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December 13, 2019

The European Commission Proposes to Boost Its Trade Arsenal Amid the Paralysis of the WTO Appellate Body

Since December 11, 2019, the Appellate Body of the World Trade Organization (“WTO”) – which hears appeals from reports issued by panels in disputes brought by WTO Members – has become unable to function as a consequence of the USA veto to appoint new members to the Appellate Body. Due to the blockage of appointments, the entire WTO dispute settlement system is called into question, as a WTO Member might decide to block the process by appealing a WTO panel report “into the void”, in order to avoid binding rulings.

On December 12, 2019, the European Commission presented two initiatives to protect its interests under the international trade agreements:

  • It published a proposal to amend the Regulation (EU) No 654/2014 concerning the exercise of the Union's rights for the application and enforcement of international trade rules (“the EU Enforcement Regulation”), in order to impose measures in situations when dispute settlement procedures are blocked due to the lack of cooperation in good faith by a country responsible for a breach of its WTO obligations or other international trade agreements (bilateral or regional);
  • It established the position of Chief Trade Enforcement Officer to further increase the focus on compliance and enforcement of the EU’s trade agreements.

These initiatives were taken as an immediate response to the blockage of the WTO Appellate Body. However, they intend to cover a broader scope, as the new proposed rules will apply to similar situations which may arise under other international trade agreements - in particular regional or bilateral agreements - when a third country does not cooperate for dispute settlement to function (i.e. failure to appoint an arbitrator while no fall-back mechanism for arbitration is provided). In this sense, the new proposed rules do not represent an attack against any country but are a mechanism to protect the Union’s interests under the international trade agreements.

In the recent months, the EU has also been working hard on an interim appeal arbitration arrangement which aims at replicating the WTO appellate mechanism until it is restored, through arbitration under Article 25 of the WTO Dispute Settlement Understanding. However, such interim arrangement is not an automatic mechanism and will require the individual agreement of other WTO members. EU and Canada have already agreed upon an interim appeal arbitration arrangement. EU and Norway have also agreed to apply this appeal arrangement.

Next steps

The EU Commission’s proposal will now be subject to the normal EU legislative procedure, involving a decision by the European Parliament and the Council. The EU Commission wishes that the Regulation be adopted by mid-2020 given the urgency of the matter.

The Chief Trade Enforcement Officer will be appointed in early 2020.