Abstract
In the unfolding drama of global trade disputes, the World Trade Organisation’s
(WTO) Dispute Settlement Understanding (DSU) system finds itself on the verge of
deterioration, where the absence of an effective Appellate Body raises questions about the
enforcement of international trade laws. Since the commencement of DSU in 1995, the WTO
brought 615 trade disputes wherein to resolve the disputes, 493-panel reports, Appellate Body
reports, arbitral awards, and decisions were circulated, thereby establishing itself as one of the
most successful international courts. Currently, the World Trade Organization (WTO) is facing
criticism due to the lack of new appointments of members in the Appellate Body, leading to the
erosion of its efficiency, effectiveness, and overall functioning. The consequences are evident
from a multitude of disputes being put on hold and the non-rendering of awards. Taking
advantage of this situation, a few powerful nations are seen filing appeals in case they disagree
with the arbitration panel’s decision. This current crisis is crucial to address as its consequences
transcend the procedural aspects as the inability to effectively resolve trade disputes could
potentially trigger a domino effect of trade wars between nations, potentially leading to a global
recession. Therefore, this paper seeks to delve into a comprehensive analysis employing
doctrinal methodology to examine the root causes that led to the Appellate Body’s current crisis,
evaluate its aftermath, and attempt to propose solutions. It also aims to enhance discussions
about revitalizing the integrity and effectiveness of the World Trade Organization’s dispute
resolution system.
Keywords: World Trade Organisation (WTO), Appellate Body, Dispute Settlement Understanding
(DSU), trade war, global recession, Appellate Body Crisis.
I. Introduction
Since its introduction in 1995, the World Trade Organization’s (WTO) Dispute Settlement
Understanding (DSU) has been largely recognized as the lynchpin of the rules-based multilateral
trade system. At the core of this structure is the Appellate Body – an independent and impartial
judicial organ entrusted with reviewing panel judgments and ensuring the uniform interpretation
and execution of WTO agreements. The Appellate Body has played a critical role in protecting
the integrity and efficacy of the WTO’s dispute settlement process, confirming its image as the
“crown jewel” of the organization1. However, this crown now lays tarnished, as the Appellate
Body faces an unprecedented crisis that threatens to undermine the fundamental underpinnings
of global trade regulation. The core of this dilemma resides in the United States’ persistent
obstruction of new appointments of members to the Appellate Body, which has essentially left
the appeals procedure ineffective since late 2019. The US has raised concerns over apparent
“judicial overreach” by the Appellate Body, arguing that the body has surpassed its intended
scope and encroached on the sovereignty of individual member nations2. The ramifications of
this Appellate Body crisis are serious and far-reaching. Without a functional appeals procedure,
the finality and enforceability of WTO dispute resolution judgments are now in peril.
Member states might abuse the paralysis of the Appellate Body by indefinitely postponing the
implementation of adverse panel judgments through the appeals procedure, thereby evading the
rules-based structure that supports the multilateral trading system. This, in turn, creates the threat
of a return to unilateral trade measures, protectionist policies, and maybe even trade wars – a
scenario that could have terrible ramifications for global economic stability and prosperity.
Beyond the immediate procedural problems, the Appellate Body crisis also threatens to erode the
WTO’s general credibility and authority. As the dispute settlement process – long considered the
organization’s “crown jewel” – continues to degrade, trust in the WTO’s ability to effectively
oversee the global economic order may diminish. This might lead to a fragmentation of the
international commercial system, with nations increasingly opting for regional or bilateral
agreements rather than the multilateral framework. This paper tries to give a complete analysis of the Appellate Body problem, tracing its historical origins, assessing the specific charges raised
by the United States, and considering the far-reaching repercussions for the rules-based global
trade system. It will next study various remedies, including both interim measures and more
fundamental improvements to the WTO’s dispute settlement mechanism, to contribute to the
ongoing talks about renewing the integrity and efficacy of the multilateral trading system. The
stakes could hardly be greater. Failure to overcome the Appellate Body deadlock risks the
collapse of the rules-based international economic system, with catastrophic repercussions for
economic development, job creation, and general global wealth. Restoring the Appellate Body’s
capacity to function efficiently is thus a matter of fundamental urgency, requiring a collaborative
and flexible approach among all WTO members.
II. Historical background
A. Origins of the WTO Dispute Settlement Mechanism
The World Trade Organization’s (WTO) dispute settlement mechanism has its roots in the
General Agreement on Tariffs and Trade (GATT), which was established in 1948 as a pivotal
multinational trade treaty. Over the course of nearly five decades, the GATT underwent nine
rounds of revisions, marking significant milestones in negotiating and shaping global trade
relations. The GATT played a crucial role in reducing tariffs and promoting trade liberalization in
the post-World War II era. However, it had limitations in effectively managing trade disputes and
addressing non-tariff barriers that emerged as the global trading landscape evolved. As tariffs
were reduced, trade barriers increasingly took the form of various non-tariff measures, such as
subsidies, quotas, and regulations, which were difficult to address within the GATT’s framework.
The need for a more robust and comprehensive system to resolve trade disputes led to the
Uruguay Round of GATT negotiations, which took place from 1986 to 199433. The Uruguay
Round was a landmark event, as it laid the groundwork for the establishment of the World Trade
Organization (WTO), which officially came into existence on January 1, 1995.
