WTO Dispute Settlement Reform Uncertain

The prospects for a robust dispute settlement system undergirding a strong enforcement pillar at the World Trade Organization appear grim given continued disagreements among members about reform, our correspondent reports.

The facilitator overseeing the informal dispute settlement reforms, Marcos Molina of Guatemalais  provided the state of play on several issues contained in the so-called Yellow Box, which contains more refined issues for further discussions.

People familiar with the negotiations told WTD the US proposal appears to be a move to “weaponize” trade-restrictive measures/sanctions against countries with whom Washington seems to be having rather “frosty” trade and political relations.

The US objectives do not address the question of whether to preserve the existing two-tier dispute settlement system, with the Appellate Body as the final adjudicating arm of the World Trade Organization’s enforcement function.

Objections Raised

Members have raised objections to US proposals on appellate review and sunset provisions amongst others in the ongoing informal discussions. Against this backdrop, the United States says that it intends “to lead in all areas where we can contribute, including on dispute settlement reform, but achieving fundamental reform can only happen through a collective, Member-driven process.”

Washington says it is “determined to pursue an interest-based, inclusive process that brings in all WTO Members as we work towards fundamental reform.” The United States says it will “work towards producing a system that reinforces the principles of fairness, equity, and sovereignty that underlie support for the multilateral trading system.”

The United States says that “the dispute settlement system should preserve the policy space in WTO rules for Members to address their critical societal interests and support rather than undermine the WTO’s role as a forum for discussion and negotiation to help Members address new challenges.”

Reform of the WTO’s dispute settlement system was mandated by trade ministers at the WTO’s 12th ministerial conference last June.

Understanding Each Other’s Interests

The US says that the “success of dispute settlement reform efforts depends on understanding each other’s interests in dispute settlement”, instead of adjudicating on disputes as set out in the existing Dispute Settlement Understanding, said negotiators. Although the United States acknowledges the “contributions of all Members” in driving these discussions with the assistance of a capable facilitator, it says that “no Member dictates the terms of reform.”

Washington says that it has “shared a number of ideas on dispute settlement reform in the informal discussions, with an open mind to different ways of achieving the interests that we and other Members have identified.”

According to Washington, “a well functioning dispute settlement system supports all WTO Members in the resolution of their disputes in an efficient and transparent manner, and in doing so limits the needless complexity and interpretive overreach that has characterized dispute settlement in recent years.”

Against this backdrop, Mr. Molina issued a confidential report on the state of play of the discussions.

A cursory glance at some of the key issues in the Yellow Box of proposals issued on July 8 and seen by WTD, suggests there is a division among members on issues like (a) accountability, (b) focus on what is necessary to resolve the dispute, (c) no expansion of rights or obligations, (d) appeal/review consistency, (d) secretariat support and ( e) compliance.

In accountability, the controversial proposal is on “Sunset provisions in which the adjudicative provisions of the dispute settlement mechanism would sunset after “X” years, unless members agreed to extend by consensus (negative consensus principle).

The facilitator seems to have made four observations concerning the sunset provision. They include:

1. The purpose is to provide Members the ability to undertake a meaningful check on the system adherence to the agreed rules and fundamental reforms.
2. Strong reservations were expressed about the negative impact of such a sunset mechanismon the system, including but not limited to (a) abuse of this provision by any Member or one Member should be able to sunset adjudicative provisions for all Members and (b) impact on the predictability and security of the rules-based system to be considered.
3. Members felt a holistic approach would be to look at the proposal above for mechanisms to ensure a meaningful check on the system.
4. To consider the scope of “adjudicative provisions” to which the sunset would apply.
5. To consider whether the extension would be by (negative consensus that is currently the
6. rule) or by reference to another threshold.
7. To consider whether transitional provisions are required to apply in the event that the sunset provision is exercised.

Yellow Box

In terms of the need to focus on what is necessary to resolve the dispute, there are fundamental differences among members, according to the facilitator’s Yellow Box.

For example on the proposal “adjudicators to address only what is necessary to resolve the dispute, including by exercising judicial economy, several options are indicated in the red color and struck off lines.

The facilitator’s observations include that delegations may want to consider whether to require adjudicators to address only what is necessary to resolve the dispute, including by exercising judicial economy, or to focus on what is necessary to resolve the dispute, including by exercising judicial economy, delegations may want to consider implications on appeals and/or implementation.

As regards another proposal on “clarify that adjudicators should not issue advisory opinions /interpretations, the options include (1) explicit prohibition of advisory opinions/interpretations and (2) clarify that adjudicators “findings only on those claims necessary for the resolution of the dispute.”

In his observations, Mr. Molina says “delegations recognize that the proposal to address only what is necessary to resolve the dispute also addresses advisory opinions/interpretations and to consider that both ideas are linked when drafting legal texts” [in the red color implying there is no consensus].

Concerning access to the mechanism, the facilitator has suggested two options: 1) at the request of any disputing party, and 2) by agreement of the disputing parties, to be decided if bilaterally, plurilaterally and multilaterally and the timing.

The facilitator says option one features currently in the DSU and has broad support, while option 2 considers the implications of eliminating the right of Members to an appeal on interests expressed by Members.

Selection of Adjudicators

The facilitator did not make any comments on the selection of adjudicators, though he mentioned two options. The first option proposed by the facilitator is amendment to Article 17.2 of the DSU to expedite appointments of the Appellate Body, which states the DSB shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once.

However the terms of the three of the seven persons appointed immediately after the entry into force of the WTO Agreement shall expire at the end of the two years, to be determined by lot.

The second proposal made by the facilitator is a “mechanism agreed by the parties.” Significantly, there are sharp differences on the scope of the appeal/review mechanism. Though the chair mentioned several options, he did not provide any observations which suggest that the differences remain somewhat unresolvable, said a person, who asked not to be quoted.

Finally, on the Secretariat’s support and compliance, the facilitator’s Yellow Box suggests that the differences remain difficult to resolve at this juncture.

Dispute settlement reform seems headed towards atrophying the provisions in the current dispute settlement understanding, thereby, undermining the enforcement function of the WTO. Further, a weakened dispute settlement system could lead to some form of kangaroo court and a trampled WTO that appears to be most harmful to the interests of developing countries, said several trade envoys who asked not to be quoted.