EU, Canada agree on interim appeal arbitration arrangement

The EU and Canada have agreed to resort to arbitration to hear appeals of panel reports in trade disputes between the two countries if the WTO’s Appellate Body ends up hamstrung by a lack of members.

by D. Ravi Kanth

GENEVA: The European Union and Canada on 25 July announced their agreement on a bilateral interim arbitration procedure on appeals over panel rulings, acknowledging that the WTO’s Appellate Body (AB) would become dysfunctional if “the blockage of new appointments” in the AB persists.

The accord, according to the EU-Canada announcement, will be under Article 25 of the WTO’s Dispute Settlement Understanding (DSU), which provides for arbitration to resolve trade disputes.

The announcement coincided with a restricted report issued by the facilitator appointed by the WTO General Council to address the AB impasse. The four-page report listed the areas of “convergence” that the facilitator, Ambassador David Walker of New Zealand, said he detected during his consultations with various WTO member delegations (see below).

At a meeting of the General Council on 23 July, the United States said that while the facilitator’s report acknowledged several issues raised by the US, “some” members were not even prepared to tackle the central issue as to why the AB had strayed from its DSU mandate all these years.

However, several developing countries at the meeting criticized the US for adopting stonewalling tactics without offering any concrete solutions to the problems it had raised about the functioning of the AB, several trade envoys told the South-North Development Monitor (SUNS).

For the past two years, the US has blocked the selection process for filling vacancies at the AB, on the grounds that the WTO’s highest adjudicating body has failed to adhere to various provisions under the DSU. If the current and future vacancies remain unfilled, the AB would be reduced to just a single member in December, rendering it unable to hear any appeals. (An AB division of three members is needed to hear an appeal.)

Recourse to arbitration

Amid this backdrop, the EU-Canada appeal arbitration procedure seems to be an attempt at testing the waters at the WTO as to whether more members would join the arbitration process.

In their announcement, the two sides recognized that “the Appellate Body may no longer be able to fulfil its functions in the near future, should the blockage of new appointments continue.”

The EU and Canada maintained that they would like “to preserve the essential features of the WTO dispute settlement system which include its binding character and two levels of adjudication [the panel process followed by the AB] through an independent and impartial review of panel reports.”

The two countries said that they would resort to “arbitration under Article 25 of the DSU as an interim appeal arbitration procedure, if the AB is not able to hear appeals of panel reports in any future dispute between Canada and the European Union due to an insufficient number of its members.”

In such cases, the EU and Canada said, they “will not pursue appeals under Articles 16.4 [appealing the panel ruling before the AB within 60 days] and 17 [appellate review] of the DSU.”

The two sides claimed that their appeal arbitration procedure would “replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU including the provision of appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat.”

According to the EU and Canada, “under the appeal arbitration procedure, appeals will be heard by three former members of the Appellate Body, serving as arbitrators pursuant to Article 25 of the DSU.”

The WTO Director-General will select the arbitrators “from the pool of available former members of the AB”, the two sides stated.

The EU reckons there will be 13 former AB members who would be available for performing the arbitration assignments.

There is however no clarity yet as to who will pay the arbitrators for overseeing the arbitration process, said a person who is familiar with the decision.

The “same principles and methods” that apply to form a division of the AB under Article 17.1 of the DSU and Rule 6(2) of the Working Procedures for Appellate Review will remain applicable to the bench under the arbitration mechanism, but two nationals of the same country will not serve on the same case, according to the EU-Canada announcement.

To operationalize the appeal arbitration procedure in particular disputes between the EU and Canada, the two sides will notify their agreement “pursuant to Article 25.2 of the DSU within 60 days after the date of the establishment of the panel.”

Further, “if either Canada or the European Union initiates an appeal under this appeal arbitration procedure in a dispute related to the same matter for which one or more other WTO members have also initiated an appeal under a similar appeal arbitration procedure, Canada and the EU envisage that a single arbitration panel should be formed to hear the appeals together,” the two sides suggested.

The EU and Canada also made it clear that “pursuant to Article 25.4 of the DSU, Articles 21 and 22 of the DSU shall apply mutatis mutandis to the arbitration award issued in this dispute.”

The proposed arbitration mechanism will cease to apply “as soon as the Appellate Body is again fully composed”, the EU and Canada said.

