Without a functioning AB, the entire DSM will likely be paralysed by the end of the year. This would result in unresolved pending disputes, narrower resolution mechanisms outside the WTO (such as via bilateral agreements) or worst of all, disputing parties taking the law into their own hands. We are looking down the barrel of a lawless international trade environment.

Confronted by the AB crisis, WTO members have started to propose infeasible reforms and experiment with temporary solutions. One idea is for disputing parties to agree not to appeal panel decisions. Such an agreement relies on the willingness of  parties and is not viable in highly controversial and sensitive cases. And when disputes end up at the DSM, it is probable that diplomatic solutions have already been exhausted, not boding well for the successful adoption of this approach. Critically, this approach, like most of the proposed reforms and solutions, is neither a systematic solution nor an adequate response to the concerns of the United States.

US concerns are centred on a host of substantive and procedural problems in the adjudicative activities of the DSM, and especially of the AB. In one of its earliest proposals for DSM reform in 2005, the United States stated that they were troubled by the lack of proper oversight on the WTO’s adjudicative tribunals, calling for additional procedures to ‘strengthen member control and flexibility’. In its 2018 Trade Policy Agenda, the Trump administration reiterated that the most significant concern is ‘panels and the Appellate Body adding to or diminishing rights and obligations under the WTO Agreement’.

These statements suggest the key driver of US dissatisfaction is what they see as judicial overreach of the adjudicative bodies taking the legislative power away from WTO members. This occurs at both the panel and AB stages — so recent agreements not to use the AB will not solve this issue. As Robert McDougall observed, any solution requires an effective balance between the political and adjudicative functions of the WTO. To achieve such a balance, and address the source of US concern, a mechanism which provides for an effective political check on the decisions of the WTO tribunals is needed.

Some commentators (including McDougall) have suggested Article IX.2 of the Marrakesh Agreement may already provide a basis for the desired political oversight. This provision recognises the exclusive authority of WTO members to adopt interpretations of WTO agreements, known as ‘authoritative interpretations’, with the approval of a three-fourths majority.

But while Article IX.2 provides the flexibility for a proper political check on judicial decisions, it is ambiguous on many substantive issues. For example, it is unclear as to the scope and legal effect of authoritative interpretations as well as to their impact on the formal legislative actions envisaged in Article X of the Marrakesh Agreement.

In order to address US anxieties over judicial overreach, it is unnecessary to resolve all these Article IX.2 issues at once. Members could confine the application of authoritative interpretations to disputes where the issue of judicial overreach arises.  For that purpose, it is essential that disputing parties are allowed to initiate the ‘authoritative interpretation’ process to challenge a judicial interpretation, and that the adopted authoritative interpretation prevails over the challenged judicial interpretation and is followed by the adjudicators in future disputes.

Yet there needs to be a balance between necessary political oversight and the prompt resolution of disputes, which is also a core goal of the DSM. Members would need to come up with workable solutions to issues such as whether to add a timeframe to the adoption of an authoritative interpretation, whether to allow the parties concerned to block the adoption, and if a veto is exercised, what to do with the relevant judicial interpretation and the AB reports. These issues could be conveniently resolved through ‘authoritative interpretations’ themselves to come up with the needed understandings of Article IX.2.

Since the use of the ‘authoritative interpretation’ mechanism could have far-reaching implications for both the legislative and judicial functions of the WTO, it is likely that the United States and other members may prefer to discuss these issues as part of a broader reform package. But, progress on a broader reform package is unlikely until consensus is achieved (if it is achievable at all), and so the use of ‘authoritative interpretation’ may sadly also be a casualty of the gridlock in the WTO.

Of course, the legislative ‘fix’ offered by Article IX.2 does not really resolve the deeper legislative deficit caused by the failure of the members to conclude negotiations of WTO reform and modernisations.

While resolving that fundamental challenge of the WTO is unlikely in the short term, imaginative use of existing mechanisms and provisions within the WTO such as a newly energised and effective Article IX.2 may buy precious time until the world’s current anti-WTO (or more broadly anti-multilateralism) mood diminishes. This reprieve is necessary to provide breathing space for the WTO to grow and mature into a more effective and resilient institution.

Dr Weihuan Zhou is a Senior Lecturer and a Member of the Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre in the Faculty of Law at the University of New South Wales, Sydney.

Professor Colin B. Picker is Pro Vice Chancellor (South Western Sydney) and the Dean of the School of Law, the University of Wollongong.