WTO Appellate Body Research Articles

Last Mile for Tuna (to a Safe Harbour): What Is the TBT Agreement All About?

The WTO Agreement on TBT (Technical Barriers to Trade) aims at taming NTBs (nontariff barriers), the main instrument segmenting markets nowadays. Some of the terms used to flesh out the commitments undertaken are borrowed from the GATT, and some originate in the modern regulatory reality as expressed through SDOs (standard-development organizations). It does not share a copy-cat function with the GATT, though. Alas, the WTO Appellate Body, by understanding words as ‘invariances’, e.g., interpreting them out of context (without asking what is the purpose for the TBT?), has not only exported its GATT case law, but also misapplied it into the realm of TBT, and ended up with significant errors. In the most recent report of the tuna-saga, an ongoing dispute between Mexico and the United States, a panel corrected some of the pre-existing misunderstandings regarding the scope and function of TBT. Problems though, persist. Importantly, we cannot rely on instincts of isolated adjudicators to get it right. Only a coherent test for consistency with the TBT can serve this function. This is what we still miss. In what follows, we explain why the current approach is erroneous, and advance an alternative understanding, which could help implement the TBT in a manner faithful to its negotiating intent, and objective function.

Last Mile for Tuna (to a Safe Harbor) What is the TBT Agreement All About?

The WTO Agreement on TBT (Technical Barriers to Trade) aims at taming NTBs (nontariff barriers), the main instrument segmenting markets nowadays. Some of the terms used to flesh out the commitments undertaken are borrowed from the GATT, and some originate in the modern regulatory reality as expressed through SDOs (standard-development organizations). It does not share a copy-cat function with the GATT, though. Alas, the WTO Appellate Body, by understanding words as ‘invariances’, e.g., interpreting them out of context (without asking what is the purpose for the TBT?), has not only exported its GATT case law, but also misapplied it into the realm of TBT, and ended up with significant errors. In the most recent report of the tuna-saga, an ongoing dispute between Mexico and the United States, a panel corrected some of the pre-existing misunderstandings regarding the scope and function of TBT. Problems though, persist. Importantly, we cannot rely on instincts of isolated adjudicators to get it right. Only a coherent test for consistency with the TBT can serve this function. This is what we still miss. In what follows, we explain why the current approach is erroneous, and advance an alternative understanding, which could help implement the TBT in a manner faithful to its negotiating intent, and objective function.

RULES AND VALUES IN INTERNATIONAL ADJUDICATION: THE CASE OF THE WTO APPELLATE BODY

AbstractCurrent political challenges facing the WTO Appellate Body raise fundamental questions about the relationship between rules and values in international adjudication. This article applies insights from legal philosophy to identify the role values should play in WTO adjudication. It argues that nothing about the specifics of WTO law would justify excluding values from adjudication; that the doctrinal, political and institutional context of WTO adjudication makes a positivist account of the role of values untenable; but an anti-positivist account requires complementing established economic accounts of WTO law's purpose with an account of fairness and justice in trade and trade regulation.

Subsidies and Investment Promotion Reaching New Heights in the Aviation Sector: The US–Tax Incentives Dispute

AbstractThis paper analyzes the most recent WTO Appellate Body (AB) report in a series of disputes between the US and the EU over government support to aircraft manufacturers Boeing and Airbus. The measures under dispute in US–Tax Incentives were investment promotion subsidies provided to Boeing by the State of Washington. The EU contended that the Washington State subsidies, which were conditioned on Boeing locating production of specific parts of its new 777X program within the state, were prohibited import substitution subsidies. The AB took this case as an opportunity to consolidate WTO case-law on import substitution subsidies. It confirmed a single legal standard for export promotion and import substitution subsidies but with a stricter requirement for a finding of a violation in the case of import substitution subsidies. We argue that the AB, in allowing the subsidies to Boeing, unnecessarily blurred the distinction between contingency in law and contingency in fact by ruling that identifying a condition requiring the use of domestic inputs would be a necessary element for a determination of a de facto contingency. This appears to be an unduly formalistic view that leaves little legal space for any de facto contingency claim in the future.

United States – Certain Methodologies and Their Application to Anti-Dumping Proceedings Involving China: Nails in the Coffin of Unfair Dumping Margin Calculation Methodologies

AbstractThe WTO Appellate Body report United States – Certain Methodologies and Their Application to Anti-Dumping Proceedings Involving China is yet another in a long line of disputes involving US Department of Commerce's dumping margin calculation methodologies. The AB ruled against the United States on three important aspects: (1) the use of the Nails test to rationalize the exceptional method in Article 2.4.2 of the Anti-Dumping Agreement so as to justify using the weighted average-to-transaction methodology in dumping margin calculations; (2) the treatment of multiple companies in a non-market economy as a single NME-wide entity; and (3) the USDOC's policy of using adverse facts available for such an entity. Yet, some aspects of the AB's decision – most notably affirming the use of average prices – significantly weaken Article 2.4.2's pattern requirement and potentially open the door to greater use of the exceptional method.

