The Broken Multilateral Trade Dispute System

02/07/2018

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Terence P. Stewart

INTRODUCTION The World Trade Organization (WTO) came into existence on January 1, 1995, twenty-three years ago. One significant new feature of the global trading system was a WTO dispute settlement system that provided both the opportunity for appeals from panel decisions and made the final decisions (whether by a panel or the Appellate Body) “binding,” i.e., the decision could not be blocked by the losing party. This was a major change from how disputes were handled and resolved under the General Agreement on Tariffs and Trade (GATT). Over time, many WTO Members have expressed strong support for the dispute settlement system and general approval with its overall performance. Even so, many countries have also pointed to procedural and systemic problems in the functioning of the dispute settlement system. The United States, under various administrations – Republican and Democratic alike – has been in the forefront of such criticism. The concerns that prior Administrations expressed from time to time are receiving increased attention under the current Administration. One of the serious concerns which has been identified by the United States and other WTO Members is the increasing tendency of the dispute settlement process to displace or erode the negotiation function of the WTO. U.S. Trade Representative Lighthizer highlighted this concern in December 2017 at the WTO ministerial (MC11) in Buenos Aires.

Excerpt from Ambassador Lighthizer’s Opening Plenary Statement to the WTO 11th Ministerial Conference, Buenos Aires, Argentina, December 11, 2017 First, the WTO is obviously an important institution. It does an enormous amount of good, and provides a helpful negotiating forum for Contracting Parties. But, in our opinion, serious challenges exist.

* * * Second, many are concerned that the WTO is losing its essential focus on negotiation and becoming a litigation-centered organization. Too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table. We have to ask ourselves whether this is good for the institution and whether the current litigation structure makes sense. (Emphasis added).

The WTO has struggled to maintain its relevance in developing updated rules and new agreements to expand global trade on a basis acceptable to the membership. While the WTO has succeeded with certain sectoral negotiations (e.g., expansion of the Information Technology Agreement) and new agreements (e.g., the Trade Facilitation Agreement), the negotiating function of the WTO has been in significant decline over much of the WTO’s existence. The 16-year journey of the Doha Development Agenda negotiations is the obvious exemplar of the Members’ inability to complete negotiations in a timely manner and reflects serious differences amongst WTO Members on the direction and relative responsibility of various Members. Similarly, WTO Members had committed to reviewing the Dispute Settlement Understanding and modifying it if necessary by the end of 1998 – a process that remains unfilled as of today, more than nineteen years later. The inability to conclude negotiations has frustrated Members’ (and the WTO’s) ability to update rules, cover new areas of trade, and further liberalize trade on a multilateral basis. It has also led many countries, including the United States, to put increased emphasis on negotiations among the willing (FTAs, sectorals, etc.). That was true under the Obama Administration and has been restyled/continued under the Trump Administration. While there are various reasons for the reduced ability of the WTO to conclude multilateral negotiations, it is the view of many Members that a contributing factor to the reduced relevance of  multilateral negotiations has been the approach of the Appellate Body to deciding disputes. There is little doubt that the Appellate Body has, in various areas, created rights and obligations for sovereign states by filling gaps in agreements and interpreting silence or ambiguous language in ways that create obligations that were never agreed to by the WTO Members themselves. The Appellate Body’s approach to decision making has thus encouraged Members to seek through dispute settlement that which they historically would have sought through negotiations. Stated differently, the Appellate Body’s approach has had the unintended consequence of undermining the need of Members to negotiate on unresolved matters, instead encouraging Members to seek to legislate through dispute settlement. This state of affairs is not conjecture or surmise but reflective of private conversations with many missions in Geneva over the last two decades. There are issues that governments have chosen not to raise in negotiations in the hope that they could obtain their goals through litigation at the WTO, even though they knew what they sought had never been agreed to by the other Members. While fundamental disagreement on relative responsibility in advancing trade liberalization amongst the major WTO Members properly can be viewed as the main hurdle to forward movement on multilateral negotiations, a perception that various important issues don’t need to be negotiated because of a possible dispute approach certainly exacerbates the challenges. One particular example of Members achieving through litigation that which could not be gained through negotiation is the issue of “zeroing” as applied in antidumping calculations. The United States made the following statement before the Dispute Settlement Body (DSB) on May 9, 2006:  
  1. In conclusion, we would note the observation on the Appellate Body Report from a supporter of the outcome in the dispute: “This ruling is an important development in the WTO jurisprudence. In a sense, the AB made a huge contribution to free trade, which could not be made by negotiation alone.” (Emphasis added). It is troubling that even supporters of the outcome in this dispute thus perceive that it did not result from the negotiated text of the agreement, nor could it be expected to result from subsequent negotiation among the Members. The perception that the dispute settlement system is operating so as to add to or diminish rights and obligations actually agreed to by Members, notwithstanding DSU Articles 3.2 and 19.2, is highly corrosive to the credibility that the dispute settlement system has accumulated over the past 11 years.
The WTO is frequently described as a Member-driven organization which operates on the basis of consensus. Efforts by any part of the WTO to usurp the rights of the WTO Members raise implications for the trading system that go beyond whether one is generally satisfied or not with the dispute settlement system. The WTO dispute settlement system is facing serious systemic issues – issues that are affecting its current operation and that threaten its future effectiveness. A key question for the future is whether the WTO will be a Member-driven organization in which obligations are assumed following negotiations or whether multilateral rules at the WTO are essentially created by the seven members of the Appellate Body? For democratically elected governments, at a minimum, the latter approach necessarily raises serious questions.   Terence P. Stewart is the Managing Partner of Stewart and Stewart Copyright © Asia Society Policy Institute 2018. All rights reserved. The report was originally posted here.