This is a guest post by Mattijs Kempynck* & Akhil Raina**
Introduction: Learning how to say ‘I-A-A-A’
The recent Davos summit filled in the ‘void’ somewhat. Ever since the World Trade Organization’s (WTO) Appellate Body (AB) became non-functional in early December last year, commentators of all hues had been worried about the eventual demise of the entire dispute settlement system (DSS). Why? – because a panel report needs to be adopted by the dispute settlement body (DSB), in order to fully attain its ‘legal status’, and this cannot be done pending an appeal; everyone feared ‘appeals into the void’ – the losing party simply invoking an appeal to a now-non-functional AB; and for good reason, since this has already started to happen.
But then, like a stork through stormy skies, good news arrived. The European Union (EU) managed to expand its support-group for an ‘interim appeal solution’ from two (Norway and Canada), to sixteen. Thus was born the mouthful-y named ‘Interim Appeal Arbitration Arrangement’ (IAAA, though MIA or MIPA are also being used).[i] It bears note that the final text of the agreement is not released yet, but we can already see its significance First, it is a step forward; it shows willingness and determination by a part of the WTO Membership to not simply sit idly while the cookie crumbles - they have decided to take action. Second, it is encouraging to see the EU step up and take its role as a ‘leader’ in international economic affairs: as commentators in the past have chimed that the story of the GATT/WTO is, in large part, the story of the transatlantic relationship. And finally, and perhaps most significantly, some frequent users of the DSS are included in the list of signatories – most notably China. Given the calls for cracking down on subsidy issues concerning China (old ones like state-owned enterprises and new ones like extraterritorial subsidization), there was a risk that China would follow the US’ unilateral path. But it did not. This further points to the grudgingly accepted view that China is a rather civil participant in the DSS.[ii]
The IAAA intends to (re)establish a “binding, impartial and high-quality dispute settlement system among [the parties]”.[iii] It is, as is now well know, based on Dispute Settlement Understanding (DSU) Article 25. This method was initially proposed by Andersen et. al.[iv] and then strongly promoted by the EU.[v] Here, we do not seek to describe the precise modalities of the IAAA,[vi] or explore its potential political effects. Rather, we seek to raise some questions (and give some answers) to potential conflicts arising out of a ‘plurilateral’ court interpreting multilateral agreements for (ostensibly) bilateral disputes.[vii] In this sense, we are concerned with – what happens next?
Peer into the (arguably, not so distant) future with us. Let us consider the time when the AB comes back online. Indeed, the DSS has evolved as a result of ‘trial by fires’ in the past: the ad hoc (and frequently criticized) GATT DSS (comprising of a myriad number of working parties, chairperson reports etc.) was streamlined in the 1970s/80s, leading to the creation of the legal affairs division (LAD).[viii] The very creation of the AB was one such ‘miracle’, resulting from contestation within the Membership and the hope of a better (more robust) legal future.[ix] So, let us say, the ‘void era’ will be (eventually and somehow) over. The Membership will be (and has always been) very interested in knowing exactly what their rights and obligations are under the WTO agreements, and how reports of the judiciary affect the same (notwithstanding the stipulation in DSU Art. 3.2 that the DSS will not “add to or diminish the rights and obligations provided in the covered agreements”). This has been at the forefront of US complaints against the AB. From a practical standpoint, there will undoubtedly be a case (or a Member) in the post-IAAA future that will raise the question of: what is the status of awards undertaken during the IAAA era? For example, if the EU and China engage in a dispute under the IAAA procedures on the crucial issue of ‘extraterritorial subsidisation’,[x] will the legal interpretations developed therein be applicable between, say, China and a non-IAAA Member in the resuscitated DSS order? Let us also remember that the IAAA system envisions a ‘legitimate’ judiciary: the judges will be ex-AB members,[xi] adding authoritative fuel to the fire. In such a situation, are we heading to a situation of parallel jurisprudences (jurisprudencii?)? This question is, of course, predicated on the assumption that the IAAA will be in force long enough to see a case go through a panel stage and be appealed by an IAAA Member.
Quick-Fixes, Fissures and Fragmentation
The irony is that the AB has ensured (regardless of whether this was ‘intended’) the creation of a single, consistent corpus of law. In effect, panels have a legal ‘star of Bethlehem’ to follow (we disregard the ‘precedent controversy’ in this post). Now, with the good intention of keeping appeals alive, the EU and others may, in effect, be creating two bodies of WTO interpretations.
