Leibowitz: The future of WTO dispute settlement in the MC 13 conference

Background

A bit of history may be useful. The WTO came into being at the beginning of 1995. Before that, the General Agreement on Tariffs and Trade (GATT) was in force, but there was no real institution behind it.

The GATT was the institution. The GATT had a dispute settlement mechanism. Cases were filed and a panel of trade professionals (diplomats in Geneva generally) sat on these cases. In due course, the panel would issue its report; if the losing party did not like the result, it could effectively ignore it without significant consequences, other than public perception.

The Uruguay Round sought a better way. Disputes were heard by a panel of (usually three) trade diplomats. The cases started innocently enough, with a “request for consultations” by the aggrieved party. In due course, panels read briefs, heard arguments, then rendered a decision. If the losing party was unhappy, it could appeal the decision to the Appellate Body, a group of seven trade experts appointed with the consent of all WTO members, usually sitting in panels of three.

There were further proceedings if the losing party at that level failed to implement the decision in a timely manner. But, unlike the old GATT days, the decisions in the WTO had teeth, although the consequences were slow to develop.

When the US lost high-profile cases in the WTO, it complained about “judicial overreach”. The Obama administration even blackballed two Appellate Body members (American Jennifer Hillman in 2011 and Korean Seung Wha Chang in 2016), refusing to agree to their reappointment because of US disagreement with their decisions.

How things stand

Then, when Donald Trump took office, the US boycotted the appointment process altogether. This left the Appellate Body with no sitting members by 2019, a state that persists.

Now, with no functioning Appellate Body, countries that lose cases at the panel level file an appeal “into the void.” A decision will never be adopted because the final stage of the process is broken.

At the upcoming ministerial conference (known as “MC13” because it is the 13th conference since the creation of the WTO), there will be a communiqué but no real action. Draft papers have been circulated with several ideas for reforming the WTO dispute settlement process; but the key issue is and will remain that the US feels it has unjustly lost cases it should have won, especially in antidumping and countervailing duty (“trade remedy”) cases and the Section 232 tariffs imposed by President Trump and which remain in effect.

The WTO has found fault in many US trade remedy processes. The US is unique or at least unusual in many of its practices. For example, the US assesses antidumping and countervailing duties on a “retrospective” basis, meaning that final duties on imports subject to trade remedies are not calculated until after (frequently long after) the goods subject to those duties are imported. If an importer does not know whether the duty will be high or low, frequently the goods won’t be imported at all.

The US is the only major country of the 70 or so countries that have trade remedy laws that handle it this way. Most other countries calculate definitive duties before goods are entered and adjust those duties on a prospective basis if conditions change.

The Section 232 tariffs, which are assessed on a prospective basis, were challenged in the WTO on another ground—the absence of a “war or other emergency in international relations”. Without such an emergency, Article XXI of the GATT does not permit countries to invoke national security to abrogate their obligations regarding negotiated tariff levels.

The brass tacks

While the US has argued that “for more than 70 years” it has asserted the right to act in its perceived national security interests without having to comply with the language of Article XXI of the GATT, recent WTO panels have decided that the text of the agreement is dispositive.

The US has appealed seven adverse decisions into the void.

These are, to be sure, difficult and politically charged issues. The Appellate Body, of course, has never ruled on the Section 232 cases, because it became non-functioning before the panel rulings against the US.

The Ministerial Conference this coming week will have no breakthroughs, and the dispute settlement system will continue to be non-functioning for some time to come. In that posture, the US and many other WTO members will have no avenue to remedy violations of WTO agreements.

In the current climate of economic nationalism, this has already begun to spread to other agreements and institutions. Putting the system back together will get harder.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.