The World Trade Organization currently has 164 members (countries and customs territories), with an additional 22 countries in the process of pursuing accession. While the WTO has attracted a lot of interest and greatly increased membership since its start in 1995, it is an organization in trouble and of diminishing relevance despite its important role and broad membership. While the challenges facing the WTO dispute settlement system are an obvious example of an unresolved problem, dispute settlement is by no means the only area of concern.
Challenges with the Negotiation Function
Historically, the most important function of the WTO’s predecessor, the GATT, was negotiating reduction in tariffs and other trade barriers. With a much broader membership under the WTO and with divergent economic systems for some major players from the historic market-based model, the negotiating function has been seriously hampered and the rules-based system does not adequately address differences in economic systems. While there have been some successes in expanding liberalization (e.g., information technology agreement, trade facilitation, agriculture export subsidy commitments), the consensus based approach and different interests of various major participants has largely prevented the WTO from maintaining a system reflecting current global issues and technologies and the differences in economic systems, with members relying on other vehicles to address pressing issues.
Members are attempting to reach agreement on limiting fisheries subsidies (now in the 18th year of negotiations) by the end of 2019 against a background of a continuing worsening of the overfishing problem globally. Moreover, discussions on broader reform within the WTO have been being held over the last year or two, including efforts to restore vitality to the Committee process through improved notifications (see below) and addressing some of the practices of different economic systems that are destabilizing global markets in a wide range of products. The likelihood of any significant breakthrough on fundamental reform seems implausible in the light of the dramatically different interests of key members and the need for consensus.
Challenges to the Committee Oversight Function
A second function of the GATT and now the WTO has been a committee process that is supposed to permit Members to monitor the activities of other members through various notification requirements and an ability to identify current concerns and potentially identify solutions acceptable to the broader membership. While the committee structure exists, notifications are spotty at best and the committee process has been reduced in importance for most of the first 25 years of the WTO through lack of focus by participating Members and other reasons. There are committees which appear to have functioned reasonably well over periods of time, but this critical aspect of the WTO is not making the contributions that it could and should make.
Time is Running Out for the Appellate Body’s Continued Functioning
The third core area of the WTO is dispute settlement. While there have been hundreds of disputes during the first 25 years of the WTO and while most Members are supportive of the system, there is a continuing crisis that flows from a core departure by the Appellate Body from the agreement that established the system, the Dispute Settlement Understanding (“DSU”), While many/most of the Appellate Body decisions are accepted by most/all countries, fundamental concerns with a system at odds with the agreed purpose of dispute settlement have been raised by the United States for more than 17 years (and indeed flow from Appellate Body actions stretching back close to 20 years). A core problem is the lack of effective ability of Member states to correct erroneous decisions of the Appellate Body which has meant that a system intended to help Members resolve disputes between themselves has instead turned into a system where rights and obligations are not a reflection of agreements but rather the views of the Appellate Body members.
While there are important Members who are happy with a system where rights and obligations are identified by the Appellate Body whether or not trading partners agreed to such obligations or rights, the creation of rights and obligations through dispute settlement is a fundamental departure from the agreed terms of the Dispute Settlement Understanding and is unacceptable to the United States. As no appeal can be heard where there are not at least three members of the Appellate Body, the Appellate Body will cease to operate (at least temporarily) after December 10, 2019, when the number of Appellate Body members declines from three to just one.
The United States has gone to extraordinary lengths over the last year or more to both identify its concerns and chronicle the history of the development of the issues. Some Members have made proposals to address one or more U.S. concerns through modifications to the DSU or through other means. But the proposals to date have failed to address the question raised by the U.S. as to why the Appellate Body has been willing to depart from the requirements of the DSU in the first place. Without understanding that question, why would modifications to the DSU result in a correction of action by the Appellate Body going forward?
The last Dispute Settlement Body meeting was held on September 30, and there was no resolution of the concerns of the U.S. at that meeting. There are future meetings (before December 10) presently scheduled for October 14 and November 22. There does not appear to be any realistic scenario in which there is a resolution before December 10, which will result in the Appellate Body ceasing to operate until there is a resolution.
Some countries – the European Union and Canada – have agreed to create an “arbitration” substitute for disputes between themselves and can be expected to seek agreement with other Members. See JOB/DSB/1/Add. 11. Members have the right now to agree to arbitration in lieu of the panel or Appellate Body system. DSU Art. 25. The proposal by the EU and Canada has already resulted in questions from the U.S. not on whether arbitration among willing members is permitted but whether, inter alia, the specific agreement between the EU and Canada exceeds the limits of the DSU by making arbitration decisions among willing Members somehow more than a resolution between the parties themselves.
Conclusion
USTR Lighthizer has indicated that the world would need to create something like the WTO if it didn’t exist. The U.S. under the Trump Administration just as under prior Administrations, has worked hard within the WTO to identify issues of concern and seek forward movement. Therefore it is not a correct reading of the actions of the United States to suggest that the U.S. is not supportive of the WTO.
An organization that sovereign states subscribe to and adhere to and that can address a rapidly changing world environment for the benefit of all participants is what the WTO is supposed to be. Without important reforms, unfortunately, the WTO will become less and less relevant to global commerce and to the lives of people around the world. It is the responsibility of the WTO Members to identify and adopt the changes that are needed to achieve the reforms needed to keep the WTO relevant. That takes leadership and an ability of the major players to understand what current economic realities prevent acceptable solutions.
Unfortunately, taking the dispute settlement situation as an exemplar, major players are failing to address the departures from the DSU that have caused such concerns for the United States for the last twp decades. That approach simply ensures a diminished relevance for the WTO and increased conflict between trading partners.
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