Effective retaliation will be in the form of non-tariff barriers which will not be officially announced and will make life hard for US companies. The US' international exposure takes the shape of dependency on other countries to uphold and protect its intellectual property, data, FDI, financial services, and the like. However, I doubt that the EU would go down such an aggressive route. It will rather keep it conventional and proportionate. But the possibility exists and other trading partners might consider such move if things escalate out of control. Which probably will not happen, as Trump's stamina and attention span suggest otherwise.

The AB appointments crisis is a real problem in its own right, which goes beyond the proximate reasons for why the crisis erupted at this particular point in time. This is of course because other WTO members may well emulate the tactics and seek to delay future AB appointments for reasons of their own. It is a pandora's box situation. Finding a solution to the present US concerns will not ensure that the same situation may not arise again, with some other WTO member raising some or other concern as a precondition to joining the consensus. Clearly this is an institutional problem that needs a workable solution. Pieter Jan Kuijper's proposal of voting by the General Council in its capacity of plenary organ of the WTO (i.e. not as the DSB) seems so far the most solid and long term of the proposals so far put forward (see Guest Post from Pieter Jan Kuiper on the US Attack on the Appellate Body, also the clarification in his comment on the same page, dated Nov 24, 17, at 05:20AM)

The link is: http://worldtradelaw.typepad.com/ielpblog/2017/09/counting-down-the-appellate-body-members-terms.html

This is the way to go. To my knowledge there are now at least three recent papers proposing how to activate DSU Art 25 to unblock the AB appointments deadlock, including one authored by myself in a forthcoming book chapter accepted for publication: https://www.maastrichtuniversity.nl/blog/2017/09/how-break-impasse-over-appellate-body-nominations which has also referred to earlier on this blog: down-the-appellate-body-members-terms.html The more options the better. A few thoughts: Whether arbitration is preferable to AB proceedings as a general matter is debatable, particularly in view of the fact that for so long the WTO membership has been lukewarm about Art 25. Rather, the usefulness of resorting to arbitration would be to allow the DSS to keep operating even in the face of a potentially protracted standoff regarding AB appointments. So, an emergency fix. This is also in line with the Andersen paper. An agreement not to appeal has its advantages, but also opens up the possibility of challenge whether the an Art 25 arbitration agreement legally could permit such a waiver. In a 'compromis' such an agreement may be more acceptable than in a 'clause compromissoire'. It should be recalled that, pursuant to DSU Art 3.5, the AB will still have the last word as to the legality of the Art 25 arbitration award: “All solutions to matters formally raised under the consultation and dispute settlement provisions of the covered agreements, including arbitration awards, shall be consistent with those agreements and shall not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements.” Of course, that presumes that there is a functioning AB to assess the legality of the arbitration agreement and the resulting award.

I will explain more in a full post about the proposal in the next few days/next week. I expect the working paper to be out next week. More then.

Indeed, without China and the EU taking the lead it would probably not fly. It would probably also need further support from India and Japan, Canada and others. It is in particular the 'honest' users of the DSS which may have the greatest incentive to sign up as they would be ex ante equally likely to be claimant or respondent in the long run. Still, it is safe to say that the membership currently regards arbitration as inferior to AB proceedings, why else has it not taken off? But that may not prevent the membership from concluding that arbitration might be better than nothing. Perhaps the most tangible advantage of finding a way to bypass the AB appointments deadlock - particularly in the form of alternatives to AB proceedings that are not associated with significant legal ambiguities - is to level the playing field in the inevitable diplomacy that must take place. Knowing that the membership could 'sit out the siege' is helpful in strengthening their resolve not to give in too easily - i.e. levelling the playing field - in those negotiations.

There still is room for argument, however, in part because of ambiguity of WTO Art IX:1 and also in view of Art IX:2. Ironically, it would be for the AB members appointed by majority vote to decide. Nonetheless, one could conclude that none of the proposals so far tabled on these pages (amending AB working procedures, AB appointments by majority voting, new multilateral trade court) are without problems and drawbacks even though they might be overcome and the ideas might therefor work. To this can be added an earlier proposal by myself from September: http://worldtradelaw.typepad.com/ielpblog/2017/09/counting-down-the-appellate-body-members-terms.html which I am currently writing a paper on. It would envisage activating state-state arbitration pursuant to DSU Art 25 by means of a plurilateral consent to arbitration/arbitration agreement. It has similarities with Prof. Kuijper's "cover" treaty proposal but would not require invoking the rebus sic stantibus doctrine.