The creation of the WTO marked a significant evolution in the global trading system. The
WTO’s founding members, which included the 76 existing GATT members and the European Communities, envisioned a framework that would facilitate free trade between nations and lay
down clear rules to govern international trade4. The overarching objective was to help member
countries use trade as a tool to enhance people’s lives, create jobs, and raise living standards. One
of the key outcomes of the GATT 1994 update, which was part of the Uruguay Round, was the
establishment of the WTO’s dispute settlement mechanism. This mechanism was designed to
address the shortcomings of the GATT’s dispute settlement system, which was often criticized
for its lack of effectiveness and the inability to enforce its rulings. The WTO’s dispute settlement
mechanism, embodied in the Dispute Settlement Understanding (DSU), aimed to provide a more
comprehensive, rules-based framework for resolving trade disputes among member countries. It
introduced several important features, such as the establishment of the Appellate Body, a
standing body of experts tasked with reviewing panel decisions, and the adoption of a reverse
consensus rule, which made it much harder for losing parties to block the adoption of panel or
Appellate Body reports5. By creating a more robust and enforceable dispute settlement system,
the WTO sought to enhance the predictability and stability of the global trading system. The
dispute settlement mechanism was seen as a crucial pillar of the WTO, providing a means for
members to seek redress for perceived violations of WTO rules and obligations, while also
ensuring the effective implementation and enforcement of the organization’s agreements. The
establishment of the WTO and its dispute settlement mechanism represented a significant
evolution in the international trade landscape, marking a transition from the more limited GATT
framework to a more comprehensive and rules-based system for governing global trade relations.
B. Evolution from GATT to the DSU
There was no efficient and legally-binding dispute resolution process in GATT. Conflicts
frequently resulted in drawn-out talks and no enforcement mechanisms. The WTO’s Dispute
Settlement Understanding (DSU) introduced a more structured and enforceable dispute
settlement process, enhancing the credibility and effectiveness of resolving trade disputes. The
GATT 1947 dispute settlement system was susceptible to unilateral avoidance. The member
countries could sometimes circumvent or avoid compliance with dispute settlement rulings without facing significant consequences6.
The GATT dispute resolution mechanism had its own
shortcomings. These included:
Faults in the GATT 1947 Dispute Settlement Procedure:
Resolving disputes took a significant amount of time due to lengthy procedures and negotiations,
which hindered timely solutions to trade conflicts. GATT had a strong aversion toward the use of
retaliatory sanctions as a means to enforce dispute settlement rulings7. This lack of enforcement
mechanism weakened the effectiveness of GATT’s dispute resolution process, as countries were
less incentivized to comply with rulings. Other than that, it was criticized for the exclusion of the
most qualified individuals from the panels. This raised concerns about the expertise and
impartiality of panel members, potentially impacting the fairness and credibility of dispute
resolution outcomes. The most significant drawback of the GATT Dispute Settlement Procedure
was its lack of a robust enforcement mechanism to compel member countries to comply with
dispute settlement rulings. It included several exceptions and safeguard clauses. It allowed
member countries to deviate from GATT rules under certain circumstances, such as to protect
economic industries to respond to unforeseen economic challenges, creating inconsistencies in
trade regulations and weakening the effectiveness of the dispute resolution mechanism.
Altogether, GATT 1947 was criticized for its lack of a comprehensive set of clearly defined legal
rules and procedures for resolving disputes which contributed to the uncertainties in the
application and interpretation of GATT rules. The Uruguay round brought several reforms like
the inclusion of intellectual property rights, agriculture, etc. But the one reform that flipped
everything was an effective dispute resolution than the one under GATT. The GATT dispute
mechanism had several weaknesses8.
Under GATT 1947 and leading up to the Uruguay Round, one of the most crucial principles was
the rule of positive consensus under which decisions could only proceed only if there was a
positive consensus among the members of the GATT Council and event to refer a dispute to
panel for resolution there needed to be positive consensus in the GATT Council, empowering them to block the establishment of a panel. Similarly, the adoption of the panel report and the
authorization of countermeasures against a non implementing respondent also required positive
consensus. Regardless of empowering the respondent to block the establishment of the panel if it
anticipated losing the case, and other members vetoing the authorisation of countermeasures, the
GATT 1947 dispute settlement system generally worked. Initially respondents often chose not to
block consensus decisions, even if it meant short-term losses. This was because they understood
the long-term benefits of a functional dispute resolution system and recognized that excessive
veto use could provoke similar responses from other parties. Despite its consensus principle,
GATT 1947 was effective in successfully resolving a majority of cases, providing satisfactory
solutions to the parties involved. Empirical data suggests it was highly likely that many disputes
were never bought before the GATT resolution because the complainant anticipated a veto from
the respondent. This risk of veto undermined the efficiency of the GATT dispute settlement
system9. In fact, Veto actions did occur, particularly in economically important or politically
sensitive areas such as anti-dumping measures. Towards the 1980s, GATT met with its foreseen
deterioration in its dispute settlement system. The incorporation of the parties in the resolution
mechanisms was evident in the increasing blocking of the establishment of panels and the
adoption of panel reports. These issues prompted negotiations on dispute settlement to become a
focal point during the Uruguay Round negotiations. The Uruguay Round significantly
contributed to the formation of the Dispute Settlement Understanding (DSU) under the WTO.
The DSU aimed to rectify weaknesses in the previous GATT dispute settlement system by
introducing a more precise timetable and addressing the issue of non-violation nullification or
impairments. Additionally, the DSU introduced changes in the system that aimed to create a
more effective and enforceable dispute settlement mechanism.
C. Key features of the DSU
The Uruguay Round trade negotiations led to the creation of the WTO in 1995, which further
formalized and codified the dispute resolution process. The WTO’s Dispute Settlement
Understanding (DSU) governs how disputes between member countries are handled under the various trade agreements covered by the WTO. The current dispute settlement procedure under
the WTO combines elements of consultation and adjudication.
a. The Consultation Phase
The initial step before the parties proceed to formal adjudication is through consultation. The
DSU, under Article 49, mandates that parties to a dispute must first consult with each other to try
and reach a mutually satisfactory solution before requesting the establishment of a panel10. The
goal of this consultation phase is to allow the parties to express their concerns, exchange
information, and explore potential resolutions through dialogue and negotiation. This
consultation process typically lasts for 60 days11, providing a window of opportunity for the
disputing parties to work towards a settlement without the need for further legal proceedings.
