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Jens Lehne Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified? Edited by Daniel Hürlimann and Marc Thommen Volume 6 Jens Lehne Crisis at the WTO: Is the Blocking of Appointments to the WTO Appellate Body by the United States Legally Justified? Berlin Bern Author: Prof. Dr.oec. et lic.iur. Jens Lehne Winterthur, Switzerland This work has been published as a monograph in the book series sui generis, edited by Daniel Hürlimann and Marc Thommen (ISSN 2569-6629 Print, ISSN 2625- 2910 Online). The German National Library (Deutsche Nationalbibliothek) lists this work in the Deutsche Nationalbibliografie; detailed bibliographic data is available in the internet via http://dnb.d-nb.de. © 2019 Prof. Dr.oec. et lic.iur. Jens Lehne, Winterthur (Switzerland). This work has been published under a Creative Commons license as Open Access which requires only the attribution of the authors when being reused. License type: CC-BY 4.0 – more information: http://creativecommons.org/licenses/by/4.0/ DOI:10.24921/2019.94115941 The font used for typesetting has been licensed at a SIL Open Font License, v 1.1. Printed in Germany and the Netherlands on acid-free paper with FSC certificate. The present work has been carefully prepared. Nevertheless, the author and the publisher assume no liability for the accuracy of information and instructions as well as for any misprints. Print and digital edition produced and published by: Carl Grossmann Publishers, Berlin, Bern www.carlgrossmann.com ISBN: 978-3-941159-40-2 (printed edition, hardbound) ISBN: 978-3-941159-41-9 (e-Book, Open Access) Acknowledgements I am very grateful to Peter Hettich, professor of public law at the University of St. Gallen, for his careful review of the text, many thoughtful suggestions and inspiring discussions. Furthermore, I want to thank Danielle Adams-Hausheer, translator and editor at the ZHAW School of Management and Law, for her meticulous proofreading of the manuscript. I am also indebted to the editors of the book series sui generis, Daniel Hürlimann, assistant professor of busi- ness law at the University of St. Gallen, and Marc Thommen, professor of criminal law and criminal procedure at the University of Zurich, for including this book in their series. Moreover, I with to thank the team at Carl Grossmann Verlag for their highly professional and efficient support during the publica- tion process. Most of all, thank you to my family for their patience during the writing of this book. Jens Lehne Winterthur, September 2019 Contents Acknowledgements ........................................................ v Contents .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ... vii I. Introduction .............................................................. 1 II. Appointments to the Appellate Body: Legal rules and past con- troversies .................................................................... 5 III. Chronology of the crisis .............................................. 13 A. February to July 2017: Apparent conflict about appointment procedure .................................................................... 13 B. Since August 2017: US blockage of all appointments . 17 IV. Analysis of the reasons stated by the US for the blockage ........ 29 A. Overview . 29 B. Issues of procedure and interpretive approach . 33 1. Rule 15 of the Working Procedures of Appellate Review . 33 2. 90-day deadline of Art. 17.5 of the DSU . 40 3. Advisory opinions . 50 4. Appellate review of facts and of municipal law . 66 a. Review of facts . 66 b. Review of municipal law . 70 5. Precedential effect of Appellate Body reports . 79 C. Conclusions . 104 V. A broader explanatory framework for the US blockage ............ 107 A. Unfulfilled expectations . 108 B. Continuity and change under the Trump administration . 120 VI. Conclusions ............................................................. 135 Bibliography ................................................................ 141 Table of WTO reports ..................................................... 153 I. Introduction The dispute settlement system of the World Trade Organization (WTO) has been described by the first Director-General of the WTO, Renato Ruggiero, as „in many ways the central pillar of the multilateral trading system“,1 and it is one of the most active dispute settlement systems in international law. From its inauguration in 1995 until August 2019, WTO member states have filed alto- gether 586 complaints, which have resulted so far in more than 250 panel reports and about 140 Appellate Body reports.2 Compared to its predecessor, the GATT dispute settlement system (1948 – 1994),3 the WTO dispute settlement system is more effective and more lega- lized. Under the old system, both the establishment of a dispute settlement panel and, following the panel proceedings, the adoption of the panel report required the consensus of all member states (positive consensus), which gave each member state, including the respondent in the case, the power to block the establishment of a panel