Geneva, 8 Jun (D. Ravi Kanth) – The United States on 5 June has objected to a proposal, mooted by the EU and 18 other nations, for the establishment of a new WTO secretariat division to service an alternate interim appellate arbitration arrangement, to overcome the impasse in the Appellate Body that has become dysfunctional since December 2019.
The US objection is over both the creation of a new WTO secretariat division to service the EU-mooted multi- party interim appeal arbitration arrangement (MPIA), and to its expenses to be met from the regular budget of the WTO (and thus borne by all WTO members).
The European Union and 18 other countries had on 30 April notified the WTO of their proposal for an interim appellate process (MPIA) in disputes among themselves and for implementing the MPIA under Article 25 of the Dispute Settlement Understanding (DSU).
The signatories to the MPIA sought to create a new WTO division specifically for servicing the new body and finance it from the WTO’s regular budget for the Dispute Settlement Body.
In a sudden development on 5 June, the US trade envoy to the WTO, Ambassador Dennis Shea, sent a three-page letter to the WTO Director-General Roberto Azevedo opposing “both the establishment of what appears to be a new WTO Division for the benefit of participants in the China-EU arrangement and the allocation of the staff for the exclusive use of these participants” of the MPIA as well as financing of the arrangement through the regular WTO budget, whose costs are borne by all WTO members.
[Interestingly, the US has not challenged the legality of using Article 25 of the DSU for this purpose. See Chakravarthi Raghavan, “A witch’s brew at the WTO”, SUNS #9123 dated 19 May 2020; also at https://twn.my/title2/wto.info/2020/ti200520.htm. SUNS]
The three-page US missive, seen by the SUNS, says that “a permanent support structure [for MPIA] would be particularly inappropriate in light of the limited expected use of the procedures set for in the arrangement.”
Washington has opposed the EU’s efforts to secure funding from the WTO’s regular budget for what the US called a plurilateral arrangement.
It has argued that Article 25 of the DSU does not provide a basis for a member “to direct the WTO Director- General to provide support to an arbitrator, nor the terms of such support. That, however, is what the China-EU arrangement does.”
The objection to the WTO budget funding of the MPIA raises the prospect of the EU and its members raising funds through the trust funds for assisting their plurilateral arrangement, said a legal analyst, who asked not to be quoted.
The EU, Canada, China, and other members established the MPIA, claiming they were doing so invoking Article 25 of the DSU. The MPIA “would be authorized to conduct appellate reviews of any disputes between or among those members,” the US has pointed out.
Arguing that it “does not object to WTO Members utilizing Article 25 or other informal procedures to help resolve disputes,” the US says that it has held discussions “with a number of Members regarding alternatives to the traditional WTO dispute settlement system.”
However, in its letter to the DG, Washington did not disclose the alternatives to the traditional WTO dispute settlement system it has discussed with a number of other members, said trade envoys, who asked not to be quoted.
The MPIA, according to the US, “envisages that the support structure will be entirely separate from the WTO Secretariat Staff,” and the “WTO divisions (that) support the panels.”
Therefore, “if members desire a separate staff for their dispute resolutions, those members (and not the WTO membership as a whole) should finance it,” and “members should not be allowed to create their own support structure within the WTO that is separate from the WTO Secretariat and expect other Members to pay,” the US has argued.
The MPIA initiative was the brainchild of the European Union, which started discussions on the proposed mechanism since April 2019, when it became clear that the Appellate Body will become dysfunctional after 11 December 2019. The EU had held several rounds of discussions with members to finalize the mechanism.
However, the US, in its letter to the DG, has kept referring to the new arrangement as “the China-EU arrangement (MPIA).”
According to the US, the MPIA “incorporates and exacerbates some of the worst aspects of the Appellate Body practices.”
“It (the MPIA) is an arrangement that seeks to clothe itself with faux Appellate Body authority while impinging on the rights of non-participating members (such as the US, Japan, Korea, India, South Africa, and Indonesia among others),” the US has argued.
