Friday, June 1, 2007

Why Have the Powers Given to the W.T.O. Appellate Body Evolved Since the W.T.O. Inception?

BACCI-Why-Have-the-Powers-Given-to-the-WTO-Appellate-Body-Evolved-Since-WTO-Inception-Cover-June-2007


June 1, 2007
PARIS

Introduction

Non-majoritarian regulators (N.M.R.s)[i] are a complex group with many sub-classifications. The World Trade Organization (W.T.O.) and the European Commission (E.C.) are the classic example of supranational and international N.M.R.s. The W.T.O., the only global international organization dealing with the rules of trade among nations, was established on January 1, 1995. It replaced the General Agreement on Tariffs and Trade (GATT), which had been working on the same topics since 1947. With the creation of the W.T.O. in 1995, the dispute resolution procedures changed and they were made more powerful. In particular, “W.T.O. panels and the Appellate Body can make decisions that are binding on national governments. … Moreover, the W.T.O. offers an example of a highly juridified N.M.R.”[ii] The aim of this paper is to analyze the powers given to the Appellate Body (A.B.) of the W.T.O. and to understand why they have changed during the years. The W.T.O. is only 12 years old but the evolution of the powers and the role of the Appellate Body have been on continuous process that today is still in motion. In fact, it is quite normal that the roles, activities and importance of N.M.R.s in the years tend to expand and become more relevant. The analysis will start in the first paragraph (Historical Background) with a historical perspective on how GATT had dealt since 1947 with the subjects that today pertain to the A.B. Without this kind of initial investigation it would be really difficult to understand the evolution the A.B. has had since 1995. The second paragraph (Reasons to Delegate to a Non-Majoritarian Institution with Reference to the Appellate Body) it will be considered which are the main reasons for governments to delegate power (hence sovereignty) to the A.B. in order also to understand why the A.B. is defined as a non-majoritarian regulator. Then the third paragraph (Legal Analytical Framework) will try to explain why the powers of the A.B. have been changing and evolving since the foundation of the W.T.O. in 1995. It will be used a legal analytical framework that will allow to focus on the mutual “nature of the relationship between domestic and international spheres.”[iii] In fact, while international legal norms may have a certain influence on the use of policy instruments at a domestic level, the decisions based on domestic laws will have an impact at the international level. Finally, the conclusion will show that the case of the A.B. is not a remote case, but that the transformation of its power may be considered as another example of the expanded role that supranational and international N.M.R.s will be playing in the future as institutions of a multi-level governance.

Some brief information about the A.B. before starting the analysis. The A.B. is a standing body composed of seven persons, unaffiliated with any government, appointed for a 4-year term (renewable). This body has to hear appeals on point of law from reports issued by panels in dispute brought by the W.T.O.’s member states. The A.B. can uphold, modify or reverse the legal findings and conclusion of a panel; and Appellate Body Reports, once adopted by the Dispute Settlement Body (D.S.B.), must be accepted by the parties to the dispute[iv]. This is the important innovation:

A.B. reports must automatically be adopted unless the Dispute Settlement Body, composed of member state representative, unanimously overturns the A.B. report. … Hence the creation of the A.B. and its powers represents a major delegation of power to a quasi-legal body.[v]        
                                    
Paragraph 1: Historical Background

The creation of the A.B. in 1995 was the last step of a process that started with GATT in 1947. Since the initial years of GATT, a procedure was established in order to cope with disputes and disagreements related to international trade. At the beginning the questions were all technical with no political background. It is obvious that “when the GATT began to move beyond tariffs and quotas to dealing with market access problems caused by regulation (`non-tariff-barriers' — N.T.B.s), the disputes became more complex but also potentially more politically contentious.”[vi] Member state had the possibility to ask for consultations if they could not obtain a benefit they should have received or if some provisions of GATT were impeded. The organization could investigate, release recommendations or give a ruling on the subject. In the first plenary sessions of the organization some complaints were formed like requests for an interpretation of the provision of GATT. At the beginning these requests were solved by the chair and after the discussion by the plenary. Soon, given the excessive specificity of the subjects treated, it became impossible to proceed in this way and it was necessary to delegate the decisions to working parties. Later, these decisions were regulated by the formalization of a procedure based on panels. It is interesting the opinion of Hudec, who with reference to these developing panels says:

