Solving the WTO deadlock

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The former director-general of the World Trade Organization (WTO), Pascal Lamy, referred to the WTO’s dispute settlement system as a “crown jewel”. However, the appellate body (AB), which is the centrepiece of this crown jewel, has ground to a halt following strong criticism from the US for overreaching in disputes handling, and failure to comply with WTO rules.

The AB is a standing body of seven persons (regarded as judges) that hears appeals from reports issued by panels in disputes brought by WTO members. It can “uphold, modify or reverse the legal findings and conclusions of a panel”, and it is only after the acceptance of AB reports by the WTO’s dispute settlement body that the reports become binding on parties.

The crisis that the AB faces is that the US, using its veto power, continues to block the appointment of new AB judges. Since July 2017 and until before 10 December 2019, the AB only had three judges remaining – the minimum number required for it to hear and decide on appeals. From 10 December 2019, the term of two of these last three judges had ended, rendering the AB ineffective.

So, are there any alternatives to keep alive the spirit of the WTO’s dispute settlement mechanism (DSM)?

Some suggest that accepting the panel reports as final is an alternative if the disputed countries agree to it. However, this is an arrangement between the disputed countries and not an alternative to the AB. Permanent arrangements of this sort will weaken the spirit of the DSM and leave the litigants with skepticism due to the absence review for any questionable panel decisions.

One workable alternative is resorting to arbitration under article 25 of the Dispute Settlement Understanding (DSU). This alternative was resorted to by the EU and 19 other members of the WTO on 30 April 2020, and is referred to as a multi-party interim appeal arbitration arrangement (MPIA). WTO members can resort to the arbitration mechanism either by joining the MPIA, or by proposing their separate plurilateral interim appeal arbitration arrangement.

In this interim appeal alternative, the AB process can be mirrored with former AB judges, or people with expertise in international trade law and policy, acting as arbitrators. This mechanism, as elucidated in article 25 of the DSU, gives options to members to decide the nature of disputes that they wish to arbitrate, and the rules that shall govern the proceedings.

Further, the members can also deliberate upon whether to adopt arbitration for the whole of the DSM, or just for fulfilling AB functions. The members can also deliberate upon whether all the members should have a say in the appointment of arbitrators, or if it is just for the disputed countries to decide. If only the disputed countries have to appoint the arbitrators for their dispute, then the DSM can escape the lockdown created by the US in taking the disputes through the appellate stage.

This parallel dispute settlement framework within the DSM can mirror the functions of the AB. After the award is passed by the arbitrators, it can be accepted by the WTO’s dispute settlement body in the same manner as it accepts the AB reports. Moreover, given a prior arbitration agreement in existence, the arbitral award will be binding upon the disputed parties. Thus, the arbitration mechanism can be used to resolve the AB crisis.

However, the issue that remains unanswered, even in the current MPIA, is regarding the recognition and enforcement of the MPIA awards. One way to make the awards enforceable is to welcome all WTO members to sign a plurilateral agreement on enforcement of the MPIA arbitral awards.

However, it is highly doubtful that the US and its allies, and also a few other countries (due to political reasons), will ever sign such an agreement. Another option to enforce the awards is the threat to launch countermeasures under public international law against the losing country refusing to abide by the arbitral award. Here it is worth mentioning that, earlier, the EU has threatened to initiate countermeasures under public international law against those countries which purposefully file an appeal “in limbo” to the AB, after losing at the panel stage, and refuse to take recourse of the interim appeal method under article 25 of the DSU, thereby creating an impasse in bad faith towards fulfilling their obligations.

Therefore, the question of enforcement of the arbitral awards depends entirely upon the good faith of WTO members. On a positive note, with the recourse to MPIA, most WTO members have already shown good faith to keep alive the spirit of the DSM. This step also indicates that soon a compromise will be reached to break the deadlock, and the DSM will resume functioning in its full spirit to resolve multinational trade disputes.

Prakhar Agarwal
Maharashtra National Law University
Nagpur

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