The Multiparty Interim Appeal Arbitration Arrangement: will the US be missed?
On 10 December 2019, the WTO Appellate Body, the appeals mechanism of the WTO’s dispute settlement system, closed to new appeals. After issuing its latest report in Australia – Plain Packaging on 9 June 2020, the Appellate Body is now no longer operational — it has been reduced to its last Member, down from the quorum of three. This is the result of the US blocking Appellate Body Member appointments for over three years. However, 22 WTO members1 have now created an alternative appellate mechanism designed to fill the gap until the Appellate Body is able to resume operations – the Multiparty Interim Appeal Arbitration Arrangement (the “MPIA”). In terms of their proportion of world trade, the MPIA includes large entities such as the EU and China, but not the United States, Japan or Korea.
The MPIA is created under Article 25 of the WTO Dispute Settlement Understanding (DSU), which provides for arbitrations within the framework of the overall WTO dispute settlement system. It was officially notified to the WTO on 30 April 2020 and will be in place as long as the Appellate Body is non-operational. It builds on previous interim-appeal arrangements concluded between the EU Canada and Norway, providing for a deemed joined request for arbitration when one of the parties decides to appeal a panel report (Annex 1, para 4).
This post analyses the MPIA’s key features, including in light of US criticisms.
The MPIA aims to preserve existing WTO dispute settlement mechanisms, including two levels of adjudication. For the purposes of the analysis below, the MPIA’s key aspects may be divided into (i) structural features; and (ii) notable changes from Appellate Body practice and procedure.
- Applies to existing or future disputes: the MPIA applies to any existing or future dispute between two or more MPIA parties provided that (i) the Appellate Body is inoperable (i.e., it does not have the minimum three judges required to hear appeals) (Article 15); and (ii) an interim panel report has been issued (Article 9).
- Prevents appeals into the “void”: MPIA parties have agreed not to pursue appeals to the Appellate Body (Article 2). This feature prevents parties from appealing a panel report into the “void”, i.e., to the non-operational Appellate Body. This is relevant in light of recent developments in the dispute between India and the US over the latter’s countervailing duties on certain steel products from India (see US — Carbon Steel (India)). After a WTO compliance panel held that the US failed to implement certain aspects of the DSB’s recommendations and rulings, the US notified the DSB of its decision to appeal issues of law and legal interpretations developed by the panel. While both parties recently agreed to amicably resolve this issue, a US decision to take the next step of filing a notice of appeal or an appellant submission into the “void” could effectively act as a veto to this resolution.
- Pool of arbitrators: appeals will be heard by 3 arbitrators selected from a pool of 10 standing arbitrators. Importantly, arbitration under Article 25 of the DSU is a process within the current WTO framework. However, the MPIA allows each signatory to nominate one arbitrator2 to hear appeals – preventing a US style unilateral paralysis of the Appellate Body process. The MPIA also envisages a screening process by the WTO Director General, the DSB Chair and the Goods, Services, TRIPS and General Council Chairs. The pool of arbitrators will be created by “consensus” of the MPIA parties. The aim is to have the pool of standing arbitrators drawn up by the end of July 2020, i.e. within three months following the notification to the WTO (Annex 2, para 4).
MPIA changes to Appellate Body practice and procedure
- Limits scope of appeals: the approach to judicial economy is similar — both the DSU (Article 17(6)) and MPIA (Annex 1, para 9) state that appeals shall be limited to issues of law covered by the panel report and legal interpretations developed by the panel. The DSU also provides that the aim of the dispute settlement mechanism is to secure a positive solution to a dispute (Article 3.7). However, the MPIA, at least in text, seems more specific. It requires arbitrators to only address issues necessary for resolution of disputes (Annex 1, para 10). This is arguably a step towards addressing concerns raised in relation to the Appellate Body around judicial overreach. However, evidence of the impact of this provision in practice will be important to draw a conclusion.
- Appeal timelines: the MPIA preserves the Appellate Body’s 90-day timeline on appeals. However, arbitrators can also encourage procedural efficiency. This includes (i) appropriate organisational measures (page limits, decisions on the length and number of hearings required, time limits and deadlines) (Annex 1, para 12); and (ii) powers to propose substantive measures to the parties, such as the exclusion of claims relating to a panel’s assessment of the facts under Article 11 of the DSU (Annex 1, para 13). This may positively impact the efficiency of the appeal process under the MPIA. This is important given that, since May 2014, no appeal has been completed by the Appellate Body within the 90-day deadline. The average time for issuing the Appellate Body report for appeals filed between May 2014 and February 2017 was 149 days. Most recently, the Appellate Body report in Australia – Plain Packaging was on issued on 9 June 2020 — almost two years after Honduras (19 July 2018) and the Dominican Republic (23 August 2018) filed notices of appeal.
Mitigated success without the US?
The MPIA is open for accession to new parties (Article 12) but it remains unclear whether other WTO members will join. However, the US seems to have made clear that it is unlikely to sign the MPIA. On 5 June, the US rebuffed the MPIA for exacerbating erroneous Appellate Body practice in a scathing letter to the WTO Director-General. In this letter, the US criticised the MPIA for many reasons, including the addition of the phrase “consistency and coherence in decision-making” (Article 5) which does not appear in the DSU, contemplating appellate review of panel findings of fact and weakening the mandatory 90-day deadline for issuing Appellate Body report. This critique aligns with the US’s historical objections to the Appellate Body. The US’s letter also argues that, although the MPIA is created under Article 25, that provision does not envisage the use of WTO resources for functions not part of the arbitration process including for the pool of arbitrators “staying abreast of WTO activities” (Article 5).
Given the above and the US’s rejection of broader concessions proposed in the draft 2019 General Council Decision following the ‘Walker process’ of negotiations, it seems the MPIA will not involve the US in the foreseeable future. Historically, the US has been a prolific user of the WTO dispute settlement system – with the highest number of cases filed as complainant (as well as being the most frequent respondent). The MPIA’s utility is therefore potentially limited if it cannot settle disputes against the world’s largest economy and most prolific trade disputes litigator.
Where does this leave WTO Members involved in trade disputes with the US? The EU proffers one solution. It is currently awaiting two WTO panel decisions in cases against the US (US — Ripe Olives from Spain and US — Steel and Aluminium Products (EU)). It is in the process of amending the EU regulation on the enforcement of international trade rules so as to allow for the unilateral use of retaliatory tariffs if a losing WTO party appeals a panel report “into the void”. In Asia, India chose to amicably resolve US — Carbon Steel (India) (discussed above). It will be interesting to see if other WTO Members adopt similar or other unique approaches.
In the long term, it will be interesting to see whether other WTO members (especially the US) join the MPIA — as this may impact on its effectiveness. In the short/medium term, it is also important to analyse the MPIA in the context of the current global pandemic. Covid-19 and consequent travel bans, supply chain paralysis and export restrictions have spawned new trade barriers at breathtaking speed. This raises concerns around the timing and effectiveness of any dispute settlement system, let alone a desirable fully functional Appellate Body. However, the MPIA may arguably provide an unexpected solution – with its emphasis on efficiency and parties’ ability to streamline proceedings. Notwithstanding this, agreeing the MPIA during a global pandemic re-emphasises important WTO members’ commitment to the multilateral trading system — evidence that Covid-19 has not necessarily diminished support for free trade everywhere.
Written by Ali Amerjee and Himaansu Servansingh of Linklaters.