World Trade Organization: Free Judiciary, Free Trade

By Davis Berlind

The past decade has seen little to no substantive action from the Trade Negotiations Committee (TNC) at the World Trade Organization (WTO). The Doha negotiation round is now dragging into its thirteenth year, and a successful conclusion to negotiations still appears to be a distant pipedream. In the absence of a multi-lateral deal on tariff reduction, protection of trade related intellectual property rights, and the elimination of domestic barriers to trade (specifically with regard to agriculture), the dispute settlement branch of the WTO is taking on an increasingly activist role in the adjudication of international trade disputes. Specifically, the Appellate Body is the new venue of rule making and enforcement at the WTO, and it is effectively using its authority to liberalize global trade between otherwise rigid member nations.

The regulatory shift from legislative to judicial intervention that is currently occurring within the WTO can be traced to the increase in WTO membership; in particular, the increasing membership of less developed countries (LDCs). Since the end of the Uruguay round in 1994, LDCs have begun to bundle their trade interests (e.g., elimination of agricultural subsidies in developed nations) and form voting blocs so as to successfully dismantle coercive and unilateral undertakings by the US and EU during multilateral negotiations. The resulting gridlock keeps legislative channels at the WTO locked down, but the stalemate has a second unintended effect: total judicial autonomy.

Established in 1995, the Appellate Body “is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute.”[1] One of the odder aspects of the Appellate Body and dispute settlement at the WTO in general is that in order to prevent panels or the court from convening, issuing rulings and authorizing retributive action, a consensus in voting is required. Given the diffusion of power and gridlock mentioned in the previous paragraph, consensus voting is nearly impossible, meaning that once a complainant brings a case to dispute settlement or appeals to the Appellate Body, the judiciary is free to act without concern of tangible checks or balances. 

Judicial activism at the WTO has two broad components: judicial lawmaking and subsequent authorization of retaliation based on new interpretations of the law. In a 2009 study, Professors Judith Goldstein and Richard Steinberg argue that judicial lawmaking comes in the form of filling procedural gaps and clarifying textual ambiguities.[2] First, procedural gaps tend to be the result of WTO nations being unable to agree on common procedures for regulating trade. The Appellate Body has a tendency to step in and fill these gaps as it did in 1997 in the landmark case, European Communities v. Regime for the Importation, Sale and Distribution of Bananas (commonly known as Bananas III). The case concerned Chiquita, a south American fruit exporter represented by the US Trade Representative, that was unable to access European markets due to unreasonable tariffs and EU preference for African exporters due to former colonial ties. The Appellate Body, without any legal precedent, filled a key procedural gap during its review of the case by establishing a nation’s right to representation by a hired private legal team during dispute settlement oral arguments. 

The second aspect of judicial lawmaking is the clarification of textual ambiguities in treaties (or, conversely, vaguely interpreting specifications). An example of ambiguity clarification came in the recent 2012 case, China v, Measures Related to Exportation of Various Raw Materials. China had placed export quotas on certain key raw materials, justifying its policy with the claim that production polluted the environment and endangered the Chinese people. The quotas drove up the global prices of the materials (of which China is the main producer), prompting the US, Japan and EU to file suit. The Appellate Body interpreted the text of China’s Accession Protocol to the WTO to exclude the application of WTO exceptions to tariffs that promote public and environmental health, upholding China’s obligation to eliminate export quotas. This particular case set a key precedent for the brewing issue of Chinese quotas on rare earth elements, and it helps explain the ruling against China’s export policy this past month in China v. Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum. (Keep an eye out for the soon to be released panel opinion.)

After the Appellate Body interprets legal terms and standards, panels can bring the interpretation into practice by authorizing retaliations. When a WTO member nation is found to be violating the organization’s trade regulations and fails to comply with WTO policy after a reasonable period of time (as determined by a dispute settlement panel), either a panel or the Appellate Body authorizes the complainant nation to take retaliatory action:

“Retaliation takes the form of raising tariffs on goods originating in the territory of the contravening country to a level that is intended to have the effect of eliminating demand for the imports in proportion to the adverse effect of the contravening measures.”[3] 

Typically, retaliatory actions are never implemented; rather, the complainant targets key export oriented industries in the contravening nation that will experience tariffs, and the mere act of announcing these candidate industries is incentive enough for them to flex their political muscle, lobbying policymakers into WTO compliance at the cost of protection for the contravening (typically import competing) industry. For example, after Bananas III the US threatened to stop importing luxury items from the EU (French wines, cheeses, etc.); these industries mobilized and lobbied for the removal of tariffs on Chiquita bananas. 

The unifying trend of the WTO judiciary’s actions is one of liberalization. The interpretations of the Appellate Body and the procedures it establishes lean towards increasing the cross-boarder flow of goods and services and freer trade. In that sense, the WTO continues to achieve its stated purpose, though through an unintended avenue.

As the wealth and legal expertise of developing nations continues to increase, expect even more judicial activism and challenges to the policies of the world’s economic powerhouses in proportion to the increased time and resources developing are willing to shell out on dispute resolution. 

[1] "WORLD TRADE ORGANIZATION." WTO. http://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (accessed October 31, 2013).
[2] Judith L. Goldstein and Richard H. Steinberg, “Regulatory Shift: The Rise of Judicial Liberalization at the WTO,” in Walter Mattli and Ngaire Woods, The Politics of Global Regulation (Princeton: Princeton University Press, 2009) P. 228
[3] Ibid P. 237

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