Major Trading Countries Bolster World Trade Rules With Arbitral Mechanism

The Arrangement provides for a WTO arbitrator to hear appeals from decisions by WTO panels. These appeals would ordinarily be heard by the WTO Appellate Body. However, since December 10, 2019, the Appellate Body has been paralyzed due to a block, by the United States, on the appointment of new adjudicators (Appellate Body members). The Appellate Body’s paralysis threatens the WTO’s binding dispute settlement system.

For the MPIA parties, the Arrangement creates an interim solution that preserves binding WTO dispute settlement by allowing appeals to be heard under Article 25 of the WTO Dispute Settlement Understanding (DSU). Article 25 offers a flexible and prompt system of binding arbitration, within the existing WTO framework, that can be used to hear appeals. 

This is a heartening development, with important WTO Members expressing their continued strong commitment to the WTO and to the resolution of international trade disputes by independent adjudication under the rule of law. Sidley is proud to have been a thought leader in this area, having first proposed use of Article 25 arbitration as an interim solution in an article published in 2017.

Background

The DSU provides for a two-tier system for the settlement of international trade disputes. Disputes are heard first by ad hoc panels; a panel’s decision may then be appealed to the Appellate Body, which comprises a standing pool of seven individuals (Appellate Body members), three of whom hear an appeal.

Appellate Body members are appointed to a seven-year term by WTO Members, and they may be reappointed once. In recent years, the United States has been an increasingly vocal critic of the Appellate Body. In 2016, the United States began blocking the appointment (and reappointment) of Appellate Body members. Since December 10, 2019, only one Appellate Body member remains in office, which leaves the Body short of the three members needed to hear an appeal. The Appellate Body is, therefore, paralyzed.

This situation has the potential to threaten binding WTO dispute settlement. WTO panel reports become binding when the WTO’s Dispute Settlement Body (DSB) adopts them. If a panel report is appealed to the Appellate Body, some argue that it cannot be adopted until the appeal is completed. Although the Appellate Body no longer has sufficient adjudicators to complete appeals, a losing party is still entitled to appeal a panel report into the “void” at the Appellate Body. This could prevent the adoption of any binding WTO findings in the dispute.

The MPIA

The Multiparty Interim Appeal Arbitration Arrangement (MPIA) provides an interim solution to the Appellate Body impasse for the parties to the Arrangement. Pending the restoration of a functioning Appellate Body, the MPIA parties have agreed that in disputes among themselves, they will appeal to a standing arbitrator appointed under Article 25 rather than to the Appellate Body. The Article 25 arbitrator will, in essence, follow the Appellate Body’s usual procedures. The MPIA’s key features are as follows: 

• The Arrangement’s purpose is to preserve binding WTO dispute settlement among the MPIA parties, while the WTO Membership continues efforts to restore the Appellate Body under Article 17 of the DSU.
• The Arrangement applies to any existing or future disputes between two or more MPIA parties (and any other WTO Members that join), unless an interim panel report has already been issued, and for as long as the Appellate Body is not fully functional. 
• The MPIA parties will not pursue appeals to the Appellate Body.
• The MPIA parties will appoint a pool of 10 arbitrators. Each party may nominate one person to the pool; the WTO Director General, the Chair of the DSB and the Chairs of the WTO Councils will screen candidates to ensure that they meet the MPIA selection criteria; and the MPIA parties will then appoint 10 arbitrators from the screened group.
• Article 25 appeal arbitration will be based on the existing features of Appellate Body review, including Article 17 of the DSU and the Working Procedures for Appellate Review. Each appeal will be heard by three arbitrators, who may consult with the other seven members of the pool as part of the appeal process.
• Notable and welcome additions to the existing system of appellate review include the option for the arbitrators to encourage procedural efficiency (e.g., page limits, time limits and deadlines) and to recommend that an appellant abandon certain claims made on appeal, such as claims relating to a panel’s assessment of the facts under Article 11 of the DSU.
• Appeal arbitrators will be provided with “appropriate administrative and legal support, which will offer the necessary guarantees and quality”; the support staff will be structured to be separate from the WTO Secretariat staff supporting panels and to be answerable “only to appeal arbitrators.”

What Next?

The MPIA parties are expected to notify the Arrangement to the WTO within four weeks, following the completion by the parties of domestic legal formalities. At that point, the MPIA appeal mechanism will be operational. In particular, notification will trigger the start of the process to appoint the pool of 10 arbitrators, which should be completed within three months of notification.

Alongside this WTO appeal mechanism, the EU is proposing a system under EU law to allow the EU to take countermeasures against any WTO Member that frustrates the completion of a WTO dispute, brought by the EU against that Member. In particular, under this system, the EU would be able to take countermeasures, without following WTO rules, if the EU prevails before a WTO panel, and the respondent Member appeals the panel report into the void at the Appellate Body.