Redundant since 2019: The 12th ministerial conference fails to revive WTO Appellate Body

There was no discussion to revive the World Trade Organization’s (WTO) Appellate Body, which has been redundant since 2019, at the recently concluded 12th ministerial conference.

The United States stopped the process of reappointing judges after their terms expired in 2017. In December 2019, the number of judges in the court fell below three — the minimum required.

Over 600 cases reached the body since its formation in 1995 and rulings were issued in some 350, according to WTO. 

A senior faculty of the Centre for WTO Studies, New Delhi, said: 

The revival is significant especially in the wake of Ukraine-Russia crisis that forced many countries to suspend exports pushing International trade to a standstill.

WTO was established to provide a platform for negotiations for liberating trade and creating rules, as well as to monitor and administer multilateral trades. 

However, one of the key objectives was also to address the grievances between its members by acting as a court for global trade. 

Disputes arise when a member country observes that another member government is breaching a commitment or a trade agreement made at the WTO. 

The court, comprising seven seats (minimum three) with a limited four year term, hears the disputed parties and delivers rulings. 

The reasons are cited in detail in a report Appellate Body of the World Trade Organization released by the United States Trade Representative (USTR) in February 2020.

The 174-page-report stated that for over 20 years, US has been facing issues with the way WTO and its members handle trade disputes. 

The US government expressed that the differences in the law applicability does not favour it as the international laws are misinterpreted. Also, it has major contentions on the way trade remedies are handled. 

Trade remedies under WTO guidelines mean that members are prohibited from raising their tariffs above a certain margin. But it offers a provision for governments to break these rules to apply trade remedies, which include anti-dumping duties, wherein the market is distorted by the manufacturing country by exporting the goods at a cheaper rate than the market. 

Countries are allowed to make the move to defend its cheap imports and other offsetting duties to protect itself from subsidised imports to safeguard tariffs countering the import hikes. 

These trade remedies practised by US came under the radar of other countries, according to the Peterson Institute for International Economics (PIIE), an independent nonprofit. 

A third and 60 per cent of American trade remedies for import coverage came under fire in 2002 and 2019, respectively, and became a subject of dispute at WTO. 

Despite defending consistently, the Appellate Body ruled against its favour. Robert Lighthizer from the United States Trade Representative noted in the report that the decisions from three judges in Geneva were failing to protect the rights that American negotiators defended to protect and influence American policymaking. 

US has been the most active user of the dispute settlement body, according to an article published by the Royal Institute of International Affairs, an independent policy institute headquartered in London.

Out of the 593 disputes, US placed 124 cases from 1995-2019, according to the report. It has the highest number of cases (155) slapped against it during the same period, followed by the European Union (86). 

US also challenged India’s export subsidy scheme Merchandise Exports from India Scheme, claiming it had crossed its thresholds. US has questioned India’s tariffs on 28 products, claiming it to be retaliatory in nature. 

In another case, US raised an issue of subsidies pertaining to countervailing measures, which has been supported by countries and regions like China, EU, Brazil, Canada, Thailand and others. 

But paralysingWTO's Appellate Body does not mean it is non-functional. Aggrieved members of WTO can still reach out to the body and appeal its issues. But these grievances remain unaddressed. 

Until a full-fledged solution comes into place, a few countries have found a makeshift arrangement. The interim arrangement involves countries and membership nations taking a shared approach. 

EU, for instance, took measures to set up interim appeal arbitration arrangements. After the suspension of the Appellate Body, EU and 18 members established a ‘multi-party interim appeal arbitration arrangement’, which allows WTO members access to the two-step dispute settlement issues for a mutual resolution. 

The mechanism allows the parties to refer to Article 25 of the Dispute Settlement Understanding (DSU) of WTO’s arbitration rules and follow substantiative and procedural concepts of the appellate body’s operations.

But US has been excluded from the arrangement and fails to fulfil the objective as 70 per cent of the cases pending at the WTO are related to the USA. 

Moreover, the short-term solution undermines and threatens the appellate body and if continued for long-term risks fragmentations of the rules chalked out by the international trading system. 

The Royal Institute of International Affairs stressed that such a situation, if prolonged, can collapse the international trading system permanently. An instance is the crisis during the Great Depression in the 1930s, when countries imposed trade barriers, thereby failing one of the objectives of the WTO — freeing trade. 

Hence, a permanent solution to the current Appellate Body crisis would involve establishing a new order for dispute settlement, the report stated.

“The WTO reforms tabled for negotiations aim to address the issue of the defunct Appellate Body and work towards its efficient revival,” a senior member of the faculty at the Centre for WTO Studies told DTE.

It will, however, require all the nations, including US, to come to a consensus for a fruitful agreement, he added. 

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