As of today, the WTO Appellate Body will be, at least temporarily, no more. The Trump Administration has strangled it by refusing to agree to appoint new members. This can be seen as an extension, albeit an extreme one, of positions taken in prior Administrations, including the Obama Administration. This blog explains various ways the Appellate Body has overreached over many years. In other words, the American antipathy for the Appellate Body’s conduct predates “America First” by more than a decade.
As we are inundated with news on impeachment, the natural reaction for those troubled by the President’s general attitude toward the rule of law is to view the demise of the Appellate Body through that prism. It is, however, a mistake. The Appellate Body is not the embodiment of the rule of law, but in some important ways a rejection of it.
How Did It Go Wrong?
For more than 15 years, the U.S. has tried to explain the various times the Appellate Body has ignored the rules that sovereign members agreed to when the dispute settlement system was established in 1995. Because many of the Appellate Body’s more egregious decisions involved the U.S. use of trade remedy laws, WTO members chose to focus on the results of the Appellate Body’s conduct – which improved their access to the U.S. market – as opposed to the process. It was a Faustian bargain. They turned a blind eye to the deeper systemic threat that arises whenever an entity (or person) considers itself above the rules. As a result, the Appellate Body’s original departure from the rule of law began as a relatively narrow problem that could have been nipped in the bud, but instead has metastasized into a “crisis.”
In his speech at the end of his tenure on the Appellate Body, Ricardo Ramirez-Hernandez alluded to the mistake.
It seems to me that the crisis we now face could have been avoided if it had been addressed head-on, as it began to escalate. The WTO is a consensus-based collective. This means that this crisis should not be attributed to one Member. The Membership must recognize the need for leadership within and outside this house. A need to recognize that there must be genuine engagement when one Member is raising problems. The signals have been there for some time. No matter how difficult or insurmountable the issues may seem, all those who are part of the WTO community must be willing to engage and must refrain from putting personal or national trade interests ahead of attempting to come up with a solution. (emphasis added)
As former U.S. Trade Representative and current Senator Rob Portman explained, the failure to heed the U.S. concerns meant that blocking Appellate Body nominations was “one of the few things that we’re able to do.”
Because of the antipathy for Trump, the response to the demise of the Appellate Body has been emotional in nature. The sense is that it must be saved, or else.
Or else what?
Who Knew – the People Who Created the Rules-Based System Were Anarchists!
People desperate to save the Appellate Body contend that we’ll revert to the law of the jungle. Are we really taking the position that the regime as it existed between 1947 and 1995 was nothing more than the law of the jungle? Normally we revere the founders of the global trading system for their wisdom in creating a set of rules governing trade. But now we are, apparently, taking the position that they were a bunch of anarchists.
A Chinese diplomat is quoted as having said that, with the demise of the Appellate Body, we are heading into “uncharted water.” Um, what? There was an entire system for nearly five decades that had no Appellate Body. Maybe the Chinese are in uncharted water, but the countries that were contracting parties to the GATT aren’t. Perhaps it’s not a bad thing for the Chinese Community Party to be deprived of the certainty it had banked on when the United States approved permanent normal trading relations in 2000.
It’s not even clear that the post-1995 WTO dispute settlement system is better than the pre-1995 GATT system. We’re so emotionally invested in the very existence of the Appellate Body that we haven’t bothered to ask the question.
A Little Empirical Objectivity, Please
It’s a bizarre oversight, given that free-trade types consider themselves empirically-driven, objective, not susceptible to the distortive lens of emotion. Yet emotion is what’s driving the sturm and drang over the Appellate Body. See the companion blog by researchers from the University of Arizona and UC Davis: The research we do have suggests that trade flows don’t increase as a result of compliance. All this energy spent trying to save a system that doesn’t seem to do the thing it was supposedly meant to do – increase trade flows.
And that’s just on the side of the ledger where WTO Members have complied. What about non-compliance? People think that China and the United States are the scofflaws when it comes to dispute settlement, but the Europeans have us beat by a country mile. Their compliance rate is, according to the same researchers who wrote the companion blog, south of 40%.
Rules to Force the AB to Adhere to the Rules
Those eager to save the system have proposed a variety of rules in an effort to find some way forward. But the conundrum is this. If the problem with the Appellate Body is that it considers itself above the rules, then what set of rules would actually bind the Appellate Body? In the end, by shunting aside negotiated outcomes in order to impose its view of “fairness,” the Appellate Body has engaged in a fundamental breach of trust. No set of rules will fix that.
The latest effort to save the Appellate Body seems to be to lay these problems at the feet of one staffer. The argument proves too much. The degree of blame to be assigned to him matters less than the deep, deep institutional problem the theory – if we accept it – exposes: A single WTO employee can control the output of seven Appellate Body members charged with respecting a sovereign agreement applicable to more than 160 countries. This kind of behavior only bolsters the view of those who consider the WTO an undemocratic institution.
We have somehow painted ourselves into the corner of assuming the Appellate Body has to be saved. But it doesn’t. We should have the imagination — and the courage — to construct something new. And better.