June 1, 2007
PARIS
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.
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.
[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
[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.
[xiv] In http://www.wto.org/english/res_e/booksp_e/analytic_index_e/dsu_01_e.htm#article3, accessed on May 31 2007.
[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] Ibidem. See 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.
[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)”.
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