I would like to begin by expressing my gratitude to the DSB Chair, Ambassador Sunanta, for her presence and for her gracious consent to launch the Appellate Body's Annual Report for 2017.

These are extraordinary times. The WTO dispute settlement system confronts two contrasting and yet related challenges that threaten its legitimacy as well as its existence:

• On the one hand, the dispute settlement system, which has for over two decades established its credentials as an efficient and impartial mechanism, faces the burgeoning pressure of increasingly complex disputes at various stages.
• On the other, some recent critiques have raised fundamental questions about the way the DSU should be used to resolve disputes.

These two challenges are clearly beyond the capacity of the dispute settlement system itself to resolve, and they call for determined political dialogue among WTO Members. Left unaddressed, these challenges can cripple, paralyse, or even extinguish the system. If they are properly addressed, the system can continue to discharge its mandate in the coming years with renewed vigour.

In what follows, I will look at the nature, dimensions, and content of these challenges, as well as the policy choices they represent.

An Overloaded System

Over the past two decades, the WTO dispute settlement system, including the Appellate Body, has been remarkably active. Since its inception, 551 disputes have been initiated by WTO Members, resulting in 230 circulated panel reports and 136 circulated AB reports. More than 65% of WTO Members have engaged in dispute settlement as complainant, respondent, or third party.

The high rate of compliance with DSB decisions testifies to the system's success. Aside from the sheer number of disputes that Members have submitted to dispute settlement – which is a sign of empirical legitimacy – it is worth mentioning the almost total absence of instances where Members have chosen not to implement a ruling upon losing it. While losing parties have criticized individual rulings, "these critiques have rarely challenged the overall authority or legitimacy of the WTO judicial mechanism".⁽¹⁾

But legitimacy is a fragile virtue, and its longevity cannot be taken for granted. This is a theme I will revert to later.

The expectation of DSU negotiators that only selected issues in key panel reports would be appealed was belied from the very early years. Since the beginning, a majority of panel reports were appealed on most of their findings. This has been a continuing feature of appeal activity in the WTO.

Last year was not an exception to this trend. The Appellate Body circulated five reports⁽²⁾ touching on, among other things, Members' terms of accession to the WTO, the SPS Agreement, the Anti‑Dumping Agreement, the SCM Agreement, the Import Licensing Agreement, the GATT 1994, and the DSU. These disputes concerned myriad issues such as animal disease control, domestic tax regimes, and fair trade. The exceptionally large appeals in the Article 21.5 Airbus and Boeing proceedings⁽³⁾, filed in October 2016 and June 2017, respectively, occupied a significant portion of our resources throughout the year.

Eight new appeals were filed in 2017⁽⁴⁾, followed by another three in the first months of 2018.⁽⁵⁾ Such a heavy workload, coupled with our chronic resource constraints, caused some of these appeals to be staffed, and hearings to be scheduled, with delays of several months.

More disputes, including the complex Plain Packaging case⁽⁶⁾, will likely be appealed soon. By all indicators, the Appellate Body will remain very busy in the foreseeable future.

The workload of the AB over the years calls into question the basic premise of its establishment. Being an Appellate Body Member is no longer a part-time job. It requires full-time commitment to the WTO. Given the number, size, and complexity of appeals, coupled with the resources provided to it, the AB cannot be realistically expected to deliver high-quality reports within the timeframes prescribed in the DSU. Long delays in filling vacancies in the AB obviously do not help either.

Given the daunting mismatch between its workload and resources, the AB has undertaken several initiatives to simplify and streamline the content of its reports and its legal analysis. For instance, we are continuing the practice of annexing to our reports the executive summaries of the arguments submitted by the participants and third participants, instead of summarizing them. We are also providing more complete descriptions of our findings and conclusions, making our central reasoning more quickly accessible. Finally, we are striving for greater clarity and concision in our reasoning, making our reports more "user friendly" and the use of our limited resources more efficient. Except in some mammoth disputes such as the Aircraft cases, report length has been significantly reduced. None of the decisions issued in 2017, for example, exceeds 70 pages.

What the Appellate Body and panels can do to further improve the system, however, is not unlimited. WTO Members are entitled to initiate as many disputes as they wish. They are also entitled to make as many claims and to submit as many pages, arguments, and exhibits as they deem necessary. WTO Members expect – as they should – a modern, efficient, and effective dispute settlement system. But such expectations can be realised only if the resources allocated to it, and the procedures governing WTO dispute settlement, are aligned to the workload that WTO Members bring to the system. Discussions regarding the DSU deadlines, for instance, can be meaningful only if they are adequately contextualised. Discussions on consequences need to take on board the causes as well.

