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World Trade Organization: What Way Forward for Trade Dispute Settlement?
New ideas on how to treat the current crisis of the World trade organizations Appellate Body

Next week, on the sidelines of the World Economic Forum in Davos, a World Trade Organization Mini-Ministerial meeting will address the growing conflict surrounding the WTO’s Dispute Settlement Body. In a new GED Focus Paper, international trade law expert Robert McDougall proposes some fresh ideas on how to treat the current crisis of the WTO Appellate Body as a chance to improve and update trade dispute resolution at the WTO.

What’s at stake in dispute resolution?

The dispute settlement body of the World Trade Organization(WTO) had frequently been called the crown jewel of the institution because it is actually a quite powerful de-factocourt in international law.  It can be used by any member state of the WTO that feels that another member state is not abiding to international trade law as enshrined in the treaties under the WTO. Complaints filed are dealt with in a two-stage system: If one of the disputing countries is not happy with the decision of the first stage adjudication, it can call for the Appellate Body. The decision of the Appellate Body is then final and binding.

It is this Appellate Body that is currently one of the most important worries in the international trade community. Since the US government has been blocking the appointments of new panel members for some years now, the seven-member Appellate Body is now down to three – the minimum number it needs to function. If another member retires, the Appellate Body will no longer be able function. Deliberations would continue, but its decisions would not be binding if disputed by one party.

How can the crisis be resolved?

The US holds very strong views about the Appellate Body which it accuses of engaging in judicial overreach, concerns are not shared by the other members of the WTO. The Report of Bertelsmann Stiftung’s High-Level Board of Experts on the Future of Multilateral Trade Governance calls for a structured dialogue to address this deadlock.

In a new Focus Paper, Robert McDougall takes the argument further. In his view, while some countries place priority on resolving the impasse over appointments to the Appellate Body, other reforms to the dispute settlement mechanism may in fact be more important. The changing balance of economic power, ageing trade rules and a backlash against globalization make it difficult to achieve legitimate outcomes through the current system of win-lose adjudication.
Resolving the impasse over the Appellate Body will not, on its own, resolve the more profound legitimacy crisis facing the trading system. Members should instead focus on pursuingbroader improvements to the dispute settlement mechanism to ensure that it remains fit-for-purpose in the service of trade cooperation in a turbulent multipolar world. These broader improvements include for example:

1. On the political side of the ledger, in addition to improving the negotiating function to modernize the rules, there could be more opportunity and greater responsibility for political cooperation to resolve trade disputes and clarify the meaning of trade commitments. This could be accomplished by providing better safety values for politically sensitive disputes, through diversion to political bodies or, during the current trade tensions, a moratorium of certain kinds of disputes. Strengthening the deliberative function of the regular WTO committees would also help. More systemically, the exclusive but as yet unused authority of members to adopt “authoritative interpretations” of their WTO commitments could be better operationalised. For example, procedures could be developed that regularise the deliberation and adoption of negotiated interpretations, either to proactively clarify ambiguous WTO provisions or to override or disallow dispute settlement findings that exceed what is acceptable to members.

2. On the dispute settlement side of the ledger, there could be a reduction of the reliance on, and the consequences of, compulsory adjudication. For starters, the opportunities for mediation and conciliation could be improved to place more emphasis on reconciling interests rather than determining legal right and wrong. As the experience in dispute settlement under the WTO has already shown, there are some disputes that simply cannot be resolved through adjudication. In cases where adjudication becomes necessary, the scope of adjudication could be narrowed and the procedures streamlined to make them more timely and accessible. Finally, to mitigate the risk of a chill on ongoing negotiations and committee deliberations, some categories of information and some types of deliberations could be declared inadmissible in dispute settlement proceedings.

Most of these changes can be implemented through “authoritative interpretations” adopted by the General Council of the WTO. Read the full paper, Settling Trade Disputes in a Turbulent Multipolar World  and join the discussion on Twitter @GED_Tweet