hinrichfoundationAUGUST2025

advancingsustainableglobaltrade

Deadlockoverdisputesettlementhasdeeproots

BYKEITHM.ROCKWELL

SENIORRESEARCHFELLOW,HINRICHFOUNDATION

2

Contents

INTRODUCTION

3

HOWDIDWEGETHERE?

4

CONCERNSANDDIFFERENCESEMERGEDEARLY

5

NOTHINGNEWHEREFORTHEUNITEDSTATES

6

USBLOCKAGE

9

ADVISORYOPINIONS

10

PUBLICBODIES

11

SAFEGUARDS

12

CANITBEFIXED?

13

WHATELSEISNEW?

16

RESEARCHERBIO:KEITHM.ROCKWELL

18

ENDNOTES

19

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Introduction

AstheWTOcommemoratesits30th

anniversary,theoncefableddisputesettlementsystemliescrippled,unabletoruledefinitivelyoncommercial

disputes.

Itwasconsideredthecrowningachievementoftheeightyearsofarduous

negotiationsthatresultedinthemostfar-reachinginternationaltradeagreementinhistory.

Butthisyear,astheWTOcommemoratesits30thanniversary,theoncefableddisputesettlementsystemliescrippled,unabletoruledefinitivelyoncommercialdisputes.Thishassignificancebeyondjustthesettlementoftradedisputes.

Absentafunctioningdisputesettlementsystem,existingglobaltraderulescannotbeenforced,andmemberswillbereluctanttonegotiatenewruleswithno

possibilityofenforcingtheminthefuture.

Theestablishmentofthetwo-tiereddisputesettlementsystem(aninitialrulingrenderedbyathree-personpanelandanAppellateBody,orAB)meantthatforthefirsttimeaninternationaltradepanelwouldissueverdictsthatwerebinding.

UnlikethedisputesettlementsystemoftheWTO’spredecessor,theGeneral

AgreementonTariffsandTrade(GATT),allpartiestothedisputewereboundbytherulings.Shouldthelosingpartyfailtobringitsnon-compliantpracticesinlinewithWTOrules,thevictoriouspartywouldbegiventhegreenlighttoretaliate.

Noonedoubtsthepreviousmechanismwasbrokenandthevastmajorityofmemberswantittobefixed.Butthishasprovenatallorder.ResoluteUSoppositionisthemajorfactordimmingtheprospectsforreform,butthereareotherexplanationsforthebreakdownofthesystem.Mostarelinked

tofundamentallydifferentandseeminglyirreconcilableinterpretationsofinternationallaw,nationalsovereigntyandsecurity,andlegalprecedent.

ThedifferencesondisputesettlementbetweentheUnitedStatesandother

membershavedeeprootsandinWashingtontheABhasarousedfierce

opposition.VariousABrulingshaveunderminedbeliefintheUnitedStatesthattheWTOappliesitsrulesfairly,especiallywhenitcomestoChina.ManytradecommentatorswouldgofurtherandsaythatABoverreachhassignificantly

erodedUSsupportfortheentireorganization.

Bycontrast,mostWTOmembersassignthehighestprioritytorevivingthe

disputesystemandsayitshouldbethefirstorderofbusinessinanydiscussiononreformingtheorganization.Failuretoreformthedisputesystemwouldlikelythrowintojeopardythebroaderreformagenda.Asitis,findingcommongroundonotherelements–includingalteringthedecision-makingprocess,addressingtherightsofdevelopingcountries,anddetermininghowtodealwithnationalsecurityissues–hasprovenextremelydifficult.

NodelegationattheWTObelievesdisputereformwillhappenanytimesoon,

certainlynotwhileDonaldTrumpisinoffice.Butgiventhefiercebipartisan

animosityacrossWashingtonagainsttheWTOdisputesettlementsystem,therearenoguaranteesthenextadministrationwillbeanymoreagreeabletobringingitback.

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Howdidwegethere?

Beginningin2017,theUnitedStatesstartedtosystematicallyblocktheappointmentofjuriststotheAB,anactionwhichhashobbledthe

settlementofdisputes.

