The EU and Canada are close to agreeing a new trade dispute resolution system to replace the World Trade Organization’s appeal court, which is edging towards collapse.
Since its inception in 1995 the appellate body has had the final word on cases brought to the WTO by nations at loggerheads. But over the past two years US president Donald Trump has consistently blocked replacements for retiring judges.
With two of the remaining three judges due to end their terms in office in December, the body is just months away from being unable to take on new cases — a minimum of three judges are needed.
WTO member states have tabled several proposals that would restore the full roster of judges, but so far they have all been shot down by Mr Trump.
World leaders have embarked on a search for alternative processes as a stop-gap measure. Canadian prime minister Justin Trudeau last week said his country and the EU were close to an agreement that would create a parallel system of dispute resolution, modelled on the functioning of the appellate body, “until we find a more permanent solution”.
“Given that we are just a few months ahead of the possible demise of the system, we thought we can’t sit idly by and see whether this works or not,” said Sabine Weyand, the EU’s director-general for trade, earlier this week. “We want that stopgap solution to mirror the appellate body functioning, but to be based on a system of arbitration.”
But any such proxy system would be voluntary, applying only to countries that agree to participate, and therefore would not include the US.
In the meantime the court is still processing appeals, but its diminished roster of judges face a growing pile of delayed cases.
Too few judges
WTO rules dictate that appeal board judges are appointed for a maximum of two four-year terms. The process requires consensus, meaning every country has the power to block judicial appointments.
When it comes to representation on the appellate body, the US has had a notable presence throughout the history of the WTO: there has always been an American judge.
This is not the first time that the US has unilaterally acted to block appointments. Barack Obama thwarted the reappointments of US judge Jennifer Hillman in 2011 and South Korean judge Seung Wha Chang in 2016, raising concerns that the US was undermining the independence of the body by blocking judges that did not support US interests.
But he did allow other appointments to take place.
The selection process is secretive so it is not known whether other countries have opposed appointments in the past, but no other country has openly blocked them.
Undermining the system
Theoretically the body could still issue verdicts when it is reduced to just one judge, because WTO rules allow judges to continue working on a case provided it was assigned before the end of their term. But the appellate body would be unable to hear new appeals.
Trade experts warn that this could undermine the whole dispute resolution process, because the losing party in a dispute would be able to avoid implementing the decision by simply initiating an appeal, knowing that it would not be heard — leaving it in limbo.
Jeffrey J Schott from the Peterson Institute for International Economics said this would hit smaller and poorer countries particularly hard. “They’ll face the real threat of retaliation by a bigger, more powerful economy,” he said. “That is the power base system that the WTO was designed to rebalance.”
Overdue decisions
Almost all of the 12 cases outstanding at the court have overshot the official three-month deadline for a decision.
Last week’s ruling about US tariffs on Chinese goods, which paved the way for possible retaliation from China, took 445 days between China’s notification of appeal and the appellate board’s ruling.
“There’s only so much work that can be done by these three individuals,” said Ms Hillman, the former WTO appeal judge.
With three judges, the body is able to work on a maximum of two cases at a time, Ms Hillman said.
Mounting delays
As a result, the three remaining judges are struggling to keep up with casework and face a pile-up of delayed cases.
According to WTO rules, appeals must take no longer than 90 days and judges must submit an explanation in writing if they cannot keep within this timeframe. Over the past two years, the average ruling took more than a year to complete, far exceeding this official deadline.
But dysfunction is not wholly new: even before the current problems the system was under considerable pressure due to the high number and growing complexity of cases.
“When the appellate body was set up back in 1995, the assumption was that just a handful of cases would actually be appealed and that each appeal would be limited to one or two questions of law,” said Ms Hillman, who is now a senior fellow at the Council on Foreign Relations. “But now we’re looking at the number of claims in any given appeal being somewhere between 10 and 20, and so the amount of material that needs to be read on any given day has grown exponentially.”
Combined with the growth of trade tensions around the world, that suggests the WTO appeals court needs more judges, some critics say — not fewer.
