A period of uncertainty is currently affecting the WTO dispute settlement system: Its Appellate Body is normally composed of seven members but currently only has three, the minimum number to function. On 10 December 2019, the mandates of two of the remaining three Appellate Body members expire and the organization will no longer be able to decide on appeals in trade disputes between WTO members. The process to fill the vacancies has faltered in 2016 when the US began to veto the appointment of new Appellate Body members because of its concerns regarding the allocation of powers and functioning of the WTO Appellate Body. The US currently maintains its position and will not agree on new Appellate Body members for the time being. The EU, Canada and Norway have already agreed on temporary alternative solutions.
The functioning of the WTO Dispute Settlement Body
Under the 1994 Marrakesh Agreement, in the event of a trade dispute between WTO members, the complaining member can request the establishment of a panel consisting of three individuals who will decide on the dispute. The panel is thus in charge of examining the consistency of the alleged violation with WTO agreements and issues a report that parties to the dispute will need to comply with after adoption by the Dispute Settlement Body. If one of the parties to the dispute does not accept the report of the panel, it can appeal the legal findings of the panel before the Appellate Body. Each appeal is heard by a three-member chamber, which can uphold, modify, or reverse the panel's legal findings and conclusions.
The current crisis
For the past years, the US continuously raised several concerns regarding the functioning of the Appellate Body. In particular, the US is of the opinion that the Appellate Body is exercising its jurisdiction beyond its functions and interpreting WTO rules beyond what was agreed by the treaties' negotiators. The issues highlighted by the US would request a structural intervention of the WTO members in the functioning of the Appellate Body.
Appellate Body members are appointed by the WTO members by consensus, i.e. a decision is taken if no member formally objects. The US have announced that they will not remove their veto on the appointment of new Appellate Body members before the US concerns have been fully addressed.
What happens next
The mandates of two Appellate Body members will expire on 10 December 2019. From that date, only one member will be left and the Appellate Body will be unable to hear new appeals. Pending appeals may continue because Appellate Body members can continue to hear assigned cases even after the termination of their mandate. However, the leaving Appellate Body member Thomas Graham, a US national, announced that he may not continue to work on appeals that are pending after the end of his term.
Additional uncertainty lies around the possibility to appeal future panel reports. The US repeated on 9 December 2019 that they will not withdraw their objection and that the proposals made so far by other WTO members are from meeting their expectations.
In view of preserving the possibility to appeal panel reports, a few WTO members have already adopted targeted measures, albeit on a bilateral basis. The EU entered into two separate interim agreements with Canada and Norway to refer cases to an arbitral tribunal that reflects the Appellate Body. This temporary procedure is compatible with the WTO statutes and will remain in effect until the Appellate Body is operational again.
At this juncture, it is expected that the WTO members will either agree to renounce to the second instance before the Appellate Body or temporarily defer the disputes to alternative appeal proceedings, such as arbitration.
New Zealand's Ambassador to the WTO, David Walker, suggested bringing several reforms to the Appellate Body, by taking into account both the concerns of the US and the positions of the other WTO members. Walker's proposals mainly relate to limiting the time span during which the Appeal Body is to issue its judgments or establishing clear rules following which the Appellate Body's decisions do not constitute precedents. In spite of their relevance to address the US concerns, the proposals have yet not been deemed sufficient by the US. The US Government expects a large-scale reform and a more extensive reassessment of the WTO Appellate Body's role and functioning.