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Ep. 27 - A Plan To #SaveTheWTO

Recorded Monday, July 29, 2019

Tradecraft Podcast | @tradecraft_pod


MARC BUSCH: Today we're going to do something that we haven't done before. We're going to make a proposal for saving the WTO. And the proposal is going to concern this current looming crisis over appointments to the Appellate Body, the presumption being that the United States is looking for some solution to what is often touted as being a fear of precedent. And we're going to propose today a way forward, a way to get out of this debate about precedent and move it in the direction of where it should be, namely the add to or diminish clause under the dispute settlement understanding, and we're going to sketch a mechanism.

MARC BUSCH: This is meant as a template for the U.S. and other members to think through, to develop, to evolve, and to solve the problem which is coming pretty fast. And in all honesty, with the exception of what Honduras has proposed in terms of how to deal with this precedent issue, let's face it, the vast majority of members have been ducking the issue. There really has not been direct engagement. And in the last DSB meeting, the United States responded to a lot of criticism that it too has been ducking both what it wants from Appellate Body reform and what it wants from the system more generally.

COLLIN JANICH: Right, this was the July 22nd DSB meeting…Now we've covered the Appellate Body crisis at length, but just give us a quick overview of the issue again, if you would.

MARC BUSCH: As many of our listeners will have heard over the 26 prior episodes, the Appellate Body will essentially cease to function in December of 2019, and that's because the number of Appellate Body jurists who will still be within their tenure will fall short of the necessary quorum, and as a result appeals will no longer be heard.

MARC BUSCH: There have been, over the past little while, a number of proposals to figure out a solution for this. Many of those proposals as we have reported here on Tradecraft have involved extending the terms of various AB jurists and figuring out ways in some way to make the institution work beyond the December deadline. There's a lot at stake here obviously with respect to WTO dispute settlement itself, but let's not forget that there is also litigation under the preferential trade agreements which can, and at times must, go to the WTO as we have rehearsed several times. For example, the Technical Barriers to Trade (TBT) Agreement is incorporated text into various PTAs. And all of that litigation where it only surrounds incorporated text must, as under the Trans Pacific Partnership (TPP), go to the WTO.

COLLIN JANICH: We've seen some interesting work arounds designed in the last couple of weeks, namely one proposed in the Vietnam, Indonesia dispute. The other offered up by Canada in the European Union on July 25th. And those are really informing our proposal here today...

MARC BUSCH: This episode is timely because in particular Canada and the EU have offered a mechanism to try and work around the absent Appellate Body as of December, and we're going to build on that in proposing a brand new mechanism. Now this is going to require that we take a look at the source problem, not just some of the implications of it. So this is a very different episode than just harping on the fact that we need to figure out how to get some of these Appellate Body jurists both appointed or renewed.

COLLIN JANICH: Well, let's start off by looking at the U.S. concerns impeding the appointment process. One often hears that the U.S. has concerns over the issue of precedent. Is that accurate?

MARC BUSCH: The U.S. concern isn't really about precedent. It's about add to or diminish. Add to or diminish is DSU Article 3.2, and add to or diminish is code for judicial activism or legislation from the bench. That's really what the United States is fearful of. I'm going to trace that into the dispute, which has really set the debate over precedent itself, namely U.S.- stainless steel from Mexico. In that dispute, you get a sense from U.S. submissions that DSU 3.2 and not precedent writ large is actually the looming issue.

MARC BUSCH: What I want to do is propose a self-initiating mechanism where dissenting opinions arise, resulting in a remand. That in a nutshell is the mechanism I'm going to propose. Now, don't get me wrong, I have some qualms about certain of the moving parts and for that matter I'm a little worried about dissenting opinions. Not least because it will lead some of the members to discount the value of a ruling. We've talked about this in prior episodes where for example, the European Union has been less bullish on Codex standards where there is a vote shy of unanimity. That not withstanding, let's talk about precedent and let's move on to DSU 3.2 and away from what is really a false narrative on precedent itself.

COLLIN JANICH: Okay, where are we starting then?

