GENEVA — The global commerce system suffered a serious blow on Wednesday when the World Trade Organization’s appellate body was brought to a grinding halt by United States opposition to refilling the ranks of judges on its bench.
WTO’s ability to resolve disputes among nations, arguably its most important function, depends on the workings of its appellate body — the world’s top court for settling trade disputes. That function is now in paralysis, after the latest four-year terms served by two of the appellate body’s last three remaining members came to an end at midnight on Tuesday, with no one named to replace them.
With just one remaining member, the appellate body — which is supposed to have seven members —can no longer settle trade disputes. It needs three members to hear each appeal. Though WTO still has a lower court, called the dispute settlement body, its cases will be stalled if they are appealed.
“I think there is no doubt that the dispute settlement system has been compromised. And that we now live in a moment of uncertainty with regard to disputes that are ongoing,” WTO’s director-general, Roberto Azevêdo, told a news conference on Tuesday. “A lot will depend on how members want to address the situation.”
Azevêdo said he was launching “intensive consultations” among the organization’s 164 member nations “to determine what more we need to put on the table” so that a solution can be found. Until there is such a fix, the United States and other countries may be able to evade WTO rules by imposing protectionist measures such as sanctions and tariffs of their own to reduce competition from imports.
“We hope that these tensions and this process of unilateral actions is reversed somehow,” said Azevêdo. “The fact that we have unilateral measures being put in place is conducive to an environment of unpredictability. And to the extent that we have unpredictability, we lose investments. And if we lose investments, we compromise economic growth. If we compromise economic growth, we compromise job creation. So this is a lose-lose scenario for everyone.”
A day earlier, New Zealand’s envoy David Walker presented WTO’s General Council with a draft measure for resolving differences over the appellate body, but it failed to gain the necessary consensus approval from all nation members, the organization reported.
After the appellate body’s loss of India’s Ujal Singh Bhatia and the United States’ Thomas Graham at the end of their second four-year terms, its one remaining member is China’s Hong Zhao. As a lawyer and former trade official, she is a leading expert at international economic law and intellectual property rights.
But the impasse over the appellate body does not mean disputes cannot be settled, Azevêdo insisted.
“I think it’s important to emphasize that WTO rules will remain in force, and members, for the most part, will continue to apply the WTO rulebook out of economic self-interest, commitment to legal principle and, of course, the desire to preserve some relations with their trading partners,” he said.
“The appellate body situation does not mean the end of rules-based dispute settlement at the WTO,” Azevêdo added. “Members will continue to resolve WTO disputes through consultations, panels, and they will also use other mechanisms envisaged in the WTO agreements to resolve disputes and review rulings, such as arbitration or good offices of the DG [director-general].”
Each appellate body member must be a person of “recognized authority” who has demonstrated expertise in law and international trade and is unaffiliated with any government, according to WTO. There is some irony, however, in China having the last remaining seat on the appellate body.
The United States, under Presidents George W. Bush, Barack Obama and Donald Trump, effectively blocked new appointments to protest the WTO system. They argued that it hamstrings America’s ability to fight unfair trading practices by China and other nations. Other nations, too, have criticized the appellate body as too time-consuming and ineffective against state-run economies.
But only the United States is using the veto power that all WTO members could potentially wield to block recent appointments to the appellate body.
“For far too long, wealthy countries have abused the WTO by exempting themselves from its rules through the use of special and differential treatment,” Trump’s U.S. trade representative, Robert Lighthizer, said in July. “This unfairness disadvantages Americans who play by the rules, undermines negotiations at the WTO, and creates an un-level playing field.”
— WTO (@wto) December 9, 2019
WTO’s ‘crown jewel’
Trump already has threatened to pull the United States out of WTO, an independent colossus that underpins international trade rules, as part of his attacks on global governance and multilateralism. He claimed the international organization — which is not part of the United Nations system — meddles in U.S. sovereignty, and he wants WTO modernized and its rules better enforced.
WTO was set up at the start of 1995 to serve as a crucial part of the U.S.-led international order of trade rules and to help governments try to sort out their trade problems. But a panel of independent experts last year warned WTO could become irrelevant if the trade wars sparked by the Trump administration’s “America First” policies cause wider “backsliding” towards trade protectionism.
Last month, foreign ministers from the Group of 20 major economies agreed WTO reforms are urgently needed to boost its relevance amid an escalating U.S.-China trade war. Japan’s foreign minister, Toshimitsu Motegi, who hosted the meeting, acknowledged broad concerns about the looming shutdown in the appellate body’s ability to function.
In response, the European Union, Canada and other nations have sought to use stopgap measures involving arbitrators to hear trade appeals.
Trump’s unilateral tariffs on China and other major U.S. trading partners, and the retaliatory measures his actions have elicited, are eroding the authority and relevance of the Geneva-based WTO. The 16-month trade war between the world’s two largest economies also has caused major economic damages.
Washington imposed tariffs on more than US$360 billion of Chinese imports. Beijing retaliated with tariffs on US$120 billion of U.S. imports. Chances for a near-term U.S.-China trade deal appear dim. Next month, Trump is set to impose more U.S. tariffs on smartphones, toys and other Chinese items.
China’s foreign ministry spokeswoman, Hua Chunying, said her nation is working to resolve the situation precipitated by the United States exercising its veto power to block appointments.
“This seriously undermines the authority and efficacy of a multilateral trading system. Such behavior is condemned by most WTO members,” she told a regular press briefing in Beijing on Monday. “The appellate body — the ‘crown jewel’ — is now in a crisis, but our efforts to safeguard the multilateral trading system will not stop. China will continue to work with other like-minded members — which are the majority of the WTO members — to address the challenges.”
The E.U.’s WTO envoy, João Aguiar Machado, said the United States is depriving other WTO members of their right to a binding, two-step dispute settlement system. “More fundamentally, the very idea of a rules-based multilateral trading system is at stake,” he said in a statement.
“There have been almost 600 disputes brought to date before the WTO,” said Aguiar Machado. “The immense majority of these disputes have been positively resolved, either through consultations or through adjudication. These 600 cases are only the tip of the iceberg. The very existence of an effective dispute settlement system has helped to prevent countless breaches of the rules.”