Under President Donald Trump, the United States launched a series of attacks on the liberal trading system, in particular the World Trade Organization (WTO). Kristen Hopewell’s article in International Affairs explores the fallout from this ‘assault’, focusing on US efforts to undermine the appellate body - the WTO’s mechanism for enforcing its rules.
What is the WTO appellate body?
The appellate body basically functions as the supreme court for global trade. It hears appeals regarding decisions by WTO dispute settlement panels. Its rulings are binding on member states. Around two-thirds of all WTO disputes are appealed and reach the appellate body. There are seven seats on the appellate body and the system requires a minimum of three judges to form a panel to adjudicate a given dispute. Since December 2020, all seven seats on the appellate body have been vacant.
What caused this disruption to the appellate body?
Starting in 2017, the United States began blocking all new appointments to the appellate body as the terms of its judges expired. Without a functional appellate body to hear cases, the country ruled against in a dispute can bypass a panel’s decision just by filing an appeal, which has major implications for the WTO’s ability to mediate disputes. This move was part of a wider approach to global governance under President Donald Trump, which I have characterized as an assault on the liberal trading order.
What were the grievances motivating US policy towards the WTO’s appellate body?
During his tenure, Trump arbitrarily imposed tariffs on all of the United States’ major trading partners, launched a trade war with China, and blatantly violated the rules of the WTO – even repeatedly threatening to withdraw from the institution. Under Trump, the United States really began behaving as something of a rogue state in international trade.
This assault was part of a broader trend. The United States has been articulating complaints about the appellate body since the early 2000s. It was actually the Obama administration which first began blocking the reappointment of judges to the appellate body. But it was under President Trump that this escalated. What is motivating this shift? The United States has articulated a lengthy list of procedural complaints against the appellate body, but there is also a wider concern in Washington that the WTO system has failed to address China’s trading practices.
How did the European Union (EU) respond to the appellate body crisis?
The EU’s key intervention was to propose the multi-party interim appeal arbitration arrangement, or MPIA. The idea behind this was to replicate, as closely as possible, the practices and procedures of the appellate body. This interim appeals arrangement applies only to participating states, but any WTO member state can join. By now [July 2021], over 50 states have agreed to participate, and this number will probably rise if the appellate body crisis continues.
In your article you present the EU as the major player leading the response to President Trump’s obstruction. What dynamics enabled the EU to play this role?
The main reason behind the EU’s success in taking a leadership role is its willingness to put forward a concrete solution, however temporary, to the appellate body crisis. Ultimately, the MPIA is a stop-gap measure – akin to triage or battlefield medicine – but it is respected as a means of salvaging the trading system and preventing the United States from destroying the WTO’s foundational rules and principles. More broadly, the EU holds a lot of credibility as a long-standing champion of multilateralism. If trade tensions between the United States and China continue to escalate, perhaps the EU is best placed to act.
Why did we not see a stronger response from China towards US policy on the WTO under Trump?
When Trump came to power, China tried to present itself as a country that was going to step in and play a leadership role – as a champion of globalization and the liberal trading order. But that’s not what we’ve seen at the WTO. China has certainly been an important partner in the MPIA initiative led by the EU, but very much as a follower of the EU’s lead. China doesn’t seem to have either the will or the ability to play the same kind of role as the EU in advancing system-preserving initiatives.
I think there are a couple of reasons for this. The first is that China lacks credibility as a defender of the rules-based trading system because of its own use of protectionist trade policies, and its attempts to weaponize trade as an instrument of economic coercion. We saw this, for instance, when China blocked imports from Canada, and also imprisoned two Canadian citizens, in retaliation for Canada’s participation in the Huawei extradition trial. Second, there is a widespread sense amongst WTO member states that China’s commitment to the rules-based trading system is really only partial and that China will violate the rules when it is in its interest to do so. As a result, Chinese efforts to assume leadership at the WTO have been greeted by a lot of distrust and suspicion.
What has this episode revealed about the strength of multilateral institutions such as the WTO, in the face of spoiling tactics from major powers?
The WTO is unique amongst international institutions because it has a powerful enforcement mechanism – the dispute settlement system. However, the fundamental vulnerability is that if powerful states like the US and others won’t participate in the system and be bound by its rules, they quickly risk becoming irrelevant. And that’s the situation we’re in right now with the appellate body crisis, where, without a functioning mechanism to ensure that WTO rules are enforced, the entire system of global trade rules risk collapsing. Ironically, the United States has been the leader of the liberal trading order for the past 70 years, but since Trump, it has become its leading saboteur.
What are the implications of a permanent collapse of the international trading system?
The very real danger from such a breakdown is a return to what we saw in the 1930s. In response to the outbreak of the Great Depression, you had countries imposing trade barriers, blocking imports from other state, and a general escalation of tit-for-tat protectionism. This response wound up not only exacerbating the effects of the depression itself but has also been credited by some as paving the way for the outbreak of the second world war. The reason why institutions like the WTO were created in the first place was to prevent a recurrence of the 1930s protectionist trade spiral. The danger now – if those rules become meaningless and unenforceable – is the institutional foundations of postwar economic prosperity could unravel, throwing us back into economic chaos and potentially political disorder.
What does the WTO’s future look like under new director-general Dr Okonjo-Iweala?
Dr Okonjo-Iweala has certainly made an encouraging start to her term, but the truth is the position of director-general itself holds very limited powers. The WTO is very much a member-driven organization. The director-general plays a role in trying to broker cooperation between states, but as we have seen the future of the WTO relies on the powerful states like the United States following the rules.
Despite the election of President Biden – and his professed commitment to multilateralism, international cooperation and the rule of law – there has not yet been any shift in US policy on this issue. Even under Biden, the US continues to block appellate body appointments and is yet to lift controversial tariffs on steel and aluminum which affect virtually all of the United States’ big trading partners. The United States remains in violation of international trade law. There is no indication that Biden intends to bring it into compliance in the near future.
One key moment for assessing the future health of the WTO is the ministerial meeting scheduled for 30 November 2021, where a critical agenda item will be brokering a new agreement on fishery subsidies. This is one of the sole active areas of multilateral negotiations at the WTO right now and was mandated as part of the UN sustainable development goals. Not only is this issue critical for global environmental policy, but also for global development because so many states depend on fisheries for food security and livelihoods. So, this could be a crucial test case for whether the WTO can maintain its function as a forum for delivering multilateral trade agreements – with or without US support.