The easy part is behind us. The United States has succeeded in putting the World Trade Organization Appellate Body out of business by depriving it of a quorum. The more challenging task lies ahead – finding a way to revamp the Appellate Body so that the rules of the “rules-based” international trading system can be enforced. Every effort should be made to do so prior to the next WTO ministerial in June.
When the WTO was created in 1995, the United States insisted that the dispute settlement process be “binding.” In other words, there needed to be a means to enforce adverse rulings instead of allowing losing countries to block them. That had been a major problem under the former General Agreement on Tariffs and Trade. It was vexing when a challenge to another nation’s unfair trade policies was decided in America’s favor, but then blocked by the losing country. That would leave the United States with no way to respond in a manner consistent with international law. The GATT system effectively rewarded rule breakers. This meant that it punished America, which until recently had generally respected global trading rules.
The WTO changed the balance of power. When a country is found to be in violation of its commitments, it cannot block the decision from being adopted. If the offending country doesn’t change its practices, the party that brought the complaint will be authorized to impose retaliation. The system creates considerable pressure on countries to play fairly. If they are found to be in the wrong, not only do they receive unwanted attention from other WTO members, they also can expect to face retaliation. Those are strong inducements to change policies quickly and get on with life.
The WTO dispute settlement process has two steps. In the first, an expert panel consisting of three people reviews the facts and the law, then renders its judgement. If the losing country wishes to appeal, the case will go to the Appellate Body, which now has only one of its seven seats filled. Three judges are required to decide an appeal. Because the Appellate Body no longer is functioning, appealed cases will sit in limbo until some future time when new judges are appointed. In other words, we’re back to the days of GATT – the losing nation can avoid any sanction simply by filing an appeal.
Leaving the mess for the next guy
The United States is the world’s second-largest exporting country. Maintaining access to export markets is important to a great many businesses and their workers. The WTO dispute settlement system has adjudicated more than 120 cases brought by the United States against other countries’ trade-distorting measures, finding in our favor about 90 percent of the time. The WTO process may not be perfect, but it clearly has served the interests of the United States by reducing unfair trade practices.
A key question for the Trump administration is whether to push for reform of the dispute settlement system – which it argues is needed – or just let the Appellate Body wither away. The White House has reasons for wanting to leave the Appellate Body dormant. The United States has bent international rules rather badly in its trade war, thus encouraging numerous WTO complaints by other nations. America could lose many of those cases. If there is no functioning appeals process, the United States could conveniently block legally authorized retaliation just by filing appeals. Some other U.S. administration could sort out the mess later.
On the other hand, pressures for reform come from the steel industry and other businesses that favor use of antidumping and countervailing duties (AD/CVD) to restrict imports allegedly sold at unfairly low prices. The United States has lost several WTO cases dealing with those trade remedies. The general message from the Appellate Body has been that AD/CVD measures have been applied in ways that curtail imports too aggressively. The U.S. counterargument is that the Appellate Body has exceeded its mandate. Some decisions have strayed beyond the text of WTO agreements, in essence creating new trade obligations that never were agreed to by negotiators.
By knocking the Appellate Body out of commission, the United States has generated leverage that could be used to push for reform. Other nations want to reestablish the appeals process. Some have offered their own proposals for revising Appellate Body procedures. The United States so far has chosen not to negotiate with them. If the White House really wants to support industries that rely on AD/CVD laws, now is the time to act.
A future U.S. administration is likely to be more inclined to favor multinational institutions than is President Donald Trump. A new president easily could choose to show his or her goodwill toward the WTO by agreeing to appoint new Appellate Body judges without seeking any reforms. The attitude would be, “Why bother with reform? That was a Trump fixation.” In that circumstance, the Trump administration would have squandered its opportunity to fix a dispute settlement system that genuinely could benefit from repair.
Oversight and Enforcement
The WTO will hold its next ministerial meeting June 8-11 in Kazakhstan. The best approach would be for the Trump administration to adopt the proposal endorsed by U.S. businesses and pro-trade organizations that would establish an oversight and enforcement mechanism for the Appellate Body. By advocating this concept over the coming months, the United States would have an excellent chance to achieve consensus with other WTO members, thus allowing the plan to be adopted in June.
Doing the hard work needed to reform the Appellate Body would demonstrate U.S. leadership in global economic affairs. It also would serve to strengthen the rules-based system that is so important to the many U.S. businesses and workers whose livelihoods depend on international trade.
Dan Pearson, a former chairman of the U.S. International Trade Commission, is a trade policy fellow at Americans for Prosperity.