{"id":7407,"date":"2022-11-28T12:03:46","date_gmt":"2022-11-28T17:03:45","guid":{"rendered":"https:\/\/www.law.georgetown.edu\/iiel\/research\/iiel-blog\/how-digitizing-the-dollar-can-help-keep-the-u-s-status-quo-2\/"},"modified":"2025-05-12T11:08:26","modified_gmt":"2025-05-12T15:08:26","slug":"should-the-wto-recognize-legal-precedent","status":"publish","type":"page","link":"https:\/\/www.law.georgetown.edu\/iiel\/research\/publication-opportunities\/iiel-blog\/should-the-wto-recognize-legal-precedent\/","title":{"rendered":"Policy Brief: Should the WTO recognize legal precedent? The Walker Principles and Beyond"},"content":{"rendered":"

Published February 2, 2023 by Michiru Ishihara<\/a>, Class of 2022 at Georgetown Law, IIEL Fellow, and Senior Associate at PwC.\u00a0<\/em><\/p>\n

International dispute settlement bodies generally do not recognize stare decisis. [1]<\/a><\/span>\u00a0At the World Trade Organization (WTO), the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) is silent on precedent. However, in practice, the WTO Appellate Body has criticized panels for not following its prior findings. In United States- Final Anti-Dumping Measures on Stainless Steel from Mexico<\/em>, the Appellate Body report ruled<\/p>\n

Ensuring “security and predictability” in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons<\/strong>, an adjudicatory body will resolve the same legal question in the same way in a subsequent case. [2, <\/a>3]<\/a><\/span>(emphasis added)<\/p><\/blockquote>\n

Six years later, the WTO panel in China \u2013 Rare Earths noted that \u2018[t]he word \u201ccogent\u201d means \u201c[a]ble to compel assent or belief; esp. (of an argument, explanation, etc.) persuasive, expounded clearly and logically, convincing.\u201d\u2019 [4]<\/a> <\/span> The U.S. has objected to the Appellate Body\u2019s effort to recognize precedent and has criticized the Appellate Body\u2019s statement concerning \u201ccogent reasons\u201d as \u201cprofoundly flawed.\u201d [5]<\/a><\/span><\/p>\n

Despite U.S. resistance, the attempt to recognize some form of legal precedent informally provides predictability and transparency to the WTO dispute settlement. This attracts member states to use the WTO dispute settlement to solve trade conflicts. [6]<\/a><\/span> So, the question is, how can we reconcile gaps between the U.S. stance and WTO practice?<\/p>\n

I. The WTO on the use of precedent<\/strong><\/p>\n

The WTO agreement provides a starting point to analyze the recognition of precedent. First, Article IX:2 of the Marrakesh Agreement establishing the World Trade Organization, reserves the \u201cexclusive authority to adopt interpretations\u201d of these agreements to WTO members through the Ministerial Conference and General Council. [7]<\/a> The U.S. pointed out that giving power to the Ministerial Conference \u201censures that no WTO Member would have its rights or obligations changed by an interpretation unless it affirmatively agreed with that interpretation.\u201d [8]<\/a><\/span><\/p>\n

Meanwhile, DSU Article 3.2 provides the raison d’\u00eatre of the dispute settlement is \u201cproviding security and predictability to the multilateral trading system. [\u2026], and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.\u201d [9]<\/a><\/span><\/p>\n

Although there is no clear language that panels should follow the Appellate Body\u2019s previous reports, [10]<\/a>\u00a0the Appellate Body urges panels to do so absent cogent reasons not to follow these prior reports. The U.S argues that \u201cthere was no provision in the DSU that established a system of \u2018case-law\u2019 or \u2018precedent,\u2019 or otherwise required that a panel apply the provisions of the covered agreements consistently with the adopted findings of previous panels or the Appellate Body.\u201d [11]<\/a>
\n<\/span><\/p>\n