Legal rulings were drafted with an elusive diplomatic vagueness. They often expressed an intuitive sort of law based on shared experiences and unspoken assumptions. Because of policy cohesion within this community, the rate of compliance with these rather vague legal rulings was rather high.[vii]
  
The panel procedure was not used from 1963 to 1970. Only in the seventies it emerged a new interest in the panel procedure, now linked to more political issues. The majority of the complaints were now related to non-tariff barriers and unfair trade policies. On the scene appeared also the first openings to animal welfare and environmental protection. In the early 1980s while GATT rounds did not progress fast, there was a big increase in legal complaints. Then, in 1990 and in 1991 started two panel rulings versus the U.S. prohibition of sales of tuna caught using methods that endangered dolphins. In these two cases according to:

the GATT’s `embedded liberalism’ (Ruggie), measures found to be trade restrictive could nevertheless be justified under the Exceptions clauses of article XX, which required a balancing of the legitimacy of the regulatory purposes against the trade-restrictive effects of the measures. A complaint against another country's regulatory measures on the grounds that it created a trade barrier had the effect of `disembedding' these national political compromises. It became the task of the GATT Panels to decide the validity of such measures which, although they might entail trade restrictions, were often not explicitly but only de facto discriminatory, and often originated from otherwise legitimate concerns unrelated to trade.[viii]

With these rulings domestic legislation was often required to adapt its legislation to the panel reports. Then, in 1995 it was created the W.T.O. and the previous dispute settlement procedure was transformed into a full-fledged adjudication system[ix].      

Paragraph 2: Reasons to Delegate to Non-Majoritarian Institution With Reference to the Appellate Body 

Principal-agent theory is the classic approach utilized in order to understand why politicians decide to delegate power — through a public act of delegation — to non-majoritarian institutions such as the A.B. Clearly for politicians — in the case of the A.B. is more appropriate to say governments — there should be an important and strong reason to give power and authority to different bodies on which they won’t have a direct control. In general, four different rational motivations have been identified in order to delegate power to non-majoritarian institutions. According to Thatcher and Stone Sweet, public officials create non-majoritarian institutions in order to:

  • resolve commitment problems (agents are expected to work to enhance the credibility of promises made, either between multiple principals, or vis-à-vis principals and their constituents, giving underlying collective action problems);
  • overcome information asymmetries in technical areas of governance (agents are expected to develop and employ expertise in order to produce, or help principals produce appropriate public policy);
  • enhance the efficiency rule making (agents are expected to respond to relatively specific problems and issues that arise, while principals set and then update the more general terms of policy);
  • avoid taking blame for unpopular policies (agents are expected to maximize policy goals that principals know may sometimes be unpopular with important societal groups).[x]                        


To these four motives related to the principal agent theory it could be added a fifth motive the so-called institutional isomorphism where the delegation happens following successful experiences both at national and international level[xi]. But with reference to the A.B. it is possible to exclude a priori two reasons in order to delegate: blame shifting and institutional isomorphism. The principal reasons in order to delegate to the A.B. are without any doubt the first three points mentioned above. In fact, since the beginning in 1947 the role of GATT — and then of the W.T.O. — has been to promote trade policies on a global scale and it was understood that this target could only be achieved with a high level of professionalism. The idea was to have an organization that should work in a very complex context where a very high competence was required. This is truer with reference to the A.B. In the previous paragraph it has been explained how after few years it was impossible — given the specificity of the subjects treated — to solve the trade disputes inside the plenary sessions. This is the reason for which it was necessary to pass through the working groups. Blame shifting in such a context did not have any meaning especially when it was considered the A.B.’s newly reinforced legalistic approach. Legalism was already present at the time of GATT, but the transformation of the dispute resolution mechanism brought legalism at a higher level. Especially today, in the A.B., legalism is supplanting more and more diplomacy in resolving the disputes. As Alter says “Lawyers who do sign up for service are heavily dependent on the W.T.O.’s legal secretariat — the only people with the time and expertise to evaluate the legal arguments”[xii]. Also the idea of delegating power to the A.B. on the basis of the concept of institutional isomorphism does not hold. According to McNamara:

