WASHINGTON—Member countries of the World Trade Organization are aiming to resurrect a dormant system for resolving trade disputes that has been a point of friction between the U.S. and other nations.
The WTO’s Appellate Body, the apex of the Geneva-based group’s dispute-settlement system, has been effectively shut down since 2019 after the Trump administration blocked the appointment of new judges.
U.S. complaints about the system, which predate the Trump presidency, center on Appellate Body rulings against tariffs and other remedies, limiting what U.S. officials and lawmakers see as America’s right to protect its industries.
China has been an active litigant, and the U.S. more than European and other countries has pointedly criticized the WTO and the appeals body for failing to deal with China’s state-directed capitalism, its lax protection for intellectual property and resulting distortions to trade.
Now, WTO boosters see an opportunity to start fixing the international court and clear the logjam.
The organization’s new director-general, former Nigerian finance minister Ngozi Okonjo-Iweala, called the dispute-settlement system the “crown jewel” of the WTO after her appointment this month and promised to propose reforms this year.
President Biden supported Ms. Okonjo-Iweala after she had been blocked by the Trump administration, paving the way for her appointment. Biden administration officials have expressed a willingness to work with the WTO to ease trade tensions, though the administration is seeking a broad overhaul of the trade body and is keeping the heavy tariffs then-President Donald Trump placed on Chinese goods pending a review of trade policy.
Katherine Tai, Mr. Biden’s pick for U.S. trade representative who will appear at a Senate confirmation hearing Thursday, is experienced in using the WTO dispute system, having argued winning cases against China.
“There is cause for renewed optimism that the WTO can measure up to the tasks ahead,” Alan Wolff, a WTO deputy director-general and an American trade lawyer, said at a conference earlier this month, pointing to Mr. Biden’s support of international cooperation and the new director-general.
The impasse over the court has led to a backlog of cases, many of them involving the U.S., and removed an important tool for enforcing the rules that govern global commerce. A working dispute-settlement system is seen by many businesses and governments as pivotal to reducing trade barriers and is needed now as the global economy grapples with the coronavirus pandemic.
A fully functioning system is “critical for manufacturers’ long-term confidence and certainty, which is what the industry needs, especially as we recover from the pandemic,” said Ken Monahan, vice president of trade policy at National Association of Manufacturers.
Despite the Biden administration’s general support, U.S. officials aren’t rushing to overhaul the WTO, and that task, some trade policy specialists said, is formidable, given that reforms require consensus and views differ among important players such as the European Union and China.
At a staff-level meeting at the WTO on Monday, participants discussed a proposal from 121 members to begin the selection processes to fill the Appellate Body vacancies. The U.S. said it wouldn’t currently support the proposal, citing the need to address unspecified “systemic concerns” with the body, according to a Geneva-based trade official.
For the Appellate Body, proposals could include enforcing a 90-day time frame for appeals and revising the current four-year tenure for judges.
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China is a likely sticking point. The U.S., along with Canada, the EU and others, have accused China of illegal subsidies and dumping goods. U.S. trade officials from both Democratic and Republican administrations have said the Appellate Body’s rulings against U.S. tariffs have given leeway to Chinese government-backed enterprises to flood global markets with subsidized goods while reducing the scope for remedies by the U.S. and other market economies.
Beijing, in welcoming the appointment of Ms. Okonjo-Iweala, said it supported necessary reforms of the WTO and wants countries to lift restrictions on trade.
Kelly Ann Shaw, a former USTR official and Trump administration policy adviser, cautioned against expecting any quick change at the WTO.
“A lot of countries are trying to deflect the blame and put it on the Trump administration or the U.S.,” she said. “But there doesn’t seem to be a consensus on the way forward.”
Since the 1995 launch of the WTO, the U.S. and Europe have differed over the Appellate Body’s role and its rulings. The body, sometimes compared to the U.S. Supreme Court, handles cases filed by members to challenge decisions by WTO’s lower-level dispute-settlement panels. While the EU has staunchly supported the court, the U.S. has seen it as engaging in overreach and incapable of dealing with evolving challenges.
After China began racking up wins, the Obama administration started blocking the appointments of some individual nominees to the Appellate Body. The Trump administration went further and blocked all appointments. As a result, the court lost the quorum of members needed to make decisions in 2019, and its last member in November 2020.
With the Appellate Body out of action, 17 cases are in limbo, allowing the countries involved to continue with the practices rejected by lower panels. Six of the pending appeals were filed by the U.S., and three were filed against the U.S. One involves a lower panel’s September 2020 decision that the U.S.’s unilateral tariffs on over $200 billion of imported Chinese goods violate WTO rules.
The EU and 22 other nations including China created an alternate arbitration system to resolve trade disputes, though most WTO members haven’t signed on.
EU officials see the alternate system as temporary. Last week the EU acknowledged the need for reforming the Appellate Body, saying in a trade policy statement the dispute-settlement system “has not been operating as designed.”
Challenging cases lie ahead. Mr. Trump in 2018 imposed tariffs on about $50 billion of imported steel and aluminum, calling the global oversupply of metals a “threat to national security.” The duties hit allies such as the EU and Japan, not just China. The EU filed a complaint, and a lower-level WTO panel is scheduled to rule next year.
Chad Bown, a senior fellow at the Peterson Institute for International Economics think tank, calls the case a “ticking time bomb.”
A ruling against America’s use of tariffs to protect its national security would inflame WTO critics in the U.S., including some members of Congress, while a ruling in favor could encourage others to use national security as a pretext for trade restrictions.
“It’s a lose-lose for WTO and its members,” Mr. Bown said.
Write to Yuka Hayashi at email@example.com
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