Leibowitz on Trade: WTO Dispute Settlement and the Section 232 Tariffs—The System Is Paralyzed

The rules of the WTO establish procedures and timetables for resolution of disputes. A dispute is initiated when a WTO member requests “consultations” with another member. If the parties cannot reach a mutually agreeable resolution, the member initiating the complaint may request that the WTO Dispute Settlement Body (DSB) name a three-member panel to adjudicate the dispute.

When the WTO panel is formed, the parties submit a list of issues to be decided. Then the parties submit briefs and other materials and conduct an oral hearing. Then the panel prepares a report resolving the issues presented. The panel report is circulated initially to the parties to the dispute. Once the parties have had a chance to comment on the report, a version revised as necessary is circulated to all WTO members.

The Section 232 tariffs invoking the national security of the United States were challenged by a large number of countries in 2018, when they were initially imposed. The United States has claimed from the outset that “national security” may be invoked by any WTO member and the WTO may not review whether the invocation was reasonable, let alone correct. In April of this year, I reported on a dispute between Ukraine and Russia where the panel held that it could review the reasonableness of invoking national security. In that case, the invocation was considered reasonable.

The Section 232 cases have not gotten to the panel report stage and won’t for a while. The panelists wrote letters to the United States and all the complaining WTO members letting them know that the traditional six-month period between establishing the issues in the case and the circulation of the panel report to the parties will not happen—it will be delayed. The likely circulation of the report will be the fall of 2020 at the earliest.

To state the obvious, this delay means that the WTO case will have no effect on the Section 232 tariffs until after the 2020 presidential election. The parties to the case, including the European Union, China, Japan, Turkey and several other countries, may still negotiate a resolution of the Section 232 dispute. External events may affect the willingness of the Trump administration to consider unilaterally changing the import restrictions or removing them for some countries, as was done for Canada and Mexico last May. But the WTO will not weigh in on the legitimacy of the restrictions for at least another year.

These sorts of delays are not uncommon in WTO disputes. I have been involved in several—they can take a frustratingly long time; but often, they yield concrete results.

The WTO dispute settlement system is in an uncertain situation now because the Appellate Body is about to go out of business, at least for the time being. Only three members are currently serving and under WTO rules three members must decide every appeal. The United States has blocked the appointment of new members until significant reforms have been achieved. There is no immediate prospect of such reforms. Once the Appellate Body membership falls below three in December of 2019, appellate review of panel decisions will not be possible.

If the Section 232 tariffs are to be removed or changed, domestic political or legal developments, or international ones, will be the source of those changes. Stay tuned.

Court Challenge to 50 Percent Tariffs on Turkey

In a related development, I’ve been asked to report on one challenge to the Section 232 tariffs—by traders challenging the doubling of the Section 232 tariffs on Turkey in August 2018. A legal challenge was filed in the Court of International Trade in January 2019. The government has filed a motion to reject the case (a motion to dismiss), which has been fully briefed. As you may recall, the president unilaterally reduced the Section 232 tariffs on Turkey back to 25 percent last May; but the legal challenge continues because the plaintiffs are seeking refunds of the 50 percent tariffs they paid between August 2018 and May 2019.

The government is seeking dismissal of the case because it contends the president’s determination to adjust the tariffs on Turkish goods is not subject to court review.

The case is scheduled for oral argument on Tuesday, Sept. 17.

Lewis Leibowitz

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