EuroCapital: Trade’s big challenge: How to resurrect the WTO

Trade’s big challenge: How to resurrect the WTO
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- on 11/12/2019 10:58
 
From December 11, the world’s main trade court will not have enough judges to
function.
On Wednesday, the world will bury the global trade order as we know it.
The big question now is whether it can ever rise from the grave.
From the stroke of midnight (in Geneva), there will no longer be a trade referee
to issue rulings in fights between countries over everything from dumped Chinese
steel pipes to Panamanian shoe sales.
U.S. President Donald Trump accuses the court of being too soft on his
arch-rival China, and has been blocking the appointment of judges to the World
Trade Organization's appellate body, the highest dispute-resolution body. As of
December 11, there will be only one judge — and that's not enough to run the
court.
WTO nations are discussing what’s next. Should countries that want to save the
WTO put the current system on life support until the U.S. changes its mind? Or
should they say their condolences and start building an alternative?
According to the EU Ambassador to the WTO João Aguiar Machado: "The very idea
of a rules-based multilateral trading system is at stake."
“The Commission wants to save the appellate body and at the same time keep the
U.S. on board.” — Kathleen Van Brempt, MEP for the center-left Socialist and
Democrats group
And that's no exaggeration. Without a highest court, the world is set to take a
giant leap backward to the years before 1995 in terms of resolving trade
disputes, which allowed something closer to the law of the jungle to prevail.
Countries who want to resolve their trade disputes can still ask for a WTO
ruling, but the winner will be unable to enforce the ruling since an appeal from
the losing party will slide into legal limbo. International trade disputes may
never see a resolution and quickly evolve into tariff wars.
“The dispute-settlement mechanism is the crown jewel of the WTO," said Peter
Van den Bossche, director of the World Trade Institute in Bern and former
chairman of the appellate body. "The lack of a functional appellate body
undermines the entire dispute-settlement mechanism, because as long as appeals
are not being dealt with, panel reports will not become legally binding. The
rule of the jungle, the law of the strongest will prevail in international trade
relations and that will hurt us all."
Europe's divided loyalties
Within the EU, countries are divided about their response. While some are keen
to forge ahead with a new mechanism without the Americans, others don't want to
foresake their natural ally, the U.S., particularly if that means moving closer
to Russia and China.
In Brussels, Lithuania has spearheaded a group of EU countries that have
concerns about a parallel regime. Albinas Zananavičius, Lithuania’s vice
minister of foreign affairs, said he had "serious doubts" about a plurilateral
system that included Russia and China, but not the U.S.
For the Americans, talk of an alternative regime is beside the point. The key
fact for Washington is that the WTO was too soft on Beijing — and the
Americans insist that is not being addressed.
According to the U.S. Ambassador to the WTO Dennis Shea, the U.S. has made
"tremendous efforts over the past year to explain its concerns with persistent
rule breaking by the appellate body," he said, in remarks sent to POLITICO.
"Some members have engaged with those concerns, and we are grateful for that.
But many others have simply denied that any problems exist.
From now on, Shea said dispute resolution would fall to the disputant nations
"to engage with each other to determine an appropriate way forward, as some
already have."
The U.S. discontent with the WTO’s appeals process only grew worse after China
joined the organization in 2001. Other countries are equally frustrated that
countries like China claim a “developing” status which affords them certain
preferential treatments on trade.
And it’s not just the dispute system that needs a makeover. Over the past
decades trade disputes have become more complex. Burden sharing for tackling
climate change, cyber security, the role of tech giants and the rise of state
capitalism are all putting international trade rules under strain.
But the decision-making ability of the world trade group depends on a consensus
between 164 countries with very different economic interests. It has largely
failed to work out new rules since it began in 1995. Negotiations launched in
Doha in 2001 were finally declared dead in 2015.
How do you like your options? I don't
None of the alternatives looks inviting.
The EU is negotiating with several countries to build an interim
dispute-settlement court within the WTO framework but without the U.S.
"Until now, there hasn't been much enthusiasm for that alternative," said Van
den Bossche. "But certain WTO members still seem to be in a state of denial. For
some, this week will be a hard awakening. They might be willing to talk now
about a temporary alternative."
The European Commission is determined to do “whatever is necessary” to save
the current system and to keep the U.S. in the WTO, Sabine Weyand, the EU
director general for trade, told the European Parliament last week. “We are
not giving up on the U.S. as a member of the WTO nor are we giving up on the
appellate body,” Weyand said.
Some in Brussels and Geneva warn not to throw the baby out with the bathwater
and argue that it might be better to wait until November 2020 and hope for a new
president in Washington.
Restoring the appellate body is the cornerstone of the Commission’s strategy,
said Weyand. But at the same time, the EU is drawing up measures to be able to
impose unilateral retaliatory measures against the U.S. to provide a legal
framework for tariff battles while the WTO court is out of action.
That strategy raises questions from both EU countries and MEPs.
“The Commission wants to save the appellate body and at the same time keep the
U.S. on board,” said Kathleen Van Brempt, an MEP for the center-left Socialist
and Democrats group. “We have come at a point that you have to choose one of
those two goals. You can’t do both. Europe shouldn’t be afraid to show its
teeth towards the U.S.”
On the other hand, the group of EU countries that doesn't want to alienate the
U.S. fears a parallel court could outlive the Trump presidency.
If those countries block the creation of a parallel arbitration system, the WTO
might not cease to exist, but risks fading into irrelevance, facing a similar
scenario as the League of Nations, the precursor to the U.N. that struggled to
cope with geopolitical crises in the 1920s and 1930s.
“There will be two tests to judge the effect of the appellate body crisis,”
said Geneva-based trade expert Peter Ungphakorn. “Will countries slow down
filing new disputes or even appeals? And will the normal, regulatory work of the
WTO weaken? The vast majority of trade issues are resolved through conversations
in the regulatory bodies and smoothen world trade. The U.S. is using this as
much as anybody else. As long as countries find this useful, the WTO will
exist.”
This work will continue even when the dispute-settlement mechanism is weakened.
Therefore, some in Brussels and Geneva warn not to throw the baby out with the
bathwater and argue that it might be better to wait until November 2020 and hope
for a new president in Washington. A Democrat might voice the same concerns over
the WTO as the current U.S. administration, but will probably be more willing to
work towards brokering a solution.
Until then, they argue, all the EU should do is damage limitation. And prepare
for the law of the jungle.
This article is part of POLITICO’s premium policy service Pro Trade. From
transatlantic trade wars to the U.K.’s future trading relationship with the EU
and rest of the world, Pro Trade gives you the insight you need to plan your
next move. Email pro@politico.eu for a complimentary trial.
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