Arbitration — the stop-gap when WTO appeals are unavailable

A group of WTO members have agreed on an alternative way to get a second legal opinion

Patch: appeal by arbitration would only be used while the Appellate Body cannot function

By Peter Ungphakorn

On August 3, 2020, a group of 50 World Trade Organization members — 30% of the membership — announced that an alternative arrangement was up and running, as a means of getting round a blockage preventing formal appeals in WTO dispute settlement.

Developed gradually since early 2019, the system would retain countries’ ability to get a second opinion after a first-stage “panel” ruling, but unlike a formal appeal, the outcome would not be part of official WTO law.

Who’s in, who’s out and legal effect

Twenty-five years ago in 1995, the new ability to appeal an initial ruling was one of several acclaimed changes in dispute settlement, introduced when the World Trade Organization was created to take over the multilateral trading system from the General Agreement on Tariffs and Trade (GATT).

(Another was the change to the consensus rule. Under GATT, rulings could only be adopted by consensus of the membership, allowing a “losing” country to block a ruling. Now they could only be rejected by consensus.)

The US was one of the driving forces behind those reforms. But more recently it has objected to how appeals are handled and has blocked the appointment or reappointment of Appellate Body judges.

As their terms expired the judges dwindled from seven to only one left in position from December 2019 — two short of the minimum of three needed to hear an appeal — and since November 30, 2020, none. The Appellate Body can no longer function. Worse, some first-stage panel reports have deliberately been appealed “into the void” so that they cannot proceed. (More on this here.)

The stop-gap alternative would be by voluntary arbitration under Article 25 of the Dispute Settlement Understanding, the WTO agreement governing legal disputes. It will only be used until the Appellate Body can resume.

Arbitration features regularly in WTO disputes, particularly to determine whether proposed retaliation over failure to comply with a ruling is excessive. This would be the first time it has been used to appeal panel rulings.

The system is “voluntary” because the countries involved choose to participate and to comply with the outcome. Its official name is the Multi-party Interim Appeal Arrangement (MPIA). For normal appeals, compliance is an obligation.

The final step in setting up the system was to create a pool of 10 arbitrators. The group announced on July 31, 2020, that the 10 arbitrators had been appointed (see this announcement from the EU and this from Canada).

Who’s in, who’s out and legal effectBack to top

This alternative appeal system began life in 2019, first as a bilateral agreement between the EU and Canada, and then the EU and Norway.

On January 24, 2020, first moves were announced to turn this from the bilateral agreements into a group arrangement as a number of other countries joined in. This became a fully-developed text shared with the WTO membership on April 30, 2020.

On August 3, 2020 the list of arbitrators was announced, when the group had grown to 5o WTO members (counting the EU as 28). Macao signed up on September 22, 2020:

Australia, Benin, Brazil, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the EU and its 27 member states, Guatemala, Hong Kong, Iceland, Macao, Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Singapore, Switzerland, Ukraine, and Uruguay (total 51).

But between January and August, two countries had dropped out: S.Korea and Panama.

Also notably absent are the US, Japan and UK, along with Argentina, Egypt, India, Indonesia, Kenya, Malaysia, Nigeria, Russia, Saudi Arabia, South Africa, Thailand, Turkey, and others.

Announced on August 3, 2020:
1. Mateo Diego-Fernández ANDRADE (Mexico)
2. Thomas COTTIER (Switzerland)
3. Locknie HSU (Singapore)
4. Valerie HUGHES (Canada)
5. Alejandro JARA (Chile)
6. José Alfredo Graça LIMA (Brazil)
7. Claudia OROZCO (Colombia)
8. Joost PAUWELYN (EU/Belgium)
9. Penelope RIDINGS (New Zealand)
10. Guohua YANG (China)

The stop-gap appeals would be heard by three out of a pool of 10 standing appeal arbitrators (and not former Appellate Body judges as in the earlier Canada-EU — see this news story — and Norway-EU agreements). The three would be chosen according to the same principles as for the full Appellate Body.

“This is a slate of very talented, professional, experienced women and men,” tweeted Jennifer Hillman, a former Appellate Body judge.

“They may be able to show the world how to do appeals in state-to-state disputes without running into the problems the WTO Appellate Body encountered.”

But a number of issues remain unresolved, including whether the WTO Secretariat can work on these arbitration cases.

This patch would also seem to have an important legal difference compared with a normal appeal. The result of the arbitration would not be adopted by the WTO membership (in the Dispute Settlement Body). It would simply be notified to them. Therefore it’s unlikely it would be seen as an official interpretation or clarification of WTO law and could not be cited as a precedent in future cases. (This and other legal implications — including whether retaliation would be possible if a country failed to comply with an arbitration ruling — are discussed here.)

The idea of using arbitration as a way of getting round the Appellate Body blockage has been around for some time. Among advocates are a group of lawyers affiliated with Sidley Austin LLP, some formerly at the WTO (2017), Jens Hillebrand Pohl of Maastricht University (September 2017)  and former Appellate Body judge James Bacchus (October 2018).

It remains to be seen whether more countries join the group, and how the move is put into practice.

This article was originally part of a longer piece on the problems in the WTO’s Appellate Body

February 13, 2020 — adding “appeal into the void” and update to reflect no Appellate Body judges left
September 23, 2020 — adding Macao to the participants list

Credits: Photos CC0

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU