By Simon Lester, J.D.
Nonresident Fellow, International Economics Program
U.S. government obstruction of the appointments process for the World Trade Organization (WTO) appeals “court,” formally known as the appellate body, has allowed governments to act in bad faith in order to prevent adjudication from being completed by appealing the rulings of WTO dispute panels “into the void,” as this action has been termed. As a result, these governments are able to maintain protectionist measures that violate the rules. A recent decision by a WTO panel in a complaint brought by Mexico against Costa Rican import restrictions on avocados shows that the WTO dispute process can still function when the parties act in good faith and do not file such appeals. Unfortunately, the Mexico-Costa Rica case is a rare success story over the past couple years and reinforces the need for a broader solution to the current crisis in WTO dispute settlement.
The appellate body crisis
After many years of U.S. criticism of decisions by the appellate body, in 2011 the Obama administration ratcheted up the complaints by opposing the reappointment of the American “judge” (formally referred to as “appellate body members”) to a second four-year term (and offering up another American instead). Then in 2016, the Obama administration opposed reappointment of the sitting Korean judge and insisted on replacing him with another Korean. Subsequently, the Trump administration took this strategy to an even more confrontational level when it objected to any appointments as the four-year terms expired (a consensus of all WTO member governments is required for most WTO decision-making, which allowed the U.S. to block the appointments). By the end of 2019, without any adjudicators in place, the appellate body could no longer hear new cases.
The practical effect of the appellate body’s demise is that when WTO panels issue their decisions now, the losing party can exercise its right of appeal and send disputes “into the void.” More than 10 panel reports have been appealed this way, and there have been only a handful of cases since the appellate body crisis where the dispute was resolved (for example, if the losing party decided not to appeal or if the parties settled the dispute).
The European alternative
The European Union has been leading an effort to come up with a short-term fix that provides an appellate review system to operate while the appellate body is not functioning. The EU and 22 other WTO members created a system that makes use of a general arbitration provision in Article 25 of the WTO’s Dispute Settlement Understanding to hear appeals of panel reports. This alternative system is called the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).
In several disputes between governments who are parties to the MPIA, early in the proceedings the disputing governments agreed that they would use the MPIA in case one side wanted to appeal, to prevent appealing into the void. There have been no appeals to the MPIA as of yet, but in a dispute between Turkey and the EU, there is now an arbitration appeal under Article 25 on an ad hoc basis, using procedures similar to the MPIA but not the actual MPIA (Turkey is not a party to the MPIA). That appeal was made on April 28 and is currently underway. The outcome of that appeal could provide indications for how well the MPIA will perform as an alternative to the appellate body.
The Mexican complaint against Costa Rican avocado restrictions
As explained by the WTO panel that heard the Mexican complaint against Costa Rica, Mexico is currently the world’s leading producer of avocado fruit, with 2,184,663 tons of avocado produced in 2018 and 2,300,889 tons in 2019, equivalent to more than 30% of global production for both years. In contrast, Costa Rica produced only 15,000 tons of avocado in 2018 and 16,746 tons in 2019.
The WTO dispute arose because of measures imposed by Costa Rica on the importation of fresh avocados from Mexico, which Costa Rica justified based on concerns about its avocados being infected by a virus known as avocado sunblotch viroid. Mexico claimed that these restrictions had no scientific basis, were more trade-restrictive than necessary and discriminated against Mexican avocados. The WTO panel agreed with several of Mexico’s claims (although it rejected others) and in mid-April of this year issued a report finding Costa Rica’s measures in violation of WTO rules.
Both Mexico and Costa Rica have signed on to the MPIA and had agreed to a set of procedures in the event either party wanted to pursue this type of arbitration appeal. But neither side chose to appeal, and the panel report was therefore the final word in the case. Costa Rica will now have a specific period of time — to be agreed upon by the two governments or set through an arbitration — to implement the ruling.
The need for U.S. engagement
Costa Rica could have appealed into the void but did not, which allowed the avocado dispute to benefit from a final ruling through the WTO dispute process. But many other disputes are stalled, and future WTO panel reports for disputes between governments who are not parties to the MPIA are likely to suffer the same fate. To resolve this crisis, the U.S. government needs to engage constructively on these issues.
During the Trump administration, the United States criticized specific behavior of the appellate body and called for an inquiry into why the appellate body had acted the way it did, but the Trump trade policy officials were unwilling to propose concrete reforms. And in the early part of the Biden administration, there has been mostly silence on this issue as well.
But a new U.S. ambassador to the WTO has recently been put in place, and there have been reports that perhaps U.S. engagement on this issue is beginning. If this is true, there is a chance that the current crisis can be resolved. There are many possibilities for a compromise that could satisfy all parties, but the only way to get there is for everyone to sit down at the table and start talking.