International Trade Dispute Settlement: Ready to Blossom Again?

Once called the crown’s jewel, the dispute settlement system of the WTO is facing a major threat.[1] The standing Appellate Body (AB), within the WTO Dispute Settlement Body (DSB), is not functioning normally—or even at all, as the United States has blocked all appointments of new AB members. As a result, cases can no longer be appealed, and this may leave decisions by the panels—which adjudicate the cases in the first instance—in legal limbo. These actions should be viewed in the wider context of growing distrust of international courts and tribunals, driven by claims of judicial activism and bias, coupled with the growth of populist ideologies and concerns over implications for sovereignty.[2]

The WTO Multi-Party Interim Appeal Arbitration Arrangement, or MPIA, initiative put forward by part of the WTO membership on April 30, 2020, aspires to be the interim solution to the deadlock.[3] Based on Article 25 of the Dispute Settlement Understanding (DSU),[4] the MPIA establishes an appeal mechanism for panel decisions about to be circulated. In practice, it replaces the role of the AB by the role of a pool of appeal arbitrators.

This Insight places the MPIA in the context of public international law. It describes the current WTO system and then evaluates the MPIA against the range of state-to-state dispute settlement processes.  

Public International Law Roots

International adjudication, that is, the determination of the outcome of a case by a third party, such as an arbitral tribunal or international court, is one means of interpreting legal norms and resolving conflicts in the international arena.[5] It is considered a legal or adjudicatory means of dispute settlement as opposed to diplomatic means, as it depends on the existence of jurisdiction given to a specific entity. States are only subject to such international adjudication if they have consented to jurisdiction for all, some, or specific disputes, which is typically done by treaty or by unilateral acts or declarations.[6] States can carefully tailor the jurisdictional instrument to allow for a wider or narrower coverage of specific situations. Submission to jurisdiction comes with the assumption that the decisions rendered by the international tribunal or court will be legally binding on the parties. International adjudication of disputes is an important way to invoke another state’s responsibility for a potentially wrongful act.[7]

The Stem: WTO Dispute Settlement

The dispute settlement system is regulated by the DSU, to which all WTO members are a party: there is no opt-out. The normative values of security and predictability underpin the DSU and help to ensure the effectiveness of the regime. The WTO mechanism confers jurisdiction over the disputes arising from the agreements.[8] A claim is within the jurisdiction of the mechanism if it is covered by a WTO agreement. For the dispute settlement process to be invoked, there must be a violation or breach of an obligation or the nullification or impairment of trade benefits accrued under the WTO agreements.[9]

The invocation of the mechanism is automatic, mandatory, non-general, and exclusive.[10] It is automatic to the extent that the jurisdiction is automatically activated by any member that brings a claim, without the need for further consent.[11] It is mandatory to the extent that the finding of a breach must be preceded by a statement of the DSB, or at least the notification of the DSB, as will be seen. It is non-general because only claims related to the covered agreements can constitute the basis for jurisdiction. It is exclusive, since parties cannot bilaterally establish a mechanism outside the WTO to resolve their WTO disputes among themselves.[12] Therefore, jurisdiction based on the WTO agreement is the exclusive forum to deal with WTO law, including the appeal mechanism under DSU Article 25.

WTO panels have jurisdiction to entertain the matter, within certain limits: they shall make an objective assessment and identify the applicable WTO law. The AB reviews the legal issues of the cases. It has the power to complete the analysis if the panel failed to do so. In that sense, it has broader powers than most appeal courts. The AB had established a practice whereby its decisions were expected to be followed by future panels that decide on the same issues. Panel Reports and AB Reports must be adopted by the DSB to be binding, as they become DSB rulings and recommendations.[13]

A Grown-up Branch of the DSU        

As an alternative to the panel and Appellate Body procedure, the DSU provides for the possibility of arbitration between the parties subject to mutual agreement and notification to all Members and to the DSB.[14] Based on DSU Article 25, some members established in a Communication dated April 30, 2020, the MPIA mechanism to appeal panel decisions about to be circulated. 

The text of the MPIA consists of a communication sent to the DSB; an Annex 1, with a template of an appeal arbitration agreement; and an Annex 2, with the arbitrators’ selection procedure. While the MPIA makes use of classic instruments of public international law to assign jurisdiction, it is deeply ingrained in the DSU.

The MPIA is, as its name reveals, an interim solution. It is not a treaty, but a joint endorsement of a political arrangement between WTO members. Notably, states with different levels of development, including China, spearheaded the initiative. As of July 08, 2020, the MPIA counts 22 Participating Members (PMs). The following 16 PMs originally negotiated the arrangement: Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, the European Union, Guatemala, Hong Kong, Mexico, New Zealand, Norway, Singapore, Switzerland, and Uruguay. When the arrangement was notified to the WTO, three PMs endorsed it: Iceland, Pakistan, and Ukraine. Ecuador, Nicaragua, and Benin later joined.[15]

The MPIA mechanism becomes effective when PMs adopt the template of Annex I in a dispute. This means that consent is given through a specific agreement related to a concrete dispute, provided that the issues are “clearly defined by the parties,” according to DSU Article 25(1). Consent may be given in relation to an ongoing dispute. This fits with the idea of assigning jurisdiction to certain aspects of a dispute. The material scope of the jurisdiction is, in this case, restricted to the appeal phase. 

