The future of Appellate Body reform at the World Trade Organization likely lies with the fate of its director of nearly 15 years -- a powerful but divisive bureaucrat who is seen by some as a committed public servant safeguarding the institution and by others as a dictatorial workaholic who wields improper influence over appellate rulings.
Werner Zdouc, the Austrian-born secretariat director since 2006, has many detractors and supporters, and few in between. He is widely considered to have guided the evolution of the Appellate Body over the years into the forum the U.S. has spent the past few years thoroughly and repeatedly criticizing. Inside U.S. Trade spoke with current and former WTO staff, Appellate Body members and other sources in Geneva to understand Zdouc’s role -- and whether the reforms the U.S. has demanded for the institution can move forward while he holds his post.
At issue is whether Zdouc exerts undue influence at the Appellate Body, including by writing or revising draft appellate reports. According to his defenders, Zdouc reports to the Appellate Body members and, accordingly, cannot wield excessive power unless those members allow it to happen, which is an entirely different problem. Instead, they argue, Zdouc’s aims are consistency in Appellate Body rulings and protecting the institution’s integrity.
But his critics counter that Zdouc’s preoccupation with consistency has led to an “ossification” -- in the words of former Appellate Body member Jennifer Hillman -- in which the body, and Zdouc in particular, are unable or unwilling to admit, much less correct, past mistakes. The issue of trade remedies, for example, is one the U.S. has frequently cited as marred by egregious Appellate Body interpretations; the body has ruled against the U.S. several times in this area.
The Appellate Body is facing both external and internal crises that are set to come to a head next week. From the outside, the U.S. has been blocking new nominations to the seven-member body since mid-2017 over substantive and operational concerns, leaving it with the minimum three members needed to hear new appeals. Two of those three will become former members after Dec. 10, although they could decide, under Rule 15, to adjudicate appeals on which work has already started. But Appellate Body Chairman Thomas Graham has conditioned his willingness to work past the end of his term next week on Zdouc’s removal.
Graham’s last stand has brought the private divide among Appellate Body members to light, and the other two members and one former member working under Rule 15 put out a letter supporting Zdouc. The secretariat itself, including staff lawyers, is equally split and at odds, sources told Inside U.S. Trade.
At a three-day General Council meeting next week, WTO members will take up a draft decision on the future of the Appellate Body put forward by New Zealand Ambassador to the WTO David Walker, the Dispute Settlement Body chair. No immediate resolution to the impasse is expected, meaning the Appellate Body will be paralyzed in less than a week.
The U.S. is not alone in its criticism of the Appellate Body, which it says has acted outside of its authority and created new WTO rules not agreed to by the members. A number of WTO members are sympathetic to U.S. concerns and a few have even begun eyeing the secretariat with some unease, according to Geneva sources. As one example, a source noted that WTO ambassadors -- the top representatives of member governments -- should have the run of the WTO building, yet they too must be buzzed into the area that houses the Appellate Body Secretariat. The source characterized the area as a “sanctum sanctorum.”
“I have wondered. I have wondered if the director needs to be sacrificed for us to move on,” the source said. “I think there is a great deal of hostility toward the director by the Americans. But I don’t know if they will demand his head.”
Who is Werner Zdouc?
The director of the Appellate Body Secretariat is, by all accounts, a workaholic who is almost obsessively dedicated to the institutional integrity of the Appellate Body. Zdouc is “arguably the most powerful international civil servant that nobody has ever heard of,” Paul Blustein, a senior fellow for the Canada-based Center for International Governance Innovation, wrote in a 2017 paper, although the recent limelight has chipped away at the director’s under-the-radar status.
Blustein’s paper is an accurate characterization of Zdouc and the way he operates, according to many sources.
Zdouc declined to comment for this story, as did a spokesman for the WTO.
Zdouc was hired by then-acting director Peter Van den Bossche, who would later come back to the Appellate Body as a member for two terms, the latter of which he finished in 2017. Under Rule 15, Van den Bossche continued to work on appeals for another year.
Van den Bossche told Inside U.S. Trade that hiring Zdouc was “one of the best things I did when I was acting director. He added that he remained good friends with Zdouc. “I do not know of a more committed, more knowledgeable, more dedicated, more impartial legal adviser than him,” Van den Bossche said.
Zdouc’s commitment to his work is obvious and was mentioned by many sources. The concern, as one source put it, is whether his dedication veers into “improper influence.” Zdouc personally oversees every dispute, sources said, meaning he reads and revises all issue papers -- identifying the issues at question based on disputing members’ submissions -- and draft reports before they are sent to the Appellate Body members. He is involved in nearly all the discussions during the appeals.
One Geneva source argued Zdouc’s oversight of issue papers allows him to control the flow of information to Appellate Body members by prioritizing certain issues or not addressing others. He is able to direct a large portion of the work before the members even get involved, the source added.
