Canada and the European Union have formalized an interim bilateral arbitration solution for the current deadlock in appointing members to the Appellate Body of the World Trade Organization (WTO).

The Appellate Body is composed of seven members who are appointed to serve for four-year terms and may be reappointed for an additional four-year term. Currently, there are only three members, the minimum needed for the Appellate Body to function. The terms of two of those members (Ujal Singh Bhatia (India) and Thomas R. Graham (United States)) expire on 10th December 2019, leaving only a single member (Hong Zhao (China)). Unless new members are appointed, the Appellate Body will cease to function on 11th December. The United States has not responded to repeated calls by WTO Members to resolve the issues underlying its blocking of appointments, making it necessary for WTO Members to seek an interim solution.

Canada and the European Union are the first WTO members to announce a formal interim solution that will apply to disputes between them. Formalizing a solution in advance of 11th December is significant because, otherwise, the settlement of disputes in which panels issue reports close to and after 11th December could be blocked by the losing party simply by appealing the report to the non-functioning Appellate Body, which would prevent the panel report from being “adopted” and, in turn, from being enforced. In the absence of an advance agreement, it will be difficult to get the disputing parties in ongoing disputes to agree to such a solution. Once a panel report is issued, it might be impossible to get the losing party to agree to a procedure that will require it to give up its ability to block the report.

The bilateral agreement establishes an alternative appeal arbitration procedure “based on existing WTO rules”. It is intended “to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review … including the provision of appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat”. The basis for the procedure “as an alternative means of dispute settlement” is provided in Article 25 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes. This has long been considered an option to address the Appellate Body deadlock.

Under the procedure, Arbitrators will be selected from former Appellate Body members. To fit within the existing panel procedures, which are unaffected by the Appellate Body deadlock, panel proceedings will be suspended prior to the formal circulation of the panel’s report to the WTO Members. The new arbitration procedures will be initiated and findings of the panel which have not been appealed will be deemed to be an integral part of the arbitration award.  Although the panel report will not be formally circulated to the WTO Members, its confidentiality will be lifted, indicating that it will be made public in some other manner. The arbitration award will be final, and the normal WTO monitoring and enforcement mechanisms will apply.

Many WTO Members will be reflecting on this agreement and considering how it fits within the existing WTO dispute settlement mechanism and institutional framework. It might provide a template for similar bilateral and plurilateral agreements between other WTO members.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO dispute settlement proceedings. If you have any questions about the foregoing subject, please do not hesitate to contact us.