or later the adoption of the panel report. This problem of blockage, and, more generally, insufficient enforcement mecha- nisms within the GATT system developed into a major issue for the United States in the 1980s and early 1990s. The US reacted with the threat of unilateral trade sanctions, which in turn seriously worried its trading partners.4 The new WTO dispute settlement that emerged from the Uruguay Trade Round (1987 – 1994), embodied in the Understanding on Dispute Settlement (DSU), ad- dressed these concerns. The Dispute Settlement Body (DSB), in which all member states are represented, now establishes panels and adopts their reports unless all members disagree (negative consensus),5 meaning that the establishment of panels and the adoption of reports have become quasi-au- tomatic. In addition, if a member state does not comply with the recomm- endations of a report, the complaining party can request the DSB to authorize 1 Ruggiero (1997). 2 See https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm for statistical data on WTO dispute settlement. 3 On GATT dispute settlement, see WTO (2018a) (overview and one-page summaries of all disputes), WTO (2018b) (dispute settlement rules), WTO (2007), pp. 261 – 266, and Hudec (1993) (most comprehensive and detailed account of the development of the GATT dispute settlement system). 4 See, for instance, WTO (2007), pp. 265 – 266; see also infra, fn. 475 and accompanying text 5 Arts. 6.1 (establishment of a panel) and 16.4 (adoption of panel report) of the DSU. I. Introduction trade sanctions, which are also subject to the negative consensus rule.6 In return for this more powerful multilateral enforcement mechanism, the US accepted a prohibition of unilateral sanctions.7 Finally, and most importantly in our context, since panel reports could no longer be blocked, and a number of panel reports had been criticized in the past for the low quality of their legal reasoning, the member states sought another way to deal with legally faulty reports. To that end, they created a standing review body, the Appellate Body, to which a party can appeal for a review of legal interpretations of a panel.8 The reports of the Appellate Body, like those of the panels, are adopted by the DSB by negative consensus.9 Despite its successes, this effective and binding dispute settlement system is today under an existential threat. Since mid-2017 the US has blocked all appointments of new members to the Appellate Body, and it shows no signs of changing this policy. As a consequence, only three of the seven seats on the Appellate Body are currently occupied. If nothing unexpected happens, the number of sitting Appellate Body members will drop to only one in December 2019, when the terms of two of the three sitting members will end.10 Since three Appellate Body members are required for the disposition of an appeal,11 this means that from December 2019 onwards the Appellate Body will no longer be able to hear new appeals. In that situation, by filing a notice of appeal a party could suspend dispute settlement proceedings indefinitely. In effect, this would give each party the power to block the adoption of a panel report, thus returning the dispute settlement system to pre-WTO times. 6 Art. 22 of the DSU. 7 Art. 23 of the DSU; see further on this provision supra, fn. 477 and accompanying text. 8 Art. 17 of the DSU; on the reasons for creating the Appellate Body, see Cossy (2015), pp. 302 – 303; Steger (2015), p. 468; and Lacarte-Muró/Castro (2004), p. 45; further on the negotiating history of the Appellate Body, see infra, Section V.A. 9 Art. 17.14 of the DSU. 10 The terms of Appellate Body members Ujal Singh Bhatia and Thomas R. Graham end on 10 December 2019 (see minutes of the DSB meeting of 25 November 2015 [WT/DSB/M/ 370], paras. 7.3 – 7.4). The only remaining member will then be Zhao Hong, whose term runs until 30 November 2020 (see minutes of the DSB meeting of 23 November 2016 [WT/ DSB/M/389], paras. 13.3 – 13.4). 11 Art. 17.1 of the DSU. 2 I. Introduction Various aspects of this grave crisis of the WTO dispute settlement system have already been discussed in the literature.12 This study adds three elements. First, it describes, based on a detailed review of the minutes of the DSB meetings since 2017, how a dispute that seemed initially to be about obscure issues of appointment procedure, baffling many observers, turned into the most severe crisis of the WTO dispute settlement system yet. It gives an account of the shifting reasons offered by the US for its blockage, culminating, in August 2018, in broad accusations of judicial overreach and disregard of WTO rules by the Appellate Body. The US alleges that the Appellate Body has been engaging in such overreach, on the one hand, in the area of substantive law, and, on the other hand, concerning six distinct issues of procedure and interpretive approach. Its focus in the DSB, however, has been on the latter, and it has presented to the member states extensive statements on all of these six issues.

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