U.S. Stymies WTO Panel as Tariff Disputes Pile Up

The World Trade Organization’s appellate body is down to its last few judges after years of the U.S. blocking replacements. Now it faces irrelevance unless it can reach a deal, or at least a workaround.

With international trade beset by new tariff wars started by President Trump, the administration is also taking steps to undercut the body that polices trade disputes.
AP Photo/Ben Margot
July 16, 2018, 8 p.m.

Tariffs are flying fast and trade complaints are rolling in, but the World Trade Organization’s highest dispute-settlement body is on its last legs, in part asphyxiated by the Trump administration’s blocking of new judges.

China on Monday filed its newest WTO challenge, this time against $200 billion in wide-ranging tariffs proposed by the Trump administration. It’s the latest in a series of complaints—from Canada, the European Union, Mexico, and others—to the trade body from countries targeted by recent U.S. tariffs.

But the WTO is in the middle of a long-brewing crisis, with the tariffs only exacerbating the issue. Its appellate body, which delivers the final word on trade disputes among its 164 members, has only four out of seven members serving on the appellate panel, and one is set to leave in the fall.

If a case arises in which another judge must recuse, the panel would not have enough members to reach a three-judge quorum and would be unable to decide the case. By December 2019, two more judges will have completed their terms, and if none are replaced, the appellate body will effectively shut down.

Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics, said that dismantling the appellate body would render the WTO ineffective in overseeing trade disputes.

“What you’re left with is a rulebook that countries can or cannot observe in their economic relations with other countries,” Hufbauer said. “That’s not very robust.”

There is little Congress can do about the administration blocking appellate judges, but lawmakers may be able to block the president if he decides to leave the WTO outright, a move Axios reported in June that Trump was considering. Congress approved U.S. entry into the WTO in 1994. Thus it’s likely that lawmakers would need to approve an exit.

A move to exit the WTO would also kick off litigation bound for the Supreme Court, Hufbauer said.

“It would be a defining legal battle on the power of the president with respect to trade agreements,” said Hufbauer, who was a deputy assistant secretary for international trade and investment policy in the Carter administration.

That’s partly the reason behind Trump’s escalation in blocking appellate judges, said Jennifer Hillman, a professor at Georgetown Law and former WTO appellate judge.

“So he cannot withdraw through the WTO from the front door,” Hillman said during a panel discussion on the issue at Georgetown last week. “And so the question is whether he effectively withdraws through the WTO from the back door by continuing to block any appointments to the appellate body, such that you ultimately take down the appellate body and arguably take down with it the dispute-settlement system.”

Washington has not completely disengaged from the WTO dispute system yet, though. The U.S. filed a challenge against India over export subsidies in March and on Monday brought cases against China, the EU, Mexico, Turkey, and Canada over their retaliatory tariffs.

U.S. criticism of the appellate body and the broader WTO did not begin with the Trump administration. After the president took office, though, the showdown worsened.

The Obama administration blocked the reappointment of a South Korean judge over rulings against the U.S. by the WTO. The U.S. has broadly opposed what it describes as overreach on the part of WTO dispute panels and the appellate body, as well as the customary reappointment of appellate-body judges to a second four-year term. In 2011, the U.S. blocked the automatic reappointment of its own appointee, Hillman.

The Trump administration has expanded that strategy to blocking all appellate judges.

Some WTO members are responding to U.S. criticism. The European Commission recently circulated a memo proposing raising the number of appellate judges from seven to nine and pressing the appellate body to follow its 90-day deadline to decide cases, which it hasn’t since 2014, Bloomberg News reported last week.

But the trade body has few good options to work around the U.S. blockage.

It could invoke Article 25 of the WTO agreement, which allows for an ad hoc appeal arbitration without going through the traditional appeal pipeline. However, both parties in the case would need to agree to resort to arbitration, which could be difficult unless both sides believe they have a chance at a favorable outcome.

The WTO could perform an end run around U.S. objections to the appellate system by forming a separate body outside of the existing WTO framework. The U.S. would not be bound to that body, however, and such a move would likely represent the failure of the WTO dispute-settlement system.

Members involved in a dispute could also agree to abstain from an appeal, or all members could vote to waive the appeal process, Hufbauer and others wrote in a March report on the issue.

Some GOP members have criticized the Trump administration’s tariffs. But, as with the tariffs, few Republicans are proposing direct challenges to the White House on threats to leave the WTO or gum up its appellate process.

“There’s no doubt the WTO and the way they resolve disputes is flawed,” House Ways and Means Committee Chairman Kevin Brady told reporters last week. “It is lengthy; they often miss their own timetables. Too often I believe these are political decisions rather than fact-based trade decisions, and so I think the president has actually raised issues that have been simmering below the surface for far too long.”

Brady said it was time for a serious discussion about reforms at the WTO and its dispute-resolution process. Congress should have a role if the administration moves to pull out of the WTO, Brady said, though he said raising that scenario was premature.

An aide to Brady said that the chairman does support the administration’s strategy with respect to the appellate body and has expressed those views with the WTO director-general.

Ricardo Ramirez-Hernandez, a former chairman of the WTO appellate body, said during the Georgetown Law event that the problem must be solved in Washington, not at the trade body’s headquarters in Geneva.

“If at the end, compulsory jurisdiction on international trade is something that the U.S. cannot accept, they have to say it,” Ramirez-Hernandez said.

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