The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?

The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?

International Decision: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada

This dispute, brought by Canada against the United States, constitutes another chapter in three separate sagas: the enduring softwood lumber dispute between the two North American nations, the debate over the acceptability of the practice of “zeroing,” and the fight over the value and role of WTO Appellate Body precedent. Notably, the Panel departed from established Appellate Body decisions finding, inter alia, that zeroing was permissible under a weighted average-to-transaction (W-T) methodology. This departure is remarkable, not just because it runs counter prior jurisprudence, but also for the reasoning supporting it and the circumstances in which it occurred. Indeed, the Panel Report was issued in the midst of a crisis of the WTO dispute settlement system arising from the United States’ decision to block the reappointment of Appellate Body members. The United States justified this action, which eventually resulted in the Appellate Body losing its quorum to hear new appeals on December 10, 2019, on the basis of complaints, among others, that the Appellate Body had championed an approach to precedent, which the United States found incompatible with the intended role of dispute settlement within the WTO. While Members worked feverishly to formulate a compromise that might respond to the United States’ criticisms and soften the effect of the Appellate Body’s approach, the Panel suggested its own. Thus, it found room to depart from prior precedent (which the United States argued had been wrongly decided) while paying lip service to the Appellate Body.

The Impasse in the Appointment of Judges to the WTO Appellate Body: Are There Any Viable Solutions?

The WTO dispute settlement system, often described as the jewel in the crown of the WTO is fast skidding of the path of success due to the US vetoing of appointment of judges to the Appellate Body – the second tier appellate review organ. With the seven-member body now depleted to three, the dispute settlement system and possibly the entire WTO legal system is tethering on the precipice of a constitutional crisis. This has been made even more serious as two of the remaining three members of the Appellate Body – Thomas R. Graham and Ujal Singh Bhatia will complete their second unrenewable terms on 10 December 2019. This article considers viable options for appointing judges to the Appellate Body outside the very stringent rules on consensus established in Article 2:4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding or DSU). It also explores a possible proactive use by the Ministerial Conference and the General Council, of the power to adopt authoritative interpretations under Article IX:2 of the WTO Agreement to help break the current impasse in the appointment of judges to the Appellate Body.

The 2018 American and Chinese Trade Wars Risk Undermining the World Trading System and Constitutional Democracies

The American and Chinese trade wars of 2018 risk undermining not only the law of the World Trade Organization (WTO, section I). As tariffs tax and restrict domestic citizens and redistribute their income, illegal import tariffs (e.g. as imposed by US President Trump) - and the collective undermining of the WTO Appellate Body and dispute settlement system - also run counter to the democratic mandates given by parliaments when they approved the 1994 WTO Agreement and incorporated it into domestic legal systems, as illustrated by trade laws and policies in the USA (section II) and in the European Union (EU, section III). Multilevel governance of global public goods (PGs) - like the WTO trading system, which has helped to lift billions of people out of poverty by promoting unprecedented economic welfare, transnational rule of law and compulsory third-party dispute settlements - cannot remain effective if citizens and democratic institutions fail to hold their governments democratically and legally accountable for violating ‘PGs treaties’ (section IV). This contribution uses the example of the USA and the EU for arguing that constitutional democracies - including Asian democracies like India, Korea and Japan - must adopt more specific trade legislation protecting the WTO legal system. Multilevel governance of transnational PGs requires empowering citizens, parliaments and courts of justice to limit populist abuses of trade policy powers to tax and restrict citizens in manifestly illegal ways reducing general consumer welfare, non-discriminatory competition and rule of law.

Captain America and the Tarnishing of the Crown: The Feud Between the WTO Appellate Body and the USA

The Appellate Body is considered the jewel in the crown of the WTO dispute settlement system. However, since it blocked the re-appointment of Jennifer Hillman to the Appellate Body, the United States has become increasingly assertive in its efforts to control judicial activism at the WTO. This was a hot topic in the corridors at the eleventh WTO Ministerial Conference, in Buenos Aires. This article examines judicial activism in the Appellate Body, and discusses the efforts of the United States to constrain the Appellate Body in this context. It also analyses US actions and proposals regarding the dispute settlement systems of the NAFTA, in order to place the WTO debate in a wider context. It concludes that reforms are necessary to break the negative feedback loop between deadlock in multilateral trade negotiations and judicial activism.

