How quickly things change. Just a few years ago some trade lawyers were proposing that FTAs refer their disputes to the WTO DS mechanism. Now, it seems that there is a new trend – addressing what are in effect WTO disputes through FTA dispute settlement.
This week, an Arbitration Panel under the EU-Ukraine Association Agreement (“AA”) released its decision in what is, according to the EU Commission, the first-ever EU trade dispute under a bilateral agreement. Yet this decision does not relate to new, innovative obligations under the FTA. Rather, it arises under WTO obligations which have been incorporated into the AA, to wit, whether Ukrainian export restrictions on wood products are inconsistent with Article XI GATT and, if so, whether they can be justified by Article XX(b) and (g).
The decision looks a lot like a WTO report. Two of the three panelists, Christian Haberli and Giorgio Sacerdote, are highly experienced WTO jurists, and the report is rife with references to WTO cases. The table of authorities – listing dozens of WTO decisions – is even formatted identically to a WTO report.
So why did the EU decide to bring this dispute under the AA, and not in the WTO? Is this explained by the current impasse in the WTO dispute settlement system? Ukraine is an MPIA party, so the AB blockage is not fully effective, but perhaps the EU did not know this would be the case in January 2019, when it sought consultations.
In any event, like so many FTAs, the AA incorporates a range of WTO obligations. This has become standard operating procedure in FTAs, especially where the parties find it difficult to agree to any further, deeper disciplines. And with the current challenges of WTO dispute settlement, we may see more “WTO cases” brought to FTA arbitration.
And yet, since a treaty provision must be interpreted in its context and in light of the treaty’s object and purpose, even the verbatim transposition of a WTO provisions does not guarantee the same outcome. Here, chapter 13 of the EU-FTA deals with sustainability. While the Arbitration Panel did not agree that chapter 13 created “exceptions” to other AA provisions, it did rely on provisions in that chapter as context for the interpretation of the general (Article XX) exceptions in the AA.
Further, GATT Article XI was not transposed verbatim in the FTA. Rather, Article 35 AA first sets out in its own language a prohibition of QRs, and then states that Article XI and its interpretative notes are incorporated by reference. Although the Arbitration Panel concluded that Article 35 and Article XI “impose identical obligations”, it took substantial intellectual gymnastics to get there.
My point here is not to suggest that the Arbitration Panel erred, or that the results here necessarily differ from those that would have been reached in the WTO. But this decision highlights that the simple incorporation of WTO rules into non-WTO agreements is not as simple as it sounds, and that outsourcing WTO litigation to FTAs could generate unexpected and divergent outcomes.
