SUNS  4320 Tuesday 10 November 1998

Trade: WTO Appellate Body assailed for usurping jurisdiction

Geneva, 8 Nov (Chakravarthi Raghavan) -- The Appellate Body (AB) of the WTO Dispute Settlement System came in for very sharp criticism Friday, when a range of countries members accused it of acting beyond its jurisdiction, usurping the rights of WTO members, and acting on
political, rather than legal considerations as it was expected to.

The criticism, at the Dispute Settlement Body (DSB), was couched in some harsh language, seldom heard at the WTO where diplomatic politeness is the general rule. The DSB adopted the ruling and
recommendation of the AB in the "shrimp-turtle" dispute where the US restrictions purportedly to save turtles was found to be "arbitrary" and "unjustifiable" and should be changed.

Everyone supported the finding and recommendation to the US to change the measure and bring it into compliance with WTO - but all challenged the reasoning and the procedures of the AB.

The criticism of the 3-member AB related to the procedures it followed in taking account of 'amicus curie' briefs of non-governmental organizations, in failing to answer the procedural objections of the
parties, for going beyond its jurisdiction in looking at "facts" of the case and issues of WTO law that had not figured before the panel or against which the US appellant had not lodged its appeal, and other illegalities, and above all for "usurping" the authority and functions of the WTO membership in adding to or subtracting from the balance of rights and obligations under the covered treaties, including the DSU, or providing an authoritative interpretation - tasks expressly reserved to the members.

The three-member bench of the AB consisted of Mr. Florentino Feliciano (Philippines), Mr. James Bachus (US), and Mr. Julio Lacarte-Muro (Uruguay).

Thailand, Malaysia, Pakistan and India, as complainants (and appellees), Mexico, the Philippines, and Japan (third parties), and Brazil were among those who took the floor to challenge the AB's ruling and interpretation.

All the original complainants reiterated their support for conservation and protection of sea turtles, and praised the conclusion of the panel, and upheld by the AB that the US had applied its measure in a manner constituting arbitrary and unjustifiable discrimination, and called on the US to implement the rulings and remove the discriminatory measures.

The US, in its intervention, gave no indication of what it would do. It has 30 days from 6 November to convey to the DSB its acceptance and intentions on implementation.

Thailand, the first speaker, gave a detailed critique of the AB ruling and said it had brought the case not so much as a matter of economic interest but as an issue where the underlying principle of the
Multilateral Trading System (MTS) was at stake, since unilateral action by one Member has caused us to reflect seriously upon the principle of GATT - respect for multilateralism and trade without discrimination. Thailand took objection to the manner in which it was sought to be carried out by the US went about this through unilateralism.

But the AB report has raised "grave and legitimate concerns" for WTO members, on procedural and substantive grounds. The AB has used the Shrimp/Turtle case to extend its authority beyond those prescribed by the WTO whose Art. 17(6) of the DSU, limits the AB's authority to issues of law covered in panel reports and legal interpretations developed by panels. Also, Art. 19 (2) of DSU prohibits the AB from adding to or diminishing rights and obligations in covered agreements.

"In several instances," Thailand said, "the AB failed to respect either of these negotiated limitations."

The AB had also used information gathered at its oral hearings to make "at least six new findings of facts" that it applied to interpreting the chapeau of Art. XX. Even though each of these findings supported the appellees, said Thailand, in each instance the AB had exceeded its jurisdiction -- in sharp contrast to the behaviour of another panel of the AB that had heard the Australian Salmon dispute where it refrained from making new factual findings on a Sanitary and Phytosanitary issue
(because of the absence of factual findings at the panel level).

There was also a further procedural flaw in the AB's treatment in this dispute, of amicus curiae submissions.

"It is for the WTO members, and not the AB, to decide the extent to which NGOs may become involved in the dispute settlement process.... the WTO Agreement does not give NGOs the right to give amicus briefs, nor does it give Members permission to append amicus briefs to their submissions that do not reflect their point of view."