In a typical WTO dispute, the rulings/recommendations of panel/AB interpret a ‘common legal reference point’: Annex 1 contains the agreements that all WTO Members are bound by (except plurilaterals). While the dispute is (ostensibly) bilateral, the report is adopted by the DSB, thereby ‘multilateralizing’ it. And while there is some disagreement about the exact effects that DSB decisions have on non-disputants,[xii] it is safe to say that these decisions, by virtue of DSB-sanction, become part of WTO’s ‘acquis’.[xiii] However, that would not be the case for IAAA awards. This is because DSU Art. 25.3 states that “arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement where any Member may raise any point relating thereto.” Thus, there will be a notification, and perhaps some discussion in the DSB, but no formal adoption will be required. In this sense, the IAAA award will be a strictly inter partes affair, outside of the WTO acquis. This will create two sub-species of WTO case-law in the IAAA era: Inter partes IAAA awards outside of the acquis, and multilateralized panel reports contributing to it.
An asterisk is placed here seeing that Art. 25.4 states that “[a]rticles 21 and 22 of this Understanding shall apply mutatis mutandis to arbitration awards” and, in turn, DSU Art. 22.6 requires DSB sanction for retaliation. This is explored further below.
Now, while there may be legal basis for excluding IAAA from the WTO acquis, the matter, in all probability, will not end there. It would be naïve to think that a reinvigorated DSS will act as if nothing had happened. As Vidigal provides: “parties to such an agreement should be conscious that, in the absence of an operational Appellate Body, decisions of appeal arbitrators may have an impact on the broader development of WTO law, affecting the set of mutual expectations that constitute the trade regime.”[xiv] This will be especially true if there are a large number of IAAA awards to contend with; and if GATT/WTO history has taught us anything, it is that the Membership is a litigious bunch. This de facto contribution to the acquis of IAAA awards raises two questions: (1) what is the status of non-IAAA third parties? Can they participate in IAAA disputes?; and (2) how can the WTO Membership mitigate the risk and/or effect of parallel case-law?[xv] We address these in turn.
Third parties: In? Out? Somewhere in between?
The IAAA system is, as such, ‘open’ to third parties: i.e. others are welcome to join.[xvi] However, how open is the participation in IAAA arbitration for third parties that are not-IAAA Members? The general rule for third party participation in WTO disputes is contained in DSU Art. 10, which gives a ‘full right’ to make submissions to the panel. DSU Art. 25.3, however, is lex specialis. It states that, for arbitrations, “[o]ther Members may become party to an arbitration proceeding only upon the agreement of the parties which have agreed to have recourse to arbitration”. This is not a mandatory requirement; and original parties to the arbitration can reject third-party participation. Thus, in our aforementioned example, in an IAAA proceeding between EU and China, a request to participate by a non-IAAA Member could be rejected by either disputing party.
This could present a problem. Seeing the lack of clarity on the de jure contribution to the acquis (see the discussion on Art. 22.6 DSU below) and the probability of a de facto contribution, a non-IAAA Member has a logical interest in participating in the EU-China arbitration on a controversial issue such as extraterritorial subsidisation. The question thus rises whether it could invoke a right to participate as a third party. Firstly, and obviously, the non-IAAA Member could simply sign on. But no one can force a sovereign country to do anything. In this regard, Pohl has dug up the very interesting (and relevant) 1907 Hague I Convention[xvii], which states in Art. 84.2 that when the award: “concerns the interpretation of a Convention to which Powers other than those in dispute are parties [the SCM], they shall inform all the Signatory Powers in good time [the non-IAAA Membership, as foreseen in Article 25.2 DSU]. Each of these Powers is entitled to intervene in the case. If one or more avail themselves of this right, the interpretation contained in the Award is equally binding on them”[xviii] Pohl further points out that 108 out of the 164 WTO members are members to the 1907 Convention, and we now know that this includes the entire IAAA Membership. In so far as the relationship between the Convention and the Article 25.3 DSU as lex specialis is concerned, Pohl notes in a footnote that:
“It could be questioned if there is a norm conflict between Art 25.3 DSU and Art 84.2 of the Hague I Convention of 1907 in this respect, such that Art 30(3) of the Vienna Convention on the Law of Treaties, 1155 UNTS 331, (VCLT) would be applicable. However, it should be noted that, in contrast to the prevailing definition of norm conflict, the two provisions are fully capable of being applied at the same time (cf. Art 59(1)(b) VCLT) and are thus not mutually exclusive; and the disputants can comply with their obligations under the Hague Convention to permit a third participant to intervene by agreeing under the DSU to such participant becoming a party to the arbitration proceeding.” [xix]
All this might imply a duty on the IAAA parties to ensure that non-IAAA parties are allowed to participate in IAAA disputes, despite them being non-parties to the IAAA. However, on this point, the available EU documents are not entirely clear. The EU’s original agreements with Norway and Canada state that: “[o]nly parties to the dispute, not third parties, may initiate the arbitration. Third parties which have notified the DSB of a substantial interest in the matter before the panel pursuant to Article 10.2 of the DSU may make written submissions to, and shall be given an opportunity to be heard by, the arbitrator. Rule 24 of the Working Procedures for Appellate Review shall apply mutatis mutandis.”[xx] Of course, this excerpt allows non-IAAA parties interested in the EU-China dispute, to simply join the system, and file their own complaints or participate as a third parties. On the advanced question of non-IAAA third parties participating in IAAA arbitration without joining, the final text will have to clarify if ‘third parties’ in the excerpt above refers to ‘third parties to the original panel proceedings’, or is limited to ‘third parties to the original panel proceedings able (but not allowed) to initiate arbitration’. Only the former option concerns both IAAA Members and non-IAAA Members and thus meets the legal requirements in 84.2 of the 1907 Hague I Convention.