Theories of institutional isomorphism, or the copying of organizational models, provide an alternative sociological explanation of why people borrow models from other settings, even when materially inappropriate to local needs. Put simply, the view that such delegation is rational, efficient, and acceptable in a democratic society is shaped more by power and ideational factors than the functional requirements of economic management.[xiii]

This is correct, but the case of the A.B. institutional isomorphism does not apply because the way the Appellate Body works is very specific. In fact, the construction of the A.B. entailed an unprecedented handing over of power to an international adjudicator that was a quasi-legal body (The A.B. is an example of a highly juridified N.M.R.). Still, the powerful legalistic approach that the A.B. uses is so peculiar a characteristic that does not relate this body to any other institutions. According to this analysis, eventually it is the W.T.O. and the A.B. which may be considered as a sort of cultural structure that gives birth to institutional isomorphism. The W.T.O. and the A.B. are eventually the generators of institutional isomorphism and not the generated structures. 

So summing up, it is possible to affirm that the delegation of power to the A.B. is the result of the necessity of creating a body that is able to resolve commitment problems, overcome informational asymmetries and enhance the efficiency rule making. The A.B. clearly represents a case that involves a gradual and partial extension of power delegation to a highly specialized body, which is probably the only entity capable of finalizing the received tasks.     

Paragraph 3: Legal Analytical Framework

The dispute settlement system in the W.T.O. is a mix of trade diplomacy and legal adjudication. The creation of a strong procedure in a certain way has permitted states to persuade non-complying states to follow the W.T.O. rules just with the simple menace of recurring to the procedure of the dispute settlement system. Yet, at the same time the creation of this procedure has permitted conflicts to escalate. As Picciotto points out “the two most important features, the creation of the Appellate Body and the requirement for automatic adoption of reports, are related, since governments were reluctant to agree automatic adoption without some form of appeal”. Anyway, this has been a very important move because it has shown that there was trust in the capacities of the trade community to bring into existence a complex normative system and make it work. In particular, this transfer of command to the A.B. has been really important because it has transferred the power of judging disputes where political aspects were really controversial (issues that diplomats were not able to solve). The seven members of the A.B. are completely independent from the interests of their home countries. As it has been partly mentioned in the previous paragraph the decisions released by the A.B. are always based on a legalistic point of view of all the controversies that should be decided. In fact, according to Article No. 3.2 of the D.S.U., the dispute settlement system to which the A.B. belongs:

is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the D.S.B. cannot add to or diminish the rights and obligations provided in the covered agreements.[xiv]               

In addition, year after year since 1995 the A.B. has created a coherent body of jurisprudence that can be seen as founded on the system of precedent. This is a normal consequence of the power given to the A.B. In fact, when a dispute about the meaning of the W.T.O. agreements is brought to the A.B., the majority of the times, the A.B. has to interpret texts that are either indeterminate or that can generate doubts.  In general, the W.T.O. agreements are clear and detailed, but it may happen that in the texts there could be some ambiguities linked to the fact that negotiators had to adopt compromises in order to bypass disagreement between the parties. Another reason for the indeterminacy of the texts derives “from the particular characteristic of liberal forms of regulating economic relations, which generally rely on abstract general principles which are meant to guide the actions of private parties in specific cases”[xv].

Since the beginning in 1995, the A.B. has had to pay a lot of attention not to be accused of interpreting the rules in a creative manner. For this reason the A.B. has always had a very literal approach in interpreting legal texts. In other words, the literality of the legality is the real basis for the interpretation of a rule. Often the A.B. reports have been accused of supplementing the words of the texts anchoring them to the more general objects and purposes of the agreements, with the inconvenience that the general objects and purposes are also more debatable. Through the years it has been possible to observe how the A.B. has been modeling its role according to the function of revealing and implementing the thoughts and ideas of the negotiators of the agreements.

