(CN) – The World Trade Organization, the international arbiter of trade disputes, entered a deep crisis Tuesday after the Trump administration blocked the appointment of new appellate judges, a move that threatens to bring new uncertainty and chaos to global trade.
By Wednesday, the WTO’s seven-judge appellate body will be without enough judges to hold a quorum after the United States blocked new judges from taking their seats. The terms of two of the remaining three judges expire at midnight Tuesday and there is little prospect of a last-minute deal, experts said.
In effect, this means member states will no longer be able to appeal rulings by the WTO’s dispute settlement panels, and experts say this will severely undermine the WTO and potentially lead to an escalation in trade tensions and trade barriers.
“The world’s trade referee will no longer be able to function as of tomorrow,” Aydin Yildirim, a political economist at the World Trade Institute at the University of Bern in Switzerland, said in a telephone interview Tuesday with Courthouse News.
He said there is concern that the WTO will be crippled without its appellate body.
“Some argue that it will bring down the institution,” he said. “It will no longer be taken seriously.”
Blocking the appointments escalates a long-running U.S. campaign to force the WTO to agree to American positions on how to calculate anti-dumping duties, among other issues.
The WTO was largely a creation of the U.S. in 1995, but the American government has turned against the WTO because of rulings against U.S. interests. The U.S. also argues that the WTO’s appellate chamber has become a rules-making body that it was not meant to be.
“This has been quite a long time in the pipeline,” Dirk De Bièvre, a political scientist and trade policy expert at the University of Antwerp, said in a telephone interview.
Since taking office in 2017, President Donald Trump has taken aim at the WTO, a Geneva-based trade body with 164 members. He has claimed that the WTO has treated the U.S. unfairly. In truth, the U.S. has used the WTO to its benefit and won many disputes. Most recently, the U.S. won a case against European aircraft manufacturer Airbus.
De Bièvre said the U.S., though, is unhappy with WTO rulings that have found an American practice known as “zeroing” to inflate duties unlawful.
“This was a grudge that had been there for a very long time,” De Bièvre said. “It is a way to inflate and construct huge anti-dumping margins, which is blatant protectionism.”
He said the American steel industry has vehemently opposed the WTO’s rulings against this practice. Trump built his electoral success on pledges to support American steel and U.S. Trade Representative Robert Lighthizer is a former steel industry lawyer.
De Bièvre said the U.S. has taken issue with the WTO’s appellate body because it also has begun to expansively interpret trade law and introduce the idea of precedence. American trade lawyers and policymakers argue this is overreach.
However, De Bièvre did not see blocking the appellate body as fatal to the WTO.
“Does it kill the WTO? Not at all,” he said. He called pronouncements about the end of the WTO “overstatements.”
He said the WTO’s central purpose was to establish a set of rules for countries to abide by to make trade more stable and investments more secure and this remains in place even without an appellate body.
“For most commitments, this remains intact and in place,” De Bièvre said.
Also, the WTO will be able to continue issuing rulings in disputes. The question will be whether parties will abide by those rulings even if they can’t appeal.
“The panel rulings are completely intact,” De Bièvre said. “People will have access to justice… The crisis is more symbolic, a political crisis than purely a legal crisis.”
Yildirim was more pessimistic. He said there is deep skepticism about whether the WTO can be effective without the appellate body.
“If there is a decision against you, why wouldn’t you appeal?” he said. “Countries have a legal right to appeal.”
But if the appellate body is shut down, appeals will “go into the void” and cases may be at risk of going unresolved, he said.
The European Union and other countries are looking at developing a new appeals procedure separate from the WTO. It is far from clear, though, whether this will work, especially if the U.S. does not recognize it. There have also been lots of proposals on how to change the WTO to get the U.S. on board with saving the appellate body, but those ideas have been rejected by the U.S.
“Everybody knows that without the Americans, you can’t do anything,” Yildirim said. “If you reform, you need the Americans.”
De Bièvre called blocking the appellate body drastic and he said the U.S.-manufactured dispute won’t be easy to resolve. He expects the U.S. to demand major changes to the way the appellate chamber functions before it agrees to allow it to resume work. He said the U.S. may want the appellate judges to stop issuing rulings based on precedence, become more prudent in rulings and speed up decisions.
“The big guessing game in general is how long will [the U.S.] refuse to engage in any constructive reform of the upper appellate body,” he said.
He said the U.S. may be more willing to negotiate reviving the appellate body if Trump is out of office. But he said that is not a guarantee.
Trade experts largely agree that the WTO’s rules need to be updated. In particular, the WTO is not equipped to deal with issues surrounding digital privacy, intellectual property rights and government subsidies, experts say.
De Bièvre said the U.S. may wind up hurting its own interests, in particular with its trade conflict with China.
“What the U.S. is doing is shooting itself in its own foot,” he said.
He argued that the U.S. should be using the WTO’s rules to force China to change.
“The way to kill the China threat is not to kill the appellate body system,” he said. “They should be using the appellate body against China.”
China joined the WTO in 2001, but since then it has failed to abide by WTO rules on intellectual property, government subsidies and anti-dumping measures, experts say.
De Bièvre said Trump seemed to be picking fights so he can claim easy wins and boost his re-election chances.
“It is great for Twitter diplomacy because you get these quick short-term wins, but in the longer term you are losing because you are not getting China to change its behavior,” he said. “China can just wait.”
Rather, he said the Trump administration’s move to block the appellate body was “a symptom of declining American trade power.”
Yildirim said many experts agree with the U.S. and believe that major reforms are needed.
“Many members, all really, agree with what America is saying: That there is a problem, but that this is not the way forward,” he said.
But he said there is a risk this imbroglio will not be resolved and a breakdown of the WTO may lead to an escalation in trade disputes and more tariffs.
“There is a real possibility that this could escalate,” he said. “Everyone will lose from this.”
Yildirim said the WTO has “a preventive effect that we don’t observe.” He added: “Countries have been holding off on being unreasonably protectionist.”
“To be honest, I don’t think many people care about the WTO although they should,” he said. “We take it for granted. We are about to see what this will mean.”
For now, he said the U.S. appears to believe that it will be able to withstand the economic fallout from escalating trade tensions.
“The U.S. is the most active user of the WTO, they are using it more than anyone,” he said. “It’s very clear that they have been benefiting from the system very much. Now they are throwing it away.”
“They believe they are powerful enough to sustain such damage,” he added. “It is disregarding everyone else’s interests that are tied to your interests.”
The biggest losers, Yildirim said, will be small developing countries.
“It’s easier to take on a fight if you are the U.S.,” he said. “It’s easier to be selfish, put it that way. The big losers will be developing countries, the smaller countries.”
He added: “The other day, someone made the point: This is like a boxing match, everyone is hurt, a few are standing, but the rest are down on their knees.”
(Courthouse News reporter Cain Burdeau is based in the European Union.)