Less than four months after the Appellate Body of the World Trade Organization ceased to function sixteen members of the Geneva-based organisation announced they had agreed to an alternative mechanism to settle legal disputes at appellate level.
The Multiparty Interim Arbitration Agreement – or MPIA – is still months away from functioning. All signatories need to go through their respective domestic approval processes. There are outstanding personnel and financial issues to resolve.
Yet the Sixteen took a leap of faith. And there are no signs they’re looking back. MPIA parties decided to do whatever it takes to secure their rights in the institution and preserve its two-tiered dispute settlement mechanism. They also want to prove that innovation and reform in trade dispute settlement is possible.
Against the odds
Few expected this agreement to materialise, let alone that it would come together so quickly – at least when one goes by the standards of a deadlocked WTO.
The US decision to veto the appointments of new members of the world trade body’s appeals mechanism left it without the necessary quorum of three members to function on 10 December 2019.
A Damocles sword continues to hang over the initiative. The US had blocked its approval of the WTO’s two-year budget at the end of last year, partly over concerns over the financing of an appeals mechanism that functions without them.
Yet many WTO members consider it is part of their intrinsic rights as members to benefit from guaranteed access to a two-tiered dispute settlement system.
The right to appeal “is part of the Uruguay Round bargain”, said Paolo Garzotti, deputy representative of the EU to the WTO in Geneva. Garzotti referred to the overall balance of rights and obligations reached between members when the WTO – and with it the Appellate Body – were created in 1994.
Several Geneva sources have indicated there has been United States political pressure on many countries to stop them from joining the MPIA. In this regard the absence of Korea, which had originally signed up to the initiative when announced in Davos back in January, is notable. Japan, Argentina, India and Indonesia are other frequent users of the WTO’s Appellate Body that have not signed up.
The MPIA nonetheless includes major global trading powers and frequent users of the system: not least China and Brazil.
“That’s a big success,” said the EU’s international trade committee chief Bernd Lange.
The fact that important ‘Pacific’ countries and close US friends such as Australia, Chile, New Zealand, Singapore joined is a major symbolic victory for the initiative. So is the fact that smaller Latin American countries that are dependent politically and trade-wise on the US such as Colombia, Guatemala or Costa Rica are on board too.
“The US have accepted that this is going ahead”, said a senior Brussels-based European Commission official shortly after the announcement of the 16-member deal at the end of March.
Echoes of ‘Walker process’
Among those WTO parties ready to devise alternatives to the Appellate Body, opinions at the start of the process were wide apart on what such a mechanism should do and how it should look like.
The mediation process run in 2019 in Geneva by New Zealand diplomat David Walker revealed that some of the frequent users of the Appellate Body shared many criticisms Washington had aired against the institution.
These include: failure to stick to a mandated 90-day period to resolve disputes; unilateral decisions by the Appellate Body to allow members continue to work on reports after their mandate expired; a tendency to ‘create’ new rules or ‘judicial overreach’; an excessive focus on creating ‘legal precedent’; a tendency to rule on matters not covered in the dispute; and ruling on facts and not just law, including treating municipal law as law and not as fact.
The Walker process proposed solutions in the form of a ‘draft understanding’ – which the US flatly rejected.
The views and proposals of countries such as Australia, Japan, Brazil, Argentina during the Walker process did not generally converge with the views of the EU or countries such as Canada. The latter two were have been in the driving seat in attempts to tackle the Appellate Body crisis in the organisation since 2018. Brussels signed early on bilateral deals with Canada as well as with Norway, to enable them to initiate appeals to first-level panel reports in the WTO.
More than just an Article 25 mechanism?
The new arrangement is based on Article 25 of the Dispute Settlement Understanding, the treaty that sets up the dispute settlement mechanism in the WTO.
Article 25 allows parties to settle disputes under the format of ‘classic’ international inter-state arbitration if they agree to do so. With arbitration, strict legal ‘consistency’ is perceived to be less important to players than the need to resolve a specific dispute at hand.
Article 25 is conceived as an ad hoc mechanism. What was striking in MPIA is the participants’ political decision to pre-commit to resorting to this specific arbitration mechanism. They do so even before knowing the outcome of any original WTO panel ruling at first instance, let alone whether they would actually want to appeal said ruling at all.
Letizia Ramirez, a legal counsellor at the Mission of Mexico to the WTO explained at a recent webiner in Geneva that the overarching aim was to maintain an automatic right to appeal. “Developing countries have a significant need for an arrangement that could guarantee a final resolution of disputes and avoid other difficulties, other kinds of pressure, [such as] use of unilateral measures or non-compliance” in their dispues with more powerful and richer countries.
Farewell to the old Appellate Body model?
The fact that other countries joined an initiative drummed up by the EU and the Canadians changed the nature of what was on the table. the MPIA is not simply an extension of the EU Canada or Norway bilateral arbitration deals.
A striking feature of the MPIA, especially in comparison to the EU Canadian and Norwegian arrangements, is the great effort parties have put into showing that this is not an alternative Appellate Body.