II. Addressing Precedent by The Walker Principles and beyond<\/strong><\/span><\/p>\n

The U.S. has criticized the US-Stainless Steel report\u2019s cogent reasons test, as DSU Article 3.2 does not provide legal grounds for recognizing precedent nor does it prohibit panels from departing from previous Appellate Body\u2019s reports without cogent reasons. [12]<\/a><\/span>\u00a0<\/span>To reply to the U.S.\u2019s criticism, several efforts have been made to address this issue at the WTO.<\/p>\n

In November 2019, a draft decision on the functioning of the Appellate Body was released by New Zealand Ambassador David Walker, who had been appointed by the WTO Director General to find solutions to the impasse over the functioning of the Appellate Body. The draft, so-called \u2018Walker Principles,\u2019 was based on convergence points by members. The Walker Principles only reaffirmed the status quo of precedent, stating unequivocally \u201cPrecedent is not created through WTO dispute settlement proceedings.\u201d [13]<\/a><\/span>\u00a0<\/span><\/p>\n

In parallel, Japan, Australia, and Chile proposed to adopt a decision of the Dispute Settlement Body (DSB), echoing the view of the Walker Principles.<\/span> [14]<\/a>\u00a0The proposal confirms <\/span>stare decisis<\/span><\/i> is not recognized at the WTO, and allows panels to depart from previous Appellate Body reports. However, it is silent on how the relationship between panels and the Appellate Body will be affected as a result of such departure.<\/span><\/p>\n

Neither the Walker Principles nor the proposal by Japan, Australia and Chile were not adopted because they were insufficient to alter the U.S.\u2019s attitude toward the Appellate Body.<\/span> [15]<\/a>\u00a0Despite explicit concern by the U.S., none of these proposals addressed the issue of \u2018cogent reasons\u2019 and \u2018exclusive authority to adopt interpretations\u2019 by the General Council or the Ministerial Conference, leaving us to ask: what should we do beyond these Walker principles?\u00a0<\/span><\/p>\n

Former WTO Appellate Body Chair James Bacchus and CATO Institute\u2019s Simon Lester propose to amend DSU Article 3.2 by adding a sentence at the end of the article: \u201cClarifications provided by panels and the Appellate Body can have persuasive value but are of less authority than the interpretations adopted under Article IX:2 of the WTO Agreement.\u201d<\/span> [16]<\/a>\u00a0This reaffirms exclusive authority to adopt interpretations by the General Council or the Ministerial Conference while recognizing persuasive value of previous panels and the Appellate Body\u2019s report. It enables to bridge the gap between US view on legal precedent and current practice of the WTO adjudicating bodies.<\/span><\/p>\n

Also, the purpose of preventing the creation of precedent can be achieved by <\/span>limiting the ambit of the Appellate Body. When the rules for dispute settlement were being crafted in the 1990s, the U.S. proposed specific language that would limit the scope of appellate view. During the Uruguay Round, the U.S. proposed to introduce an appellate review of panel reports in extraordinary cases.<\/span> [17]<\/a>\u00a0Adding clarification to DSU Article 17.6 with language stating that \u201can appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel, <\/span>in an extraordinary case where a panel report contains legal interpretations that are questioned formally by one of the parties<\/b>\u201d may help revisit the original principle of an appellate review system. Including such language now could reduce the U.S.\u2019s concern that the Appellate Body is creating unnecessary precedent in cases where one of the parties has concerns about legal interpretations.\u00a0<\/span><\/p>\n

Since these amendments of the DSU need to be decided by consensus [18]<\/a><\/span>,\u00a0the odds of making this idea a reality are slim. However, member countries should commence negotiation in the lead up toto the WTO\u2019s next ministerial conference (MC13) to discuss how to fix the structural difficulties it faces.<\/span><\/p>\n

