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Friday’s WTO Development: Did They Think No One Would Notice?

By Lori Wallach

With everyone’s attention focused on the COVID-19 crisis, it’s understandable that a Friday trade announcement could be missed. You can find it filed under “throw fuel on the fire,” and it’s worth a look.

On March 27, a group of 16 World Trade Organization (WTO) members announced a new agreement to evade the U.S. shutdown of the WTO’s enforcement regime.

Sure, countries may be interested in mechanisms to finalize the settlement of trade disputes among themselves with the WTO’s system beached. And some may be looking for ways to try to poke the United States in response to its effective shutdown of the WTO’s enforcement regime.

The hitch is that this new “Multi-Party Interim, Appeal Arbitration Arrangement” presumes to use WTO staff and funding to do so. And, implementation of its terms effectively would alter various WTO legal authorities without recourse to the WTO’s amendment procedures and required approvals by the WTO’s signatory countries.

You can be a supporter of the WTO and still wonder: What were they thinking?!

Effectively, the proposed workaround doubles down on the sort of concerns that led the United States to finally say “enough” last year and block approval of new “judges” for the WTO’s highest review body, the Appellate Body (AB). That U.S. move shut down the WTO enforcement system; Rulings on disputes could no longer be finalized because the AB no longer had a quorum.

Starting with the second Bush administration through the Obama era and until today, U.S. officials have protested that the AB was operating outside the mandate actually agreed by member countries and making up new WTO obligations to be imposed on countries that never agreed to such terms. With the United States being the largest contributor to the WTO budget, GOP and Democratic administrations alike also have protested that U.S. funds were being squandered to support such malpractice.

Some other WTO member nations less well situated to lodge public criticisms share concerns about WTO dispute bodies stretching the actual rules, self-designating what should be one-off decisions on specific disputes as binding precedent and deciding issues not raised by the disputing parties.

For those of us who oppose the many WTO rules unrelated to trade – from new monopoly protections for pharmaceutical firms to limits on countries’ domestic food safety and financial regulation – having the WTO’s enforcement system out of business is not necessarily bad news.  WTO members are required to “ensure the conformity of their laws, regulations and administrative procedures” with WTO rules that impose limits on countries’ environmental, consumer and other protections while obliging countries to provide special protections for various privileged business sectors. When the WTO’s enforcement system is in full operation, it can authorize millions in trade sanctions against countries that do not comply with these dictates.

So, countries tend to roll back the laws attacked at the WTO. Developing countries sometimes do so at the mere threat of a challenge, so as to avoid allocating limited government resources to an expensive legal defense. The United States weakened Clean Air Act rules, dolphin protection laws and Endangered Species Act regulations after successful WTO attacks. As well, the country-of-origin labels on meat that consumers relied on in American grocery stores were gutted after the WTO classified them as “illegal trade barriers” and authorized $1 billion in sanctions.

Recently, WTO enforcement action have facilitated a circular firing squad over climate change efforts. The European Union and Japan successfully challenged Canadian incentives on renewable energy. The United States won a case against a solar power program in India. Then India successfully attacked renewable energy programs in several American states. Then China filed a case in 2018 against additional American renewable energy measures.

Clearly there are problems with the WTO. If you join me in believing that there should be good global trade rules and that those rules should be enforced in a fair and transparent way, then this latest enforcement workaround agreement – signed by the European Union, China, Brazil, Mexico, Canada, Australia, Singapore, Chile, Colombia, Costa Rica, Guatemala, Hong Kong, New Zealand, Norway, Switzerland and Uruguay – is deeply counterproductive.

Under this agreement, some WTO countries simply decide to alter the authority and roles of the WTO’s Director General, Secretariat and various bodies. And, the new agreement presumes that WTO funds will cover the costs of operating and providing arbitrators for the new system. The new agreement’s text is quite clear:

Article. 7:  The participating Members envisage that appeal arbitrators will be provided with appropriate administrative and legal support, which will offer the necessary guarantees of quality and independence, given the nature of the responsibilities involved. The participating Members envisage that the support structure will be entirely separate from the WTO Secretariat staff and its divisions supporting the panels and be answerable, regarding the substance of their work, only to appeal arbitrators. The participating Members request the WTO Director General to ensure the availability of a support structure meeting these criteria.  (Emphasis added.)

The WTO’s Director General and Secretariat also are assigned additional roles in screening the “judges” for the new system and providing various notices to countries and WTO bodies.

Annex 2, Article. 3: …this pre-selection process will be carried out by a pre-selection committee composed of the WTO Director General, and the Chairperson of the DSB, the Chairpersons of the Goods, Services, TRIPS and General Councils…

Article 6: …The WTO Director General will notify the parties and third parties of the results of the selection…  

Annex 1, Art. 5: The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat…

Plus, the new text provides no mechanism for funding the new appellate arbitration system nor imposes any financial obligation on countries that opt in. But it does read in WTO provisions that require dispute settlement expenses be met from the WTO budget. For instance:

Article. 3: The appeal arbitration procedure will be based on the substantive and procedural aspects of Appellate Review pursuant to Article 17 of the DSU…; Annex 1, Art. 11: …the arbitration shall be governed, mutatis mutandis, by the provisions of the DSU and other rules and procedures applicable to Appellate Review; and Annex 2, footnote 12: … current or former Appellate Body members may be nominated as candidates.

Notably, the WTO Dispute Settlement Understanding’s provision most relevant to this funding question, namely DSU Article 17.8, ostensibly requires approval by the WTO’s General Council, i.e., the WTO member countries. Hum…

Ironically, the new agreement includes rhetoric about the countries’ commitment to finding a solution to problems with the WTO’s dispute settlement regime. It hardly seems like a winning strategy for an ad hoc group of 16 WTO members, following no rules whatsoever (not even WTO rules for plurilateral agreements) and without approval by most WTO member nations, to presume to create new authorities and roles for the WTO staff and new obligations for the expenditure of the funds other nations contribute to operate the WTO. 

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