The emphasis on consultation reflects the WTO’s preference for amicable dispute resolution,
where members are encouraged to find mutually acceptable solutions through good-faith
negotiations. If the consultation phase does not lead to a resolution, the complaining party has
the right to request the establishment of a panel under Article 612 of the DSU. This marks the
transition from the consultation phase to the formal adjudication process.
The Importance of the Consultation Phase:
It serves several important purposes within the WTO’s dispute settlement mechanism:
- Encourages amicable resolution: By mandating consultation as the first step, the DSU
promotes the resolution of disputes through dialogue and negotiation, rather than
immediately resorting to formal legal proceedings. - Facilitates information exchange: The consultation process allows the parties to better
understand each other’s concerns, share relevant information, and potentially identify
mutually acceptable solutions. - Avoids unnecessary litigation: If the parties can reach a settlement during the consultation
phase, it can prevent the need for formal panel proceedings, saving time and resources for
both the parties and the WTO. - Maintains the focus on cooperation: The emphasis on consultation reinforces the WTO’s underlying principles of cooperation and the desire to find solutions that benefit all members, rather than solely relying on adjudication.
By incorporating this consultative approach as the initial step in the dispute settlement process,
the WTO has sought to strike a balance between fostering cooperation and providing a robust
legal framework for resolving trade-related conflicts among its members.
b. Transparency in the establishment of panels:
Dispute Settlement Body (DSB), is a special assembly within the organization’s General Council.
Comprising delegates from all WTO member countries, the DSB is established to administer the
rules and procedures governing the settlement of disputes among members. The DSB wields
significant authority within the WTO’s dispute settlement framework. It has the power to
establish panels to hear complaints, adopt the reports issued by panels and the Appellate Body,
monitor the implementation of rulings, and authorize the suspension of concessions and
obligations under the covered agreements. When a WTO member country files a complaint
against another member, the complaining party must request the establishment of a panel no later
than the meeting of the DSB following the meeting where the request first appears on the DSB’s
agenda. This process is conducted in a transparent manner, with clear documentation of the
issues at hand, the attempts made to resolve the dispute through consultations, and any special
terms of reference requested by the complaining party. By ensuring transparency in the
establishment of panels, the DSB keeps all WTO members informed about the progress of the
dispute settlement proceedings and the specific concerns being addressed. This transparency
contributes to the overall credibility and legitimacy of the organization’s dispute settlement
framework.
The DSB’s broad authorities and transparent processes play a crucial role in maintaining the
integrity and effectiveness of the WTO’s dispute settlement mechanism. By administering the
rules and procedures in a fair and consistent manner, the DSB helps to uphold the principles of a
rules-based multilateral trading system, where trade disputes are addressed in a predictable and
impartial way. Furthermore, the DSB’s ability to authorize the suspension of trade concessions or obligations serves as a deterrent against non-compliance, reinforcing the binding nature of the
WTO’s dispute settlement rulings and the importance of adhering to the organization’s
agreements. By effectively administering the dispute settlement process, the Dispute Settlement
Body is instrumental in maintaining the stability and predictability of the global trading system,
which is essential for fostering international cooperation and economic growth.
c. Competent and Impartial Panels:
The DSU outlines stringent requirements for the selection of panel members to ensure the
competence, impartiality, and independence of the WTO’s dispute settlement process13.
According to the DSU, panel members are expected to possess highly relevant experiences that
equip them to handle complex trade disputes effectively. This includes prior service on or
presentation of cases to WTO panels, representation of a member country or a contracting party
to agreements like the General Agreement on Tariffs and Trade (GATT 1947) or its successors,
experience working in the WTO Secretariat, academic expertise in international trade law or
policy, or senior-level trade policy positions held in member countries. The emphasis on relevant
experience reflects the technical and specialized nature of WTO disputes, which often involve
intricate legal and economic issues. By drawing from a pool of individuals with deep expertise in
trade matters, the DSU aims to ensure that panels are staffed with competent and knowledgeable
experts capable of rendering well-informed and impartial rulings. Equally important, the DSU
stipulates that the selection of panel members must be guided by the principles of impartiality
and independence. The DSU explicitly states that these qualities are of “utmost importance”
under Article 814, which outlines the procedures for panel composition.
The requirement of impartiality is intended to safeguard the integrity of the dispute settlement
process, ensuring that panel members are free from any conflicts of interest or biases that could
influence their decision-making. Independence, on the other hand, is essential to protect the
panel members from external pressures or interference, allowing them to deliberate and decide
cases solely on the basis of the facts and the applicable WTO rules and agreements. To further
bolster the impartiality and independence of the panel members, the DSU also emphasizes the need for diversified backgrounds. By selecting individuals from a range of nationalities,
professional experiences, and legal traditions, the WTO seeks to mitigate the potential for any
single country or perspective to dominate the panel’s composition. This commitment to
competence, impartiality, independence, and diversity in the selection of panel members is a
cornerstone of the DSU’s efforts to ensure the credibility, legitimacy, and effectiveness of the
WTO’s dispute settlement mechanism. It is a critical aspect of the organization’s endeavor to
uphold the rule of law and provide a fair and transparent forum for the resolution of trade
disputes among its members.
d. The Appellate Body:
Any party to the dispute (or both) may appeal specific legal questions and legal interpretations to
the WTO’s Appellate Body following the panel’s report’s release. The body was put in place to
ensure consistency and accuracy in dispute rulings. After considering the legal arguments put
forth, the Appellate Body analyzes the panel’s conclusions and has the authority to affirm,
amend, or reverse them. In order to guarantee the correctness and consistency of the panel’s
decisions, this stage adds another level of scrutiny.
