Two of the five cases filed in 2022 by the EU were against China and are reviewed in prior posts. On the intellectual property dispute, Japan, United States and Canada have requested to join the consultations. On the EU’s challenge to China’s actions on goods from Lithuania, six other Members have sought to join the consultations — Australia, Taiwan, Japan, United States, United Kingdom, and Canada.

The other three requests for consultations filed by the EU this year include one filed with the Russian Federation (DS608) concerning the exportation of wood products, one with Egypt (D609) concerning registration requirements relating to the importation of certain products and the latest one with the United Kingdom (DS612) concerning measures relating to the allocation of contracts for difference in low carbon energy generation.

The case against the Russian Federation deals with the termination of tariff-rate quotas on exports of wood products, other increases in export duties on wood products, reduction of the number of border crossing points for the exportation of wood products and the introduction of export restrictions or prohibitions on certain wood products by the Eurasian Economic Union. WTO inconsistencies alleged by the EU include Art. I:1, II:1(a), XI:1, XIII:1 of GATT 1994 and Paragraph 2, second sentence, of the Protocol on the Accession of the Russian Federation in conjunction with paragraphs 638, 668, and 1450 of the Report of the Working Party. 

The request for consultations with Egypt involves challenges to Egyptian measures that apply to EU companies wishing to export to Egypt where registration requirements exist (29 categories of goods “including agricultural and food products, cosmetics, toys, textiles, garments, household appliances, furniture and ceramic tiles.”). The requirements are alleged to burdensome, non- transparent, costly and time-consuming and some registration applications have not been processed even after years. The Egyptian measures of concern raise questions about consistency with WTO GATT 1994 Articles XI:1, VIII:1(c), VIII:3, X:1, X:3(a); Art. 4.2 of the Agriculture Agreement and Articles 1.2, 1.5 3.3, 3.5(e) and 3.5(f) of the Import Licensing Agreement. The Russian Federation has sought to join consultations. 

The most recent request for consultations with the United Kingdom involves local content requirements for incentivised low carbon electricity generation projects (e.g., offshore wind). “The measures at issue described above appear to be inconsistent with the United Kingdom’s obligations under the covered agreements, in particular Article III:4 of the GATT 1994, inasmuch as, by incentivising applicants to commit to and implement an ambitious percentage of Untied Kingdom content of the allocation of CfD, they accord less favourable treatment to imported goods than to like domestic goods.” 

Of the five cases, the two against China are probably the most important systemically. The case about retaliation by China against Lithuania addresses a recurring problem with China punishing WTO Members who take positions with which China disagrees, The intellectual property case as described in a prior post is important to prevent China from blocking IP rights holders from obtaining the benefits of IP that the TRIPS Agreement safeguards.

The Russian Federation case may proceed but is overshadowed by Russia’s invasion of Ukraine and sanctions imposed by many countries, including by the EU. That said, the case deals with what appear to be clear violations of WTO obligations by Russia.

The case against Turkey is typical of a range of disputes over the years against countries who adopt a series of barriers to access to the market to protect domestic industries. While there can always be potentially relevant standards issues or health/safety issues, the actions of Egypt sound as though they simply slow down, limit or block import trade.

Finally, the case against the United Kingdom deals with the efforts of many countries to speed up adoption of renewable energy and reflect the important systemic issue of the interface between domestic incentives and WTO obligations on national treatment.

At the last Dispute Settlement Body meeting (March 28, 2022), many WTO Members continued to seek the reestablishment of a two tier dispute settlement process which the United States continues to block. The statements made appear to be identical or similar to those made over the last several years. The WTO news release on the meeting and the issue of the Appellate Body is copied below in relevant part.

“Appellate Body appointments

“Mexico, speaking on behalf of 123 members, introduced for the 52nd time the group’s proposal to start the selection processes for filling vacancies on the Appellate Body. The extensive number of members submitting the proposal reflects a common concern over the current situation in the Appellate Body which is seriously affecting the overall WTO dispute settlement system against the best interest of members, Mexico said for the group.

“The United States reiterated it was not in a position to support the proposed decision. The US continues to have systemic concerns with the Appellate Body, which it has explained and raised over the past 16 years and across multiple administrations. The US said it believes that WTO members must undertake fundamental reform if the dispute settlement system is to remain viable and credible. The dispute settlement system can and should better support the WTO’s negotiating and monitoring functions, the US said, adding that it looked forward to further discussions with members on these important issues.

“Around 20 delegations (including the EU for its 27 members and Nigeria for the African Group) took the floor to reiterate the importance of the WTO’s two-tiered dispute settlement system to the stability and predictability of the multilateral trading system. Several cited this issue as the top priority for reform of the organization and said the continued impasse was causing both commercial harm to members and systemic harm to multilateral trade.

“For the 123 members, Mexico again came back to say the fact a member may have concerns about certain aspects of the functioning of the Appellate Body cannot serve as pretext to impair and disrupt the work of the DSB and dispute settlement in general, and that there was no legal justification for the current blocking of the selection processes, which is causing concrete nullification and impairment of rights for many members.

“The DSB chair, Ambassador Athaliah Lesiba Molokomme of Botswana, noted the previous General Council chair has been working on the issue of restoring a fully functioning dispute settlement system within the context of preparations for the WTO’s 12th Ministerial Conference. She said she hoped members would be able to find a solution to this matter.”

I have reviewed in many prior posts the longstanding and well articulated concerns of the United States, concerns which have largely not been addressed in the process to date. 

I have also in recent posts looked at individual disputes where the U.S. was the respondent and reviewed problems with the decisions. 

Thus, it is unlikely that the twice delayed 12th Ministerial Conference to be held in Geneva June 13-15 this year will resolve the impasse on the Appellate Body. While it is possible that a process may be agreed to to examine the root problems and formulate possible solutions as part of the WTO reform agenda, even that may be optimistic in the current environment.