Without any doubt since 1995 with the creation of the A.B., there has been an important passage to a more legalistic model of adjudication than it was done with GATT. At the beginning of the GATT phase (1947-94) the delegation to an adjudicator had been done respecting the fact that the adjudicator, a technocratic body, should not decide about very controversial issues. In the following years, this assumption was impossible to be respected and the adjudicator received more and more non easily solvable disputes. This situation continues still today with the A.B., which in response has to look “for a stronger basis of legitimacy to convince domestic lobbies and legislators of the need to bring national regulations in line with W.T.O. obligations”.[xvi] According to this end, it could be easy to say that in every case the legitimacy of the W.T.O. rules and, consequently, of the A.B. reports is linked to the fact that they have received the approval of governments, but the A.B. in order to get a stronger basis of legitimacy has always more and more pushed for a legalistic and formal approach. This behavior of the A.B. should convince of its legitimacy both the public — always worried about the work of the W.T.O. and its internal bodies — and the legal and economic experts.    

This caution that the A.B. shows is linked to the uncertainty about its accountability, which pushes the A.B. to try to avoid every possible accusation of having exceeded the framework of its mandate with a creative judicial activism. In this regard it is interesting to note how, instead, the mandate of the European Court of Justice (E.C.J., the other classic example of delegation to non-majoritarian institution at the international level) is wider and has a broader constituency. Another step toward the direction of more juridification could permit the A.B. to have an extended accountability and as a consequence extended powers. All this has an important outcome: reshaping the values and role of the W.T.O. “and in particular the interaction of its market-opening liberalization principles with regulations embodying socially constructed preferences such as health and environmental protection.”[xvii] Another approach could be to create a sort of W.T.O. constitution based on the concept of human rights.[xviii] This view has been criticized a lot because it envisages too narrow a vision of human rights and because it provides “only a limited basis for balancing the aims of market liberalization against other social preferences embodied in regulation”[xix]. For all these reasons, the A.B. has to face an institutional dilemma. On the one hand, it is probably constrained from openly declaring the policy considerations that support its interpretations. In fact, until now the expansion of the powers of the A.B. has been all played with reference to an extension of its political legitimacy toward the governments to which it is accountable. On the other hand, governments have fewer problems in transferring sovereignty to N.M.R.s, such as the A.B., than in justifying this passage in front of their constituencies. According to Picciotto:

Until the political system faces up to this, it will be difficult for global governance institutions such as the A.B. to develop in ways that are more directly accountable to a global public, and hence to contribute to new forms of democratic deliberation appropriate for multi-level governance.[xx]

What is happening with the evolution of the A.B. is a clear evidence of a process of transformation of the concept of state regarding both the public sphere and the private sphere of economic activity and their way of interaction. There is the emergence of multi-level governance to which the A.B. belongs. The more and more important role given to regulation in global governance “undermines formalist view of law’s legitimacy as deriving from national state political structures, and requires new approaches”[xxi] in order to express the normative interactions that can bring about to more democratic deliberations. In this way it may emerge a system where the public interest is really considered as the most important goal to achieve. In the A.B., it is possible to watch this evolution where it is under way a process that will constitute a supranational body of rules. States have always insisted on the fact that the W.T.O. law does not have direct applicability as a part of their respective national laws. Notwithstanding this opinion, the W.T.O. rules impose obligations to which states must comply. This is particularly happening with the dispute settlement system to which the A.B. belongs.[xxii]                            

