18 February 2021
Erika Szyszczak is Professor Emerita and a Fellow of the UKTPO.
Traditionally, the legal enforcement of obligations was the Achilles heel of bilateral and multilateral international agreements. The EU has signalled that it wants to conduct international trade based upon the rule of law. The demise of the WTO Appellate body since 11 December 2019 has focused the EU into using and bolstering its own Dispute Resolution mechanisms in international trade agreements. The significance of this approach is seen in the Trade and Co-operation Agreement between the EU and the UK 2020, containing innovative procedures for rebalancing the trade elements of the TCA (and ultimately cancelling them) if one side changes its standards in ways that materially affect trade. Such rebalancing can be triggered in several circumstances, including via periodic reviews of the whole trade relationship.
The EU has a number of ongoing bilateral trade disputes with Ukraine (ban on export of unprocessed wood), the Southern African Customs Union (poultry standards), Algeria (trade restrictions) and Korea (labour standards).
The recent engagement with the EU-Ukraine DCFTA dispute mechanism in the Ukrainian Wood dispute was a steep learning curve in ensuring that budgets, procedures and mechanisms are in place to ensure a swift and smooth resolution of disputes. In the Ukrainian Wood Arbitration there were hurdles to overcome, as well as disputes leading to delays over the composition of the Panel of Arbitrators. On the EU-side there were no established contracts to appoint the arbitrators for the Panel and no budget, leading to discussion over the level of compensation to be paid to the arbitrators. Ukraine was obliged to change its procurement procedures to appoint its own arbitrators. This led to further delays. Once established, the Arbitration Panel found that, unlike the WTO mechanisms, there was no secretariat to serve the arbitration process and three part-time officers were made available. But this is a thin level of support to ensure the preparation of evidence and jurisprudence.
Since 2019, the EU has taken a number of steps to review and enhance the enforcement of trade dispute mechanisms:
The amended Enforcement Regulation 2021 came into force on 13 February 2021 and applies to the application and enforcement of international trade rules by enabling the EU to suspend or withdraw concessions or other obligations under international trade agreements in order to respond to breaches by third countries of international trade rules that affect the commercial interests of the EU. These actions may be initiated against breach of the WTO rules, as well as breach of bilateral trade agreements. The Enforcement Regulation allows the EU to take countermeasures when a third country prevents effective dispute settlement, in the WTO or in bilateral agreements.
Significantly, it expands the scope of available measures to services and to Intellectual Property Rights. This expands the reach of EU powers beyond trade in goods, and could develop a pioneering jurisprudence that informs the development of international trade jurisprudence. But, this would be an area contested, not so much by states, but by private firms operating in global markets.
Further measures are envisaged from the Regulation, for example, there is a Joint Declaration on an instrument to deter and counteract coercive actions by third countries, with the European Commission committed to adopting an anti-coercion mechanism by the end of 2021.
An inception impact assessment was published on 17 February 2021.
The appointment of a new Director-General of the WTO, Ngozi Okonjo-Iweala, alongside a new President of the United States, has re-invigorated the need for reform of the international trade dispute resolution mechanisms. But the WTO has a long agenda to work through. Until this achieved the EU has significantly strengthened its own legal rules and toolkit, and these may become the preferred mode of conduct for settling trade disputes in the future.
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.
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