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TWN
Info Service on WTO and Trade Issues (Feb26/26)
WTO: In a twist, US appeals to Appellate Body that it keeps
non-functional Geneva, 25 Feb (D. Ravi Kanth) — For the 95th time, the United States on 24 February blocked a joint proposal from 130 countries to begin the selection process to fill all seven vacancies in the World Trade Organization’s Appellate Body to revive its main adjudicatory function. However, in a rather contradictory move, Washington chose to appeal a dispute panel ruling (DS623) concerning certain tax credits provided by the US under the Inflation Reduction Act (IRA) to the same non-functional body, said people familiar with the development. At a meeting of the WTO’s Dispute Settlement Body (DSB) on 24 February, the US trade envoy, Ambassador Joseph Barloon, appeared to echo conflicting positions on two issues concerning the dysfunctional Appellate Body. Regarding the revival of the Appellate Body by expeditiously filling all seven vacancies – as demanded by Colombia on behalf of 130 countries – around 20 members (including the EU, representing 27 countries) reiterated their demand for the urgent need to restore a fully functioning dispute settlement system. However, the US trade envoy apparently argued that the fundamental US concerns with the dispute settlement system have not been addressed, while challenging the value of repeating the agenda item. As regards the recent panel ruling that upheld China’s claims concerning certain tax credits provided by Washington through the IRA, the US chose to appeal the ruling before the non-functional Appellate Body. China, which had raised the dispute at the WTO, expressed disappointment over the US stance to appeal the ruling to a non-functioning Appellate Body, while praising the panel for its “careful and impartial assessment of the facts of this dispute and the relevant covered agreements.” In response to China’s statement, Washington argued that the panel report represents a missed opportunity for the WTO to address China’s alleged adoption of non-market policies to dominate multiple sectors critical to members’ economic futures. The US also alleged that China’s share of global production in various renewable energy industries has steeply increased. The European Union, which is the main driver of the so-called Multi-Party Interim Appeal Arbitration Arrangement (MPIA), intervened to state that the panel ruling in favour of China “demonstrates the need for an appeal review.” Yet, the facilitator overseeing the discussions on WTO reform merely looked the other way when it came to the much-delayed reform of the WTO’s dispute settlement system, ostensibly to appease the US, said people familiar with the ongoing WTO reform discussions. For all practical purposes, the reform of the dispute settlement system has been pushed to the proverbial backburner, said people familiar with the development. OTHER MATTERS Meanwhile, the DSB agreed to the establishment of a dispute panel (DS642) to adjudicate on India’s measures concerning trade in the automotive and renewable energy technology sectors, after China pressed ahead with a second panel request. China argued that India’s incentive schemes impose conditions on companies to prioritize domestic production, which unfairly discriminate against foreign businesses as well as restrict trade – in violation of the WTO rules, particularly the national treatment principles. China said that it was ready to amicably resolve the dispute, but India did not propose any concrete solutions, suggesting that it had no choice but to request for the establishment of a panel. India expressed regret over China’s second panel request, arguing that it had participated in good-faith consultations with China while offering detailed explanations to show that its measures complied with its WTO obligations. India contested the impact of the measures, saying that they did not have any noticeable negative effect on China’s trade interests. Intervening as a third party in the dispute, the US alleged that China’s second request for panel establishment is an act of distraction from China’s own non-market policies and excess capacity, which continue to harm global supply chains and undermine industrial development in developing countries. Canada, Colombia, the European Union, Indonesia, Japan, Korea, Norway, the Russian Federation, Singapore, Thailand, Turkiye, the United Kingdom, and the United States reserved their third-party rights to participate in the proceedings. Under another agenda item, in a rather complex trade dispute (DS616) raised by Indonesia concerning the EU’s countervailing and anti-dumping duties on stainless steel cold-rolled flat products from Indonesia, a dispute panel last October ruled that the EU’s duties are inconsistent with the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM). Subsequently, in November the EU as well as Indonesia cross-appealed against each other on the main aspects of the ruling. After three months, somewhat puzzlingly, the US, a third party in the Indonesia-EU dispute, raised this item to highlight an interpretive issue concerning the ASCM and transnational subsidies. The US trade envoy, Ambassador Barloon, said at the DSB meeting that the panel’s findings are troubling and incorrect. He is understood to have said that irrespective of whether the subsidy comes from the exporting member or from a third country (China), the injury to the affected party remains the same. Ambassador Barloon apparently said that the ASCM addresses this scenario by using an indefinite article in the phrase “financial contribution by a government.” The US trade envoy maintained that all WTO members should be concerned about an interpretation of the ASCM that encourages unfair competition and hinders efforts to address genuine harm to businesses and workers, said people familiar with the proceedings. Joining its trans-Atlantic trade partner, the EU said it remains concerned about the impact of the panel ruling on the effectiveness of the ASCM, suggesting that Brussels does not expect the panel’s findings to be relied upon by panels in future disputes. The EU said it had repeatedly requested Indonesia to join the MPIA in this dispute. Sharply disagreeing with the US and the EU, China said that the mention of territorial limitations in the ASCM is a core structural element of a subsidy. China warned that allowing cross-border subsidies to be attributed from one member to another would alter the negotiated balance in the WTO agreements and introduce significant legal uncertainty into the multilateral trading system. In another trade dispute (DS632) concerning China’s worldwide licensing terms for standard essential patents, the EU earlier this month submitted its first request for the establishment of a dispute panel to rule on the Chinese patent licensing measures, after first initiating the dispute on 20 January 2025. The EU maintained that Chinese courts have, under Chinese law, the authority to determine, without the consent of both parties, binding worldwide licensing conditions – and in particular royalty rates – for portfolios of standard essential patents (SEPs), including non-Chinese SEPs. Brussels claimed that these provisions are inconsistent with various provisions under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Even as consultations between the EU and China took place on 1 and 2 April 2025 in an effort to resolve the dispute, the two sides failed to reach an amicable agreement. The EU submitted its request for panel establishment, which was taken up at this DSB meeting. China, however, blocked the panel request, saying that the issue of SEPs is highly complex and lacks any international resolution, suggesting that even Brussels has been working on domestic legislation to guide licensing negotiations. Under the Dispute Settlement Understanding (DSU), panel establishment will be automatic if the EU’s panel request comes up again before the DSB. +
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