The International Business Transactions Blog

The WTO Restores Dispute Resolution after Obstruction by Trump Administration

By Yinan Guo
Law Student Editor

Aaron Fellmeth
Faculty Co-Editor

Beginning in October 2019, the U.S. government unilaterally blocked the appointment of panelists to the WTO’s Appellate Body (“AB”). As a result, the WTO dispute settlement system had ceased to conclusively resolve trade disputes nearly one year ago.  Because AB judges are appointed by consensus, any WTO member can single-handedly shut down the appellate system.  Although technically within its legal rights, the United States was the first ever to obstruct the operation of the WTO’s Dispute Settlement Understanding (DSU) for all of the WTO’s 164 parties as a political maneuver.

To restore the AB’s functioning, WTO Members created an alternative appellate mechanism—the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which became operational on July 31, 2020.

The MPIA is an interim solution within the WTO framework created under Article 25 of the DSU. Article 25 allows Members to resolve disputes through arbitration, provided that the arbitration agreement is notified to all Members in advance. The MPIA was officially notified to the WTO on April 30, 2020. As of today, it has 23 Participating Members (PMs) and it is open for accession. The list of current PMs can be found here.

The MPIA contains three parts: a communication to the WTO Dispute Settlement Body (DSB) affirming Members’ commitment to the MPIA and setting out general rules; Annex 1 containing a template of an appeal arbitration agreement; and Annex 2 providing the procedure for selecting a pool of arbitrators. The MPIA becomes effective when PMs adopt ad hoc the appeal arbitration agreement in Annex 1 in any specific dispute.

MPIA arbitrations will be conducted by three arbitrators selected from a pool of ten standing appeal arbitrators on a rotating basis. Earlier this year, PMs had the opportunity to each nominate one candidate for the pool of arbitrators, which are chosen in a separate procedure set forth in Annex 2 of the agreement. The pool of standing arbitrators was selected on July 31, 2020.

The MPIA procedures largely mirror AB procedures. Both the AB and the MPIA limit the scope of review “to issues of law covered by the panel report and legal interpretations developed by the panel.” One notable difference is that the MPIA goes one step further, requiring arbitrators to “only address those issues that are necessary for the resolution of the dispute” and “only those issues that have been raised by the parties.”

Another key difference is that decisions of the MPIA arbitration panel are final. Unlike Panel Reports and AB Reports, which must be adopted by the DSB to be binding, MPIA decisions only need to be notified to the DSB.  A Panel Report that has been appealed under the MPIA can no longer be adopted by the DSB, because the panel proceeding must be suspended before the MPIA arbitration. The DSU provisions regarding the DSB surveillance mechanism and suspension of concessions will be applied mutatis mutandis. In other words, within the MPIA framework, the DSB still has the authority to keep under surveillance the implementation of decisions, and suspension of concessions is still allowed in the event that decisions are not implemented.

As of today, the procedures contemplated in the MPIA have been adopted in at least four proceedings, several of which are still in the dispute resolution process.  If the Trump Administration hoped to lower the United States’ international standing by disappointing its trading partners, it has accomplished that goal.  Through cooperation and diplomacy, the other WTO members have ensured that it achieved no other objective.