MARC BUSCH: First stop, the work around proposed in the Indonesia, Vietnam dispute. This is DS 496, Indonesia - iron or steel products from Vietnam. The deal that Indonesia and Vietnam have struck is that in the event that the Appellate Body ceases to function as of December and that roughly coincides with when this might get appealed, neither side will appeal the first recourse to the 21.5. So you won't get what you get in, say Brazil aircraft, where you get second recourse 21.5. There will be no second recourse to a 21.5 Both sides will stay shy of appealing. Whatever the first recourse to the 21.5 compliance panel reveals as the answer on that all important question of compliance. That's one possible way.

COLLIN JANICH: And let's just draw out the difference between DS 496 and your average case.

MARC BUSCH: DS 496 is already going to a compliance panel. Whether agreeing not to appeal is the first recourse to a compliance panel. Life would be a lot different if this was a case that was still at the panel stage and both sides granted that neither would appeal, that would be heroic. That's not what's going on here. So on the one hand, the Vietnam, Indonesia workaround is quaint but precisely because, it's already at a 21.5 panel. If this was actually at the panel stage, it would be hard to imagine Indonesia and Vietnam signing off on this one because three quarters of all cases are appealed. So what benefits Indonesia and Vietnam here is that this is already at a 21.5 panel.

MARC BUSCH: All they're saying is we won't make second recourse to the compliance panel, but I seriously doubt that this is a viable work around for other dyads out there, that to swear off appeal in a case not yet before a panel would be a difficult hurdle to overcome. So let's not try and learn too much from this work around. But in the spirit of what will de facto happen anyway, if the Appellate Body ceases to function, this is what will happen in the event that the Appellate Body ceases to function, that you won't get a ceasefire on appeal, nevermind that at 21.5 panel, you will simply get no option but to let the case languish after the panel has ruled. The better idea is to build on the Canada EU approach.

COLLIN JANICH: And what does that proposal look like?

MARC BUSCH: In a mere six paragraphs, they set out a way to use DSU 25 as an arbitration system in the absence of the Appellate Body. In other words, if Canada and EU have a dispute that goes the legal distance, a panel renders a verdict and yet one or both sides wants to appeal, they will use their own contrived arbitration mechanism built on DSU Article 25, which as we have said in prior episodes is the alternative dispute resolution function offered under the dispute settlement understanding and comes backed by both DSU 21 and 22, meaning a compliance panel and ultimately arbitration on the level of concessions to suspend.

COLLIN JANICH: But it's more nuanced than that, right?

MARC BUSCH: The document released by the EU and Canada lays out that they will rigidly stick with as much of the substance and the procedure of the Appellate Body as well as the practice of the Appellate Body so that what happens in that DSU 25 based procedure does not stray too much from the departed wisdom of Appellate Body practice.

MARC BUSCH: They have also gone out of their way to offer a means by which Canada and the EU engaging in this DSU 25 based system could in fact reconcile their efforts with other members doing the same thing, which is not hard to imagine because the ICC has now come out in favor of the Canada EU proposal and is all in favor of what is going on with this design.

COLLIN JANICH: Right. The ICC being the International Chamber of Commerce.

MARC BUSCH: So here's the question at this moment. Is this the basis for something new in the event that the Trump administration does not unblock appointees to the Appellate Body in time to survive the December deadline?

MARC BUSCH: I want to use the Canada EU template, but go beyond it. But first, let's lay the groundwork for addressing US concerns. The first thing that we have to do is disentangle precedent from DSU 3.2. And what I'm going to suggest is that with the help of some really heavy lifting done by Cato’s, Simon Lester and Tradecraft's Francisco Campos, what they have done on where the term cogent reasons comes from. And what they do is they dive deep into the chronology of U.S. stainless steel from Mexico. In US submissions in this case, the U.S. goes out of its way to focus on DSU 3.2, which as I've said is the add to or diminish clause, meaning it is a curb on legislating from the bench or what we affectionately call judicial activism.

MARC BUSCH: So in other words, the dispute settlement understanding already has a prohibition in place called DSU 3.2 that is supposed to keep in check or a prohibition on judicial activism.

COLLIN JANICH: So what did Lester and Campos find?