Overall, the growing incongruence between the disputes being referred to the WTO dispute settlement system, the resources allocated to it, and the rules and procedures governing it are together leading to very significant delays. The increase in compliance disputes over the past years is further adding to the problem. For example, the number of compliance panels circulated over the last five years has doubled compared to the previous five-year period.⁽⁷⁾

It is also no longer uncommon to see several years pass before a dispute is settled. This situation should ring alarm bells in a system that prides itself on its efficiency and business-like conduct, particularly in light of the prospective nature of WTO remedies. To the extent that delays in dispute resolution involve delays in the assertion of the rule of law, they provide an incentive to those who benefit from those delays. Lasting solutions, however, cannot target the symptoms. Rather, they must take into account the pertinent causes. WTO Members therefore need to engage in a dialogue to address all dimensions of this problem.

The Mandate of the DSS

That brings me to the second challenge confronting the WTO dispute settlement system, namely the critiques about the system's adherence to its mandate under the DSU.

Article 3.2 of the DSU envisages the WTO dispute settlement system to be "a central element in providing security and predictability to the multilateral trading system". Article 3.2 further provides that the system "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." It adds for good measure that "[r]ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements".

It is against this backdrop that we need to reflect on the mandate that the WTO dispute settlement system enjoys. In this connection, I would like to offer a few comments and raise a few questions on two issues arising from recent debates:

• how the system should deal with ambiguity while clarifying the provisions of the WTO Agreements; and
• how it should address the issue of consistency of rulings in the context of the mandated need to provide security and predictability to the multilateral trading system.

Dealing with Ambiguity

First, a general comment on the issue of ambiguity in international agreements. While many provisions of international treaties are agreed upon in clear and detailed language, certain provisions may be couched in what international lawyers call "constructive ambiguity," where consensus on precise language could not be reached during negotiations. In the WTO context, when a dispute arises in relation to such an unclear or ambiguous provision, adjudicators are to examine that provision in accordance with customary rules of interpretation and to apply them to the particular case. Some argue that where adjudicators encounter such ambiguity or lack of clarity, they should refrain from examining it and instead leave it for WTO Members to deal with. Others support the need for resolving the interpretative issue so as to make sure that disputes are not left unresolved.

Second, existing treaty language that is vague or ambiguous is distinct from lacunae in international law, that is, where no international law obligation exists. For us, the "customary rules of interpretation of public international law" mean those codified in the Vienna Convention on the Law of Treaties. They say we must begin with the plain text of the treaty provision, but it does not end there. Adjudicators have to discern the "ordinary meaning" to be given to treaty terms in their context and in light of the object and purpose of the instrument in which they appear, and they may have recourse to supplementary means. This interpretative exercise is meant to "clarify", within the meaning of Article 3.2, the content, scope, and limits of treaty obligations even if they are somewhat unclear on the face of the text.

When adjudicators, having applied these interpretative tools, conclude that certain conduct is outside the scope of application of the treaty obligation invoked, they should have no hesitation in ending their analysis there. If an issue is not regulated in WTO law, WTO Members are entitled to act as they please. For instance, the Appellate Body in US – Section 211 Appropriations Act noted the absence of explicit provisions and of an implicit definition of trademark "ownership" in the TRIPS Agreement. The Appellate Body agreed with the panel that this definition "has been left to the legislative discretion of individual countries".⁽⁸⁾

Third, the question arises whether there is a legal basis in the DSU for not deciding on claims, when the matter before the DSB would remain unresolved. Article 3.2 provides that the dispute settlement system serves to clarify WTO provisions in accordance with customary rules of interpretation. So how far should the dispute settlement system go in "clarifying" ambiguous provisions, and where are the limits? There appears to be a tension between the minimalistic approaches favoured by some and the requirements under Article 11 of the DSU for panels to make "an objective assessment of … the applicability of and conformity with the relevant covered agreements" and under Article 17.12 for the Appellate Body to "address" each issue of law and legal interpretation covered in the panel report that is raised during an appellate proceeding.

When we sit in judgement of specific cases, these issues are not always easy to resolve. It is true that the requirement to "address each claim" does not necessarily mean that we need to do so at length. But do these DSU provisions provide WTO adjudicators with the discretion to deny clarifying WTO provisions where such clarification is necessary to resolve the dispute? Do they permit adjudicators to deny exercising jurisdiction to resolve the dispute when it has been properly established?

In this connection it is important to note that a decision not to fully address an issue could, in effect, be a decision in favour of one of the participants, possibly altering the rights and obligations of WTO Members.

There are also cases in which Members raise an issue on appeal concerning "legal interpretations developed by the panel", as contemplated by Article 17.6, without challenging the ultimate conclusion that the panel reached. In raising such issues, Members typically state that they are motivated by systemic concerns. Members may also be concerned about the effect that an interpretation by a panel may have on how they implement a different finding against them. And thus, if left unclarified, an ambiguous or incorrect interpretation may affect the rights and obligations of a WTO Member. In each scenario, the Appellate Body carefully decides, on a case-by-case basis, how to "address" the issue raised on appeal, including whether findings concerning the interpretation of WTO provisions are necessary in order to facilitate the prompt settlement and effective resolution of the specific dispute.

