Review of the scope of the Regulation No 654/2014 of the European Parliament and of the Council of 15 May 2014

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Review of the scope of the Regulation No 654/2014 of the European Parliament and of the Council of 15 May 2014

1.Introduction

This report concerns Regulation (EU) No 654/2014 of the European Parliament and of the Council of 15 May 2014 (the Enforcement Regulation), which provides the rules and procedures to ensure an effective and timely exercise of the European Union’s rights under international trade agreements. The Enforcement Regulation enables the European Union to suspend or withdraw obligations under the World Trade Organization (WTO) Agreement and other international trade agreements, including regional and bilateral agreements following the adjudication of trade disputes under respective agreement. It also empowers the Commission to rebalance obligations in accordance with Article 8 of the WTO Agreement on Safeguards or with provisions on safeguards in other international agreements, and to respond to modifications of concessions applied by other WTO members as provided for in Article XXVIII of the GATT.

The suspension or withdrawal of obligations can lead to EU commercial policy measures enacted through an implementing act following the examination procedure. These measures include (i) the suspension of tariff concessions and the imposition of new or increased customs duties; (ii) the introduction or increase of quantitative restrictions on imports of goods through quotas, import or export licences or other measures; and (iii) the suspension of concessions regarding goods, services or suppliers in the area of public procurement.

2.Review requirement

In Article 10 of the Enforcement Regulation, the European Commission was tasked to review the scope of the Regulation, in particular the commercial policy measures that may be adopted, and its implementation, and to report its findings to the European Parliament and the Council. Following the initial review (Article 10(2) of the Regulation), which took place in July 2017, the review pursuant to Article 10(1) of the Regulation was scheduled for 18 July 2019.

At the time the review was conducted, it emerged that there was a need to amend the Regulation. Accordingly, the report on the review is now presented together with a legislative proposal for the amendment of the Regulation.

3.Review of the scope, commercial policy measures and implementation of the Enforcement Regulation

3.1.Scope of the Regulation

Article 3 of the Enforcement Regulation provides for situations in which the Enforcement Regulation applies and the EU has the right to apply countermeasures. The EU can apply these only (1) following a binding adjudication of a trade dispute, in favour of the EU, (2) for the purpose of EU rebalancing measures in reaction to a safeguard measure imposed by another country as foreseen under applicable international trade rules, or (3) when a WTO member modifies or withdraws its concessions under Article XXVIII of the GATT 1994 and no compensatory adjustment is agreed.

3.1.1.Following a binding adjudication of trade dispute in favour of the EU

The first situation in which the Enforcement Regulation can be applied is when a dispute settlement procedure in the WTO or under other international trade agreements resulted in binding adjudication of the trade dispute, and gives rise to an EU right to suspend obligations because of non-implementation by the losing party.

In the period subject to review, no such case occurred, however, following the adoption of the Appellate Body report on compliance in the ongoing Boeing dispute at the WTO in April 2019, which confirmed that the United States’ subsidies to Boeing continue to cause significant harm to Airbus, the Commission launched a public consultation on a preliminary list of products from the United States on which the Union may take countermeasures. WTO arbitration on the level of countermeasures is currently ongoing. Public consultations are the first step towards the imposition of commercial policy measures under the Enforcement Regulation.

As is well known, the WTO Appellate Body is in a crisis situation. The Regulation has been designed, as far as the WTO is concerned, on the premise of a fully functioning dispute settlement mechanism, including WTO Appellate Body review, which leads to a final and binding adjudication. Over the last two years, this certainty has come under increasing threat by the blockage of the appointment of new Appellate Body members. The WTO Appellate Body cannot work on appeals with fewer than three members. As of 11 December 2019, the number of Appellate Body members is down to one. Upcoming panel reports can then be appealed “into the void”, which would deprive the parties of a definitive, binding and enforceable decision.

While the EU developed contingency measures in the form of an “interim arrangement”, which aims at replicating the WTO appellate mechanism through the arbitration proceedings provided under Article 25 of the WTO Dispute Settlement Understanding, this arrangement is not automatic and the EU has no guarantee that the other party will agree to it.

The review of the scope of the Enforcement Regulation concerning other international trade agreements identified another challenge. A similar situation of a blocked dispute settlement may arise also under other trade agreements, including regional and bilateral ones, when a third country does not cooperate, as necessary, for binding dispute settlement mechanism to function. For instance, when the other party does not appoint an arbitrator and no fall-back mechanism remedies that situation, the EU would not be able to obtain a binding ruling that can be enforced.

As the Enforcement Regulation can only be used following binding adjudication, the objective of the Regulation, which is to equip the EU with the instruments necessary to react effectively and swiftly to illegal measures of third countries and to protect the EU’s economic interests, cannot be achieved. This gap needs to be addressed and the Regulation updated so as to face these challenges.