Geneva, 18 May (Chakravarthi Raghavan*) – An already complicated situation at the World Trade Organization is now turning out to be a witch’s brew, with the announcement by WTO Director-General (DG) Roberto Azevedo that he is quitting as of 31 August 2020, a full year before the expiry of his second term in office, and President Donald Trump welcoming it.
It remains to be seen whether this will result in a temporary hiatus of a non-functioning WTO (at a time of the COVID-19 pandemic) until the Trump Presidency ends or something more happens to the multilateral trading system.
Just look at the brew, with new contents being thrown in every day.
There is the document JOB/DSB/1/Add.12, “The Multi-Party Interim Appeal Arbitration Arrangement (MPIA),” notified to the World Trade Organisation on 30 April by 18 members, as a temporary arrangement among themselves, to circumvent the problem of the Appellate Body (AB) mechanism of the WTO-Dispute Settlement Understanding (DSU), rendered dysfunctional by the US in not allowing new appointments to the AB.
The participants listed in the document are: Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; the European Union; Guatemala; Hong Kong, China; Iceland; Mexico; New Zealand; Norway; Pakistan; Singapore; Switzerland and Uruguay.
The EU-Canada led group, invoking Article 25 of the DSU to notify their temporary accord in disputes, is problematic enough on its own: the MPIA is to kick in not at the start of a dispute among the partcipants, but at the interim report stage of a dispute panel proceeding.
This raises the issue whether the new entity (MPIA) is an “alternative” means for the DSU procedures or a colourable exercise of authority under Article 25 to create a “supplementary” means to the WTO-DSU, amounting to an amendment of the DSU.
The situation becomes more complicated in that the participating members have indicated that they envisage: (1) the appeal arbitrators under MPIA will be provided with administrative and legal support by the WTO secretariat, and (2) that the panel procedures will be “adjusted” to enable the functioning of the arbitrators.
The first requires the WTO DG being provided such authority by the WTO budget, and his acquiescence in what may appear to be an attempt at disregarding DSU procedures to game the system.
The budget issue is reportedly on the agenda of the meeting on 19 May of the Committee on Budget, Finance and Administration; and for budget authorisation, among others, the US, which has created the AB impasse, has to agree.
[If the budget committee agrees, in the future when questions arise on whether Art. 25 of the DSU could be invoked as in the case of MPIA, the budget committee approval can be cited (in terms of the Vienna Convention on the Law of Treaties) to support the view that WTO participants, in their subsequent conduct, did support the view that the ambiguity in wording of Art. 25 enabled its being invoked during panel proceedings.]
This situation, complicated enough, has now been thrown into further complications, by the sudden announcement of DG Azevedo that he is quitting as of 31 August.
Amidst speculation on what is behind Azevedo’s announcement comes President Trump’s comment on Thursday: “I am fine with the decision. You will be seeing many changes, many reforms in the WTO soon.”
Within Brazil, where President Jair Bolsonaro’s foreign policy has spawned a united opposition from all former foreign ministers (see SUNS #9121), there is even more intense speculation, and scathing comments from among others former foreign minister Celso Amorim, and former finance minister Rubens Ricupero.
Some sources in the Brazilian foreign office have hinted that Mrs. Azevedo, who had once been a chef de cabinet of foreign minister Amorim, but now a strong supporter of Bolsonaro’s pro-US policy, is due to be named Brazil’s envoy to Washington DC.
It is arguable that the MPIA participants in choosing arbitration to settle trade disputes expeditiously are acting legally, as envisaged by the DSU Art. 25, and need neither approval of the WTO membership nor any amendment to WTO rules, though there may be practical hindrances to its effective operation.
However, a detailed examination of the WTO-DSU suggests that the MPIA, purportedly an exercise invoking Art. 25 of the DSU, is in fact a new entity for dispute settlement among its participants, one that would be an amendment of the DSU, needing unanimity.
Such detailed examination is best done by examining all the details of the DSU, against the background of the WTO, a treaty organisation for the multilateral trading system that replaced the GATT-1947 (a provisional arrangement), and the DSU, an integral part of the WTO.
During the 7-1/2 years of the Uruguay Round of GATT-1947 multilateral trade negotiations, resulting in the Marrakesh Agreement of April 1994, until November-December 1993, those negotiating agreements in different areas of trade (in goods, services and intellectual property) had no clear idea of how, when the results of the multilateral trade negotiations had been established, their international implementation would be decided.
The Uruguay Round (UR) negotiations, when launched at Punta del Este in September 1986, began as a single undertaking in the area of trade in goods, and on a separate track on trade in services.
Midway, the negotiations on goods trade, which included the issue of trade in counterfeit goods, became separated, with the one on counterfeit trade becoming one on “Trade-Related Aspects of Intellectual Property Rights” (TRIPS), but part of the UR negotiations.
Each of the agreements had provisions for “Consultations” and “Dispute Settlement” (ala Articles XXII and XXIII of GATT-1947, with a few having some additional or special rules).
By November-December 1993, when the talks concluded at official level, the final shape became clearer: a single international treaty to establish the World Trade Organisation with annexes on agreements on trade in goods, services and intellectual property, and an understanding on settlement of disputes (the DSU).
