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On 30 April 2020, the European Union (EU) and 18 other Members of the World Trade Organization (WTO) officially notified Multiparty Interim Appeal Arbitration Arrangement (MPIA), an interim appeal system for the resolution of trade disputes between Members who signed the agreement, to the WTO. The MPIA is intended to address the inability to resort to the Appellate Body of the WTO’s Dispute Settlement Body, which no longer has enough arbitrators to adjudicate on appeals due to the United States’ refusal to appoint new Appellate Body members. Disputes between MPIA Parties will enter into arbitration proceedings under Article 25 of the Dispute Settlement Understanding (DSU) to decide appeals of a final report by a WTO panel.

In parallel, the EU is revamping its domestic arsenal, to make it easier to impose unilateral retaliatory duties against WTO Members who refuse to join the MPIA. The European Commission has proposed, and the EU Member States have agreed, changes to the EU’s Trade Enforcement Regulation of 2014 (Regulation 654/2014). Once these changes have been approved by the European Parliament and enter into force, countries that do not join the MPIA will face the EU’s unilateral retaliatory tariffs if they appeal before the – now dormant – WTO Appellate Body against the WTO panel report in favour of the EU.

Authors: Yves Melin Jin Woo Kim

Background: paralysis of the WTO Appellate Body

The WTO dispute settlement mechanism provides for two-tiered resolution of trade disputes between WTO Members, consisting of a panel and appeal stage. In the panel stage, an ad hoc panel makes its decision after reviewing the factual and legal aspects of the case. The losing country may then appeal the panel decision before the Appellate Body – a permanent body of seven persons entrusted with the task of reviewing the legal aspects of the panel reports. Each appeal is heard by three members of the Appellate Body (ABMs).

The WTO Dispute Settlement Body (DSB) appoints ABMs to serve on the Appellate Body for a four-year term, with the possibility of re-appointing them for another four-year term. In general, the DSB fills vacancies of the Appellate Body as they arise. However, the United States (U.S.) has blocked the appointment of new ABMs over criticism of what the U.S. considers to be the Appellate Body’s judicial overreach. So, the Appellate Body has only had one ABM since 11 December 2019.

Accordingly, since there are fewer than the minimum three ABMs needed to review appeals, no new appeal can be heard before the Appellate Body at the moment. While ad hoc panels can continue to hear new complaints, parties can no longer resolve disputes with final and binding decisions of the Appellate Body. If the losing party brings an appeal before the Appellate Body, the dispute remains in limbo, unresolved.

The carrot: Multiparty Interim Appeal Arbitration Arrangement (MPIA)

On 27 March 2020, the EU concluded an MPIA, an interim appeal system aimed at resolving trade disputes between parties until the Appellate Body can function again, with 15 other WTO Members.1 The participating WTO Members are Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, the EU, Guatemala, Hong Kong, Mexico, New Zealand, Norway, Singapore, Switzerland and Uruguay (MPIA Parties).2

In disputes between MPIA Parties, appeal arbitration under Article 25 of the Dispute Settlement Understanding (DSU) will be initiated if a party appeals against a final panel report. In essence, the interim appeal arbitration will mirror the procedural and substantive aspects of the existing appellate review (under Article 17 of the DSU and the Working Procedures for Appellate Review). Each appeal will be heard by three arbitrators selected from a pool of 10 standing arbitrators. The three arbitrators who review the appeal will be able to discuss their decision with the other seven arbitrators in the pool to promote consistency and coherence in decision-making.

At the same time, the MPIA also introduces a few new elements to the existing appellate review. Arbitrators will have to respect a 90-day timeframe to complete each appeal. To meet the 90-day deadline, the arbitrators may take appropriate organisational measures to streamline the proceedings, such as page limits, time limits and limitations on the number of hearings required. If necessary, arbitrators may propose that parties exclude claims based on the alleged lack of an objective assessment of the facts pursuant to Article 11 of the DSU.

The MPIA also explicitly states that the arbitrators must only address issues that are pertinent to the resolution of the dispute and those that have been raised by the parties.

These novel features in the MPIA partly reflect the EU proposal3  to reform the Appellate Body and address some of the U.S. criticisms against the Appellate Body.