RIETI Report August 12, 2022

Restoring Rule of Law under WTO Regime: Japan’s Participation in MPIA and Countermeasures against Appeals into the Void

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Welcome to RIETI Report.
This bi-weekly newsletter will keep you updated with the recent columns, event information and research results by RIETI fellows and other leading economists in Japan and around the world.

In this edition, we present topics related to restoring rule of law under WTO regime. Faculty Fellow Tsuyoshi Kawase introduces the recently released Interim Report of the Special Task Force on Policy Response under the Suspension of the Function of the WTO Appellate Body and presents his and his colleagues’ recommendations to the Japanese government in the report.

We hope you will enjoy it. If you have any feedback, we would love to hear from you (news-info@rieti.go.jp).
Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

Restoring Rule of Law under WTO Regime: Japan’s Participation in MPIA and Countermeasures against Appeals into the Void

KAWASE TsuyoshiFaculty Fellow

On June 27, 2022, the Subcommittee on Unfair Trade Policies and Measures of the Trade Committee under the Industrial Structure Council of the Ministry of Economy, Trade and Industry (chairman: Kimura Fukunari, Professor, Keio University) approved the Interim Report of the Special Task Force on Policy Response under the Suspension of the Function of the WTO Appellate Body, which was released immediately. Japan has placed emphasis on the rule of law under the multilateral trading system centered around the World Trade Organization (WTO). However, in recent years, the WTO regime has been rocked by the unilateralism of the United States and China and the paralysis of the WTO’s Appellate Body. The report recommends the Japanese government to seriously consider the possibility of (1) participating in the alternative appeal arrangement led by the EU and (2) introducing countermeasures against WTO member countries that file so-called appeals into the void (to be explained later), in order to restore the rule of law under the multilateral trading system.

The report reflects the results of broad discussions held by a task force comprised of law, economics and political science academicians as well as experts from industry on the pros and cons of those policy options. I contributed to the compilation of the report as the task force’s chair. Below, I will provide an overview of the report’s message, which could trigger a major turning point in Japan’s trade policy.

Restoring “Rule of Law” through MPIA

Two and a half years have passed since the WTO’s Appellate Body ceased to function at the end of 2019. The United States has alleged that the Appellate Body overreached its mandate, as its judicial activism creates new rules that go beyond the WTO Agreements as generally interpreted. As a result, since 2017, the United States has blocked the appointment of members to fill vacancies in the Appellate Body that have arisen due to the expiry of terms of office, creating a void and throwing the body into paralysis. While countries involved in disputes have retained the right to appeal against panel decisions with which they are not satisfied, there is no prospect for the gutted Appellate Body to begin deliberation in response to appeals. Consequently, “appeal into the void” cases have occurred, in which appeals are filed but disputes are left pending indefinitely. In the past two and a half years, more than 20 cases have been left in limbo in this way.

What is even more serious is that the number of disputes referred to the WTO has declined steeply in the meantime. During the period from the WTO’s establishment to 2019, around 22 or 23 cases were referred to the WTO each year on average. However, the number was only five in 2020 and nine in 2021. If appeals into the void are highly likely to lead to a stalemate in dispute settlement, contesting disputes at the WTO becomes a futile effort, so there would be no incentive for countries to do so.

To read the full text:

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