WTO Dispute Settlement Body and the 7-Year Appellate Stalemate

On 10 December 2019 the terms of the last two sitting Appellate Body members expired, leaving the body with one judge against a quorum requirement of three. Since then the World Trade Organization’s two-tier dispute system has operated with only its first tier available. Panels still hear cases. Their reports still issue. Any losing party can file a notice of appeal, however, and because no division can be convened to hear it, the case stops. The report never gets adopted. Trade lawyers call that destination appeal-into-the-void, and it has swallowed a growing pile of disputes.

The legal mechanism behind the blockage is a recurring refusal to join consensus on appointments, since Appellate Body members are chosen by consensus of the Dispute Settlement Body and the United States has withheld agreement on launching the selection process since the second Obama administration, with every later administration continuing the stance. One member can hold the line. That is the whole of the machinery involved.

What the United States actually objected to

The US grievances were laid out at length in a February 2020 report from the Office of the United States Trade Representative, running over a hundred pages, and the document framed them as concrete procedural charges rather than the vague sovereignty complaints often reported.

First came Rule 15 of the Appellate Body’s Working Procedures. It let a member who had started hearing an appeal finish it after their term expired, with authorisation from the body itself. Washington argued that the Appellate Body had given itself control over who counted as one of its judges, a power the treaty reserves to members.

Second was the 90-day deadline in Article 17.5 of the Dispute Settlement Understanding. Appeals were meant to conclude within 90 days. By the late 2010s many ran well past a year. The US position was that the deadline was a binding obligation the body had simply ignored.

Third, and most consequential, was the charge that the Appellate Body treated its prior reports as binding precedent. The DSU contains no doctrine of stare decisis. Even so, the body told panels that they should follow adopted Appellate Body reports absent cogent reasons, language that read to US trade lawyers like a court manufacturing common-law authority from a treaty that had granted none.

There were further complaints about advisory opinions on issues not necessary to resolve a dispute, and about the body ruling on the meaning of domestic law as a matter of fact-finding. Whether each charge holds up remains contested among specialists. The European Union, Canada, Japan and others nevertheless conceded several of the procedural points years ago and offered reforms.

The vetoes continued anyway, which shows how far the proposed fixes sat from the underlying US position. Procedure supplied the legal vocabulary. The harder dispute lay in Washington’s view that an unelected body of seven had expanded obligations the United States never accepted, especially on trade remedies and anti-dumping methodology, where the Appellate Body repeatedly ruled against US practices such as zeroing.

The workaround that 26 members built

Faced with a frozen apex, a group of WTO members moved without waiting for the appointments fight to end. In March 2020 they notified the Multiparty Interim Appeal Arbitration Arrangement, known by the unlovely acronym MPIA. It uses Article 25 of the DSU, an arbitration provision that predates the dispute and was always available, to replicate appellate review among consenting parties.

The membership grew from an initial cluster to more than 25 participants, anchored by the European Union, China, Canada, Australia, Brazil, Switzerland and Singapore, among others. They maintain a standing pool of ten arbitrators. When two MPIA members are in a dispute and one wants to appeal a panel report, a division of three drawn from that pool hears it under rules deliberately modelled on the old Appellate Body procedures, including a tightened 90-day target.

The arrangement has teeth only between its own members. The United States is not in it and will not be. Neither, notably, are India or most of the larger developing economies outside Latin America. A dispute between an MPIA member and a non-member therefore still risks the void.

The EU’s response was to amend its own Enforcement Regulation in 2021 so that Brussels can retaliate against a trading partner that appeals a panel report into nothing to escape compliance. That is a unilateral enforcement mechanism attached to a multilateral system, close to the outcome the dispute system was designed to prevent.

The backlog in two sentences

By the WTO Secretariat’s own dispute records, more than two dozen panel reports have been appealed into the void since December 2019. Each one represents a case where a sovereign government won at the panel stage and then watched the loser file an appeal that goes nowhere, freezing adoption indefinitely.

How a binding system became optional

Before 2019 the WTO dispute mechanism was described, with some justification, as the most effective international adjudication system in existence. The reason was negative consensus. Under Articles 16 and 17 of the DSU, a panel or Appellate Body report is adopted unless every member, including the winner, agrees to reject it. That inversion of the usual consensus rule is what made rulings effectively automatic. A losing state could not block adoption of a report it disliked.

The Appellate Body was the second tier added to this in 1995, replacing the old GATT system where a single objection could bury a panel report. The whole point of 1995 was to take adoption out of the hands of the losing party. The veto over appointments has now reintroduced, through another route, exactly the blocking power that negative consensus was built to abolish. The obstruction no longer targets a particular report. It disables the court that would make the report final.

The institutional result is a system with a fully functional first instance and a phantom second instance. Panels know their reports can be appealed into nothing, which changes how they write. Some observers report panels reasoning more cautiously, aware that no higher body will correct or affirm them. Members weigh whether to bring a case at all when the endgame is a report the other side can neutralise with a one-page notice.

The incentive created by the backlog is simple. A losing party with no intention of complying now has a free option: appeal, and the matter dies. Compliance becomes voluntary in exactly the situations the binding system existed to handle.

Negotiations to restore the system have run through several chairs and several formats. The Walker process, named for New Zealand’s WTO ambassador David Walker, produced a draft decision in 2019 addressing precedent, the 90-day rule and transitional rules for outgoing members. It went nowhere because it answered the stated objections without satisfying the underlying position. At the 13th Ministerial Conference in Abu Dhabi in early 2024, members reaffirmed a commitment to a fully functioning dispute system accessible to all by 2024. That deadline passed with the body still empty.

Where this leaves smaller economies

The workarounds favour the large, a point often buried by the EU-US framing. The MPIA requires legal capacity to draft and litigate appeals under bespoke arbitration rules. The EU’s unilateral retaliation regulation only works for an economy big enough that its market access is a credible threat.

A small developing-country member with a legitimate grievance against a major trading partner now has a panel report and no enforceable appeal path if that partner appeals into the void and is outside the MPIA. The binding system that once let a small state hold a large one to a ruling has, for that pairing, stopped functioning. The asymmetry is the opposite of what the 1995 reforms promised.

The unresolved question

The MPIA was named an interim arrangement in 2020 and is now in its sixth year of operation with no fixed end. At some point an interim fix that outlives the institution it was meant to bridge stops being a bridge and becomes the structure.

The Abu Dhabi text answered one question on paper by reaffirming a fully functioning dispute system accessible to all. The empty bench leaves another unresolved: whether members are still trying to restore a single binding court, or have accepted a two-track world where the large arbitrate among themselves and everyone else waits outside.