Appellate Body at WTO may Become Dysfunctional from December 11

With US Blocking Selection Process for Filling Vacancies in Appellate Body, the Number of Members could Drop to One

Thomas Graham (US) and Ujal Singh Bhatia (India) — will Retire on December 11 after their Second Term of Four Years

The highest adjudicating body for resolving global trade disputes at the World Trade Organization’s dispute settlement system could become dysfunctional on December 11, as the United States continues to play hardball by adopting intransigent positions, said trade envoys.

For the past two years, the US has repeatedly blocked the selection process for filling vacancies at the WTO’s Appellate Body, the highest adjudicating body for global trade disputes. The AB will be reduced to one member from December 11 from its requisite strength of seven.

Consequently, a quorum of three members as required for adjudicating any trade dispute will remain unfulfilled. Two AB members — Thomas Graham (US) and Ujal Singh Bhatia (India) — will retire on December 11 after their second term of four years, while one member Hong Zhao from China will continue till November 2020.

US’ charges

Attempts are being made to enable the two retiring members as well as one remaining member to address some 13 pending appeals before the AB. Washington has filed a litany of complaints against the AB’s functioning, citing that the highest adjudicating body failed to adhere to various provisions of the WTO’s dispute settlement understanding (DSU).

The US, for example, has charged the AB for failing to issue reports within the mandatory period of 90 days. Washington has criticised the AB for its alledgedly “flawed” interpretation in various cases concerning the importance of municipal law in resolving trade disputes.

In a set of new concerns raised on Friday (November 22), the US cited “systemic concerns regarding the compensation of the AB members.” The US trade envoy Ambassador Dennis Shea asked why the AB members felt free to depart from the clear rules agreed by WTO members on their compensation. The complaint is not targeted against any “particular AB member”, he claimed.

At the core of the latest US’ complaint is that the existing and former AB members claimed well beyond their mandated remuneration. The US alleged that the amount of compensation per AB member has remained steady and at a high level — more than 300,000 Swiss francs (around $300,720) annually despite their part-time tenure, while issuing five or six rulings on an average.

EU, China disagree

Many WTO members, including the European Union and China among others, sharply disagreed with the concerns raised by the US about the compensation package for the AB members. The EU, for example, asked whether it is relevant to talk about the compensation package when the US continues to block the selection process for filing the six vacancies. It showed how the remuneration for the AB members remained almost consistent since 1995 when it came into existence, said a trade envoy, who asked not to be quoted.

China suggested that the US’ actions amounted to turning the “crown jewel” of the dispute settlement system into a “problem child”, pointing that the compensation package for AB members fell below well below that of the peers in other international judicial bodies.

To address the US’ concerns, the chair for the dispute settlement body Ambassador David Walker from New Zealand, who acted as the ‘Facilitator’, had prepared a set of reforms of the dispute settlement understanding.

But the US had disapproved the proposed changes in the DSU arguing that there its fundamental concerns remain unaddressed.

On November 12, the US blocked the WTO’s biennial budget pointing that there are alleged irregularities in the manner in which funds were disbursed for the AB and improper use of what are called trust funds provided by different governments.

At a recent informal trade ministerial summit in Shanghai on November 5, India had cautioned that “despite engagement in an intensive process in Geneva for almost two years on the ongoing impasse in the Appellate Body, no solution is in sight, and next month, we will have a non-functional Appellate Body.”

“Therefore, it should be our utmost priority to save the dispute settlement mechanism. It is important that in the way forward, we take into account the aspirations of the large majority of the membership and re-double our efforts for an inclusive, transparent and development-oriented agenda,” India had maintained at the Shanghai meeting.