MARC BUSCH: Lester and Campos go through the submissions and in U.S. stainless steel from Mexico, trace this term cogent reasons, which is the new benchmark in Appellate Body discussions when it comes time for precedent to an EU third party submission. In paragraph 174 of the EU third party submission, the EU says, "Should the panel wish to depart from previous Appellate Body findings the European Community submits that this should be carefully considered. The panel would have to identify cogent reasons for why it proposes to take a different direction."

COLLIN JANICH: And why is Europe saying this?

MARC BUSCH: Europe is saying this in U.S. stainless steel from Mexico with an aim toward elaborating on the value of a two tier court system as being the anchor of a rules based global economy. The discussion of the two tier court system leaves the European Union concerned about how it is that panels might deviate from Appellate Body reasoning. And the benchmark in the third party submission is cogent reasons.

MARC BUSCH: Now, cogent reasons is going to come up a lot. The U.S. is going to use cogent reasons in its first submission before the panel, and the next paragraph in that submission instead turns to DSU 3.2. So you can see the source of confusion. There is this confusion about what part of this is precedent, what part of this is judicial activism. The U.S. submission reading the third party submission from the EU says at times, wow, we're concerned about precedent. At other times it's actually judicial activism, DSU 3.2. Let's stick with that, because in fact, on appeal of this case, the US is very clear. It's DSU 3.2 that it's worried about, not about precedent.

MARC BUSCH: In fact the U.S. has in its submission, "We can't imagine a WTO without guidance. We can't imagine a WTO in which the panels are deviating a lot from the Appellate Body. Our fear is DSU 3.2." so whatever curb you want has to be with respect to judicial activism, legislation from the bench. And after all that is the U.S. concern about the case with respect to zeroing, i.e. US stainless steel from Mexico.

COLLIN JANICH: Fascinating.

MARC BUSCH: The EU third party submission though says one other thing that's going to matter for me in a second. The EU third party submission says, "The personal opinions held by particular panels do not amount to cogent reasons for the Appellate Body to reverse the existing jurisprudence. Now we've got the building blocks for thinking about a mechanism.

COLLIN JANICH: And what are those?

MARC BUSCH: We've got dissent and we've got cogent reasons. If we bring those two things together, then we have the basis for a mechanism that I hope would appease the United States and the Trump administration in particular. Now let's go over to DS 437 where we're going to get a dissent. This is U.S. countervailing duty measures on certain products from China. It's recourse to the 21.5 panel. Three issues are going to come up with respect to the Appellate Body weighing in and the dissenter says as follows, "I also consider that the majority's decision upholding the panel's finding is wrong in several important respects and would, if followed, enable circumvention of the disciplines of the SCM agreement." That's the subsidies countervailing measures agreement. "And even discouraged the transparent management of subsidies. This would," the dissenter goes on to say, "encourage them” to “feel unduly constrained by past statements on this subject."

COLLIN JANICH: Tease that out for us if you would.

MARC BUSCH: What's going on here is a definition or a way to understand what a public entity is. That matters for subsidy because public entity is a big component, part of the legal definition of a subsidy. Now this dissenter is saying I'd like separate opinions to be taken into account. That has its own issues, but nonetheless that's where we are. We have a dissenting opinion now. We are likely to get dissenting opinions in the future. Let's not mistake what's happening though for the dissenter completely disagreeing with everything that has happened.

MARC BUSCH: The dissenter is saying there is a less strict way to deal with how we would know a public body if we saw one. Let's not get too carried away with past convention for identifying a public body and therefore identifying part of the root definition of a subsidy. This dissenter is simply saying, if you rigidly stick to past practice in identifying your public body, you may have an unnecessarily difficult time arriving at a reasonable understanding of what that means.

MARC BUSCH: Great. There we go. We've got the dissent. Now let's go over to cogent reasons. We've got this, too. DS 534, this is short titled U.S. differential pricing methodology. This is the first reference to cogent reasons. Here's where it comes up. In DS 534 the panel says as follows, "We have carefully considered these reports of the panel and the Appellate Body and found convincing or cogent reasons to arrive at conclusions different from those of the Appellate Body in US washing machines as well as the panels in U.S. washing machines and U.S. anti dumping methodologies from China."

MARC BUSCH: So there you go. A panel establishing the EU benchmark of cogent reasons. Put these two together and you've got the basis for a mechanism which we'll turn to in a second.