The DSU sets down rules, for a set of step-by-step procedures (from the first stage of officially bringing complaints on disputes between parties to the WTO membership), through various stages leading to adjudication by panels, with a right to appeal on issues of legal interpretation to the Appellate Body and adoption of reports by negative consensus, and the surveillance and implementation stages of the ruling.
Within this framework, the DSU Art. 25, “Expeditious Arbitration” between Parties as an “alternative means of dispute settlement”, sets out in its first three paras how this is to be done and in the fourth para subjecting the arbitration outcome to DSU Articles 21 and 22 (surveillance of implementation and compensation or authorised retaliation).
[Article 25: Arbitration (p 427 of Legal Texts) is cited below for ready reference:
1. Expeditious arbitration within the WTO as an alternative means of dispute settlement can facilitate the solution of certain disputes that concern issues that are clearly defined by both parties.
2. Except as otherwise provided in this Understanding, resort to arbitration shall be subject to mutual agreement of the parties which shall agree on the procedures to be followed. Agreements to resort to arbitration shall be notified to all Members sufficiently in advance of the actual commencement of the arbitration process.
3. Other Members may become party to an arbitration proceeding only upon the agreement of the parties which have agreed to have recourse to arbitration. The parties to the proceeding shall agree to abide by the arbitration award. Arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto.
4. Articles 21 and 22 of this Understanding shall apply mutatis mutandis to arbitration awards.]
While arbitration is set out as an “alternative means of dispute settlement”, Art. 25 is silent on when it is to be invoked. The MPIA, sponsored by the EU-27 and Canada, and adhered to by other listed participants, invokes Art. 25 at the interim report stage of a dispute panel, on a dispute.
The rules and procedures of the Dispute Settlement Understanding (Annex 2 to the WTO Treaty) was among the last of the agreements negotiated during the UR negotiations.
The DSU applies to all disputes under the “covered agreements” (in Annexes 1A, 1B and 1C to the WTO treaty), to all disputes arising out of the WTO treaty, and to the DSU itself.
Art. 25 of the DSU prescribes some conditions for application and operation: (I) issues should be clearly defined by the parties; (ii) parties to the dispute should have agreed to the procedure to be followed; and (iii) parties to the dispute will abide by the arbitration award.
The view of some former negotiators is that while some doubts can reasonably be raised about the MPIA, they do not cause infirmity to the process nor do they involve amendment of the DSU. However, there may be practical hindrance in its operation.
1. Art. 25 envisages the arbitration as an alternative to the general panel-appeal process, whereas MPIA starts only after some significant panel-appeal process has been gone through. To that extent it appears to be a supplement to the panel-appeal process rather than a clearly independent alternative process. Thus, MPIA may appear to violate the “alternative” criteria and thus lose the protection of Art. 25, thereby appearing to be in the nature of amending the DSU process.
But Art. 25 does not prescribe precisely when this route is to be initiated and thus it does not prohibit taking the arbitration route mid-way, for example, after a panel has been formed and it has given an interim report.
2. Normally, the arbitration route is to be taken when two parties have specific issues between them and they decide to follow this route. At that stage they will decide on the procedure to be followed.
Here, a set of Members have agreed to adopt this arrangement in anticipation of possible disputes; the dispute has actually not arisen. They have laid out a detailed and clear procedure they intend to adopt.
So, instead of two Members defining the agreed procedure in respect of their specific dispute at the time of going for the arbitration process, here, a set of Members have prescribed a process that any two (or more) of them will follow when they resort to this process.
This may not be a valid criticism of the MPIA as not being in consonance with Art. 25. Thus, instead of defining the procedure at that time, they are defining the procedure right now, i.e., well ahead of the dispute arising.
There may, however, be some practical problems in operating the MPIA. It envisages servicing the process by the WTO staff. This may be validly opposed by some Members who are not part of the MPIA.
And there may be a heavy cost on the resources of the WTO Secretariat. The WTO Members who are not in the MPIA may object to these resources being utilized for this process.
There may be rumblings and actual opposition in the budget committee. Some Members may deny this facility to the MPIA. This will make its operation very problematic.
Other former negotiators disagree, and say that this article on arbitration is self-contained as an alternative mode of dispute settlement under the DSU and has no scope for further elaboration to hybridize the 2-step process of panel findings and appellate review of legal issues by introducing arbitration at the appellate stage.
This, in these former negotiators view, not only amends Article 25, but changes the very character of the DSU. It also specifically changes in part the specific provisions on panel process and procedures.
Hence, most of the provisions in the MPIA are in the nature of amendments to the DSU and cannot be undertaken without going through the procedure for amendments to the WTO agreements as laid down in Article X of the Marrakesh Agreement. These being temporary measures does not change their legal character.
In the absence of the AB, it is difficult for an easy resolution of this Kafkaesque situation.
Hence, until the issue of the appointments to the AB is sorted out, it would be in the interests of the integrity of the system for members to use from the outset arbitration under Article 25 to settle their disputes.
Some of the former negotiators add that whatever may be the motivation (even the helplessness and extreme frustration) for taking this step, it does not auger well for a rule-based MTS that the custodians of the system are prepared to abandon rules altogether as seems to be the case here.
However, key WTO members, in several cases, are in open violation of their obligations and no one is prepared to challenge them under the system.
One of the major purposes of the system is to restrain and constrain power play in trade relations, which it seems it is singularly failing to do.
[* Chakravarthi Raghavan, the Editor-Emeritus of the SUNS, contributed this commentary.]