Countries seek new solution for dormant International Trade Court

WASHINGTON—Member nations of the World Trade Organization aim to resuscitate a dormant trade dispute resolution system that has been a sticking point between the United States and other nations.

The WTO’s Appellate Body, the apex of the Geneva-based group’s dispute settlement system, has been effectively closed since 2019 after the Trump administration blocked the appointment of new judges.

U.S. complaints about the system, which predate the Trump presidency, focus on Appellate Body rulings against tariffs and other remedies, limiting what U.S. officials and lawmakers see as America’s right to protect its industries.

China has been an active litigant, and the United States more than European and other countries have sharply criticized the WTO and the appellate body for failing to address Chinese state-run capitalism, its lax protection intellectual property and the resulting trade distortions.

Now WTO supporters see an opportunity to start fixing the international tribunal and breaking the deadlock.

The organisation’s new chief executive, former Nigerian finance minister Ngozi Okonjo-Iweala, called the dispute settlement system the WTO’s “crown jewel” after her appointment this month and promised to propose reforms this year.

President Biden backed Ms Okonjo-Iweala after she was blocked by the Trump administration, paving the way for her nomination. Biden administration officials have expressed a willingness to work with the WTO to ease trade tensions, though the administration is seeking a sweeping overhaul of the trade body and keeping President Donald Trump’s hefty tariffs on the on Chinese products pending a trade policy review. .

Katherine Tai, Mr Biden’s choice for U.S. Trade Representative who will appear in a Senate confirmation hearing on Thursday, is experienced in using the WTO dispute settlement system, having argued cases winners against China.

“There is reason to be optimistic that the WTO can be up to the tasks ahead,” said Alan Wolff, WTO Deputy Director-General and US trade lawyer, at the a conference earlier this month, highlighting Mr. Biden’s support for international relations. cooperation and the new general manager.

The standoff over the tribunal has resulted in a backlog of cases, many involving the United States, and removed an important tool for enforcing the rules that govern global trade. A functioning dispute resolution system is seen by many businesses and governments as essential to reducing barriers to trade and is needed now as the global economy grapples with the coronavirus pandemic.

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A fully functioning system is “essential for long-term manufacturer confidence and certainty, which the industry needs, especially as we recover from the pandemic,” said Ken Monahan, vice president of policy. trade to the National Association of Manufacturers.

Despite general support from the Biden administration, US officials are not rushing to overhaul the WTO, and this task, according to some trade policy specialists, is formidable, given that reforms require consensus and that the points diverging views among important players such as the European Union and China.

During a staff-level meeting at the WTO on Monday, participants discussed a proposal from 121 members to begin selection processes to fill Appellate Body vacancies. The United States said it would not currently support the proposal, citing the need to address unspecified “systemic concerns” with the body, according to a Geneva-based trade official.

For the Appellate Body, the proposals could include applying a 90-day deadline for appeals and revising the current four-year term for judges.

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China is probably a sticking point. The United States, along with Canada, the EU and others, have accused China of illegal subsidies and dumping of goods. U.S. trade officials in the Democratic and Republican administrations have said Appellate Body rulings against U.S. tariffs have given Chinese government-backed companies leeway to flood global markets with subsidized goods while cutting the scope of remedies of the United States and other market economies.

Beijing, welcoming Ms Okonjo-Iweala’s appointment, said it supported needed reforms at the WTO and wanted countries to lift trade restrictions.

Kelly Ann Shaw, a former USTR official and policy adviser to the Trump administration, warned against any rapid change at the WTO.

“A lot of countries are trying to deflect blame and put it on the Trump administration or the United States,” she said. “But there doesn’t seem to be a consensus on the way forward.”

Since the launch of the WTO in 1995, the United States and Europe have had differences over the role of the Appellate Body and its rulings. The body, sometimes compared to the Supreme Court of the United States, hears cases filed by members to challenge the rulings of lower-level WTO dispute settlement panels. While the EU has strongly supported the court, the US has seen it as overreaching and unable to keep up with changing challenges.

After China began racking up victories, the Obama administration began blocking the nominations of some individual Appellate Body candidates. The Trump administration went further and blocked all appointments. As a result, the tribunal lost the quorum of members needed to make decisions in 2019, and its last member in November 2020.

With the Appellate Body out of action, 17 cases are in limbo, allowing affected countries to continue practices rejected by lower panels. Six of the pending appeals were filed by the United States, and three were filed against the United States. One concerns a September 2020 panel ruling that unilateral U.S. tariffs on more than $200 billion worth of imported Chinese goods violate WTO rules.

The EU and 22 other countries, including China, have created an alternative arbitration system to resolve trade disputes, although most WTO members have not signed it.

EU officials view the alternative system as temporary. Last week, the EU acknowledged the need to reform the Appellate Body, saying in a trade policy statement that the dispute settlement system “has not worked as intended”.

Difficult cases await us. In 2018, Mr Trump imposed tariffs on about $50 billion in imported steel and aluminum, calling the global oversupply of metals a “threat to national security”. The duties hit allies such as the EU and Japan, not just China. The EU has filed a complaint and a lower-level WTO panel is due to rule next year.

Chad Bown, senior fellow at the Peterson Institute for International Economics think tank, calls the case a “ticking time bomb”.

A ruling against America’s use of tariffs to protect its national security would inflame WTO critics in the United States, including some members of Congress, while a favorable ruling could encourage others to use national security as a pretext for trade restrictions.

“It’s a lose-lose for the WTO and its members,” Mr. Bown said.

Write to Yuka Hayashi at [email protected]

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