Ambassador Shea said that “the United States also objects to the use of WTO budget funds for a process that is clearly far more than a simple Article 25 arbitration.”
Arguing that the WTO’s dispute settlement system was created “to secure a positive solution to a dispute,” the US said it would support such an arrangement if it secures such a positive solution.
However, the US argued that it would object to “any arrangement that would perpetuate the failings of the Appellate Body”, as catalogued in its report on the AB several months ago.
The MPIA will exacerbate “the erroneous Appellate practice, rather than reforming it”, as it “weakens the mandatory deadlines for appellate reports,” “contemplates appellate review of panel findings of fact,” and “fails to reflect the limitation on appellate review to those findings that will assist the DSB in recommending to a Member to bring WTO-inconsistent measure into conformity with WTO rules,” Ambassador Shea argued.
Also, the MPIA, according to the US, promotes the use of precedent by identifying “consistency” as a guiding principle for decisions.
Ambassador Shea said the phrase “consistence and coherence in decision-making” does not appear anywhere in the DSU.
However, the proposed MPIA arrangement makes such “consistency and coherence” an explicit objective for different arbitrators in different disputes and then proposes procedures to facilitate this objective, the US has suggested.
Arbitrators of the MPIA, according to the US, are “encouraged to create a body of law through litigation, rather than to focus on assisting the parties in securing a positive solution to a dispute,” the US has pointed out.
ERSATZ APPELLATE BODY
“In addition, the arrangement put forth by China, the European Union and some other members seeks to imbue it with WTO authority, which it does not have,” the US said categorically.
The US said that “the introduction of a comprehensive set of documents to deal with perhaps two or three disputes over the next few years indicates that the real goal of certain Members in preferring this (MPIA) arrangement is not to help themselves resolve disputes but to create an ersatz Appellate Body that would serve as a model for any future WTO Appellate Body.”
Further, “the proposal would expend WTO resources to seek to recreate the Appellate Body, its erroneous practices, and the Appellate Body Secretariat through a plurilateral arrangement,” the US argued.
“Article 25 provides no basis for the use of WTO resources to support functions that are not part of the arbitration,” such as for a “pool of arbitrators” to stay abreast of WTO dispute settlement activities or to enable the arbitrators to “discuss among themselves matters of interpretation, practice, and procedure,” the US argued.
Further, “the nomination and selection of individuals to serve in a “pool of arbitrators” is a process necessarily undertaken only by participating members”, the US said, emphasizing that “a group of members has no right to expend WTO resources and direct the chairs of various WTO bodies to vet and select individuals to serve on a roaster of arbitrators for potential arbitrations.”
In another MPIA-related development on 5 June, the European Union Ambassador Joao Aguiar Machado requested the WTO director-general Roberto Azevedo to work along with the chairs of the WTO bodies in their “personal capacities” to assist the MPIA members in the “pre-selection process” for choosing the arbitrators.
“The WTO Members participating in the MPIA would be grateful if you (Roberto Azevedo), Ambassador Dacio Castillo, Ambassador Hung Seng Tan, Ambassador Mikael Anzen and Ambassador Xolelwa Mlumbi-Peter – in your personal capacities – could assist them in the pre-selection process” for selecting the arbitrators.
Apparently, the General Council chair, Ambassador David Walker from New Zealand, had informed the EU ambassador that he would be unavailable to participate in the pre-selection process due to his heavy agenda, the EU ambassador told the director-general.
Ambassador Machado explained that the MPIA provides that : “… the participating Members envisage 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 in accordance with Annex 2 (hereafter the “pool of arbitrators”). 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…”.
Further, the EU trade envoy clarified that “each participating Member may nominate one candidate,” and “the candidates will undergo a pre-selection process in order to ensure that the pool of arbitrators comprises only persons of recognised authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally.”
“The participating Members envisage the completion of this pre-selection process within one month following the expiry of the deadline to nominate candidates,” Ambassador Machado said.