Dispute Settlement at the WTO – A Renovation Case?

The Dispute Settlement Body of the WTO is often described as the crown jewel of the organisation – few other international organisations dispose not only the capacity to set international rules but also to enforce them. However, the system is in crisis as the Appellate Body is close to losing its functionality. At GED’s panel session at the WTO Public Forum, the results of survey on views on the Dispute Settlement mechanism are being presented. This is part of a series of ideas on reforming the WTO, more on this an related issues will appear in this blog.

Why is Dispute Settlement in danger?

The Dispute Settlement system of the WTO is often described as the crown jewel of the organisation. Any member state can file complaints about trade policy practices of another member state if they think the trade rules of the WTO are being violated. The dispute is then resolved in a two-step system. If the decision of a first-instance panel is contested by the two trading countries is contested, an appeal to the Appellate Body can be made which will make the final decision on the matter. Once a trade practice is found to be in violation of WTO rules, the victim is allowed to retaliate by imposing commensurate trade restrictions on the other member state.
The Appellate Body is currently in danger because the USA have been blocking the nominations of new panel members – i.e. judges – for a long time. In order to be able to make legally binding decisions, the Appellate Body (AB) needs to have a minimum of three judges – which is exactly the number it currently has. It is expected that in late 2019 one of the judges will leave the AB with the consequence that the body will lose its functionality. After that, within the WTO, no final binding decisions on trade dispute can be made.

The reason why the US is blocking the nomination of new judges is because they believe that the AB has engaged in judicial overreach in the past. It is currently not clear, how this impasse can be overcome. In order to get a better understanding which concerns about the AB are widely shared, GED and a group of researchers, Matteo Fiorini, Bernard Hoekman, Maarja Saluste, Petros Mavroidis and Robert Wolfe, have conducted a survey among the trade community to find out more about the sentiments on the AB and the concerns that a reform of the institution should address.

Three essential findings

The survey produces three main insights, some of which are novel, some of which were widely known:

1. What crisis? The crisis actually concerns a small subset of the membership. A large share of the membership has not made use of dispute settlement in the past – but those who have, are particularly large trading powers. This is also reflected in our survey – the respondents cover only a relatively small number of member states.
2. Consensus on two-stage adjudication. Among the respondents, there is a widely shared sense that the two stage adjudication is important in safeguarding the integrity of WTO rules. There is also a large agreement that decisions of the AB should constitute precedents, a point that the US strongly disputes.
3. Doubts on the quality of outcomes: The quality of the decisions AB is questioned by the majority of the respondents of the survey – they accuse the AB of being sometimes biased and going beyond their mandate. Most importantly, there is a feeling that the influence of the WTO Secretariat is too large.

Implications

There is a strong sense among respondents that some version of a two-instance rule enforcement mechanism is needed. This is however not necessarily the current version of dispute settlement. This is even more true, since the majority of respondents had some doubts on the quality of the decision of the AB. The US are not alone in their criticism although no other member state is taking similarly drastic steps as the US is.
The sense of urgency that is felt by some member states is not widely shared among the membership and the respondents. It seems that dispute settlement is not treated as a priority by the member states.
The rules-based trading system as embodied by the WTO is a vital public good. Without it, globalisation could reverse or at least take a much uglier face. The presence of rules is meaningless without enforcement though. If there is little interest among the member states to safeguard the current dispute settlement system, maybe it is time to reflect how the system can be redesigned to respond better the members needs and demands for higher quality decisions.

Some of the previous work of GED on the WTO and the rules based trading system can be found here.