China Agrees To Use Arbitration Appeal Mechanism in WTO Wine Dispute With Australia

In a WTO complaint by Australia against Chinese anti-dumping duties on Australian wine (DS602), China and Australia have agreed to procedures for using an alternative mechanism for a potential appeal in the case. This agreement ensures that any WTO panel report in the case will be enforceable through the standard WTO dispute settlement procedures.

The panel was established on October 26, 2021, and has not yet been composed, so it would be a while until a panel report is ready to be appealed. Nevertheless, agreeing to these procedures now is an important step in ensuring that this complaint can take its proper course and reach the enforcement stage if necessary.

As provided in the WTO's Dispute Settlement Understanding, a WTO complaint will be heard by a panel and can be appealed to the Appellate Body. Upon adoption of these reports by the WTO's Dispute Settlement Body, a successful complaining party can impose trade sanctions against the responding party in order to induce compliance with the rulings.

Under the Trump administration, however, the United States began blocking all appointments to the Appellate Body as the Appellate Body Members' terms expired, which left the Appellate Body without any "judges" as of December 2019. As a result, when a responding party lost a case decided after that, it could appeal the panel report "into the void," and leave it an unenforceable state of limbo.

To deal with this issue, the European Union led an effort to create an alternative mechanism for appeals, called the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). Along with the European Union, there are currently 24 other WTO Members who are parties to this arrangement, including both China and Australia. Paragraph 1 of the MPIA expresses the parties intent to use it as an alternative to the Appellate Body as long as that remains necessary: "The participating Members indicate their intention to resort to arbitration under Article 25 of the DSU as an interim appeal arbitration procedure (hereafter the 'appeal arbitration procedure'), as long as the Appellate Body is not able to hear appeals of panel reports in disputes among them due to an insufficient number of Appellate Body members." Paragraph 2 adds that regular DSU appeals will not be pursued during this time: "In such circumstances, the participating Members will not pursue appeals under Articles 16.4 and 17 of the DSU."

There have been six previous WTO disputes in which the parties agreed to use the MPIA as an appeals mechanism, in order to prevent appeals into the void. Now for the third time, China has signed on to these procedures in a specific dispute. (China and Australia agreed to use the arbitration appeal mechanism in a dispute over Chinese AD/CVD measures imposed on Australian barley, and China and Canada agreed to use these procedures in a dispute over Chinese import restrictions on canola seeds.)