- Trade topics
- Dispute settlement
The WTO's Understanding on Dispute Settlement provides WTO members with a legal framework for resolving trade disputes that arise between them in implementing WTO agreements.
Ideally disputes are resolved through negotiations. If this is not possible, WTO Members can request the establishment of a panel to settle the dispute. The panel will issue a report, which can subsequently be appealed before the WTO's Appellate Body on questions of law.
The Appellate Body is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel
If a WTO member does not comply with recommendations from dispute settlement, than trade compensation or sanctions, for example in the form of increases in customs duties, may follow.
Many WTO members, including the EU, make active use of this system so that violations of trade rules are corrected. However, the EU only initiates a dispute settlement case where other ways of finding a solution have not been productive.
The Appellate Body crisis
Since 11 December 2019, the Appellate Body is no longer able to deliver binding resolutions of trade disputes. Nor can it guarantee the right to appellate review. New appointments to the WTO's Appellate Body are blocked.
The EU is engaging in efforts to resolve this situation.
- EU Proposal to the WTO to amend the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)
- EU Statement of 9 December 2019
- EU Statement of 15 and 16 October 2019
The EU has been supportive of the informal process under the auspices of the WTO General Council led by New Zealand Ambassador David Walker, who chairs the WTO Dispute Settlement Body.
Multi-party interim appeal arbitration arrangement
Pending a resolution of the Appellate Body situation, the EU and other WTO members established a Multi-party interim appeal arbitration arrangement (MPIA). The MPIA became effective on 30 April 2020 and ensures that the participating WTO members continue to benefit from a functioning two-step dispute settlement system in the WTO, including the availability of an independent and impartial appeal stage. Any WTO member may join.
On 30 July 2020, MPIA members established a pool of appeal arbitrators who will hear appeals of WTO panel reports under the MPIA.
In March 2021, over 50 WTO members were participating in the MPIA:
The EU, including its Member States; Australia; Benin; Brazil; Canada; China; Chile; Colombia; Costa Rica; Ecuador; Guatemala; Hong Kong SAR; Iceland; Macao SAR; Mexico; Montenegro; New Zealand; Nicaragua; Norway; Pakistan; Peru; Singapore; Switzerland; Ukraine; and Uruguay.
Another line of defence for the EU given the WTO situation is the Enforcement Regulation. It permits the European Commission to act on the EU's behalf in certain situations to respond to trade actions by partner countries.
The Enforcement Regulation also permits the EU to act should a third country block effective settlement in WTO disputes or in bilateral disputes.
The EU is working to reform the WTO's dispute settlement mechanism to ensure that it maintains its effectiveness.
The reform aims to:
- Make it easier to negotiate new agreements to respond to important trade issues. ‘Plurilateral’ agreements bringing together all WTO members who want to move forward on a given issue would stop those who do not from blocking progress. Such agreements would be open to all WTO members and could be integrated into the WTO’s framework of rules later.
- Find, together with the entire WTO membership, a lasting solution to the current Appellate Body situation that would restore fully functional dispute settlement at the WTO.
- Make the WTO’s monitoring of its members’ trade policies more effective by improving the transparency of members’ trade practices and improving how WTO committees work.