Trump Has Abandoned Dispute Settlement

On 10 December 2019, the two-man demolition crew of President Donald Trump and United States Trade Representative (USTR) Robert Lighthizer took their wrecking ball to the World Trade Organization’s (WTO) Appellate Body in Geneva. Two of the three remaining dispute settlement judges concluded their terms on this day — with a minimum of three judges needed to hear cases. The US blocking of the appointment of judges to the dwindling Appellate Body has effectively placed the dispute settlement mechanism at the centre of the multilateral rules-based trading system on life support.

The WTO, and its dispute settlement function, is unique on a number of counts.

It is the only multilateral institution that hosts a judicial body possessing compulsory jurisdiction (without opt outs) over its membership. Its two-tier panel and appellate structure is exceptional among international judicial bodies. And the legislative facility of ‘authoritative interpretation’ that its General Council (comprising all WTO members) is vested with in order to iron-out judicial ambiguities in the WTO legal texts is without parallel.

The crux of the US criticism against the Appellate Body is two-fold.

First, that the Appellate Body has repeatedly overstepped its role and mandate assigned at the time of the WTO’s founding. This critique enjoys wide but shallow support across the WTO’s membership, given the modest extent of the Body’s occasional overreach. Second, that its WTO partners are unable to provide the requisite comfort on this point to merit removal of the US hold on new appointments.

This latter critique is disingenuous. On each of Washington’s specific grievances, an eclectic cross-section of the membership, including the European Union, China, Canada, India, Norway, Australia, South Korea and Mexico, have deposited a constructive proposal that substantially redresses the disquiet surrounding the Body’s overreach. Unwilling to admit ‘yes’ for an answer, the United States has instead taken to querying the unanswerable: Why has the Appellate Body procedurally and substantively issued rulings the way that it has!

The origins of the Trump administration’s faux philosophising on Appellate Body reform come from two sources.

First, it derives from the philosophical underpinnings of Trump’s ‘America First’ trade nostrums. Two elements are key: that the United States will henceforth engage in foreign trade liberalisation strictly on the basis of bilateralism and that the United States will not submit itself to third party arbitral mechanisms. Trump alluded to both in his APEC CEO Summit address in Da Nang in November 2017 when he noted that while he was willing to ‘make bilateral trade agreements with any Indo-Pacific nation … what [the United States] will no longer do is enter into large agreements that tie our hands, surrender our sovereignty and make meaningful enforcement practically impossible’.

On a less philosophical note, it derives from the ‘sunset industry’ protectionism championed by the ex-hired gun for the US steel lobby — USTR Robert Lighthizer. Over the first 20 of 22 years between the January 1995 commencement of the WTO and Lighthizer’s nomination to the USTR leadership position in May 2017, US sunset industries were hauled to the WTO court as a respondent in 57 per cent of WTO trade remedies disputes — fully five times as many as the next most frequent respondent, the European Union. In 90 per cent of cases, the United States came away holding the short end of the stick — a point of persistent soreness for Lighthizer. On critical occasions it was the Appellate Body which, in Lighthizer’s view, had overstepped its mandate in the course of reversing initial panel decisions that had favoured the United States.

Lighthizer’s animus aside, the lobbying power of sunset and protectionist sectors to commandeer US views on dispute settlement should not be discounted. In late 2000, at the behest of the sugar lobby, the Clinton administration kneecapped the North American Free Trade Agreement’s (NAFTA) dispute settlement procedure — permanently as it turned out — by similarly blocking the establishment of a panel to arbitrate a Mexican claim against the US sugar policy restrictions.

Over the past 18 months, the Trump administration has drawn upon a number of strained legal interpretations to rationalise its trade enforcement actions. The Section 301 duties are necessary to protect ‘public morals’, even though there is nary a reference to public morals in over 250 pages of Section 301 investigative reports released in 2018. The steel and aluminium levies are necessary to protect ‘national security’, even though the GATT standard requires that they be ‘taken in time of war or other emergency in international relations’ and should touch upon the member state’s ‘essential interests’. At this time, a similarly specious effort is underway to paint an undervalued currency as a countervailable subsidy.

With the WTO’s dispute settlement arm no longer a check on US action, the fear is that such deceptive American interpretations of its multilateral trade law obligations will proliferate. Washington already heads the pack in Article 22.6 non-compliance cases with regard to WTO dispute settlement decisions (by contrast, no case of countermeasures pursuant to Article 22.6 has been sought against China). And in the course of doing so, the United States will set a terrible precedent for future ranks of populist and protectionist-minded leaders of major trading powers to follow.

Shifts in international trade patterns and politics have been likened to the veritable ‘canary in the coal mine’. The defenestration of the WTO’s dispute settlement arm could well be a harbinger of what lies ahead for multilateralism in this age of impending multipolarity.

This article was originally published on the East Asia Forum website December 11, 2019.