Existing disputes continue to proceed, with various resolutions possible in cases even among countries who have not signed up to the Agreement on the Interim Arbitration Process, although two dozen panel reports have been “appealed” but cannot be heard until/unless an Appellate Body is reconsituted. Such appeals have been taken by a number of Members including by Members who are parties to the interim process (e.g., EU on a panel report of a challenge to a trade remedy proceeding against the Russian Federation).

This Friday (April 8, 2022) , there is a Dispute Settlement Body meeting to consider a joint request by the Republic of Korea and the United States in the dispute involving UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF LARGE RESIDENTIAL WASHERS that would have the DSB adopt a decision that the panel report is adopted unless an appeal is filed by July 7, 2022 (essentially extending the time to appeal the panel report presumably to give the parties more time to consider a mutually acceptable resolution). 

So whether there is a resolution to the Appellate Body impasse or not, WTO Members have ongoing options to address trade concerns including through Committee work, bilateral interactions and disputes through the WTO or through FTAs.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

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The U.S. and China are engaged in a strategic competition that will determine the shape of global politics this century. But when it comes to trade, a critical dimension of that competition, America is ceding the field.

The post How American Free Trade Can Outdo China appeared first on WITA.

But the WTO’s decline accelerated dramatically over the past four years, with the United States retreating from leadership, the US–China trade war spilling over to Geneva, and the many excessive trade restrictions imposed worldwide through the COVID-19 crisis. With Director-General Roberto Azevedo’s early departure, the WTO leadership transition has since been less than smooth, with no one serving in an acting capacity and the United States blocking consensus on a new director-general.

There are still glimmers of hope. Middle powers have undertaken important work, such as the recent statement on trade and health issued by Canada, the European Union, Japan, Australia and others. President-elect Biden has also emphasised the importance of working with allies and partners and through international organisations to achieve US foreign and economic policy objectives. And it is hoped that a new director-general will be selected soon to advance the organisation’s important work.

With a long list of issues requiring attention, the Biden team needs to sort out its priorities and separate what can be accomplished and how soon. When the new administration considers near-term objectives, it should be mindful of the upcoming 2021 WTO Ministerial Conference. To demonstrate commitment to repairing and revitalising global rules-based trade, there are a series of immediate actions that could be taken early in the new administration’s tenure.

First, by lifting the US reservation on Ngozi Okonjo-Iweala for director-general, the Biden administration stands to gain immediate international goodwill. The move would allow Geneva to shift its focus towards substance in the lead up to the Ministerial Conference. Dr. Okonjo-Iweala is highly qualified, having risen to the top of contention, and the sooner the United States joins in the consensus to select the Nigerian candidate, the sooner attention can be redirected towards the substantive agenda.

An early visit to Geneva by the new US Trade Representative (USTR) would help set the tone for US engagement in revitalising the WTO. Sessions could be held with the newly-appointed director-general, as well as Geneva ambassadors, to survey first-hand the situation and formulate initial thoughts  on priority reform efforts. A visit would be in striking contrast to Trump administration USTR Robert Lighthizer’s WTO engagement. He never once visited Geneva as USTR and frequently skipped mini-ministerial meetings in third countries.

A critical step in fixing the broken dispute settlement mechanism would be for the new administration to table proposals for Appellate Body reform, recognising that success would need to be accompanied by negotiation of new rules in other areas. Since blocking the appointment of new Appellate Body members, the United States has not shared its views on the approach to a concrete reform agenda, instead pressing discussions around the underlying divergent views among delegations.

Meanwhile, other member countries, as well as the former chairman of the WTO Dispute Settlement Body, have put forward ideas aiming to address US concerns. The Biden team should draw from this rich input and the detailed suggestions of other trade experts that have also been floated. Negotiation will be difficult but the paralysis needs to end if a functioning WTO has any chance of surviving.

While the Trump administration identified challenges to the current WTO system posed by non-market economies, particularly China, it fell far short of delivering meaningful results. The Biden team has underscored the importance of working with partners and within international institutions to address these problems. As a first step, the incoming administration should finalise the trilateral work with the European Union and Japan on industrial subsidies, recruit wider international support, and submit a proposal to the WTO for negotiation.

While progress is being made in plurilateral negotiations on e-commerce, a wider agreement is still far from reach. The lack of multilateral rules in this critical sector reinforces the narrative that the WTO is falling into irrelevance. The incoming administration has the opportunity to light a fire under negotiations. It can work with others to step up high-level engagement from capitals. More importantly, it can spur momentum by launching digital trade negotiations among like-minded countries in the Asia Pacific region.

Many in the region have already concluded or are in the process of negotiating digital trade agreements among themselves, building on the Trans-Pacific Partnership platform. If robust regional progress is made, others are likely to become more serious about the WTO talks, not wanting to be left behind.

These suggested actions would help pave the way for the Biden administration to make an early and constructive impact on WTO reform and contribute to the success of the 2021 WTO Ministerial Conference. But this list is not exhaustive; reform to developing country status and trade aspects of other global issues, including in climate change and health, are also overdue.

The United States should not be relied on to pick up the mantle alone. For the WTO reform agenda to succeed, others will also need to step up to the plate and move out of their comfort zones.

To read the original blog post, please click here.

Wendy Cutler is Vice President and Managing Director of the Asia Society Policy Institute Washington DC Office.

The post First Steps for the Biden Administration on the Global Trade Regime appeared first on WITA.

Of particular interest are items 4 and 5 dealing with the WTO panel report on the United States – Tariff Measures on certain goods from China, WT/DS/543/R and WT/DS/543/R/Add.1 and item 10 dealing with the long-running proposal to start the process for filling vacant Appellate Body seats.

