Can Interim Appeal Arbitration Preserve the WTO Dispute System?



Simon Lester | CATO

If legal obligations cannot be enforced, their value is greatly reduced. International law is famous for its emphasis on soft law—that is, legal instruments with little or no legally binding force. In contrast to the typical approach in international law, the obligations of the World Trade Organization (WTO) stand out as being relatively enforceable. WTO dispute settlement is one of the most developed and legalistic adjudication systems that exists in international law, although it has far less power than a domestic court.

The precise scope of the WTO dispute system’s authority is a proper subject of debate: Just how enforceable should the rules of the WTO be? There are degrees of enforceability, and it is up to the governments that make up the system to decide how much power to delegate to international organizations and other bodies.

The prior trade dispute system that existed under the General Agreement on Tariffs and Trade (GATT) was less enforceable than its WTO successor: losing governments could block the adoption of GATT panel reports by the GATT membership, which meant they had no legal effect. Blocking adoption grew more frequent toward the end of the GATT era and became a concern. As part of the creation of the WTO, governments changed these rules and adoption became, for all practical purposes, automatic. As a result, reports would always have legal effect. At this time, governments also added an appeals mechanism, called the Appellate Body, to review panel reports to ensure that automatically adopted reports were of sufficiently high quality.

In its early years, the Appellate Body received more praise than criticism, but recently the United States has offered strong objections to some of the rulings and behavior of the Appellate Body. The Trump administration has used these objections as justification for blocking appointments to the Appellate Body, which is down to one member and is no longer operating. There is now a fear that the WTO dispute system, without a functioning Appellate Body, has been brought back to the GATT in terms of the degree of its enforceability.

But other WTO members have not been willing to give up on appellate review. They have pushed for a negotiated solution, with changes to the appellate process that might satisfy the United States, but a resolution does not seem to be imminent. They have also put forward a temporary appeals mechanism, known as the Multiparty Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the Dispute Settlement Understanding, to keep the system functioning until a permanent solution can be found. As of July 31, 2020, the MPIA is in effect for the 23 parties that have signed on, and other WTO members may join at any time.

This paper considers the historical development of the Appellate Body, explains the U.S. objections, and then sets out the details of the MPIA and evaluates its prospects. For the WTO dispute system to function properly, two features are crucial: dispute settlement decisions must have automatic effect, and some form of appellate review must be available. Ideally, the Appellate Body itself would be revived, but if that is not possible, many governments are hoping that the MPIA can preserve the effectiveness of the WTO dispute system during the continued shutdown of the Appellate Body.

Simon Lester is the Associate Director at Cato’s Herbert A. Stiefel Center for Trade Policy Studies.
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