Paralysis at the WTO

The Multi-Party Interim Appeal Arbitration Arrangement (MPIA) notified to the World Trade Organization (WTO) on April 30^th, 2020, was developed by twenty (20) WTO members to overcome the current paralysis of the WTO’s dispute settlement process. Resolving trade disputes that arise between its members is a core WTO function and considered a central component of the multilateral trading system. Its dispute settlement process is the mechanism by which WTO members seek peaceful enforcement of the rules to which they have agreed and the concessions they have negotiated with each other. As provided for in the WTO Dispute Settlement Understanding (DSU), disputants are required to first undergo consultations and attempt to resolve the issues(s) at this phase. About one-third of the cases move on to the adjudicative phase where an ad hoc Panel of experts (usually three) hears and makes a determination on the case. The losing party has the right of appeal to the WTO Appellate Body, constituted as a permanent body of seven members whose role is to review the legal aspects of the Panel Report under appeal. Panel and Appellate Body Reports are adopted by the entire WTO membership and are binding on the parties to the dispute. Since 2017, the United States has blocked the appointment of new members to the Appellate Body to replace those whose terms have expired. Consequently, the Appellate Body no longer has the required minimum of three members needed to hear appeals, resulting in the current state of paralysis.

What is the MPIA?

The signatories to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) have committed to use the arbitration procedures provided for under Article 25 of the DSU as an interim appeal procedure while the Appellate Body is unable to fulfill its functions because of the current crisis. MPIA signatories envisage that: (i) their appeals will be heard by three (3) arbitrators chosen from a pool of ten (10) standing arbitrators selected by the participating Members; and (ii) the appeal arbitration procedures will be based on the substantive and procedural aspects of Appellate Review laid out in Article 17 of the DSU. These procedures are also laid out in Annex 1 to the MPIA. Furthermore, Article 25 of the DSU on the use of arbitration requires that the parties to the proceeding also abide by specified requirements for all cases, notably: (i) compliance with timeframes; (ii) notification of the decision to the WTO where any Member may raise any relevant point it wishes; (iii) acceptance of and prompt compliance with the arbitral award; and (iv) the use of the remedies of compensation and suspension of concessions. This last requirement underscores the importance of the WTO dispute settlement process in limiting retaliation against a non-compliant member to peaceful methods. Unlike Panel and Appellate Body Reports, however, the arbitral awards will not be adopted by WTO Members. Finally, the MPIA provides that any WTO Member may join or withdraw from the MPIA, with proper notification.

To date, only two additional countries have joined the MPIA since its introduction. At the same time, no other solutions to the paralysis have been adopted by WTO Members. The proposals outlined in October, 2019, by New Zealand’s Ambassador to the WTO, David Walker (dubbed “The Walker Process”) have won broad support. However, the WTO consensus approach to decision-making means that a decision is taken only if no Member formally objects. The United States has voiced its opposition to the proposals, stating that they do not go far enough in addressing its concerns. Instead, the United States has opted to appeal a Panel Report in a dispute with India. With no Appellate Body to review the decision, the Panel Report has not been adopted by the WTO. The case remains in a void and does not have to be implemented. The MPIA provides a workable alternative to avoid this abuse of the system.

Can the MPIA “Save” the WTO?

The MPIA cannot “save” the WTO. Nor is it intended to do so. The MPIA was designed with a very limited goal in mind – to permit its signatories to continue to properly appeal Panel Reports in cases amongst themselves so long as the crisis continues. It presents a pragmatic and interim solution to a problem they hope will be short-lived. It also still has limited reach given that only 22 of the WTO’s 164 members have so far joined. Other countries are being lobbied to join and perhaps may eventually do so as concerns about its operations get addressed.

More fundamentally, the paralysis at the WTO results from core divisions and disagreement among the Members on a range of issues. The United States has consistently expressed concern about the work of the Appellate Body, which it has accused of judicial overreach – of inserting into WTO Agreements provisions that were never envisaged by the negotiators. The current US position appears to be that the Appellate Body is not essential to the work of the WTO. Meanwhile, developing country Members were sold on the WTO precisely because of the power given to the Appellate Body to review the decisions from the Panel phase where power disparities can more readily play out.

This issue is only one of several that have created a deep divide between developing country and developed country members of the WTO. The Doha Development Round, intended to address the development concerns of developing countries in such areas as agriculture, and intellectual property, has essentially been abandoned. Developed countries claim their obligations were met with negotiation of the Trade Facilitation Agreement of 2013 and that it is time to focus energies on negotiating new agreements on the digital economy and services. Under the weight of these divisions, the consensus approach to decision-making has broken down and the WTO has been able to conclude Plurilateral Agreements that apply only to the subset of WTO Members, primarily developed countries, who can agree on a given way forward on an issue.

The MPIA represents yet another Plurilateral Agreement that highlights the broader challenges within the organization. Consequently, it provides a temporary solution for some Members, but not an answer to the paralysis at the WTO.