China’s dispute with the U.S. over the U.S. 301 investigation and resulting tariffs on Chinese goods

On October 26th, the U.S. filed an appeal from the panel decision in United States – Tariff Measures on certain goods from China, WT/DS/543/R and WT/DS/543/R/Add.1. See UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA, NOTIFICATION OF AN APPEAL BY THE UNITED STATES UNDER ARTICLE 16 OF THE UNDERSTANDING ON RULES AND PROCEDURES GOVERNING THE SETTLEMENT OF DISPUTES (“DSU”), WT/DSB543/10 (October 27, 2020). The U.S. notice of appeal is embedded below. The last paragraph states, “At this time, no division of the Appellate Body can be established to hear this appeal in accordance with DSU Article 17.1. The United States will confer with China so the parties may determine the way forward in this dispute.” This is consistent with the U.S. view that Members have many ways to resolve differences, and so a lack of immediate appeal options doesn’t mean a resolution isn’t possible.

That the U.S. would file an appeal was widely expected and suggested in an earlier post. See September 16, 2020: WTO panel decision in United States – Tariff Measures on Certain Goods from China increases the need for comprehensive WTO reform, https://currentthoughtsontrade.com/2020/09/16/wto-paneldecision-in-united-states-tariw-measures-on-certain-goods-from-china-increases-the-need-forcomprehensive-wto-reform/

Nonetheless, the panel decision was on the agenda of the DSB meeting (item 4). Below is the U.S. statement on agenda item 5 responding to China’s statement regarding the panel report. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, October 26, 2020, pages 12-15, https://geneva.usmission.gov/wp-content/uploads/sites/290/Oct26.DSB_.Stmt_-2.pdf :

“STATEMENT BY CHINA REGARDING THE PANEL REPORT IN ‘UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA’

“ The findings in the report United States – Tariff Measures on Certain Goods from China are based on legal errors. The United States has notified an appeal of this report to the DSB. Accordingly, the panel report cannot be adopted today.

“ The United States would submit a notice of appeal and an appellant submission once a Division of the Appellate Body can be established to hear this appeal. China may file its own appeal of the panel report now or at that point of time.

“ The United States nonetheless wishes to address this panel report because it reflects a major, missed opportunity for the WTO to begin to address the most serious problem faced by every Member that seeks a balanced and fair world trading system: namely, aggressive, state policies that seek to dominate broad industrial sectors.

“ In prior DSB statements, the United States has elaborated upon China’s far-reaching efforts to unfairly take technology from other Members.1 And, as Member’s are aware, it was that action taken by the United States to combat these policies that led to the U.S. measures that China challenged in this dispute.

“ These unfair trade practices have cost U.S. innovators, workers, and businesses billions of dollars every year. Further, they harm every Member, and every industry in every Member, that relies on technology for maintaining competitiveness in world markets.

“ The tariff measures the United States took in response to China’s practices led earlier this year to the historic Phase One Economic and Trade Agreement Between the United States and China. In this agreement, China committed to cease some – though not all – of its unfair and harmful technology transfer practices. The Phase One Agreement includes a strong enforcement mechanism, including China’s agreement that the United States may impose additional tariffs on goods of China upon a U.S. finding that China has failed to meet its obligations. Pursuant to the Phase One Agreement, China is making changes to its economic and trade practices that will benefit not just the United States, but also China, and all WTO Members.

“ China would not have agreed to the technology transfer provisions of the Phase One Agreement but for the additional U.S. tariffs that China chose to challenge in this dispute. Moreover, it cannot credibly be asserted that alternative tools were available to the United States, nor to any other Member, to address China’s unfair and harmful technology transfer policies.

“ Accordingly, the Panel’s findings against the U.S. tariff measures amount to an acknowledgment that the WTO system, as currently formulated, is an impediment to an improved world trading system. This is completely backward. Rather, as stated in the preambles to the WTO Agreement and the Marrakesh Declaration, the WTO’s role should be to promote ‘reciprocal and mutually advantageous arrangements’; ‘an integrated, more viable and durable multilateral trading system’; and ‘open, market-oriented policies.’

“ The Panel reached its institutionally-harmful findings by making fundamental legal errors in the evaluation of two defenses presented by the United States.

“ First, the Panel failed to conduct its own objective assessment of whether the facts on the record in the dispute established that China and the United States had both agreed that issues relating to the dispute were to be addressed outside the WTO system.

“ The United States established, and China did not dispute, that China had already adopted its own remedy by imposing retaliatory tariffs on more than half of all U.S. exports to China. And China did this openly as a response to the same tariff measures that China challenged in this dispute.

“ Furthermore, in the Phase One Agreement, China agreed that the United States may impose additional tariff measures upon a U.S. finding that China was breaching its obligations under that agreement, including with respect to technology transfer.

“ In short, the Parties’ actions demonstrated that they had agreed on bilateral mechanisms to address the issues related to the dispute. The Panel, however, took no account of the evidence. Rather, the Panel simply accepted China’s assertion to the contrary – an assertion made during the litigation and only for the purpose of seeking a finding that essentially would signal the WTO’s support for China’s technology theft.

“ This erroneous result amounts to approval for the cynical misuse of the WTO dispute settlement system. Even if adopted, the finding would not in any way promote the resolution of any dispute between China and the United States. At most, a Member that prevails in a WTO dispute can obtain the authority to suspend WTO concessions. But here, China had already taken the unilateral decision that the U.S. measures could not be justified, and China had already imposed tariff measures on U.S. goods.

“ Second, the Panel incorrectly rejected the U.S. defense that the measures were necessary to protect public morals under Article XX(a) of the GATT 1994.10 The United States provided extensive evidence and argumentation, showing:

“o the existence of China’s unfair and harmful technology transfer policies, as we summarized earlier in this statement;

“o that these policies were inconsistent with U.S. and international norms for moral conduct;

“o that the U.S. measures were taken for the explicit purpose of ending the unfair practices;

“o and that after years of unproductive negotiations and discussions in various fora, the United States had no other available tools to address this crucial issue.

“ The U.S. showings on these factual matters were largely undisputed by China. China did not even attempt to rebut the existence of the unfair technology transfer policies documented by the United States.

