1085 The End of the WTO - killed by Trump because it favoured ChinaSchmal

The End of the WTO - killed by Trump because it favoured China

Newsletter published on December 4, 2019

(1) WTO can no longer provide Dispute Resolution - killed by Trump
(2) Economist end of WTO; when US tried to hold China to account for
breaches of trade rules, it got little support

(1) WTO can no longer provide Dispute Resolution - killed by Trump
https://www.bloomberg.com/news/articles/2019-12-02/wto-faces-cliff-edge-crisis-next-week-as-mediator-eyes-departure

WTO Faces Cliff-Edge Crisis Next Week as Mediator Eyes Departure

By Bryce Baschuk

December 3, 2019, 12:57 AM GMT+10

  One of the final three appellate body members to quit Dec. 11

  The WTO’s dispute settlement system would be inoperative

The World Trade Organization’s appeals panel will cease to function
starting Dec. 11 when one of its three remaining members plans to step
down, according to people familiar with the situation.

Thomas Graham, the chairman of the WTO’s powerful appellate body, told
officials this month that he won’t agree to consider disputes after Dec.
11 when his term ends, said the people who asked not to be identified
discussing internal deliberations. Traditionally, panel members whose
terms have expired can continue to hear pending disputes.

This will effectively paralyze the most important function of the
Geneva-based trade organization -- which upholds, modifies or reverses
WTO rulings -- at a time when multilateral relationships have come under
assault from protectionist currents.

The crisis at the WTO was created by a U.S. block on new appointments to
the appellate body, which the Trump administration says has overstepped
its mandate and infringes on American sovereignty. On Dec. 11, when
Graham and one of his colleagues’ terms expire, there won’t be enough
members to decide on new cases. But with Graham’s resignation, it also
means that pending appeals would be thrown into legal limbo.

The impending appellate rupture comes as the U.S. has threatened to
block the WTO’s budget -- also over concerns related to the dispute
panel -- which would cause the entire WTO to shut down on Jan. 1. Either
scenario would leave the WTO’s 164 members scrambling to come up with an
alternative to the global arbiter of rules that govern nearly $23
trillion in international commerce every year.

Internal Feud

Graham, a 77-year-old American, told WTO officials this month that he
wouldn’t agree to deliberate appeals after his term is over unless the
director of the appellate body, Werner Zdouc, 56, steps down, according
to the people. Graham has complained to WTO officials that Zdouc wasn’t
fit for the office and sought to guide appellate body members toward
rulings that coincide with his views.

WTO Spokesman Keith Rockwell and Zdouc both declined to comment.

At a meeting on Nov. 21, WTO Director-General Roberto Azevedo invited
the three remaining appellate body members, Graham, Ujal Singh Bhatia of
India, and Hong Zhao of China, to share their concerns about Zdouc and
asked if they would oppose his removal, the people said. All three said
they would be OK with the move.

Last week, Azevedo made the decision to take no action against Zdouc,
two of the people said.

WTO members on Dec. 3 will discuss whether Graham and Ujal Singh Bhatia,
the other appellate body member whose term ends next week, should be
authorized to adjudicate any pending cases after their terms expire. If
Graham ends up stepping down on Dec. 11, parties to any pending disputes
will not be able to receive a final ruling.

Budget Fight

The internal feud may be rendered moot, however, if the U.S. follows
through on its threat to block the the WTO’s budget. The Trump
administration offered a proposal that would allow funding to continue,
but it would drastically reduce money going to the appellate body.

The EU, China, India and Turkey said last week they would not support
the U.S. compromise because it would put their pending disputes in
jeopardy, two of the people said.

WTO members are expected to further discuss the WTO’s funding for 2020
during a Dec. 4 meeting of the WTO’s budget committee in Geneva.

