Fixing dispute settlement

US refuses to repair the damage it did to WTO

The ongoing trade tensions between the United States and several exporting economies, including the People’s Republic of China, should rightly be settled within the multilateral framework that governs world trade. Yet the dispute settlement function of the World Trade Organisation (WTO) is broken, and it is the US that must bear responsibility for it. Over the past months, several countries such as Korea and China have won cases at the WTO against absurd tariffs, mainly enacted by the previous Donald Trump-led US administration. The pretexts for some of these tariffs included national security and even “public morals”. Naturally, the dispute resolution panel found the US had not proved its case that these imports needed to be restricted on grounds of public morals. Normally, the US would have to comply with the ruling, especially if it were upheld by the WTO’s appellate authority. But, at this point in time, if a dispute resolution ruling is appealed, then it essentially vanishes into legal limbo because the WTO’s appellate body is no longer functional.
 

The appellate body, which has lost several judges in recent years, no longer has the quorum it requires to operate. Thus, it cannot rule on appeals, and the WTO cannot settle disputes. The reason the appellate body cannot replace the judges is simply that the US administration refused to allow it to, exercising a veto over new appointments since December 2019. This veto has outlived the Trump administration. President Joe Biden, in spite of loudly claiming to restore the United States’ commitment to multilateralism, has governed more like Donald Trump than expected when it comes to “America First” policies — including trade. The US under Mr Biden has not expressed an interest in returning to the Trans-Pacific Partnership, for example — and it has said that it “continues to have systemic concerns with the appellate body” and thus will continue to exercise its veto. Mr Biden’s US Trade Representative, Katherine Tai, made it clear during her confirmation hearings at the US Senate that she opposed the functioning of the appellate body — which means, in effect, opposing the functioning of the WTO. Mr Biden’s disinterest in repairing this situation is revealed by the fact that for months he has not bothered to fill the empty posts of deputies to Ms Tai, who took office in March. These posts include the position of US special representative to the WTO.

The Biden administration’s intransigence is impossible to justify, but it would at least make sense if it had a coherent proposal on the table about WTO reform. Yet, in spite of constant prodding by its European allies, it has failed to present a path forward. Instead, like Beijing, it seems to prefer to use bilateral mechanisms to settle trade disputes — which are, of course, inherently unfair on third parties, given the size and heft of both the American and Chinese economies. Multilateral processes and arbitration are designed specifically to prevent larger economies from rolling over smaller ones. As a leading emerging economy, India has not just a great deal to lose from such lawlessness but also a responsibility to push its partners, both in the developing and developed world, back towards creating an inclusive road map for WTO reform. That must start with tough talk in Washington DC.