“ At the outset of its analysis, the Panel did correctly find that the norms against thex, misappropriation, and unfair competition underlying the U.S. tariff measures could fall within the scope of public morals as used in Article XX(a).11

“ However, the Panel used an unsupportable approach for evaluating whether the U.S. measures were ‘necessary’ within the meaning of Article XX(a).12 As a result, the Panel findings are legally unsound.

“ Ironically, the Panel wrote that it was adopting a ‘holistic’ approach to the analysis of necessity.13 But the actual approach was anything but that; rather, it was myopic, addressed only to whether the public morals objective of the U.S. measure was sufficiently connected to the particular products subject to the U.S. tariffs.

“ The Panel had no legal basis for adopting this single test to evaluate ‘necessity.’ As an initial matter, nothing in the text of Article XX(a) requires any particular level of connectedness. And even if this were a valid consideration, the Panel had no basis for assuming that it was even possible for any Member to tightly connect particular sets of imported products to far-ranging and non-transparent policies involving technology thex.

“ Nor did the Panel even address the U.S. showing that there were no possible alternative means for the United States to achieve the public morality goals recognized under Article XX(a).

“ In short, the Panel failed to conduct a holistic analysis, ignoring nearly all of the record evidence in the dispute. Instead, the Panel rejected the U.S. defense based only on the legally erroneous use of a narrow and unsupportable legal test.

“ In closing, the United States will turn to the real-world events involving China’s unfair technology transfer policies, and U.S. efforts to address them. As noted, China committed in the Phase One Agreement not to pursue some of the unfair technology transfer policies that led to the U.S. tariff measures. This is a positive step, and the United States is closely monitoring China’s compliance. The issuance of this report has no effect on the Parties’ ongoing implementation of the Phase One Agreement, which will benefit all of China’s trading partners.

“ The Panel avoided any meaningful findings by taking flawed legal shortcuts, instead of considering the extensive record evidence involving China’s harmful technology transfer policies and the past failed attempts to address these policies in other ways. In taking this approach, the panel report indicates that the WTO is incapable of handling these issues. The report thus serves as further confirmation that the U.S. tariff measures were the only available means to address the major problems to the world trading system resulting from China’s forced technology transfer policies.

“1 See WT/DSB/M/410, paras. 11.2-11.3 (March 27, 2018, meeting); WT/DSB/M/412, paras. 5.5-5.11 (April 27, 2018, meeting); WT/DSB/M/413, paras. 4.1-4.4 (May 28, 2018, meeting); WT/DSB/M/423, paras. 8.3-8.7 (December 18, 2018, meeting); see also Findings of the Investigation into China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974, https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF 

“2 Economic and Trade Agreement Between the Government of the United States and the Government of the People’s Republic of China (Phase One Agreement), https://ustr.gov/sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade _Agreement_Between_The_United_States_And_China_Text.pdf 

“3 Id., see Chapter 2 (“Technology Transfer”).

“4 Marrakesh Agreement Establishing the World Trade Agreement, preamble.

“5 Id.

“6 Marrakesh Declaration of 15 April 1994, preamble.

“7 Panel Report, paras. 7.4-7.6.

“8 Phase One Agreement, Chapter 7.

“9 Panel Report, para., 7.22.

“10 Panel Report, paras., 7.236-7.238.

“11 Panel Report, para., 7.140.

“12 Panel Report, paras., 7.178 and 7.180.

“13 Panel Report, paras., 7.111, 7.152 -7.1533, and 7.238.

“14 Panel Report, para., 7.178.”

China’s statement at the DSB meeting is not presently up on China’s WTO Mission website. Press accounts indicate that “Beijing, meanwhile accused the United States of taking advantage of the nonfunctioning AB to avoid having to comply with the panel decision. China argued that the panel was correct in finding that Washington applied the tariws in a discriminatory manner. The US decision to appeal the ruling is an abuse of WTO rules, China said.” Washington Trade Daily, October 27, 2020, US Appeals WTO Ruling on China Tariffs, https://files.constantcontact.com/ef5f8we501/344bb981-f669-41fb8a47-4bdf16a9d1a0.pdf.

Bloomberg’s reported on October 26, 2020, U.S. appeals WTO ruling that Trump’s China tariffs were illegal, https://www.bloomberg.com/news/articles/2020-10-26/u-s-appeals-wto-ruling-that-trump-schina-tariffs-were-illegal, “China criticized Washington’s decision to take advantage of appellate body’s state of limbo and touted the ruling as a victory for the multilateral trading system against unilateralism, according to prepared remarks obtained by Bloomberg.”

The EU was among other Members who commented on the dispute. The EU comments on item 5 are contained below. See EU Statements at the Regular DSB Meeting, 26 October 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/87549/eu-statements-regular-dsbmeeting-26-october-2020_en.

“AGENDA POINT 5: STATEMENT BY CHINA REGARDING THE PANEL REPORT IN ‘UNITED STATES – TARIFF MEASURES ON CERTAIN GOODS FROM CHINA’

“This is yet another dispute that illustrates the grave consequences of the blockage of Appellate Body appointments since 2017. That blockage frustrates the essential rights of Members that were agreed multilaterally in the DSU.

“In that regard, we refer to EU’s intervention under item 7 of the DSB meeting on 28 September 2020, where we elaborated on these consequences and on the possibility of appeals being adjudicated upon through appeal arbitration based on Article 25 of the DSU, consistently with the principles of the DSU. We will not repeat these points today.

“The EU takes note of the US’ decision to appeal the panel report in this case. The panel report will therefore not be adopted by the DSB today.

“The EU intervened as the third party in this case and will intervene before the AB once the proceedings can resume. We, therefore, reserve our position for the purposes of these appellate proceedings.

“This being said, we would like to ower some brief remarks on the substance of the report.

“The EU would like to recall, as expressed in its written submission, that it shares the concerns expressed by the US regarding the protection of intellectual property rights and discriminatory conditions applying to foreign licensors of intellectual property in China.