Beginningin2017,theUnitedStatesstartedtosystematicallyblockthe

appointmentofjuriststotheAB,anactionwhichhashobbledthesettlementofdisputes.UndertheDisputeSettlementUnderstanding(DSU)agreement,partiestoadisputeareguaranteedtherightofappeal.Nodisputeinvolvinganappealcanbefinalizeduntilthemembership,throughtheDisputeSettlementBody(DSB),

adoptstheABreport.Absentthepossibilityoffilinganappeal,WTOmembersthatloseacasecanconvenientlyappealintothevoidfreezingthecase.SincetheABshutdownin2019,thishashappened22times.

Atthe23June2025meetingoftheDSB,theUnitedStatesblocked–forthe88thtime–anattemptby130WTOmemberstorestarttheprocessofselectingAB

judicialappointees,statingthat“fundamentalreformofWTOdisputesettlementisneededandthat(theUnitedStates)willreflectontheextenttowhichitis

possibletoachievesuchareformedWTOdisputesettlementsystem.”1

Atthesamemeeting,DSBChairClareKellyofNewZealandsaidtalksonreformwould“advanceonlywhenthetimeisripetomakemeaningfulprogressonkeyunresolvedissueswiththeengagementofalldelegations.”2

Nodelegationleftthatmeetingwiththeexpectationthatseriousnegotiationsonreformwouldcommenceanytimesoon.Thesolutionisyearsaway–andeveryoneinGenevaknowsit.“Disputesettlementreformisnotgoinganywhere.Trump2.0willnotreviewthedisputesettlementmechanism,”saidoneseniorAsianofficial.

Absentafunctioningdisputesettlementsystem,existingglobaltraderulescannotbeenforced,andmemberswillbereluctanttonegotiatenewruleswithnopossibilityofenforcingtheminthefuture.

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Concernsanddifferencesemergedearly

WhentheWTOcameintobeingin1995,manybelieveditsnewand

improveddisputesettlementsystemwasthe“crownjewel”ofthenewlymintedorganization.

ItseasynowtoforgetthatwhentheWTOcameintobeingin1995,manybelieveditsnewandimproveddisputesettlementsystemwasthe“crownjewel”ofthe

newlymintedorganization.

UnderGATT,disputesettlementrulingswerealwaysconfidential,andthelosingpartywaspermittedtoblocktheissuanceoftheruling,renderingitmeaningless.From1948to1995,disputesettlementproceedingscommenced317times,but

only136GATTreportswereissuedandonly96wereadopted.3Somecasesweresettledbymutualconsentbutmanymorewereneveradoptedbecauseone

partyalmostalwaysthelosingpartyblockedtheissuanceofthereport.TheseoutcomesinfuriatedtheUnitedStatesandledWashingtontobeamongthe

stoutestadvocatesforastronger,bindingsystem.

NootherinternationalorganizationhadanythinglikethisnewsystemintheWTO.FormerWTODirectorGeneralRenatoRuggieroboastedthatit“hadteeth.”O(jiān)therorganizations,includingtheInternationalLabourOrganization,theWorldHealthOrganization,andvariousinternationalenvironmentalorganizationsperiodicallyfloatedthenotionthattheytooshouldhavesuchatoolattheirdisposal.But

membergovernmentsneverseriouslyconsideredduplicatingtheWTOsystem.

Somegovernments,proddedbyactivists,soughttoexpandtheWTOdispute

settlementsystemtocoverissueslikelaborandenvironmentalstandards,humanrights,andrecognitionofbiodiversityandtraditionalknowledgeinthegrantingofpatents.ButthoseeffortswerefrustratedbysharpdivisionsamongWTOmembersandtherewasadawningrealizationthattheWTOwasperhapsill-equipped

toaddresshumanrightsviolations,mistreatmentofworkers,orenvironmentaldegradation.

Effortstofindcompromisewerefurthercomplicatedbybroadphilosophical

differencesoninternationallawamongthemembers,mostnotablytheUnited

StatesandtheEuropeanUnion.Onebasicdifferencepertainstothebroaderfieldofinternationallawitself.TheveryfoundationoftheEUisbasedonadherencetointernationallawsandnorms.Itwasthe1957TreatyofRomethatbroughttheEUtolifeanditsmanymodificationssincewereallproducedthroughtherigorousnegotiationofsubsequenttreaties.

