Leibowitz on Trade: At the Root of the Controversy at the WTO—Antidumping

The Appellate Body is the “supreme court” of WTO jurisprudence, the final word in disputes between WTO members. The United States has been a very active participant in these disputes, bringing 132 cases and appearing as a “respondent” (basically a defendant) in 167 cases, according to statistics published by the WTO. It is no surprise that any country, including the United States, would not enjoy being on the losing side.

Most of the cases where the U..S has lost disputes involve antidumping and countervailing duty actions. The U.S. is a leading user of these laws in the world. It is therefore reasonable to say that the U.S.’s losing record in antidumping/countervailing duty cases at the WTO is a key reason that the Appellate Body is under so much pressure. Whether those losses are deserved warrants a closer look.

I participated as a private lawyer in the Uruguay Round trade negotiations that produced the agreements that formed the WTO and set out most of the rules that govern trade. I recall clearly that many issues surrounding antidumping and countervailing duty matters were left in an uncertain state by the Uruguay Round agreements.

The U.S. knew that it could lose on some of these major issues, such as “circumvention” determinations bringing new suppliers under existing antidumping and countervailing duty orders; imposing duties for subsidies to state-owned companies that were later sold in arm’s length privatization sales; and like “zeroing,” an antidumping methodology that treats sales with negative dumping margins (where the home market selling price, for example, is below the selling price to the United States market) as though they were zero. While circumvention has not been the subject of WTO decisions yet, it probably will be soon. Privatization sales and zeroing have been the subject of several WTO decisions.

When the U.S. lost those cases, the government cried foul. The U.S. claimed that the agreements did not prohibit imposing countervailing duties on companies that were later privatized in arm’s length sales, or zeroing out negative antidumping comparisons. The Appellate Body decided several cases on each of these points, and others. In doing so, the Appellate Body articulated a standard that previous decisions should serve as precedents for future decisions.

The interpretation of treaties is itself the subject of a treaty—the Vienna Convention. The cases involving antidumping and countervailing duties construed the agreements on subsidies and antidumping to prohibit those practices, while leaving many other practices alone. While the U.S. naturally does not like losing, the Appellate Body cases are not outliers; nor, to be fair, are they beyond debate. The U.S. decided to hobble the tribunal, the Appellate Body, in an effort to put these losses in play. The effort has succeeded in neutering the Appellate Body, but has not succeeded in making progress on reforming the WTO.

The WTO has its share of problems, to be sure. It can definitely be improved. With all that said, however, it is hard to claim that the world would be a better place without the WTO, or with the United States out of the WTO. The political impulse of countries to listen to protection-seeking industries could be a much more dangerous situation for world peace than the current disputes about the WTO’s future. The WTO rules give governments a reason not to surrender to protection—this reason does not always prevail, of course, but it may prevent the worst concessions to protectionism.

In a recent speech, Deputy WTO Director-General Alan Wolff, an American trade lawyer who joined the senior staff of the WTO several years ago, brought to mind one of the main arguments for rules of international trade—what he called “Trade for Peace.” It is the mindset that trading rules that guarantee the channels of trade will be kept open, that interdependence is a better guarantee of lasting peace than endless horse-trading and retaliation, and that the failure to live up to this ideal was a major cause of the collapse of the world order in the 1930s, that makes moving forward on resolving the disputes very important. While Section 301 and Section 232 tariffs have gotten more press than antidumping and countervailing duty cases lately, the latter trade remedies are still the source of much friction between the U.S. and its trading partners. U.S. losses in these cases have led to the present impasse at the WTO.

Solving the WTO’s problems may mean addressing the source of those problems in the antidumping and countervailing duty laws. As the Section 232 and 301 cases work their way through the system, the loss of the Appellate Body as a final arbiter will probably keep those cases from being conclusively decided.

Senator Josh Hawley (R-Mo.) recently called for the U.S. to withdraw from the WTO. Under the Uruguay Round Agreements Act, Congress can vote every five years on a resolution to withdraw the U..S from the WTO. A Senate vote on just such a resolution is scheduled for next month. However, that Senate vote, if it happens, will be symbolic because the House of Representatives determined not to bring the resolution to a vote in that chamber.

For the present, there is a stalemate on WTO reform and the negotiation of new rules to govern the new trade issues that have arisen since 1994. That situation is not likely to change in the near future—positions are hardening.

Still, the world appears better off having the WTO than not having it. Small consolation, perhaps.

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