Photo: AFP
Photo: AFP

Is the US settling scores with the WTO appellate body?

Despite isolation, the US has vetoed the reappointment of a sitting judge

It might seem natural for the head of a multilateral organization to trumpet about the success of the in-house adjudicatory system. Resolving more than 500 trade disputes in a matter of 20 years is a success story. From agricultural goods and products to asbestos, alcoholic beverages to aircraft subsidies, bananas to brooms, coconuts to dairy products, pasta and spaghetti to films and computers and USB flash drives, and feed-in tariffs to patents and copyrights, there is almost no traded item that is not adjudicated at the World Trade Organization (WTO).

For countries sparring over these trade disputes, there is much at stake because of dollar-and-cents gains and sovereign national policies. The number of disputes is also on the rise because the negotiating function is nearly hollowed out.

Little wonder that the dispute settlement system has gained widespread acceptance. “2015 has turned out to be the busiest period on record with 30 active (dispute settlement) panels per month," WTO director general Roberto Azevêdo said last year.

Despite resource pressure, both legal and financial, on the dispute settlement body, it has delivered complex rulings without fear and favour. The appellate body rulings are also invariably celebrated despite differing views.

Yet, the appellate body, the “central part of the adjudicative voice of the WTO membership" to quote former member David Unterhalter, is now facing a grave “systemic" crisis replete with chilling effects. On Monday, when members congregated at the regular dispute settlement body meeting, they voiced their gravest concern in unison over the manner in which a sitting member of the appellate body, Seung Wha Chang from South Korea, is being denied a second term. Chang’s alleged faux pas, either as a presiding member or part of the three-member division, is that he deviated from the covered agreements of the GATT/WTO jurisprudence.

Granting a second term for a sitting member has been common practice since the WTO was formed 20 years ago. Last year, two sitting members—Thomas R. Graham from the US and Ujal Singh Bhatia from India—were granted second terms.

But, when it came to Chang, who is a well-known and respected scholar in international trade law, the US has put its foot down. Why? Because the venerable Korean member is accused of deviating from the covered GATT/WTO agreements in three cases. In two, the US was a respondent and China a complainant. “The United States is strongly opposed to appellate body members deviating from their appropriate role by restricting the rights or expanding trade agreement obligations," according to a statement by the US deputy trade representative and trade envoy to the WTO, Michael Punke, and general counsel to the US trade representative, Tim Reif. Washington will not support “any individual" with “a record of restricting trade agreement rights or expanding trade agreement obligations", they said.

This is the second time that a sitting member is being asked to leave (US member Jennifer Hillman faced a similar fate). How can Chang be pilloried publicly for deviating from the covered agreements when the appellate body rulings are passed by a three-member division?

“How exactly was the US able to figure out what Seung Wha Chang’s line of thinking was since appellate body rulings are authored by the division as a whole and not individual rulings on the issues?" professor Simon Lester, a former WTO staff member, asked in the IELP blog (www.worldtradlaw.net). “Was it inference? Or inside information," Lester asked pointedly.

The US’s stand was totally exposed after the six sitting appellate body members—Graham, Bhatia, Ricardo Ramirez Hernandez, Shree Baboo Chekitan Servansing, Peter Van den Bossche and Yuejiao Zhang—came out in support of Chang for his “integrity, independence and impartiality".

In a self-explanatory two-page letter addressed to the chair for the dispute settlement body, Xavier Carim, the six members maintained that “appeals are heard and decided by three members who are chosen randomly to constitute the division for each case". The rulings/reports that involve an intense process of discussion among the three members with their other colleagues “are reports of the appellate body", the six members said. Therefore, how can the US levy charges on the Korean member when the decisions are decided by the appellate body in a collegiate framework?

More importantly, the appellate body members are guided by Articles 3.2, 17 and 19.2 of the dispute settlement understanding for adjudicating appeals and clarifying existing provisions of the covered agreements “without adding to or diminishing the rights and obligations provided in those (covered) agreements". The appellate body rulings are open to discussion/criticism and “other informed and constructive comments" under Article 17.4 of the dispute settlement understanding. Clearly, the adjudicating system for resolving global trade disputes is based on WTO members’ “trust" in the “independence and impartiality of appellate body members".

“Linking the reappointment of a member (Chang) to specific cases could affect the trust," the members said. “He has worked hard together with us to maintain the quality of our reports and to foster constructive improvement of our operations." They admitted that they have no role in the reappointment of a member, but they took the bold step to set the record straight. In short, the unilateral US position was nailed comprehensively by the six members.

There is more to the US action than meets the eye. Every month, Washington comes under criticism for not implementing rulings in a half dozen cases for over 10 years. Moreover, US’s measures in a range of trade-distorting cases were condemned by the appellate body. The US gets the distinction for not adopting the WTO’s rulings and thereby, causing a “systemic" tsunami with “chilling" effects. The US is sending a signal loud and clear to the appellate body members: behave or lose your second term. But, why is the WTO’s director general, the custodian for the sanctity of multilateral trade rules, keeping silent on the enveloping lawlessness and the droning of a sitting appellate body member from having a second term by an isolated country that could not agree to the rulings?

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