WTO disputes crisis poses ‘significant risks’ to the UK

Out-Law News | 10 Dec 2019 | 11:49 am | 2 min. read

The suspension of hearings by the World Trade Organization’s (WTO) appellate panel could have a negative impact on the UK if it fails to agree trade agreements with the EU and other trading partners prior to leaving the EU or by the end of the Brexit transition period, according to an expert.

The WTO has failed to resolve an ongoing battle over the power held by its appellate judges. The US has refused to approve the appointment of new members to the seven-strong appeals panel, which requires a minimum of three judges to hear cases. There are currently only three judges on the panel, but two are required to step down on Tuesday as their terms expire.

WTO director-general Roberto Azevêdo last week called on the 164 members of the body to find a way forward to resolve the dispute settlement mechanism crisis. Azevêdo warned that inability to agree the next step “could open the door to more uncertainty, unconstrained unilateral retaliation — and less investment, less growth, and less job creation”.

Azevêdo said while the suspension of appellate review of WTO dispute rulings was a challenge, it would not mean the end of the WTO’s multilateral trading system and the organisation’s principles would continue to underpin world trade.

Disputes expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law, said if the UK parliament passed the current withdrawal agreement it had until December 2020 to conclude a free trade agreement with the EU, unless the transition period was extended.

“If there is no free trade agreement by the end of the transition period, and no extension, then the UK will leave the EU on ‘no-deal’ terms. Some of its proponents have described a ‘no-deal’ departure as leaving on WTO terms, highlighting the importance of the WTO rules as the foundation of the new trading relationship the UK would have with the EU and the rest of the world in a no-deal scenario,” Dickman said.

However, Dickman said trading on WTO rules alone would carry “significant risks for the UK”, with the vast majority of countries agreeing free trade agreements with other nations or blocs of nations.

“Those risks would be exacerbated by a breakdown in the WTO dispute resolution mechanism, leaving the UK exposed to possible breaches of WTO rules by other countries, for which there may be no obvious remedy,” Dickman said.

“Even if the UK agrees free trade agreements with the EU and some other countries - which typically include dispute resolution mechanisms – the UK may still have to rely on the WTO dispute resolution mechanism where disputes arise which are not subject to such dispute resolution mechanisms or where no free trade agreement applies,” Dickman said.

The WTO appellate body is the second stage of a two-tier dispute settlement mechanism, allowing a WTO member which loses a case to appeal prior to sanctions being imposed. Azevêdo said most members wanted the “impartial, effective, efficient two-step review”.

However, the US is understood to be concerned that appellate judges are using rulings to make trade law, which is not in their mandate.