The Crown Jewel in Crisis: The WTO Appellate Body Paralysis

The World Trade Organisation's Dispute Settlement System (WTO DSS), established under the Understanding on Rules and Procedures Governing the Settlement of Disputes in 1995 as part of the broader WTO framework, represented a fundamental transformation in international trade governance. Building upon the less equitable dispute settlement procedures of the General Agreement on Tariffs and Trade (GATT) 1947, the WTO introduced a complex mechanism characterized by legally binding rulings, strict procedural timelines, and, most significantly, the possibility of appellate review. These innovations marked a decisive shift from the power-based dynamics that had historically dominated international trade relations toward a rules-based system that promised predictability, transparency, and compliance.

Often described as the "crown jewel" of the multilateral trading system, the WTO DSS achieved unprecedented success in its first two decades of operation, handling over 600 disputes covering an extensive range of issues, from agricultural subsidies to intellectual property rights. Such wide implementation indicates a high level of recourse and trust by Member States, vested in a transparent and impartial adjudicatory process. By 2014, approximately 72% of panel reports adopted since 1995 were appealed, often with cross-appeals by the parties. By constraining unilateral retaliation and enforcing trade commitments through binding legal mechanisms, the DSS strengthened the legitimacy of the WTO and contributed to establishing stability in the global trading order. This success represented, in essence, the legalisation of international trade and a departure from the diplomatic flexibility that had characterized the GATT era.

The History of the Appellate Body Crisis

However, following this period of notable achievements, the WTO Dispute Settlement System has entered what scholars and practitioners describe as a deep institutional crisis, largely precipitated by the paralysis of its Appellate Body since December 2019. The roots of this crisis are traceable to the United States' sustained blockage of new appointments beginning in 2017, driven by a constellation of concerns including perceived "judicial activism," sovereignty considerations, and frustrations over the system's scope, pace, and alleged overreach.

The United States' obstruction strategy evolved gradually but decisively. While the Obama administration initiated targeted resistance to reappointments in 2016 – notably refusing to reappoint South Korean Appellate Body member Seung Wha Chang and a U.S’ own Appellate Body Member - Jennifer Hillman on grounds alleging that Chang "had failed to act within his mandate" and Hillman “had not upheld U.S. protectionist measures” – this action was initially perceived as an attempt to exert pressure for reform rather than to dismantle the system entirely. However, the Trump administration “converted this frustration into systematic obstruction”, blocking all new appointments and reappointments from 2017 onward, increasing the number of judicial vacancies that culminated in the Appellate Body losing its quorum on December 11, 2019. By December 2020, all seven Appellate Body seats were vacant, as the mandates of the remaining members had expired.

The substantive critiques advanced by the United States centered on several key issues. First, the United States alleged that the Appellate Body engaged in "judicial activism" by exceeding its mandate through expansive interpretations of WTO agreements, effectively creating new obligations that Member States had never negotiated. Second, concerns were raised about procedural violations, including the Appellate Body's consistent failure to meet the 90-day deadline for issuing reports and the unauthorized continuation of members' terms beyond their expiration dates. Third, the United States contested the Appellate Body's practice of treating its prior decisions as binding precedent, despite the requirement inferred from WTO rules, that each dispute must be resolved on its own record and legal claims. Finally, critics argued that the Appellate Body had improperly expanded its scope by reviewing factual determinations by the panel under the guise of legal interpretation, thereby “exceeding its role as a legal reviewer”.

The Systemic Consequences: From Predictability to Paralysis

The paralysis of the Appellate Body has generated profound systemic consequences that extend far beyond procedural inconvenience. Most fundamentally, the dysfunction has rendered the appellate mechanism non-functional, creating what practitioners and scholars describe as appeals "into the void", a legal vacuum where states found in violation of WTO rules can now appeal indefinitely, thereby preventing any final resolution and restricting the power of panel decisions. This phenomenon has partially transformed the dispute settlement system from a regime of enforceable adjudication, into one where, in many cases, compliance depends largely on the goodwill of the losing party.

The empirical evidence of this deterioration cannot go unnoticed. Research demonstrates that since the Appellate Body's paralysis, dispute litigation at the WTO has declined sharply, with many WTO members turning to alternative arrangements or reverting to unilateral measures. Since 2019, over 30 panel reports have been appealed into this legal void, leaving them in indefinite limbo. At the same time, when set against the overall drop in new disputes and the growing tendency to shift trade conflicts to alternative fora or to manage them unilaterally, this number of “suspended” panel reports is not especially high in absolute terms and, if anything, underrepresents the broader erosion of multilateral enforcement. Nevertheless, major economies have increasingly resorted to bilateral negotiations, power-based arrangements, or regional dispute settlement mechanisms, threatening the rules-based order that the DSS was created to safeguard.