Consistency

The issue of consistency of rulings in WTO dispute settlement is closely connected to the mandated requirement for "security and predictability". As is well known, one reason for creating the Appellate Body was to provide greater guarantees to WTO Members that panel reports would be subject to review, in the context of the adoption of the reverse consensus principle. The Appellate Body has taken the view that ensuring "security and predictability" implies that, absent cogent reasons, an adjudicator will resolve the same legal question in the same way in a subsequent case.⁽⁹⁾ At the same time, it needs to be emphasized that the Appellate Body's approach does not call for a mechanistic or rigid application of this principle. Appellate Body interpretations of certain provisions have evolved over time, as evidenced by the number of AB reports interpreting Article XX of the GATT. Each case has to be considered on its own merits, and cases or issues that appear to be similar may be decided differently when they can be distinguished from earlier cases or when factual scenarios are different.

It is possible that there could be other judicial approaches to "security and predictability" that could emerge from reasoned debate among WTO Members. The AB would consider them when raised by participants in a dispute. But surely it is no one's case that a tabula rasa approach, which consciously sweeps aside the past, could meet the requirements of "security and predictability" as outlined in the DSU. Those who are not enamoured of the need for "security and predictability" in the WTO need only to look at international investment arbitration, and the difficulties caused by the lack of consistency in first-instance arbitration rulings, as an immediate counterfactual of a system without a review mechanism for ensuring coherence and predictability.

Preserving the Legitimacy of the WTO's Dispute Settlement System

My point is that a dispute resolution mechanism acquires its legitimacy, or indeed its wisdom, not from the statute that established it, but from the way it continues to meet the changing needs of its users. The global trading system has changed enormously since the WTO's dispute settlement mechanism was designed and operationalised. The dynamics of global trading relationships have also evolved significantly. The rules and procedures of the system have clearly not kept pace with these developments. It is not for adjudicators to make law by their rulings. That is the job of WTO Members. But sustained inactivity on the legislative front puts more pressure on adjudicators, with attendant risks for the legitimacy of their rulings and their institutions.

WTO Members need to think clearly and deeply about the challenges that confront the WTO dispute settlement system. These challenges require reasoned and systemic dialogue that keeps at the forefront the enormous value of an effective system on the one hand, and the consequences of its paralysis on the other. The issues I have mentioned are meant only to provide some substance to such a debate.

Given the urgency for decisions regarding the AB, inaction is no longer an option. The year-long impasse on the process for appointing AB Members is debilitating the Body. Its reduced strength is undermining the collegiality of our deliberations, and the lack of proper geographical representation threatens its legitimacy.

I need not point out that the reduction in our numbers will cause further delays in appellate proceedings. Unless WTO Members take swift and robust action to remedy this situation, there may soon come a time when appellate proceedings are paralysed if fewer than three AB Members are available.

Such a paralysis would have profound implications on panel proceedings as well. Indeed, the Appellate Body and panels are part of one dispute settlement mechanism, and one cannot properly function without the other. Where a panel report is appealed, but an Appellate Division cannot be formed to hear that appeal, the adoption of the panel report is suspended until the Appellate Body can complete its proceedings. This would lead to the de facto demise of the negative consensus rule that has characterized the WTO dispute settlement system since 1995. Any losing party would be able to prevent the adoption of the panel report by appealing it to a paralysed Appellate Body.

The implications of the paralysis of dispute settlement for the WTO itself are also obvious. If rules cannot be enforced, is there a point to negotiating them?

New Challenges to Multilateralism

These challenges must also be discussed in the larger context of the recent challenges to multilateralism. We have witnessed significant unilateral trade measures by key WTO Members that have evoked countermeasures from affected Members. A number of disputes involving such measures have already been filed in the WTO. These disputes will test the WTO dispute settlement system to its limits. It is unfortunate that these developments are taking place at a time when the system is already experiencing huge stress. The current events are a sobering reminder of what is at stake and how the erosion of the WTO dispute settlement system could lead to the re-emergence of power orientation in international trade policy.

As noted, while the WTO dispute settlement system has to enforce existing international obligations, it also has to respect the limits of those rules and identify areas where national sovereignty is not constrained. But WTO Members also need to bear in mind the consequences of their actions on the effectiveness of the international system. In an interdependent world, global problems demand global solutions, and even national problems often require international cooperation.

I would like to conclude by stating the obvious – the institution of a standing body tasked with reviewing panel decisions is widely considered as the crowning achievement of the Uruguay Round of negotiations. Impairing that achievement would deprive the WTO of ensuring the principled and consistent application of multilateral trade rules.

It is our shared responsibility to maintain and preserve the trust, credibility, and legitimacy that the WTO dispute settlement system in general and the Appellate Body in particular have built over more than 20 years. WTO Members must embrace this responsibility and engage in constructive dialogue to ensure the continued good health of a system that is uniquely effective, but which cannot be taken for granted.