The Risks of the U.S. Effort to Cripple the WTO

Posted on Mar 16, 2020
James Oys

Since December 2019, the United States has succeeded in preventing the Appellate Body of the World Trade Organization (WTO) from issuing decisions in any ongoing appeals, effectively shutting down the dispute resolution system for global trade disputes. However, the European Union, China and other nations have responded to this move by beginning to negotiate an alternative arbitration mechanism that could create a new forum to resolve trade disputes unburdened by American influence

The WTO’s Appellate Body hears appeals from the lower-level arbitration panels of the WTO’s dispute settlement system, making it the final arbiter of state-to-state trade disputes between member states.[1] Since approximately two-thirds of the decisions of the lower-level panels are appealed, the Appellate Body has been able to exercise considerable influence in shaping the jurisprudence of international trade.[2] Although the Appellate Body’s decisions lack formal stare decisis status, and therefore, would not bind future panel decisions, the lower-level panels and the Appellate Body frequently attempt to conform to previous Appellate Body decisions creating a de facto body of precedent.[3]

The United States has taken exception to the accumulation of precedent-setting power in the Appellate Body, and it has accused the WTO of using this power to impose obligations on member states that they had not consented to.[4] The United States argues that due to this overreach, the WTO has shifted away from its function as a forum for consensus-building negotiation as nations have found it preferable to use litigation to obtain desired policy results without building consensus among the national governments.[5]

Motivated by its stringent opposition to the current role played by the Appellate Body in shaping international trade laws, the United States has managed to cripple the Appellate Body by exercising its veto power to block the appointment of new Appellate Body Members.[6] In December 2019, the terms of all but one Appellate Body Member had expired, leaving the Appellate Body without the quorum required to hear new appeals.[7] Since the decisions of the lower-level panels do not come into effect while their appeal is pending, countries can now delay a panel decision indefinitely by appealing it to the now-disabled Appellate Body.[8] The United States, the European Union, and China along with other countries that frequently litigate matters at the WTO will have multiple disputes left in limbo.[9] The lack of a functioning dispute settlement system could lead to countries flouting international trade law or to trade disputes escalating to the point that countries impose retaliatory trade measures on each other.[10]

While the American government continues to block the appointment of new Appellate Body Members, several economically prominent countries have made plans to develop a parallel dispute settlement procedure amongst themselves as a temporary replacement for the Appellate Body.[11] The European Union and China, along with several Latin American and Asia-Pacific countries, have announced plans to develop a multiparty arbitration agreement amongst themselves.[12] The EU took the lead in proposing this temporary solution to the deadlock, and the participation of large economies like China, Brazil, and Mexico has given momentum to the effort.[13] The arrangement will take advantage of a WTO provision allowing countries to utilize  arbitration to settle disputes.[14]

Although the ultimate outcome of the Appellate Body dispute has yet to take shape, this development has the potential to reduce the American government’s influence over international trade law by establishing a plurilateral trade organization that includes major economies from across the world but not the United States. The longer the Appellate Body remains non-functional, the greater the likelihood that this alternative arbitration arrangement could get off the ground and begin shaping the body of international trade disputes. The United States may then find that the Appellate Body’s role in world trade has largely been replaced by an entity over which the American government has even less influence. While the United States would not be bound by the decisions of the EU-led arbitration arrangement, its jurisprudence could prove influential in shaping a body of trade law that the United States would eventually need to reckon with.

 

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[1] Gregory Shaffer, Manfred Elsig & Sergio Puig, The Extensive (but Fragile) Authority of the WTO Appellate Body, 79 Law & Contemp. Probs. 237, 237–38 (2016).
[2] See id. at 244.
[3] Id. at 260.
[4] See United States Trade Representative, Report on the Appellate Body of the World Trade Organization, 1–3 (2020), https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf.
[5] Id.
[6] See Brett Fortnam, Without an Appellate Body, What’s Next for the WTO?, Inside U.S. Trade (Dec. 11, 2019), https://insidetrade.com/daily-news/without-appellate-body-what%E2%80%99s-next-wto; Alan Beattie, WTO to Suffer Heavy Blow as US Stymies Appeals Body, Fin. Times (Dec. 8, 2019), https://www.ft.com/content/f0f992b8-19c4-11ea-97df-cc63de1d73f4.
[7] Hannah Monicken, With the Appellate Body Hobbled, WTO Disputes Headed for Uncertainty in 2020, Inside U.S. Trade (Dec. 23, 2019), https://insidetrade.com/daily-news/appellate-body-hobbled-wto-disputes-headed-uncertainty-2020.
[8] Id.
[9] See WTO, Chronical List of Disputes Cases, https://www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm (last visited Feb. 21, 2020).
[10] See Fortnam, supra note 6.
[11] Beatriz Rios, China, WTO Members Join EU's Ad-Hoc Appellate Body in Davos, EurActiv (Jan. 24, 2020), https://www.euractiv.com/section/economy-jobs/news/china-wto-members-join-eus-ad-hoc-appellate-body-in-davos/.
[12] The full list of participating members is: Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, the European Union, Guatemala, Republic of Korea, Mexico, New Zealand, Norway, Panama, Singapore, Switzerland, and Uruguay. Id.
[13] See id.
[14] Hannah Monicken, EU, China, Others Declare Intent to Negotiate Interim WTO Appellate Solution, Inside U.S. Trade (Jan. 24, 2020), https://insidetrade.com/daily-news/eu-china-others-declare-intent-negotiate-interim-wto-appellate-solution.