This crisis raises the central question that has driven the scholarly and policy debate since 2019: how does the paralysis of the Appellate Body affect the efficiency, legitimacy, and global influence of the WTO Dispute Settlement System? The loss of appellate review threatens both the predictability and credibility of WTO rulings, raising doubts about the Organization's ability to enforce its own multilateral trade rules. In the absence of a functional DSS, the international trading system risks reverting to the power-based dynamics that preceded the establishment of the GATT, where economic and political leverage, rather than legal rights, determined the resolution of trade disputes. The impact has been particularly severe for developing countries and least developed countries, which historically relied on the DSS as a mechanism that could constrain the arbitrary exercise of power by larger economies. These countries face disproportionate challenges in the current environment, because of the lack of economic leverage to impose meaningful retaliation against larger trading partners, possess limited legal and financial resources to navigate complex alternative mechanisms, and are more vulnerable to coercive bilateral arrangements that favour powerful states. Consequently, the Appellate Body crisis exacerbates existing inequalities in the multilateral trading system, potentially deterring developing countries from pursuing legitimate claims and further decreasing their confidence in global trade governance.

Temporary Measures and Their Inherent Limitations

In response to the institutional paralysis, several alternative dispute settlement mechanisms have emerged, most notably the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) established in April 2020, and various forms of mediation, conciliation, and arbitration provided under Articles 5 and 25 of the Dispute Settlement Understanding (DSU). While these alternatives have partially filled the institutional void, each faces distinct limitations that constrain their long-term impact and long-term viability.

The Multi-Party Interim Appeal Arbitration Arrangement (MPIA)

The MPIA, established by a coalition of WTO members including the European Union, China, Canada, and Brazil, offers a two-stage procedure modeled closely on the DSS. Under this arrangement, participating members agree to appeal panel decisions through arbitration under Article 25 of the DSU, rather than to the non-functioning Appellate Body, with arbitrators selected from a pool of ten individuals nominated by consensus of MPIA participants. The MPIA has demonstrated procedural effectiveness: the arbitration in Colombia – Anti-Dumping Duties on Frozen Fries (DS591) resulted in a binding award issued within 75 days, well within the 90-day deadline, largely upholding the EU's challenge to Colombia's anti-dumping measures. Similarly, in Turkey – Pharmaceutical Products (DS583), in the first Article 25 arbitration involving parties that were not MPIA signatories, arbitrators issued their award within the prescribed timeframe, demonstrating that Article 25 can serve as a functional alternative to the appellate mechanism. Most recently, in China – Enforcement of Intellectual Property Rights (DS611), MPIA arbitrators reversed several panel findings and ruled that China's anti-suit injunction policy violated the TRIPS Agreement, protecting European companies' ability to defend their intellectual property in European courts.

However, despite these successes, the MPIA suffers from fundamental structural limitations. First, its voluntary and plurilateral nature means that key economies, notably the United States, India, and Turkey, do not participate, which significantly undermines its universal legitimacy and leaves major disputes either unresolved or subject to indefinite delays. As of 2025, only 30 WTO members (counting the EU as one) have joined the MPIA, representing a small fraction of the WTO's 164 members. Second, MPIA awards, while binding on the parties, lack the institutional authority and precedent-setting power of Appellate Body decisions within the broader WTO legal framework. Finally, the MPIA's effectiveness depends entirely on continued voluntary participation; members can withdraw at any time, making it an inherently unstable foundation for the dispute settlement system.

Article 5 DSU Mechanisms: Good Offices, Conciliation, and Mediation

Article 5 of the Dispute Settlement Understanding (DSU) establishes a framework for "good offices, conciliation, and mediation" as voluntary, non-litigious avenues for resolving WTO disputes. These mechanisms are designed to offer diplomatic and cooperative alternatives, facilitated by the WTO Director-General or mutually agreed third parties, particularly when adjudication is politically sensitive or institutionally impossible. The theoretical effectiveness of Article 5 mechanisms derives from several features: the processes are flexible, confidential, and may accommodate creative, mutually acceptable solutions not feasible through formal litigation. By prioritizing dialogue over confrontation, these mechanisms can help de-escalate trade friction, preserve bilateral relationships, and encourage voluntary compliance with WTO rules without the costs and adversarial character of formal adjudication.

However, the practical impact of Article 5 mechanisms has been quite modest. These procedures are not invoked as widely as recourse to the Dispute Settlement body, and outcomes are non-binding, relying entirely on the goodwill and cooperation of the parties. In high-profile disputes involving major economic interests or political sensitivities, states are often reluctant to compromise through non-binding mediation, preferring either formal adjudication or strategic delay. The lack of procedural clarity and institutional support has further limited the utility of Article 5 mechanisms, with members expressing uncertainty about how to initiate and conduct mediation or conciliation effectively.

