Three fundamentals for the reform of the global trading system

Next week, the World Trade Organization (WTO) trade judge Shree Baboo Chekitan Servansing will end his term on the organization’s Appellate Body, which is the panel of judges that hears appeals to disputes brought by WTO Members. Ordinarily a departure such as this would not be an issue of international concern. But this time, it is threatening to throw into crisis one of the linchpins of the global trading system.

The World Trade Organization (WTO) headquarters are seen in Geneva on April 12, 2018. [File photo: VCG/Fabrice Coffrini]

The WTO dispute settlement mechanism sits at the core of the global multilateral trading system. Similar to a supreme court, it has the final say on trade disputes among WTO members. On August 27, the United States vetoed the appointment of Judge Servansing for a second term. This marked the 11th consecutive month that the United States has blocked the appointment of judges to the Appellate Body. There are seven seats on the Appellate Body, but after Judge Servansing departs on September 30, there will only be three judges left – the minimum number required to preside over a trade dispute. If a judge falls ill or is otherwise unable to perform their duty, the work of the Appellate Body will grind to a halt. And according to analysts, by the end of next year the Appellate Body might only have one judge left.

Avoiding the situation where the WTO dispute settlement mechanism falls into dormancy has become one of the most urgent areas of work on WTO reform. Revitalizing the multilateral trading system and promoting the sustainable development of global prosperity will require major world economies to agree on three things.

First, efforts need to be made to resolve the obstructionism of the United States when it comes to new appointments to the Appellate Body. In August 2016, the United States blocked the Appellate Body from starting the selection process for new judges on the grounds that it was going through a change of government. It subsequently offered various reasons why it believes the WTO needs to be reformed, but it has failed to provide concrete proposals.

This week, the European Union and Canada released draft proposals on WTO reform, warning that the WTO dispute settlement mechanism will fail in December 2019 if the United States continues to obstruct the appointment of judges. Canada has proposed safeguards to strengthen the WTO dispute settlement mechanism. And the European Union has proposed changing the rules for hearings so that “in no case shall the proceedings exceed 90 days”, unless the participants in the case agree to an extension. And the European Union has proposed increasing the number of judges from seven to nine, arguing that this will increase the efficiency of the Appellate Body and improve the geographical coverage of its members.

Second, protectionism and unilateralism has to be contained. The United States has repeatedly bypassed the WTO by using its domestic laws as weapons in trade disputes. By unilaterally imposing tariffs on other countries as a negotiating tactic, the United States has seriously damaged the authority of the WTO and undermined global multilateral trade rules. In response, the European Union and Canada have proposed reforming the current WTO rules and improving WTO supervision over its members. Since the beginning of this year, the European Union has worked to limit unilateralist and protectionist behavior through talks with United States and the other G20 countries, and by establishing WTO reform working groups with the United States and China.

Thirdly, the participants in the WTO system must adhere to the principle of consensus. China’s Foreign Minister Wang Yi recently said that the core values and basic principles of the WTO must not be lost in the process of the reform, which includes defending the legitimate rights and interests of developing countries and maintaining the spirit of consensus. As Minister Wang Yi said, the purpose of WTO reform should be to enable countries to share the fruits of globalization more equitably, and not to allow the gap between the global North and South to widen further. WTO reform should take into consideration the views of all parties, especially those of the great many developing countries.

In fact, the principle of consensus is one of the basic principles of the WTO negotiation mechanisms. It helps to take account of the power imbalance between the developed and developing countries, and balance the rights and obligations of the WTO members. Arguably, decision making that relies on consensus can slow negotiations and make them less efficient. But it is difficult to demand that all members of the WTO act in accordance with the outcome of negotiations if they didn’t play a substantive role in the process.