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WTO Suspending its Role as Arbiter in Global Trade Conflicts

World Trade Organization (WTO) Director-General Roberto Azevedo speaks at a news conference after a two-day General Council meeting at the WTO headquarters in Geneva, Switzerland, Dec. 10, 2019.

In 1995, developed nations around the world came together to create a means of creating rules for international trade and settling disputes between countries without the use of damaging tariffs. The World Trade Organization, which grew out of that effort, created a consensus-based system of regulations, arbitration, and a de facto court system that gave countries a venue for settling claims against each other.

As of Wednesday, though, the WTO will likely cease to function in any real sense. Its policymaking arm has been crippled for years over internal disagreements. Now, its enforcement arm, a seven-judge panel known as the Appellate Body, is about to wither away, the result of the Trump administration’s decision to block the appointment of new judges to replace those whose terms are expiring.

Enforcement arm vacancies

FILE - The World Trade Organization (WTO) headquarters are pictured in Geneva, Switzerland, July 26, 2018.
FILE - The World Trade Organization (WTO) headquarters are pictured in Geneva, Switzerland, July 26, 2018.

The Appellate Body is currently down to three judges, the minimum required to rule on a dispute. It will have only one left after Tuesday, making it unable to render judgments in new matters. Theoretically, the two judges whose terms are expiring could stay on to hear cases that have already been filed. However, an American judge, Thomas Graham, has said that he will refuse to do so unless the Appellate Body’s director, Werner Zdouc, is removed from his post. The WTO earlier this year announced that it would not take that action.

WTO Director-General Roberto Azevêdo has insisted that the demise of the Appellate Body does not mean that the organization’s existing rules no longer have force.

Existing rules would still apply

“Existing WTO rules still apply,” he said last week. “WTO disciplines and principles will continue to underpin world trade. And members will continue to use WTO rules to resolve trade conflicts — in regular WTO bodies, through consultations, via dispute settlement panels, and through any other means envisaged in the WTO agreements.”

However, over the weekend, Azevêdo urged member countries to work to repair the appeals body, saying, “A well-functioning, impartial and binding dispute settlement system is a core pillar of the WTO system. Rules-based dispute resolution prevents trade conflicts from ending up in escalating tit-for-tat retaliation — which becomes difficult to stop once it starts — or becoming intractable political quagmires."

The reaction of member states to the demise of the WTO is notably mixed. In Europe, the body’s failure is seen as a disaster. “If you have no rules, everyone can do what they want and that would be really, really bad, not least for the smaller and developing countries,” European Union Trade Commissioner Cecilia Malmstrom said last summer.

European Union considering a replacement

The EU, with the backing of Canada and Norway, is trying to create a temporary replacement panel with the same structure as the Appellate Body. China, Russia, and a number of other countries are said to be considering whether to sign on.

In Washington, however, there is far less sorrow over the fading relevance of the WTO.

In practical terms, the organization has been especially ineffectual when it comes to updating trade rules for the current era. A requirement of full consensus in rulemaking allows any of the 164 member countries to derail a proposal.

WTO's failure to address China issues

As a result, the body has been struggling for years to come to agreement on multiple complex issues that weren’t contemplated when it was first established, including electronic commerce and how to deal with countries like China, that refuse to play by the established rules of laissez-faire capitalism.

The organization’s failure to deal with the challenge presented by China is particularly galling to the Trump administration. Despite the size of its economy — the second largest in the world — the WTO allows China to operate under relaxed rules reserved for developing countries, something the administration has criticized as deeply unfair.

But the roots of the Trump administration’s antipathy to the WTO go far deeper than concerns about its ability to create new rules. Trump has made it clear that he disdains the very idea of international regulation of U.S. trade policy.

Trump's opposition

FILE - U.S. President Donald Trump delivers remarks on supporting the passage of the U.S.-Mexico-Canada (USMCA) trade deal during a visit to Milwaukee, Wisconsin, July 12, 2019.
FILE - U.S. President Donald Trump delivers remarks on supporting the passage of the U.S.-Mexico-Canada (USMCA) trade deal during a visit to Milwaukee, Wisconsin, July 12, 2019.

The president who famously claimed “Trade wars are good, and easy to win,” began his term by withdrawing the U.S. from the Trans Pacific Partnership trade pact, and has repeatedly railed against multilateral trade agreements of all types. He prefers to see the United States negotiate trade agreements on a country-by-country basis, which he believes maximizes the United States’ leverage.

Trump is also a prolific user of tariffs, the tool that the WTO was designed to regulate. He has imposed the import taxes on goods coming into the U.S. from a variety of countries around the world — most notably China — as a means of forcing foreign governments to make concessions on their treatment of American exports.

Previous administrations tangled with WTO

American anger at the WTO did not originate with the election of Trump. Multiple administrations including the Obama administration have tangled with the organization, particularly over some rulings from the Appellate Body that U.S. officials have said exceeded its mandate.

However, the Trump administration has been the most aggressive in trying to rein in the WTO. In addition to blocking the appointment of new judges, the U.S. has cut funding for the Appellate Body, slashing its budget by 93 percent.