TWN Info Service on WTO and Trade Issues (May20/06)
6 May 2020
Third World Network

EU and allies notify WTO of interim arbitration mechanism
Published in SUNS #9113 dated 5 May 2020

Geneva, 4 May (D. Ravi Kanth) – The European Union along with 18 countries have notified at the World Trade Organization the “multi-party interim appeal arbitration arrangement” pursuant to Article 25 of the Dispute Settlement Understanding (DSU).

But major countries that often take recourse to the dispute settlement system have abstained from joining the EU-led initiative, trade envoys told the SUNS.

Countries such as the United States, Japan, India, Indonesia, and Thailand among others who often invoke dispute settlement proceedings at the WTO appear to have opted out of the so-called interim multi-party appeal arbitration mechanism.

[Trade observers and former negotiators suggest that the interim arbitration mechanism, while purporting to be a voluntary/temporary arrangement under Article 25 of the DSU, is in fact trying to effect amendments to the rules of the DSU. Any amendments to the DSU can only be done through unanimous agreement of members, and thus the mechanism notified by the 19 signatories to apply amongst them is WTO-illegal. More on this in a forthcoming article. SUNS].

Despite insisting that the restoration of the Appellate Body (AB) soon is their priority, the EU-led multi-party appeal arbitration mechanism actually weakens the case for restoring the Appellate Body, said a trade envoy, who asked not to be quoted.

The Appellate Body became dysfunctional on 11 December 2019, after the United States single-handedly blocked the selection process for filling six vacancies at the AB and also rejected a set of reforms to address Washington’s concerns.

Ten days ago, the US President Donald Trump threatened that the US will walk out if the WTO fails to address its concerns and issues rulings beneficial for the US interests.

Subsequently, the US said it will not adopt recent rulings of the Appellate Body that found the US as having violated the WTO provisions.

Apparently, the WTO director-general Roberto Azevedo has already shifted around 20 Appellate Body staff to various other divisions in the Secretariat on temporary secondment, said a trade envoy, who asked not to be quoted.

Effectively, the Appellate Body is being dismantled and its restoration is unlikely in the foreseeable future, said another trade envoy, suggesting that even the future of the current Appellate Body division director Werner Zdouc remains uncertain.

It is also unclear whether the WTO DG will allow the AB director to head the staff at the multi-party interim mechanism at the Secretariat because of opposition from the US, Japan, Brazil and Australia among others to the AB director’s continuation, the trade envoy said, asking not to be identified.

On the EU-led interim multi-party appeal arbitration mechanism, the 19 signatories – the European Union, Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, Guatemala, Hong Kong-China, Iceland, Mexico, New Zealand, Norway, Pakistan, Singapore, Switzerland, Ukraine and Uruguay – emphasized that “a functioning dispute settlement system of the WTO is of the utmost importance for a rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features.”

In a job document (Job/DSB/1/Add.12) issued on 30 April, the 19 countries argued that “in the interim, to put in place contingency measures based on Article 25 of the DSU in order to preserve the essential principles and features of the WTO dispute settlement system which include its binding character and two levels of adjudication through an independent and impartial appellate review of panel reports, and thereby to preserve their rights and obligations under the WTO Agreement.”

The signatories insisted that the proposed mechanism would “preserve the possibility of a binding resolution of disputes at panel stage, if no party chooses to appeal under this arrangement, through the adoption of panel reports by the DSB by negative consensus.”

The 19 countries reaffirmed that “consistency and predictability in the interpretation of rights and obligations under the covered agreements is of significant value to Members and that arbitration awards cannot add to or diminish the rights and obligations provided in the covered agreements.”

The signatories said the signatories to the MPIA (multi-party interim appeals arbitration mechanism) would “resort to arbitration under Article 25 of the DSU as an interim appeal arbitration procedure (hereafter the “appeal arbitration procedure”), as long as the Appellate Body is not able to hear appeals of panel reports in disputes among them due to an insufficient number of Appellate Body members.”

In such circumstances, according to the MPIA provisions, the participating Members will not pursue appeals under Articles 16.4 (challenging a panel report before the AB if it is not adopted in 60 days) and Article 17 (provisions governing the Appellate review) of the DSU.

However, the signatories said the appeal arbitration procedure will be based on the substantive and procedural aspects of Appellate Review pursuant to Article 17 of the DSU, in order to keep its core features, including “independence and impartiality, while enhancing the procedural efficiency of appeal proceedings.”

Further, “the participating Members have envisaged that, under the appeal arbitration procedure, appeals will be heard by three appeal arbitrators selected from the pool of 10 standing appeal arbitrators composed by the participating Members.”

The selection of 10 arbitrators from 19 members of the MPIA could prove contentious, said a trade envoy, who asked not to be quoted.

“The pool of arbitrators will comprise persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally,” according to the MPIA.

The ten standing appeal arbitrators “will be unaffiliated with any government” and they “will not participate in the consideration of any disputes that would create a direct or indirect conflict of interest” so as to ensure that the pool of arbitrators will provide “an appropriate overall balance.”

“In order to promote consistency and coherence in decision-making, the members of the pool of arbitrators will discuss amongst themselves matters of interpretation, practice and procedure, to the extent practicable,” according to the MPIA.

The selection of appeal arbitrators “will be provided with appropriate administrative and legal support, which will offer the necessary guarantees of quality and independence, given the nature of the responsibilities involved.”

Further, “the support structure will be entirely separate from the WTO Secretariat staff and its divisions supporting the panels and be answerable, regarding the substance of their work, only to appeal arbitrators.”

The 19 signatories urged “the WTO Director General to ensure the availability of a support structure meeting these criteria.”

They also envisage “limited adjustments to panel procedures in disputes covered by the MPIA, to the extent it is necessary to facilitate the proper administration of the appeal arbitration procedure, should a party decide to appeal under this procedure.”

“If no party appeals the panel report under the appeal arbitration procedure, the participating Members envisage that the panel report will be formally circulated for adoption by the DSB by negative consensus,” the 19 signatories emphasized in the MPIA, which would apply to any future dispute between any two or more participating Members, including the compliance stage of such disputes.

According to the MPIA, “in order to render the appeal arbitration procedure operational in particular disputes, the participating Members indicate their intention to enter into the arbitration agreement (the “appeal arbitration agreement”)” and “notify that agreement pursuant to Article 25.2 of the DSU within 60 days after the date of the establishment of the panel.”