Non-Discrimination in International Law and Sovereign Equality of States: An Historical Perspective

The interpretation of non-discrimination clauses lies at the epicenter of the practice of international courts and tribunals. In today’s world, an important part of the jurisprudence interpreting non-discriminatory standards, such as the national treatment standard and the most-favorable nation treatment, is in fact “economic.” The reason lies with the ever-expanding fields of international investment law and international trade law, that have brought about the creation of a large body of investor-state arbitration awards, WTO Panel Reports and WTO Appellate Body Reports, all interpreting and applying economic non-discriminatory standards. At the same time, the principle of Sovereign Equality of States, the cardinal organizational and constitutional principle of international relations is constantly the focus of legal and political debates in the international scene. Despite the prominence and prevalence of both concepts, little attention or no attention has been paid to the history of their interrelationship. The present article offers a detailed historical analysis of the relationship between the principles of non-discrimination and Sovereign Equality of States, which is instrumental in the better understanding of both concepts.

A Comment on Henry Gao, ‘Dictum on Dicta: Obiter Dicta in WTO Disputes’

In 2016, the US objected to the reappointment of a member of the WTO Appellate Body, ‘accusing’ him inter alia of having participated in a decision where the Appellate Body had indulged in unnecessary analysis in the nature of obiter dicta. Henry Gao has used the occasion to investigate, with a fresh approach, the very concept of obiter dicta in international jurisprudence.

The WTO in 2017: Systemic Developments, Disputes and Review of the Appellate Body's and Panels' Reports

This analytical but concise survey of WTO case law for 2017 is carried out within the framework of the PhD program in International Law and Economics of the PhD School of Bocconi University (Milan). Giorgio Sacerdoti, Emeritus Professor of International Law at Bocconi University and former Chairman of the WTO Appellate Body, has coordinated and supervised the individual comments of Appellate Body's and Panels' Reports. An abridged version of this review will be published in the 2018 Italian Yearbook of International Law as has been the case in the past years. The WTO system risks to be undermined by the direct challenge to its rules initiated by the Trump administration at the beginning of 2018 with the introduction of substantial anti-dumping duties on washers from Korea and solar panels from India, the announcement of safeguards based on the security exception of Article XXI GATT on steel and aluminium imports, and the restrictive measures on a variety of exports from China to the US. Apparently, the dispute settlement system is functioning well. Seventeen new disputes had been introduced through requests of consultations in 2017, bringing their total number to 535 from the establishment of the system. The Appellate Body issued five reports. Eleven panel reports were issued in 2017 (two of which in compliance proceedings under Article 21.5 DSU), six of which were not appealed. One arbitration award was issued under Article 21.3(c) DSU for the determination of the “reasonable period of time” to comply. The WTO dispute settlement system, however, has not remained unaffected by the above adverse political trend. While the US is challenging a key element of the system, namely the appointment process for replacing outgoing members of the Appellate Body, the other Members appear uncertain how to respond, inspired by the desire not to antagonise frontally the US at least at this stage.

Slamming the Door on Trade Policy Discretion? The WTO Appellate Body's Ruling on Market Distortions and Production Costs in EuuBiodiesel (Argentina)

This paper presents a legal–economic analysis of the Appellate Body's decision in EU–Biodiesel (Argentina) that the WTO's Anti-Dumping Agreement (ADA) does not permit countries to take into account government-created price distortions of major inputs when calculating anti-dumping duties. In this case, the EU made adjustments to the price of biodiesel's principal input – soybeans – in determining the cost of production of biodiesel in Argentina. The adjustment was made based on the uncontested finding that the price of soybeans in Argentina was distorted by the existence of an export tax scheme that resulted in artificially low soybean prices. The Appellate Body found that the EU was not permitted to take tax policy-induced price distortions into account in calculating dumping margins. We analyze the economic rationale for Argentina's export tax system, distortions in biodiesel markets in Argentina and the EU, and the remaining trade policy options for addressing distorted international prices. We also assess whether existing subsidies disciplines would be more effective in addressing this problem and conclude that they would not.

