The U.S. succeeded in hobbling the Appellate Body this month, leaving World Trade Organization members to reckon with what the U.S. has wrought — and to figure out how to proceed with binding dispute settlement as contentious cases on national security come to a head.
While the first stage of dispute settlement remains functional, every dispute will face some uncertainty. As long as the Appellate Body is not functioning, any appealed dispute will remain in limbo and the complainant will be unable to move forward with retaliation until an appellate report is adopted.
Throughout the past two years, the U.S. has often detailed its concerns — largely related to overreach and systemic problems — with the Appellate Body. The concerns are longstanding, but the Trump administration’s blocking of new nominations reached its inevitable conclusion earlier this month when the terms of two of the remaining three Appellate Body members expired, leaving the body without a quorum.
The next few months should make clear how WTO members will adapt to this new reality. Plurilateral talks on interim appeal arrangements have begun, and some members have floated the possibility of no-appeal agreements arranged bilaterally. The WTO director-general, Roberto Azevêdo, has launched “intensive consultations” with members aimed at finding a political solution.
The U.S., for its part, does not seem in any rush to find a solution, especially without other members’ acknowledging “why” the Appellate Body strayed from the rules set out in the Dispute Settlement Understanding — a regular U.S. demand. Nor has the U.S. yet said how it intends to deal with its own disputes going forward. As the largest user of the dispute settlement system — both as a complainant and respondent — the U.S. typically is involved in many disputes at once. The U.S. already has four pending appeals that likely will remain in limbo amid the paralysis unless the U.S. agrees to a different mechanism with the other parties involved. Of the four appeals that are being finalized by former Appellate Body members, the U.S. is involved in one — a dispute with Canada over U.S. countervailing duties on supercalendered paper.
At December’s Dispute Settlement Body meeting — the first since the Appellate Body ceased hearing new appeals — the U.S. appealed a compliance panel ruling in a dispute with India. The U.S. said it would work bilaterally with India on a way forward, but gave no further indication of how it might proceed with the appeal.
Of particular concern to WTO members and officials are upcoming panel reports centered on U.S. Section 232 tariffs on steel and aluminum, Geneva sources have told Inside U.S. Trade. A handful of countries have challenged the U.S. duties, which the U.S. justifies as critical to its national security. The U.S. has invoked Article XXI of the General Agreement on Tariffs and Trade, the WTO’s national security exemption, arguing that its invocation means a dispute panel has no jurisdiction to even issue a ruling on the U.S. actions.
Article XXI says the WTO should not prevent any member “from taking any action which it considers necessary for the protection of its essential security functions” in three areas: nuclear material, arms trafficking or actions taken in time of war or international emergency.
Earlier this year a panel ruled on a separate dispute between Russia and Ukraine that involved the use of Article XXI on the part of Russia. In its report, the panel determined that a member invoking Article XXI must prove its use falls under one of the three categories. If a panel sticks to that determination in the U.S. disputes, many analysts have argued it is unlikely the U.S. could make a convincing argument for any of the three.
The disputes are seen as fraught for the WTO because of the catch-22 they represent. Rule against the U.S. on Article XXI and the WTO likely strengthens the U.S. view that the dispute settlement system has engaged in overreach — in addition to further alienating the world’s largest economy and a critical WTO member. Rule in favor of the U.S. interpretation of Article XXI and the WTO opens itself up to an increased use of Article XXI as a shield for measures that would otherwise be inconsistent with WTO rules.
The seven disputes against the steel and aluminum tariffs — brought by the European Union, China, Norway, Switzerland, Turkey, Russia and India — likely will be ruled on in late 2020. Recent submissions by the panels composed for the disputes said a report should be expected no earlier than the fall of next year.
The U.S. has counter-challenged several of those members — China, the EU, Turkey, India and Russia — for their retaliatory tariffs. Reports for at least some of these disputes are expected “by the second half of 2020,” according to WTO communications from the panels.
(Once the U.S. lifted its Section 232 tariffs on Canada and Mexico, the two countries reported their WTO challenges as resolved, as did the U.S. for its disputes over their retaliatory tariffs.)
Other disputes to watch in 2020.
Hannah Monicken (email@example.com)
Source: Inside Trade