On July 25, 2019, Canada and the European Union issued a joint statement confirming they had reached an Interim Appeal Arbitration Arrangement to resolve World Trade Organization (“WTO”) disputes (at the Appellate Body stage). Starting on December 10, 2019, the Appellate Body will be unable to hear new appeals due to the United States blocking appointments of new Appellate Body members.  The WTO Appellate Body normally has seven members and currently is down to three members. Two of the remaining WTO Appellate Body members’ terms expire in December. WTO Appeals  are heard by three WTO Appellate Body members.

It is important to recognize that there is no problem with first stage appeals before the Dispute Settlement Body (“DSB”).  Countries first have consultations when there is a dispute and if they cannot resolve the dispute, then the complaining members will file a dispute with the DSB.

Canada and the EU have agreed on an interim appeal arbitration arrangement based on existing WTO rules to resolve disputes after a DSB decision has been issued. The Interim Appeal Arbitration Arrangement will apply to only to disputes between the EU and Canada (but not other countries against Canada or the EU) in the event the Appellate Body is unable to hear appeals.  The Interim Appeal Arbitration Arrangement will remain in effect until the Appellate Body is fully operational.

Canada and the EU will resort to arbitration under Article 25 of the Dispute Settlement Understanding (“DSU”) as an interim appeal arbitration procedure if the Appellate Body is not able to hear appeals of DSB reports in any future dispute between Canada and the European Union due to an insufficient number of Appellate Body members. Under the appeal arbitration procedure, Canada and the European Union intend to replicate as closely as possible all substantive and procedural aspects as well as the practice of Appellate Review pursuant to Article 17 of the DSU including the provision of appropriate administrative and legal support to the arbitrators by the Appellate Body Secretariat.

Appeals will be heard by three former members of the Appellate Body, serving as arbitrators pursuant to Article 25 of the DSU.  The arbitrators will be selected by the WTO Director-General from the pool of available former members of the Appellate Body. Two nationals of the same Member may not serve on the same case.

Canada and the EU have agreed to enter into an Appeal Arbitration Agreement within 60 days of the establishment of a DSB panel (that is, before the DSB decision is even issued) and notify the WTO secretariat of the agreement. The Appeal Arbitration Agreement will ensure that if Canada files a trade dispute against the EU, or vice-versa, both WTO members can be sure that the case can be adjudicated, appealed and settled in a ruling that both sides will respect as binding and final.

Where other WTO members file disputes relating to the same matter as the dispute between Canada and the EU, Canada and the EU envisage that a single arbitration panel should be formed to hear the appeals together.  As a result, the process is not undermined if other WTO members get to exercise their legal rights.

Historically, Canada has filed a number of disputes against the EU  and the EU has filed few disputes against Canada.  The Interim Appeal Arbitration Arrangement is intended to be a legal template that other countries could support and join. The EU and Canada are expected to try to negotiate similar workaround arrangements with other WTO members such as China, India and Brazil.

Canada’s disputes against the EU include (excluding third party disputes):

The EU disputes against Canada (excluding third party disputes) include:

Why is this important to Canadian companies? This is important because Canadian companies that are negatively effected by an EU measure will be able to consider strategies to communicate with Global Affairs Canada and ask Canada to file consultations with the WTO to get rid of the offending measure.  Currently, without an effective Appellate Body, Canadian companies have to file litigation under EU procedures to challenge an offending measure that harms their business interests.  Canada being able to obtain a WTO DSU decision that a measure is inconsistent with the EU’s international obligations is in some cases a better dispute settlement option. Companies are not able to bring disputes directly to the WTO.  Instead the Canadian company must convince the Government of Canada to file the dispute and dedicate resources to resolving the dispute (e.g., pay the salaries of Department of Justice lawyers and other relevant government officials, hire outside counsel, etc).

For more information, please contact Cyndee Todgham Cherniak at 410-307-4168 or at cyndee@lexsage.com.