IntheUSmeanwhile,therewasstrongoppositionfromtheoutsettothe

ABattemptingtostrikedowndomesticUSlaws.TheUruguayRoundAgreementsAct,theUSdomesticlawwhichimplementedtheUruguayRoundagreementandcodifiedUSgovernmentsupportfortheWTO,statesclearlythatUSsovereigntywouldnotbeunderminedbyUSmembershipintheWTO.

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NothingnewherefortheUnitedStates

Fordecades,noUSpresidentfelttheneedtosubmitGATTtotheSenateforratificationandinsteadthetermsof

GATTwereimplementedthroughan

executiveactionknownastheProtocolofProvisionalApplication.GATTwas

notratifiedbytheSenateuntil1994

whentheUruguayRoundnegotiationshadlargelyconcluded.

DissentingfromtherestoftheworldisoldhatfortheUnitedStates.In1919,

theSenatevotedagainstjoiningtheLeagueofNations,eventhoughPresidentWoodrowWilsonwasthedrivinginternationalforcebehinditsestablishment.

SuchwastheSenateoppositiontotheHavanaCharterestablishingthe

InternationalTradeOrganization(ITO)thatin1950,PresidentHarryTrumanoptednottosubmitittotheUpperHouseofCongressforratification.Senators’concernsontheITOwerelargelybasedonfearsthatUSsovereigntywouldbeundermined,anargumentthatwouldsurfaceonCapitolHillagainandagaininthedecadestofollow.

ManyofthosenegotiatingtheHavanaTreaty–includingUSnegotiators–knewthatdomesticratificationwouldbeonerousandtime-consuming.So,parallel

talkstookplacecenteringonopeningmarkets.ThosenegotiationsledtoadealestablishingGATT.

TheGATTwasnotanorganization(atleasttechnically)andthosewhosigned

itwerenotmembers,theywere“contractingparties.”ItwassupposedtobeaninterimarrangementthatwouldunderpintheITO.Fordecades,noUSpresidentfelttheneedtosubmitGATTtotheSenateforratificationandinsteadthetermsofGATTwereimplementedthroughanexecutiveactionknownastheProtocolofProvisionalApplication.GATTwasnotratifiedbytheSenateuntil1994whentheUruguayRoundnegotiationshadlargelyconcluded.

DissentingfromtherestoftheworldisoldhatfortheUS.In1919,theSenatevotedagainstjoiningtheLeagueofNations,eventhoughWoodrowWilsonwasthedrivingforcebehinditsestablishment.

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NOTHINGNEWHEREFORTHEUNITEDSTATES

IntheUS,atreatymustberatifiedbytwo-thirdsoftheUSSenate.

Agreementsgothroughthefull

congressionalapprovalprocess

requiringamajorityinboththeSenateandtheHouseofRepresentatives,

wherealltradeandtaxlegislationmustoriginate.

EuropeanandCanadianlawyershabituallyrefertotheWTOagreementsas

“treaties”–somethingyouwillneverhearanAmericandelegatesay.FortheUS,thetermisalwaysagreements.

OneveryimportantreasonforthisisthatintheUnitedStates,theprocessofratificationfortreatiesandagreementsdiffersgreatly.IntheUnitedStates,atreatymustberatifiedbytwo-thirdsoftheUSSenate.Agreements,likethe

UruguayRoundortheUS-Canada-MexicoAgreement,gothroughthefull

congressionalapprovalprocessrequiringamajorityinboththeSenateandtheHouseofRepresentatives,wherealltradeandtaxlegislationmustoriginate.

USreluctancetocedesovereigntytotheITOwasnotunusual.TheUnitedStatesisalsonotamemberoftheInternationalCriminalCourt,norisitpartytothe

UnitedNationsConventiononBiologicalDiversity,theonlyUNmemberthatdidn’tjointhisconvention.TheUnitedStateshasratifiedonlytwoortheeightILOcoreconventions.

SoitshouldcomeaslittlesurprisethattheUnitedStatesisnotpartytothe

1969ViennaConventionontheLawofTreaties,adocumentmostinternational

tradelawyersbelieveunderpinstheWTOagreementsandthoseofallother

internationalorganizations.TheUnitedStatessignedtheViennaConventionontheLawofTreatiesin1970,butitwasneverratifiedbytheSenate,andtheUnitedStatesisnotboundbythetreaty’sterms.