“However, we do welcome the general approach of the panel to the exception in Article XX(a) of the GATT.

“In our view, much as the text of Article XX itself, the panel’s approach strikes the right balance between the Members’ legitimate right to protect public morals and the need to ensure that exceptions are not used to circumvent the Members’ obligations under the GATT.

“Second intervention

“The EU’s appeal to the Appellate Body in DS494 must not be confused with ‘blocking the dispute resolution’ or appealing ‘into the void’.

“The EU attaches great importance to maintaining a functioning two-tier dispute settlement process. This is why we have actively supported all efforts to find a solution to the impasse over the Appellate Body appointments and this is also why the EU, together with other Members, has put in place the MPIA.

“However, if the other party is not willing to agree on such contingency measures while the impasse continues, the EU may have no choice but to appeal before the Appellate Body. Whether or not such an appeal would be processed is in the hands of the other party.

“In the DS494 dispute, the EU owered to Russia to agree on a means of having the appeal heard through appeal arbitration based on Article 25 of the DSU and that ower still stands.”

Continued Impasse on Appellate Body Vacancies

A large majority of WTO Members support starting the process of finding Appellate Body members to fill the current six vacancies. The U.S. continues to oppose moving forward with this process as it doesn’t feel that its concerns have been addressed. The U.S. statement at the October 26 meeting is copied below:

“APPELLATE BODY APPOINTMENTS: PROPOSAL BY SOME WTO MEMBERS (WT/DSB/W/609/REV.18)

“ As we have explained in prior meetings, we are not in a position to support the proposed decision. The systemic concerns that the United States has identified remain unaddressed. Instead, Members should consider how to achieve meaningful reform of the dispute settlement system.

“ The U.S. view across multiple U.S. Administrations has been clear and consistent: When the Appellate Body overreaches and itself break WTO rules, it undermines the rules-based trading system.

“ The Appellate Body’s abuse of the limited authority we Members gave it damages the interests of all WTO Members who care about a WTO in which the agreements are respected as they were negotiated and agreed.

“ Earlier this year, the Twice of the U.S. Trade Representative published a Report on the Appellate Body of the World Trade Organization. The Report details how the Appellate Body has failed to apply WTO rules as agreed by WTO Members, imposing new obligations and violating Members’ rights. We appreciate the number of Members who have reviewed the Report and share the view that the Report identifies serious errors by the Appellate Body.

“ As the United States has explained repeatedly, the fundamental problem is that the Appellate Body has not respected the current, clear language of the DSU.

Members cannot find meaningful solutions to this problem without understanding how we arrived at this point. Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.

The United States has actively sought engagement from Members on these issues. Yet, some Members have remained unwilling to admit there is even a problem, much less engage in a deeper discussion of the Appellate Body’s failures.

And rather than seeking to understand why the Appellate Body has departed from what Members agreed, these Members and others have now redirected the focus and energies of the Membership to pursue an arrangement that would, at best, perpetuate the failings of the Appellate Body.

Nevertheless, the United States is determined to bring about real WTO reform. We Members must ensure that the WTO dispute settlement system reinforces the WTO’s critical negotiating and monitoring functions, and does not undermine those functions by overreaching and gap-filling.

The central objective of the dispute settlement system is to assist the parties to find a solution to their dispute. As before, Members have many methods to resolve a dispute, including through bilateral engagement, alternative dispute procedures, and third-party adjudication.

Parties should redouble their efforts to find such a positive solution to their disputes.

The United States will continue to insist that WTO rules be followed by the WTO dispute settlement system. We will continue our efforts to seek a solution on these important issues.

United States Trade Representative, Report on the Appellate Body of the World Trade Organization (February 2020), available at https://geneva.usmission.gov/wp-content/uploads/sites/290/ABReport_02.11.20.pdf .

 See U.S. Statement at the June 29, 2020, Meeting of the Dispute Settlement Body (Item 13), available at: https://geneva.usmission.gov/wp-content/uploads/sites/290/Jun29.DSB_.Stmt_.asdeliv.fin_.public13218.pdf.

U.S. Statements at the October 26, 2020, DSB Meeting.”

The history of the efforts in 2019-2020 by Members to get the Appellate Body vacancies filled is chronicled in the Draft Annual Report of the DSB, WT/DSB/W/662 (16 October 2020) pages 2-6. The draft annual report is embedded below.

Conclusion

The dispute between China and the U.S. over the U.S. 301 investigation and imposition of duties on certain Chinese goods brings into stark relief the challenges for the WTO in regaining relevance. To the United States, the limitations of the WTO and the incompatibility of the Chinese economic system with WTO rules has led to building conflict over the last twenty years and to the U.S.’s search for a solution to render some of the distortive practices in China less problematic. The panel report raised significant concerns for the United States though embraced by China even though both Members have been engaged bilaterally outside of the WTO trying to address many of the concerns raised in the U.S. 301 investigation.

At the same time, the U.S. (and others) have had problems with the dispute settlement system that go back at least twenty years. These problems go to the Appellate Body in some cases creating obligations or rights not found in the Agreements from which disputes are filed and to the increasing practice of the Appellate Body in ignoring the procedural and substantive limitations on the AB’s conduct contained in the Dispute Settlement Understanding. There are major differences in views on what is appropriate for the Appellate Body with the U.S. and Europe (and others) far apart. An overactive dispute settlement system which has created obligations that Members never agreed to has led many Members to pursue disputes instead of negotiating. Such action by Members has contributed to the nearly moribund negotiating function at the WTO.

The path forward on these critical issues is unclear and unlikely to be clarified in the near future. All of which means that the new Director-General when selected will face a WTO in a growing state of paralysis and diminished relevance.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the original blog post, please click here.

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With the COVID-19 pandemic and the resulting limitations on in person meetings at the WTO and travel restrictions, the panel process has been further complicated. At the recent Dispute Settlement Body (DSB) meeting of September 28, Australia had put on the agenda the issue of “COVID-19 and dispute settlement”. Agenda item 9 of Proposed Agenda for the 28 September 2020 Dispute Settlement Body meeting, WT/DSB/W/670.