The AB's conclusion (para 107 of its report) defining the basic intention and rights and obligations of WTO members, and the arguments used, showed that it had taken more than the issues of law and legal interpretation into its consideration.

The AB has given NGOs a right to make submissions that "exceed the rights possessed by WTO members who are not participants in the dispute. It has thus diminished rights of contravention of DSU Art. 19 (2)... (and) has intruded on our prerogatives as negotiators to establish the bounds of participation in the WTO".

[Under the DSU, only those WTO members who notify to the DSB, within a fortnight of the panel reference, their third party interest, and not the generality of members, are allowed to make submissions to panels.]

It is for members to decide such issues, and the AB is only the judiciary. "But in this case... the AB is writing the rules of participation and the Members are standing in judgement of the AB's actions. This is an anomalous and unforeseen reversal of roles."

There is also "an element of mystery" in the AB's decision on amicus briefs. It had issued a preliminary ruling accepting the three briefs from various environmental organizations, appended to the US submission. But one such brief was also received directly by the AB, which promised in its preliminary ruling to explain the legal basis for its decision to receive directly amicus briefs.

"But this promise was never fulfilled. No actual mention of this brief was made in its final decision, despite the fact that three Ambassadors wrote a letter to the AB, copied to all participants, complaining about this preliminary ruling. The letter was entirely ignored by the AB."

"We do not believe," Thailand said, "that the AB had the authority or is entitled ... to receive this amicus submission... (it) had the responsibility to respond to our letter and discuss the legal grounds for accepting the brief. By receiving such a brief, without explanation or legal justification, and by ignoring our legal arguments, the AB has not only shown an absence of respect, it has also diminished our rights, while unreasonably adding to the rights of NGOs... Simply put, the DSU did not grant the AB the right (given to panels) even 'to seek' information.  Instead the AB has arbitrarily assumed this right to the system's detriment."

Thailand, like others after it, also objected to the Appellate Body adopting an "evolutionary" interpretative approach to the WTO provisions, contrary to the Vienna Law of Treaties it has been directed to follow, and thus impinging on the rights and obligations of WTO members to interpret the rights and obligations of the WTO and its covered agreements.

On substantive points, said Thailand, the AB decision seemed to be "oriented and leaned towards political factors at the expense of underlying legal principles." Unlike the panel report, which showed
"great sensitivity" to the needs of the MTS, the AB report showed "deference to underlying political concerns".

While the WTO should not operate in a public relations vacuum, such concerns should not be used to invalidate a negotiated treaty obligation, and "we cannot afford to permit external factors to
destabilise and corrupt the balance of rights and obligations achieved."

It was clear both to the appellees and the appellant (US) that the case could have been resolved on the basis of the chapeau of Article XX. A central flaw with the disputed US measure was the US failure to seek a multilateral cooperative solution to the environment problem before implementing a unilateral solution. Such a flaw had been cited by the AB in the reformulated gasoline case, and the dispute resolved on the basis of the chapeau.

The AB's analysis of Art. XX(g) was hence uncalled for, and given the breadth of its decision on this, the case will be viewed as "an invitation for more unilateral action, as opposed to an encouragement for greater multilateral cooperation on environmental issues."

The AB's views on XX(g) permits Members to discriminate against products based on non-product related processes and production methods (PPMs), and is a "fundamental... impermissible alteration" of the balance of rights and obligations of the WTO accord. It would result in "an explosive growth" in environmental measures applied to PPMs and sought to be justified under Art. XX -- when such a right to discriminate on like products had not been negotiated under the Uruguay
Round (UR). The AB upon its own will has altered the balance of rights and obligations of the WTO.

By rendering meaningless the "necessary" test to be applied under Art. XX(b) -- for protection of human, animal and plant life and health -- and despite the AB's pronouncements in other cases about the principle of "effectiveness", most, if not all, of Art, XX(b) has been rendered meaningless.

