Why in News?

• The World Trade Organization’s (WTO’s) dispute settlement mechanism is on the verge of collapse due to the non-appointment of requisite members in the appellate body of the WTO.

Recent Issue:

• Over the last two years, the membership of the body has dwindled to just three persons instead of the required seven.
• The dispute settlement mechanism requires at least three members to function out of the total seven member strength. Currently there are only three members and term of two members out of those three also came to an end recently.
• So, world trade is about to enter a phase in which there will be no official resolution for many international disputes — potentially creating the circumstances for a free-for-all.

Reason behind the Issue:

• The United States has blocked the appointments of new members, and the reappointments of members who had completed their four-year tenures in the appellate tribunal for the last two years which made the membership of the body to dwindle to (the present) three persons (instead of the required seven).
• The US believes the WTO is biased against it, and has criticised it for being “unfair”. The administration of American President has, therefore, taken the decision to starve the body of personnel.
• With complete disregard to its authority — U.S.A has also been imposing new tariffs on not just China, but also American allies such as Canada, Europe, and Japan.

About WTO’s Appellate Body:

• The Appellate Body, set up in 1995, is a standing committee of seven members that presides over appeals against judgments of WTO panel passed in trade-related disputes brought by WTO members.

Who Can Approach?

• Countries involved in a dispute over measures purported to break a WTO agreement or obligation can approach the Appellate Body if they feel the report of the panel set up to examine the issue needs to be reviewed on points of law.
• The Appellate Body can uphold, modify, or reverse the legal findings of the panel that heard the dispute. Countries on either or both sides of the dispute can appeal.

Significance:

• The WTO’s dispute settlement procedure is seen as being vital to ensuring smooth international trade flows. The Appellate Body has so far issued 152 reports. The reports, once adopted by the WTO’s disputes settlement body, are final and binding on the parties.

After Effects of the Issue:

• With the Appellate Body unable to review new applications, there is already great uncertainty over the WTO’s dispute settlement process .
• The understaffed appeals body has been unable to stick to its 2-3 month deadline for appeals filed in the last few years, and the backlog of cases has prevented it from initiating proceedings in appeals that have been filed in the last year.
• If the body is declared non-functional, countries may be compelled to implement rulings by the panel even if they feel that gross errors have been committed.
• Should such a country refuse to comply with the order of the panel on the ground that it has no avenue for appeal, it will run the risk of facing arbitration proceedings initiated by the other party in the dispute.