A number of procedural details of the MPIA that mirror Appellate Body procedures (MPIA Annex 1, paragraph 11) are worth noting.[16] It is unclear how PMs will bear the costs of the MPIA, especially as the United States has expressed its concerns about using the WTO Secretariat budget.[17] More generally, an appeal using the MPIA system shall be limited to issues of law covered by the panel report and legal interpretations developed by the panel. As stated in MPIA Annex 1, paragraph 9, “the arbitrators may uphold, modify or reverse the legal findings and conclusions of the panel” and even include recommendations, as envisaged in DSU Article 19.      

A MPIA procedure shall involve three arbitrators selected from the pool of 10 standing appeal arbitrators, similar to the functioning of a division of the Appellate Body (MPIA Annex 1, paragraph 7 and Annex 2). PMs had until the end of May 2020 to submit their candidates. Some accounts report at least 13 candidates for 10 places. Brazil nominated José Alfredo Graça Lima, a Brazilian diplomat, well-versed in trade negotiations and a former WTO panellist. New Zealand nominated Dr. Penelope Ridings, formerly New Zealand’s Chief International Legal Adviser. [18] Joost Pauwelyn, Professor of International Law at the Graduate Institute in Geneva, was nominated by the European Union.[19] Alejandro Jara, former Ambassador and Director at the WTO, was chosen by Chile.[20] Switzerland has nominated Thomas Cottier, Professor Emeritus of European and International Economic Law at the University of Bern and former Swiss negotiator.[21] Some of those had already been proposed by WTO members for AB vacant seats (Graça Lima, Pauwelyn, and Jara, for example). PMs envisage the completion of the pool of arbitrators by July 30, 2020. Its composition may be modified by agreement of all PMs at any time. 

Unlike Panel and Appellate Body reports, an MPIA arbitration award is not adopted by the DSB: it only needs to be notified to the DSB (MPIA Annex 1, paragraph 15). The Panel report to which the appeal award referred will not be adopted since the panel proceedings would have been suspended before the beginning of the appeal arbitration (MPIA Annex 1, paragraph 4). Most importantly, the interim appeal mechanism relies on the force of the DSB’s special collective surveillance mechanism, including its system of authorized retaliation.[22]This is explicitly allowed by DSU Article 25(4) and MPIA Annex 1, paragraph 17. Therefore, the provisions dealing with the surveillance of implementation or recommendations and rulings and with the compensation and suspension of concessions are applied mutatis mutandis.[23] While the details of the application of these provisions are not clear, in this resides the key strength of the MPIA. A possible reading is that all references to DSB “recommendations and rulings” in DSU Articles 21 and 22 should be understood as references to “arbitration awards” notified to the DSB. One can certainly envisage a situation where the DSB will monitor compliance with the arbitration award and manage the use of the system of authorized countermeasures (lex specialis).

The Blooming Season

Only time will tell how interim the MPIA will be. There does not seem to be light at the end of the tunnel for the AB deadlock: the mechanism might be around for some time. Important players and users of the WTO system are backing the initiative, which increases its level of legitimacy. The MPIA is open for accession, though new PMs may not have had the chance to put forward their candidates in this first call.[24]            

The MPIA has already generated its first flower buds. There are agreed procedures for arbitration under DSU Art 25 in at least four proceedings to date:

• Canada - Measures Concerning Trade in Commercial Aircraft -  WT/DS522/20 – case involving a complaint from Brazil, with China, European Union, Japan, Russian Federation, Singapore, and the United States joining as third parties.
• Costa Rica - Measures Concerning the Importation of Fresh Avocados from Mexico - WT/DS524/5 - case involving a complaint from Mexico, with Canada, China, European Union, El Salvador, Honduras, India, Panama, Russian Federation, and the United States, joining as third parties.
• Canada - Measures Governing the Sale of Wine - WT/DS537/15 – case involving a complaint from Australia, with Argentina, Chile, European Union, New Zealand, and the United States joining as third parties
• Colombia – AD Duties on French Fries - WT/DS591 – case involving a complaint from the European Union, with Brazil, China, Japan, Russian Federation, Turkey and the United States joining as third parties.

All in all, the MPIA is a well-thought-out and promising mechanism that stems from public international law roots. The arrangement shows how members can be creative and propose innovative solutions within this tradition. When the new system is fully functioning, it is hoped that it will attract more attention and interest.

About the Author: Dr. Murilo Lubambo de Melo, Lecturer in International Law, New College at Northeastern University, London m.melo@northeastern.edu. Research Fellow at the WTO - Program for Developing States (2018). Visiting Research Fellow at Yale University (2016). PhD University College London.