WTO Dispute Settlement–What to Expect in 2024

The year 2024 holds the potential for significant developments in the World Trade Organization (WTO) dispute settlement mechanism. With the upcoming 13th Ministerial Conference (MC13) in February, members may reach agreements on permanent fixes to restore the appellate stage and normalize the dispute settlement function. Renewed emphasis will be placed on efforts to settle disputes through negotiation, yet several potential disputes are likely to proceed to litigation during the course of the year. This note explores the expected developments in WTO dispute settlement in 2024.

A permanent fix for the dispute settlement system. Reports indicate that WTO delegates have been making steady progress on possible fixes to the WTO dispute settlement system, including its appellate mechanism. Although Members at the 12th Ministerial Conference (MC12) set end of 2024 as the deadline to reach a deal on reform, Members could be ready to unveil a compromise package next month at MC13 in Abu Dhabi. The details of the discussion remain confidential, yet it’s widely acknowledged that Marco Tulio Molina, the informal reform negotiations’ facilitator, has been pivotal in advancing the dialogue. The odds of a restored dispute settlement mechanism in 2024 may have increased significantly thanks to his efforts and the dedication of a technical group of delegates. If Members continue to make progress, a decision on dispute settlement reform could be MC13’s biggest win.

The lingering shadow of the national security exception. The United States continues to assert that a country’s invocation of the WTO’s national security exceptions is not reviewable by WTO dispute panels. It has voiced strong criticisms of prior panel reports that have interpreted and applied these exceptions, especially the panel that rejected the United States’ use of security exceptions to justify altering labeling requirements for apparel imports from Hong Kong. Reporting has suggested that the United States may put forward a proposal on the interpretation of the security exceptions, but it has not done so to date.¹   Despite U.S. criticisms, our sense is that many Members were satisfied with panels’ approach to the security exceptions and balk at permitting essentially unconstrained Member action in the name of national security. Moreover, there is unease about how the U.S. proposal to rebalance obligations would operate in practice. The U.S. position is that, while invocation of the security exception is not reviewable by WTO panels, WTO Members adversely affected by a measure justified under the exception could withdraw concessions. This raises critical questions, such as: will the security exceptions be misused to allow a country to opt out of tariff commitments? How would the rebalancing work when countries are at war? Is it unrealistic to expect that smaller countries will be able to withdraw concessions against a larger country? Our sense is that most WTO Members would much prefer that national security issues are not resolved through WTO dispute settlement. However, there is still significant unease about giving a country a blank check to invoke the exceptions.

The EU will likely file new complaints. The European Union (EU) has filed at least one WTO complaint every year since 1995, except 2007 and 2023.²   We expect the EU to go back on the offensive in 2024 by initiating at least one or two WTO disputes. This would be in line with the European Commission’s (EC) tougher approach to enforcement and its goal of portraying the WTO dispute settlement mechanism as a viable alternative to unilateral actions.  We could see an increase in litigation between the EU and China.  A truce between the EU and the United States on steel and aluminium was expected to hold until after the U.S. elections.  However, recent statements by a departing U.S. Administration official suggest that the truce may be less firm than initially portrayed.³  If the United States were to ditch the EU to pursue elements of its proposed Global Steel Arrangement (GSA) on its own, it could prompt the EU to reconsider WTO dispute settlement options.  

EU action under its revised enforcement regulation. Even as it seeks to emphasize a multilateral approach, the EU will be pressured to take unilateral action under its revised enforcement mechanism, which permits retaliatory measures against WTO Members who appeal a losing WTO dispute into the void. The EU has already activated the mechanism’s initial phases after Indonesia appealed the panel report in Indonesia – Raw Materials (DS592) at the end of 2022. The EU could also target India, which appealed India – Tariffs on ICT Goods (EU) (DS582) at the end of 2023. Hesitation by the EU to invoke the mechanism risks undermining its credibility. Countries that are not already parties to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) will be disinclined to sign MPIA arbitration agreements with the EU if they believe they can get away with appealing into the void. The EU may be wary of unilateral action against India because of the ongoing EU-India free trade agreement (FTA) negotiations, but not taking action under the revised enforcement mechanism could embolden further non-compliance by India. For example, in 2023, India imposed new import restrictions on laptops and other computer products and did not hide the fact that these restrictions were intended to encourage manufacturers to shift production to India.

There is a good chance that the EU will itself be the target of litigation.

The EU CBAM. Several countries have the EU’s Carbon Border Adjustment Mechanism (CBAM) within sight and have publicly threatened a WTO complaint. Countries so far have been holding back. Some are unwilling to bring an immediate challenge against the transitional reporting requirement and may be waiting for the implementation of the carbon tax. Several other countries are internally considering imposing their own carbon border tax or seeking an exemption to the EU CBAM’s obligations. The United Kingdom announced in 2023 that it would impose a similar mechanism. Legislation establishing carbon tariffs has even been introduced in the United States, albeit its chances of passing are low. Unfortunately, the most likely scenario at this point is that the global trading system will be left with a patchwork of carbon taxes that create substantial compliance challenges for businesses. The WTO Director-General is attempting to counter this by encouraging multilateral discussions on global carbon pricing.  She is likely to persevere in these efforts during 2024.

