End of Status Quo? EU Sends WTO Reform Proposals To Break U.S. Deadlock

The European Union published proposals on Monday for reform of dispute settlement at the World Trade Organization that it has agreed with China, India and other countries, hoping to overcome U.S. objections that have thrown the WTO into crisis.There was no immediate reaction from the United States, which has previously dismissed the EU’s ideas on the subject. The WTO is scrambling to develop a plan for the biggest reform in its almost 24-year history after President Donald Trump brought the world’s top trade court to the brink of collapse by blocking appointments of its judges and threatening a U.S. withdrawal. Trade diplomats see Trump’s tough line on the WTO as part of a pattern of demanding a “fair deal” for the United States and they take his threats seriously because the U.S. has withdrawn from a series of international agreements.
 

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Too many obstacles for a step forward

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No deal = economic suicide  - for all of participants

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Most countries around the world are trading under WTO rules.  It's not perfect, not quite fair and  not enough open for third-world countries,  but it's still a legitimate body for each side in trade war ...No deal, (no problem) no money.

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There are 3 trading blocks in the world China, USA and EU. Every country trades under one of these regulatory powers and if you brake a chain, circle doesn't exist any more... It's crucial to make a fair deal for future.

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This is the content of the proposals supported by the EU, Australia, Canada, China, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland :

 

Quote

 

The textual proposals submitted today seek to address all the concerns raised with regard to the WTO Appellate Body, by:

-      Putting in place new rules for outgoing Appellate Body members which make clear in which cases they can stay on to complete the appeal proceedings they are working on;

-      Ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in the WTO rules, unless the parties in the dispute agree otherwise;

-      Clarifying that the legal issues that are subject to appeal by the Appellate Body do not include the meaning of domestic legislation;

-      Indicating that the Appellate Body should only address issues necessary to resolve the dispute;

-      Introducing annual meetings between WTO members and the Appellate Body to discuss in an open way systemic issues or trends in jurisprudence.

At the same time, the EU is also making proposals to reinforce the Appellate Body's independence and impartiality and to improve its efficiency. These include having a single, longer term for Appellate Body members of 6 to 8 years, as well as increasing the number of members from 7 to 9 working full-time, to support the Appellate Body's capacity to deliver.

The proposals also include rules to ensure that the selection process of Appellate Body members starts automatically when a post is vacant and that there is an orderly transition with outgoing members.

These proposals will be presented by the EU and co-sponsoring WTO countries to the entire membership at the meeting of the WTO General Council on 12 December. The EU hopes that all WTO members can engage swiftly on this basis and that we avert the looming crisis.

 

 

Will the Trump administration accept this proposals supported by all its main trade partners ? 

Given the dislike of Trump for all the multilateral institutions, I'm not very optimistic. This could end with a cornered US pulling out of the WTO.

I'm not sure that replacing multilateral trade diplomacy by twitter threats of sanctions will really improve our World.

 

 

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1 hour ago, Guillaume Albasini said:

 

This is the content of the proposals supported by the EU, Australia, Canada, China, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland :

 

 

Will the Trump administration accept this proposals supported by all its main trade partners ? 

Given the dislike of Trump for all the multilateral institutions, I'm not very optimistic. This could end with a cornered US pulling out of the WTO.

I'm not sure that replacing multilateral trade diplomacy by twitter threats of sanctions will really improve our World.

 

 

Hi Guillaume.  Do you have the link to the full document?  My initial reaction to the snapshot was:  That's it?  That's not going to even start to address the U.S. objections.

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There's more telling content in the Reuter's story, but I still haven't seen the full document.

(Excerpt from Reuter's)

Shea said in October he could not support the EU’s ideas on reforming the Appellate Body.

But an EU official said there was no official U.S. position on the earlier EU paper and the EU had not been seeking U.S. input until now.

The new proposals aimed to comprehensively address all the U.S. concerns, although the focus was on the procedural issues rather than questions about judicial over-reach, which would require U.S. input.

