Context

• The recently concluded G-20 Declaration reiterated the need to pursue reform of the World Trade Organisation (WTO) to improve all its functions and conduct proactive discussions.
• While the commitment is heartening, whether it will have an appellate process or just be a one-stage panel process remains to be seen given Washington’s continued opposition to an appellate review process.

WTO (World Trade Organisation)

• It is an international institution that oversees the rules for global trade among nations.
• WTO has 164 member countries[with Liberia and Afghanistan the most recent members, having joined in 2016] and 25 observer countries and governments.
• It officially began operations on January 1, 1995, in accordance with the 1994 Marrakesh Agreement, thus replacing the 1948 General Agreement on Tariffs and Trade (GATT).
• The major functions of WTO are:
  • Administering WTO trade agreements.
  • Forum for trade negotiations.
  • Handling trade disputes.
  • Monitoring national trade policies.
  • Technical assistance and training for developing countries.
  • Cooperation with other international organisations. 

Organisational Structure of WTO

• The highest authority of the WTO is the Ministerial Conference, which is composed of all member states and usually convenes biennially (every two years) and consensus is emphasised in all its decisions.
• The daily work is handled by three bodies (whose membership is the same) -
  • The General Council
  • The Dispute Settlement Body
  • The Trade Policy Review Body
• The only difference is the terms of reference under which each body is constituted.

 The Dispute Settlement Body (DSB)

• The General Council convenes as the DSB to deal with disputes between WTO members. The DSB has authority to establish dispute settlement panels.
• DSB decides the outcome of a trade dispute on the recommendation of these panels and possibly on a report from the Appellate Body - that hear appeals from reports issued by panels.
• Only the DSB has the authority to make these decisions, panels and the Appellate Body can only make recommendations. 

Why Dispute Settlement System (DSS) is Non-Functional?

• Because of the United States, which has single-handedly blocked the appointment of the members of the Appellate Body.
• Its one-time supporter, the U.S., has become the sharpest critic and seems inclined towards the de-judicialisation of international trade law -an approach whereby countries take back control from international courts and tribunals.
• However, as with national court adjudication, the international appellate review process serves as an important check on the interpretation and implementation of law and maintains consistency. 

Alternative Available - Investor-State Dispute Settlement (ISDS)

• ISDS is a universal component of Bilateral Investment Treaties (BITs) and is the principal means to settle international investment law disputes.
• While the future of the WTO’s appellate process is uncertain, another area of international law witnessing the formative stages for an appellate process is international investment law through ISDS.
• Till January 1, 2023, 1,257 ISDS cases have been initiated. However, India has had a chequered history with ISDS, with five adverse awards and several pending claims.

Benefits of an Appellate Review that will Strengthen ISDS

• Consistent and Coherent Decisions with Legal Reasonings
  • A critical structural side of the ISDS mechanism (also present in India’s BITs and a few free trade agreements) is that it operates through ad hoc arbitration tribunals without any appellate review.
  • These tribunals have reached opposite conclusions despite interpreting and applying the same treaty to the same facts.
  • This has caused instability and improbability for states and foreign investors, making the regime chaotic.
  • Therefore, an appellate review system will ensure that decisions and legal reasoning are uniform and logical across the landscape of international investment law.
• Appellate Mechanism Allows for Rectifying Errors
  • An appellate review mechanism will allow for rectifying errors of law and harmonising diverging interpretations.
  • It will have the power to uphold, modify, or reverse the decision of a first-tier tribunal and thus bring coherence and consistency, which will infuse predictability and certainty into the ISDS system.
• Better than Annulment Proceedings
  • An appellate mechanism will also be better than existing mechanisms such as the annulment proceedings which only apply to arbitrations administered by the International Centre for Settlement of Investment Disputes - an institution India is not a member of.
  • Further, such annulment proceedings can only address limited issues, such as the improper constitution of an arbitration tribunal or corruption but cannot correct errors in legal interpretation. 
• Appellate Mechanism will be Superior: The appellate mechanism will also be superior to getting an ISDS award set aside on limited procedural grounds in a court at the seat of arbitration.

 Discussions on Creating an Appellate Review Mechanism in ISDS

• Discussions on creating an appellate review mechanism are ongoing at the UN Commission on International Trade Law or UNCITRAL’s working group meetings.
• There are several critical issues in creating an appellate review, such as
  • What form it should take;
    • an ad hoc appellate mechanism (a body constituted by the disputing parties on a case-by-case basis) or
    • a standing appellate mechanism;
  • What the standard to review the decisions of the first-tier tribunal should be; and
  • What the time frame and the effect of the decision should be.
• Hopefully, these issues will be sorted out at UNCITRAL very soon.

India’s Stand on ISDS Reform

• Although India has not made a formal statement on this issue, India presumably, supports the idea of an appellate review in the ISDS because Article 29 of the Indian model BIT talks of it.
• Given India’s concerns about inconsistency and incoherence in the ISDS system, supporting the creation of an appellate review mechanism will be in India’s interest.
• In any case, India will have to take a stand on this issue as part of the ongoing investment treaty negotiations with the European Union, which is championing the creation of an appellate review mechanism for investment disputes. 

Conclusion

• India’s quest has always been to establish a rule-based global order, it should support an appellate review which will usher in greater confidence for states and investors in international investment law.
• For those same reasons, India should also push for the restoration of the WTO appellate body towards achieving the goal of a fully and well-functioning dispute settlement system at the WTO.