Slamming the Door on Trade Policy Discretion? The WTO Appellate Body’s Ruling on Market Distortions and Production Costs in EU–Biodiesel (Argentina)

AbstractThis paper presents a legal–economic analysis of the Appellate Body's decision in EU–Biodiesel (Argentina) that the WTO's Anti-Dumping Agreement (ADA) does not permit countries to take into account government-created price distortions of major inputs when calculating anti-dumping duties. In this case, the EU made adjustments to the price of biodiesel's principal input – soybeans – in determining the cost of production of biodiesel in Argentina. The adjustment was made based on the uncontested finding that the price of soybeans in Argentina was distorted by the existence of an export tax scheme that resulted in artificially low soybean prices. The Appellate Body found that the EU was not permitted to take tax policy-induced price distortions into account in calculating dumping margins. We analyze the economic rationale for Argentina's export tax system, distortions in biodiesel markets in Argentina and the EU, and the remaining trade policy options for addressing distorted international prices. We also assess whether existing subsidies disciplines would be more effective in addressing this problem and conclude that they would not.

Die Another Day: Zeroing in on Targeted Dumping – Did the AB Hit the Mark in US–Washing Machines?

AbstractIn US–Washing Machines, the WTO Appellate Body (AB) extended the prohibition of zeroing to the so-called exceptional (or W-T) methodology, where the dumping margin is established by comparing the weighted average normal value to export price of specific transactions. Given that the exceptional method was the only method under which the AB had not definitively rejected zeroing, this dispute may have hammered the last nail in the coffin of zeroing. Or, maybe not. The AB did not address a key issue, namely: What is the evidentiary standard that an investigating authority must meet in order to have legitimate recourse to W-T? In addition, the AB's suggested approach to aggregating dumping amounts across targeted and non-targeted groups may produce zeroing-like outcomes even if the authority does not resort to zeroing. It seems inevitable that future disputes will be required to address these issues, since history shows that at least some investigating authorities are gearing towards using this methodology ad nauseam. The AB has left zeroing to die another day.

National Tax Regulation, Voluntary International Standards, and the GATS:Argentina–Financial Services

AbstractCan a WTO Member discriminate against foreign suppliers of services located in jurisdictions that refuse to share information with a government to permit it to determine if its nationals engage in tax evasion? Does it matter if the Member uses standards developed by an international body as the criterion for deciding whether to impose measures? InArgentina–Financial Services,the WTO Appellate Body held that services from jurisdictions that share financial tax information may be different from services provided by jurisdictions that do not cooperate in supplying such information. It overruled a Panel finding that measures to increase taxes on financial transactions with non-cooperative jurisdictions were discriminatory. We argue that the AB reached the right conclusion on the basis of the wrong arguments; that it missed an important opportunity to clarify what WTO Members are permitted to do to enforce their domestic regulatory regimes; and increased the scope for confusion and future litigation by considering that the likeness of services and service suppliers may be a function of prevailing domestic regulatory regimes.

From the Board: The US Attack on the WTO Appellate Body

A legal analysis of the US attempt to undermine the WTO Appellate Body and the possible solutions or couter-attacks possible.

Remarks by Federico Ortino

When it comes to trade law, it is true that there appear to be certain signs that we are moving back to non-discrimination and away from deeper forms of integration. However, this is possibly (and hopefully) only a limited and temporary shift. The strongest evidence of such a shift regards the apparent interpretation by the WTO Appellate Body (AB) of the key provisions in the TBT Agreement in such a way as to give prevalence to the national treatment standard in Article 2.1 over the necessity requirements in Article 2.2. For example, in US – Tuna II (Mexico) the AB found the U.S. dolphin-safe regulations under review inconsistent with Article 2.1, while also reversing the panel finding that the U.S. dolphin-safe regulations were inconsistent with Article 2.2. Such a result is surprising if one considers the general agreement among commentators that the disciplines embodied in the TBT Agreement (as well as in the SPS Agreement) went beyond the non-discrimination obligation of the GATT.

Dissenting Opinions in the WTO Appellate Body: Drivers of Their Issuance & Implications for the Institutional Jurisprudence

The Appellate Body (AB) of the WTO has issued over 140 reports but only eight separate opinions, four of which are genuinely dissenting. Such paucity, in fact, is the WTO’s implicit tradition inherited from GATT of prioritizing unanimous decisions, hoping they solidify the institution’s legitimacy and countries’ confidence in the system. But at the more individual level, an AB member’s decision to dissent is driven by multiple factors that have implications for the institution’s jurisprudence. First, the factors explain how the symbiotic relationship between an AB member and his or her nominating country—whose interests turn out to be closely intertwined—is affected according to the former’s personal preferences. Moreover, a subset of the factors—the so-called “evaluators”—can assess the doctrinal significance of dissents and illuminate how each of them is contributing to the WTO’s case law development.