The EU's 'Plan B'... Structural Limitations Persist [WTO Endgame] ⑤

Series Order

<1>WTO Appellate Body Paralyzed for Seven Years... Global Trade Already in a 'Lawless State'
<2>Responsible for 98% of Global Trade... Resolving Disputes and Driving Economic Growth
<3>The U.S.: From 'Key Architect' to 'Threat to Order'
<4>China as the Starting Point That Shook the WTO... The EU Also an Accomplice
<5>The EU's 'Plan B'... Structural Limitations Remain
<6>Every Country for Itself? New Alliances? Globalization Without the U.S.?... The Path Forward for Korea

Reuters Yonhap News

Over the past six years, many World Trade Organization (WTO) member states-led by the European Union (EU)-have continued to utilize not only the first-instance dispute panels but also the 'Multi-Party Interim Appeal Arbitration Arrangement (MPIA),' a temporary appeal arbitration system introduced as a substitute for the Appellate Body (the final instance), despite the Appellate Body's suspension.

The MPIA, as a provisional appeals body, serves as a 'Plan B' to supplement the suspended functions of the existing WTO Dispute Settlement Body (DSB). However, there are clear limitations to the effectiveness of the MPIA, as major trading nations such as the United States and India have chosen not to participate.

The EU officially launched the MPIA in April 2020, together with Canada and other countries, as a multilateral arbitration agreement within the WTO. According to the WTO, the MPIA was designed to address the issue of unresolved cases when appeals are filed after a first-instance ruling under the existing dispute settlement system. The MPIA is based on Article 25 of the WTO Agreement (the arbitration provision) and performs the appellate function by mutual agreement among participating countries.

Currently, 52 countries-including EU member states, Australia, Canada, Singapore, New Zealand, Mexico, and Brazil-are participating in the MPIA (or 26 if the EU is counted as a single entity). Korea is not a participant. According to WTO Secretariat data (as of March 2024), the MPIA member countries account for about 30% of global trade. The MPIA is intended as a supplementary measure to the formal WTO system and is to be maintained temporarily until the Appellate Body is restored.

The procedures of the MPIA closely mirror those of the WTO Appellate Body. A three-person arbitration panel, based on WTO rules and precedents, hears cases and issues binding decisions. However, the MPIA only applies to disputes between participating countries and has no effect on disputes involving non-participating countries.

Since its launch, the MPIA has been used in some actual disputes. On December 21, 2022, the first arbitration agreement between MPIA members was concluded. This was the final ruling in the frozen French fries dispute between the EU and Colombia, with a concise 39-page report issued within 90 days of the appeal, addressing previous shortcomings. This is regarded as a representative example of the MPIA fulfilling the role that the Appellate Body would have played if it had been functioning normally. In another case, Turkiye, which was not an MPIA member, entered into an arbitration agreement respecting MPIA principles under Article 25 of the WTO Dispute Settlement Understanding (DSU) after being challenged by the EU, an MPIA member. Turkiye notified the DSB of its intention to implement the arbitration ruling.

However, the structural limitations of the MPIA are clear. First, major trading powers such as the United States, India, and Brazil are not participating. The Brookings Institution pointed out in a report in May last year that "a significant portion of global trade disputes remain unresolved outside the MPIA." In fact, WTO statistics show that as of 2024, about 65% of all WTO dispute cases are not between MPIA members and therefore cannot be resolved through the MPIA.

In particular, the United States maintains an extremely negative stance toward the MPIA. In its 2023 annual report, the Office of the United States Trade Representative (USTR) stated, "The MPIA is merely a temporary workaround that avoids addressing the structural problems of the WTO," and insisted that "the real solution is a fundamental reform of the Appellate Body." The U.S. opposes simple restoration of the Appellate Body, arguing that it repeatedly issued rulings that violated WTO rules. As a result, regardless of the MPIA's activities, there is still no way to reach a final ruling in disputes involving the United States.

This situation further highlights the structural limitations of the MPIA. While the MPIA is undoubtedly a useful interim tool to fill the Appellate Body vacuum, it is not a fundamental solution. With key trading nations such as the United States, India, and Brazil absent, it is seen as insufficient to restore the binding force of global trade rules.

A more fundamental problem is that restoring the Appellate Body will not be easy. The United States argues that simply appointing new members or revising procedures will not solve the Appellate Body issue. In particular, it demands measures to prevent overreach by WTO judges, strict adherence to the 90-day ruling deadline, and an end to the practice of creating supranational precedents. However, the EU and many other member states consider these U.S. demands excessive, leading to a deadlock in negotiations.

The International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have also warned of the negative impact of the WTO's dysfunction on the global economy. In its 2024 World Economic Outlook (WEO), the IMF analyzed that "increased uncertainty over trade rules could slow investment and distort supply chains, potentially lowering global growth by more than 0.4 percentage points."

Ultimately, while the MPIA has succeeded in partially supplementing WTO functions by resolving disputes among participating countries, it falls short of replacing a global mechanism for resolving trade disputes. Experts argue that, in order to fully restore the credibility and binding force of the WTO system, structural reform discussions must be accompanied by political decisions from major countries such as the United States.

This content was produced with the assistance of AI translation services.