More importantly, the relationship between panels and the Appellate Body should be reexamined if panels are allowed to depart from previous Appellate Body\u2019s reasoning and rulings. If panels start to rule differently in cases where the legal issues are the same, there is a possibility that a reconstituted Appellate Body will overturn divergent decisions anyway. This is the precise reason why the Appellate Body was created. Before creation of appeals mechanisms, panel reports often diverged on core <\/span>principles and there was no mechanism to correct a panel\u2019s misinterpretation. [19]<\/a><\/span>\u00a0Even the U.S. shared this frustration during the Uruguay Round, recognizing that under the GATT procedure, if a party believes there is an error of law, the party’s only recourse is to argue before the full GATT Council that the report is fatally flawed and should not be adopted. However, because most members of the Council will not examine legal questions at issue carefully, the GATT Council process provides an insufficient review of the panel\u2019s reasoning.<\/span> [20]<\/a><\/span><\/p>\n

III. Conclusion<\/strong><\/p>\n

Almost no international law systems, including the WTO Dispute Settlement system under DSU, recognize <\/span>stare decisis.<\/span><\/i> However, since 2008, the Appellate Body requires panels to follow its previous findings unless there are \u201ccogent reasons\u201d not to. The U.S. has criticized the Appellate Body\u2019s position over precedent, contributing to its rationale for the blockage of any process to appoint the needed Appellate Body members, and subsequently halting the entire activity of the Appellate Body. The Appellate Body has provided predictability to the international trading system. The WTO should continue its current practice of recognizing some form of legal precedent informally, while addressing the U.S.\u2019s concerns. The Walker Principles and the relevant proposal at the DSB by Japan, Australia and Chile would be a good starting point to bridge the gap, and subsequently solve the current Appellate Body crisis. The U.S.\u2019s concerns extend beyond the issue of precedent, but fixing this issue would be a good start to restoring a functioning Appellate Body.<\/span><\/p>\n

Endnotes:<\/strong><\/p>\n

[1]<\/a> \u00a0For example, the ICJ Statue Article 59 states \u201cThe decision of the Court has no binding force except between the parties and in respect of the particular use.\u201d In contrast, the Rome Statue of the International Criminal Court Article 21.2 recognizes the possibility of applying previous decisions as \u201cThe Court may apply principles and rules of law as interpreted in its previous decisions.\u201d However, it should be noted that, under both statutes, previous decisions are not legally binding.<\/span><\/p>\n

[2]<\/a> Appellate Body Report, United States- Final Anti-Dumping Measures on Stainless Steel from Mexico<\/i>, para 160, WTO Doc. WT\/DS344\/AB\/R (adopted May 20, 2008). It is worth noting that this particular decision and the inclusion of the \u201ccogent reasons\u201d language followed a long string of cases in which panels had found the U.S. practice of \u201cZeroing\u201d in antidumping cases was not precluded by the Antidumping Agreement and the Appellate Body repeatedly overruled those panels, findings that zeroing was not permitted. Eventually, the Appellate Body added this language to avoid potential deviation of panels. <\/span><\/p>\n

[3]<\/a> In absence of a functioning WTO Appellate Body, \u201cMultiparty Interim Appeal Arbitration Arrangement\u201d (MPIA) is set up under DSU Article 25 among sixteen (now fifty-two) WTO members. The MPIA intends to serve as an independent appeal process for dispute settlement. Although \u201cAn appeal shall be limited to issues of law covered by the panel report and legal interpretations developed by the panel. [and] The arbitrators may uphold, modify or reverse the legal findings and conclusions of the panel.\u201d (STATEMENT ON A MECHANISM FOR DEVELOPING, DOCUMENTING AND SHARING PRACTICES AND PROCEDURES IN THE CONDUCT OF WTO DISPUTES, WTO Doc. JOB\/DSB\/1\/Add.12, April 30, 2020), it is unclear how the MPIA will rely on previous legal interpretations by the Appellate Body and how the MPIA\u2019s legal interpretations will affect future panels\u2019 (or even revived Appellate Body\u2019s) legal interpretations. Multiparty Interim Appeal Arbitration Arrangement (MPIA), https:\/\/wtoplurilaterals.info\/plural_initiative\/the-mpia\/<\/a> (last visited March 24, 2022).<\/span><\/p>\n