Commented the Thai delegate very sarcastically, "Soon the appellate body will be forced to conclude that human beings are an exhaustible natural resource - if not, animal life will enjoy greater protection than human kind."

The AB's decision in this dispute will have profound systemic implications to the future application of WTO rules and disciplines, and "may have opened a floodgate, foreshadowing greater abusive use of trade-related environment measures" and the number of such disputes in the WTO is likely to increase as a result of the AB's "questionable judgement."

The AB, Pakistan said, had exceeded its authority under Art.17.6 and Art.19.2 of the DSU, which gave no right to NGOs to submit briefs nor allow members to append to their submissions, amicus briefs which did not reflect their own views, nor give NGOs greater rights to make submissions than those enjoyed by Members.

The report of the AB raised some serious questions on the scope of its authority and this must be addressed during the (current) review of the DSU. Pakistan was concerned over the increasing power the AB has assumed and the selective enforcement of the DSU provisions. The US failure to pursue a cooperative solution and its imposition of a unilateral embargo was sufficient to resolve this dispute, and it was unnecessary for the AB to have made an independent findings of facts or
to examine Art. XX(g). By doing so the AB has opened the doors for further unilateral actions.

Pakistan also objected to "evolutionary" interpretation principle used by the AB to justify its argument that 'animal life' fell within the scope of Art. XX(g) thus rendering Art. XX(b) and its higher standards meaningless. It has thus opened the door to trade-related environment measures threatening "the viability of other commitments negotiated in the UR". And it is for the members, not the AB, to determine the extent to which NGOs may participate in the dispute settlement process.
Pakistan also found it "disturbing" that the AB had "bent over backwards" in issuing a preliminary ruling on the amicus briefs, while "ignoring a reasonable request" from the appellees to make a "timely ruling" on a more fundamental issue whether the US notice of appeal satisfied the DSU requirements. Not only did the AB ignore the two requests by the three appellees for a preliminary ruling, but failed to appreciate such a ruling should have been made before addressing the issue of amicus briefs.

Malaysia also joined in objecting to AB ruling on submission of amicus briefs and said the AB's arguments against the distinction between "requested" and "non-requested" information was untenable.

India noted that the panel in no uncertain terms had ruled that the US impugned measure in S. 609 of its Endangered Species Act was clearly violative of Art. XI:1 of the GATT (prohibition of QRs), and the US as appellant had not challenged it. This finding, endorsed by the AB, should be complied with by the US.

India found fault with the original panel itself in "prompting", towards the end of its second hearing, parties to the dispute to consider putting forward as their own submission, documents sent to the
panel by NGOs. "Panels are not expected to influence parties as to what should or should not form part of the latter's submissions," India said.

India then went on to object to the AB reversing the panel's view on accepting 'non-requested' information from NGOs, and said the AB's findings and conclusions were not based on "sound legal reasoning", but on its "belief" that the panel had read the word "to seek" in DSU. Art 13. in "too literal a manner".

The Panel had only interpreted the meaning of "seek" in accord with the general rule of interpretation of the Vienna Law of Treaties, namely, interpreting a treaty in good faith and in accord with the ordinary meaning given to the terms. It was strange that the AB found the panel's reading of the term "seek" to be "both formal and technical". The discipline of law, India said, was "both formal and technical" and the WTO was a forum where members entered into "legally binding
commitments". It was the AB that had blurred the distinction between asking for information and acceptance/rejection of such information.

On the NGO briefs issue, the AB had issued a preliminary ruling to accept for consideration briefs attached to the submission of the US as appellant, as also the revised version of a brief sent directly by an NGO to the AB. The AB then asked the US to what extent it agreed with the legal arguments in the briefs, when the US responded that it was not adopting the views as separate matters to which the AB must respond, but the US agreed with NGO's legal arguments to the extent
they concurred with the US own submissions. The US position on the briefs annexed by it were thus "far from unequivocal". But the AB decided to take into account these briefs even before knowing the US approach to them. The AB thus acted without proper authority, and had not even chosen to respond to the objections of the appellees to the AB's "rather strange preliminary ruling", making it "assume, at least partly, the role of the Appellant".