After the Appellate body is done reviewing the panel report and issues its final report, both
reports are submitted to the Dispute Settlement Body (DSB) which will then conduct a
quasi-automatic adaptation procedure of the report. Under ‘Quasi-automatic procedure’ the body
will review the report and it will be deemed to be adopted if there is no consensus among
members to reject it15. The viability of the dispute resolution mechanism under the General
Agreement on Tariffs and Trade (GATT) was bolstered by the robust codified legal framework of
the Dispute Settlement Understanding (DSU) within the World Trade Organization (WTO).
Between January 1, 1995, and December 31, 2004, a total of 324 complaints were addressed
under the DSU provisions, indicating its effectiveness16. It’s performance history earned it the
title of “Crown Jewel’ of the international trade regime, but sadly the crown has slipped away.
III. The Appellate Body Crisis
A. Lack of new appointments
Currently, the DSU is on the verge of its demise, due to America blocking the appointment of
new members to the Appellate Body. Due to the lack of appointment of new members, the body
has ceased to operate threatening the continued effectiveness of the WTO’s dispute settlement
system. The Appellate Body operated relatively smoothly since its establishment in 1995, with a
standard composition of seven members. By the early 2010s, America started putting forward
concerns regarding the Appellate Body’s functioning, including delays in issuing reports and
perceived overreach in legal interpretations17. The DSB deals with the dispute settlement process
within the WTO. It represents all WTO member countries. A “quorum” refers to the minimum
number of members required to conduct official business or make decisions. In the case of the
Appellate Body, a quorum is necessary to resolve appeals and issue binding rulings. As per WTO
rules, the DSB cannot formally adopt a panel report (the initial ruling on a trade dispute) until
any appeal related to that report is resolved. When the Appellate Body lacks a quorum and
cannot function, any WTO member can delay the enforcement of a panel report simply by filing
an appeal and this has been going on for the past five years18. This situation essentially paralyzes
the formal appeals process and prevents the issuance of binding rulings.
The United States’ concerns regarding the Appellate Body are not new.
During the Obama Administration, the reappointment of two former Appellate Body members was blocked. One of
these members was Jennifer Hillman, a US national. The reasons for the refusal were not
provided, which stirred controversy due to a lack of transparency. Next, Seung Wha Chang, a
member from South Korea, faced similar issues, with reasons cited including judicial overreach.
The Obama Administration decided against supporting Hillman and Chang’s re-appointments
due to perceived issues with their performance and adherence to the DSU’s obligations for
Appellate Body Members. Nevertheless, no particulars or proof for these worries were offered.
The Appellate Body’s re-appointment criteria and transparency were called into doubt by these
decisions, which caused controversy both within the WTO and among member states. During the
Trump administration in July 2017, the appointment of new Members to the Appellate Body was
blocked altogether, hindering its functionality. Consequently, the body was reduced to only three
individuals, which is the minimum number required to hear appeals. And by the end of 2019, there was no member left in the Appellate body. The Dispute resolution system under WTO is
operational except for cases where a WTO member receives their panel report without a
mechanism for appeal. Despite the awareness of the Appellate Body’s non-functioning status,
most members still submit their reports for appeal, resulting in a void where disputes remain
unresolved even though the Dispute Settlement Understanding (DSU) is fully operational. In
these instances, WTO obligations are not enforced based on the belief that parties should wait
until the appeal process is resolved, but with no functioning Appellate Body on the receiving
end, resolution remains withheld.
B. U.S. concerns and blocking of appointments
The appellate system, which reviews appeals of panel verdicts in trade disputes, has come to a
stop as the U.S. has continuously prevented the filling of vacant posts. The fundamental reasons
behind the U.S. boycott show deep-seated reservations about the Appellate Body’s position and
actions. The accusation of “judicial overreach” by the Appellate Body is central to the US
critique. Officials from the US have accused the appellate judges have overreaching themselves
and taking on powers that WTO members never gave them. Specific criticisms include the
Appellate Body making decisions on areas of fact, especially those pertaining to WTO members’
domestic laws, even though they were only empowered to consider legal interpretations. The
U.S. also takes issue with the Appellate Body offering advisory conclusions on things beyond the
scope of the case, rather than just resolving the legal concerns presented.
Additionally, the U.S. has objected to the Appellate Body’s handling of earlier verdicts as
creating a binding precedent, despite WTO rules not demanding such an approach. American
trade representatives claim this approach weakens the “security and predictability of the
multilateral trading system” by unfairly confining the flexibility of future panels and the
Appellate Body itself19. The U.S. feels the Appellate Body has overstepped its jurisdiction and
remarked on subjects that should be reserved for the WTO’s political organizations like the
Ministerial Conference and General Council. Procedurally, the U.S. has criticized the Appellate
Body for regularly disregarding the necessary 90-day deadline to produce decisions, as well as enabling members whose terms have ended to continue deciding appeals under the problematic
“Rule 15” of the Body’s working procedures. These activities were considered incompatible with
the DSU which controls the WTO’s dispute settlement process.
Underlying these specific complaints is a wider American anxiety about surrendering too much
jurisdiction to an unelected and unaccountable foreign tribunal. The U.S. has always been
skeptical of international organizations that might trump national sovereignty, and the Appellate
Body’s strong jurisprudence has exacerbated these worries. By delaying new appointments, the
Trump administration has attempted to persuade the WTO to rein in what it perceives as an
overreaching judicial body. The U.S. has backed up its words with tangible measures, first by
refusing to reappoint some Appellate Body members it was unsatisfied with, and then by
rejecting all planned appointments and reappointments. This has finally led to a scenario where
the Appellate Body could no longer meet the three-member quorum necessary to hear fresh
appeals, putting the dispute settlement mechanism to a stop.
