Trump's move to block WTO judges forces it to establish reform plan

Geneva

THE World Trade Organization (WTO) is scrambling to develop a plan for the biggest reform in its 23-year history after US President Donald Trump brought the world's top trade court to the brink of collapse by blocking appointments of its judges and threatening to pull the United States out of the organisation.

Mr Trump's administration has targeted the WTO, the watchdog of global commerce, as part of his wider campaign against trade arrangements which he contends have cost hundreds of thousands of US jobs.

Proposals to shore up the organisation include increasing the number of judges and rewriting trade rules for industrial subsidies, state-owned firms and technology transfer. Those ideas and others will be discussed when Canada hosts a dozen trade ministers in Ottawa on Wednesday and Thursday.

At stake is the effectiveness - even the survival - of a key stabilising force in the global economy. Since its founding in 1995, the WTO has stopped governments from arbitrarily raising trade barriers and disrupting the flow of goods.

Members can air grievances before clashes materialise, and the WTO's dispute settlement system allows them to seek binding rulings from judges.

Much of the US displeasure stems from how the WTO has tied its hands in dealing with China, which it accuses of "dumping"cheap goods on the United States to take market share and unfairly using government subsidies to lower Chinese companies'costs.

US officials have repeatedly complained that the WTO's seven-member Appellate Body has gone beyond its remit. In binding rulings, effectively acting as the supreme court of world trade, WTO judges have given Beijing the benefit of the doubt on subsidies and rejected Washington's treatment of dumping.

The WTO rules on dumping are ambiguous, the result of a political compromise at the WTO's creation in 1995. The US reading is that, when in doubt, the judges should defer to the US interpretation of the law - a view that judges often have not shared.

"The Trump administration has seized on what was a controversy in the WTO and turned it into an existential crisis," said James Bacchus, a one-time WTO chief judge and former Democratic congressman.

Dennis Shea - US ambassador to the WTO and deputy United States Trade Representative - has said that the judges have "strayed"and taken liberties with their own rules of procedure, ignoring deadlines and staying on cases after their official departure dates. Mr Shea said that such breaches may invalidate their work.

"We've been making these points for not just 15 months but for 15 years. Our proposal is that the Appellate Body needs to abide by the rules we agreed to in 1994," he said.

When Mr Trump first suggested withdrawing from the WTO during his presidential campaign, the organisation's diplomats, convinced the United States could not afford to operate outside global rules, neglected the complaint as just the latest gripe about its operations from one of 164 member nations.

Now they appear to grasp the seriousness of the threat - that the WTO would have little sway over global commerce without the world's largest economy as a member.

The Trump administration has ramped up pressure by blocking any move to fill vacancies on the Appellate Body as judges left or finished their terms, taking the team down to three - the minimum required to make rulings.

The appeal system will cease to function altogether in December 2019 if Mr Shea blocks the appointment of two more judges who need to be replaced by that time. The tactic amounts to"asphyxiation" of the organisation, departing judge Ricardo Ramirez-Hernandez said in May, after his replacement was blocked.

The demise of the appeals system would paralyse dispute resolution and make negotiating new trade rules pointless, Appellate Body chief judge Ujal Singh Bhatia said in a speech in Geneva in May.

"The paralysis of the Appellate Body would cast a long and deep shadow on the continued operation of the multilateral trading system," he said.

The WTO has no executive power, but its members have a shared interest in following its rules. Under US pressure, the WTO has begun discussing reform but found little agreement among members on the way forward.

In September, the European Union and Canada, which had separately drawn up reform proposals for the WTO, presented their ideas to a packed audience of diplomats from developing countries.

"The idea at this point is not to solve all the problems" but to open discussion about them, said a Latin American diplomat who attended the meeting at the WTO in Geneva.

The United States has also teamed up with the European Union and Japan to push for tighter rules on government subsidies of exports, state-owned firms and the forced transfer of technology from foreign partners, issues often raised in US criticism of China's trade practices.

They also want to end the way that two-thirds of WTO members, including China, declare themselves "developing" and thereby qualify for about 140 provisions in the rules that grant benefits and more lenient treatment to developing nations. Taiwan recently won US praise for voluntarily renouncing such benefits.

The EU has translated some of those shared ideas into WTO reform proposals. Most of them have US approval, but US and EU officials disagree on the Appellate Body. In early October, Mr Shea criticised EU proposals during a tense public debate with EU Ambassador Marc Vanheukelen at the WTO.

The EU advocated increasing the number of judges to nine and giving them more resources and longer, single terms to make them more independent on the grounds that they would no longer need to curry favour to get appointed for a second term. REUTERS