(underlining by me)

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(edited)

For detailed perspective of what the U.S. view on international trade practices is, you can read the following:

Economic Report of the President Together with The Annual Report of the Council of Economic Advisers - February 2018

The beginning of the report has a forward from the President of the United States to the U.S. Congress and it is worth reading to get a direct feel for what President Trump has to say about his policies in summary view.

Chapter 5 is titled:  Enhancing U.S. Trade in a Global Economy

It is a long chapter, as one would expect, and it is all relevant to this discussion, but you may wish to skip to page 250, where the sub-title is "Defining the Rules of the Game for Trade".

Also contained in Chapter 5 is the section called "U.S. Energy Dominance Relies on Trade", beginning on page 270, which some of our readers may find interesting.  Maybe interesting enough to start a whole new thread on to discuss (or complain about, or boast about, etc.) :)

One of the beauties of the United States is that documents such as these are freely available.  In many cases full disclosure can change the discussion dramatically.

Edited by Dan Warnick

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2 hours ago, Dan Warnick said:

Hi Guillaume.  Do you have the link to the full document?  My initial reaction to the snapshot was:  That's it?  That's not going to even start to address the U.S. objections.

The quote was from the EU press release.

http://europa.eu/rapid/press-release_IP-18-6529_en.htm

The link to the full document is here :

http://trade.ec.europa.eu/doclib/docs/2018/november/tradoc_157514.pdf

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7 minutes ago, Guillaume Albasini said:

The quote was from the EU press release.

http://europa.eu/rapid/press-release_IP-18-6529_en.htm

The link to the full document is here :

http://trade.ec.europa.eu/doclib/docs/2018/november/tradoc_157514.pdf

Thanks, Guillaume.

Unfortunately, the document proposes changes to the who and the timelines instead of the meat of what the body is supposed to be helping to arbitrate (IMO).  In fact, it reads like an EU document that is supposed to address member country's concerns, but only addresses the structure of the EU Council.  In that, you and others are right about Trump unilaterally not accepting the changes proposed changes, if that is all there is to it, which according to the release is all there is to it.  

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51 minutes ago, Dan Warnick said:

Thanks, Guillaume.

Unfortunately, the document proposes changes to the who and the timelines instead of the meat of what the body is supposed to be helping to arbitrate (IMO).  In fact, it reads like an EU document that is supposed to address member country's concerns, but only addresses the structure of the EU Council.  In that, you and others are right about Trump unilaterally not accepting the changes proposed changes, if that is all there is to it, which according to the release is all there is to it.  

It seems that this document is mainly focusing on trying to solve the urgent problem of the WTO Appellate Body.

In applying the tariffs on steel and aluminum, the Trump administration has relied on a rarely-used WTO national security exemption, which permits governments to take “any action which it considers necessary for the protection of its essential security interests.” But several WTO members including the European Union and China asked the WTO to examine the U.S. levies, which they say don’t bolster security but further U.S. economic interests. The WTO has agreed to investigate the legality of U.S. tariffs on steel and aluminum imports based on national security concerns.

The US being the target of an increasing number of WTO investigation, Washington is trying to slow the work of the WTO by blocking the appointment of new judges to the Appellate Body who has the final say on trade disputes (all 164 WTO members must comply with their rulings) . The WTO Appellate Body normally has seven judges but after the U.S. campaign to block appointments and reappointments only three remained (the term of a fourth judge expired on September 30.). Given that three judges are needed for each case if one of the three remaining judges has to recuse from a case for legal reasons, the system will break down. The terms of two  judges — Thomas Graham, an American, and Indian chief judge Ujal Singh Bhatia — will end in December 2019, which will leave China’s Hong Zhao alone in office until her term ends in November 2020.