The subsequent press release on the DSB meeting contained the following description of the discussion of Australia’s issue on COVID-19 and dispute settlement.

Statement by Australia on COVID-19 and dispute settlement

“On behalf of 14 members (Australia; Brazil; Canada; Ecuador; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Peru; Singapore; Switzerland; Ukraine; and the United Kingdom), Australia made a statement expressing concern about delays in dispute settlement proceedings resulting from the COVID-19 pandemic.”

“While it is encouraging that DSB meetings have been able to resume at the WTO, ongoing restrictions affecting international travel and immigration place in question the feasibility of physical participation of panelists and capital-based delegates at meetings in Geneva into the future, Australia noted. During 2020, various governments, private sector organizations, and domestic and international adjudicative bodies worldwide have adapted their usual ways of working to continue operating in these difficult conditions; WTO members must ensure the dispute settlement system does the same.”

“Australia urged panels to consider, in consultation with parties, flexible, alternative arrangements to ensure dispute proceedings can continue to progress in a timely manner despite the challenge of current restrictions. Australia recalled that Article 12.1 of the WTO’s Dispute Settlement Understanding (DSU) affords panels discretion in the working procedures they adopt in individual disputes, and that panels, after consulting in parties, may determine alternative arrangements that would best serve the satisfactory settlement of the matters. Some panels have already adjusted their procedures to hold substantive meetings virtually through video conferencing technology; Australia welcomed these developments but, to ensure the equitable operation of the dispute settlement system, WTO members must find solutions to enable all current and future matters to move forward in one way or another.”

“Several delegations took the floor to comment. Japan said that while virtual meetings are an option, face to face meetings were preferable, and that each panel should consult with parties on how to proceed in order to strike an appropriate balance between prompt settlement of disputes and protection of due process. India said oral hearings were an intrinsic aspect of due process rights guaranteed by the DSU and that panels cannot truncate these rights without the agreement of the parties in a dispute.”

“The United States encouraged each panel to consult with the parties on how to proceed, bearing in mind the views of the parties and the relevant provisions of the DSU. China said it was fundamental to provide certainty in dispute settlement in order to avoid any undue delay; it noted some panels have adopted flexible procedures as a response. The EU said that the discretion of panels is not completely unfettered and that they must ensure the prompt settlement of disputes, a principle that was valid for all disputes. Both South Africa and Nigeria (for the African Group) noted the asymmetrical impact of the COVID-19 pandemic on developing country members.”

WTO Dispute Settlement, 28 September 2020, Panel established to review China’s compliance with farm subsidy ruling, https://www.wto.org/english/news_e/news20_e/dsb_28sep20_e.htm.

The fact that Australia and others raised the issue at the DSB is certainly welcome, although the comments of Members at the DSB meeting indicates that there are both an array of problems facing different Members and arguably mixed motives for some in concerns about alternative approaches to in person meetings.

First, panels have regularly used the existence of the pandemic as a justification for a lengthy delay in the likely release of a panel report. See, e.g., India – Additional Duties on Certain Products from the United States, WT/DS585/4 (4 June 2020)(panel composed on 7 January 2020, because of pandemic, report to parties not before the second quarter of 2021); India – Measures Concerning Sugar and Sugarcane, WT/DS579/9; WT/DS580/9; WT/DS581/10 (29 April 2020)(complainants are Guatemala, Australia and Brazil)(panels composed on 28 October 2019, report to the parties not before the second quarter of 2021).

Thus, the issue of delay caused by the pandemic is an important one to address to maintain the timely operation of panels. While many developing countries may have greater challenges in terms of internal infrastructure for alternative means of handling disputes remotely, the claim of due process concerns at least for some Members is suspect particularly if the functioning of administrative and judicial activities in-country are being handled remotely/virtually as is true in many countries. For example, in the United States, arguments at federal courts are handled remotely, including at the highest court in the land. No Member should be allowed to delay panel proceedings on due process grounds where their own administrative and court proceedings are handled remotely during the pandemic. The Secretariat should seek transparency from Members on how their agencies and courts are handling matters during the pandemic.

Certainly, WTO Members should identify challenges they face to being able to engage in remote/virtual hearings if in person events are not possible. Where problems exist, the WTO Secretariat in conjunction with other organizations should look to see what technical assistance can be provided to permit active participation. Similarly, if issues affect the ability of panelists to handle matters remotely, there should be a review of options that may exist to facilitate panelists ability to participate. Again, the Secretariat should seek information from Members on challenges they face in participating in dispute proceedings and should have information on potential panelists on the same types of issues.

While the basic premises that panels should consult with parties is clearly the correct path to follow (contrary to the current practice of many panels and that reviewed in detail about the Appellate Body), there is the question of what happens when there is a difference among the parties as to how to proceed. The good offices of the Director-General can be used to possibly bridge the differences. Delay should only be permitted when the concerns of the party objecting to proceeding cannot be reasonably overcome.

It will be interesting to see if Members press for a prompt resolution to the concerns raised at the last DSB meeting or simply let the problems continue to fester and delay the operation of panels.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

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As leaked yesterday, the two candidates who advance to the third round of consultations are Dr. Ngozi Okonjo-Iweala of Nigeria and Minister Yoo Myung-hee of the Republic of Korea. The selection of these two candidates was based “on the depth and breadth of preferences articulated” by Members to the troika. “The result creates an historic precedent for the WTO in that it assures that the 7th Director-General will become the first woman to lead the organization.”

The WTO press release from today (October 8) from which all quotes are taken, “WTO members narrow field of DG candidates,” can be found here, https://www.wto.org/english/news_e/news20_e/dgsel_08oct20_e.htm.