COLLIN JANICH: So we have the U.S. and the EU. What about Canada?

MARC BUSCH: Canada in its notification of appeal states that's its fourth reason for appealing this case, that the panel deviates from DSU 11 by not following the Appellate Body. It notes, "In particular the panel aired by departing without cogent reasons for the legal interpretations and reasoning contained in the Appellate Body report in U.S. washing machines." So get this. The panel is invoking cogent reasons and Canada's appealing based on the lack of cogent reasons such that now cogent reasons is the term, the bar to clear. We've got a dissent, that's DS 437. We've got cogent reasons, that's DS 534. That's pretty much all we need. Let's turn to the mechanism.

COLLIN JANICH: Let's have it.

MARC BUSCH: Here's my mechanism. And there are some component parts that need a lot more refinement. Shout out to my former student, NYU professor Amanda Kennard for helping me this weekend think through some of this strategic logic. Here's the proposal. A dissent triggers a review by former Appellate Body jurists, which goes back to the EU Canada mechanism that's supposed to be staffed by former Appellate Body jurists. But the key, strategically speaking, is that their identity is unknown ex ante. I don't want to call this a panel because it shouldn't be appealable. I don't want to call this a committee because I love the informal work that the committees do. But I don't want this to be deemed informal. I want the word rules to be in there, but I don't know quite what to call it.

MARC BUSCH: I want to draw on the experience of the extraordinary challenge committee under NAFTA. This should be extraordinary, but I don't want to call it a committee. So I want the words rules and I want the word extraordinary somehow fit into this, but I want this to be, like the EU Canada proposal, something that draws on in the spirit of DSU 25 these former Appellate Body jurists.


MARC BUSCH: For the sake of moving forward let's call this a body. I need the who, the when, and the what. The who, former Appellate Body jurists. When, self initiated by a dissent. The result, here's the key. A remand to the Appellate Body.

MARC BUSCH: We don't really know what cogent reasons is. We've got to figure out what cogent reasons for departing from received Appellate Body wisdom sound like, look like, tastes like. If a dissent happens because there is a concern about cogent reasons, then we go to this mechanism. This is not a mechanism that swings into action when a member requests it. This is self-initiated when the Appellate Body witnesses a dissent because of questions about cogent reasons.

MARC BUSCH: When the Appellate Body witnesses a dissent over cogent reasons, the director general will piece together this body formed of former Appellate Body jurists, the identity of whom will be unknown ex ante. So the key so far is it's self initiated by the Appellate Body. It's made up of formal Appellate Body jurists who are not identified ex ante. Now here's the what, a remand. Finally, we’re going to bring remand to the WTO dispute settlement system. And by remand I mean this body would review, and if the cogent reasons weren’t cleared, send back to the Appellate Body to do again on the line items of law where the question arose in the first place. That would be the remand function back to the Appellate Body. The Appellate Body now picks up this question, but narrowly construed with respect to the item that was raised in the dissent, given a lack of cogent reasons. That's the mechanism.

COLLIN JANICH: And what does this mechanism ultimately hope to facilitate?

MARC BUSCH: It gets us away from this fruitless debate over precedent because there's no other choice. And it gets us onto what the U.S. really cares about, which is judicial activism. In other words, we already have DSU 3.2, we have a prohibition against judicial activism. We just have no means of following up on that. What this mechanism allows to have happen in light of the candidate EU proposal, in light of the staffing that they outline, and given this new term cogent reasons now looming through the institution, what this mechanism allows to have happen is for judicial activism to become checked, formally speaking.

MARC BUSCH: That gives the U.S. a win on 3.2, it allows the U.S. to unblock judicial appointees based on this fruitless discussion over precedent, and gives some heavy substance in the form of this design wherever we want to place it in terms of the DSU such that we have a check on what already exists. DSU 3.2 is already there. We are not inventing a new check on judicial activism. We're simply offering a mechanism to, in fact, keep in check any hint of judicial activism. Our building blocks are already given to us as well. We have this new term, cogent reasons. There's no way to uninvent the wheel. Cogent reasons will now be the bar.

