By John Murphy

The continued success of the The world trade organization (WTO) is essential for the American business community. The rules-based global trading system embodied in the WTO has benefited countries around the world, but none more than the United States. And this also applies to its dispute settlement system.

Although the WTO was created in 1995, it built on the foundations of the 1947 Agreement General Agreement on Tariffs and Trade (GATT). Together, the WTO and GATT have revolutionized world trade. Eight successful rounds of multilateral negotiations have helped increase world trade from $ 58 billion in 1948 to well above $ 25 trillion today. This 40-fold increase in real terms has resulted in a rising tide of trade, job creation and increased incomes.

It is not only the elimination of tariffs imposed by the GATT and the WTO that benefits American companies and the workers they employ. WTO rules protect American companies operating abroad from unfair and discriminatory treatment. American businesses rely on these rules every day of the year.

It has become commonplace to say that the achievements of the WTO go back a long way, but it is not. The WTO Trade Facilitation Agreement, which entered into force in early 2017, is a world-class deal aimed at reducing costs, strengthening competition and fighting corruption. When fully implemented, it has the potential to increase global merchandise trade by up to $ 1 trillion per year.

In addition, a new WTO agreement entered into force in 2016, expanding access for US companies to government contracts from other countries worth $ 1.7 trillion; and another eliminated tariffs on $ 1.3 trillion in information technology goods in the same year. These trade pacts are good for American workers and businesses.

A dispute arbitrator

In addition to serving as a forum for negotiations, the WTO also plays a key role in dispute settlement. The WTO Dispute Settlement Understanding outlines the procedures for panels to adjudicate on disputes brought by its member states, and it also establishes an appeal body for appeals against panel decisions. specials.

The United States has been a major beneficiary of WTO dispute settlement, carrying and winning more cases than any other WTO member. In fact, the United States won or settled favorably more than 90% of WTO-settled cases it has brought, totaling more than 100 of the 350 disputes ruled on.

However, the benefits of this system go much further. The fact that WTO rules are enforceable under its dispute settlement system encourages governments to honor their commitments without resorting to court proceedings.

Highlighting bipartisan political support in the United States for the principle of binding dispute resolution, House Democrats in 2019 urged the Trump administration to prioritize dispute resolution in negotiations for the US-Accord. Mexico-Canada (USMCA). Specifically, they called for the elimination of the threat of “panel blocking” during the NAFTA era, thus allowing decisions to be binding and effective. House Ways and Means President Richard Neal (D-MA) memorably insisted that among his priorities “application, application, application is the most important of all.” This imperative certainly also applies to the WTO.

The benefits of WTO dispute settlement for the United States are not just theoretical. These victories include the following examples:

(1) Dispute with the EU concerning the prices of IT products: In 2010, the WTO dispute settlement process confirmed the United States’ claim that the EU had violated its WTO tariff commitments by imposing tariffs of up to 14% on flat panel computer monitors, multifunction printers, and cable, satellite and other set-top boxes. The EU had claimed that it could levy duties on products simply because they incorporated newer technologies or additional functionality.

The US has successfully argued that the EU is taxing innovation in a way that could hamper continued technological development and raise prices for millions of businesses and consumers. At the time, global exports of the subject products were estimated at over $ 44 billion, so the removal by the EU of its obligations to comply with the WTO ruling was important: it meant a real market access, more sales, and direct benefits for American workers. In the absence of the WTO ruling, it is likely that the EU would still levy duties today.

(2) Dispute with China over obstacles to American films: In 2009, the WTO Appellate Body upheld the panel’s rulings that China’s film import restrictions were inconsistent with the country’s WTO obligations. China subsequently agreed to significantly increase market access for US films in order to comply with the ruling.

At the time, Chinese box office revenue was around $ 2.1 billion a year, much of it from 3D movies, IMAX and similar enhanced formats, which is a rapidly growing sector of the industry. ‘Film Industry. The WTO ruling played a key role in bringing China into compliance with its obligations, and it is difficult to see how the United States could have achieved this goal otherwise.

The United States’ record in settling WTO disputes with China is particularly strong: as has the Peterson Institute for International Economics reported, U.S. officials challenged Chinese practices 23 times at the WTO in 2019 – and won 20 times, with three cases pending.

(3) Dispute with Indonesia over obstacles to US agricultural exports: In 2016, the WTO dispute settlement process confirmed the United States’ assertion that Indonesia’s restrictions and bans on apples, grapes, potatoes, beef, poultry and other US agricultural products violated US commitments as a member of the WTO. The WTO ruled in favor of the United States on 18 of its 18 claims, which involved a complex set of trade barriers.

With Indonesia being the fourth most populous country in the world, the long-term benefits for American agricultural producers are potentially very significant. US exports of the affected products had reached $ 115 million, even with onerous barriers in place. As in the other cases cited above, the United States had no obvious way to push for the removal of these obstacles outside of WTO dispute settlement.

Reform and the Appellate Body

Despite these successes and many others, the future of the WTO dispute settlement system – and in particular of its appellate body – is in jeopardy. Over the past 20 years, US administrations have raised concerns about the “overbreadth” of Appellate Body rulings, arguing that some are not clearly supported in WTO agreements and that the slowness of its operations undermines its usefulness.

There is a growing consensus in the United States and elsewhere that a number of these concerns are valid and require reform; the question is, what is the appropriate remedy? The response from the Trump administration has been to to block Appellate Body appointments to the point that in December 2019, the retirement of limited-term Appellate Body members had left him without the quorum he needed to function. At no time did the Trump administration come up with concrete proposals to resolve his complaints, much to the chagrin of other members.

As a result, US companies have been unable to obtain relief from discriminatory treatment abroad or address cases in which a trading partner has otherwise violated its WTO obligations. While governments can continue to ask panels to examine violations, each party can exercise its right to appeal a panel decision, which, with the inoperative Appellate Body, returns the dispute. in perpetual limbo. Other governments have come up with workarounds to continue using the system for their citizens, but the United States remains completely excluded from this crucial part of the WTO’s binding dispute settlement process. What was once an important tool in the US enforcement toolkit is not available, and no effective substitutes have been identified.

The price to pay for allowing this impasse to persist could be high. Frames with American businesses fear that other countries’ compliance with WTO agreements will diminish over time if its dispute settlement system is no longer binding. They fear that new trade barriers and discriminatory treatment will become more common.

Now is the time for the United States to lead efforts to break this deadlock. In recent years, more and more countries have recognized the need to address the concerns raised by the United States. The United States should lead reform efforts by working concretely with other WTO members to address their concerns and restore a binding dispute settlement system.

The House expressed support for efforts to translate Walker’s Principles (articulated by New Zealand Ambassador to the WTO, David Walker) into a form that can address legitimate concerns identified by US administrations. The next logical step is for the United States to detail how it might seek to operationalize these reforms in a concrete way.

The stakes are high, but the door is open for WTO dispute settlement reform and the re-establishment of the Appellate Body. The American business community is ready to support this important endeavor.


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