WithrespecttoWTOdisputes,thekeyprovisionstotheViennaConventionarearticles31and32whichreferencetheInterpretationofTreaties.Accordingto

Art.31treatiesshouldbeinterpretedingoodfaithandinterpretationsoftreatiesshouldincludetheentiretyofthetreaty.Art.32statesthatincaseswherethe

EuropeanandCanadianlawyershabituallyrefertotheWTOagreementsas“treaties”–somethingyouwillneverhearanAmericandelegatesay.FortheUS,thetermisalwaysagreements.

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NOTHINGNEWHEREFORTHEUNITEDSTATES

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Thestarkdifferencesinlegal

interpretationsoneithersideofthe

AtlanticareunderscoredbythefactthattheEUadherestoatreatywhichitneversignedorratified,whiletheUSdoesnot.

meaningofatreatyisambiguoussupplementaryfactorscanbeemployed

includingworkthatwentintothedraftingofthetreatyorthecircumstancesthatledtothetreatybeingfinalized.4

TheseinterpretationguidelineshavebeenreferredtobyWTOdisputesettlementpanelsandtheABondozensofoccasions.

TheEUisnotapartytotheViennaConventioneitherbutcaselawintheEuropeanCourtofJusticerefersregularlytoitandinasubmissiontotheUNInternational

LawCommission,theEUstatedthe“conventionreflectstherulesofcustomaryinternationallaw,which,assuch,arebindingupontheEUinstitutionsandformpartofthelegalorderoftheEuropeanUnion.”5

ThestarkdifferencesinlegalinterpretationsoneithersideoftheAtlanticare

underscoredbythefactthattheEUadherestoatreatywhichitneversignedorratified,whiletheUnitedStatesdoesnot.

ForEuropeans,thenotionthatanestablishedinstitutionallegalstructureshouldholdswayovertradelawisamatterofcommonsense.ButforAmericans,it

harkenstoanunaccountableworldorderinwhichunelectedbureaucratsrideroughshodoverUSlawsinthenameofgloballegalharmony.

Washingtonprefersthatdisputeresolutionbebasedonthemeritsofaparticularcase.Adjudicationshouldbebasedonlyonwhatiswrittenintheagreementsand,importantly,whatministersandotherseniortradeofficialsintendedtonegotiatewhenthedealswerereached.Thisisoftenreferredtoasjudicialeconomy.

EuropeanscounterthatWTOagreementsarerepletewithambiguity–deliberatelysoinsomecases–andthattheneedforinterpretingtheagreementsisagiven.

Art.3.2oftheWTO’sDSUstatesthatthesystemofresolvingdisputesaimsto

provide“securityandpredictability”withintheframeworkof“customaryrulesofinterpretationofpublicinternationallaw.”6

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USblockage

USconcernsaroseoutofuneasethattheABmembersandseniormembersoftheWTOSecretariatsABdivision

wereoverreachingtheirauthorityandcreatingnewrightsorobligationsforWTOmemberssomethingstrictlyprohibitedundertheDSU.

LongbeforeofficialsinthefirstTrumpadministrationbroughttheABtoitsknees,seriousconcernshademergedinWashington.Asfarbackas2002,intheGeorgeW.Bushadministration,USofficialsandmembersofCongresswereexpressing

concernsthattheABhadexceededitsremit.

Therewereconcernswithspecificcases–notablythosepertainingtotheUS

CommerceDepartmentsmethodofcalculatingthemarginsofdumping(asystemknownaszeroing),thedefinitionofwhatconstitutedaPublicBodyinsubsidiescasesandtheintroductionofnewadministrativehurdlesbeforesafeguard

measurescouldbeemployed.

Broadlyspeaking,USconcernsaroseoutofuneasethattheABmembersand

seniormembersoftheWTOSecretariatsABdivisionwereoverreachingtheir

authorityandcreatingnewrightsorobligationsforWTOmemberssomethingstrictlyprohibitedundertheDSU.DisputesettlementpanelsandtheAB,the

DSUstates,“cannotaddtoordiminishtherightsandobligationsprovidedinthecoveredagreements.”7

ThiswasamajorboneofcontentionwiththeUnitedStates.WhiletheUnited

StatesoranyotherWTOmembermightdisagreewiththerulingsbyanyindividualdisputesettlementpanel,therealproblemaccordingtotheUnitedStateswere

systemicproblemswiththeworkingpracticesandfaultylegalreasoningoftheAB.

