Fragmentation Adjustment in the Settlement of International Trade Disputes

The split in world trade is not new. With the slow development of multilateral trade rules in the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs).

By 2023, nearly 600 bilateral and regional Trade agreements Notified to WTO Growing fragmentation In Trade Rules, Business Operations and International Relations. But until recently, trade dispute settlement remained largely within the WTO.

Governments have historically used the WTO as their preferred forum, but this has changed since the Appellate Body, the WTO's Appellate Court. Stopped working As the US blocked the appointment of new Appellate Body judges in December 2019.

Appellate judges must be nominated by consensus, meaning that a WTO member's objection is sufficient to prevent the Appellate Body from being reconstituted. In the absence of a functioning appeals system, panel reports can now be appealed 'in a vacuum', and the WTO's dispute settlement system has been crippled by suspending the dispute until the appeal is heard.

The demise of the appellate body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO members made it Multiparty Interim Appellate Arbitration Arrangement (MPIA) is a temporary solution, but in its current form it is not exactly piecemeal.

Since its formation in 2020, the MPIA has attracted only 26 parties. Furthermore, the mechanism only issued appellate judgments and prompted implementation in two disputes, while most panel decisions appealed to the void. There are also rulings by the MPIA Not consistently WTO case law is increasingly fragmented, with previous decisions by the Appellate Body on similar issues.

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In terms of enforcement, the appellate system tends to fragment the avenues expected to implement decisions. Here, a shift seems to be underway from strict compliance to more flexible approaches to resolving disputes.

Evidence is emerging of increasing use of dispute settlement mechanisms under FTAs. For example, high level disputes are initiated and adjudicated under it United States-Mexico-Canada Agreement.

As governments Increasingly there is help For FTAs ​​to settle disputes, there may be similar fragmentation in trade law and enforcement. Although many FTA provisions are harmonized with the WTO, FTA tribunals may develop new interpretations of similar provisions.

Furthermore, tribunals under different FTAs ​​may develop different interpretations of provisions outside the WTO rulebook. While this may lead to the creation of case law, it may further fragment commercial law. Whereas the expected increase in conflicts under FTAs ​​could lead to a similar fragmentation in enforcement.

Maintaining the integrity and predictability of the global trading system requires restoring the WTO's authority while reducing fragmentation. At the 12th WTO Ministerial Conference in 2022, Governments agreed Re-establishment of a functional dispute resolution system by 2024. However a multiparty solution can be difficult because whether an appeal mechanism is desirable and How to rebuild it.

The The US reiterated A more flexible system is needed to 'maximize the tools available under the Dispute Settlement Understanding' to assist WTO members in resolving trade issues and to allow for more efficient dispute resolution. This stance contrasts with that of other key members such as the European Union and China. A Joint submission Bangladesh, Egypt, India, Indonesia and South Africa also stressed the critical importance of restoring a functioning appeals mechanism to the WTO on 12 April 2024.

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Achieving consensus will be difficult and negotiations will take time. corrections Understanding Dispute Resolution should be Accepted by consensus and applies to all members. This meant that a multilateral approach to amendments to existing WTO agreements was used to develop agreements. Trade Facilitation And Fisheries SubsidyNot likely to work.

Instead, a critical mass-based, open pluralism provides a viable alternative to reforming the appeals mechanism. This approach is plausible because WTO members are committed to reforming the dispute settlement system. It is practical in the practice of creating multilateral initiatives on contemporary issues within a multilateral framework – joint ventures. E-commerce And Investment facility – When there is no consensus.

To regain its authority to interpret and enforce WTO trade rules, a multilateral appeals mechanism should include a majority of WTO members, or at least major users of the dispute settlement system.

This 'critical mass' does not exist under the MPIA. Existing MPIA Parties may propose and lead a multilateral initiative for negotiations open to all members. While sub-optimal, this system is more inclusive than any FTAs ​​and is more likely to generate the necessary power. It should welcome non-participants to increase its utility and influence and facilitate its expansion towards a multilateral framework.

However, to discourage the practice of 'appeal to the void', this mechanism should not be available to members who pursue that practice. A 'critical mass' is important to build social pressure on non-signatories, especially 'appeal to the vacuum'.

This multifaceted appellate system should address criticisms of the appellate system and consider some Constructive approaches Tested by MPIA tribunals to avoid unnecessary delays or adjudication of disputes.

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It should also ensure that the power to make trade rules remains firmly in the hands of WTO members. This would require mechanisms that give members room to exercise the necessary political oversight over judicial decisions.

This multilateral solution will not be dismantled and therefore should not be seen as an alternative – but a necessary step – to multilateralism.

Weihuan Zhou is Associate Professor and Co-Director of the China Center for International Business and Economic Law, Faculty of Law and Justice, UNSW.

Victor Crosette is a PhD student at the University of Cambridge.

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