WTO Dispute Reform Faces Long Haul
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In recent weeks, during a meeting of the World Trade Organization's Dispute Settlement Body (DSB) in Colombia, the United States once again blocked a proposal to initiate the process of selecting judges to fill the vacancies in the Appellate Body. This marks the 64th time the U.S. has vetoed such a proposal, resulting in a complete paralysis of the WTO's dispute resolution mechanism for over five years.
The DSB evolved from the dispute resolution system under the General Agreement on Tariffs and Trade (GATT), which was established in the 1960s and 70s. Under the leadership of the United States, GATT's dispute resolution mechanism formed expert panels to address increasing numbers of complaints from member countries. As trade disputes became more complex and diverse, GATT’s framework, which was largely diplomatic, struggled to keep up with the changing times. The U.S. once again led efforts, working with Japan, the European Union, South Korea, and other members to negotiate the "Understanding on Rules and Procedures Governing the Settlement of Disputes," which transitioned GATT's dispute resolution system from one based on power dynamics to one focused on rules. This shift was not just structural but also procedural. With U.S. persistence, the WTO's dispute resolution system adopted the "reverse consensus principle," replacing GATT's "consensus principle," which required unanimous agreement. Additionally, the establishment of a permanent Appellate Body was implemented, among other key reforms. As a result, the WTO dispute settlement system has successfully resolved over 600 trade disputes, ensuring a stable and predictable global trade environment.
The WTO dispute resolution system is based on a two-tier review process: the first stage involves an expert panel’s initial judgment, while the second stage consists of the Appellate Body’s final ruling. The Appellate Body usually has seven members, each serving a four-year term with the possibility of reappointment. Cases are heard by a panel of at least three judges, all of whom must be permanent members of the DSB. Unlike other international organizations, such as the International Monetary Fund (IMF) and the World Bank, which use a majority vote, the WTO operates on a consensus principle. This also applies to the selection of judges for the Appellate Body, where all members must agree on the appointees. When a vacancy arises, the selection process requires the unanimous consent of all member countries.
In contrast to GATT’s "consensus principle," the DSB operates under the "reverse consensus principle." Under the former, if any party disagrees with the judgment, the ruling cannot pass. The latter allows the decision to proceed as long as one party is in favor. In practice, the party that files the complaint, or the one that wins the case, usually agrees with the decision to ensure that its rights are enforced. This has allowed the DSB to effectively and efficiently implement its rulings. The DSB also has the ability to authorize retaliation against a party that refuses to comply with a ruling. Unlike unilateral measures, this type of retaliation is legally compliant and morally justifiable, adhering to the principles and spirit of multilateralism. For this reason, the DSB has been hailed as the "crown jewel" of the WTO.
However, this "crown jewel" of the WTO has become tarnished since 2017. That year, three of the seven judges on the Appellate Body had their terms end. The following year, the reappointment of a Mauritian judge was blocked, and by 2019, two more judges' terms expired. The final judge’s term ended in 2020, and due to the U.S.’s consistent blocking of the selection process, the Appellate Body has been left inoperable. The U.S. has not only stalled the appointment of new judges but has also prevented the DSB from functioning effectively.
The U.S. was once a driving force behind the reform of the WTO dispute settlement system. Yet today, it has become the primary obstacle to the Appellate Body's operation. The U.S. justifies this shift by claiming a lack of confidence in the operation of the old dispute resolution system and accusing the Appellate Body judges of "overreach" in their rulings. Furthermore, the U.S. has raised concerns about "delayed rulings" and "overextended service" among Appellate Body judges.
While some of the U.S.’s concerns regarding the Appellate Body’s judges may be valid, the fact remains that the WTO and its DSB have consistently upheld the principles of multilateral trade. In recent years, the U.S. has increasingly moved away from its original multilateral trade stance, embracing unilateralism instead. The obstruction of the Appellate Body's judge selection process is emblematic of this shift.
In an attempt to mitigate the escalating trade conflicts caused by the paralysis of the Appellate Body, the European Union, China, and 21 other WTO members initiated the Multi-Party Interim Appeal Arbitration (MPIA), a transitional mechanism designed to maintain some form of dispute resolution. While the MPIA has made some progress, its scope remains limited, as only a few members have joined, and its rulings only bind the participating countries. The broader impact of this interim mechanism is therefore minimal.
In a desperate bid to address the crisis, the 12th and 13th WTO Ministerial Conferences (MC12 and MC13) promised to establish a fully operational dispute resolution system by 2024. However, as the year draws to a close, there has been no visible progress. Some members have called for a comprehensive agreement by the 14th Ministerial Conference, scheduled for March 2026, but at this point, the prospects for a resolution seem bleak, and the WTO’s dispute resolution system remains in limbo.
The dysfunction of the Appellate Body is a reflection of broader tensions within the WTO. Once considered a triumph of multilateralism and global cooperation, the organization now faces increasing pressure as major economies, particularly the U.S., retreat into unilateral actions. The failure to resolve these issues threatens not only the WTO's credibility but also the stability of the global trading system.
As the WTO struggles to find a solution to its dispute settlement crisis, the world watches closely. The longer the Appellate Body remains incapacitated, the more likely it is that countries will turn to alternative means of dispute resolution, undermining the multilateral framework the WTO was built upon. If the WTO cannot restore its dispute settlement system to full functionality, it risks losing its relevance in the global trading landscape, with far-reaching consequences for international trade and economic cooperation.
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