Trade

Trades big challenge: How to resurrect the WTO

On Wednesday, the world will bury the global trade order as we know it.

The big question now is whether it can ever rise from the grave.

From the stroke of midnight (in Geneva), there will no longer be a trade referee to issue rulings in fights between countries over everything from dumped Chinese steel pipes to Panamanian shoe sales.

U.S. President Donald Trump accuses the court of being too soft on his arch-rival China, and has been blocking the appointment of judges to the World Trade Organizations appellate body, the highest dispute-resolution body. As of December 11, there will be only one judge — and thats not enough to run the court.

WTO nations are discussing whats next. Should countries that want to save the WTO put the current system on life support until the U.S. changes its mind? Or should they say their condolences and start building an alternative?

According to the EU Ambassador to the WTO João Aguiar Machado: “The very idea of a rules-based multilateral trading system is at stake.”

“The Commission wants to save the appellate body and at the same time keep the U.S. on board.” — Kathleen Van Brempt, MEP for the center-left Socialist and Democrats group

And thats no exaggeration. Without a highest court, the world is set to take a giant leap backward to the years before 1995 in terms of resolving trade disputes, which allowed something closer to the law of the jungle to prevail. Countries who want to resolve their trade disputes can still ask for a WTO ruling, but the winner will be unable to enforce the ruling since an appeal from the losing party will slide into legal limbo. International trade disputes may never see a resolution and quickly evolve into tariff wars.

“The dispute settlement mechanism is the crown jewel of the WTO,” said Peter Van den Bossche, director of the World Trade Institute in Bern and former chairman of the appellate body. “The lack of a functional appellate body undermines the entire dispute settlement mechanism, because as long as appeals are not being dealt with, panel reports will not become legally binding. The rule of the jungle, the law of the strongest will prevail in international trade relations and that will hurt us all.”

Europes divided loyalties

Within the EU, countries are divided about their response. While some are keen to forge ahead with a new mechanism without the Americans, others dont want to foresake their natural ally, the U.S., particularly if that means moving closer to Russia and China.

In Brussels, Lithuania has spearheaded a group of EU countries that have concerns about a parallel regime. Albinas Zananavičius, Lithuanias vice minister of foreign affairs, said he had “serious doubts” about a plurilateral system that included Russia and China, but not the U.S.

For the Americans, talk of an alternative regime is beside the point. The key fact for Washington is that the WTO was too soft on Beijing — and the Americans insist that is not being addressed.

According to the U.S. Ambassador to the WTO Dennis Shea, the U.S. has made “tremendous efforts over the past year to explain its concerns with persistent rule breaking by the appellate body,” he said, in remarks sent to POLITICO. “Some members have engaged with those concerns, and we are grateful for that. But many others have simply denied that any problems exist.

From now on, Shea said dispute resolution would fall to the disputant nations “to engage with each other to determine an appropriate way forward, as some already have.”

The U.S. discontent with the WTOs appeals process only grew worse after China joined the organization in 2001. Other countries are equally frustrated that countries like China claim a “developing” status which affords them certain preferential treatments on trade.

And its not just the dispute system that needs a makeover. Over the past decades trade disputes have become more complex. Burden sharing for tackling climate change, cyber security, the role of tech giants and the rise of state capitalism are all putting international trade rules under strain.

But the decision-making ability of the world trade group depends on a consensus between 164 countries with very different economic interests. It has largely failed to work out new rules since it began in 1995. Negotiations launched in Doha in 2001 were finally declared dead in 2015.

How do you like your options? I dont

None of the alternatives looks inviting.

The EU is negotiating with several countries to build an interim dispute settlement court within the WTO framework but without the U.S.

“Until now, there hasnt been much enthusiasm for that alternative,” said Van den Bossche. “But certain WTO members still seem to be in a state of denial. For some, this week will be a hard awakening. They might be willing to talk now about a temporary alternative.”

The European Commission is determined to do “whatever is necessary” to save the current system and to keep the U.S. in the WTO, Sabine Weyand, the EU director general for trade, told the European Parliament last week. “We are not giving up on the U.S. as a member of the WTO nor are we giving up on the appellate body,” Weyand said.

Some in Brussels and Geneva warn not to throw the baby out with the bathwater and argue that it might be better to wait until November 2020 and hope for a new president in Washington.

Restoring the appellate body is theRead More – Source