On 28 October 2020 the European Parliament and the Council of the EU reached a political agreement (Agreement) to amend Regulation (EU) 654/2014 (Trade Enforcement Regulation), which will boost the EU trade retaliatory powers where a trade partner blocks the dispute settlement mechanism under the WTO or bilateral treaties. The Agreement will have to be approved by member states by qualified majority in accordance with the rules on the ordinary legislative procedure (Article 16 of the Treaty on the European Union and Article 238 of the Treaty on the Functioning of the European Union).
On 12 December 2019 the European Commission released a proposal (COM(2019) 623 final) to amend the Enforcement Regulation, to respond to the risk that the blockage of the WTO Appellate Body would render the Trade Enforcement Regulation ineffective. Following the end of the term of two WTO Appellate Body members on 10 December 2019 and the blockage to replace them, the WTO Appellate Body has been unable to hear new appeals since then.
Currently, the Trade Enforcement Regulation allows the EU to apply countermeasures in three scenarios: (i) following a binding adjudication in favor of the EU in the context of WTO or other international trade agreements; (ii) in reaction to safeguard measures adopted by a third-country; or (iii) in case of a modification of WTO concessions by another WTO member.
The revised Trade Enforcement Regulation would allow the EU to adopt countermeasures against countries that block the conclusion of dispute settlement proceedings under the framework of the WTO or bilateral treaties. In particular, it would allow the EU to adopt countermeasures in spite of the lack of a binding adjudication. For example, if the United States were to adopt measures against EU products in breach of its WTO obligations, the EU would first trigger a dispute before the WTO dispute settlement. If the United States were to block a binding adjudication by appealing before the inoperative Appellate Body, the EU would be able to adopt countermeasures against the United States without further delays.
The revised Trade Enforcement Regulation also extends the scope of possible countermeasures – currently provided for in the areas of customs duties, quantitative restrictions on imports or exports of goods, and measures in the area of public procurement – to services and certain areas of intellectual property rights.
The inclusion of intellectual property rights at the EU level in the Agreement was very contentious and a major win for the European Parliament. The suspension of obligations regarding trade-related aspects of intellectual property rights would allow for a more effective enforcement of the EU's trade rights. Intellectual property rights account for a growing share of world trade and are covered by international trade agreements, including regional or bilateral EU agreements.
Further, the European Parliament secured a commitment that the European Commission will draft a new "anti-coercion" tool, which would allow retaliation, even in the absence of a first-instance Panel WTO ruling by the end of 2021.
We will be following the next stage in the legislative process. For further information on the Trade Enforcement Regulation, please do not hesitate to get in touch with one of the members of the international trade and investment team.
Authored by Lourdes Catrain and Stephanie Seeuws.