Report on the Appellate Body of the World Trade Organization

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Report on the Appellate Body of the World Trade Organization REPORT ON THE APPELLATE BODY OF THE WORLD TRADE ORGANIZATION Office of the United States Trade Representative Ambassador Robert E. Lighthizer February 2020 INTRODUCTION For more than 20 years, the United States has expressed concerns that the dispute settlement system of the World Trade Organization – and in particular its Appellate Body – has not functioned according to the rules agreed by the United States and other WTO Members. This Report details those concerns and assesses the repeated failure of the Appellate Body to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements. Specifically, the Appellate Body has added to U.S. obligations and diminished U.S. rights by failing to comply with WTO rules, addressing issues it has no authority to address, taking actions it has no authority to take, and interpreting WTO agreements in ways not envisioned by the WTO Members who entered into those agreements. This persistent overreaching is plainly contrary to the Appellate Body’s limited mandate, as set out in WTO rules. On a more fundamental level, this overreaching also violates the basic principles of the United States Government. There is no legitimacy under our democratic, constitutional system for the nation to submit to a rule imposed by three individuals sitting in Geneva, with neither agreement by the United States nor approval by the United States Congress. The Appellate Body has consistently acted to increase its own authority while decreasing the authority of the United States and other WTO Members, which, unlike the individuals on the Appellate Body, are accountable to the citizens in their countries – citizens whose lives and livelihoods are affected by the WTO’s decisions. The Report highlights several examples of how the Appellate Body has altered Members’ rights and obligations through erroneous interpretations of WTO agreements. Several of these interpretations have directly harmed the ability of the United States to counteract economic distortions caused by non-market practices of countries like China that hurt our citizens, workers, and businesses. The Appellate Body’s failure to follow the agreed rules has undermined confidence in the World Trade Organization and a free and fair rules-based trading system. Given persistent overreaching by the Appellate Body, no WTO Member can trust that existing or new rules will be respected as written. Indeed, WTO Members have not agreed to any substantive new rules since the WTO came into existence. The conduct of the Appellate Body has converted the WTO from a forum for discussion and negotiation into a forum for litigation. The United States has always been a strong supporter of a rules-based international trading system and remains so. The United States is publishing this Report – the first comprehensive study of the Appellate Body’s failure to comply with WTO rules and interpret WTO agreements as written – to examine and explain the problem, not dictate solutions. WTO Members must come to terms with the failings of the Appellate Body set forth in this Report if we are to achieve lasting and effective reform of the WTO dispute settlement system. CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 1 BACKGROUND ........................................................................................................................................ 15 I. The Background and the Context of the WTO Agreement Make Clear the Type of Dispute Settlement System Agreed by WTO Members .............................................................................. 15 A. The Dispute Settlement System Structure Agreed by WTO Members ............................. 15 B. Negotiating History ........................................................................................................... 18 1. Negotiating Members Wanted a Dispute Settlement System that Would Not Add to or Diminish Rights and Obligations ................................................. 20 2. Negotiating Members Wanted the Dispute Settlement Process to Be Expeditious .......................................................................................................... 21 3. Negotiating Members Wanted an Appellate Mechanism that Would Be Limited and Used Sparingly ................................................................................ 24 4. Negotiating Members Wanted a Dispute Settlement System that Would Simply Help Resolve Disputes, Not Make Law .................................................. 24 ANALYSIS ................................................................................................................................................. 25 II. The Appellate Body Chronically Violates the Rules Imposed by WTO Members, Undermining the Dispute Settlement System and the WTO Generally ............................................................... 25 A. Persons Serving on the Appellate Body Have Repeatedly Violated Article 17.5 by Disregarding the Mandatory 90-Day Deadline for Issuing a Report ........................... 26 1. The DSU is Designed to Promote Prompt Settlement of Disputes and Mandates that Appeals Be Completed in No More than 90 Days, with No Exceptions ............................................................................................................ 26 2. The Appellate Body’s Pre-2011 Practice Generally Complied with the 90-Day Deadline in Article 17.5 of the Dispute Settlement Understanding ...................................................................................................... 27 3. The Appellate Body Routinely Violates Article 17.5 of the Dispute Settlement Understanding .................................................................................... 28 4. Analysis of WTO Disputes Shows the Appellate Body’s Increasing Non- Compliance .......................................................................................................... 30 5. The Appellate Body Creates Reasons for Breaching the Rule Rather than Changing Its Behavior to Ensure Compliance with the Rule ...................... 31 6. The Appellate Body’s Disregard for the Mandatory Deadline for Resolving Appeals Has Significant Implications for the Effectiveness of the WTO Dispute Settlement System .................................................................. 32 B. The Appellate Body Has Repeatedly Violated Article 17.2 of the DSU and Has Allowed Former Members to Decide Cases after Their Terms Have Ended ................... 32 i C. The Appellate Body Has Violated Article 17.6 and Exceeded Its Limited Authority to Review Legal Issues by Reviewing Panel Findings of Fact, including Factual Findings Relating to the Meaning of WTO Members’ Domestic Law ................................................................................................................................... 37 1. Appellate Review of Facts is Contrary to the Appellate Body’s Limited Authority under the Dispute Settlement Understanding ...................................... 37 2. The Appellate Body Has Erroneously Treated the Meaning of a WTO Member’s Domestic Law as a Legal Issue Subject to Its Review ....................... 40 3. The Appellate Body’s Breach of Article 17.6 Has Undermined the Functioning of the WTO Dispute Settlement System .......................................... 44 D. The Appellate Body Has Violated Article 3.7 and Article IX:2 by Rendering Advisory Opinions on Issues Not Necessary to Resolve a Dispute .................................. 47 1. The Purpose of WTO Dispute Settlement Is to Resolve Trade Disputes, Not Make Law ..................................................................................................... 47 2. The Appellate Body Has Repeatedly Rendered Advisory Opinions on Issues Not Necessary to Resolve a Dispute ......................................................... 52 3. Issuance of Advisory Opinions Harms the Dispute Settlement System .............. 53 E. The Appellate Body Wrongly Claims that Its Reports Are Entitled to Be Treated as Binding Precedent and Must Be Followed by Panels, Absent “Cogent Reasons” ........................................................................................................................... 55 1. The Dispute Settlement Understanding Does Not Permit a Panel to Treat a Prior Appellate Body Interpretation as Law or Controlling “Precedent” ......... 56 2. The Stainless Steel Report Is Flawed and Does Not Support a “Cogent Reasons” Approach .............................................................................................. 58 3. The Appellate Body’s “Cogent Reasons” Approach Usurps Authority Expressly Reserved to WTO Members ................................................................ 62 F. The Appellate Body Has Violated Article 19.1 of the Dispute Settlement Understanding by Failing to Make the Recommendation Required in Instances Where a Measure Has Expired after Panel Establishment ................................................ 64 1. The Dispute Settlement Understanding Mandates that Panels and the Appellate Body Issue Recommendations after Concluding a Measure Is Inconsistent with WTO Obligations .................................................................... 64 2. The Appellate Body Has Treated Article 19.1 as Discretionary .......................... 65 3. The Appellate Body’s Disregard for the Mandatory Text of Article 19.1 Undermines the Effectiveness of the Dispute
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