Headquarters of the World Trade Organization in Geneva, Switzerland. Photo: Shutterstock.

The EU, China and 15 other members of the World Trade Organization today announced they are setting up a temporary dispute settlement body to resolve international trade conflicts.

The move comes in direct response to the undermining of the WTO's dispute body by the United States, which refused to appoint members of an arbitration panel.

"This statement testifies to the high importance that the EU and the participating WTO members attach to retaining a two-step dispute settlement process in WTO trade matters," said Phil Hogan, the European Commissioner for trade. "The multiparty appeal arbitration arrangement will guarantee that the participating WTO members continue to have access to a binding, impartial and high-quality dispute settlement system among them."

Hogan said that the new body was a "contingency measure."

"We will continue our efforts to seek a lasting solution to the Appellate Body impasse, including through necessary reforms and improvements," he said.

The 17 WTO members that have signed up the initiative are Australia, Brazil, Canada, China, Chile, Colombia, Costa Rica, the European Union, Guatemala, Republic of Korea, Mexico, New Zealand, Norway, Panama, Singapore, Switzerland and Uruguay.

The WTO's Appellate Body, which acts as a supreme court for international trade disputes among members of the Geneva, Switzerland-based body, has been paralyzed for more than two years. The Trump Administration refused to approve appointments to the arbitration body, and the terms for two of the body's three members came to an end in December. That left it unable to issue rulings.

The new body will remain in place until the vacancies on the Appellate Body are filled and it can resume normal operations.

The U.S.'s official reason for refusing to approve new appointments is that the Appellate body goes beyond its agreed-upon mandate. But the U.S. position is seen by other members as a way of undermining the multilateral trade dispute body in favor of bilateral deals.

Nic Lockhart, an international trade partner at Sidley Austin in Geneva, said the agreement to set up an interim body was "a very significant development" and a "rapid response to the U.S. blockade of the WTO appeals tribunal".

"It's a big vote of confidence in the WTO and multilateralism," he said.

Lockhart, who advised the Appellate Body for five years before joining Sidley, said that the involvement of a critical mass of WTO members made it likely that other members would join the group and that trade flows between these economies would continue to operate under WTO rules.