WTO Members Debate Next Steps to Resolve Systemic Trade Tensions

9 May 2018

The challenges facing the multilateral trading system took centre stage at meetings at the World Trade Organization (WTO) in Geneva, Switzerland, as members weighed in on trade tensions among some major members; the status of its global trade court; and the next steps for its negotiating arm. 

Members first convened under an informal “Trade Negotiations Committee” (TNC) meeting, bringing together heads of delegation from across the WTO. That event, held on Monday 7 May, was followed by the organisation’s General Council on Tuesday. The latter serves as the WTO’s highest level of meeting outside of its biennial ministerial conferences.

“As long as tensions persist between major trading partners, the risk of a serious escalation remains very real. We must do all we can to avoid going down this path and taking measures that are difficult to reverse,” said WTO Director-General Roberto Azevêdo on Monday 7 May at the informal TNC event.

He also warned that the continued imposition of new trade restrictions by members could have damaging effects on trade growth and trade flows, shaking up global value chains and putting jobs at risk. Last month, WTO economists released updated forecasts for global trade growth which suggested continued positive trends, with 2017 growth at 4.7 percent and 2018 growth at 4.8 percent, though this number may settle down in the years to come.

At the time, the WTO warned that the policy environment will play a crucial role in ensuring that trade growth remains strong – and that new restrictions and trade spats among countries could have far-reaching adverse effects. Concerns over what tensions could mean for the global economy have arisen at other key events, including the Spring Meetings of the International Monetary Fund (IMF) and World Bank Group (WBG), along with the recent leaders’ summit of the Association of Southeast Asian Nations (ASEAN). (See Bridges Weekly, 26 April 2018 and 3 May 2018)

Members weigh systemic risks

The TNC and General Council meetings also included statements from a series of WTO members on recent trade developments, along with what these could mean for the organisation’s work and success going forward.

One coalition, for example, put forward a statement during the TNC calling for members to step up and resolve some of the various challenges affecting the organisation. They cited among these the slow pace of global trade talks, which have shown little movement since December’s ministerial conference in Buenos Aires, along with the functioning of existing structures such as the WTO’s dispute settlement arm.

“We, 41 developing and developed members of the World Trade Organization (WTO), consider a well-functioning, rules-based multilateral trading system embodied in the WTO to be of key importance for our economies as well as for global economic stability, prosperity and development,” said the group in a joint statement.

The signatories included countries from across world regions, many of which are also G20 members, and included a call for WTO members to “refrain from taking protectionist measures and to avoid risks of escalation,” and to use the organisation’s existing bodies and frameworks for addressing their concerns.

“We underline the necessity for members to contribute to keeping the WTO effective, relevant and responsive to all members’ needs, and we commit to continue working with all members to improve the WTO,” they said. 

US trade actions

The General Council meeting also featured an intense exchange among members over a series of US-launched trade actions that have grown in profile over the past few months.

China had asked to put on the General Council agenda three items, namely, the US’ Section 232 tariffs on imported steel and aluminium; the US’ Section 301 actions on China’s alleged violations of intellectual property rights and use of forced technology transfers; and the Appellate Body vacancies.

“The most urgent and burning question that the WTO has to answer now is how to respond to unilateralism and protectionism,” said Chinese Ambassador Zhang Xiangchen on Tuesday, according to a copy of his statement seen by Bridges.

“The prohibition on unilateral and protectionist measures became the bedrock and central elements of the multilateral trading system ever since. However, what is most dangerous and devastating is that the US is systematically challenging these fundamental guiding principles by blocking the selection process of the Appellate Body members, applying restrictive trade measures under Section 232, and threatening to impose tariff measures of US$50 billion of goods imports from China under Section 301 of US domestic law,” he added.

China criticised both the Section 232 and 301 actions for their unilateral nature and implications for the system. In the case of the Section 232 tariffs, which the US has justified on national security grounds, Zhang said that the levels of imported steel actually used in US national defence are very low. He also noted that various members have already managed to negotiate exemptions to these tariffs via quotas, in a development that raises questions for their WTO compatibility.