MARC BUSCH: We also have a panel that has felt secure to invoke cogent reasons to deviate from prior Appellate Body reasoning. Now, let's see what happens with that decision on appeal. But let's say that we get a dissent at the Appellate Body stage on the review of US differential pricing. Well, now we have a check. In the event that there is a perceived bit of judicial activism as triggered by Appellate Body jurists, not by the United States, we have something that can be done about it that begins to sound like enforcement. And after all, enforcement is the crucial word in today's debate over trade more generally and as a much needed addition to the institution itself.

MARC BUSCH: Because something has to be done with 3.2 because the alternative is that we end up doing something much worse with respect to precedent when in fact no one really means that we should be attacking precedent. We should be attacking judicial activism where it happens, and this is a mechanism offered in the humble spirit of getting this one right. The U.S. benefits more from precedent than any other trading country in the WTO. The U.S. doesn't really mean to be trashing precedent. In fact, as I already read through U.S. submissions, going back to the response to EU third party submissions in the stainless steel from Mexico case, reveal as much. It's 3.2 DSU. It is not precedent per se that bothers the United States.

MARC BUSCH: If we need to overcome that concern about judicial activism, then let's do it directly with a mechanism that builds on some of the ingredients that are already there. Put it all together and we have something that is not driven by the members but self initiated by the Appellate Body where a dissent happens over cogent reasons. Bill that in the spirit of the EU candidate proposal on DSU 25 and you have a check. This is not an appeal of the appeals process. This is a temporary step to the side to take a look with formal Appellate Body jurists at whether in fact something looks like judicial activism.

MARC BUSCH: But to temper any concern for the strategic dynamics that might unfold, the key is a roster of former Appellate Body jurists, the identity of whom is unknown by case in advance of this process being triggered.

COLLIN JANICH: So this is not an appeal of the entire case. This is a questioning of Appellate Body jurists by other Appellate Body jurists as to whether there has been some hint of judicial activism…

MARC BUSCH: And if there is a suggestion by this extraordinary rule body that there has been a breach of DSU 3.2, that there has been some judicial activism then it can be rechecked on the second go around where the remand sends this back to the Appellate Body to do it again. Let's use the remand function such that we preserve the two tier court system. We are not adding a third tier. We are not adding a burden with respect to members triggering for any given case that they'd like. This one is relatively clean and all the ingredients are already there.

COLLIN JANICH: Marc, you used “temporary” to describe this. Are you envisioning this then as a short term fix?

MARC BUSCH: This is not a temporary agreement like the EU Canada deal. This will be full time. This is a full time check on DSU 3.2.

COLLIN JANICH: Okay. And how do you see it being implemented?

MARC BUSCH: That's for the members to decide, and obviously it's going to be important that this gets buy-in, but I do believe that this goes directly to the heart of the matter for the United States. And I do believe that something along these lines, and this is just a proposal, could in fact lead the Trump administration to unblock appointees to the Appellate Body. And as I said at the outset, remember, it's not just WTO litigation with respect to WTO agreements that is on the line. Those preferential trade agreements are going to be sending a lot of litigation for incorporated texts to the WTO. Nobody, least of all the United States, can long withstand the cessation of operations at the Appellate Body.

COLLIN JANICH: Marc, as we close out here, give us the two minute pitch you'd make to the Administration for advancing this mechanism.

MARC BUSCH: Let's face it, the ingredients are already there. I am not creating DSU 3.2. I am not setting the bar at cogent reasons. I'm not offering a new channel for dissent. Those three things exist now. Let's take them and do the best we can with what we've got. But in terms of the big players, who all at times, not least on things like national security, have wavered on this question of precedent. Let's understand what we're really talking about here. The fear underlying a lot of these concerns is judicial activism.

MARC BUSCH: Let's not reinvent the wheel as something other than it is. Let's take on the issue directly. Let's do something with DSU 3.2. We can only do so much. We've got dissent. We've got cogent reasons. Now let's go one step further and build a new remand function such that when the Appellate Body gives us an indication that it too is torn, that we could have some means of trying to remedy the situation without devolving into a whole bunch of competing dissenting opinions. This is a contribution, that iterated, might well bring us to the point of saving the WTO.

COLLIN JANICH: Marc, insightful as always. Thanks so much.


Tradecraft Podcast | @tradecraft_pod

Collin Janich