Restoring the World Trade Organization’s crown jewel

With the United States now hostile towards the WTO’s dispute settlement system, the resurrection of the mechanism by 2024 could face trouble

July 10, 2023 12:08 am | Updated 01:03 am IST

‘The larger game plan of the U.S. seems to be the de-judicialisation of trade multilateralism as we know it’

‘The larger game plan of the U.S. seems to be the de-judicialisation of trade multilateralism as we know it’ | Photo Credit: Getty Images/iStockphoto

In June 2022, the member-countries of the World Trade Organization (WTO) managed to hammer out a face-saving deal — India played a vital role — at the Geneva ministerial conference, thereby keeping faith in trade multilateralism alive. An important part was resurrecting the WTO’s dispute settlement system (DSS), also called WTO’s ‘crown jewel’, by 2024. Since 2019, the WTO’s two-tiered DSS remains paralysed. The appellate body, which is the second tier of the WTO’s DSS that hears appeals from WTO panels, is non-functional because the United States, single-handedly, has blocked the appointment of its members. The appellate body, from 1995-2019, has upheld the international rule of law by holding powerful countries such as the U.S. and the European Union accountable for international law breaches. However, the appellate body has become a victim of its success. Its one-time supporter, the U.S., has become its most acerbic critic. Now, the clock is ticking, and from the information publicly available, it looks unlikely that the DSS will be in the pink by 2024.

The ‘precedent’ problem

The U.S. reproaches the appellate body for judicial overreach and exceeding its assigned institutional mandate. Thus it argues that till the time the appellate body’s role is defined precisely, it cannot be resurrected. One major problem that the U.S. identifies is that the appellate body, contrary to the text of the WTO’s dispute settlement understanding (DSU), has been creating binding precedents through its decisions.

It is well-established that there is no rule of stare decisis — i.e., no rule of precedent in international law. The WTO’s DSU also makes this clear in Article 3.2 by stating that the appellate body rulings can neither add nor diminish the rights and obligations of WTO member-countries. However, the same Article also says: “The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system.” Thus, it is incumbent on the appellate body to ensure that there is consistency in the interpretation and application of the WTO agreements without creating a binding precedent. This requires striking a fine balance — precisely what the appellate body has tried to do. It has encouraged the WTO panels to rely on previous interpretations especially where the issues are the same. Simultaneously, the appellate body has clarified that a departure can be made from the previous rulings and reasoning if there are “cogent reasons”. The argument that this means that the appellate body is following a system of precedent in the sense it is followed in the common law system is tantamount to vastly overstating the case, as James Bacchus and Simon Lester argue.

Moreover, the appellate body is not the only international court that follows its previous decisions. Other international courts such as the International Court of Justice and the International Tribunal for the Law of the Sea also follow past decisions unless there are valid reasons not to do so. At any rate, it has been proposed that the WTO member-countries can adopt a statement that the appellate body rulings do not create precedents. However, it will not satisfy the U.S.

De-judicialisation of trade multilateralism

The larger game plan of the U.S. seems to be the de-judicialisation of trade multilateralism as we know it. The WTO was created in a world that was resplendent with the neoliberal consensus that emerged after the Cold War and the collapse of communism. Ernst-Ulrich Petersmann, an international economic lawyer, argued that in a neoliberal economic system, the ‘invisible hand’ of market competition should be complemented by the ‘visible hand’ of the law. The WTO became this ‘visible hand’ of the law to regulate global trade. This period saw not only the legalisation of international relations (states accepting precise international law standards to judge their behaviour and delegating this power to judge to international courts) but also its judicialisation (the expansion of international courts and tribunals that dominate decision-making in place of national actors). This, arguably, erodes the sovereignty of nations as they lose control over critical decision-making. De-judicialisation, as Daniel Abebe and Tom Ginsburg define it, is the reverse phenomenon where countries weaken international courts to take back decision-making power. Given the emerging geo-economic challenges posed by a rising China, the U.S. wants to exercise full power over its trade policies, throwing off the shackles of the appellate body’s judicial review. This de-judicialisation should not be confused with exerting political oversight over the appellate body to improve its working. While Washington has identified multiple problems with the DSS, it has seldom offered constructive suggestions.

On voting

It is a fool’s errand to negotiate with the U.S. to put the appellate body back on track. One option that other countries have, as Henry Gao argues, is to elect the appellate body members by resorting to voting at the WTO’s General Council meeting. But this will antagonise the U.S. Are countries willing to go down that road?

Prabhash Ranjan teaches at the Faculty of Legal Studies, South Asian University. The views expressed are personal

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