Collapsing trade order: How the WTO is under attack

The stasis in negotiated liberalisation of trade has, over the last 18 years, whittled down the standing of the WTO as an intergovernmental institution of eminence.

Collapsing trade order: How the WTO is under attack

The stasis in negotiated liberalisation of trade has, over the last 18 years, whittled down the standing of the WTO as an intergovernmental institution of eminence. However, in all these years, the WTO has been held aloft by the success of its dispute settlement function. No doubt, the record even here is not impeccable and the WTO has not scored a perfect 10. There have been delays in the completion of procedures as litigant members have engaged on contentious issues, and a few members have dragged their feet on compliance. Nevertheless, the results obtained in dispute settlement have been reassuring, on the whole.

And yet, the dispute settlement system of the WTO is under attack. It is ironic that the assault is being led by the very member that helped build it up—the United States. It was the US that pressed for its judicialisation, argued for the rule of negative consensus and strongly supported the introduction of the appellate review stage. The rule of negative consensus means that, unless the Dispute Settlement Body (DSB) decides by consensus not to do so, the request by a member for the establishment of a panel is accepted or the report of a panel or of the Appellate Body (AB) is adopted. Thus, the procedures were freed from blockages that had made the dispute settlement mechanism dependent on negotiations and, therefore, ineffective during the GATT 1947 days. It was the United States, again, that had put forward the proposal for stipulating time limits for each stage of the procedure, to fall in line with its domestic procedures. Others agreed in the belief that it would help to curb recourse to unilateralism under the Section 301 of the US Trade Act 1974, which the world abhorred.

What could be the agenda of the US in trying to debilitate the dispute settlement machinery of the WTO? The US’s attempts to weaken the dispute settlement procedures began in the pre-Trump era. In 2011, the US quietly manoeuvred to deny a second term in the AB to Jennifer Hillman, a US nominee, and it was widely suspected that her government was not pleased with her rulings in the AB reports. A more overt intervention was seen in 2016, when the US opposed a second term for Seung Wha Chang from South Korea. While opposing the reappointment of Seung Wha Chang, the US complained of judicial overreach in appeals in which he was one of the three AB members who had made the ruling. Some WTO members did question how the AB report could be attributed to one member when the ruling was made in a collegiate manner by three. Leaving this question aside, it was clear that the aim of the US was to keep the AB members on a short leash. Denial of automatic reappointment for a second term was clearly aimed at curtailing the independence of AB members and was bad enough. But things have got progressively worse since president Trump assumed office. Now, the United States is not only stalling reappointments to the AB on the expiry of the initial term of four years, it is also routinely blocking altogether all appointments to fill up vacancies in the AB.

The US is also insisting that solutions must be found to a number of issues relating to the functioning of the AB before the selection procedures for filling up the vacancies can proceed. Could an AB report bear the name of a member who had participated in the decision but had demitted office before its submission? In the light of the DSU mandate for appeals to be concluded in 90 days, what is the legal status of an AB report that has not been concluded within the stipulated period? Should the AB steer clear of advisory opinion or obiter dicta? Should the AB examine a member’s domestic law as a matter of law rather than treating it as a matter of fact? Should AB rulings be treated as a precedent to be followed in future cases?
None of the issues raised by the US is unreasonable, although some of them have less weight than others. What is unreasonable is the linkage of the solutions with the filling up of the vacancies in the AB. Further, the fact that the US has not made any definitive proposal on the solutions raises the question of whether it is really interested in seeking solutions. There is more than a hint of suspicion that its objective is to emasculate the dispute settlement machinery of the WTO by rendering the AB non-functional. Indeed, after the completion of the tenure of another member in September 2018, the AB has already been reduced to three members, the minimum number necessary to keep it working. The queue of pending appeals is lengthening and there is intolerable pressure on the AB members who are in position. In December 2019, two more members will retire and the AB will cease to function.

What happens then? The Dispute Settlement Understanding (DSU) mandates that a panel report must be adopted by the DSB within 60 days of its circulation unless a party to the dispute formally notifies its decision to appeal. After the AB has become non-functional, a decision by the losing party to appeal will imply that a dead-end has been reached in the procedure for the settlement of disputes under the DSU. In that situation, the dispute settlement system of the WTO, as a whole, will stand substantially dismantled. It will, of course, remain open for the parties to try to negotiate further on the dispute on the basis of the findings and recommendations in the panel report and we would go back to the GATT 1947 days when the settlement of disputes was essentially a matter for negotiations.

On a number of occasions, president Trump has threatened that the US would leave the WTO. The question that arises now is if the US has decided to destroy the WTO from within, instead. A further question is why the US is aiming to enfeeble the dispute settlement machinery that it had sought to strengthen a little over 23 years ago. What are the reasons for the reversal of US objectives? One possible explanation that has been talked about is that the expectation in the US at the time of negotiations was that its laws would be consistent with the WTO Agreement and US will be a complainant rather than a defendant in future disputes. The US wanted a strong dispute settlement machinery to ensure that other members, mainly the developing countries, carried out their obligations in the new areas of trade in services and trade-related intellectual property rights. Since the reality now is that the US, too, is a defendant in a number of cases, and in fact has been repeatedly bruised in anti-dumping disputes, a strong dispute settlement machinery has created some amount of discomfort.

The WTO members are faced with a formidable challenge. Since a strengthened dispute settlement machinery underpins the rules-based multilateral trading system embodied in the WTO Agreement, there could be an existential threat to that system.

(Author is Professor at ICRIER)

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