The World Trade Organization may no longer hear trade appeals. That’s a problem

A global legal system handling trade disputes worth many millions of dollars ground to a halt Tuesday. The World Trade Organization appellate body, with just one judge left on its seven-member team, can no longer proceed on the 60 or so pending cases or accept new dispute appeals.

Many analysts considered the panel the legal backbone of the global trade regime. So how did we get to this point? And is there a way to salvage the WTO’s dispute system?

What is dispute settlement?

Trade policy is complex and controversial, which is why the WTO offers members the chance to settle their differences through a formal dispute system. When the WTO superseded the General Agreement on Tariffs and Trade in 1995, negotiators hoped that the revised dispute settlement mechanism would promote cooperation by finally gaining some teeth.

WTO members seem to think the dispute system is worthwhile. As of December, there have been 592 trade disputes involving more than 60 members. Like many domestic legal systems, the WTO lets governments appeal rulings if they aren’t happy. That’s where the appellate body steps in — a panel of judges can “uphold, modify or reverse” decisions made during the first round of rulings.

In practice, countries appeal about 75 percent of rulings. However, the United States has vetoed the appointment of new panel members for the past few years, now effectively crippling the legal process. Without a minimum of three judges to hear an appeal, the panel can no longer carry WTO disputes through the full legal process.

Criticism of the WTO predates President Trump’s threat to withdraw the United States altogether. While the high rate of appeals implies that countries see value in the WTO’s legal process, several member governments have long complained about what they call the appellate body’s “legal overreach,” arguing that the office oversteps its mandate.

For example, under WTO rules, past decisions should not set formal precedent. The WTO is supposed to decide each trade dispute on its own merit. Despite the design of the dispute system, members find the overreliance on past rulings in appeals decisions frustrating.

U.S. trade lawyers and negotiators have criticized this aspect of the dispute system since the late 1990s, claiming that the panel’s decisions fundamentally altered members’ rights and obligations.

At the same time, members are not in full agreement about what trade practices fall within the dispute system’s legal authority.

One of the main controversies swirls around anti-dumping — measures against imports that countries allege are priced below market value. Almost 10 percent of all WTO trade disputes involve U.S. anti-dumping practices. U.S. officials argue that these disputes unfairly target policies that are allowed under WTO law.

These frustrations, along with procedural issues, have now come to a head. Here’s how things could develop.

One possibility is that the United States could carry through on Trump’s threats to exit the WTO. This would free up the remaining WTO members to fill the panel’s vacancies and carry on as normal without U.S. participation.

Withdrawal seems unlikely, however. For one thing, abandoning the WTO could lead to a lengthy U.S. political battle over whether Congress or the president has the proper authority to withdraw from the agreement. And, while that argument is going on, U.S. companies would suffer, thanks to increased trade barriers abroad.

Moreover, withdrawal is not necessarily what U.S. trade officials want. America still makes frequent use of the WTO system, and the Office of the U.S. Trade Representative has been asking to change the rules, not tear them up.

Short of the system breaking down, here are some of the overhaul proposals. Some WTO members, along with policymakers and academics, have encouraged tighter constraints on appellate body rulings to rein in overreach, including a separate process for trade remedies like anti-dumping.

Others have asked for stricter compliance on procedural matters, including the 90-day deadline for issuing rulings, which the panel has violated on several occasions. There are also discussions over how to increase transparency in members’ trade practices to make monitoring easier.

Many of these changes could take significant time and effort to negotiate. In the meantime, it’s most likely the WTO will proceed without an appeals process.

Whatever happens, the future of WTO dispute settlement matters. The WTO’s system is the go-to enforcement mechanism for the world’s largest markets and a model for trade law design around the world.

It’s a system that, by some measures, has generally worked. Countries comply with these rulings about two-thirds of the time — a high rate given the amount of money that is often at stake.

More generally, the global trade system relies on stability and predictability. As countries continue to put pressure on international organizations like the WTO, this creates uncertainty that ripples through the global economy in the forms of reduced international investment, increasing costs for businesses and consumers, and more trade barriers.

Source: Novinite