IV. Analysis of U.S. Concerns
A. Concerns over adherence to legal scope under DSU:
One of the concerns raised by the United States was that the Appellate Body was not adhering to
its scope of review, which is strictly focused on legal issues related to the dispute. The body is
expected to review and derive its decisions based on legal interpretation rather than factual
findings20. This concern is significant because there are prescribed scopes and limitations to the
Appellate Body’s role within the dispute settlement process. It should not reexamine factual
evidence or introduce new evidence. The authority of the Appellate Body is confined to
assessing whether the panel’s legal interpretations and conclusions are consistent with WTO
agreements. According to Article 17.6 of the DSU, the Appellate body has a more limited scope
than the panel. The DSU furthermore does not allow the Appellate body to refer back to panels
for additional examination of factual issues. But when the factual issues are insufficient
regarding disputes according to the Appellate Body, it may find it hard to derive a conclusion solely on the basis of legal interpretation. The same happened in the case of Guatemala and Peru
(DS457)21, the Appellate body could not derive its conclusion due to the lack of factual evidence.
B. Role in reviewing domestic laws:
The United States has raised concerns about the Appellate Body exceeding its mandate by
extensively assessing domestic laws, potentially encroaching upon countries’ sovereignty. This
involvement in reviewing municipal laws is not the sole concern; rather, it reflects a broader
pattern of behavior where the Appellate Body’s actions extend beyond the original agreements
made by WTO Members in the Dispute Settlement Understanding (DSU). America’s concern is
that the Appellate Body’s deep dive into evaluating domestic laws goes beyond its intended role,
which primarily focuses on legal interpretations and procedural matters related to international
trade agreements22. This overreach could lead to unintended consequences, including challenges
to countries’ regulatory autonomy and legal systems. Furthermore, the concern is not limited to
the review of municipal laws but encompasses a wider departure from the agreed terms and
limitations set forth in the DSU. This departure raises fundamental questions about the Appellate
Body’s adherence to its designated responsibilities and the need for clarity and transparency in its
actions within the WTO dispute settlement framework. Overall, this concern raised by the United
States underscores the importance of ensuring that the Appellate Body operates within its
prescribed scope and respects the sovereignty of member countries while upholding the integrity
of the WTO’s dispute settlement mechanisms.
C. Disregard for Deadline:
According to the United States, the Appellate Body has exceeded its narrow scope by reviewing
factual findings, which is not within its authority. This overreach has led to delays in resolving
disputes, contrary to the timelines established by the Dispute Settlement Understanding (DSU).
The crux of America’s concern lies in the Appellate Body’s departure from its intended role,
which is primarily focused on legal interpretations and ensuring consistency with WTO
agreements. When the Appellate Body ventures into reviewing factual issues, it creates
complications and prolongs the resolution process, disrupting the efficient functioning of the dispute settlement mechanism. Moreover, these delays not only impact the parties involved in the
dispute but also undermine the effectiveness and credibility of the WTO’s dispute resolution
system. Timely and efficient resolution of disputes is crucial for maintaining a rules-based
trading system and fostering trust among member countries. The Appellate Body’s actions,
according to critics, have negatively impacted American trade remedies, particularly when it
comes to addressing unfair trade practices like dumping—selling goods below cost in order to
gain market share—and subsidies—financial aid to local industries. It follows that U.S. efforts to
stop these kinds of acts are less successful now because of the Appellate Body’s actions.
D. Creating New Obligations:
It has been alleged that the Appellate Body has introduced new trade obligations or reinterpreted
existing ones in ways that were not originally agreed upon by WTO members. The decisions
made by the Appellate Body have effectively established new rules or obligations in international
trade without obtaining proper consensus among member states. The implication of such actions
by the Appellate Body is that they can impact the consistency, predictability, and fairness of the
international trading system. When decisions lead to the creation of new obligations or
significantly alter existing ones without consensus, it can create uncertainty and disputes among
member states regarding their rights and obligations under WTO agreements.
V. Call for Appellate Body Reform within the WTO?
When questioned about the restoration of the Appellate Body within the WTO, US officials often
evade direct answers, leaving uncertainty and a lack of clarity regarding any potential restoration
efforts. This avoidance of addressing the issue directly has resulted in no conclusive decisions or
progress toward restoring the Appellate Body, leaving little hope for its revival in the near future.
During her address on WTO issues in Geneva, U.S. Trade Representative Katherine Tai
responded to questions about lifting the ban on the appointment of new members to the
Appellate Body by shifting the focus to broader concerns regarding the overall efficiency of the
WTO’s dispute settlement system to which Tai emphasized on broader issues to the overall
efficiency of the WTO’s dispute settlement system and the importance of dialogue and collaboration among WTO members23. However, it appears that the United States has not taken a
proactive approach in directly addressing the specific issue of lifting the ban and initiating
concrete efforts to reform the dispute settlement system. In an attempt to revive the Appellate
Body within the WTO, the European Union took the initiative and proposed organizational
reforms. This proposal was supported by several WTO members, including China and India24.
