THE TTALK QUOTES
On Global Trade & Investment
Published Three Times a Week By:
The Global Business Dialogue, Inc.
Washington, DC   Tel: 202-463-5074
Email: Comments@gbdinc.org
No. 1  of 2018
MONDAY, JANUARY 8, 201

Click here for the December 27 dispute settlement quote from John Magnus.

 DISPUTE SETTLEMENT AT THE WTO: NOVEL, AMBITIOUS, AND FLAWED

"[A] novel and ambitious concept at the creation of the WTO, namely, binding dispute settlement, was put in place without ... any experience and without the ability to really think through what happens if the dispute settlement system, for some reason, gets it wrong."
 
Terence Stewart
December 20, 2017
CONTEXT (And a Few Comments)
Managing Partner at the law firm of Stewart and Stewart, Terence Stewart was the second of four speakers at GBD's December 20 colloquium on Disputed Court, which focused on the system for settling disputes at the World Trade Organization. All four presentations were excellent. Audio recordings and in some cases transcripts from the event are available now on the GBD website (see below), and, in the next day or two, we expect to highlight quotes from the speakers we have not yet mentioned - Pablo Bentes of Steptoe & Johnson and Jennifer Hillman of Georgetown Law.

Both in the paper that he brought and in his oral remarks, Mr. Stewart covered a lot of ground - much more than we can touch on here. Among other things, the paper included a table of statements critical of the WTO Appellate Body for overreaching and thus creating new obligations for WTO members. A number of countries are quoted, including Costa Rica, Malaysia, Pakistan, and Canada, as well, of course, as the United States. 

In this short entry, we'll deal with only three of the many issues Mr. Stewart touched on: 

1. The tendency of the Appellate Body - the Supreme Court for WTO disputes - to arrogate to itself authority that it does not have. That is not the phraseology Mr. Stewart used, but that was his argument.

2. The trap of irreversibility. As a practical matter, Appellate Body decisions cannot be reversed. And finally,

3. The pernicious link between overreach by the Appellate Body and the withering away of the WTO negotiating function. 

Overreaching. In one area after another, from the time limits to deciding cases to the procedures associated with resignations, Mr. Stewart highlighted inconsistencies between the practices of the Appellate Body and the rules of the Dispute Settlement Understanding (DSU), which is the agreement that established the current system for resolving trade disputes at the WTO, including the creation of the Appellate Body. By far the most important of these perceived inconsistencies has to do with the limits placed on the Appellate Body and the apparent willingness of the members of the Appellate Body to ignore them.

In his written submission, Mr. Stewart noted that:

DSU Articles 3.2 and 19.2 explicitly prohibit panels, the Appellate Body and the Dispute Settlement Body (DSB)* from making findings or recommendations that "add to or diminish the rights and obligations provided in the covered agreements." 

He also noted that: 

[T]he WTO charter provides that "[t]he Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements."

Okay. But has the Appellate Body been overstepping its authority? Obviously, Mr. Stewart thinks they have. The current U.S. administration and its immediate predecessors think they have. And, if you have not yet formed an opinion on the issue, you may wish to consult the table of WTO member complaints mentioned above. 

The Trap of Irreversibility. Under the GATT system that prevailed through 1994, there was no Appellate Body. Disputes not resolved through bilateral negotiations were referred to panels, and the reports of those panels only became binding if and when they were adopted by consensus, that is, by the full GATT membership. That was seen as a problem because it meant that panel reports could be blocked by the losing party.

Eager as we are to get to the next phase of this discussion, it is important to pause here to note that, frustrating as that system was at times, countries often did bite the bullet of accepting adverse reports-but then that was in a more diplomatic, less litigious system.

Still, it is a little ironic that in setting up the Appellate Body, the members of the GATT-WTO baffled themselves with the same barrier, albeit operating in the opposite direction. This is what Mr. Stewart was referring to in today's featured quote, notably in the phrase "without the ability to really think through what happens if the dispute settlement system, for some reason, gets it wrong." A little further on in his presentation he explained:

"Appellate Body Members, panelists, are obviously human. So that means that not every decision is going to be correct as viewed by the body politic. And the consensus-based system basically means that you have no checks on the dispute settlement system when they get something wrong, because you need the consent of those who have won to reverse a win to a loss."

Logic suggests that this rigidity is in fact more iron clad than the old "consensus" requirement for panel reports. Surely it was easier then for a country to accept a loss while bowing to a judicial authority than would it would be to do so now by defying one. The other, post-1995 changes in the Geneva system only magnify that effect. 

Negotiations Undercut. John Magnus of TradeWins LLC, who spoke before Mr. Stewart, said that "someone who doesn't see a link between what's been happening in dispute settlement since 1995 and what's been happening at the negotiating table, the paucity of negotiating outcomes during that same period, isn't looking very closely."

In his paper for the event, Mr. Stewart straightforwardly described what has been happening:

"The Appellate Body's approach to decision-making has thus encouraged members to seek through dispute settlement that which they historically would have sought through negotiations."

He was a little more graphic in speaking to the GBD audience about this same issue. 
 
"You know," he said, "I've been in Geneva meeting with missions that were clapping themselves on the back that they got something [in dispute settlement] that they [knew] they had not gotten in the Uruguay Round. 'This is amazing. Who thought we would ever be able to push this down the U.S.'s throat?!'"

But it isn't just that the judicial route may be the more productive for some countries. Ambiguity is often the grease that makes agreements possible. For many, it is absolutely essential. But ambiguity isn't ambiguous at all if it simply means that the Appellate Body will decide. That thought comes through clearly in this paragraph from Mr. Stewart's paper:

One sitting Appellate Body member, Thomas R. Graham, has recognized the danger of overreaching by the Appellate Body. He has cautioned that WTO members may lose confidence in the WTO dispute settlement system if they continue to question Appellate Body rulings, noting that the Appellate Body might "risk that invaluable commodity of respect" if it fails to strike a proper balance in its decisions by "interpreting words too broadly or go[ing] too far in filling a gap or resolving an ambiguity that may have been intentional."
He also pointed out that overreaching by the AB may "make it harder for negotiators to come to agreement in the future, if they fear they must cross ever 't' and dot every 'i' to prevent unintended interpretations." 

COMMENT
As you will have noticed, we allowed ourselves one or two comments in the section above. We'll leave it at that for now. There will be more TTALK Quotes on this topic, and so we'll save most of what we ourselves might have to say until later.
SOURCES & LINKS
Terence Stewart on WTO Dispute Settlement is a link to our transcript of Mr. Stewart's opening presentation on December 20.

From Stewart and Stewart is the paper Mr. Stewart distributed at the December 20, 2017, GBD event on WTO Dispute Settlement. The table of critical statements mentioned above begins on page 5.

More from Disputed Court takes you to a page on the GBD website with additional materials from the December 20 event referenced above.

*Note. The Dispute Settlement Body or DSB refers to the full WTO membership when it meets to consider matters relating to dispute settlement, including reports issued by panels and by the Appellate Body.

TO GET THE TTALK DAILY QUOTE IN YOUR INBOX

Or Other GBD Notices, click below.
©2018 The Global Business Dialogue, Inc.
1717 Pennsylvania Ave., NW, Suite 1025
Washington, DC   20006
Tel: (202) 463-5074
R. K. Morris, Editor
Joanne Thornton, Associate Editor