8:33 AM Nov 30, 1995

WTO ESTABLISHES APPELLATE BODY

Geneva 29 Nov (Chakravarthi Raghavan) -- Ending many months of behind-the-scenes manoeuvres, the World Trade Organization named Wednesday seven persons to constitute an Appellate Body, the final arbiter of trade disputes at the WTO, but by a process that may further erode the credibility of the Appellate Body, already beclouded by the United States "three-strikes-and-we-are out" threats.

Though publicly the western media for the last several months have presented it as a tussle between the US and EU for two seats each on the Appellate Body, trade diplomats in the know said that in reality it was an attempt by the two to ensure an Appellate body that would be more sensitive to their views. The US, under the guise of holding out for two seats, managed to ensure its influence in the secretariat of the Appellate Body as well as its membership.

The Appellate body members, individually and collectively, could still turn out to be very independent, but with the US figuring in most disputes, as a complainant or defender, the Appellate body members will have a difficult task of not only being independent but seen to be so by the WTO members, and even more the public at large who are not reconciled to the WTO processes and its impact on national autonomy and sovereignty.

In the selection process, through consultations where the WTO membership were asked to give their views on candidates whom they prefer and why, the United States was effectively given the "privilege" of objecting to some names, and thus helping to label some of the successful ones as "pro-American" -- a burden that none of the seven would appreciate.

While all those involved in the selection process carry responsibility for this outcome, a major portion rests with the DSB Chairman, Don Kenyon and the WTO Director-General Renato Ruggiero who allowed the Americans to exercise such a "privilege".

The seven whose appointments, beginning 15 December, were cleared by the WTO's Dispute Settlement Body (DSB) are: James Bacchus of the United States, Christopher Beeby of New Zealand, Prof. Claus-Dieter Ehlermann of Germany, Dr. Said El-Naggar of Egypt, Justice Florentino Feliciano of the Philippines, Julio Lacarte Muro of Uruguay and Professor Mitsuo Matsuhita of Japan.

The members of the Appellate Body, which is to draw up its own working procedures (in consultation with the DSB Chairman and the WTO Director-General), are due to assemble in Geneva on 11 December, to agree on their procedures. All of them have also agreed to abide by the code of ethics for panellists and Appellate Body members, which is still to be agreed upon.

Several delegations made clear Wednesday that the appellate body procedures and mechanisms could not add to or subtract from rights and obligations of the WTO and its covered agreements.

While Appellate Body membership is for a four-year term, three of the first seven are required to retire at end of two years, with lots to be drawn for deciding the three.

The seven were picked, out of a list of 32 candidates from 23 countries, by a selection body consisting of the WTO Director-General Renato Ruggiero and the Chairman of the DSB (Don Kenyon of Australia), the Goods Council (Minoru Endo of Japan), Services Council (Crister Manhusen of Sweden) and TRIPs Council (S.W. Harbinson of Hong Kong).

The DSB accepted by consensus the seven names proposed by Kenyon, with India and Switzerland specifically announcing their inability to join the consensus but not blocking it, while the European Union announced it would bring up at the Singapore Ministerial meeting in December 1996 proposals for a "more balanced composition".

The Marrakesh Agreement has mandated the Ministerial Conference of the WTO to undertake a full review of the dispute settlement rules and procedures within four years of WTO entry into force, and to decide on the continuance, modification or termination of the Dispute Settlement Understanding (DSU) rules and procedures.

While everyone in their speeches were reported as expressing satisfaction at the outcome, with most delegations of the view that the criteria for appointment laid out in the rules of the DSU had been met, several of the speeches, either openly or indirectly, by reference to their views in the private consultations, questioned the process and its departure from the qualifications and criteria set in the DSU and the DSB guidelines, and the imbalance in the outcome.

While the EU's dissatisfaction was over its inability to get two seats on the 7-member body on the claim of its share on world trade -- the US and EU in the beginning both claimed two seats each, but were forced to back down because of opposition of others -- in the final stages the EU also voiced complaints that four of the seven were from APEC-member countries, and one or two others from countries viewed as pro-American.

But the remarks of India, Switzerland and some others seemed also to be related to the manner in which the United States was given the power to veto nominees not to its liking (in terms of their known previous stands on issues covered by the WTO accords) and the perception that the seven-member body is "packed" to the US satisfaction.

The Indian Ambassador to the WTO, Mr. S. Narayanan in a detailed statement (a copy of which was made available later) voiced some of these complaints and the "extraordinary privilege" enjoyed by some of the delegations in being able to block some of the nominees as a result of which in the final list of seven "expertise in the area of covered agreements is under-represented".

The DSU, in Art 17.3 requires that the Appellate Body "shall comprise persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally". In inviting nominations, early this year, the DSB chairman was reported (by the WTO press office) as saying that the candidates to be nominated by countries should satisfy all the three criteria.

The Appellate Body membership is also required to be "broadly representative of membership in the WTO".

The guidelines for the selection, agreed to at the DSB called for the selection of members to be based on "broad geographical representation, different legal systems and levels of development (meaning developing and developed countries)"

In proposing the seven names to the DSB, according to the WTO spokesman, the chairman emphasized that the regional and national distribution of the seven initial appointments would in no way prejudice future regional and national composition. The appellate body members, he said, would need to work closely together in order to ensure "policy consistency.. and coherence" in the broad application and interpretation of the agreements, but that this could not increase or reduce the rights and obligations of the members.