The reforms were primarily aimed at addressing the concerns raised by the United States, such as
not allowing the reappointment of members after their tenure ends and restricting the Appellate
Body’s scope to what is essential for dispute resolution. However, despite these efforts, the
reform proposal was rejected by the U.S. Ambassador to the WTO, Dennis Shea, who argued
that the reforms failed to adequately address America’s concerns25. This rejection dealt a blow to
the hopes of revitalizing the Appellate Body and resolving the ongoing crisis within the WTO’s
dispute settlement mechanism. The ongoing crisis surrounding the World Trade Organization’s
(WTO) Dispute Settlement Understanding (DSU) is being viewed by many as the potential
demise of what was once considered the ‘Crown Jewel’ of the organization. In response to the
breakdown of the traditional dispute settlement mechanism under the DSU, some members,
including the European Union (EU), Canada, and Norway, have opted for alternative dispute
resolution methods outlined in Article 25 of the DSU. This article allows members to utilize
arbitration as an alternative means of resolving disputes. Under this alternative approach,
members have the flexibility to refer disputes to arbitration after the consultation period and to
appeal decisions after the panel report has been adopted. This shift towards arbitration provides
members with more leniency in applying their own rules and procedures to reach a conclusion. It
also allows them to determine which aspects of a dispute they wish to resolve using arbitration,
offering a more tailored and adaptable approach to dispute resolution within the WTO
framework.
VI. Implications and Consequences
A. Compromise of the dispute resolution process
The compromise of the dispute settlement mechanism inside the WTO is a key consequence of
the Appellate Body problem. Without a fully functioning Appellate Body, the two-tiered dispute
settlement structure necessary for the WTO’s success is in threat. One key effect is the blocking
of panel decisions. In the absence of a functional Appellate Body, WTO member states that
obtain adverse verdicts from dispute resolution panels can effectively obstruct the
implementation of such decisions by submitting appeals. The Appellate Body is the only
organization inside the WTO system that can hear and adjudicate appeals. This weakens the
finality and enforceability of the dispute resolution process, producing a condition of ambiguity
where the decisions of conflicts stay in limbo and cannot be implemented. The capacity of
member states to veto adverse panel judgments further weakens the rules-based foundation of the
WTO’s trade system. It allows for selective compliance and a return to a more power-based,
ad-hoc approach to settling trade disputes, rather than the predictable, impartial framework that
the WTO was supposed to offer. This undermining of the rules-based system is an alarming
concern. Furthermore, without the check of the Appellate Body, member states may be tempted
to misuse the appeals process to postpone the resolution of disputes and prevent compliance with
adverse verdicts. This might lead to a profusion of appeals and a backlog of cases, further
weakening the efficiency and timeliness of the dispute settlement system.
The organization’s legitimacy and credibility might be severely damaged by its incapacity to
settle disputes quickly and effectively as well as by the possibility of disobeying WTO rules.
This, in turn, might lead to a loss of trust in the WTO’s capacity to defend the rules-based trading
system, potentially culminating in a fragmentation of the global trade order and an increase
towards more unilateral, protectionist policies. The compromise in the dispute settlement process
is a key weakness that jeopardizes the basic foundations of the WTO’s system for handling
international trade conflicts. Restoring the normal functioning of the Appellate Body is crucial to
sustaining the integrity and efficacy of the WTO’s dispute resolution system, and retaining its
position as the primary institution for resolving trade disputes among its member states. Failure
to handle this dilemma might have far-reaching ramifications for the stability and prosperity of
the world economic system.
B. Potential for exploitation and non-compliance
The crisis has evolved into a deeply concerning pattern of exploitation and non-compliance by
member states, further undermining the organization’s ability to effectively resolve trade
disputes. The cases involving India, the European Union, and Chinese Taipei illustrate this
troubling trend. For example, if we look at the case where India filed an appeal with the now
non-existent Appellate Body, allowing it to block the adoption of unfavorable panel rulings. By
doing so, India has prevented these judgments from becoming binding and enforceable,
effectively shielding itself from consequences that go against its interests. Similarly, India and
Chinese Taipei have repeatedly requested additional time from the Dispute Settlement Body
(DSB) to consider the adoption of panel reports, thereby delaying the resolution of these
disputes. The DSB’s agreement to these requests, with Chinese Taipei successfully delaying the
panel report’s consideration for the third time, highlights the vulnerability of the system. This
exploitation of the dispute settlement vacuum has serious implications. Without the threat of an
effective appeals process and the enforcement of final rulings, member states have little incentive
to comply with WTO obligations and panel decisions that go against their national interests. The
European Union’s disappointment with these developments underscores the broader concern that
the “paralysis” of the WTO’s dispute settlement mechanism could lead to a return to a more
power-based, ad-hoc approach to resolving trade conflicts. This would further undermine the
credibility and legitimacy of the organization, potentially triggering a deterioration of
international cooperation on trade issues.
The cumulative effect of this exploitation and non-compliance is a severe erosion of the WTO’s
ability to uphold the rules-based trading system. As member states prioritize short-term national
interests over the shared prosperity and stability that the multilateral trading order was intended
to foster, the foundations of the global trading framework are at risk of crumbling. This crisis
also has far-reaching consequences for businesses, workers, and consumers worldwide. The
inability to enforce WTO rulings and the lack of a reliable dispute settlement mechanism
undermine the predictability and stability that the global economy has long relied upon.
Companies may face increased uncertainty and the risk of unilateral trade actions, while workers
and consumers could suffer the consequences of rising protectionism and trade barriers. This situation threatens to unravel the very fabric of the rules-based international trading system,
jeopardizing the economic benefits and opportunities that have been fostered through decades of
multilateral cooperation and integration. It is imperative that member states recognize the gravity
of this crisis and take decisive action to restore the integrity and effectiveness of the WTO’s
dispute settlement mechanism. Failure to do so could have catastrophic consequences for the
global economy, eroding the gains made through trade liberalization and undermining the
principles of fairness, transparency, and predictability that have underpinned the international
trading system for decades.
