U.S. Claims Right to Veto any Errant WTO Dispute Rulings

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By Bryce Baschuk

The Trump administration said it reserved the right to unilaterally block adoption of a World Trade Organization dispute ruling if the Geneva-based trade body fails to follow its own rules of procedures.

U.S. trade officials said Sept. 29 that the WTO appellate body committed a series of errors that obviated the need to follow the WTO’s negative consensus rule, which prevents any one WTO member from blocking the adoption of a WTO dispute report.

Though the U.S. claimed its intention was to adhere to the terms of the WTO’s dispute settlement understanding (DSU), other WTO delegations described the approach as odd and questioned exactly what the Trump administration was up to.

The eye brow-raising development comes just weeks after U.S. Trade Representative Robert Lighthizer lambasted the WTO’s dispute settlement system for overreaching and blocked a process to appoint three new members to the WTO appellate body.

Exceptional Circumstances

At the Sept. 29 DSB meeting, U.S. trade officials said they were concerned about a procedural development that led the WTO to circulate a dispute ruling that lacked the approval of three current appellate body members.

The U.S. said two of the appellate body members—Ricardo Ramirez-Hernandez and Kim Hyun-Chong—had completed their terms and resigned prior to the circulation of the report, respectively.

WTO rules require three members of the WTO’s seven-member appellate body to sign off on each ruling—a key threshold that the U.S. said was not met and therefore the ruling could not be adopted like a traditional appellate body report.

The U.S. Trade Representative’s Deputy Chief of Mission in Geneva, Christopher Wilson, further clarified the situation in an email to Bloomberg BNA.

“Here’s what we are saying:

  •  Today, the United States stated that it would join a consensus to adopt the reports proposed for adoption.
  •  We also noted that the appellate report had not been issued by three Appellate Body members, contrary to WTO rules.
  •  Therefore, because WTO rules for appeals (DSU Article 17) had not been followed, the report was not subject to the adoption procedures in DSU Article 17.14.
  •  Rather, the DSB adopted the report by consensus, the WTO rule generally applicable to Dispute Settlement Body decisions (DSU Article 2.4 and WTO Agreement Article IX:1).”

Positive Consensus Rule

Though the U.S. ultimately agreed to join a consensus to adopt the report on Sept. 29, it said WTO rules would subject this particular report to the positive consensus rule, which permits losing parties to block or veto the adoption a ruling.

The positive consensus rule—as enshrined by the 1947 General Agreement on Tariffs and Trade—was originally conceived to ensure that parties to a multilateral trade dispute could object to the adoption of a dispute decision.

The rule fell out of favor in the 1980s when countries increasingly vetoed economically important or politically sensitive disputes, which in turn led to a rise in unilateral trade retaliation. Recognizing the need for a stronger dispute settlement system, WTO members agreed to a negative consensus rule, which required all WTO members to veto a dispute decision in order to prevent its adoption.

Alarm Bells

The mere mention of the positive consensus rule in a modern dispute proceeding set off alarm bells in Geneva from trade officials who are already worried that the U.S. is trying to undermine the WTO’s dispute settlement system.

Over the past month the U.S. refused to engage in a process to appoint replacements for Ramirez-Hernandez, Kim, and third appellate body member, Peter Van den Bossche, whose term will expire on Dec. 11.

The U.S. claimed that WTO members must first resolve its concern that Ramirez-Hernandez continued to handle WTO appeal cases following the expiration of his term and that Kim signed off on a dispute ruling that was published following his sudden resignation in August. Kim is now South Korea’s trade minister.

WTO members told Bloomberg BNA they’re worried that if the U.S. continues to block the appointment process beyond Dec. 10, 2019, the appellate body could be reduced to a mere two members.

That could grind the WTO’s international adjudication role to a halt because WTO rules require at least three members to participate in any appellate body investigation.

‘Artful Way Out’

Trade attorneys dismissed the idea that Lighthizer was actively trying to blow up the dispute settlement system and described the administration’s approach as a creative way to resolve a unique legal dilemma.

“I wouldn’t say this is a secret U.S. plot to get everyone to switch to positive consensus,” said Tim Keeler, an attorney at Mayer Brown LLP in Washington.

“I think it is an artful way out to the problem the appellate body caused by breaking the rules,” Keeler told Bloomberg BNA in a phone interview.

“Three sitting members should be accountable for a report at the time at which it is circulated,” said Rob Howse, an international law professor at New York University.

“While I have many bones to pick with the attitude of USTR toward the appellate body both in the Obama and the Trump administrations, my intuitions about due process and judicial property suggest to me that on this one the U.S. is right,” Howse told Bloomberg BNA via email.

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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