Also (and crucially), Article 84.2’s last sentence would imply that the intervening Members will be bound by the interpretation of the SCM contained in the award of the EU-China IAAA arbitration, while non-intervening Members will not. This further exacerbates the risk of fragmentation of the ‘common legal reference point’. Say the extraterritorial subsidization arbitration attracts 20 or so third parties (IAAA or non-IAAA Members). This could create a diverging interpretation of SCM law for a non-marginal minority of the Membership. Pohl is wise in suggesting that IAAA Members contract out of their obligations under Article 84.2 to avoid such a situation.[xxi]
What do we do now?
When the ‘AB crisis’ was in its heyday, everyone was concerned with questions of: what now? what comes next? what do we do? Progress notwithstanding, these questions seem to continue to stare us in the face. We suggest three ways out (in addition to those provided by others).
First, one could consider the DSS post-IAAA as analogous to the situation of the evolution from GATT to the WTO. The Membership could acknowledge the de facto contribution to the acquis of the IAAA awards and ‘grandfather’ them in some way. Whether limiting the effects of international decisions is even practically possible, is an altogether different debate. Secondly, one could promote dialogue between all relevant parties: the new DSS judges, the IAAA members, and the IAAA non-members. This is somewhat similar to what the US and EU suggested with respect to the original AB: that the Membership build additional ‘channels of communication’ between them and the judiciary, so that the desirability of certain interpretations can be discussed. A similar communication channel could be established in the post-AB, post-IAAA legal order deal with the question of its contribution to the acquis. Finally, the (lack of) de facto contribution to the acquis could be written into text, through an amendment of the WTO agreements/DSU. While it has been difficult to garner full support for such amendments, given that circumstances have reached a boiling point, the Membership may be willing to show collective pragmatism in the future.
Concluding Remarks and the ‘googly’ that is DSU Art. 22.6
In the world of cricket, a ‘googly’ is a deceptive, unexpected delivery by the bowler. As mentioned above, DSU Art. 25.4 is clear that arbitration (IAAA) awards do not require DSB sanction. However, what about DSU 22.6 which requires that for retaliation (in case of non-compliance), DSB sanction will be required? This is particularly relevant, given that one of the major reasons for the WTO DSS’s success has been its ability to allow for (and arbitrate on) retaliation/compensation.
To be sure, retaliation approval also follows ‘negative consensus’ so it will be nearly impossible for, say, the US, to interfere in retaliation procedures in the aforementioned EU-China dispute. However, the point is that from a strictly legalistic point of view, this creates a strange paradox, because the retaliation award will become ‘multilateralized’ while the underlining award will not. We take no position (though ideally someone should) on whether, legally, the retaliation award’s DSB sanction seeps into the original award. Does the former signify the latter’s approval?
In all, a lot depends on the final text of the IAAA. Still, as mentioned above, this is a big, positive step in the direction of a ‘rules-based’ system for economic dispute resolution. We sit in wait for further developments. The road ahead looks winding, but at least we’re in for an interesting ride.
***
* Blue Book Trainee, DG Trade, European Commission; LL.B. LL.M (KU Leuven). The views expressed are those of the author and do not reflect an official position of the European Commission.
** Marie S. Curie Fellow and PhD Candidate at the Leuven Centre for Global Governance Studies (GGS), KU Leuven. The author is a part of the Horizon 2020 ETN project, ‘Global India’, and is a teaching assistant for WTO law.
