The WTO Appellate Body going into slumber is a serious setback for the rules-based multilateral trading order.
By Prabhash Ranjan
On December 11, the World Trade Organisation’s Appellate Body (AB)—which is part of the WTO’s dispute settlement mechanism—went into hibernation. This mechanism, which was created to settle trade-related legal spats amongst the 164 WTO member countries, is made of two levels. The first level constitutes of WTO panels—these are ad hoc bodies in charge of adjudicating disputes between WTO members in the first instance. The second level constitutes of an appellate mechanism or the AB, which is a permanent body, comprising of seven individuals appointed for four-year terms. The AB hears appeals from reports issued by WTO panels. Three out of seven AB members serve on any one case. AB rulings are binding on the countries that are parties to the dispute. If a country fails to comply with an AB ruling, the winning country can take countermeasures against the disobedient country as per WTO rules. Therefore, the WTO’s dispute settlement mechanism brings certainty and predictability to the rules-based multilateral trading order by holding countries accountable for not keeping their end of reciprocal bargains, and by sanctioning and capping countermeasures in case of non-compliance.
The AB has gone into hibernation because the numbers of AB members kept dwindling, coming down to just one on December 11, due to the US blocking fresh appointments. The US believes that the AB has gone beyond its mandate. Its major complaint with the AB is that the latter, in a series of rulings, has overturned the US practice of ‘zeroing’—a controversial methodology for calculating anti-dumping duties on foreign products. The US has also expressed other concerns such as the AB’s treatment of Chinese state-owned companies, violations of statutory timelines as the AB often takes more time than stipulated to decide on a case, and AB rulings having precedential value.
In the late 1990s and the early 2000s, the critics of economic globalisation used to single out the US for creating international economic institutions like the WTO, which were, at the time, seen as part of the global imperialist state pushing neoliberal capitalism to the detriment of the Third World. In fact, the WTO’s dispute settlement system was specifically criticised for creating coercive enforcement machinery pressurising the Third World countries to liberalise their markets. Interestingly, today, the US has turned out to be the biggest critic of the AB, while the Third World states like India are campaigning for its protection.
The AB has actually become a victim of its own success. In less than 25 years of existence, it has produced close to 156 rulings involving myriad of issues like taxes on alcoholic beverages, subsidies given for civilian aircraft production, importation of solar cells, anti-dumping duties on shrimps, packaging regulations for cigarettes, regulation of gambling services, measures affecting imports of beef, etc. The AB, upholding international rule of law, on several occasions, has passed judgments against powerful developed countries like the US. Both in terms of sheer volume of cases and the wealth of jurisprudence produced, the AB has outperformed most international courts and international tribunals.
The AB going into slumber is a serious setback for the rules-based multilateral trading order. The most immediate implication would be that if any WTO panel report were appealed, it would go into a ‘void’, as the AB doesn’t have the minimum number of members required to hear the case. This would allow a country to block the adoption of the report if it loses a trade dispute, and thus not comply with the WTO panel decision. India, recently, has appealed against a WTO panel ruling, which pronounced India’s certain provisions of the domestic export incentive initiatives as WTO-inconsistent. Therefore, India can continue with these measures despite their inconsistency with WTO rules. Likewise, the US has appealed against a WTO panel ruling in favour of India in the renewable energy sector, thus allowing it to continue with the WTO-inconsistent measures.
The role of the WTO’s dispute settlement mechanism including the AB is premised on the assumption that a country unilaterally determining treaty violation by another country may be wrong. Any such unilateral determination may lead to countries overreacting in suspending reciprocal concessions that form part of WTO agreements. This, in turn, will trigger greater retaliation from the other side, leading to trade wars and ushering in instability in the global economy. As the noted international lawyer Joost Pauwelyn believes, given the eventual uselessness of purely unilateral enforcement, hopefully the US will also accept third-party adjudication in some form. However, it is important for WTO member countries to carry out required reforms ensuring that the AB follows the strict timelines given in WTO rules to decide on appeals. Finally, all nations, especially the US, should remember that the liberal rules-based global economic order built so arduously post the Second World War should not be sacrificed at the altar of domestic and competitive populism.
The author is senior assistant professor, Faculty of Law, South Asian University, Delhi. Views are personal