The panel, in having found the US measure not within the scope of the chapeau of Art. XX and fixing the burden of proof on the US for affirmative defence, had interpreted the chapeau in accord with the Vienna Law of Treaties, and was right in examining the objective and purpose of the WTO agreement as a whole. The panel had rightly explained that if a member were to be allowed to adopt measures conditioning access to its market upon adoption by exporting members of certain policies, then GATT 1994 and WTO would no longer serve as a multilateral framework for trade, since the security and predictability of trade would be threatened.

It is the AB that has erred in its interpretation of the Vienna Law of Treaties, India asserted. Art. XX being a limited and conditional exception to GATT 1994, cannot have an over-arching object and purpose as suggested by the AB. Even the US in its appeal had not objected to the panel's procedure of proceeding from the chapeau and had not seriously questioned its methodology. But the AB went on to consider what the panel had not done, namely consider the US measure vis-à-vis
Art.XX(g). This action of the AB could be questioned on the grounds of judicial economy it preached in other decisions.

In the Australian salmon case (whose report was also before the DSB and was adopted), the AB had refrained from making new factual findings on the SPS, because of absence of factual findings at the panel stage. The same logic could have guided the AB in this case.

Citing "contemporary concerns" to justify a changed interpretation of the words "exhaustible natural resources", as the AB had done in the shrimp-turtle case, India said, amounted to either an amendment or an authoritative interpretation of the existing agreement which could only be done by the WTO members. The AB had in fact taken cognizance of this in its ruling on US measure affecting imports of woven wool shirts and blouses from India. But in this case the AB "has clearly overstepped its authority and mandate".

The AB, India continued, had taken note of the preamble to the WTO about "environmental protection and sustainable development" to make a "bold assertion" that this must "add colour, texture and shading" to its interpretation of the WTO agreement. But the very next paragraph of the preamble talks of a "need for positive efforts designed to ensure that developing countries and especially the least developed among them, secure a share in the growth in international trade commensurate with needs of their economic development".

"We hope," India added, "that future panels and the AB will ensure that this pre-ambular provision also adds 'colour, texture and shading' to their interpretation of the special and differential treatment
provisions of various WTO agreements."

The AB, India accused, had acted out of "political considerations" and had strayed away from an objective consideration of issues of law. The AB is a creature of the DSU and not vice versa, and has transcended the strict boundaries of law and "gotten into the political domain which is the strict preserve of WTO members."

In the case of amicus briefs, "the AB has let itself to be overawed by the campaign of NGOs belonging to the major trading entities."

NGOs have a useful role to play in their respective countries, but in the WTO, characterized by a contractual relationship between member governments, NGOs "cannot have a direct role and cannot be accorded privileges superior to those of Members."

If the AB exceeds its mandate and authority, as in this case, it would have the effect of adding to or diminishing the rights and obligations of Members and this would not be in the interest either of members or the DSU mechanism itself.
In its intervention, Brazil noted that in practice what a panel or an AB decided in a particular case went beyond the specific case. While no binding precedents are created, findings and conclusions of a panel and the AB, when adopted by the DSB, create expectations concerning future interpretations.

Since the present ruling has systemic implications, Brazil wished to state its position on the interpretation given by the AB to Art.13 of the DSU. The terms of this article are very clear. It is up to a panel, on its own initiative, and solely on its initiative, to seek information additional to that provided by parties and third parties to a dispute. The panel has to make the decision on where to seek the information and what it wants or needs to be informed about. This has been Brazil's position, and had set it out in September 1997, when the WWF circulated its 'amicus brief' to the panel and heads of several delegations. This was also Brazil's position on the consultations over
the Agreement between the WTO and IMF (where the IMF had sought a right to send its views to a panel). In none of the official languages of the WTO could the words "to seek", "recabar" or "demander" be equivalent to "to accept", "aceptar" or "accepter". (The AB's ruling) thus did not
seem to be a "faithful interpretation of the simple and clear terms of the Agreement."

