Is US ringing death knell for WTO?

The apathy of the US president towards international trade (or more particularly imports to the US market) and his overall USA first and anti-globalisation rhetoric is well discussed. The administration is launching more investigation into so-called unfair trading practices of its trading partners, trying to renegotiate trade treaties, and has walked away from Trans Pacific-Trade Agreement. However, in another way his administration is giving a severe blow to the World Trade Organisation (WTO) in a slow but steady and decisive manner which may crumble the dispute settlement mechanism of the WTO.

In the recent times, the USA has consistently blocked the filling in of vacancies in the Appellate Body (AB) which is the last resort for any legal resolution of a trade dispute in the WTO. The blocking has been so damaging for the WTO that even Cecilia Malmstrom, the trade commissioner of EU, has criticised the US move in relatively blunt and undiplomatic manner. It is precisely because of the US blocking the process of filling up the vacancies in the AB that three seats of the seven-member Appellate Body are currently vacant for months. With another member’s term expiring in October, this year it can get worse. Since the WTO in this matter operates on consensus, one member’s objection serves like a veto and thus, the problem is almost intractable. The WTO membership may decide to opt for majority voting if necessary, but it is foreign to the system and such a move is highly improbable.

The USA seeks to justify its stance by saying that it would not support the filling up of vacancies because of the WTO ignoring its objections to members of the AB taking part in the resolution of disputes that would be settled after their term in office is over. As a matter of WTO law, the USA has an arguable point that the serving of AB members beyond their terms is legally a relatively unexplored area and this may be more tightly regulated by making more specific provisions in the Rules on Appellate Body’s Working procedure.

There are multiple ways of doing that such as prior approval from the WTO’s General Council or a member refraining from hearing disputes for a certain time before the expiry of her/his term in office, putting a complete end to the reappointment of members in the AB, etc. Any of these might achieve what the US is asking for. However, to block the appointment of new members in the AB using this lame pretext is unfortunate. And most shocking is the lack of any concrete demand or proposal for reform from the US on this.

Due to the USA’s track record (which in fairness to the Trump administration is not limited to its era) in raising qualms about the AB rulings allegedly exceeding its mandate and the Trump administration unequivocally threatening to ignore WTO rulings when they encroach on the US sovereignty. However, any student of international trade law would know that just as the AB has ruled against the US, so as it has done for the US, too. And also even a student with a rudimentary knowledge of international law would tell you that the success of international institutions with bite would hinge on states ceding their sovereignty to an international body to some extent.

And another possible motive of moving to the pre-WTO, years’ practice of diplomatically negotiating the outcome of trade disputes rather than the current practice of binding trade rulings by the WTO Panels and AB as alluded to by Robert Lighthizer, the United States Trade Representative, would also be a step backwards and likely to be resisted by most WTO members who pin their hopes on the rule-based system in the WTO.

The US is not only one of the principal architects of the WTO but also one of its major beneficiaries and it is difficult to see how the stalling of the WTO would benefit the US. One option that the US government may be pondering on is executing more bilateral agreements. As the world’s leading economy, in a bilateral trade negotiation, the USA would have more clout over the other party.

However, most economists agree that more and more bilateral trade agreements with their different rules and regulations increase trade costs. For instance, trade analysts have found that the rules of origin (a process of assessing which imports from a country would qualify as goods originating in that country) in bilateral trade agreements can be so opaque that instead of trying to comply with them, many businesses opt to forego the preferential tariff rate and pay the tariff rate applicable to all countries. Thus, the stalling of the WTO AB may not really even serve the best interest of the US. And may breed chaos and uncertainty among the WTO members.

Md Rizwanul Islam, PhD, is an Associate Professor at Department of Law, North South University.

‘‘ Most shocking is the lack of any concrete demand or proposal for reform.