— With assistance by Zoe Schneeweiss

(2) Economist end of WTO; when US tried to hold China to account for
breaches of trade rules, it got little support

https://www.economist.com/finance-and-economics/2019/11/28/its-the-end-of-the-world-trade-organisation-as-we-know-it

Who shot the sheriff?

It’s the end of the World Trade Organisation as we know it And America
feels fine

Print edition | Finance and economics

Nov 28th 2019 | WASHINGTON, DC

"Winter is coming," warned a Norwegian representative on November 22nd,
at a meeting of the World Trade Organisation (wto). The multilateral
trading system that the wto has overseen since 1995 is about to freeze
up. On December 10th two of the judges on its appellate body, which
hears appeals in trade disputes and authorises sanctions against
rule-breakers, will retire—and an American block on new appointments
means they will not be replaced. With just one judge remaining, it will
no longer be able to hear new cases.

The wto underpins 96% of global trade. By one recent estimate,
membership of the wto or General Agreement on Tariffs and Trade (gatt),
its predecessor, has boosted trade among members by 171%. When iPhones
move from China to America, or bottles of Scotch whisky from the
European Union to India, it is the wto’s rules that keep tariff and
non-tariff barriers low and give companies the certainty they need to
plan and invest.

The system is supposed to be self-reinforcing. Mostly, countries follow
the wto’s rules. But if one feels another has transgressed, then instead
of starting a one-on-one trade spat it can file a formal dispute. If the
wto’s ruling displeases either party, it can appeal. The appellate
body’s judgments pack a punch. If the loser fails to bring its trade
rules into compliance, the winner can impose tariffs up to the amount
the judges think the rule-breaking cost it. It is that punishment that
deters rule breaking in the first place.

It is no surprise that President Donald Trump has axed these foreign
arbiters, given his general distaste for internationally agreed rules.
On November 12th he declared himself "very tentative" on the wto. But
the problems run far deeper than dislike of multilateral institutions.
They stem from a breakdown in trust over the way international law
should work, and the more general failure of the wto’s negotiating arm.
Had the Americans felt that they could negotiate away their grievances,
resentment towards the appellate body might not have built up. But with
so many members reluctant to liberalise, including smaller countries
fearful of opening up to China, that has been impossible.

America has had some wins at the wto: against the European Union for
subsidies to Airbus, an aircraft-maker; and against China for its
domestic subsidies; theft of intellectual property; controls on the
export of rare earths, which are used to make mobile phones; and even
its tariffs on American chicken feet. But it has also been dragged
before the appellate body repeatedly, in particular by countries
objecting to its heavy-handed use of "trade remedies": tariffs supposed
to defend its producers from unfair imports. Time after time, it has
lost. In such cases, it has generally sought to become compliant with
the rules rather than buy the complainant off.

Though previous administrations had grumbled, and occasionally
intervened in judges’ appointments, the Trump administration went
further. Its officials complained that disputes often dragged on much
longer than the supposed maximum of 90 days, and—more seriously—that the
appellate body made rulings that went beyond what wto members had signed
up to. They made it clear that unless such concerns were dealt with, no
new judges would be confirmed.

Judicial overreach is in the eye of the beholder. Losers will always
feel hard done by, and America has been quick to celebrate the wto’s
rulings when it wins. But plenty of others think that the appellate body
had overstepped its remit. A recent survey of individuals engaged with
the wto, including national representatives, found that 58% agreed with
that verdict.

Getting so many countries to sign up to the wto was a remarkable
achievement. One way negotiators managed this was by leaving the rules
vague, and papering over their differences with ambiguous language. Take
"zeroing", for example: using dubious mathematics to calculate defensive
tariffs on unfairly traded imports. The Americans claim that the rules
do not say they cannot do it. But others counter that the rules do not
say they can. It is such long-running differences that have set the
scene for the latest showdown.

