Was the US Right to Block the WTO Dispute Settlement?


The United States (US) was traditionally one of the most firm supporters of international trade liberalization, and used to be one of the strongest backers of the World Trade Organization (WTO) system. It was even one of the members who pushed hardest for the creation of the Appellate Body, the highest court in the system. However, this position did not last. The Trump administration started blocking appointments for Appellate Body judges (who need to be appointed by consensus). By 2019, the Appellate Body no longer had enough judges to achieve quorum, and therefore could not resolve any new cases. Even after the Biden administration took over, the situation has not changed significantly. 

This bipartisan position is concerning, as one of the most important functions of the WTO is dispute settlement, which helps prevent trade wars by allowing complaints to be solved through rules rather than economic or political retaliation. The loss of the Appellate Body weakened this function. Of course, the entire dispute settlement system has not collapsed. Just as there are lower courts that national law cases need to go through before reaching the Supreme Court, the Appellate Body only handles cases which have already gone through several phases. 

When a dispute arises, the parties start with consultations. If consultations fail, the complaining party can request the establishment of a panel to examine the case. Panels consist of independent experts who assess the claims and issue reports outlining their findings and recommendations. In the WTO system, panels function  similarly to the lower courts in a national legal system. Their rulings can be appealed to the Appellate Body, which ensures consistency and is meant to have the final say. 

Furthermore, it is clear that removing the Appellate Body risks making WTO law inconsistent. As mentioned, the ad hoc panels are still functional, and these can all decide cases for themselves. As a result, they have often had different interpretations of WTO legal terms, which the Appellate Body has fixed by adopting a single, “correct” interpretation on appeal. An example of this is the interpretation of the national treatment principle, which broadly speaking prevents imported products from being treated differently less favorably than like domestic products. Some Panels preferred an “aim and effect” test, which meant there was only a breach if the measure in question (e.g. an internal tax) was intended to discriminate against the import. Others said that breaches could occur so long as products had similar physical characteristics and were treated as interchangeable in the domestic market, regardless of whether the discrimination was intentional. The Appellate Body chose the second possibility, hence creating legal certainty by reducing inconsistency. Without a functional Appellate Body, there is nobody to choose which interpretation is right. Hence multiple, conflicting interpretations could all be equally valid. 

So, why has the US stopped appointing Appellate Body judges, if the entity is so important? Complaints center around the idea that the Appellate Body has engaged in inexcusable judicial activism. Basically, it is accused of interpreting WTO law in a way which was not intended by the state parties to its main treaties. According to the US, this is especially wrongful because the WTO is an organization designed to cater to its members and protect their interests. As a result, any attempt by the Appellate Body to set legal doctrines not intended and never agreed to by the member states is considered ultra vires (exceeds its powers) by countries like the US.

However, it is also important for courts to be able to interpret the law and fill in its gaps. The law can sometimes be vague, making it difficult to know how it should be applied solely based on its text. This is especially important when it comes to treaties like the GATT, GATS, and TRIPS, which form the basis of the WTO system. This is because international legal instruments are usually created as the result of negotiations between many sovereign states, and are thus usually even vaguer. These states all have their own interests, as well as very different legal systems. The language used in treaties needs to accommodate all this, which often leads to compromises, even when it comes to specific word choices. 

This vagueness encourages disputes from the ambiguous wording. As a result, the Appellate Body needs to interpret these terms to actually be able to settle the case through a legal proceeding. Of course, ruling that the wording was too vague to interpret and leaving parties free to settle the problem themselves would be another option. However, member states are much more likely to try to “win” disputes through political and economic conflict, as these are the main tools available in the absence of binding legal proceedings. There is evidence that this is already happening, with some papers linking the recent US-China trade war with a loss of confidence in WTO dispute settlement. Unfortunately, this makes problems such as trade wars more likely, which often leave all the participants worse off. In order for the WTO to prevent this and actually fulfill its function of promoting trade stability, the Appellate Body needs to be able to interpret vague terms for itself.

In conclusion, the US is wrong to block the WTO’s Appellate Body. Doing so weakens the dispute resolution system, hence increasing the likelihood of countries resolving their differences through trade wars and protectionism, which reduce trade stability. Furthermore, blocking the Appellate Body also damages the credibility of the WTO legal order as a whole. Interpretation of WTO law is probably going to become much more inconsistent now that there is no higher court to decide between conflicting panel interpretations. Throughout its history, the US has been a force for trade liberalization. By blocking the appointment of new Appellate Body members and questioning the legitimacy of WTO rulings, it is making all the problems it sees in the system worse. More importantly, it is undoing decades of hard work, and threatening the institutions it worked so hard to build. 

Featured photo by: World Atlas

Sabina Narvaez
Sabina Narvaez
Originally from Mexico, but mostly grew up abroad and has Spanish nationality. Studies Philosophy, Politics, Law and Economics and mostly writes about these topics. Also interested in sustainability.

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