The world trade system may be crippled by Trump

There has been a lot of attention on Trump’s more public trade acts such as walking away from the TPP and imposing tariffs on steel. While they are significant in themselves, they pale into comparison with what the US is looking to do to the .

The WTO replaced GATT as the home of rules for trade. Countries would voluntarily join the WTO, and agree to follow the rules of the WTO. The WTO lies at the heart of having order and predictability for trade.

A key aspect of the WTO is that if two (or more) countries have a dispute over whether a country is following the WTO rules, it gets referred to a WTO dispute panel. The panel decision can then be appealed before it is final.

Over 500 disputes have gone to the WTO, with 350 of them resulting in a binding ruling. New Zealand has been a beneficiary of this system as we have won every dispute we have brought to the WTO. They are:

  • Australia – apples
  • Hungary – agricultural subsidies
  • EU – butter tariffs
  • India – quotas
  • Canada – dairy subsidies
  • US – lamb tariffs and steel tariffs

This rules based system helps smaller countries especially.

But there is a grave threat to this system. You see the finding of dispute panels is not binding until an appeal has been heard and concluded by the Appellate Body. It has seven members and each appeal must be heard by three members.

Now here’s the big problem. Appointments to the Appellate Body need to be made by consensus. This has happened up until recently. But the United States in the last couple of years has been blocking any new members, to replace the retiring ones (they have a four year term).

They are not blocking new ones because they are unqualified. They are blocking any person at all being appointed so that the number of members will fall below the level needed to hear appeals.

This means no appeals can be heard and hence no disputes can be settled and enforced. So the Trump Administration is actually trying to cripple the entire dispute resolution system for world trade.  That is far more significant than the steel tariffs or even TPP.

There are now only four members left on the Appellate Body. They are:

  • Shree Servansing (Mauritius) until September 2018
  • Ujal Singh (India) until December 2019
  • Thomas Graham (US) until December 2019
  • Hong Zhao (China until November 2020

If the WTO disputes process grounds to a halt because of the US, this will have huge consequences. It may not be possible to put it back together again. Countries will be able to ignore their agreements and obligations without consequence.

Such a shame to see a country which should be the foremost champion of trade, working to destroy the WTO.

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