Therewereoperationalconcernsaswell.Disputepanelswhichcontinueto

operateattheWTO–areconfiguredfromalistofexperts.Threepeoplesiton

eachpanelandtheconfigurationchangeswitheachdispute.ButtheABhadsevenABmembers–neverformallyclassifiedasjudgesorjurists–whowereselected

bytheentireWTOmembershipbyconsensus,eachtoservefour-yearterms,

renewableonce.AppealswereeachheardbyapanelofthreeABmembers.TheABwassupportedbytheWTOSecretariatsAppellateDivision.

Therewereconcernsthatsince2011theABhabituallyignoredthespecificDSUrulemandatingthatappealsbefinalizedin60daysandthatnoappealexceed90days.InablisteringcritiqueoftheABwhichwasreleasedinFebruary2020,theOfficeoftheUSTradeRepresentativetooktheABtotaskforconsistentlymissingits90-daylimitandforfailingtoconsultwithmemberswhenitdid.Since2011,theaverageappealtook43daysmorethanthe90-daylimitandfromMay2014toFebruary

2017theaverageappealtook149days.8

ThelengthofappealsledtootherproblemsincludingtheneedforspecificAB

memberstostayonacasebeyondtheexpiryoftheirfour-yearterms,sometimesmanymonthsbeyond.Thesewerenotmerelybureaucraticconcerns.AsformerUSAmbassadortotheWTODennisSheaspelledoutataNovember2019meetingoftheDSB,therewerefinancialconsequenceswell.AccordingtoShea,AB

memberswhowerenotrequiredtoworkfull-timereceivedmonthlyretainers,administrativefees,anddailyworkingfeesthatamountedtoanaverageannualcompensationeachofroughlyUS$375,000.9

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Advisoryopinions

ThewiderproblemofjudicialoverreachwaslinkedtotheAB’spracticeofissuing“advisoryopinions”whichboundfuturepanelstothejurisprudenceestablishedbytheABunlesstherewere“cogentreasons”tochangelegalcourse.10

TheseprecedentspavedthewayforUSsetbacksinnumerouscasespertainingtoits“zeroing”methodologyofdeterminingdumpingmargins.DefendersoftheABsaidtheprincipleofadvisoryopinionswasfullyinlinewiththeDSUbyproviding“securityandpredictability.”11

ButtheAmericansdisagreed.

“Throughtheissuanceofadvisoryopinions,theAppellateBodyhasattemptedtoproduceinterpretationsor“makelaw”intheabstract…NeithertheUnitedStatesnoranyotherWTOMemberhasagreedtoallowtheAppellateBodytoresolveabstractquestionsormakelaw,”USTRsaidinits2020report.12

DefendersoftheABsaidtheprincipleofadvisoryopinionswasfullyinlinewiththeDSUbyproviding“securityandpredictability.”ButtheAmericansdisagreed.

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Publicbodies

TheUSarguedthattheprovisionof

inputsincludingsteel,rubber,and

petrochemicalsbystate-owned

enterprisesandtheextensionsofloansbystate-ownedbanksconstituted

subsidiestoChinesemanufacturerswhichreceivedthem.

TheAB’sdefinitionoftheterm“publicbody”severelyundercutUSconfidenceintheWTOasavenueforresolvingdisputeswithChina.

UndertheWTOAgreementonSubsidiesandCountervailingMeasures,asubsidyisdeemedtohavebeenextendedif“thereisafinancialcontributionbya

governmentoranypublicbodywithintheterritoryofaMember.”13

TheUnitedStatesarguedthattheprovisionofinputsincludingsteel,rubber,andpetrochemicalsbystate-ownedenterprisesandtheextensionsofloansbystate-ownedbanksconstitutedsubsidiestoChinesemanufacturerswhichreceived

them.14

ButtheABruledthatforanentitytobeclassifiedasapublicbody,itneeded“topossess,exerciseorbevestedwithgovernmentauthority”,anarrowdefinitionwhichseverelyhamperedtheabilityofgovernmentstobringcasesinvolving

Chinesestate-ownedenterprises.15

AccordingtoUSTRthisinterpretationmeansthat“evenwhereagovernmentownsorcontrolsanentity,itwouldnotbesufficienttoholdthegovernmentresponsibleforanyinjurioussubsidiesitprovides.”Thisinterpretationwasusedinmany

subsequentsubsidycasesincludingthoseinvolvingSouthKoreanshipbuildingandEUaircraftmanufacturing.

