WTO top court for trade disputes to lapse for the first time on Dec 10

The top court for trade disputes at the World Trade Organization (WTO) is now set to be defunct for the first time ever, after India and 116 other nations failed to convince the United States to change its opposition to appointing new judges.

A meeting of the WTO’s Dispute Settlement Body (DSB) last week was the last chance for nations to break the more than two-year-long deadlock but saw both sides dig into their positions, sources said. 

Subsequently, the top court for trade disputes at the global forum will now go defunct on December 10. As a result, the fate of multiple critical trade disputes being fought by India, including a ruling that abolished most of its export-promotion schemes, hangs in the balance.

“Most other nations, including a major coalition led by India have now asked the US to change its stance. Even after the November 22 meeting, New Delhi along with key WTO economies have continued to engage the US over the issue, but they have met with little success,” a senior person in the know said from WTO-headquarters in Geneva.

The DSB, made up of all the 163 WTO nations, elects the seven-member Appellate Body which functions as the WTO’s highest adjudicative body for settling trade disputes. Each judge of the Appellate Body serves a four-year term, with the possibility of a one-time renewal. On December 10, two of the three current appellate body members, Ujay Singh Bhatia from India and Thomas R Graham from the US, will retire.

American demands

The lack of appellate body judges has become a serious concern since it is the principal body tasked with arbitration between nations on trade disputes. As of now, cases take more than a year to be heard, officials said. Dispute settlement is regarded by the WTO as the central pillar of the multilateral trading system, and as the organisation’s “unique contribution to the stability of the global economy”.

The Donald Trump administration has increasingly resisted WTO control over global trade, pushing back after the body rebuked Washington DC over it's unilateral tariff measures against trade partners, including China.

Leading this charge has been United States Trade Representative Robert Lighthizer, who has repeatedly thundered against the WTO for being unfair to the US. Interestingly, Lighthizer was nominated to the Appellate Body as a judge sixteen years ago. However, he was not confirmed, which requires the unanimous support of every nation.

Now, the US has argued that Appellate body judges are paid far too much and perform little to justify this pay. It has also threatened to block the institution’s biennial budget and effectively halt its work beginning January 1 next year, after China secured the WTO’s go-ahead to impose $3.6 billion in sanctions against the US. This has rattled the Geneva based WTO secretariat, which depends on the US as the single biggest contributor to its 

annual budget. International media reports suggest the US has decided to back the $198 million budget for 2020 provided judges are paid less which would not incentivise them to cling onto their positions and stretch the hearing of cases.

Challenges ahead

On October 31, the WTO’s dispute settlement body ruled the majority of India’s export promotion schemes as illegal and ordered them to be stopped in the next four months. It also said the SEZ scheme should be closed in the next six months.

‘Prohibited subsidies’ under the export-oriented units (EOU), electronics hardware technology park (EOT), bio-technology parks (BTP) scheme, Export Promotion for Capital Goods (EPCG) scheme, and the Merchandise Exports from India Scheme (MEIS) were ordered to be shut down. While the government has file an appeal against the ruling, it has already began a series of exercises to overhaul existing schemes. However, with the US not willing to budge now, India plans to adopt a wait and watch stance for the 'forseeable future', a senior policymaker, said. Other major WTO economies such as Canada and the European Union have planned ahead by deciding on an interim arrangement. However, the idea to set up arbitration panels to resolve disputes bilaterally have been opposed by India. “There is a reason why the WTO has a dispute settlement process in place. Smaller nations will never get their due in a one-on-one fight,” a commerce department official said.

Fight for control of global trade 

• The 7 judges of WTO’s appellate body are the highest court for resolving trade dispute
• Their rulings cover the 163 WTO economies and are a central part of the body’s role
• The US has resisted the appointment of new judges citing high costs, poor performance
• But critics argue the US is miffed at the WTO’s rebuke over Trump’s tariffs
• Two of the three last judges set to retire on December 10, rendering body defunct