No nation or group of nations has more at stake in salvaging the rules-based multilateral trading system than the world’s big emerging-market economies: Brazil, Mexico, India, China, Korea, Thailand, and Indonesia, among others. Trade has fueled rapid economic growth in these countries, raising the standards of living of hundreds of millions of people there.
To defend their commercial interests and resolve inevitable trade conflicts, these countries have actively and successfully used the World Trade Organization’s (WTO) dispute settlement system. The question is whether they have enough economic or political clout to persuade the United States to cease and desist in its campaign to wreck a pillar of the rules-based trading system.
By refusing to fill vacancies in the WTO’s Appellate Body, the Trump administration has paralyzed the key component of the dispute settlement system. On December 10, 2019, the Appellate Body officially lacked the minimum number of judges (or members) to operate.
As a result, any disputes that are appealed would remain in legal limbo, effectively allowing the losing parties to block adoption of panel rulings and rendering the mechanism inoperative. Several WTO members are exploring interim appellate review mechanisms; while important to mitigate the damage, they do not aim to resurrect the Appellate Body. With the world trading system back to being a power-based arrangement, trade disputes risk turning into small and not so small trade wars.
An effective dispute adjudication and enforcement mechanism is critical for big emerging-market economies to secure market access for their exports. The mechanism is also designed to protect third parties against any settlements between disputing countries that potentially discriminate against these third countries.
Likewise, the system shields trade policymakers in emerging-market economies against domestic protectionist pressures, which prevent their integration into the world economy. Most important, effective enforcement fosters sound rules and good policies, which encourage investment and economic growth across the world, in turn enabling a business environment conducive for firms to invest and trade to thrive.
The Appellate Body crisis is not of the emerging-market economies’ making, but they may hold a key to unlock it. The Trump administration has also focused its ire on a longstanding practice of giving these economies latitude to seek “special and differential treatment” in trade negotiations because of their developing-country status (González 2019).
Thus the largest emerging-market economies, which have a significant stake in preserving a two-step, rules-based mechanism for resolving trade disputes, could play a role in driving a potential bargain to save the appeals mechanism. They could unite to give up that special status in return for a US commitment to end its boycott of the nomination of Appellate Body members.
Because the dispute is more about the nature and function of the Appellate Body, this proposal may be a long shot. More may be required to address US concerns; the timing may not be right. Also, for such a deal to work, the United States must seriously engage. On the contrary, recent moves to cap the compensation of Appellate Body members and to block decisions on pending appeals have further complicated the discussions.
Washington appears ready to return to the pre-WTO days, when any one member could unilaterally block the establishment and adoption of panels. But the United States may also be looking for a deal. Emerging-market economies could enter the fray to get a negotiation going.
GROWING IMPORTANCE OF LEADING DEVELOPING ECONOMIES IN GLOBAL TRADE
Developing countries have become important actors in global trade, especially since 2000. Their goods exports have grown four-fold, from $2,239 billion in 2000 to $8,477 billion in 2017, with their share in world goods trade increasing from 34.7 to 47.8 percent in the same period.
Rapid trade growth has helped bring unprecedented prosperity across the world, with the expansion of global value chains facilitating the integration of developing countries into the world economy and helping a billion people move out of poverty. By driving consumption and domestic demand, the emerging middle class has contributed to economic progress worldwide.
This remarkable performance has been driven mostly by China, which accounts for about a third of that growth, and by 14 other developing economies: Korea, Hong Kong, Mexico, Singapore, United Arab Emirates, India, Thailand, Saudi Arabia, Malaysia, Brazil, Vietnam, Indonesia, Turkey, and South Africa.
The cumulative exports of these 15 economies have grown from $1,458.1 billion in 2000 to $6,306 billion in 2017. With 35.6 percent of global merchandise exports in 2017, up from 22.6 percent in 2000, these 15 economies account for some three-quarters of goods exports of all developing countries.
The data in table 1 also show the importance of the 15 largest developing economies in global trade. In 2000 merchandise exports of these 15 economies amounted to 60 percent of EU merchandise exports and 187 percent of US merchandise exports; by 2017 their share in world goods exports at 35.6 percent was slightly higher than that of the European Union (33.3 percent) and four times larger than that of the United States (8.7 percent).
With such remarkable trade performance comes increased potential for trade conflict, which has enhanced the stake of these 15 largest developing economies in the preservation of a well-functioning dispute settlement system, including its effectiveness as a mechanism for advancing and defending their commercial interests.
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