[4]<\/a> Panel Reports, China \u2013 Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum<\/i>, para.7.61, WTO Doc. WT\/DS431\/R\/, WT\/DS432\/R\/, WT\/DS433\/R\/and Add.1, (adopted August 29, 2014).<\/span><\/p>\n

[5]<\/a> United States Trade Representative, Report on the Appellate Body of the World Trade Organization (2020) at 59.<\/span><\/p>\n

[6]<\/a> Gilbert Guillaume, The Use of Precedent by International Judges and Arbitrators<\/i>, 2(1) J. Int\u2019l Dispute Settlement, 6 (2011). (The author points out that \u201cFor the parties, it [a precedent] is the guarantor of certainty and equality of treatment.\u201d) <\/span><\/p>\n

[7]<\/a> The article provides \u201cThe Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements. In case if an interpretation of a Multilateral Trade Agreement in Annex 1, they shall exercise their authority on the basis of a recommendation by the Council overseeing the functioning of that Agreement. The decision to adopt an interpretation shall be taken by three-fourth majority of the Members.\u201d <\/span><\/p>\n

[8]<\/a> Supra<\/i> note 5 at 57.<\/span><\/p>\n

[9]<\/a><\/span>\u00a0Understanding on Rules and Procedures Governing the Settlement of Disputes art.3.2, Apr.15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2.<\/span><\/p>\n

[10]<\/a> DSU is also silent on issue whether the Appellate Body can depart from its previous reports. This means, technically the Appellate Body is not bound by its previous legal interpretations, but in practice, the Appellate Body is significantly relied on their reasonings in the past.<\/span><\/p>\n

[11]<\/a> Dispute Settlement Body, Minutes of Meeting, WTO Doc. WT\/DSB\/M\/423 (April 4, 2019) para 4.6.<\/span><\/p>\n

[12]<\/a> Supra<\/i> note 5 at 60<\/span><\/p>\n

[13]<\/a> Paragraph 15 of General Council, Draft Decision on the Functioning of the Appellate Body WTO Doc. WT\/GC\/W\/791 (November 28, 2019).<\/span><\/p>\n

[14]<\/a> General Council, Informal Process on Matters Related to the Functioning of the Appellate Body, WTO Doc. WT\/GC\/W\/768\/Rev.1 (April 26, 2019).<\/span><\/p>\n

[15]<\/a> WTO News, https:\/\/www.wto.org\/english\/news_e\/news19_e\/gc_09dec19_e.htm<\/a> (last visited march 24, 2022).<\/span><\/p>\n

[16]<\/a> James Bacchus & Simon Lester, The Rule of Precedent and the Role of the Appellate Body,<\/i> 54 J. World Trade 183, 197 (2020). <\/span><\/p>\n

[17]<\/a> Communication from the United States (April 6, 1990), GATT B.I.S.D. MTN. GNG\/NG13\/W\/40.<\/span><\/p>\n

[18]<\/span><\/a> Marrakesh Agreement Establishing the World Trade Organization, Apr.15, 1994, 1867 U.N.T.S. 154. Article X:8 provides \u201cAny Member of the WTO may initiate a proposal to amend the provisions of the Multilateral Trade Agreements in Annexes 2 [DSU] and 3 by submitting such proposal to the Ministerial Conference. The decision to approve amendments to the Multilateral Trade Agreement in Annex 2 shall be made by consensus and these amendments shall take effect for all Members upon approval by the Ministerial Conference\u201d.<\/span><\/p>\n

[19]<\/a> Supra<\/i> note 16 at 186.<\/span><\/p>\n

[20]<\/a> Supra<\/i> 17.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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