Bloomberg is reporting this week that the Trump administration is “ratcheting up its pressure on the World Trade Organization (WTO) by raising the possibility of blocking the approval of the institution’s biennial budget.” Such a move could effectively halt the WTO’s work starting next year, the report said.
During a regular meeting of the WTO budget committee in Geneva on Tuesday, a U.S. delegate expressed concern about the organization’s payments to the appellate body, which the U.S. administration argues has overstepped its mandate. The U.S. also expressed concerns about funding being diverted to a proxy dispute settlement system recently championed by the European Union, Canada and Norway, Bloomberg said.
Because WTO decisions must be made by consensus among all 164 members, the U.S. blocking maneuver would threaten the effective functioning of the organization responsible for overseeing the rules of global commerce. The members have until Dec. 31 to adopt a budget for 2020 and 2021 and they will take up the issue again next Tuesday.
If the U.S. unilaterally kills off funding, it could imperil the future of the WTO’s work and force countries to fundamentally rethink their reliance on it to negotiate trade deals and settle the surging number of disputes.
The move marks an escalation in the administration’s approach toward the body, which it is threatening to abandon entirely. The administration also blames the WTO partly for allowing China to grow into a rival economic power over the past two decades by flaunting the rules.
The U.S. contributes more money than any other single country to the WTO’s annual budget – 22.7 million Swiss francs in 2019, Bloomberg says. The total budget for 2019 was 197.2 million francs, the same as a year earlier.
Trump, U.S. Trade Representative Robert Lighthizer and other U.S. critics argue that the WTO dispute settlement system threatens America’s sovereign rights and has strayed from its mandate.
The U.S. Trade Representative plans to deliver a statement about the “systemic concerns regarding the compensation of appellate body members” at the Nov. 22 meeting, according to a document published Tuesday by the WTO.
Over the past two years the U.S. administration has blocked all new appointments to the appellate body, which has the final say in upholding, modifying, or reversing WTO rulings that often affect some of the world’s biggest companies and billions of dollars in international commerce.
The seven-member appellate body is now operating with just three active members, the minimum required to sign off on WTO appellate rulings. The terms for two of those members are set to expire on Dec. 10.
Thomas Graham, a U.S. lawyer who is one of the appellate body’s last remaining members, recently said he may leave at the end of his term on Dec. 10, rather than stay on to adjudicate the cases he has already been assigned – as has been done in the past.
One of the Trump administration’s key complaints is that former appellate body members have continued to deliberate appeal cases they were assigned prior to the expiration of their terms.
Graham’s departure would throw all pending and future appeals into legal limbo because there wouldn’t be enough appellate members to resolve disputes.
About a dozen appeal cases are pending, including a dispute over EU restrictions on Russian natural-gas imports and a pair of U.S., Canadian disputes over paper and softwood lumber.
Canada, the EU and Norway have already agreed to set up an alternate channel for settling trade disputes in order to sidestep the looming deadlock.
The EU plan would create an alternate arbitration process that would continue the “essential principles and features” of the appellate body with a panel of former appellate body members. It is envisaged as a stopgap measure to be used until the U.S. resolves the impasse.
Outgoing EU Trade Commissioner Cecilia Malmstrom argues that the step is necessary to prevent the international trade system from devolving into the “rule of the jungle.”
“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,” she said in July.
Observers note that it is not clear what the administration’s plan is for settling future trade disputes if the WTO body is abandoned. The well-known U.S. hostility toward the dispute settlement body has not become much of a political cause the way its “get tough” tariffs have – in part because the issue is far more complex than its use of “get tough” tariffs have been.
Still, the administration’s strategies in the current U.S., China negotiations as well as those concerning many other current and potential markets are being examined much more widely these days, and criticism can be expected to grow if the anticipated “first phase” deal with China stumbles. This debate with all its complexities is one producers should watch closely as it intensifies, Washington Insider believes.
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