China and Japan are vying for permanent representation on the World Trade Organization's Appellate Body as the second and final term of Yuejiao Zhang -- who hails from China -- is set to expire on May 31, according to Geneva sources.
Zhang's impending departure has created competition among six countries for her spot, but Geneva sources said a nominee from China or Japan is most likely to fill the vacancy. Japan, Nepal, Australia, Malaysia and Turkey have submitted one nominee each for the open Appellate Body spot, while China has submitted two. The deadline for submitting nominees was March 15.
Informally, the U.S. and European Union have permanent representation on the Appellate Body, but Geneva sources told Inside U.S. Trade on March 23 that China and Japan are keen to stake out a seat for their own permanent representation.
Geneva sources and Cato Institute trade policy analyst Simon Lester noted that China or Japan obtaining a permanent seat is not a predetermined outcome, although they did believe that one of them would ultimately be awarded the open seat. There are only seven seats on the Appellate Body including the two informally claimed on a permanent basis by the U.S. and EU. Awarding a third country a permanent seat would leave open only four seats for other countries, which could upset the “diversity” of the Appellate Body, the sources said.
Additionally, awarding an additional informal permanent seat to China or Japan, or both countries on a rotating basis -- something that one Geneva source speculated could occur -- would cause other major players like Brazil or Russia to clamor for an informal seat.
Still, Geneva sources generally said arguments for rejecting this batch of nominees based on diversity are weak and therefore members are likely to examine the qualifications of each nominee alongside the political dynamics of the situation -- namely that China is a major player at the WTO and in the global economy, boosting its odds of getting the seat.
A second political dynamic at play is that countries previously holding Appellate Body seats are more likely to see their nominees selected over those from countries that have not held Appellate Body seats, Geneva sources said. China has held a seat -- its first and only Appellate Body member -- since June 2008, while Japan held a seat since the formation of the WTO in 1995 until 2012.
According to Geneva sources, the diversity arguments are weak in this instance for two reasons. First, how “diversity” is determined is up for debate among WTO members. One source argued that the root of the disagreement comes from the vague wording in Article 17.3 of the Dispute Settlement Understanding -- the only part of WTO rules that makes reference to the makeup of the Appellate Body. Article 17.3 says “the Appellate Body membership shall be broadly representative of membership in the WTO.”
Some members believe this means the Appellate Body should equally represent different regions of the world, while others read 17.3 as requiring the Appellate Body to maintain diversity in legal training, cultural or professional background, or other criteria.
Second, all of the nominees hail from regions currently represented on the Appellate Body, which nullifies the regional diversity argument overall. Nationals of India, Belgium, Korea, the United States, Mexico, Mauritius and China currently serve on the Appellate Body.
One Geneva source argued that some WTO members are seeking to diversify the Appellate Body by selecting a new member who does not have a background in diplomacy or academia -- as some sitting Appellate Body members do -- and would instead prefer the new member to have experience with WTO dispute settlement or as a domestic judge.
According to documents obtained by Inside U.S. Trade, the candidates from Japan and Australia are the only ones with experience as a dispute settlement panelist at the WTO. But despite this, sources still believed China would win the seat. Both Chinese nominees have held positions within the Chinese government that intimately dealt with WTO issues. The Malaysian candidate for a time served as that country's ambassador to the WTO, and both Nepal's and Turkey's nominees provide advice to their respective governments on legal WTO issues while also holding jobs in academia.
While Appellate Body members are supposed to be neutral arbitrators of international trade disputes, some believe that having representation on the body is beneficial and maintaining permanent representation solidifies those benefits, according to Geneva sources and Lester.
First, Appellate Body members hailing from a members' country most likely will have an understanding of the law -- from a technical and philosophical perspective -- similar to that of lawyers representing their home country in a dispute, meaning that they better understand arguments made by their home country than those made by a foreign country.
An Appellate Body member's familiarity with a legal regime under review may advantage the disputing party who hails from the member's country, Geneva sources said. Ultimately, legal familiarity may shape jurisprudence in WTO disputes, lending a long-term advantage to countries that hold Appellate Body seats over an extended period of time.
But Lester argued that legal familiarity does not award much of a substantive advantage to a disputing party. Instead, he maintained that having national representation on the Appellate Body is a matter of pride and prestige for WTO members. One Geneva source echoed this claim and said the U.S. and EU are considered to have permanent seats due to their importance in international trade and its accompanying global regimes.
The nominees for the Appellate Body vacancy are: Ichiro Araki from Japan; Surya Subedi from Nepal; Zhao Hong and Yang Guohua from China; Daniel Moulis from Australia; Muhamad Noor Yacob from Malaysia; and Yusuf Caliskan from Turkey, according to Geneva sources.
Under a selection process agreed to by DSB members at a Jan. 25 meeting, a selection committee composed of WTO Director-General Roberto Azevedo, the current chairs of the General Council, the Goods Council, the Services Council, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) council, and the DSB will review these nominations during April and May, and recommend a new Appellate Body member by May 12 in order for the DSB to make a decision at its regular meeting slated for May 23.
Members during this period may also meet with nominees in order to formulate their own views, which may be shared with the selection committee.
Members are also considering the reappointment of Seung Wha Chang who hails from Korea. His first term on the Appellate Body is set to expire on May 31, but has expressed an interest in serving a second term and Geneva sources expect his reappointment to proceed without a hitch.
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