Brazil to apply unilateral retaliation in trade disputes



The Brazilian government confirmed last week that it will publish a Provisional Measure, providing for the possibility of carrying out unilateral retaliation, once it has a favorable decision from the World Trade Organization (WTO) panel and an empty appeal is filed by the represented member country. This action follows the example of the European Union seen in February 2021, when a similar procedure was implemented through Regulation (EU) 2021/167.

Faced with the paralysis of the WTO’s appellate body since 2019, due to a US boycott against appointing new arbitrators and the absence of expectations in the solution of this impasse, countries interested in maintaining the functioning of a multilateral dispute settlement system have been facing difficulties to settle disputes and execute decisions.

One of the alternatives found was the implementation of the multi-party interim appeal arbitration arrangement (MPIA), which is a temporary arbitration court that operates under WTO rules and has been guaranteeing a double degree of jurisdiction to certain members, while the appellate body does not return to work. The MPIA emerged out of a proposal from the European Union and already has 25[1] adhering member countries, including Brazil.

The recognition of the MPIA’s competence to resolve a specific case depends on the express acceptance of the countries involved in the dispute. Countries with protectionist policies have been taking advantage of this void created in the WTO dispute settlement system to appeal to the paralyzed appellate body – an “empty” appeal – when they lose a WTO panel dispute, since it can only be evaluated after the body is recomposed.

This was precisely the case in two of Brazil’s disputes in the WTO. The country has recently received favorable rulings from panels in lawsuits filed against India (DS579 – sugar) and Indonesia (DS484 – chicken), but the represented countries submitted empty appeals to the appellate body.

Thus, Brazil intends to implement legislation that allows the application of unilateral retaliation[2] against the member country that loses a dispute in the panel seat and does not accept to participate in a parallel arbitration mechanism.

The details and systematics of the unilateral retaliation that may be applied by Brazil are still unknown, but it is expected that India and Indonesia will be the first ones affected, being a test.

[1] Until June 30, 2021.

[2] Retaliation is a mechanism provided for in WTO agreements and provides that, if the country represented loses the dispute, the policies or decisions considered as in disagreement with WTO rules will not be altered, though the winning country of the dispute may suspend concessions or obligations granted to that member through the imposition of surcharges on products and services or even the suspension of intellectual property rights. The total amount and the application of retaliation is traditionally carried out after the end of the dispute and must be authorized by the dispute settlement body (“Dispute Settlement Body” – DSB). Information and statements from representatives of the Brazilian government indicate that proposed unilateral retaliation will apply regardless of DSB approval.