Resolving trade disputes is the chief task of the World Trade Organization

The system of free trade is an indispensable pillar of the rules-based international order. However, just because it is free does not mean that there are no rules. On the contrary, the more integrated and barrier-free the global trading system is, the more there is a need for common rules, as well as institutions to interpret and enforce them. A recognised procedure for the settlement of disputes is essential for cross-border trade. That is why decision-making on trade dispute matters is one of the core activities of the WTO.

For this, the WTO has a Dispute Settlement Body, which employs dispute settlement panels comprised of international experts. Its decisions can be appealed before an Appellate Body. However, the Appellate Body has been hamstrung since December of 2019 because WTO members have not been able to agree on the appointment of new Appellate Body members.

An important step to protect the rules-based trade system

The European Union has been the driving force behind the search for ways to overcome this blockade and guarantee a legally binding WTO dispute settlement process. Already in February, the EU and like-minded partners developed a model for an interim solution. The EU and 15 other countries (including China, Brazil, Canada and Mexico) have now reached a binding agreement regarding the application of this procedure. Under its provisions, the rules and procedures of the WTO will essentially continue to be applied among the countries participating in the arrangement until the Appellate Body becomes fully functional again.

All other WTO members have been invited to join the arrangement. This creates a provisional dispute settlement mechanism that can prevent further obstruction of global trade, which is already weakened by the Covid-19 pandemic. Aside from this, the EU is continuing to campaign for extensive reform of the WTO’s dispute settlement system.

Everyone benefits from free trade

The World Trade Organization (WTO) was founded 25 years ago to remove barriers to trade, such as tariffs and other restrictions, thereby preventing competitive disadvantages and enabling all countries to participate in global trade. Poor countries in particular have benefitted from the liberalisation of world trade since the 1990s. For example, the proportion of the world population living in extreme poverty has decreased from 36% twenty-five years ago to approx. 10% in 2015, with countries that are strongly integrated into international supply chains, such as China or Viet Nam, experiencing the strongest declines.