Have WTO Members Successfully Circumvented the US’ Blockade of the Appellate Body? (and How Would We Know?)

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On January 26th, in what has become a repeat performance of global governance kabuki, Guatemala put forth a proposal on behalf of 130 World Trade Organization members to relaunch the selection process for Appellate Body adjudicators. It was the 73rd time it was doing so, and for the 73rd time, the US exercised its right to block the proposal.

As the US stated, “the old system was not working for the United States and it was not working for many other Members… In contrast, investing in dispute settlement reform presents an opportunity to build a new system that overcomes the problems of the past.”[1]

The mention of reform is timely, since there remains hope that later this month, at the WTO Ministerial Conference (MC13) set to take place in Abu Dhabi on February 26th to 29th, WTO members may reach a deal on reforming the Dispute Settlement Understanding in a way that resolves the current impasse. Until that happens, any defendant can appeal a panel ruling “into the void”, where it stays indefinitely suspended in legal limbo.

The hope for a deal has been regularly fuelled by Marco Molina, Guatemala’s deputy permanent representative, who stepped into the role of facilitator during the informal talks leading up to the ministerial. In December, Molina claimed the “finish line [is] within reach”. Meanwhile, the chair of the Dispute Settlement Body, Norwegian Ambassador Petter Olberg, recently admitted that there was as of yet no consensus on any of the main points of discussion.[2]

Yet WTO members have not sat idly by. Shortly after the AB became inoperable, a group of countries led by the EU met during the 2019 World Trade Forum in Davos, and proposed the creation of the Multi-Party Interim Agreement. In what amounts to a highly innovative workaround, the MPIA is designed to mirror the paralyzed appellate mechanism. As the EU explained to the WTO’s Dispute Settlement Body, this “appeal arbitration procedure could, for all practical purposes, replicate all substantive and procedural aspects of appellate review”. The initiative now counts a total of 52 member-states, including the EU, China, Canada, and less obvious members like Benin—but not including the UK, South Korea, or Turkey.

The ingenuity of the initiative consists in importing the authority of the existing agreement into an informal opt-in mechanism. The MPIA is inscribed within the WTO’s all-but-unused arbitration provision, DSU Article 25. Article 25 is vague enough that it can be “filled” with an entirely new procedure, as long as the litigants agree. The MPIA arrangement thus details its own process for (re)appointing arbitrators, new timelines for deliberations, entirely novel word limits on party submissions and awards, and explicit limits over the scope of the adjudicators’ mandate. By signing up to the MPIA, WTO members are thus committing not to appeal disputes “into the void”, and to resort to the MPIA procedures instead. Awards are legally binding on the litigants without requiring adoption on the part of the Dispute Settlement Body.

Two questions arise. The first is, who joins an initiative to circumvent a blockade by the United States, amidst a generalized backlash against global governance and rampant suspicion of trade liberalization? Secondly, is it working? I tackle both these questions through a set of findings released this week. The results are striking, and may offer a sense of what comes next.

Who joins?

Some legal observers have argued that the MPIA is a largely performative gesture, a symbolic stand against US unilateralism. By contrast, the findings suggest that countries’ motivation to join comes down to material interests.

Legal capacity matters, insofar as wealthier countries are indeed more likely to take part. But what seems far more significant is the offensive potential that MPIA would provide against other members. I show this by calculating the number of harmful barriers raised against each WTO member by each other WTO member, relying on the data collected by Global Trade Alert. This allows me to measure what MPIA membership would represent for each country, in terms of potential challenges against others, and potential challenges by others against it.

The upshot is that countries affected by lots of potential harmful measures are the most likely to join the MPIA. By contrast, the prospect of facing challenges from others—and not being able to appeal them into the void—does not seem nearly as strong of a deterrent against joining. In retrospect, there may be good reason for the asymmetry: firms currently facing barriers are likely to lobby their governments for credible enforcement; but those import-competing firms benefiting from barriers are less likely to seek to prevent future challenges that have not yet materialized.

The analysis can also be used to predict who the next most likely entrants would be. These predictions seem compelling: by far, the most likely entrant at the time of the MPIA’s inception in 2020 was Japan—which has, in fact, joined since then. The next most likely entrant is South Korea.

Here’s another key insight: based on these predictions, the US itself would be—even leaving aside the circumstances—unlikely to join an MPIA-like mechanism: its predicted odds are less than 35%, compared to nearly 70% for South Korea. In this respect, even a country like India, which has been said to be “keen on preserving the dysfunctional status quo”, seems to have more to gain from the MPIA than the US. The point is that insofar as the US reasons like other WTO members, it has a relatively small material stake in improving dispute settlement.

Does the MPIA work?

Among legal scholars, some have argued that the initiative is likely to prove ineffective because it lacks the “compulsory nature of the normal WTO dispute settlement process,” based as it is on a strictly voluntary commitment.

Yet the numbers tell a different story. It might seem early to make pronouncements on the success of a tribunal that has only heard a single case, successful though that outcome was. Yet as Robert Hudec claimed long ago, no successful tribunal can wait until the ruling phase to exert its primary impact. In this spirit, and using the same data from Global Trade Alert, I examined whether MPIA members have been treating one another differently from non-members, and whether their behavior changed in this respect once the MPIA went live. In other words, does the MPIA act as a deterrent?

The answer seems to be yes: starting in 2020, MPIA members have been imposing fewer harmful barriers, and more liberalizing measures, against other MPIA members. Most striking, this effect has been growing with every year of the MPIA’s existence, presumably reflecting a gradual adaptation of trade policy. The MPIA does appear to be a cooperative club—but one that any country can join on their own initiative.

Looking ahead to the Ministerial later this month, two takeaways are worth keeping in mind. The first is that the main player standing in the way of a deal does not have as much of a stake in strengthened enforcement as is often thought: there may be good reason why the US has been dragging its feet during these talks. Secondly, the MPIA seems to be working as it should: governments are not waiting until a challenge appears to curb their harmful barriers against other MPIA members. In this sense, it is having the effect of a successful tribunal—even though it has only heard one case. For that reason, if the Ministerial fails to produce a deal, expect to see the MPIA’s membership swell rapidly. And first in line, according to these findings, would be a country like South Korea. As the MPIA’s membership grows, so would pressure on other non-members to either get on board, or seek a resolution to the impasse.

Far from undermining the push for reform, as some have warned, the MPIA’s innovative approach might serve as a catalyst for breaking through the current deadlock, steering the international trade community towards a more inclusive and effective dispute resolution system.

[1] Inside US Trade. Hannah Monicken. “Facilitator: Talks Offer ‘Viable’ Ideas for Reformed WTO Appeals Stage.” February 2, 2024.

[2] ibid.

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