“During the DG selection processes of 2005 and 2013, breadth of support was defined as ‘the distribution of preferences across geographic regions and among the categories of members generally recognized in WTO provisions: that is (least developed countries), developing countries and developed countries.’ The Chair said he and his colleagues were guided by the practices established in these General Council proceedings and he further explained that the decisions made clear that ‘breadth of support means the larger membership’.”

The three candidates not advancing are Amb. Amina C. Mohamed of Kenya, Mr. Mohammed Moziad Al-Tuwaijri of Saudi Arabia and Dr. Liam Fox of the United Kingdom. Amb. Walker (Chair of the General Council) said “On behalf of the entire membership, I would like to express deep gratitude for their participation in this selection process. It was clear that members consider them individuals of outstanding qualifications. I am sure you will all agree with us that in participating in the selection process, the candidates have all made a significant contribution to the standing and image of the WTO.”

The third round of consultations will start October 19 and end on October 27. There will be another informal heads of delegation meeting so that Amb. Walker and his facilitators can present the results of the third round of consultations, probably on Thursday, October 29.

The Chair of the General Council will then call a General Council meeting before November 7 to present their recommendation of the candidate most likely to obtain consensus. If Members agree, that candidate becomes the next Director-General. If there is a lack of consensus, the 2002 procedures provide for the possibility of a vote.

As reviewed in my post yesterday, the two candidates who are advancing have significantly different backgrounds presenting Members with an interesting choice. See October 7, 2020, Nigerian and Korean candidates advance to final round of consultations to become next WTO Director General, https://currentthoughtsontrade.com/2020/10/07/nigerian-and-korean-candidates-advance-to-final-round-of-consultations-to-become-next-wto-director-general/.

While politics obviously has a role in the selection process, both candidates bring high-level government experience and an ability to work with various levels of government officials from many countries. Minister Yoo touted the fact that Korea has gone through significant economic development during her lifetime and so she has seen the needs of her country at various stages of economic development which would help her understand the needs of all WTO Members. She has also engaged in negotiations with many of the major WTO Members, including the U.S. and China. Dr. Okonjo-Iweala is a development economist and has expressed an interest in various issues where working with other international organizations would be important to ensure participation by all WTO members in WTO issues (e.g., addressing the digital divide which prevents many developing and least developed countries from engaging on e-commerce; ensuring access by all Members to vaccines and therapeutics to address the COVID-19 pandemic).

While the process of selecting a new Director-General is cumbersome, it was developed after the challenges in 1999 when no consensus was reached on a single candidate to give a greater likelihood of Members reaching a consensus on candidates put forward. The procedures worked in 2005 and in 2013 and appear to be working this year.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

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The survey

The survey ran between 5 June and 21 June 2020 on an online survey platform. The questionnaire was sent by email to all WTO delegations and distributed through e-mail and social media channels to trade practitioners using a contact list developed by the Global Economics programme of the EUI’s Robert Schuman Centre for Advanced Studies. Recipients were requested to forward the survey to others in their networks working on trade and WTO matters. The sampling frame is not designed to ensure that respondents will be perfectly representative of the WTO stakeholder community, and no claim to this effect is made.

A total of 1,092 people opened the survey, and 75% (819) responded to at least one question. Around 800 responses were received for most of the questions (the lowest number of respondents for a question is 733; the highest is 807). Government officials (including the EU) represent the second largest category of respondents (24.6%) after academia (25.1%). The private sector (companies and business associations) account for 19% of all respondents, followed by staff of international organisations (18%) and NGOs, labour unions and think tanks (11%). Of the government and EU respondents, 31% (66) are based in Geneva. 

Responses to all questions used a five-point scale: very low (strongly disagree), low (disagree), neutral, high (agree) and very high (strongly agree). The survey instrument and detailed results are presented in Fiorini et al. (2020). 

Near-term priorities for the WTO (and the next DG)

Survey responses suggest three broad messages regarding priorities for negotiations, institutional reform, and daily operations of WTO bodies.

Everything is a priority – except launching discussions on new issues

A first question concerned the priority accorded to ‘immediate’ challenges should feature on the agenda of the 12th WTO Ministerial meeting (MC12) in 2021. These span monitoring COVID-19 pandemic trade-related measures; concluding ongoing negotiations on different subjects, both multilateral and plurilateral; launching discussions on new issues; clarifying the role of the trade policy in tackling climate change; negotiating stronger rules on the use of subsidies and industrial policies; and the WTO’s role in realising the UN Sustainable Development Goals (SDGs).

Respondents regard all these issues as priorities for the institution. The exception is launching discussions on new issues, which received fewer scores of high or very high and, as important, a greater share of low or very low scores (Figure 1, panel a).  Despite the commonality of view that most of the identified issues are priorities, a heatmap of Spearman rho correlations (Figure 1, panel b) reveals differences in rankings across topics. Geneva officials rank concluding the long-running multilateral negotiations on fishing subsidies and agricultural support as the most important priority, with some 90% of respondents giving this a high or very high score. In contrast, officials in capitals accord a higher rank to concluding ongoing plurilateral talks on e-commerce, domestic regulation of services, investment facilitation and MSMEs, which is seen as less important by Geneva-based officials. Both groups of officials place great weight on monitoring of COVID-19-related policy measures. 

NGOs prioritise clarifying how the WTO can contribute to attaining the SDGs and the role of trade policy in combatting climate change, with 90% of respondents giving the WTO-SDG issue a score of high or very high. This group is also more opposed to concluding plurilateral talks, with 25% giving this a low or very low score.

Figure 1 Heading towards MC12, what priority do you assign to the following issues? 

(a) Attributes sorted by sum of high & very high shares       

(b) Spearman rho correlation between groups

Ordered probit analyses reported in Fiorini et al. (2020) reveal additional differences in rankings of issues across groups. The private sector and government officials in capitals are aligned on the relative importance accorded to concluding plurilateral talks, revealed in a statistically significant higher ranking for this issue. Capital-based officials rank negotiating stronger rules on subsidies more highly than the total sample. This is also the case for engaging on the SDGs, an issue that African respondents and NGOs similarly rank higher than the total sample. Business is an outlier in according a higher ranking to launching of discussion on new issues. Finally, Geneva delegations accord a statistically significant lower ranking to clarifying the role of trade policy in addressing climate change. 

