Last week the World Trade Organization (WTO) held its periodic retreat for members to discuss the future of the organization. Many issues, including proposed reform of the dispute settlement system and addressing climate change, roil the future path of the WTO.
There are existential threats to the global trading system, which some claim should doom the system, while others think will damage the global economic, geopolitical, and environmental order.
Emblematic of these divisions are major gaps between democracies and autocracies, developed and developing nations, and resource-rich and resource-poor economies. There is not much in the way of consensus.
In 1995, the WTO was launched. That remarkable consensus helped create the illusion of stability in trade. There were more than twenty new agreements, with promises of further agreements to be reached with time limits for reaching these further agreements (for example, the Agreement on Rules of Origin was to arrive at permanent standards by 2000).
The general failure to adhere to these deadlines created a climate of division and dissension that doomed the Doha Round to stagnation and eventual irrelevance. Over the years since 2001, when the Doha Round was launched in the wake of 9/11, it became clear that continued progress in trade negotiations would be extremely difficult.
Then, the news got worse.
The current WTO environment features a lot of discussion but very little in the way of agreement, other than very low-hanging fruit (such as regulation of fisheries subsidies). But harvesting even the low-hanging fruit seems increasingly difficult.
The sad state of affairs at the WTO was precipitated by the United States’ decision in 2018 to disable the Appellate Body. That organ of the WTO was created as a “court of appeals” for resolving disputes on trade issues. The United States in 2018 refused to consider the appointment of new members of the seven-member Appellate Body, who served set terms.
When the terms of the existing members expired, there was no one left to decide cases. While the Appellate Body theoretically still exists, cases appealed to it just sit.
When the Biden administration took office in 2021, the new administration decided to continue the refusal to approve new members. Because one of the hallmarks of the WTO is “consensus” in procedural matters, the failure of the United States to approve new members has paralyzed the Appellate Body.
That tees up the issue of the Appellate Body for reform. So far, there is little progress on that front. The US, along with Britain a bastion of the “common law,” wants the Appellate Body to decide each trade case anew with no reliance on precedent in decision-making.
At its core, the US essentially argues that reliance on precedent is incompatible with the WTO agreements. One might expect that this argument would be more likely championed by countries that do not have a common law tradition, rather than the US, where common law is a fundamental feature of the legal system.
Tackling climate change is another key issue for the WTO. As Ambassador Katherine Tai pointed out in a speech last week, climate change was not on the WTO agenda when it was created nearly 30 years ago. Some of the proposals for action on climate matters appear to be inconsistent with basic WTO principles, including “national treatment” (no discrimination between imports and domestic producers) and “most-favored-nation” (treating all WTO members equally) doctrines.
Tariff rates are bound in the 1995 agreements. A carbon tariff, and many other actions to address climate change, could violate the current WTO agreements.
The US also complains about “certain” WTO members (notably China) that use their strong position in critical materials (e.g., rare earths) to leverage their strength into “economic coercion”.
The US is also claiming that “second-guessing” national security decisions of WTO members is beyond the authority of the dispute settlement system. This is a case where speaking firmly is largely a substitute for critical analysis.
The recent decision of a WTO panel holding that the US Section 232 determinations violated the organic WTO agreement (the General Agreement on Tariffs and Trade or GATT) earned the ire of Ambassador Tai and her predecessor, Ambassador Robert Lighthizer.
The text and history Article XXI of the GATT, however, did not bar review of all decisions allegedly based on national security. It spoke instead to actions by a country “which it considers necessary for the protection of its essential security interests… taken in time of war or other emergency in international relations.” The Section 232 actions were not taken in time of war or other emergency in international relations.
The US appears to want a blanket rule against review of national actions invoking “national security” regardless of the context. That could weaken the impact of any multilateral agreement, past or future, on trade matters. Clearly, there are difficulties with such a position.
All the issues listed here put the WTO in a very precarious position. As a champion of global rules that govern all or nearly all nations, creating loopholes in otherwise binding agreements could lead nations to make agreements with regional neighbors, or like-minded regimes, rather than setting global rules. That would leave many smaller developing nations without meaningful options if larger nations discriminate against them.
Other countries are also exploring issues that affect them. In the first 20 years of the WTO dispute settlement regime, the United States lost a series of decisions involving antidumping and countervailing duty measures. Because steel products are one of the leading subjects of these measures, and Ambassador Lighthizer was a long-time trade attorney representing US Steel, these adverse WTO decisions stung. (Full disclosure: I was involved in several WTO steel and other cases arguing that US trade remedy measures violated trade rules.)
There is reason for pessimism about the future of the WTO, based on the above factors. There may be reason for some optimism too. For now, that optimism must be found in issues that are not being decided in the WTO. The US-EU negotiations on steel and aluminum are still in process and may result in a lessening of tensions. The US and China are continuing discussions, but so far without resolution of serious issues on trade, tariffs, and geopolitics (such as Taiwan and the militarizing of the South China Sea) remains elusive.
The US and its major trading partners continue to explore ways to narrow their differences. But progress is slow. Our divisions at home, which could lead to a government shutdown, are reflected in our international relations too. We can hope that cooler heads prevail, but one event out there could change everything.
Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at firstname.lastname@example.org.
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