C. Impact on the WTO’s credibility and effectiveness
The Appellate Body crisis immediately damages the credibility of the WTO in various ways.
Firstly, the WTO’s dispute settlement system, with the Appellate Body at its center, has long been
considered the “crown jewel” of the organization. Its capacity to handle trade disputes in a
rules-based, impartial way has been a fundamental source of the WTO’s legitimacy and esteem
among member nations. However, the present crisis has damaged this reputation, since the
absence of a fully functioning Appellate Body raises issues about the fairness and consistency of
the dispute settlement procedure. For example, without a functional Appellate Body, the dispute
settlement process lacks the uniformity and impartiality that the two-tiered structure was
supposed to offer. This might rise to perceptions of injustice and unpredictability in the execution
of WTO rules, undermining the organization’s reputation. Furthermore, if the member countries
lose faith in the WTO’s capacity to successfully settle disputes and implement its decisions, it
may weaken trust in the rules-based trade system that the organization was established to protect.
This might have far-reaching effects, perhaps leading to a fracturing of the global trade system
which might cause a domino effect to trade wars.
The turmoil surrounding the Appellate Body also threatens to damage the overall efficacy of the
WTO. If member states see the WTO’s dispute settlement system as untrustworthy or unable to
offer a final, binding conclusion, they may be less motivated to submit their trade problems to
the body. This might decrease the WTO’s role as a venue for handling international trade issues,
as member nations may elect to take more unilateral, protectionist actions to address their
concerns. Furthermore, the weakening of the WTO’s dispute settlement mechanism might erode the organization’s bargaining ability and influence in future trade discussions. The WTO’s
capacity to promote substantive trade liberalization activities is strongly connected to the
legitimacy and efficacy of its dispute settlement mechanism. If this mechanism is viewed as
ineffective, it might decrease the WTO’s influence and significance in the expanding global trade
environment, perhaps leading to a fragmentation of the international trading order and a trend
towards more regional or bilateral agreements.
D. Global trade war and recession
Though the appellate body crisis does not automatically trigger a trade war, it still raises a risk of
escalating trade conflicts that could potentially result in global trade war and recession, if the
crisis remains unsolved. Since 2019 as the WTO appellate body stop functioning, countries have
started losing faith that the WTO can effectively and amicably resolve trade grievances against
one another, as countries that are not satisfied with their panel decision is filing appeal knowing
that the appellate body is not functioning, making the dispute to standstill for an indefinite time.
This may cause countries to take matters into their own hands by unilaterally imposing tariffs,
quotas and other protectionist policies. Once a country inflicts trade restrictions, affected trade
partners would likely respond with retaliatory measures of their own in a cycle of tit-for-tat or a
vicious cycle.
This trade war could erupt as major economies keep one-upping another with escalating
protectionist policies aimed at shielding domestic industries and redressing perceived unfair
trade practices. Higher tariffs would make imported goods more expensive, disrupting the global
supply chain for business and raising costs. Tighter trade barriers would shrink international
commerce, lowering export volumes and revenues. As the export falls, trade-dependent
manufacturing sectors could shed jobs and cut back investment. Households would experience
reduced purchasing power from higher consumer prices on imported products. The uncertainty
from trade hostility would make businesses hesitant to invest and expand. With these
implications combined, it would exert a significant drag on economic growth across multiple
trade-reliant countries simultaneously. If trade war persists and protectionism intensifies, it
would make businesses and consumers lose confidence to the point of tipping major economies
into recession. If important economies like the US and China enter into recession, the impact
would quickly reverberate across their trade partners through reduced demand for imports. This domino effect could push more countries into recession as export revenues plummet. An
escalating spiral of economic contraction, disrupted trade activity, layoff and financial instability
could ultimately result in a global recession.
VII. Discussions and Proposed Solutions
The WTO’s DSU Appellate Body has been experiencing a huge crisis that poses a fundamental
challenge to the rules-based multilateral trading system. Fundamentally, the problem stems from
the US government’s continuous obstruction of new nominations to the Appellate Body, which
has essentially prevented it from operating since 2019. This has placed many trade disputes in a
condition of limbo since losing parties have often appealed panel reports into the hole created by
the now dormant Appellate Body. The US has raised concerns about judicial overreach by the
Appellate Body, alleging that it has overstepped its jurisdiction and introduced new rules not
intended by WTO members. During the Obama administration, the US declined to reappoint a
US Appellate Body member for a second term and protested the reappointment of a Korean
Appellate Body member. This laid the groundwork for the Trump administration’s subsequent
refusal to nominate any new Appellate Body members, bringing the system to a stop. In reaction
to this issue, numerous WTO members, led by the European Union, have suggested amendments
to overcome the deadlock. Their proposal includes a consultation requirement in the case of
expected delays beyond the 90-day deadline, restricting the Appellate Body’s conclusions to
those “necessary for the resolution of the dispute,” and setting term limitations on Appellate
Body members. However, the United States has rejected this suggestion, stating that it fails to
properly address the main issues highlighted by the Appellate Body’s “judicial overreach.” The
US ambassador to the WTO, Dennis Shea, claimed that the proposal does not go far enough and
may potentially worsen some of the difficulties. This divergence between the EU-led reform
proposal and the US’s rejection illustrates the greater issue of finding a consensus-based solution
to the Appellate Body dilemma. The US’s refusal to embrace the proposed adjustments, despite
being a prominent supporter of WTO reform, emphasizes the need for a more collaborative and
inclusive approach to resolving the concerns of all WTO members. Recognizing the seriousness
of the issue, under Art 25 of DSU which allows “expeditious arbitration within the WTO as an
alternative means of dispute settlement [. . .] of certain disputes that concern issues that are clearly defined by both parties [. . .] which shall agree on the procedures to be followed26.” the
EU and many other WTO members have moved to remedy the problem by establishing the
Multi-Party Interim Appeal Arbitration Arrangement (MPIA). The MPIA, which now has 53
participating nations, attempts to provide a temporary solution by retaining the substantive and
procedural components of the WTO’s appeal arbitration procedure, including its independence
and impartiality while boosting efficiency. However, the dispute MPIA’s reach is limited, as it
does not involve the participation of the United States or many other key WTO members. This
raises issues about the long-term durability and legitimacy of the system since the absence of
crucial actors might erode its efficacy.