[i] For the Commission press release, see: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_113.
[ii] See: M. Harpaz, “Sense and sensibilities of China and WTO dispute settlement” Journal of World Trade 44(6) (2010) 1155–1186.
[iii] See fn. 1.
[iv] S. Andersen, T. Friedbacher, C. Lau, N. Lockhart, J. Y. Remy and I. Sandford, “Using arbitration under Article 25 of the DSU to ensure the availability of appeal” CTEI Working Paper 17/2017, 10 p., online at <https://repository.graduateinstitute.ch/record/295745 >.
[v] See: Interim Appeal Arbitration pursuant to Article 25 DSU, JOB/DSB/1/Add.11 (25 July 2019).
[vi] For commentary, see: A. Hazarika and P. Van Vaerenbergh, “’One Rule to Rule Them All’: Rules for Article 25 DSU Arbitration” Journal of International Abritration 36(5) (2019) 595-628.
[vii] See also G. Vidigal, “Living Without the Appellate Body: Multilateral, Bilateral and Plurilateral Solutions to the WTO Dispute Settlement Crisis” Journal of World Investment & Trade 20 (2019) 886 for the distinction on why this is not a plurilateral agreement à là GPA and Jens Hillebrand Pohl, “Blueprint for a Plurilateral WTO Arbitration Agreement under Article 25 of the Dispute Settlement Understanding” in Prévost, Alexovicovà and Pohl (eds.) Restoring Trust in Trade: Liber Amicorum in honour of Peter Van Den Bossche (Hart Publishing, 2019) 139-156 for more usage of the term plurilateral.
[viii] See: A. Porges, ‘The Legal Affairs Division and law in the GATT and the Uruguay Round’ in G. Marceau (ed.) A History of Law and Lawyers in the GATT/WTO (WTO, 2015) 225 – 226.
[ix] See: C.-D. Ehlermann, “Some Personal Experiences as Member of the Appellate Body of the WTO” EUI Working Paper No 02/9 (2002) 44 p.
[x] For more on this topic Victor Crochet and Vineet Hegde on this blog back in November, online at <https://ielp.worldtradelaw.net/2019/11/guest-post-chinese-financial-contributions-to-producers-abroad-a-subsidy-looks-quacks-but-probably-i.html>.
[xi] See fn. 5, para 7.
[xii] For a brief take see: N. McNelis, “What Obligations are created by WTO DS Reports” Journal of World Trade 37(3) (2003) 647. For the opposite view, see also: D. Regan, Do WTO DS Reports Affect Obligations of Non-Parties – Response to McNelis, Journal of World Trade 37 (5) (2003) 883.
[xiii] Pohl (note 7) 147; Hazurika and Van Vaerenbergh (note 4) 606; Without straying off into discussions on the precise meaning of the word acquis (see: G. Marceau, “Transition from GATT to WTO”, 29 J.W.T.147 29:1 (1995) 147, who disputes the use of the term 'GATT acquis,' as understood in the wider European law sense since, in her view, GATT case-law does not form part of the GATT 1994. However, see E.-U. Petersmann, “The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948” Common Market Law Review (1994) 1157-1207), we use the working definition of ‘the covered agreements plus the body of multiliateralized/ adopted dispute settlement reports’.
[xiv] Vidigal (note 7) 886.
[xv] To be sure, this is the same fear that is associated with DSS under Preferential Trade Agreements (PTAs), though more in the context of the problem of ‘forum shopping’. see: Tradecraft: <https://soundcloud.com/user-885686084/ep-33-dispute-settlement-forum-shopping-and-the-centrality-of-the-wto>.
[xvi] See: Statement by Ministers, Davos, Switzerland, 24 January 2020; see further, Pohl (note 7) 153. Note that the EU’s recent amendment of its Enforcement Regulation (https://ec.europa.eu/commission/presscorner/detail/en/ip_19_6748) shows that it gives priority to the IAAA structure over unilateral measures as an ultimate option, therefore indicating its openness.
[xvii] See the 1907 Convention For The Pacific Settlement Of International Disputes, Permanent Court of Arbitration, online at <https://pca-cpa.org/wp-content/uploads/sites/6/2016/01/1907-Convention-for-the-Pacific-Settlement-of-International-Disputes.pdf >
[xviii] See: Pohl (note 7) 147.
[xix] See: Pohl (note 7) fn. 34.
[xx] Interim Appeal Arbitration pursuant to Article 25 DSU, JOB/DSB/1/Add.11 (25 July 2019), §11.
[xxi] Pohl (note 7) 153.
