The International Business Transactions Blog

Bypassing the WTO Dispute Settlement Impasse

By Yuki Taylor
Law Student Editor

The World Trade Organization (WTO) Dispute Settlement Understanding (DSU) provides for binding dispute settlement of certain claims of violation of the WTO agreements, or nullification and impairment of obligations under those agreements, by contracting parties.  Pursuant to the DSU, contracting parties unable to settle their differences may invoke binding dispute settlement before the Dispute Settlement Body (DSB), which will appoint a panel of three independent trade experts.

A party dissatisfied with the panel’s decision is entitled to refer the panel’s decision to the Appellate Body (AB), consisting of seven trade experts, which will hear the appeal.  The AB is the final stage in the adjudicatory part of the WTO’s dispute settlement system.  Members of the AB are appointed by the DSB to serve four years with a two-term limit.  If a party found by the AB to have acted inconsistently with the WTO Agreements has not taken any action to comply with the decision within a reasonable period of time, the DSB will authorize retaliatory measures by the injured party, most commonly a withdrawal of equivalent trade concessions.

The U.S. Trade Representative (USTR) has been critical of the WTO’s dispute settlement procedure, in particular the AB, alleging that it chronically violates the DSU on the bases that: (1) disregarding the deadline for issuing a decision; (2) allowing former members to decide cases; (3) reviewing panel findings of fact rather than limiting itself to considerations of law; (4) issuing advisory opinions; (5) treating prior decisions as binding precedent; (6) declining to make recommendations about the WTO-compatibility of measures that expire after a panel’s establishment; and (7) encroaching on the domain of other WTO bodies.  The USTR has further accused the AB of erroneously interpreting the GATT on numerous occasions.

The United States initially sought to address its perceived problems through negotiations.  Since 2000, the United States has expressed concerns with the AB’s failure to follow WTO rules and its allegedly erroneous interpretations of the WTO Agreements in over 56 cases.  Notable issues that USTR most criticized included: (1) the AB’s interpretation of nondiscrimination, in which it concluded that country-of-origin labeling for certain agricultural products was de facto discrimination, even if it was not de jure discrimination; and (2) interpretations of what constitutes a “public body” with regard to subsidies by the Chinese government favorable to Chinese state-owned enterprises.

The negotiations having failed to create a consensus around the U.S. point of view, USTR changed its tactics starting in 2011 to oppose certain new nominations to the AB.  The U.S.’s obstruction was continued during the Trump Administration, which opposed all member reappointments or nominations in hopes of shutting down the AB altogether.  As the result, on December 11, 2019, the Appellate Body lost its necessary quorum of three and has been unable to hear appeals.  The Biden Administration has so far continued the predecessor’s approach of blocking AB membership appointments.  Although some countries share the U.S. concerns, they nevertheless object to the USTR’s unilateral obstructionist tactics

To restore the DSB to functionality, in March 2020, sixteen WTO members (the EU, Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, Guatemala, Hong Kong China, Mexico, New Zealand, Norway, Singapore, Switzerland, and Uruguay) concluded the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a plurilateral treaty.  The MPIA effectively mirrors the usual WTO appellate rules.  On April 30, 2022, 20 WTO members formally notified the WTO of the MPIA, which operates for dispute arbitration pursuant to Article 25 of the DSU among them.  On March 10, 2023, Japan became the latest and the 26th WTO member to join the MPIA.  As a result, most world trade dispute resolution has been re-enabled, and the effects of U.S. tactics have been accordingly limited.