Conclusion

According to the analysis developed above, the delegation of power to the A.B. is one example of delegation to an international N.M.R. The A.B., a quasi-judicial body, was created in 1995 with the establishment of the W.T.O., but its functions had been previously undertaken by other structures inside GATT. Since 1995 the powers given to the A.B. have evolved a lot and this process is still continuing today. It is right now a permanent process. The reason for this evolution is far-reaching changes in the sphere of government. A globalized economy has more and more eroded the difference between the public and the private spheres. In other words, today there is in action a transition to a new form of statehood that it may be defined as multi-level governance. The W.T.O. and consequently the A.B. are part of the structure forming this new multi-level governance. In fact, the A.B. is one of the bodies composing the dispute settlement system and it has been given stronger powers in order to make the W.T.O. more effective at enforcing trade rules. Since 1995, the A.B. has seen its functions expanded with reference to additional issues with a high content of politicization. Its answer has been a very rigid application of the rules. For this evolution and position it has been criticized a lot, probably too much. In fact, the response given by the A.B. has been very correct in light of the transition phase that the creation of an organization such as the W.T.O. engenders. It is absolutely better to have the W.T.O. appeals treated by a body with a legal background as the A.B., than by a body with principally political and sociological features. Today, it is clear that it is the political system that has to solve the institutional dilemma that the A.B. is facing: using this legal approach while expressing the policy considerations that underpin the interpretation or continuing to have only a legal approach without any other expansion to the field of politics. From the answer to this question it depends also the development of the dispute settlement system and therefore of the A.B.                             






[i] A non-majoritarian regulator is defined as a non-elected body that from an organizational point of view is different from governments and has some powers in order to regulate markets through endorsement or formal delegation by public bodies. See: COEN, D., THATCHER, M., The New Governance of Markets and Non-Majoritarian Regulators, in 18 Governance: An International Journal of Policy, Administration, and Institutions, 2005, p. 330.
[ii] Ivi, p. 331.   
[iii] ELIADIS, P., HILL, M., Instrument Choice in Global Democracies, in http://policyresearch.gc.ca/page.asp?pagenm=v6n1_art_15, accessed on May 30 2007. 
[v]  PICCIOTTO, S., The WTO’s Appellate Body: Legal Formalism as a Legitimization of Global Governance, in http://eprints.lancs.ac.uk/29/01/wto-ab.pdf, accessed on May 30 2007.
[vi] Ibidem
[vii] Ibidem
[viii] Ibidem
[ix]THATCHER, M., STONE SWEET, A., Theory and Practice of Delegation to Non-Majoritarian Institutions, in West European Politics, 2002, pp 1-22.
[x] Ivi, p. 4. The two authors define public officials as principals and non-majoritarian institutions as agents.
[xi] “Besides the motives enumerated above, delegation research points to causes which fall outside the scope of a rational-choice-based Principal Agent theory. Based on the study of independent national banks, McNamara (2002) highlights the importance of socially constructed opinions rather than rational efficiency criteria as a decisive element for delegation to this type of bank. Her conclusions point to the need for additional theoretical explanations to complement the Principal Agent theory. The failure of the Principal Agent theory to explain differences in type and timing of delegation, further supports the need for additional theoretical explanations. To complement the theory, other insights can be used: ‘historical’ and ‘sociological’ institutionalism can help explain the spread of some forms of delegation by identifying non-functional motivations. Sociological institutionalism uses, amongst others, normative pressure to explain some acts of delegation and points to the influence of the environment in which delegation takes place”. in EGAN, M., Delegation Beyond the State: The New Approach Standardization as a Case of Efficient Delegation?, in  http://www.bath.ac.uk/cri/pdf/ecpr_pdf/20_Bedoyan.pdf, accessed May 31 2007. See also THATCHER, M., STONE SWEET, A., Theory and Practice of Delegation to Non-Majoritarian Institutions, in West European Politics, 2002, pp 1-22.
[xii] ALTER, K., J., Resolving or Exacerbating Disputes? The WTO’s New Dispute Resolution System, in 79 International Affairs, 2003, p. 790. 
[xiii] McNAMARA, K. R., Rational Fictions: Central Bank Independence and the Social Logic of Delegation, in West European Politics, 2002, p 48.
[xv] PICCIOTTO, S., The WTO’s Appellate Body: Legal Formalism as a Legitimization of Global Governance, in http://eprints.lancs.ac.uk/29/01/wto-ab.pdf, accessed on May 30 2007. This particularly is true for the W.T.O. rules, which could be defined such as a global metaregulation, in other words rules governing how states should regulate. See MORGAN, B., The Economization of Politics: Meta-Regulation as a Form of Non-Judicial Legality in 12 Social & Legal Studies, 2003, pp. 489-523.
[xvi] PICCIOTTO, S., The WTO’s Appellate Body: Legal Formalism as a Legitimization of Global Governance, in http://eprints.lancs.ac.uk/29/01/wto-ab.pdf, accessed on May 30 2007.
[xvii]  IbidemSee also BRONCKERS, M., More Power to the WTO? in 4 Journal of International Economic Law, 2001, pp. 41-65; ALTER, K., J.,  Resolving or Exacerbating Disputes? The WTO’s New Dispute Resolution System, in 79 International Affairs, 2003, pp. 783-800.   
[xviii] PETERSMANN, E., U., Human Rights and the Law of the World Trade Organization, in 37 Journal of World Trade, 2003, pp. 241-281.
[xix] PICCIOTTO, S., The WTO’s Appellate Body: Legal Formalism as a Legitimization of Global Governance, in http://eprints.lancs.ac.uk/29/01/wto-ab.pdf, accessed on May 30 2007.
[xx] Ibidem.
[xxi] PICCIOTTO, S., Regulatory Networks and Global Governance, in http://eprints.lancs.ac.uk/29/01/wto-ab.pdf, accessed on June 1, 2007.
[xxii] “Although this is formally a state-state procedure, the two most powerful trade blocs have established procedures to give (some) private entities procedural rights to invoke WTO law at national level: in the USA under section 301 of the Trade Act, and in the EC under the Trade Barrier Regulation. These create what has been described as a system of public-private partnerships, so that `WTO law, while formally a domain of public international law, profits and prejudices private parties’(Shaffer 2003, 3)”.