You probably noticed that the first of the proposed amendments in the EU document provides that "an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has taken place during that member's term". A disposition that could allow the judges to stay in function after the end of their term. For instance the judge Shree Baboo Chekitan Servansing from Mauritius could still rule on the appeals in which a hearing has taken place before September 30. This could avoid the risk of a system breakdown due to a lack of judges. It's a way for the WTO to gain some time.

It is very likely that the US will not support the proposed amendments.

The Appellate Body is covered by the article 17 of the Understanding on Rules and Procedures governing the Settlement of Disputes included in the Annex 2 of the Marrakesh Agreement Establishing the WTO. 

https://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm

If I'm right (I'm not a WTO expert) in this case the amendments have to follow the rules of the paragraph 8 of the article X. It provides that the amendments are approved by consensus.

 

 

Quote

 

Article X
Amendments

8.   Any Member of the WTO may initiate a proposal to amend the provisions of the Multilateral Trade Agreements in Annexes 2 and 3 by submitting such proposal to the Ministerial Conference. The decision to approve amendments to the Multilateral Trade Agreement in Annex 2 shall be made by consensus and these amendments shall take effect for all Members upon approval by the Ministerial Conference.

 

 

So if the US does not support the amendments there will be no consensus... and therefore no amendments approved.

 

 

 

 

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6 hours ago, Guillaume Albasini said:

It seems that this document is mainly focusing on trying to solve the urgent problem of the WTO Appellate Body.

In applying the tariffs on steel and aluminum, the Trump administration has relied on a rarely-used WTO national security exemption, which permits governments to take “any action which it considers necessary for the protection of its essential security interests.” But several WTO members including the European Union and China asked the WTO to examine the U.S. levies, which they say don’t bolster security but further U.S. economic interests. The WTO has agreed to investigate the legality of U.S. tariffs on steel and aluminum imports based on national security concerns.

The US being the target of an increasing number of WTO investigation, Washington is trying to slow the work of the WTO by blocking the appointment of new judges to the Appellate Body who has the final say on trade disputes (all 164 WTO members must comply with their rulings) . The WTO Appellate Body normally has seven judges but after the U.S. campaign to block appointments and reappointments only three remained (the term of a fourth judge expired on September 30.). Given that three judges are needed for each case if one of the three remaining judges has to recuse from a case for legal reasons, the system will break down. The terms of two  judges — Thomas Graham, an American, and Indian chief judge Ujal Singh Bhatia — will end in December 2019, which will leave China’s Hong Zhao alone in office until her term ends in November 2020.

You probably noticed that the first of the proposed amendments in the EU document provides that "an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has taken place during that member's term". A disposition that could allow the judges to stay in function after the end of their term. For instance the judge Shree Baboo Chekitan Servansing from Mauritius could still rule on the appeals in which a hearing has taken place before September 30. This could avoid the risk of a system breakdown due to a lack of judges. It's a way for the WTO to gain some time.

It is very likely that the US will not support the proposed amendments.

The Appellate Body is covered by the article 17 of the Understanding on Rules and Procedures governing the Settlement of Disputes included in the Annex 2 of the Marrakesh Agreement Establishing the WTO. 

https://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm

If I'm right (I'm not a WTO expert) in this case the amendments have to follow the rules of the paragraph 8 of the article X. It provides that the amendments are approved by consensus.

 

 

 

So if the US does not support the amendments there will be no consensus... and therefore no amendments approved.

 

 

 

 

Did you read the report I linked to in my earlier comment?  Again, if you want the true stated position of the U.S. on the issues before the WTO, you need to get the U.S. side of the equation as well.  Have a read, it doesn't take long.  The stance about national security is being used because it legally can be used.  Ask any lawyer or judge if it is fair to use legally valid reasons.  If one thinks the legally valid reason is not fair, then a review and changing of the rules is required.  The U.S. position is that China and many other countries are using vague and outdated legally valid reasons to abuse the WTO so the precedent is there to do the same themselves.  Have a read of the report and then we can talk more about what changes really need to happen at the WTO.

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