Analysis: The WTO Appellate Body Crisis – a contribution to the ongoing discussions

The WTO Appellate Body has not been functioning since the end of 2019. The WTO Members have, however, agreed to have a fully and well-functioning dispute settlement system that is accessible to all WTO Members by 2024. An informal process is now underway to restart operations.

The National Board of Trade Sweden has analysed parts of the criticism raised, in order to both better understand the situation and discuss ideas for the way ahead.

This analysis is an independent publication by the National Board of Trade Sweden and does not reflect or represent the formal position or views of the Swedish Government nor those of the European Union.

What is the importance of the Appellate Body for Sweden and Swedish companies, Emilie Eriksson?

It is important that companies can rely on existing rules and regulations in international trade. Without a functioning dispute settlement system, there is a risk of countries interpreting the rules differently or of trade relations being exposed to power play by a stronger party.

The rules in the WTO agreements stipulate, among other things, that competition must be fair between trading partners. The Appellate Body has, for example, ruled on State support to domestic industry, as in the Airbus and Boeing disputes between the EU and the US. Hypothetically, one could also imagine that the legality of the US’ green subsidies for domestic companies (the Inflation Reduction Act (IRA)) and the EU Carbon Border Adjustment Mechanism (CBAM) on imported goods that have not been charged for their carbon emissions, could be issues that might be brought before the Appellate Body.

Why is not the Appellate Body functioning?

The US has blocked the appointment of new members to the Appellate Body, and thus it has not been able to conduct its work. The US criticism concerns the Appellate Body exceeding its powers, including which issues fall within the Appellate Body’s mandate. In addition, the US considers that the Appellate Body has created precedents in its reports, which is problematic because it is the WTO Members who determine the rules. The US has also pointed out that the Appellate Body has not always adhered to the deadlines that apply.

Is the criticism justified?

It is true, in some cases, that the Appellate Body has taken too long to issue its reports. It would be preferable if the parties and the Appellate Body were able to be flexible and engage in mutual discussions in cases where a dispute is complex and needs more time. This type of problem could therefore better be approached with more directions in proceedings and communication during the process, for example.

In our view, the problem is not in the drafting of the rules of the Appellate Body themselves (the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)), but rather how the rules have been interpreted and applied in practice.

What can be done about the problem?

In addition to more directions in proceedings, an annual dialogue between the WTO Members and the Appellate Body members could deepen the understanding between them. There may also be a need for discussion about changes to the substantive parts of the WTO agreements – where we know from experience that some of the wording is unclear.

Various types of clarifications and amendments, could also clarify the purpose of the dispute settlement system and the roles and obligations of the members of the Appellate Body. This could create a better common understanding of what it is intended to achieve.

Is there enough will among WTO Members to bring about change?

Since there is now a process going on, I am hopeful that the WTO Members are genuinely interested in finding a solution. On the part of the National Board of Trade Sweden, we hope that our paper can contribute to the restoration of the Appellate Body next year.