WTO Neutered Without Appellate Body

On Monday, Dennis Shea, the U.S. ambassador to the WTO, outlined concerns regarding what the U.S. calls the appellate courts “overreach” and “disregard” of WTO rules. President Trump has been particularly annoyed by the court’s decisions regarding U.S. trade policy with China.

EU Ambassador João Aguiar Machado criticized the U.S. for its attack on the Appellate Body.

“In two days from now, we will have an unprecedented situation in the World Trade Organization, which will no longer be able to deliver binding resolution of trade disputes and will no longer guarantee the right to appeal review,” said Machado. “The actions of one member will deprive other members of their right to a binding and two-step dispute settlement system, even though this right is specifically envisaged in the WTO contract.”

The European Commission has been working with other WTO members to formulate a mechanism that will create a temporary alternative for members seeking arbitration and potential retaliation on trade matters.

“Today’s proposal to amend the existing Enforcement Regulation comes as a direct reaction to the blockage yesterday of the operations of the WTO Appellate Body,” a Commission statement said. “The current regulation — a basis under EU law for adopting trade countermeasures — requires that a dispute go all the way through the WTO procedures, including the appeal stage, before the Union can react.

“The lack of a functioning WTO Appellate Body allows WTO members to avoid their obligations and escape a binding ruling by simply appealing a panel report,” the statement added.

An amendment to the EU trade enforcement law would still require WTO members to go through the WTO’s dispute settlement process. Any appeal of a dispute decision, however, would have to go through the EU’s interim arrangement or face retaliatory tariffs. Tariffs would only be applied on members that do not comply with a final dispute ruling.

Protectionism is already on the rise across the globe and the lack of a binding dispute mechanism could lead more countries to arbitrarily impose tariffs and sanctions on imports. Such actions would add to trade uncertainty and potentially disrupt global trade chains.

“A well-functioning, impartial and binding dispute settlement system is a core pillar of the WTO system,” WTO Director-General Roberto Azevêdo declared. “Rules-based dispute resolution prevents trade conflicts from ending up in escalating tit-for-tat retaliation — which becomes difficult to stop once it starts — or becoming intractable political quagmires.”

The U.S. Chamber of Commerce agrees that U.S. concerns should be addressed regarding the function of the Appellate Body, but pointed to the benefits that the WTO has provided the United States.

“If the WTO didn’t exist, we’d have to create it,”  said U.S. Chamber of Commerce Executive Vice President and Head of International Affairs Myron Brilliant. “Its rules protect U.S. firms from unfair treatment and hidden protectionism every day. Safeguarding this institution and its dispute settlement system should be an urgent national and international priority.”

Rep. Stephanie Murphy (D-FL), who sits on the Ways & Means trade subcommittee, warned of potential chaos should the world lose a binding trade dispute mechanism. “The absence of a binding, independent dispute settlement system could turn every trade dispute between nations into a mini trade war with countries unilaterally imposing tariffs and counter tariffs on each other,” said Murphy. “That would mean new and damaging taxes on American consumers because — let’s be very clear — tariffs are taxes on American businesses and American consumers.

“We would essentially be back to the wild, wild west as it relates to global trading,” added Murphy.