EU, China, 15 others form alliance to settle trade disputes

The European Union and a group of 16 nations that includes China and Brazil are forming an alliance to settle their trade disputes using an appeals and arbitration system at the World Trade Organization to replace temporarily a process stymied by the U.S.

“We will work towards putting in place contingency measures that would allow for appeals of WTO panel reports in disputes among ourselves,” according to the joint declaration posted by the European Commission.

The development marks an advance of the EU’s backup plan for settling international trade disputes now that the WTO appellate body is paralyzed. The deal was reached among WTO delegates meeting at the sidelines of the World Economic Forum in Davos, Switzerland.

“We believe that a functioning dispute settlement system of the WTO is of the utmost importance for the rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features,” according to the statement.

Dispute Paralysis

The Trump administration last year precipitated the paralysis of the WTO appellate body—which acted as a sort of supreme court for trade—by blocking all nominees to the seven-member panel.

As of Dec. 11 there is only one active member remaining, which is less than the three members that are required to sign off on rulings. The practical effect is that while WTO members can still file disputes, the losing party may appeal the WTO’s initial ruling into legal limbo—which effectively acts as a veto.

The new alliance will seek to broaden the treaty agreements that the EU made with Norway and Canada last year to settle their disputes according to an appeal-arbitration model.

The model is rooted on an existing WTO rule—Article 25 of the Dispute Settlement Understanding—that permits nations to agree to a voluntary form of arbitration to settle their disputes.

Under such an approach, the WTO director-general can select a panel of previously vetted former appellate body members who apply the same procedures of the appellate body to reach a final judgment. As a practical matter, WTO members who sign on to such a system will basically undergo the same process as they would have via the appellate body.

Veto Power

Details on how the model would apply to the broader group of countries is still being negotiated.

In addition to the EU, participants in the alliance include: Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, Guatemala, South Korea, Mexico, New Zealand, Norway, Panama, Singapore, Switzerland and Uruguay.

The U.S., which is not a member of the alliance, still has the power to veto any pending cases against it by appealing them. The U.S. is facing several potential disputes, including challenges to President Donald Trump’s national security tariffs on steel and aluminum goods.

Trump earlier in the week in Davos renewed his call for WTO reform. The joint declaration on Friday said it took “proper note” of the U.S. president’s comments.

“The multiparty appeal arbitration arrangement will guarantee that the participating WTO members continue to have access to a binding, impartial and high-quality dispute settlement system among them,” EU trade chief Phil Hogan said in a statement. “We will continue our efforts to seek a lasting solution to the appellate body impasse.”