WTO Appellate Body

Context:

Recently, India has appealed against a ruling of the World Trade Organization’s (WTO) trade dispute settlement panel which ruled that the country’s domestic support measures for sugar and sugarcane are inconsistent with global trade norms.

WTO Appellate Body

• The Appellate Body of the WTO was set up in 1995 and is a standing committee of 7 members.
• It presides over appeals against judgments passed in trade-related disputes brought by WTO members.
• Over 500 international disputes had been brought to the WTO and over 350 rulings had been issued since 1995.
• With this, WTO’s dispute settlement mechanism is one of the most active in the world.

Structure of WTO Appellate Body:

• The WTO Appellate Body was first established in 1995. 
• The Appellate Body is composed of seven members who are appointed by the DSB to serve for four-year terms.
• Each person may be reappointed for another four-year term. 
• Each member of the Appellate Body is required to be a person with demonstrated expertise in law, international trade and the subject-matter of the covered agreements generally. 
• They are also required to be unaffiliated with any government and are to be broadly representative of the membership of the WTO.
• A Chairman is elected among the Members to serve a one-year term, which can be extended for an additional period of one year. 
• He is responsible for the overall direction of Appellate Body business. 
• The current Chairperson is Hong Zhao of China.
• A Division of three Members is selected to hear each appeal and each division elects a Presiding Member. 

How does WTO Appellate Body work?

• Countries involved in a dispute can approach the Appellate body if they feel the report of the panel set up to examine the issue needs to be reviewed on points of law.
• The Appellate Body can uphold, modify, or reverse the legal findings of the panel that heard the dispute.
• Between 1995 and 2014, around 68% of the 201 panel reports adopted were appealed.
• Countries on either or both sides of the dispute can appeal.
• The Appellate Body has so far issued 152 reports.
• The WTO’s dispute settlement procedure is vital to ensuring smooth international trade flows.
• The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.

Issues with the WTO Appellate Body

• Over the last couple of years, the membership of the body has declined to three persons instead of the required seven.
• US has blocked the appointments of new members, and the reappointments of members who had completed their four-year tenures.
• It believes the WTO is biased against it, and has criticised it for being “unfair”.
• Several U.S. provisions for imposing countervailing and anti-dumping measures are found to be inconsistent with core provisions of the WTO agreements. 
• But the US administrations have long been unhappy with the so-called judicial overreach of the AB. 
• It has repeatedly accused the AB of allegedly straying away from the dispute settlement understanding (DSU) in several disputes involving the U.S.’ measures. 
• It has even blamed that the AB has failed to issue rulings within the 90-day deadline. 
• Now the U.S. has chosen to starve the AB of funds for its functioning as well as blocking the selection process for filling six vacancies. 
• After December, 2019, AB is left with only one member, who will not be able to deliver any rulings on the pending trade disputes. 
• However many other WTO members have opposed the move of the US and haven’t agreed with the U.S. about the functioning of the AB.
• In early 2019, a facilitator was appointed by WTO members at a general council meeting to address the specific concerns raised by the U.S. about the Appellate Body. 
• The facilitator finalised a draft decision on unblocking the crisis at the AB which included a package of reforms to improve the functioning of the AB. 
• It also had suggestions for launching of the selection process for filling six vacancies to ensure that the AB remained functional after December 11, 2019.
• But the U.S. trade envoy, Ambassador Dennis Shea rejected the facilitator’s draft decision on grounds that it failed to address the issues raised by Washington about the AB’s overall functioning. 
• Over 20 developing countries met in New Delhi in the summer to discuss ways to prevent the WTO’s dispute resolution system from collapsing all together. Their efforts have not produced the desired results.

What are the implications?

• The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years.
• The backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.
• The three members have been proceeding on all appeals filed since October, 2018.
• Unless the issue is resolved, the trade body could become defunct.
• Consequently, countries locked in international trade disputes will be left with no forum for recourse.
• The US is directly involved in more disputes than other WTO member countries.
• But several countries, including India, enter disputes as third parties.
• India – India has so far been a direct participant in 54 disputes, and has been involved in 158 as a third party.

• In February 2019, the appellate body said it would be unable to staff an appeal in a dispute between Japan and India.
• This was over certain safeguard measures that India had imposed on imports of iron and steel products.
• The panel had found that India had acted “inconsistently” with some WTO agreements.
• India had notified the Dispute Settlement Body of its decision to appeal certain issues of law and legal interpretations.
• But it has so far been unable to review at least 10 appeals that have been filed since July 2018.

What is the larger concern?

• With the Appellate Body unable to review new applications, there is already uncertainty over WTO’s dispute settlement process.
• If the body is declared non-functional, countries may be compelled to implement rulings by the panel despite concerns with it.
• If a country refuses to comply with the panel’s order, it will run the risk of facing arbitration proceedings initiated by the other party.
• This does not bode well for India which is facing a rising number of dispute cases, especially on agricultural products.
• Also, the overall weakening of WTO framework could have the effect of undoing over two decades of efforts to avoid protectionism in global trade.
• This is a major concern currently, because trade tensions such as between the US and China and the US and India, are on the rise.

What is the way forward?

• New appointments to the Appellate Body are usually made by a consensus of WTO members.
• But there is also a provision for voting where a consensus is not possible.
• The group of 17 least developed and developing countries have committed to working together to end the current impasse.
• This group, which includes India, can submit or support a proposal to the above effect, helping to get new members on the Appellate Body by a majority vote.

Source: WTO Dispute Settlement

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