BIBLIOGRAPHY

ALTER, K., J., Resolving or Exacerbating Disputes? The WTO’s New Dispute Resolution System, in 79 International Affairs, 2003, pp. 783-800.

BRONCKERS, M., More Power to the WTO? in 4 Journal of International Economic Law, 2001, pp. 41-65.

COEN, D., THATCHER, M., The New Governance of Markets and Non-Majoritarian Regulators, in 18 Governance: An International Journal of Policy, Administration, and Institutions, 2005, p. 329-346.

EGAN, M., Delegation Beyond the State: The New Approach Standardization as a Case of Efficient Delegation?, in  http://www.bath.ac.uk/cri/pdf/ecpr_pdf/20_Bedoyan.pdf, accessed on May 31, 2007.

ELIADIS, P., HILL, M., Instrument Choice in Global Democracies, in http://policyresearch.gc.ca/page.asp?pagenm=v6n1_art_15, accessed on May 30, 2007.

McNAMARA, K. R., Rational Fictions: Central Bank Independence and the Social Logic of Delegation, in West European Politics, 2002, pp. 47-76.

MORGAN, B., The Economization of Politics: Meta-Regulation as a Form of Nonjudicial Legality in 12 Social & Legal Studies, 2003, pp. 489-523.

PETERSMANN, E., U., Human Rights and the Law of the World Trade Organization, in 37 Journal of World Trade, 2003, pp. 241-281.

PICCIOTTO, S., Private Rights vs Public Standards in the WTO, in 10 Review of International Political Economy, 2003, pp. 377-405.

PICCIOTTO, S., The WTO’s Appellate Body: Legal Formalism as a Legitimation of Global Governance, in http://www.ucl.ac.uk/spp/download/publications/spp-wp-14.pdf, accessed on June 1, 2007.

PICCIOTTO, S., The WTO as a Node of Global Governance: Economic Regulation and Human Right Discourses, in http://www2.warwick.ac.uk/fac/soc/law/events/past/2006/rightsandjustice/participants/papers/picciotto.doc, accessed on June 1, 2007.

PICCIOTTO, S., Regulatory Networks and Global Governance, in http://eprints.lancs.ac.uk/232/01/Reg_Networks_&_Glob_Gov.pdf, accessed on June 1, 2007.

TALLBERG, J., Delegation to Supranational Institutions: Why, How, and with What Consequences?, in 25 West European Politics, 2002, pp. 23-46.

THATCHER, M., STONE SWEET, A., Theory and Practice of Delegation to Non-Majoritarian Institutions, in West European Politics, 2002, pp. 1-22.            



 

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