Offer me solutions

The American trade lawyers happy to kill the appellate body see a
fundamental difference between their attitude to international law, and
that of Europeans. Their position is that only clear contractual terms
can be enforced, and they see Europeans as more comfortable with
resolving ambiguities by going beyond what is written. Essentially, they
regard the appellate body as too European. Moreover, in its eagerness to
rule where terms are unclear, and in the American government’s
willingness to change its laws in response, they feel an affront to
America’s sovereignty.

Under the gatt, which lacked a proper enforcement system, ambiguities
were hashed out in smoke-filled rooms. But the wto was supposed to make
naked power politics over trade obsolete. Had it worked as intended,
there would have been a balance between settling disputes and writing
new rules. Policy is best made with a vibrant judiciary interpreting the
law, and a functioning legislative arm to fix any mistakes. Whenever the
appellate body made decisions that annoyed members, they could have
resolved their differences at the negotiating table. Perhaps America
could have got others to agree to higher tariffs on imported steel, or
been granted some flexibility in its defensive duties.

But the wto’s negotiating arm has been broken for years. With the
current count of members at 164, it has become more inclusive, but is
unable to get much agreed. Each member has a veto over any further
multilateral trade liberalisation. And without new negotiations,
resentment towards the appellate body has built up.

If you think this has a happy ending...

Had the multilateral system been more effective at dealing with the rise
of China, perhaps the single biggest issue of its times, then calls to
save it might be louder in Washington. Although various American
administrations pursued and won several cases, the process was slow and
occasionally frustrating. America can justly claim that, when it tried
to hold China to account for its breaches of trade rules, it got little
support. America has been responsible for more than half of all
complaints against China. And other wto members’ complaints were
generally copycat, filed in America’s wake.

Now that the Trump administration has bypassed the wto and taken the
fight straight to China, there is nothing remaining that it particularly
wants from the wto. And so the chances that it will relent and allow
nominations to the appellate body by December 10th are slim to none. In
response to proposals from other members to change the body’s rules, an
American representative said that they were not persuaded that the rules
would be stuck to.

On November 26th the Trump administration suggested slashing the pay of
members of the appellate body. In October Chuck Grassley and Ron Wyden,
the top Republican and Democrat politicians on the Senate Finance
Committee, published an editorial saying that while they saw the value
of an appellate body, it "needs to operate as the members agreed".

Of the wto’s 163 other members, 117 have signed a joint letter calling
upon America to end the impasse. Although America has been the heaviest
user of the dispute-settlement system, others will miss it too (see
chart). Some have already begun preparing, for example by agreeing at
the start of any disputes to forgo the right to appeal. The eu, Canada
and Norway have agreed on an interim arbitration mechanism that will use
retired members of the appellate body as judges. And the eu is
considering beefing up its own enforcement mechanism to fill the hole
left by the appellate body, though it would probably cleave more closely
to the outcomes of first-stage rulings in wto disputes.

But some members are likely to shun such alternatives—especially those
that expect to be sued a lot. And it is unclear how robust they will be
if disputes turn nasty. Some wto members may try to choose their
dispute-settlement mechanism case by case. An organisation as ambitious
as the wto, for all its faults, will be easier to break than replace.

All this means that global trade is about to become a lot less
predictable and a lot more contentious. Without the appellate body to
act as honest broker, disputes between the biggest members may escalate.
Under the gatt America acted as global trade sheriff, launching
investigations at will and bullying disputatious countries into
submission. It is not impossible that it will resume this role. On
November 27th the Trump administration announced that it had nearly
finished an investigation into a French tax on digital services, which
America reckons discriminates against its tech giants. That could lead
to tariffs.

You’ll miss it when it’s gone

In the 1980s American unilateralism was no fun for countries on the
receiving end. But at least back then Uncle Sam could point to the lack
of any other power even theoretically capable of doing the job. Now the
absence of independent referees is America’s own doing. And of all Mr
Trump’s trade policies, it may prove the hardest to reverse and have the
longest-lasting effects. ?

This article appeared in the Finance and economics section of the print
edition under the headline "It’s the end of the World…"