This would be an elegant solution. I wonder if the US would not argue that the DSU does not allow the AB to decline to hear a case. The second sentence of Art 17.1 does after all say "The Appellate Body shall hear appeals from panel cases." Still, perhaps Mr. Lighthizer would not be inclined to raise such an objection, given that he has praised the pre-WTO panel system (http://worldtradelaw.typepad.com/ielpblog/2017/09/lighthizer-on-wto-dispute-settlement.html). I find that unlikely, however, as it seems that what he actually prefers is negotiations following a panel report, i.e. GATT 1947-style trade diplomacy. That was of course possible pre-1995 as the panel reports back then were not automatically adopted. On the other hand, if indeed the purpose of the AB appointments stand-off is to hold the WTO membership "hostage" (http://worldtradelaw.typepad.com/ielpblog/2017/09/counting-down-the-appellate-body-members-terms.html), then one should expect the DSU Art 17.9 solution would be fiercely challenged. Perhaps the 17.9 solution could be modified such that the declaration would not be automatic but could be issued only after hearing the parties?

Hi Mona, Simon, Thank you both for your feedback. Mona, I have followed your posts on the history and origins of the FET clause with great interest. I am almost regretting I did not choose a similar topic for my own PhD research. To sum up the critique with some rebuttal: 1) Incomplete evidence of economic benefits of ISDS/investor protections in terms of investment flow impact: o Fair enough, but is there any evidence that removing ISDS/investor protections would stimulate investment flows? o Perhaps all we can say is that our friends the economists will not be able to help any of the camps. 2) Inherent unfairness of treating foreign investors better than local investors: o OK, but why not treat the local investors better too? o And why just investors, and not traders and not indeed “persons”? • In this respect, it is noteworthy that the MST standard as a matter of general international law does not specifically apply only to investors, as the Neer case illustrates. • Also, the League of Nations’ ambitious project for a multilateral “Convention on the Treatment of Foreigners” is interesting in this respect. Back in the 1920s/30s the treatment contemplated for foreign investors made no difference between the treatment of foreign investors, foreign service providers, foreign economic migrants and indeed foreigners in general. 3) Overbroad meaning of substantive standards (FET/MST): o So then why not narrow down the meaning? o Existing caselaw offers a guide to specific examples of situations that the contracting states could hopefully agree is egregious, including denial of justice, other breaches of due process, fundamental lack of transparency in administrative decision making, retroactive edicts, etc. o Axing the FET/MST protections in the treaties may put pressure on the remaining substantive protections, such as by encouraging broad interpretations of the non-discrimination standards. 4) Interpretation of FET standard has evolved away from its historical roots: o Even if the evidence of an evolutionary interpretation is compelling, it is difficult to see how such ‘evolutionary drift’ could be prevented in any adjudicatory system. o It is also not clear that reverting to interpretations of the 1950s would adequately address today’s circumstances and problems. 5) No corresponding duties/obligations placed on foreign investors. o Normally the host state exercises domestic jurisdiction, according to which duties/obligations on investors may be imposed, which is why adding duties on the international plane may not be essential. o Also, while foreign investors may have rights under international law, they are not subjects as such. Nonetheless, duties could be conditional to benefit from the treaty protections. Some treaties have experimented with limited investor duties, but it could certainly be explored further. Experimentation is beautiful thing. And in the investment treaty field it may be particularly useful, since the existing regime can anyway only be changed by piecemeal tinkering, offering ample opportunity to study the effects of what might happen if you take the sledgehammer to the FET clause (even though it may take a couple of decades to see the effect). The EU is also very much in experimentation mode these days. In CETA and the draft EU-Singapore FTA, a closed-list approach was used to try to spell out the FET obligation. By contrast, in the recent draft EU-Japan FTA, the investment chapter does not contain an FET clause, just as you would advocate, and merely contains non-discrimination standards. And why not? The US-EU cross-border investors are of course not protected by any enforceable FET clause without much outcry from investors either side of the pond. However, what may work in Canada, Japan, the EU and the US may not work elsewhere. In the case of the US, it is by far more often the home state than the respondent state in ISDS proceedings. NAFTA aside, the US is also a net exporter of capital, by a wide margin, to the countries with which it has BITs with FET clauses. I am sure many of these countries will now eagerly line up to change their BITs. The risk of experimentation lies squarely with the US investors, it seems.