Van den Bossche dismissed this criticism, contending that issue papers were merely “advice” that Appellate Body members could feel free to disregard. “I have never felt threatened by this advice, because that’s what it is -- advice by the secretariat. I’ve often disagreed,” he said. “For those of my colleagues who didn’t like the issue paper, well, you’re free to ignore it.”
“Did it set the discussion in a certain direction that could then no longer be changed?” he asked. The answer, he added, was always dependent on how convincing a given member was. The secretariat didn’t set the agenda, he said.Another Geneva source acknowledged the secretariat plays a large role in assisting the members -- including work on issue papers and drafting reports -- but was skeptical on the question of influence, saying it was unlikely members were being “manipulated” by the secretariat.
The secretariat has placed an emphasis on collegiality and consistency, but overshot the target when the Appellate Body's culture no longer allowed it to openly reconsider its jurisprudence, according to Queens University law professor Nicolas Lamp. However, Lamp, a former secretariat staffer, also said it was “far-fetched” to believe Zdouc could single-handedly steer the entire Appellate Body.
Zdouc’s controlling tendencies has led to tension with his staff. In 2014 or 2015, a group of junior lawyers and support staff wrote him a letter, the existence of which was confirmed by several sources, outlining a list of grievances relating to case management, work conditions, hours worked and how leave was approved -- or, in this case, not approved. But while his management style is not on trial, it is indicative of his desire to control nearly all aspects of appeals, as sources have said.
Where does the Secretariat go from here?
The question of whether the secretariat is in need of reform is a matter of significant debate. Recent former Appellate Body members like Van den Bossche and Ricardo Ramírez-Hernández believe it is serving the function the majority of Appellate Body members have wanted it to serve.
“Werner has run the secretariat and has given it the role that the majority -- the vast majority -- of Appellate Body members wanted it to have,” Van den Bossche said.
The strength of the secretariat, Ramírez argued, depends on the relative strength or weakness of the Appellate Body members. The secretariat is “just an administrator,” he added. The members should be the one with the power -- and if they aren’t, he said, “that’s a larger problem.”
Other members -- Hillman and Graham, for example -- have been frustrated by the role of the secretariat and, specifically, Zdouc. Graham wants Zdouc gone. According to Blustein, Hillman and Zdouc also clashed frequently, and she would tell him to “stop intervening.” When she realized the U.S. was likely to block her reappointment for a second term, Hillman feared the U.S. would lose its chance to move Zdouc out of the directorship, Blustein wrote in his 2017 paper.
Another source made a similar point, arguing the U.S. made a mistake in removing Hillman because she had both the credibility and political savvy to be effective in course-correcting at the Appellate Body in ways that would have resonated with the U.S.
One way or another, change will be forced upon the Appellate Body. Without a functioning Appellate Body, some staff in the Secretariat could be reassigned within the WTO. And while WTO members could yet decide on a way forward, it is unlikely the Appellate Body, including the Secretariat, will return to the status quo, sources said, given the drastic action the U.S. has taken to push reform. Several sources said they didn’t see any resolution that would leave Zdouc in his position.
“I don’t know that I see a solution where Werner stays,” one source said. “The question is how they move him out of there.” Another source noted that the WTO could have avoided some of the now-public debate and internal divide if it had transferred him out of the role years ago in a “nice, elegant way.”
The U.S. has not made any public statements on the Appellate Body Secretariat and the Office of the U.S. Trade Representative did not return a request for comment. But it is an open secret, according to Geneva sources, that Zdouc is viewed as an impediment to reform by the U.S. Even those who do not view Zdouc as part of the problem could begin to view his now-public divisiveness as a reason he should go, according to one source -- especially if would be key to appeasing the U.S. and getting the Appellate Body back in business.
The source added that “the people matter” -- who the director is has a top-down effect on the culture of the Secretariat. “If you appoint, say, [former USTR general counsel] Steven Vaughn, in that position, you would get different results.”
Hillman, at a Washington International Trade Association event last month, suggested that Appellate Body Secretariat staff members be term-limited in the same way Appellate Body members are. She argued, without naming names, that those in the Secretariat who had been there longer than any members contributed to the “ossification” of the Appellate Body.
Blustein echoed this idea in his paper, arguing that Zdouc’s “loss of perspective” meant he should be replaced. But he also took the U.S. to task for threatening “to wreck the WTO out of pique over Appellate Body rulings on trade remedies” -- a frustration shared by many, though certainly not all, sources, especially in Geneva.
Or as Lamp put it: “The tragedy of the Appellate Body is that it came down to personalities because the institutions around it failed.” -- Hannah Monicken (hmonicken@iwpnews.com)
