Dispute resolution at the WTO: the wheels continue to turn

In this article, we reflect on the first award by the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), the United States’ challenge to the WTO Dispute Settlement Body’s (DSB) rulings against its steel and aluminium tariffs, and two ongoing disputes between the EU and China.

MPIA’s first award

By way of context, the United States has since 2018 blocked the appointment of new Appellate Body members. This has rendered the body non-functional and unable to hear appeal cases, as it lacks the required quorum to convene. In response, in 2020, 16 members of the WTO – excluding the United States – formed the MPIA as an alternative system for resolving WTO disputes. Members of the WTO may elect to use the MPIA under Article 25 of the WTO Dispute Settlement Understanding and the MPIA now has 25 members.

On 21 December 2022, the MPIA issued its first ruling. The case concerned Colombia’s imposition of duties on frozen fries from Belgium, Germany and the Netherlands for a two-year period from November 2018. Colombia imposed duties of 3% to 8%, justifying its decision by referring to the artificially low prices of such imports. This targeted nearly 85% of EU exports of frozen fries to Colombia. The EU contended that such anti-dumping duties were inconsistent with the Anti-Dumping Agreement, Article 10 of the Customs Valuation Agreement, and Article VI of the General Agreement on Tariffs and Trade 1994 (GATT). A Panel ruled against Colombia, prompting Colombia to appeal pursuant to the MPIA. The three arbitrators overturned one finding in favour of Colombia, but otherwise upheld the Panel’s decision in favour of the EU.

The award is an encouraging indication that the WTO’s dispute resolution system can continue to function, even as deadlock in respect of the Appellate Body continues, if parties elect to use the MPIA mechanism.

Washington appeals rulings on steel and aluminium tariffs, sending them into appellate void

Separately, on 9 December 2022, the Panel handed down its decisions in cases brought by China, Norway, Switzerland and Turkey in respect of the United States’ measures on steel and aluminium tariffs.  The countries had brought challenges against the United States in response to then-U.S. President Donald Trump’s 25% tariffs on steel imports and 10% tariffs on aluminium, which were imposed in 2018 under Section 232 of the US Trade Expansion Act 1962. The countries claimed that the measures were inconsistent with various articles under the Agreement on Safeguards and the GATT 1994.

The four years it took for the proceedings to result in the panel reports underlines the sensitivity of the issues at hand. Most importantly, the Panel found that the U.S.’ measures were inconsistent with the GATT. In this respect, critically, the Panel found that:

• the cases were justiciable, building on the Panel decision in “Russia – Measures Concerning Traffic in Transit” (WT/DS512/R), as the GATT’s “security exception” is not totally self-judging; and
• the GATT’s “security exception” did not apply in this cases.

That exception, set out in Article XXI(b)(iii) of the GATT, allows WTO members in essence to derogate from the terms of the GATT for “actions which it considers necessary for the protection of its essential security interests” if they are “taken in time of war or other emergency in international relations”. The Panel interpreted the phrase “emergency in international relations” to refer to situations of a “certain gravity or severity and international tensions that are of a critical or serious nature in terms of their impact on the conduct of international relations.” The measures did not in the Panel’s view fall within this exemption.

The Biden Administration has, in response, appealed the Panel’s decisions and criticised the rulings as “flawed and damaging”, which it stated are proof that the WTO dispute settlement system is in need of fundamental reform, and said it would not comply with the Panel's decisions. Since the Appellate Body is non-functioning and the U.S. is not a party to the MPIA, this effectively sends the cases off into a legal void.  

The dispute highlights the ongoing rift between the United States and the WTO, with Washington’s calls for reforms to be enacted to the Appellate Body being unlikely to result in movement in the foreseeable future.

EU disputes with China

On 27 January 2023, WTO members granted an EU request to escalate two key disputes with China, establishing two dispute panels. China had blocked the EU's first request at the DSB meeting on 20 December, and has stated that it would defend its measures rigorously. The Panel proceedings will likely take a number of years to reach their conclusion. We consider the cases further below.

The first case relates to measures introduced by China, including alleged rejections of Lithuanian imports by Chinese customs authorities, which the EU claims restricts the trade in goods from or to Lithuania or linked to Lithuania. The EU has reported that trade between China and Lithuania fell 80% from January to October 2022 as compared with the previous year following Lithuania’s decision to allow a government office in Lithuania to bear the name Taiwan.

The second case relates to an EU request to examine claims regarding China’s use of “anti-suit injunctions”. The EU contends that these Chinese measures prevent EU companies from effectively protecting and enforcing their intellectual property rights and are inconsistent with China's obligation under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The EU argues that China is unilaterally imposing rules for the benefit of its own enterprises, to the detriment of the WTO multilateral system for the protection of intellectual property rights.

These disputes signal a shift in tone from the EU, with the EU taking a harder line in its disputes with China and demonstrates that the EU still sees utility in the WTO as a forum for the resolution of trade disputes, in contrast to the United States.

The EU's response to China in these cases must also be seen in the light of the EU's proposed Anti-Coercion Regulation, with the EU appearing ready to take a proactive approach in deterring countries from restricting or threatening to restrict trade or investment to bring about a change of policy in the EU in areas such as climate change, taxation or food safety.

Should you have any questions on the matters discussed in this article, please contact Matthew Townsend, Jonathan Benson or your usual contact at Allen & Overy LLP.