Editor's note: Alexandr Svetlicinii is Associate Professor of Law at the University of Macau, where he also serves as program coordinator for the Master of Law in International Business Law in English Language. The article reflects the author's opinions, and not necessarily the views of CGTN.

On March 27, 2020, China, the European Union and 14 other members of the World Trade Organization (WTO) reached an agreement that would allow them to resolve trade disputes under WTO rules despite the current paralysis of the WTO Appellate Body, which was caused by the United States.

The trade ministers the WTO members confirmed at a meeting in Davos on January 24, 2020 that "a functioning dispute settlement system of the WTO is of the utmost importance for a rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features."

The WTO Appellate Body is the second level of the dispute resolution mechanism, which reviews the panel reports adopted in first instance and delivers the final rulings in the trade disputes adjudicated under the WTO rules. It consists of seven members who serve four-year terms and at least three are necessary to hear an appeal case.

The Trump administration has systematically blocked the appointment of the new members and by December 2019 the Appellate Body became fully dysfunctional after two members Ujal Singh Bhatia (India) and Thomas R. Graham (U.S.) had their terms expired. Currently, there is only a single member – Hong Zhao (China), whose term will also expire on November 30 this year.

In order to overcome the deadlock, the "coalition of the willing" WTO members have agreed to set up an arbitration appeal procedure. The appeals among the specified members will be heard by three appeal arbitrators selected from the pool of 10 arbitrators appointed by the participating members. Former and current members of the Appellate Body can also serve as arbitrators. It is expected that the composition of the arbitration pool will be completed within two months. Each participating member can nominate one arbitrator but the final decision on the inclusion in the pool should be reached by consensus. As explained by the EU trade commissioner Phil Hogan, "This is a stop-gap measure to reflect the temporary paralysis of the WTO's appeal function for trade disputes."

The arbitration procedure will apply to all pending and future disputes that may arise in between the members. This arrangement is open for accession by any other WTO member and also allows the subsequent withdrawal by any member.

Thus, any member will have a possibility to ask for review of the first-instance panel report under the agreed appeal arbitration procedure. The agreed procedure will allow other WTO members interested in the outcome of the dispute to participate as third parties and deliver their written and oral submissions to the arbitrators. The arbitrators will be able to uphold, modify or reverse the legal findings and conclusions of the first-instance panel.

The temporary arrangement for the WTO dispute settlement is especially timely during the time of COVID-19 pandemic, which caused significant disruptions in international trade. 

The leaders of G20 countries at the recent virtual summit have reiterated their unanimous support for "a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open." In his address, Chinese President Xi Jinping called upon G20 countries to undertake collective efforts by "cutting tariffs, removing barriers, and facilitating the unfettered flow of trade." To achieve these goals, it is crucial to have a stable and rules-based system for the settlement of the trade disputes. By reaching the consensus on trade dispute settlement, China, the EU and 14 other WTO members demonstrated their adherence to the above commitments.

While the WTO today remains the only multilateral platform for the global trade governance, its functionality and credibility will be greatly enhanced by the availability of the temporary substitute of the Appellate Body. The professionalism of the arbitrators and the participating members' compliance with the appeal arbitration awards could serve as an impetus for other WTO members to follow the suit and join this temporary arrangement.

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