FurtherinfuriatingtheUnitedStateswastheABreferenceinthecasetothe

“customaryrulesofinterpretationofpublicinternationallaw”,suggestingitwasincumbentonthepartiestoassumethatChinahadactedingoodfaith.16

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Safeguards

Safeguardsareatime-limitedmeasureinwhichtheimportingcountryraisestariffsonimportsofspecificproductswhensurgesofthoseimportscauseseriousinjurytodomesticproducers.

Safeguardsareatime-limitedmeasureinwhichtheimportingcountryraises

tariffsonimportsofspecificproductswhensurgesofthoseimportscauseseriousinjurytodomesticproducers.Ina2001casebroughtbyAustraliachallenging

aUSsafeguardonimportedlamb,theABruledthatpriortoimplementing

thesafeguardmeasure,theimportingmembermust“publiclydemonstrate

unforeseendevelopmentsasamatteroffact”and“thatthedemonstrationmusthaveappearedinthereportofthecompetentauthorities.”NeitherrequirementismentionedintheWTOsafeguardagreementnorinitspredecessorArt.XIXofGATT1947.17

AlanSykes,whoteacheslawatStanfordUniversityandisanexpertonWTO

disputesettlement,issuedawitheringcritiqueoftheAB’ssafeguardrulingsin2003whileattheUniversityofChicagoLawSchool.HesaidtheABhad“failedtoarticulateanycoherentdoctrineastowhensafeguardmeasuresareallowable…(and)theymakeitincreasinglydifficultforWTOmemberstoemploysafeguardmeasuresatall.”18

USTRagreed,claimingthatallbutoneofthesafeguardmeasureschallengedinWTOweresubsequentlydeemedtoviolateWTOruleswhichledmemberstosimplyceaseusingthispolicytool.19

“ErosionoftheabilitytousetraderemediesledtoerosioninthebeliefacrosstheUnitedStatesinthelegitimacyofthesystem.Itwasn’tjustabouttraderemedies,buttheerosionofthefaithintraderemediesiskeytowhywearewhereweare.Whyisitnotlegitimatetoquestionwhetherthebargainthatwestruckisstill

worthit?,”wroteformerUSAmbassadortotheWTOMariaPaganinaMay2025articlefortheHinrichFoundation.20

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Canitbefixed?

TheMolinatextwaswidelypraised,buttherewasonesignificantomission:inthespacereservedforreferencetotheAB,therewasajustblankspacewiththewords“workinprogress.”

Thefailurethusfartoreachagreementonreformisnotforwantoftrying.The

highlyrespectedGuatemalandelegateMarcoMolinawaschargedwithoverseeinganinformalprocesstoteaseoutcompromises.Heproducedadrafttextinearly

2024thatfocusedonresolvingdisputesthroughgreateruseofmediation,goodoffices,andarbitration–ratherthanmorepolitically-chargedlitigation.

Heproposed,aswell,variousmeansofstreamlininganoftencumbersomeandlengthyprocess.

Hisrecommendationsweretheculminationofsomefiveyearsofmounting

problemswiththedisputesettlementsystem.Since2019,whentheABground

toahalt,42disputepanelshavebeensetupbytheDSBand28caseshavebeensettledviamutualconsentorthewithdrawalofthecomplaint.Butonly22disputepanelreportshavebeencirculated,becausecirculationrequirestheadoptionofreportswhichcannotoccurifonepartyappealsintothevoid.ThenumberofABreportsthathavebeencirculatedsince2021iszero.21

TheMolinatextwaswidelypraised,buttherewasonesignificantomission:in

thespacereservedforreferencetotheAB,therewasajustblankspacewiththewords“workinprogress.”Afterproducinghistext,Molinawasrecalledbyhis

governmentandtheprocesstransferredtoNorwegianambassadorPetterOlberg,whowasthenthechairoftheDSB.22

Since2019,whentheABgroundtoahalt,42disputepan