The year 2019 was not a good year for international trade. But wait, the worst is yet to come. As Han Solo said in Episode IV, “it’s worse.”

Despite the criticism, WTO dispute settlement has been doing good in the past. It has been successful in providing a good trade dispute settlement mechanism based on rule of law without need recourse to ‘trade war’ or creating dramas of trade tension between the countries.

This is largely due to the role of WTO Appellate Body. Appellate Body, a ‘club’ of seven highly respective international trade experts, serves as check and balance mechanism for the decision rendered at the panel as the ‘court’ of the first instance.

If there are inconsistencies and mistakes found in the dispute settlement report issued by the panel, or the losing party do not agree with the panel report. Respective WTO members could bring the case to the appeal stage. Analogously, it is a ‘Supreme Court’ of international trade.

Appellate Body has been successful to ensure security and predictability of international trade system under the rule of law, not the power-based international trading system as commonly occurred in the past.

However, the Appellate Body is in crisis. If in December next month all WTO members can not reach an agreement to choose new Appellate Body members, all the trade dispute could not be appealed. Currently, the Appellate Body is working with an only skeleton crew, comprises only three persons, instead of seven as mandated by the WTO law. While for a case to be appealed, it needs to be examined by a minimum of three persons of Appellate Body member.

So far, the efforts to propose the appointment of the Appellate Body have been unsuccessful because of the United States’ veto of the proposals. It cited the disagreement that the system under WTO does not work the way it supposed to do anymore. WTO decision-making requires consensus from all the WTO members, without any objection including the US as a major trading nation.

What this implies to Indonesia?

Very bad circumstances that would not be in favour of Indonesia’s trade interest in the long run.

European Union just recently initiated a trade complaint at the WTO against Indonesia’s export policy on the raw mineral. If the dispute could not find any mutually agreed solution during the consultation stage, which would take place sometimes between December to January, the case then would be continued into the panel hearing in 2020.

If we are unsuccessful in defending the case against the EU in the panel stage. Without the existence of enough Appellate Body members to examine the appeal after December, eventually, we will unable to appeal the case. Or in either scenario, the outcome is not favourable. In case of winning, EU could simply throw the case into the appeal stage. Without enough Appellate Body members to hear the case, once the case is thrown into appeal stage by either party, the case will simply go into the void, unenforceable.

So far, Indonesia is doing well at WTO. Indeed, Indonesia trade policies were complained and brought into dispute settlement in the past. But at the same time, we also frequently to defend our trade interest, among others, in the cases related to clove cigarettes and palm oil-based biodiesel.

We could not deny the importance of the dispute settlement mechanism provided at the WTO. There are strong reasons why it frequently labelled as ‘jewel of the crown’ of the international trading system.

Trade tensions were frequently channelled into armed conflicts a century ago, in the past 24 years, these tensions were altered through rule-based pacific trade dispute settlement under the WTO. Thus, ensuring the smooth operation of WTO dispute settlement equals to indirectly maintaining international peace and security.

Now it should be the common interest of all WTO members to put the optimal effort in diplomacy to solve the new Appellate Body members appointment.

As a realisation of foreign policy mandated by the constitution, Indonesia should take a more active role in ensuring the continuation of the WTO dispute settlement system. As a strategic trading partner of the US and founding member of WTO, Indonesia could be an honest broker to provide a solution functioning the WTO Appellate Body in the future.

About the writer:

Rizky Banyualam Permana is a junior member of the Department of International Law, Faculty of Law Universitas Indonesia. Junior researcher at the Center for International Law Studies, and Legal Center for International Trade and Investment Law Universitas Indonesia. Obtained LL.M. in International Trade and Investment Law from Maastricht University.