The EU is holding talks with several other WTO members to see if it could garner support for the arbitration mechanism but so far, the response has been lukewarm, said a trade envoy who had been approached regarding the arbitration mechanism.

“This is a backstop solution,” another official said, adding that the EU and Canada want to save the AB from impending collapse.

Facilitator’s report

The EU-Canada arbitration mechanism was announced hours before Walker circulated his facilitator’s report.

Acknowledging that the report was based on his own judgement, Walker said: “From our deliberations, it has become clear that, although some concerns raised are shared by Members, there are also differences of view on the specifics of how to address those concerns.”

Notwithstanding the differences of view on several issues, he said: “I have identified, on my own responsibility, the following areas or issues where I detect a certain degree of convergence during the discussion to date.” He claimed that “the convergence I detect is across all these issues in a holistic manner.”

Listed below are the “convergence elements” highlighted by Walker:

A. On transitional rules for outgoing Appellate Body members:

*  The WTO’s Dispute Settlement Body (DSB) has the explicit authority, and responsibility, to determine membership of the Appellate Body.

*  To assist Members in discharging this responsibility, the selection process to replace outgoing Appellate Body members shall be automatically launched 180 days before the expiry of their term in office. Such selection process shall follow past practice.

*  If a vacancy arises before the regular expiry of an Appellate Body member’s mandate, or as a result of any other situation, the Chair of the DSB shall immediately launch the selection process with a view to filling that vacancy as soon as possible.

*  Appellate Body members nearing the end of their terms may be assigned to a new division up until 60 days before the expiry of their term.

*  An Appellate Body member so assigned may complete an appeal process in which the oral hearing has been held prior to the normal expiry of their term.

B. On the 90-day rule for submitting AB reports:

*  Consistent with Article 17.5 of the DSU, an Appellate Body report needs to be issued no later than 90 days from the date a party to the dispute notifies its intention to appeal.

*  In cases of unusual complexity or periods of numerous appeals, the parties may agree with the Appellate Body to extend the time-frame for issuance of the Appellate Body report beyond 90 days. Any such agreement will be notified to the DSB by the parties and the Chair of the Appellate Body.

C. On how to treat municipal law:

*  The “meaning of municipal law” is to be treated as a matter of fact and therefore is not subject to appeal.

*  The DSU does not permit the Appellate Body to engage in a “de novo” review or to “complete the analysis” of the facts of a dispute.

*  Consistent with Article 17.6 of the DSU, it is incumbent upon Members engaged in appellate proceedings to refrain from advancing extensive and unnecessary arguments in an attempt to have factual findings overturned on appeal, under DSU Article 11, in a de facto “de novo review”.

D.  Whether the AB should offer advisory opinions:

*  Issues that have not been raised by either party should not be ruled or decided upon by the Appellate Body.

*  Consistent with Article 3.4 of the DSU, the Appellate Body shall address issues raised by parties in accordance with DSU Article 17.6 only to the extent necessary to resolve the dispute.

E. On how to treat prior precedents in the rulings:

*  Precedent is not created through WTO dispute settlement proceedings.

*  Consistency and predictability in the interpretation of rights and obligations under the covered agreements is of significant value to Members.

*  Panels and the Appellate Body should take previous panel/Appellate Body reports into account to the extent they find them relevant in the dispute they have before them.

F. On the alleged “overreach” by the AB:

*  As provided in Articles 3.2 and 19.2 of the DSU, findings and recommendations of panels and the Appellate Body and recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

*  Panels and the Appellate Body shall interpret provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 in accordance with Article 17.6(ii) of that Agreement.

G. On regular dialogue between the DSB and the Appellate Body:

*  The DSB, in consultation with the Appellate Body, will establish a mechanism for regular dialogue between WTO Members and the Appellate Body where Members can express their views on issues in a manner unrelated to the adoption of particular reports.

*  Such mechanism will be in the form of an informal meeting, at least once a year, hosted by the Chair of the DSB.

*  To safeguard the independence and impartiality of the Appellate Body, clear ground rules will be provided to ensure that at no point should there be any discussion of ongoing disputes or any member of the Appellate Body.

In short, the facilitator seems aware of the writing on the wall, said a trade envoy who asked not to be quoted. “The AB may not survive this current assault by one member,” the envoy said. (SUNS8956)    

Third World Economics, Issue No. 684/685, 1-31 March 2019, p14-15