WTO dysfunction gives us a breather

Last Tuesday, our government appealed against the ruling of a World Trade Organization (WTO) panel that some provisions of our export promotion schemes amount to prohibited subsidies that must be discontinued in the next few months.  

Effectively, this stalls implementation of the ruling. Under WTO rules, the panel recommendations must be adopted by its Dispute Settlement Body (DSB) within 30 days — unless one of the parties to the dispute formally notifies the DSB of its decision to appeal or the latter decides by consensus not to adopt the report. Where a panel report is appealed, the Appellate Body of the WTO must issue its decision within 30 days from the date the party to the dispute formally notifies its intention to appeal. When the Body considers that it cannot provide its report within 30 days, it should inform the DSB in writing of the reasons for this, with an estimate of the period within which it will give the report — in no case, however, should its proceedings exceed 60 days. The appellate report must be adopted by the DSB and unconditionally accepted by the parties to the dispute, unless the DSB decides by consensus not to adopt the appellate report within 20 days following its issuance to the members, says the WTO agreement on dispute settlement.

In practice, the time limits are breached more often than not but, mostly, the dispute settle mechanism has worked very well. However, America, especially under the Trump administration, is unhappy with the process of re-appointment of Appellate Body members, its alleged judicial overreach, rigid adherence to precedents, interpretations that significantly restricted the ability of WTO member-states to counteract trade distorting subsidies, disregard for time limits and so on. Instead of addressing these issues constructively, the Trump administration has blocked the appointment of Appellate Body members. As a result, there are now only three members instead of the seven it is meant to have. Of the three, the terms of two expire by mid-December. So, unless new members are appointed, the Body is likely to be completely dysfunctional, as every appeal is to be heard by at least three members.

Since its inception in 1995, the WTO dispute settlement mechanism has resolved an impressive number of trade disputes, earning a reputation as the “crown jewel” of the global trading system. Today, however, the dispute settlement mechanism is in crisis as WTO members have failed to negotiate updates to the rulebook, including rules on dispute settlement itself. As a result, the Appellate Body increasingly is asked to render decisions on ambiguous or incomplete WTO rules. Without enough members to review the panel rulings, the vaunted dispute settlement system is heading to a halt and soon the WTO might lose its system of final appellate review, and its panel rulings would become unbinding. For India, having lost its case in the panel hearings, this situation is quite welcome, at least for the present.  

So, our government can recalibrate its Foreign Trade Policy without regard to the panel ruling on its export promotion schemes and recommendations to withdraw the allegedly prohibited subsidies. This could mean merely rebranding the present export promotion schemes in some form or the other. 

E-mail: tncrajagopalan@gmail.com