The dispute settlement mechanism of the WTO has been a major innovation in international dispute settlement. It is often referred to as the jewel in the crown of the WTO system. It might be in jeopardy. At its November 2017 meeting the WTO Dispute Settlement Body (DSB) failed, on its tenth attempt, to launch a selection process to fill a growing list of vacancies on the Appellate Body.[1] The United States again withheld its agreement to launch the process.[2] Why is the US administration doing this, is it entitled to do so, and what could the consequences be?

The traditional approach to the settlement of disputes between states has always recognised their sovereignty. The state parties involved in a dispute first have to accept the jurisdiction of an international court or tribunal before a dispute between them could be heard. When the WTO was established in 1995 a totally different system entered into force for international trade disputes; automatic dispute settlement is part of the single undertaking of this Organization.

It is also impossible for the Member State losing a case to block the adoption of a ruling. Under the previous GATT procedure it was different, rulings could only be adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are automatically adopted unless there is a consensus to reject a ruling – any country wanting to block a ruling must persuade all other WTO members (including its adversary in the case) to share its view.

The WTO is proud of its record for settling trade disputes: Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy. Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable. The system is based on clearly-defined rules, with timetables for completing a case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership. Appeals based on points of law are possible.[3]

What allows the US to block new Appellate Body appointments and why is it doing so? Why would the USA, an active user of the dispute settlement system in the past, want to change the present modus operandi? Appellate Body Members are appointed by the Dispute Settlement Body (DSB),[4] which comprises the representatives of all 164 WTO Members. DSB decisions are taken by consensus.[5] The formal objection by any Member State can block appointment or re-appointment of Appellate Body Members. The US is now withholding its support on the appointment of new Appellate Body Members on the grounds that the DSB must first address its systemic concerns about the practice of such Members to remain involved in WTO cases. The US has argued that departing Members of the Appellate Body should not be allowed to keep working on cases still ongoing when their four-year term finishes. This does not seem to be an unreasonable point.

But the US also has a more fundamental criticism. It has raised broader concerns in the past, including under the Obama administration, about what Washington sees as judicial activism by the Appellate Body.[6] The suspicion in Geneva is that the US is now laying the groundwork for a bigger attack on the WTO’s dispute settlement system.

In a speech during the Buenos Aires Ministerial Conference last week, Mr Robert Lighthizer, the US Trade Representative said: The WTO is losing its essential focus on negotiation and becoming a litigation-centered organization. Too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table. We have to ask ourselves whether this is good for the institution and whether the current litigation structure makes sense.[7]

There are more specific criticisms too. Mr Lighthizer has, for example, warned that the US would have to consider action if the WTO finds in China’s favour in a dispute between Beijing and the EU over whether China deserves “market economy” status in the WTO. There has been criticism of the WTO’s institutional capacity to cope with a rising China and what US officials have labelled its unprecedented mercantilism and cheating of the system.

Does it matter what the US says and does? The Secretary General of the WTO says it does. “The US misgivings about the system are important. A key member like the United State having concerns is not something that we could or should ignore.”[8]

So, what could happen? Some commentators fear that the dispute settlement system of the WTO could break down: Unless new AB members are appointed, the Appellate Body will face severe delays. If the AB dips down to two members, it could not formally operate, since each case requires at least three sitting judges. But even a court with fourth or five judges will find it hard to manage its caseload, and face legitimacy problems, because decisions will be taken by only a few judges from a few countries with particular legal traditions (such as the U.S. and China). This could lead – in an extreme scenario – to the crumbling of the WTO dispute settlement system.[9]

Does the Trump administration have a long-term plan? The current United States Trade Representative recently reminisced about the days of the GATT[10], when a party could unilaterally block the adoption of a decision it did not like. He seems to suggest that the Trump administration may wish to deploy the Appellate Body crisis to force a return to a more politicized dispute settlement system. That may suit Mr Trump’s style. It may not be a good thing for international trade governance and for the rules-based system underpinning the WTO.

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[1] https://www.wto.org/english/news_e/news17_e/dsb_22nov17_e.htm

[2] https://geneva.usmission.gov/wp-content/uploads/2017/11/Nov22.DSB_.pdf

[3] https://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm

[4] Art. 17(2) of the DSU.

[5] Art. 2(4) DSU.

[6] https://www.ft.com/content/3459f930-a532-11e7-9e4f-7f5e6a7c98a2

[7] Opening Plenary Statement of USTR Robert Lighthizer at the WTO Ministerial Conference. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/december/opening-plenary-statement-ustr

[8] https://www.ft.com/content/3459f930-a532-11e7-9e4f-7f5e6a7c98a2

[9] https://www.washingtonpost.com/news/monkey-cage/wp/2017/09/27/trump-is-fighting-an-open-war-on-trade-his-stealt

[10] http://worldtradelaw.typepad.com/ielpblog/2017/09/lighthizer-on-wto-dispute-settlement.html