To more effectively address the crisis facing the WTO’s Appellate Body, an interim solution
could be utilizing the multi-party interim appeal arbitration arrangement (MPIA) under Article
25 of the Dispute Settlement Understanding (DSU). However, the MPIA should be viewed as
merely a band-aid, not the final cure for resolving the actual issues plaguing the Appellate Body.
The key advantage of the MPIA is that it offers a reliable dispute resolution mechanism, open to
all WTO members on a voluntary basis. Countries could submit appeals to this arbitration
process, rather than being left in limbo by the paralyzed Appellate Body. Crucially, the design of
the MPIA should aim to facilitate the participation of the United States. US involvement is
essential for the viability and legitimacy of any interim system, as its absence could undermine
effectiveness. To ensure consistency and predictability, the MPIA’s procedures should closely
mirror the Appellate Body process, including adhering to established precedents from prior
rulings. Precedents provide guidance on interpreting WTO agreements, ensuring consistency, and
promoting legal clarity. Removing the system of precedents would undermine jurisprudential
coherence. The MPIA’s procedures should also include provisions for selecting arbitrators, scope
of review, timeframes, and adopting arbitration awards. It could incorporate suggested Appellate
Body reforms, such as consultation requirements for delays and limits on arbitrators’ findings.
Maintaining independence and impartiality of the appeal process must be a priority in the MPIA’s design. The WTO Secretariat’s role in supporting arbitration while preserving arbitrator
independence should also be considered.
While a carefully structured MPIA can temporarily fill the void, it ultimately represents a
stop-gap measure unable to fully resolve the underlying issues crippling the Appellate Body.
Transitioning to the interim MPIA will require coordination, potentially involving parallel
operation to ensure a seamless handover of pending cases. However, the MPIA agreement should
outline conditions for eventual reintegration with a revived Appellate Body. Key challenges
remain, including the risk of low participation if major players like the US opt out of the
voluntary system, undermining legitimacy. Moreover, replacing the Appellate Body with an
arbitration system departs from the original dispute settlement structure envisioned in the DSU,
potentially fragmenting the rules-based resolution framework. Ultimately, reviving and
reforming the Appellate Body itself is likely the most sustainable long-term solution. The US
must offer concrete proposals to enable collaboration towards reinvigorating the Appellate Body
in a manner that addresses all members’ concerns over its functioning. Resolving this crisis
requires balancing flexibility, compromise, and renewed commitment to the WTO’s rules-based
trading system. Only an inclusive approach can find a lasting solution that preserves the integrity
and effectiveness of WTO dispute settlement mechanisms, including adherence to precedents.
While the MPIA provides an interim path by maintaining precedential guidance, it cannot be a
permanent substitute. Reviving and reforming the Appellate Body to treat the root causes must
remain the ultimate goal.
VIII. Conclusion
The Appellate Body has long been regarded as the “crown jewel” of the WTO’s dispute
resolution process, offering a key layer of review and maintaining the uniformity and fairness of
trade dispute verdicts. However, the repeated attempts of the United States to delay the
nomination of new Appellate Body members have damaged its capacity to operate efficiently,
placing the body on the edge of collapse. The implications of this catastrophe are serious and
far-reaching. Without a properly working Appellate Body, the WTO’s dispute settlement
mechanism is fundamentally weakened. Losing parties in trade disputes can now indefinitely
postpone the acceptance of adverse findings by simply appealing them into a vacuum, severely
weakening the enforcement of WTO rules and decisions. This degradation of the finality and
credibility of the dispute settlement mechanism presents a major danger to the legitimacy of the
whole multilateral trade framework.
The ramifications extend beyond merely the procedural components of trade dispute settlement.
The prospect of growing non-compliance and a return to more unilateral, power-based trade
policies threatens to fragment the global economic order and erode the foundations of
international cooperation. The threat of a plunge into competitive protectionism and trade wars
remains large, with the concomitant consequences of economic instability, diminished prosperity,
and geopolitical tensions. While several WTO members have sought to develop temporary
arbitration processes as alternatives to the Appellate Body, these solutions are inherently
restricted in scope and lack the participation of significant actors like the United States. A more
comprehensive and collaborative strategy is needed to address the core causes of the problem
and rejuvenate the WTO’s dispute settlement mechanism sustainably. Resolving the Appellate
Body problem will require a fine balancing act. On one hand, the reasonable concerns made by
the United States concerning perceived judicial overreach and the need for changes must be
carefully weighed. On the other hand, the essential values of independence, impartiality, and the
rules-based trade order that the Appellate Body was created to safeguard must be retained and
enhanced. This will demand true communication, flexibility, and a willingness to compromise
among all WTO members. Failure to establish a consensus-based solution threatens irreversible
harm to the multilateral trading system, perhaps leading to a fragmentation of global trade and a
plunge into a more chaotic, unpredictable economic landscape. The future prosperity and
stability of the international trading system lie in the balance. The international community must
move decisively to revive the WTO’s dispute settlement capabilities and defend the integrity of
the rules-based global economy. The stakes could not be greater, and the route forward demands
a persistent commitment to multilateralism, collaboration, and a common vision for a more
affluent and fair future.
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