Trade Cases

USTR Details Alleged Failings of the WTO

February 14, 2020

The office of the U.S. Trade Representative released a scathing report detailing what the U.S. believes is wrong with the dispute mechanisms of the World Trade Organization. In 174 pages, the department lays out the alleged failures of the Appellate Body to conduct business by “agreed rules.”

“As detailed in this Report, the Appellate Body has strayed far from the limited role that WTO Members assigned to it,” says the USTR in a summary of the report. “Through persistent overreaching, the Appellate Body has increased its own power, at the expense of the authority of the United States and other WTO Members.”

The report highlights examples of the Appellate Body’s “erroneous interpretation of WTO agreements” that “have harmed the United States and its citizens, workers and businesses and have undermined the effectiveness of the WTO dispute settlement system.”

The USTR claims the WTO Appellate Body has strayed from limited role it has been assigned, seizing power and authority from WTO members. Examples include ignoring deadlines for deciding appeals and using prior dispute settlement interpretations as binding precedent.

The USTR complained that the Appellate Body “has made findings on issues of fact, including issues of fact relating to WTO Members’ domestic law, although Members authorized it to address only legal issues.” The Appellate Body has also erred, according to the USTR, by expressing opinions beyond those necessary to resolve a dispute.

The settlement of trade disputes that are unfavorable to the U.S. has also raised the ire of the Trump administration.

“The Appellate Body’s erroneous findings have hampered U.S. efforts to ensure U.S. businesses compete with state-owned enterprises on a level playing field,” the report says. “Appellate reports have also declared numerous U.S. laws and regulations to be WTO-inconsistent, rendering policy choices made by U.S. elected officials increasingly subject to second-guessing by a trio of unaccountable individuals sitting in Geneva.”

The U.S. has frustrated the WTO by refusing to allow the appointment of new appellate judges and says proposed reform guidelines for the organization fail to address the underlying problems, including why the Appellate Body has strayed from its appointed duties.

“The problem has worsened as too many WTO members remain unwilling to do anything to rein in this conduct. The proper functioning of the WTO Appellate Body has a disproportionate impact on the United States because more than one quarter of all disputes at the WTO have been challenges to U.S. laws or other measures.

“Specifically, 155 disputes have been filed against the United States, and no other Member has faced even a hundred disputes. According to some analyses, up to approximately 90 percent of the disputes pursued against the U.S. have led to a report finding that the U.S. law or other measure was inconsistent with WTO agreements.”

Under the Trump administration, the Department of Commerce has initiated 198 new AD and CVD investigations – a 168 percent increase from the comparable period in the previous administration.

Commerce currently maintains 516 antidumping and countervailing duty orders, in addition to tariffs imposed by the administration under Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962.

As of Jan. 23, 2020, an estimated $54 billion paid by U.S. importers has been collected by the government as result of tariffs imposed under Sections 201, 302 and 232.

The Congressional Research Service notes that retaliatory tariffs in place in response to Section 232 and 301 actions cover $97.5 billion in U.S. exports.

“As tariffs act as a tax on foreign-produced goods, they distort price signals, potentially leading to less efficient consumption and production patterns, which may ultimately reduce growth rates,” wrote the CRS in a January report.

CRS added, “These taxes have had a negative aggregate effect on the U.S. manufacturing sector with increased input costs offsetting the gains from increased protection, according to preliminary analysis from researchers at the U.S. Federal Reserve Board. Increasing tariffs also creates greater economic uncertainty, potentially dampening business investment and creating a further drag on growth.”

The Trump administration has proposed additional actions including: Section 232 tariffs on imports of automotive, a 100 percent tariff on goods from France in retaliation to France’s digital services tax, additional taxes proposed on imports from Mexico and China, and an expansion of tariffs on derivative products of steel and aluminum.

“In total, these proposed actions, together with those already implemented, would potentially affect over $1 trillion or 40 percent of U.S. annual imports,” reports CRS.