Yet another approach to WTO dispute settlement – binding arbitration procedures replace the panels in the US and EU steel and aluminum disputes

On 21 December 2021, the European Union and the United States notified the WTO Dispute Settlement Body that they have agreed to terminate the WTO panel proceedings in United States – Certain Measures on Steel and Aluminum Products (DS548) and European Union – Additional Duties on Certain Products from the United States (DS559). These disputes concern the European Union’s challenge of US steel and aluminum tariffs and the United States’ challenge of the EU’s retaliatory duties against those tariffs.

In parallel with the termination of the panel proceedings, the United States and the European Union mutually agreed to resort to arbitration pursuant to Article 25 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) for the purposes of ultimately resolving these two disputes (if necessary). The provisions of Article 25 provide for arbitration as an alternative means of dispute settlement, subject to the mutual agreement of the disputing parties. The parties are granted wide latitude to agree on the procedures to be followed, and the arbitration awards are subject to the compliance and enforcement procedures under Article 21 and 22 of the DSU. The same provisions have also been utilized recently to establish the Multi-Party Appeal Arbitration Arrangement.

In the case of the new EU-US arbitration arrangement, the panel of arbitrators comprises the same panelists of the terminated panels. Once the panel of arbitrators was composed, the arbitration proceedings were suspended “immediately and indefinitely” pursuant to the procedures agreed by the United States and the European Union. The proceedings shall remain suspended, unless and until either the European Union or the United States triggers their resumption (which cannot occur before 1 November 2022). Upon resumption, the arbitrators will begin where the panels left off, following the rules, procedures and practices on panel proceedings that would have applied to the panel proceedings, except as otherwise provided in the arbitration agreement. The arbitration agreement specifies that the maximum 12-month period for the suspension of panel proceedings under Article 12.12 of the DSU does not apply, removing any impediment to the suspension of the arbitration proceedings for an indefinite period of time.

The replacement of the panel proceedings with arbitration proceedings in this manner is noteworthy because it may eliminate the ability of either party to block the adoption of the outcomes by appealing the panel report(s) “into the void” of the non-functioning Appellate Body. Unless provided in the arbitration agreement, there are no adoption and appeal procedures for arbitrations under Article 25 of the DSU. Article 25.3 provides that the “parties to the proceeding shall agree to abide by the arbitration award”. This provision is supported by Article 25.4, which provides that the arbitration award is subject to the compliance and enforcement provisions in Articles 21 and 22 of the DSU. In this case, the European Union and the United States have not provided for any appeal process in their arbitration agreement.  Thus, it appears the two parties have agreed to binding dispute settlement if either or both decide to resume the disputes in this new format.

The relevant notifications to the WTO Dispute Settlement Body are as follows:

United States – Certain Measures on Steel and Aluminum Products (DS548)

WT/DS548/19

WT/DS548/20

WT/DS548/21

WT/DS548/22

European Union – Additional Duties on Certain Products from the United States (DS559)

WT/DS559/7

WT/DS559/8

WT/DS559/9

WT/DS559/10

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO dispute settlement proceedings.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com