After Dec. 10, one of the most important parts of the World Trade Organization will cease to function. The Appellate Body, you can think of it as a supreme court of trade, will effectively be no more.
As its members’ terms have expired, the Trump administration has blocked the vacancies from being filled (all member countries have this kind of veto power). After Dec. 10, when two “judges’” terms expire, there will be just one left out of an original seven. Under the rules, that’s not enough members.
The Appellate Body is the highest trade court on the planet, where cases from lower down in the WTO are appealed. Once it’s out of the picture, there will be no final say when one country sues another.
“It is a crisis not only of dispute settlement, but it is effectively an existential crisis for the WTO itself,” said Jeff Schott, a senior fellow at the Peterson Institute for International Economics.
More than that, aggrieved countries will be able to block rulings against them from being finalized or enforced by simply appealing them to an appellate body that can never rule on it.
“Doing so will put the dispute into a legal limbo,” said Schott, giving member countries effective veto power in the judicial process.
“That will have a corrosive effect on the WTO as an institution,” Schott said. Not only will the WTO stop being a place for countries to settle disputes, he said, it won’t really make sense for countries to go to the WTO for other things, like negotiating new agreements on how to deal with modern issues like digital trade or labor rights.
“So it basically really undermines the idea in the WTO that it is a rule-of-law system,” said Rachel Brewster, a law professor at Duke University Law School. “Because no longer will there be a way to determine what the law is and how it should be applied to a certain case at least not in a binding way.”
Why is the Trump administration doing this? On one level, the U.S. has objections on administrative issues: that it takes too long for cases to be decided, or that certain procedures aren’t always followed at the WTO. But, ultimately, it comes down to sovereignty.
“The United States’ basic complaint is that the Appellate Body is not supposed to be able to take away rights that the U.S. had when the WTO agreements were put together in 1995,” explained Jennifer Hillman, a senior fellow at the Council on Foreign Relations who herself used to serve on the WTO Appellate Body.
The U.S. loses half the cases that it’s involved in at the WTO. In some of those cases, the Appellate Body has ruled against practices that the U.S. says it never agreed to give up. In particular, the WTO has at times tried to limit how the U.S. punishes countries it accuses of dumping cheap products into its markets.
“The U.S. complains about these decisions the U.S. has lost, but at the same time is very complimentary or expressing support when the United States wins decisions. So a lot of the rest of the world looks on this and says it’s just the U.S. having sour grapes,” Hillman said.
Previous administrations have had similar objections, but none has taken it as far as the Trump administration in terms of crippling the WTO’s ability to function, and there’s a reason for that, according to Hillman.
“There’s no question that some of this is driven by the fact that the Trump administration believes that the United States is better off under a power based system,” she said.
That is to say, the U.S. is the largest consumer market in the world. It’s better off, the rationale goes, using its might to get what it wants rather than be subject to an international institution; to go back to the world before the WTO existed. Schott at the Peterson Institute feels that’s a mistake.
“That system failed. Disputes that involved big powers like the United States and the European Union couldn’t be resolved,” he said.
This is why, Schott said, Congress insisted in 1988 that the U.S. set as one of its top priorities the creation of a binding dispute settlement system, so no country could block rulings that favored the U.S.
The administration has already started to conduct some trade policy outside of the WTO system. The trade war with China, for example. Which has dragged down economic growth in the U.S., China and the entire global economy.