Institutional reform priorities: Dispute settlement first… and second

Many WTO members have been engaged in a process to identify measures that could be taken to improve the functioning of the organisation (e.g. Wolff 2020). The survey asked respondents to rank the priority accorded to resolving specific problems affecting the operation of the WTO and specific suggestions that have been made to address them. Specifically, respondents were asked about the priority they accorded to the following issues/options:²

1. Make the Appellate Body (AB) operational again
2. Reform dispute settlement and revisit the role of appellate review 
3. Improve compliance with notification obligations 
4. Resolve differences on special and differential treatment for developing countries
5. Strengthening the trade policy monitoring process
6. Use WTO bodies to defusing potential disputes (e.g. through “specific trade concern” processes)
7. Deepening engagement with stakeholders (e.g. through thematic sessions)
8. Analyse the distributional effects across countries of national trade policies 
9. Provide support for plurilateral agreements.

Addressing the dispute settlement crisis is the highest priority issue, with over 80% of respondents giving options a) and b) – making the AB operational and reforming dispute settlement – a score of high or very high.² Moreover, these options attracted virtually no scores of low or very low. Other issues attracting scores of high or very high include improving compliance with notification obligations; resolving differences on special and differential treatment for developing countries; and strengthening the trade policy monitoring process (Figure 2, panel a). 

The two options ranked lowest were deepening engagement with stakeholders and analysing the cross-country distributional effects of national trade policies. This suggests many of the trade practitioners that responded to the survey do not see a strong need to consider the impacts of trade policy or to elicit input from the broader stakeholder community. Given rising contestation of trade agreements and the emergence of populist political opposition to the WTO, one might have expected these options to be accorded more importance.

There are some noteworthy differences in rankings across groups. Geneva delegations, NGOs and African respondents tend to place different weights on some of the issues and options raised. African respondents place a higher priority on all these issues compared to the whole sample. They also accord a higher ranking to trade policy monitoring and to resolving differences on special and differential treatment for developing countries (Fiorini 2020).  

One difference that emerges concerns dispute settlement. Non-Geneva-based government officials are similar to the sample as a whole in ranking reform of dispute settlement highest, followed by making the AB operational again, suggesting that what is being picked up here is simply that resolving the conflict on dispute settlement is what matters most to governments. Noteworthy in this regard is that Geneva-based officials rank reinstating the AB as most important, with 95% of this group giving this a score of high or very high, but rank reform of the dispute settlement system much lower (seventh out of the nine issues/options raised in the relevant question) (Figure 2, panel b). This suggests that as far as Geneva is concerned the first order of business is to bring the AB back. Whether and what to consider in terms of improving dispute settlement is seen as less of a priority by Geneva delegations. ‘Geneva’ ranks action to diffuse potential disputes though deliberations in WTO committees through mechanisms such as tabling ‘specific trade concerns’ more highly than engaging in dispute settlement reform discussion. 

Figure 2 Institutional reform priorities

(a) Whole sample         

(b) Respondents from Geneva delegations

Note: Bars sorted by the combined share of high and very high responses. 

Turning to the options ranked last in the total sample (more engagement with stakeholders and analysis of the distributional effects of trade policies), business and government officials – both in Geneva and in capitals – are on the same page in ranking analysis of the distributional effects of trade policies last. NGOs in contrast are a clear outlier in ranking more distributional analysis highest. Geneva delegations rank greater engagement with stakeholders more highly than the total sample. Thus, the results suggest a common view regarding the priority to be accorded to distributional analysis, but some divergence in views between Geneva and capitals on engaging more with stakeholders.  

Ordered probit analysis reveals that government officials, whether in or outside Geneva attach a statistically greater priority (ranking) to making the AB operational again than do respondents overall. The probit regressions confirm that Geneva, as well as NGOs and European respondents, assign a lower ranking to dispute settlement reform, whereas Latin American and African respondents rank this higher. 

Day-to-day operations: Use video conferencing more

A final set of questions concerned daily operations of the organization, with a focus on two issues: the use of video-conferencing technologies and the use of voting on matters that do not imply a change in rights and obligations of WTO members. The results suggest agreement on greater use of video conferencing, including for the delivery of training and technical assistance; making decisions through meetings that involve participation of officials via video conferencing facilities; and making use of such technology a standard option for WTO meetings. Geneva officials are less supportive of decision-making when videoconferencing is used, while business respondents are significantly more favourable to use of video conferencing than the total sample (Fiorini et al. 2020). 

There is much more limited support for voting on operational matters, with fewer than 50% of respondents giving this a score of high or very high, and 20% of respondents scoring this as low or very low. 

References

Bertelsmann Stiftung (2020), Compilation of research papers on WTO reform.

Evenett, S J and J Fritz (2019), Jaw Jaw not War War: Prioritising WTO Reform Options, The 24th Global Trade Alert Report.

Fiorini, M, B Hoekman, P C Mavroidis, D Nelson and R Wolfe (2020), “Stakeholder Preferences and Priorities for the Next WTO Director General,” EUI RSCAS Working Paper 2020/43.

Hoekman, B and P C Mavroidis (2019), “Party like it’s 1995: Necessary but not sufficient to resolve WTO Appellate Body crisis”, VoxEU.org, 26 August.  

Wolff, A (2020), “COVID-19 and the future of world trade”, VoxEU.org, 1 June.

Zedillo, E (2019), “Act now to save the WTO”, VoxEU.org, 9 December. 

Endnotes

1 Many of these are the subject of recent research by the authors (Bertelsmann Stiftung 2020); see also Evenett and Fritz (2019) and Wolff (2020).

2 This issue has been the subject of several VoxEU columns (e.g. Zedillo 2019, Hoekman and Mavroidis 2019).  

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