First and foremost, the new body is meant not to be permanent.
“The MPIA is not a treaty. As it its name indicates, it’s an arrangement. It is an important political commitment by the participating members,” said Philippe Cellard, a legal advisor at the Canadian mission to the WTO in Geneva.
“To use COVID language: this is the intensive care unit to make sure individual disputes don’t get worse and die,” said the EU’s Garzotti.
Another shift away from the now-defunct Appellate Body model is that, contrary to the EU’s earlier arrangements with Canada and Norway, arbitrators nominated to a joint pool of ten experts from which to draw a three-person arbitration panel, is the dropping of the requirement that they should be former Appellate Body members.
The MPIA arrangement further stresses that this pool of ten standing arbitrators would be served by a “structure of support” that “will be entirely separate from the WTO Secretariat staff and its divisions supporting the panels and be answerable, regarding the substance of their work, only to appeal arbitrators.”
This independence should have also been the norm in the existing WTO arbitration system; but it has turned out not to be.
“It remains to be seen whether this is going to be an improvement, if this will lead to dissenting opinions, or a different sort of decision-making,” said Gabrielle Marceau, a law professor at the University of Geneva.
Importantly, there are grey areas as to how this independent structure would be financed.
It’s not clear yet how the sixteen parties to the WTO that will each table a candidate – to be vetted by the WTO – would agree to narrow the list down to ten.
The MPIA agreement integrates many new ideas.
In reform proposals tabled in 2018, the EU, China and India had proposed to increase the number of standing arbitrators to nine – up from seven – and to increase the duration of their mandates to six or eight years, but to make them non-renewable. What we get in the MPIA is ten standing arbitrators. There is no mention of terms and time limits. However, “the participating Members will, periodically, partially re-compose the pool of arbitrators, starting two years after composition,” the agreement stipulates.
Arbitrators will not automatically be former Appellate Body members, contrary to the Canadian and Norwegian arrangements with the EU. Many see this as a way to signal there can be a fresh start to the whole discussion about appeals in WTO disputes, even if this means the arbitrators might depart from precedents set in Appellate Body rulings.
Peter van den Bossche, a professor at the World Trade Institute in Geneva and formerly an Appellate Body member himself, told Borderlex: “The fact that the EU gotten away of former Appellate Body members is a positive development. You will have a pool that is more representative. Also, and most importantly, the new pool of ten arbitrators will allow for an exchange of views on each appeal among all arbitrators, which will contribute to the consistency and quality of the arbitral awards”.
Commentators have long dwelt on the fact that the new mechanism tries to address the issue of how to get arbitrators to actually comply with the 90-day deadline set in the DSU. This includes listing some ideas on how this could be done.
“The parties request the arbitrators to issue the award within 90 days following the filing of the Notice of Appeal,” reads the agreement. “To that end, the arbitrators may take appropriate organizational measures to streamline the proceedings,” it says. “Such measures may include decisions on page limits, time limits and deadlines as well as on the length and number of hearings required.”
Also: “If necessary in order to issue the award within the 90 day time-period, the arbitrators may also propose substantive measures to the parties, such as an exclusion of claims based on the alleged lack of an objective assessment of the facts.”
These innovations on the 90-day issue have elicited a mixed reception in the trade policy community. Some say the move will mainly help discipline the governments involved in the disputes and incentivise them to keep their legal claims short and to the point – contrary to the practice of many leading litigants in the WTO – as showcased by the US or the EU in their never-ending dispute on aircraft subsidies to Boeing and Airbus.
Others worry the narrow obsession with 90 days could lead to cutting edges with due process, despite reassurances on this usse in the text.
“While it is important that appellate proceedings are done in the shortest time possible, this obsession with the 90 days is unfortunate”, said van den Bossche. “You can shorten the time taken by appellate review if you don’t cover all the issues, but do you really not want to deprive the parties of their day in court, especially the party that is going to lose?”
Playing the long game?
Many observers wonder what the status will be of future arbitration reports adopted by MPIA arbitrators. The global trade community generally considers Appellate Body reports to be extremely authoritative. Will those of the MPIA be less so?
Many reckon that this will all in the end depend on the quality of the reports themselves. WTO members that are not parties to the agreement will enjoy third party rights. MPIA signatories hope this will encourage others to join if they see the system is working well. And if membership grows, the authority of the new ‘institution’ – if one might call it so – would grow.
What the signatories to the MPIA really wanted in the short term is to maintain confidence in the fact that parties can start litigating in the WTO in the first place. But MPIA signatories are in the long game.
Diplomats speaking on the record all insist this is a temporary mechanism until the WTO convinces the US to unblock its veto on the appointment of new Appellate Body members. But nobody expects this to happen soon, certainly not under the Trump administration. Should the Democratic nominee to the US presidency enter the White House next year after next November’s elections, few believe the US would quickly lift its veto and if so, not without asking others to pay a price.