Hi Simon, What is missing from the broader debate is a recognition that watering down treaty protections will not make economic harm go away. Investors will be no less aggrieved as a result of conduct amounting to indirect expropriation and FET violations just because such conduct would no longer be actionable in ISDS. Nor will much of that economic harm be possible to risk-manage effectively or at all through political risk insurance, hedging etc. Taking the sledge hammer to FET will not make it any easier to model and manage those risks. To the extent that investment treaties offer less protection for perceived injuries, aggrieved investors will be incentivised to explore alternative means of redress, ranging from the legitimate (diplomatic protection, investor-state contracts with arbitration provisions) to the more opaque (direct corporate influence over host state and home state governments/officials). These alternatives have their own failings, notably that they 'un-level' the FDI playing field in favour of the biggest multinationals, global banks, SWFs and other concentrations of wealth with political clout. If the goal of the U.S. proposal - to avoid "great controversy" - was a long-term goal, it seems that making treaty protections less effective is not going to prove a very sustainable solution. There are probably cleverer ways of managing investor expectations, such as by spelling out what they are.

The paramount priority must be to ensure the survival of the WTO. In this respect, a parallel to today's appointment crisis can be found in the 'empty chair crisis' of the 1960s when the EEC went through a similar 'rough patch'. Almost forgotten today, that crisis was extremely serious and nearly led to the collapse of the whole European project due to France's (De Gaulle's) refusal to cooperate and attend meetings of the Council of Ministers at a time when the Council decided by unanimity/outright consensus. Eventually a compromise was found (the Luxembourg Compromise). The EEC survived at least in part due to the continued functioning of the European Commission and the European Court of Justice. In the end De Gaulle's tactic proved futile. Like the United States today, France found its original position in the club eroded both by the rapid economic ascent of other member states (notably West Germany's Wirtschaftswunder) as well as by the independence and progressiveness of the European institutions that France had co-created, not least the Court of Justice. Turning to the WTO, the only function with teeth is in reality the AB. Its main institutional weaknesses susceptible to exploitation relate to appointments and resources. Art 25 arbitration cannot fix this. BUT, it it might be able to blunt the potential for 'political extortion'. Just like the European Commission and Court of Justice could not replace the Council, Art 25 arbitration could also not replace the AB. If members wanted that they could already use arbitration. But it could provide a 'bridge'. So, the point is to avoid blackmail. If there is no 'cliff edge' - what Prof. Elsig et al describe as a 'collapse' of the DSS - then holding out on appointments is going to lose much of its damaging potential. Yes, there could still be a protracted stand-off, but as long as the DSS is able to continue to operate by means of Art 25, it may be possible for other WTO members to withstand the pressure, waiting for better times. Or at least shift the odds in their favour in a future remake of the Luxembourg Compromise.

A solution to this impasse may be the oft-overlooked provision in Article 25 DSU, which provides for arbitration as an alternative means of binding dispute settlement. To date, this provision has only been invoked once. The main impediment to resorting to Article 25 arbitration is that the parties to the dispute must agree in advance on the procedures to be followed and to abide by the arbitration award. In a forthcoming book chapter, I explore how to practically apply Article 25 as an emergency means of appellate review of panel rulings in case of Appellate Body gridlock. I argue that rendering effective Article 25 requires WTO members who wish to make continued use of the WTO dispute settlement system to enter into a binding arbitration agreement in respect of future disputes. I further argue that many WTO members are currently keen users of the dispute settlement system, equally often as a complainant as in the capacity of a respondent, and may have strong incentives to ensure ex ante that arbitration is available as a fall-back option in case Appellate Body proceedings are not available. Reaching such agreement after a dispute has arisen may not be a viable option for obvious reasons. The chapter includes a blueprint of what such a plurilateral arbitration agreement might look like. Jens Hillebrand Pohl, LL.M., PhD candidate supervised by Prof. Peter Van den Bossche and Dr. Denise Prévost of Maastricht University and Dr. Rodrigo Polanco, WTI.