No Quick Fixes for WTO Dispute Settlement Reform

During my first trip to Brussels in 2018 as the new U.S. ambassador to the World Trade Organization (WTO), I asked European Commission trade officials whether they shared any of the U.S. concerns about the persistent overreaching and rule-breaking of the WTO’s now-defunct Appellate Body. The answer was simple and direct: “None.” Back in Geneva, EU officials repeated this line, saying both privately and publicly they would not concede that any U.S. concern had merit.

Fast forward to 2021 and—voila!—the European Union now admits in its new trade strategy that the United States has raised a “number of valid concerns” about the Appellate Body. Considering that the Office of the U.S. Trade Representative had prepared a 121-page report outlining in detail how the Appellate Body had engaged in activism and strayed from its original mandate, I would have expected the European Union to devote more than a few paragraphs to this subject. After all, the European Union proclaims that restoring a functioning dispute settlement system with a reconstituted Appellate Body is “the most urgent” of WTO reforms. But I will take its admission that the United States was not making stuff up about the Appellate Body as a small victory.

The European Union, however, insists that “the Appellate Body has greatly enhanced [the] legitimacy and predictability of the dispute settlement system,” a view not shared broadly in the United States, where many in both political parties consider the Appellate Body a failed experiment. That is why the Biden administration should avoid rushing to the negotiating table to break the impasse over Appellate Body appointments. Instead, it should first insist upon a truly meaningful dialogue with the European Union and other WTO members to explore why the Appellate Body felt free to overreach and why the WTO membership allowed it to occur for so long. A shared diagnosis of the problem will help lead to more durable solutions, including a possible rethinking of the dispute settlement system itself.

Here are some questions I would ask our European counterparts:

  1. The new EU trade strategy concedes that WTO adjudicators “are not bound by ‘precedent’ but should take into account previous rulings to the extent they find them relevant.” Does the European Union now acknowledge that the Appellate Body erred when it ruled in 2008, at Europe’s urging, that panels “absent cogent reasons” must follow its reports? Does the European Union reject the view that the Appellate Body was vested with broad authority to develop “a coherent and predictable body of jurisprudence?”
  1. The strategy states that WTO panels are the triers of fact and that the role of the Appellate Body is “strictly limited to addressing legal issues raised on appeal.” Does the European Union now reject the position it previously advanced that the Appellate Body had the right to review whether panels “made an objective assessment of the facts” under Article 11 of the Dispute Settlement Understanding? Even the Appellate Body complained that these “Article 11 appeals” encouraged parties to relitigate their cases at the appellate level.
  1. The strategy insists that the 90-day deadline for Appellate Body reports should be “strictly respected” and that “appropriate measures should be adopted in order to make this possible.” When the Appellate Body began regularly breaching the 90-day rule in 2011 and in subsequent years, why did the European Union not join the United States and other WTO members in expressing serious concern about the Appellate Body’s behavior. What has changed?
  1. The strategy acknowledges that the United States has raised some valid concerns about “specific [Appellate Body] rulings in certain cases.” We know the United States and European Union agree that the Appellate Body’s interpretation of “public body” has undermined the effectiveness of the WTO subsidy rules and benefited nonmarket actors like China. But are there other Appellate Body rulings about which the European Union shares U.S. concerns? If so, how does Brussels propose to correct these rulings?
  1. Does the European Union believe the Appellate Body has diminished the ability of WTO members to protect their industries from import surges by inventing additional requirements under the Safeguards Agreement?
  1. Does the European Union agree that the Appellate Body has diminished the rights of WTO members under the Anti-Dumping Agreement, including by inventing a prohibition against the use of “zeroing” to determine antidumping margins?
  1. Former Appellate Body member Thomas Graham highlighted a number of problems with the body, including a “prevailing ethos” to act like a court that was unaccountable to WTO members, an unjustified sense of infallibility, and an excessive degree of control exercised by its staff. Does the European Union share this critique?
  1. I understand the desire for binding decisions that are independently reached by competent adjudicators, but what is so magical about a “two-tier” dispute settlement system? In fact, with 25 years of hindsight, the United States has concluded that the Appellate Body was less expert than panels, with panels frequently reaching a correct interpretation and the Appellate Body getting it wrong. Shouldn’t the focus be on reforming the WTO dispute settlement system (perhaps with an updated appellate review mechanism) rather than “reconstituting” the Appellate Body?

Despite three years of superficial discussions, the WTO membership has not adequately examined these and other related issues. With a fresh start, the Biden administration has an opportunity to re-envision the WTO dispute settlement system so that it more effectively serves U.S. interests and those of the broader membership.

Dennis Shea is an adjunct fellow (non-resident) with the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. He served as deputy U.S. trade representative and U.S. ambassador to the World Trade Organization from 2018-2021.

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Dennis Shea

Adjunct Fellow (Non-resident), Scholl Chair in International Business