The GSA would be an obvious target if implemented.  The United States has been discussing establishing a steel and aluminum club with the EU that would raise tariffs on imports from non-club members.  The purported objective is to favor cleaner steel and aluminium products, but the GSA reportedly also includes elements targeting alleged non-market economies.  Thus far the EU is said to have resisted the U.S. proposal, arguing that it can effectively address its environmental concerns through the CBAM and the market distortions through its anti-subsidy regulations.  Countries that are eventually excluded from the GSA would likely challenge it as discriminatory in WTO dispute settlement.

Other disputes on measures to combat climate change. This year will likely see the public circulation of the panel report in the EU – Palm Oil dispute. This is yet another case in which the WTO dispute settlement mechanism is being asked to determine whether measures purportedly taken to combat climate change comply with WTO rules. The outcome of that case may, in turn, determine whether a group of agricultural countries moves forward with a WTO complaint against the EU deforestation rules. This regulation affects a broader range of commodities like cattle, cocoa, coffee, oil palm, rubber, soy, and wood, when linked to illegal forest clearing. Major producers of these commodities have criticized the regulation as punitive and discriminatory. As the regulation’s implementation date in December 2024 approaches, we may see growing calls for a WTO challenge from impacted countries.

Import duties on digital products. At the end of 2022, Indonesia adopted legislation imposing customs duties on “intangible goods”, which encompass software products and other digital products that may be transmitted electronically. Indonesia has initially set the applicable customs duties at zero. However, Indonesia could decide to increase the customs duties above zero at any time, such as if WTO Members fail to renew the e-commerce moratorium at MC13. Failure to renew the moratorium could prompt more countries to explore other options to tax cross-border digital trade. This would be a dramatic shift in the treatment of these products and would increase the costs and regulatory burden for suppliers and consumers. Whereas the United States could respond via its unilateral mechanisms, other WTO Members could decide to challenge the customs duties in WTO dispute settlement.

Challenges to industrial subsidies. The last few years have seen a huge increase in the industrial subsidies provided by governments. According to the U.S. Congressional Budget Office, energy and climate subsidies under the U.S. Inflation Reduction Act will cost $391 billion between 2022 and 2031.⁴  A private sector source puts the figure much higher at over $1.2 trillion.⁵  EU subsidies under the Green Deal Industrial Plan have been estimated at €250 billion, but this figure does not include the large subsidies that will be provided by the Member States, who have been granted great flexibility to offer such support. Until now, the response to these subsidies has been for other countries to offer their own. But this subsidy war is not sustainable, and not all countries are able or willing to open their checkbooks in this way, and there is growing frustration about the impact of these subsidies on producers worldwide. Some WTO Members are looking to initiate a debate on these very topics at MC13.  However, as frustration continues to grow, a WTO challenge of some of these subsidies before the end of 2024 becomes more likely.

The MPIA will likely remain dormant this year. In 2022, the MPIA demonstrated its promise as an alternative to the stalled appeal process. While confidence in the MPIA has increased, the mechanism has not seen further activity thanks to the fact that several disputes that were “in line” for a potential appeal to the MPIA were resolved bilaterally or have been suspended. The DSU reform negotiation’s progress has also discouraged new participants from joining. That said, the MPIA deserves at least partial credit for facilitating several cases’ settlement by foreclosing the option of “appealing into the void” to the non-operational Appellate Body. If Australia and China are unable to resolve the dispute bilaterally (as they have been doing in other cases), 2024 could see an appeal to the MPIA in Australia — AD/CVD on Certain Products (China) (DS603). Furthermore, if Members fail to reach agreement on a fix to the WTO dispute settlement mechanism in 2024, the MPIA could be called into action late in 2024/early 2025 to resolve appeals of at least two potentially significant disputes between the EU and China: China — IPRs Enforcement (EU) (DS611) and China — Goods (EU) (DS610). Also, a breakdown of the DSU informal discussions would likely prompt a push to expand the MPIA’s membership.

China will remain engaged. China is an active and increasingly confident user of the WTO dispute settlement mechanism, both as a complainant and respondent. China can be expected to continue to actively engage in the mechanism to challenge foreign legislation that adversely affects its exporters and service suppliers and to vigorously defend its own measures when challenged by other WTO Members. Engaging in the WTO dispute settlement mechanism allows China not only to pursue its litigation objectives, but also to show its support for a rule-based multilateral trading system. The European Commission initiated several antidumping and anti-subsidy investigations targeting products from China in 2023. This includes an antidumping investigation on mobile access equipment and an anti-subsidy investigation into electric vehicles. Affirmative determinations in these investigations could prompt China to challenge them at the WTO.

Whatever the outcome, 2024 is poised to be a consequential year for WTO dispute settlement. Our team will continue to monitor and provide updates on developments at the WTO and across the trading system. For more information on these or related issues, please reach out to our international trade and public policy team members.

^{1 D. Palmer, “WTO members await U.S. proposal on national security claims”, Politico, 18 January 2024.}

^{2 Based on data compiled by www.worldtradelaw.net.}

^{3 J. Doherty, “Biden Prepared to Part Ways with EU on Steel, Ex-GC Says” Law 360, 23 January 2024}

^{4 “The Real Cost of the Inflation Reduction Act Subsidies: $1.2 Trillion”, Wall Street Journal, 24 March 2024.}

^{5 Ibid.}