Why the US has chosen to paralyse WTO

D Ravi Kanth | Updated on December 13, 2019

Tough job AB handled complex issues   -  REUTERS

By blocking the functioning of the Appellate Body, the US has neutralised any possible challenge to its unilateral trade policies

In the western world, wearing a black tie for funeral is a normal practice. But, for a Chinese trade envoy to openly declare that he is wearing the black tie at an important meeting in Centre William Rappard (that houses the World Trade Organization) on the banks of Geneva Lake , is unusual. The Chinese envoy said he “foresaw the result” that is coming at the WTO, thanks to their bête noire — the US. The envoy was referring to the result centring on a decision taken by the US to block the selection process for filling vacancies at the highest adjudicating body of the WTO. With this, Uncle Sam chose to take the oxygen out of the highest adjudicating arm for global trade body, which was regarded as the “crown jewel” of the WTO system.

The Appellate Body has served the WTO members well for the past 25 years. Its binding rulings since 1995 were never easy. They dealt with complex trade issues and tensions arising from mennu ki faida (what benefits me most) trade policies/measures for maximising dollar-and-cent gains in the international trade.

The AB, as it is referred to in trade lingo, was one of the final pieces of the jigsaw puzzle called the Uruguay Round of trade negotiations, that established the WTO in 1995. Ironically, the US played a major part in creating the two-stage dispute settlement system. In the first stage of a dispute, countries would invoke panel proceedings which would take place almost for more than a year. The panel’s verdicts — if not acceptable to either of the parties — can be contested before the Appellate Body, which is the second and final stage.

However, rulings by the AB members seldom satisfied the two sides — complainants and defendants — in equal measure.

Rigid rulings

The US has increasingly regarded the AB as a threat to its unilateral decisions and ‘America First’ trade policies, including billions of dollars of revenue collected from anti-dumping and counter-vailing (anti-subsidy) duties. Earlier, the US was able to turn its back to the GATT (General Agreement on Tariffs and Trade) panel rulings because they were not binding. But once the AB started functioning, there was a qualitative change.

From bananas to cotton, airplanes to shrimp turtles and beef, internet gambling to renewable energy, and brooms to gasoline, the AB has until now handled complex trade disputes. Two former members — former commerce secretary AV Ganesan, who is now living in Chennai; and Ujal Singh Bhatia, who left recently on December 10 — served the AB well with distinction. Ganesan is still remembered for his powerful ruling, as part of the AB panel, against the US in acotton dispute raised by Brazil. The AB found that the US cotton subsidies violated global trade rules.

In the anti-dumping dispute over bed linen between India and the European Union, the AB ruled against the use of zeroing methodology, which inflated anti-dumping margins. Subsequently, the ruling against zeroing methodology became a benchmark for rejecting US’ anti-dumping measures in various trade disputes raised by different countries.

But, where the AB rulings were favourable for its trade interests, the US was ready to pounce on losing countries to change their practices or imposed billions of dollars of trade sanctions. Unsurprisngly, this hypocritical stance — welcoming favourable AB rulings while maligning it for adverse ones — has caused a grave crisis.

Appeasement bid

In fact, the US chose not to implement several rulings by the AB for more than 17 years, causing lawlessness in the global trade order. Of course, with the advent of the Donald Trump regime, the lawlessness took the ugly form of unilateral actions and complete disregard for rules.

Even as 163 members condemned the US for spiking the AB on Tuesday, there was a deliberate attempt to appease Washington, which came from none other than the Director-General of the trade body, Roberto Azevedo. He suggested that more needs to be done to address the concerns raised by the US about the functioning of the AB. The DG did not even mention once, much less criticise, the US ’actions that caused the impasse over filling AB vacancies, ending the two-stage binding dispute settlement process for the time-being.

“We work closely with the very-able Director-General, Roberto Azevedo,” the US Trade Representative Ambassador Robert Lighthizer told the US Senate on March 12, “to achieve our objectives at the WTO”. The US has now ensured that its “might” will become “right” at the WTO, as well as a steep descent of the body to the GATT 1947.

Published on December 13, 2019

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