The US, for its part, criticised China’s own “overcapacity” in steel production, while also disagreeing with those members who have suggested that the Section 232 measures are, in effect, a safeguard measure rather than a national security one.

The US also replied to China’s criticisms of the Section 301 actions, saying that they did not agree with Beijing’s claim that it was being harmed by the move.

US Ambassador to the WTO Dennis Shea likened China’s criticisms of these trade measures to the sort of world seen in “Alice’s Adventures in Wonderland,” in reference to the 19th century Lewis Carroll novel.

“It is amazing to watch a country that is the world’s most protectionist, mercantilist economy position itself as the self-proclaimed defender of free trade and the global trading system.  The WTO must avoid falling down this rabbit hole into a fantasy world, lest it lose all credibility,” said Shea, according to a copy of his statement seen by Bridges.

Aside from China, various other members also questioned whether these unilateral measures could pose severe systemic disruptions, whether the US’ national security or intellectual property concerns were warranted or not.

“The European Union and its member states are very concerned by the direct and indirect impact that the measures could have – on the US market, the EU market, and on third country markets,” said EU Ambassador to the WTO Marc Vanheukelen at the General Council, referring to the Section 232 tariffs.

“The US measures also distract from the important challenge of addressing the root cause of problems in the steel and aluminium sectors today. This is the reality of global overcapacity caused by non-market based production. Root cause is the global overcapacity owing to subsidies,” he added.

Appellate Body impasse draws scrutiny

The continued vacancies on the WTO’s Appellate Body also prompted intense discussion at this week’s meetings. The US has blocked the start of processes to appoint new judges to that court, with three of the Appellate Body’s seven seats now vacant. If a fourth vacancy arises this coming September, it would leave the court down to the minimal number of judges needed to sign off on any Appellate Body rulings.

The US has criticised a series of aspects of how the Appellate Body functions, such as how some judges whose terms have expired are continuing to serve on cases that they had been working on while in office. That practice is a long-standing one, outlined in the Appellate Body’s Working Procedures. However, various members have argued that the US has not engaged sufficiently in discussions to resolve the problem, nor made clear what changes it would like to see to lift its hold on new appointments.

China had put the Appellate Body situation on the agenda for the General Council, and called for delinking the US’ concerns over certain aspects of how the dispute settlement system functions to the actual selection of new judges. “The crown jewel of the WTO is losing its brilliance,” he warned.

EU Ambassador to the WTO Marc Vanheukelen was among many who concurred that the Appellate Body situation is nearing critical levels, and calling for swift resolution.

“We are ready to have a conversation about the concerns about the Appellate Body, but we first need clarity on what the issues are. And we also need to have clarity that this will lead to unblocking the appointments,” he said at the TNC meeting, according to a transcript published by his office.

The 41-country group behind the joint statement also flagged the Appellate Body appointments as an area of “importance” going forward. Indeed, the Appellate Body vacancies are a subject that have dominated discussions in Geneva trade circles for several months, as the court also faces a hefty workload involving very complex cases.

Late last week, Appellate Body Chair Ujal Singh Bhatia told an audience at the Graduate Institute of International and Development Studies that the lack of judges is already posing severe risks to the court’s work.

“The reasons for this impasse are well-known and need not be restated here. More interesting – and alarming – are the consequences of the ongoing stalemate,” he said.

“First, the fact that the Appellate Body is now operating at half-capacity, i.e. with only four active members, is seriously undermining the collegiality of our deliberations, reflected in Rule 4 of the Working Procedures for Appellate Review. Second, the lack of a proper geographical representation threatens to dilute the legitimacy of the Appellate Body. Finally, the decrease in serving members is likely to cause further delays in appellate proceedings,” the official warned.

ICTSD reporting.

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9 May 2018
Top officials from the US and China have been holding a series of meetings over the past week, with more on the way, in a bid to address high-profile trade tensions on industrial overcapacity,...
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