The EU's Amb. Jean-Pierre Leng noted that he had already conveyed to the selection committee that the proposals were not to the satisfaction of the European Communities. But the EU laid much store on the WTO institution and the establishment of the Appellate Body, and more so because it wanted to bring to an end unilateral trade restrictions and for disputes between members being dealt with in the WTO. While it was not therefore blocking a consensus, Leng said, but would accept the nominations on an interim and provisional basis, the EU would submit a proposal for the Singapore meeting to ensure a more representative membership for the Appellate Body and one that would adequately reflect the role of the EU in the multilateral system.

India's Narayanan in a speech (whose text was later made available to the media by the delegation) said that his delegation, like others, had been very closely and carefully following the selection process, and recalled Kenyon's statements earlier that the Selection Committee would exercise the DSB mandate "strictly in accordance with the guidelines" and that in the discussions with delegations Kenyon would focus on two specific questions: which of the names in the list of nominees would be considered as most appropriate and why, in the light of the guidelines, they were considered most appropriate for appointment. India had consistently held that the Selection Committee should act independently and take into account only the guidelines for appointment set out in the DSU and by the DSB, the preferences expressed by individual delegations to the selection committee and the "assessment of the selection committee of the candidates" who were personally interviewed.

But in the closing stages of the selection process, Narayanan said, "the resolve" of the selection committee to take into consideration only the four guidelines "appears to have weakened" and the Selection Committee appears to have been "influenced by considerations not relatable to the four elements".

It would appear that while most of the delegations were asked as to which of the candidates they considered most appropriate for appointment and why, "some delegations seem to have been given the privilege of answering a question not put to them, namely, which of the candidates they objected to; what is more they seem to have had no obligation to answer the question 'why'," Narayanan said.

Though the Indian statement did not identify the countries given the "privilege", it was seen as a reference to the United States and the EU who reportedly were able to "veto" some of candidates.

According to "rumours" among trade diplomats, at an early stage the Selection Committee had come up with a shortlist of sorts, out of the 32 candidates, and that this list included the former Indian ambassador to GATT (1989-1994), Balkrishan Zutshi, as also the Swiss jurist Thomas Cottier, who was also for a time at the Swiss patent office, and an expert in trade law.

Some trade diplomats who did not want to be identified said that it was their understanding that the US objected to Zutshi and Cottier, who were seen by the US as likely to be too independent. Zutshi, as India's negotiator here, in December 1993, had resisted last minute demands from the United States Trade Representative Mickey Kantor for major trade concessions from India. Cottier had served in several GATT panels where the US had been a party, and is views on trade and patent issues are also known. The European Union for its part blocked Australia's former Trade Minister John Duffy who had led the Cairns group, which joined the US in battering the EU's agricultural policies.

The Indian representative said he deeply regretted that this "extraordinary privilege enjoyed by a few delegations" which Narayanan complained seems to have "influenced the final outcome decisively". India would have preferred objections, if any, to be voiced in the multilateral forum and this would have enhanced the transparency and credibility of the selection process.

"In our view," Narayanan said, "one inevitable and unfortunate consequence of weakening of the resolve of the Selection Committee towards the closing stage of the process seems to be that in the final list, expertise in the area of covered agreement is under represented.

"It shall, for ever, remain a mystery to me as to why a Selection Committee consisting, as it does of six individuals, known for their integrity, ability and long and rich experience in the multilateral decision-making should have allowed its resolve about the selection process to be weakened."

During the different stages of the selection process, Narayanan added, he had subordinated what he perceived to be the Indian interest to the integrity and credibility of the selection process. In voicing "some concerns and disappointment" about the selection process, his objective was to sensitize the DSB to these concerns to ensure a better selection process. While respecting the consensus, and not wanting to raise any objections, India was unable to formally joining the consensus.

The DSU envisages the appeals to be heard by three of the seven, who are to provide a ruling on the law, and their recommendations can be set aside by the DSB only through consensus. Members of the Appellate Body are not to participate in the consideration of disputes that could create a conflict of interest. The DSB is yet to agree on a code of ethics incorporating these.

Referring to Kenyon's remarks that the members selected had agreed to abide by the code of ethics, yet to be fully established and agreed to, Indian ambassador it would have been better for the system "if the contact" with the selected persons over this had been established after the approval of the list by the DSB.

The internal working procedures to be established by the Standing Appellate Body could not directly or indirectly modify the provisions of the Agreement. These procedures are to be drawn up by the Appellate Body in consultation with the DSB Chairman and the WTO D.G. and communicated to the WTO members.

The DSB chairman and the WTO head, Narayanan was confident, would ensure that they did not in any way go contrary to the letter and spirit of the WTO agreement.

Switzerland, while not opposing but not joining the consensus, said there was an imbalance and also complained that the Selection Committee had not followed the criteria set out and agreed upon and had taken a "restricted view" of the European entity. The selection process could have been managed better.

Argentina, Malaysia, Colombia, Mexico, Morocco welcomed the nominations and viewed them as satisfying the criteria.

Egypt, speaking for the Africans, was happy that the continent had not been marginalised.

Norway underlined that the initial composition of countries did not in any way imply permanence of regions and countries. Brazil, while indicating it would go along with the consensus, said it had already its "systemic concerns" during the consultations.

In responding to the EU plans to put forward proposals at the Singapore meeting, Canada expressed concerns that this might lead to proposals for amending the DSU.