23 February 2024

Peter Holmes is a Fellow of the UK Trade Policy Observatory and Emeritus Reader in Economics at the University of Sussex Business School. Sunayana Sasmal is a Research Fellow in International Trade Law at the Observatory.

The World Trade Organization (WTO) dispute settlement system is in crisis. Here, and in a comprehensive working paper, we discuss one potential solution to one of the many issues confronting it. Non liquet is a legal principle that allows a tribunal to decline rendering a ruling when there is no law. We think this concept could partially address the major issue of judicial overreach. But first, some background.

The WTO dispute settlement system, sometimes called the “crown jewel” of the WTO, with compulsory adjudication and enforcement powers, has served the international trading regime well. But today, its topmost court (the Appellate Body) is paralysed, thanks to the US refusal to nominate members to the Appellate Body, rendering it inquorate. This has led to a number of issues including a chilling effect on WTO members in initiating disputes, lessened activity of panels, and unenforceability of panel rulings enabled by “appealing into the void”.

The United States seems happy that the dispute settlement is not fully functioning. If reports are to be believed, the United States would like a weakened international trade court. But most other members, including big players like the EU, China and India would like to see it restored. The forthcoming Ministerial Conference (MC13) is supposed to find a solution and some proposals have been advanced.

Judicial overreach has been a long-standing, bipartisan U.S. concern, but for Trump’s United States, the issue of judicial overreach was one of the final nails in the coffin of the Appellate Body. Gaps and ambiguities in the law were left in the WTO Legal Texts (“an incomplete contract”), and WTO adjudicators thus operated within an imperfect and incomplete legal framework (as most judges do). Moreover, the WTO decision-making process has been paralysed even longer than the dispute settlement system! The norm of consensus-based decision-making and the distaste for voting has resulted in very limited legislated outcomes. Thus, new issues largely have remained unaddressed. Up till 2020, the Appellate Body used its own ingenuity to fill legal gaps on several occasions and in effect created new WTO law, which was not the expectation of the members when the WTO was created in 1994. For many years, its legal creativity was considered an achievement but finally, the perceived judicial overreach was unacceptable to the United States and it became its Achilles’ heel.

In order to resolve the issue of judicial overreach, we suggest that a potential solution could be resort to “non liquet”, such that members would allow, or even require, its use by WTO adjudicators (see our working paper for a full discussion). Substantively, non liquet means that where WTO law is unclear or incomplete, a tribunal declares that it cannot judge the case, de facto deciding the case in favour of the defendant. We suggest that the power and legitimacy of an appellate mechanism could be restored by the use of non liquet. The concept applies to panels too. But resorting to non liquet could solve some significant problems, it would also raise some challenges – notably about when and how non liquet could be used.

Legal background

The use of non liquet is contentious. The Appellate Body has followed the general prohibition against the ability of international courts to declare non liquet over a matter before it. However, WTO adjudicators could legitimately exercise non liquet where they deem necessary since WTO law does not explicitly bar non liquet,[1]

Why non liquet?

We believe that WTO members should explore the potential for the use of non liquet as it may address

some (but not all) of the key criticisms levelled against the Appellate Body (and in its absence, what could be levelled against panels too). WTO dispute settlement is mandated not to “add to or diminish the rights and obligations” contained in WTO law. Thus, non liquet can provide WTO adjudicators the necessary relief from pronouncing rulings where the law is unclear, insufficient or simply absent, where ruling upon such law (or no law) could lead to unwarranted addition or diminishing of rights and obligations. The justification for non liquet when there is no law is easier than when the law is unclear. When the law is unclear, the Vienna Convention on the Law of Treaties (VCLT) can help but not in every case.

Why not non liquet?

Certain pitfalls emanate from the use of non liquet.  For instance, the effective prolongation of the dispute through unauthorized retaliation or even re-litigation. To introduce non liquet would require some form of consensus among members which has been impossible to attain in most circumstances to date. Its use would automatically tilt the balance in favour of respondents and so could undermine respect for the rules-based system.

But we believe that with guidelines on its appropriate usage and legal principles, which would have to be agreed by members, it could help restore the legitimacy of the dispute settlement system and ease fears of judicial overreach. For instance, rules could be crafted that whenever non liquet is invoked, there would be automatic referral to the General Council to make a definitive ruling on the law, perhaps within a certain deadline.

How to incorporate non liquet into WTO rules

There are two possible ways in which WTO members could empower adjudicators to use non liquet and provide any clarifications regarding the legitimate use of non liquet. One option could take the form of decisions by the General Council. Alternatively, there could be amendments to the Dispute Settlement Understanding, for which specific WTO rules are laid out. Both of these options require consensus of the membership. But if members approach these negotiations with a comprehensive understanding of the substantive issues instead of a leverage-driven approach, they could see the merits in non liquet and attain the ever-elusive consensus.

Conclusion

The WTO dispute settlement system needs urgent fixing. The use of non liquet is no panacea and would need agreement on some tricky details and trade-offs. However, it could address some of the current problems the WTO faces.

[1] For a comprehensive analysis, see TO JUDGE OR NOT TO JUDGE: NON LIQUET IN WTO ADJUDICATION

Acknowledgements

On the title of this blog: Experienced readers might recall the opening dialogue from “Butch Cassidy and the Sundance Kid.”

We thank Alan Winters, Emily Lydgate, Michael Gasiorek and Charlotte Humma for their helpful suggestions.

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