The Future of Dispute Resolution in International (Agricultural)Trade

By Ian Sheldon (sheldon.1@osu.edu)

Although commentators argue about the status of the World Trade Organization (WTO) compared to free trade agreements (FTAs), there is consensus that WTO dispute resolution has been its “crown jewel”.  Key is the two-instance adjudication system, whereby any panel decision has no legal effect until adopted by the WTO’s Dispute Settlement Body (DSB), and the DSB cannot adopt a panel decision until any appeal has been completed by its Appellate Body (AB).  In addition, by the principle of automaticity, parties to trade disputes are prevented from blocking either establishment of panels or adoption of panel and AB rulings.

Despite the perceived success of WTO dispute resolution, the system has been paralyzed by the United States refusing to accept new appointments to the AB, the number of members falling below the required quorum in December 2019. The United States has oft expressed concern about AB “judicial overreach”, and by vetoing new appointments, WTO panel decisions can now be appealed “into the void”.

With the WTO being dysfunctional, the United States has chosen to follow a bilateral/regional approach to trade dispute resolution.  On the one hand, its bilateral agreement with China is fundamentally a rejection of independent dispute resolution and a distinct break from other FTAs to which it is a signatory, but at the same time it has sought resolution of several disputes with Mexico and Canada, its USMCA partners.

In contrast the European Union (EU) has led implementation of the Multiparty Interim Arbitration Arrangement (MPIA) based on Article 25 of the WTO’s dispute settlement protocol, whereby 26 WTO members, including Japan and China, have agreed not to appeal panel reports, but instead follow an arbitration process.  At the same time, the EU has initiated disputes through FTAs of which it is a member.

So where does this leave trade dispute resolution?  Despite US-EU divergence, the fact that both are using regional dispute resolution suggests there may be a way forward:  FTAs could have an “opt-in” clause for non-members (Sheldon and Chow, 2024).  The clause would allow non-members of an FTA to use its dispute resolution mechanism in any dispute with a member of the treaty.  At the same time the WTO could be used as a clearinghouse and center at which the opt-in clauses are exercised.  Of course, any decisions would have no legal status at the WTO, and no precedent value, but it has the clear potential to prevent some trade disputes not being appealed into the void at the WTO.