Accepting non-requested information from NGO sources would, in Brazil's opinion, be "incompatible with the provisions of the DSU." The fundamental issue was not the nature or source of information, but the consequence of the AB's finding. The interpretation of the AB would place a burden on the panel to explain why a particular information received by it, without asking, was relevant and another was irrelevant. In this task of sorting out a deluge of unsolicited information, the panel may deviate its attention from the issue of the case before it, going beyond its terms of reference. It would be unjust to place such a burden on the shoulders of the panel.

This did not mean that Art. 13 of the DSU could not be modified. But it was for the members, in reviewing the DSU, to decide that it was convenient to change the DSU rules

The standard of interpretation in the DSU is a strict standard, and one to preserve the rights and obligations of Members, and not add to diminish the rights and obligations in covered agreements.

The Philippines, in a reference to the AB's citing "modern international conventions - the UN Convention on the Law of the Seas, the Resolution on Assistance to Developing Countries, and the
Convention on Conservation of Migratory Species, and said treaties and declarations in other fora "are not part of WTO law" and Members are subject only to express provisions of the WTO and customary rules of international law. Treaties and declarations are not part of customary law. Members may have obligations under treaties and declarations in other fora, but not in the WTO. By invoking these treaties and declarations, the AB has not taken into consideration the basic
international law principle of pact sunt servanda. While at first glance it may look that environmental concerns have been advanced by the AB, in fact it has not.

"From hereon Members will act even more prudently in assuming new commitments in other international fora because of their possible implications at the WTO," added Philippines.

Hong Kong, China said that the AB's ruling that exhaustible natural resources, whether living or non-living, may fall within Art XX(g) was at variance with the views of Hong Kong and other WTO members, based on customary rules of interpretation of public international law. One consequence of the ruling would be "overlapping in coverage" notwithstanding the fact that the two subparas (b) and (g) have grossly different legal requirements. The entire issue of briefs by NGOs should be thoroughly and carefully considered by the DSB to make sure that treatment to NGOs is not more favourable than that to WTO members and the rule-based inter-governmental nature of the WTO.

Japan said it too was seriously concerned over some of the legal arguments of the AB report. Japan disagreed with the AB finding over the legal interpretation of the panel about accepting non-requested information from NGO sources. If accepted, the AB's findings on non-requested information could lead to a "deluge" of information at various stages of panel proceedings, and the panel would be obliged to present reasons for its rejection of the information. Allowing non-requested information from NGOs to be presented directly to panels could pave the way to force parties and the panel to react to such information within a very short time and further burden both the parties and the panel, particularly when, as shown in this case, arguments regardless of the terms of reference could be advanced. Japan supported the panel's view that parties to a dispute could put forward whatever documents or information considered relevant to support their argument.

Another consequence of the ruling would be that WTO members, not parties to a dispute nor third parties, would be allowed to submit their views to a panel at their own convenient time. While the AB has confirmed its interpretation of Art.XX of GATT by referring to the negotiating history of that article, has not explored at all the negotiating history of DSU Art.13.1. "This does not seem to be a
balanced approach," Japan said.

Japan also questioned the AB's view about the existence of a "sufficient nexus" between migratory and endangered marine population and the US to justify invoking Art.XX(g) exception. Japan also
complained that the AB, while viewing S.609 of the US law as a measure "relating to the conservation of an exhaustible natural resource", had not considered whether the measures taken on import of shrimp "did contribute to preservation of sea turtles or that the utilization of a TED (turtle exclusion device) was actually promoted in the exporting countries in question".