Nonetheless, scholarly and policy attention to Article 5 has intensified during the current crisis, as these mechanisms represent an underutilised resource that could potentially serve as a tool of dispute resolution functionality when the appellate process remains suspended. Proposals for operationalising Article 5 include developing detailed procedural rules, establishing dedicated institutional support through the WTO Secretariat, creating a roster of qualified mediators and conciliators, and potentially introducing incentives for compliance with mediated settlements. The International Chamber of Commerce and other business stakeholders have advocated for business-government collaboration on mediation, arguing that enhanced access to non-adversarial dispute resolution could address "trade irritants" more efficiently and preserve commercial relationships while the formal system remains paralyzed. However, the fundamental limitation remains: without binding force and universal participation, Article 5 mechanisms cannot substitute for the comprehensive, authoritative appellate function that defined the WTO's Appellate Body’s days of glory.

Implications: Legitimacy, Decentralisation, and the Future of Multilateralism

The paralysis of the WTO Appellate Body has undermined the credibility and effectiveness of the multilateral trading system, with consequences extending beyond the technical operation of dispute settlement to the broader architecture of global economic governance. By enabling appeals "into the void," the absence of a functioning Appellate Body has created an imbalance, shifting power toward states capable of leveraging their economic strength or political influence, rather than relying on rules-based resolutions. While not a full return to the pre-1947 power-based trading system, this dynamic reveals a concerning drift in that direction, reviving aspects of the economic nationalism and protectionism of the 1930s that once undermined international stability.

The crisis has accelerated the regionalisation of the international trading system, with Member States increasingly pursuing bilateral and regional arrangements as alternatives to dysfunctional multilateral mechanisms. Such rise of regionalism and bilateralism undermines the non-discrimination principle embodied in the most-favored-nation (MFN) obligation, potentially leaving smaller economies and developing countries excluded from preferential arrangements and vulnerable to discriminatory treatment. According to the most-favored-nation principle enshrined in the WTO Agreements, countries are prohibited from discriminating between trading partners. For example, if a lower customs duty rate for one of the products is granted to one country, the same rate has to be applied to all WTO members.

Developing countries and emerging market economies are disproportionately affected by geoeconomic fragmentation. These countries face greater vulnerability due to their heavier reliance on trade as a percentage of GDP, their limited capacity to negotiate favorable bilateral arrangements with larger economies, and their reduced access to knowledge spillovers and technology transfers that have historically accompanied global trade integration. The loss of a functioning, rules-based dispute settlement system removes a critical constraint on protectionist measures and trade-distorting policies, potentially unleashing a cycle of retaliation and counter-retaliation, further destabilising international trade relations.

Conclusion: Toward Restoration or Transformation?

The paralysis of the WTO Appellate Body embodies a fundamental crisis of legitimacy for the rules-based multilateral trading system. While interim mechanisms like the MPIA and underutilised procedures under Article 5 DSU provide some relief, their limited country participation, voluntary nature, and lack of binding precedential authority, they can rather be characterised as transitional measures, not sustainable solutions. These ad hoc arrangements cannot substitute for the comprehensive, universally legitimate dispute settlement architecture that defined the WTO's "crown jewel" era and provided the foundation of relative predictability in international trade relations.

Restoring an impartial, and universally accessible appellate function remains crucial for maintaining the WTO's legitimacy in global economic governance. However, restoration cannot mean simple reconstitution of the Appellate Body in its previous form. The substantive concerns raised by the United States and other members about judicial overreach, procedural discipline, and institutional accountability require considerable attention. Reform proposals must balance competing objectives: maintaining the independence and authority of adjudicators while establishing clearer constraints on interpretation, preserving the binding nature of dispute settlement while allowing appropriate consideration to national regulatory choices and ensuring timely resolution of disputes while providing adequate opportunity for appeal.

Without meaningful structural reforms and renewed engagement by all major members, the multilateral trading system risks further fragmentation and decreased impact, potentially reverting to the power-based dynamics that the WTO was designed to leave behind. The stakes extend beyond trade policy to encompass fundamental questions about the nature of international cooperation, the rule of law in international relations, and the capacity of multilateral institutions to adapt to changing geopolitical realities. The crown jewel of the multilateral trading system has been fractured. Whether it can be repaired, or must be fundamentally redesigned, remains the defining challenge for the WTO in the coming decade.

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Photograph by Eric Odin on Unsplash <https://unsplash.com/photos/top-view-of-cargo-tracks-nfQk1YdGoNc>