite arbitration within the WTO as an alternative means of dispute settlement. EU is now pushing this proposal forcefully as 'multi-party interim appeal arbitration arrangement.' Under the proposed arrangement, there would be no involvement of WTO's Director-General (DG) and former Appellate Body members may act as arbitrators.

In another initiative, Australia and Brazil are trying to set a kind of 'plurilateral arrangement' where the WTO DG would play an important role.

Problem is that all these are temporary mechanisms and relying on any of these may delay or undermine the revival of the functioning of the appellate body. Members of the WTO have to reach a compromise to break the deadlock and keep the multilateral trade body fully functional.

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