DISPUTING DISPUTE SETTLEMENT

"Americans look at the WTO or any of these trade agreements and we say, OK, this is a contract and these are my rights. Others - Europeans, but others also - tend to think they're sort of evolving kinds of governance. And there's a very different idea between these two things. And I think sorting that out is what [we] have to do."

Robert Lighthizer
United States Trade Representative
September 18, 2017

On September 18, Ambassador Lighthizer spoke at CSIS (the Center for Strategic and International Studies). His presentation was not overly long, and it did not address some very topical issues, like the specifics of the NAFTA negotiations. It was, however, an exceptionally straightforward statement of his own views - and those of President Trump -- on the major issues in U.S. trade and his approach to them. Trade deficits, the role of taxes in trade, and China were all dealt with. Further, in response to questions put to him by Scott Miller of CSIS, Ambassador Lighthizer quickly got to the heart of America's quarrel with the operation of the WTO dispute settlement system. 

It is that quarrel that is our principal topic for today. Before turning to it, however, we shall share two other comments Ambassador Lighthizer made in that session. One had to do with the next big thing on the WTO's calendar, namely the 11th Ministerial Conference in Buenos Aires, Argentina. In September, the Buenos Aires conference was three months away. Now, it's set to start next week on December 10 and to run through the 13th. Our impression is that the prognosis hasn't changed much from September. Back then, Ambassador Lighthizer said:

"Our view is that it's unlikely that the ministerial in Buenos Aires is going to lead to negotiated outcomes." 

 
One need not necessarily see that as a set-back or a deficiency. Some ministerials are more consequential than others. 

His comments on China, however, were more troubling, as he suggested that the world trading system may in fact not be capable of dealing with its largest exporter. He said: 

"The sheer scale of [China's] coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented.

"Unfortunately, the World Trade Organization is not equipped to deal with this problem. The WTO and its predecessor, the General Agreement on Tariffs and Trade, were not designed to successfully manage mercantilism on this scale."

A Focus on Dispute Settlement. We mention these things in part to underscore that the current quarrel with the WTO's dispute settlement system is only a part of the U.S.-WTO relationship. But it is an important part; so let's return to it.
In his lecture at American University last month, Alan Wolff, now a Deputy Director General at the WTO, summarized the problem this way: 

"The United States, professing itself tired of over a decade of complaining about what it sees with some justification as overreach of the WTO dispute settlement system, has stated that without some fundamental corrections, it will not approve the seating of new Appellate Body Members."

The Washington Post ran a useful article on this issue back in June of 2016. At that point, America's most recent effort to block an Appellate Body appointment dealt with the reappointment of an Appellate Body judge from South Korea, Judge Seung Wha Chang. While the article was quite critical of America's action in that and earlier cases, the timing of it underscores the fact that this issue between the United States and the WTO is not one invented by the Trump Administration. It was building a head of steam under President Obama.

Two foreign phrases come to mind in thinking about these issues. From Lenin, there is the concise Who, Whom? And from the Latin poet Juvenal, we have the other great question, Who guards the guards? Both have a certain relevance to the challenge posed by the controversies over the WTO's dispute settlement processes. This is an area where we would quickly find ourselves very much out of our depth. (As you will see below, we are going to try to remedy that by asking for some expert help.)

In the meantime, we shall share our impression that the case which really set this issue on fire was a ruling by the WTO Appellate Body back in 2006 on the U.S. practice of zeroing out certain sales in calculating dumping margins, namely those that were at or above fair market value. In scanning the web, we came across a fascinating article by Notre Dame law professor, Roger P. Alford. He claimed to be agnostic on the issue of the methodology of zeroing, but he was quite critical of the WTO Appellate Body for breaking the bond which, he felt, should have restrained it. He wrote: 

[This] essay concludes that the Appellate Body in US-Zeroing circumvented the particularized standard of review required under the Antidumping Agreement, took upon itself the unacceptable task of appellate fact-finding, and inappropriately expanded the authority of WTO panels to hear facial challenges of agency measures. Rather than adhere to an approach of deference as required by the WTO commitments, the Appellate Body engaged in de novo review of both the law and the facts to reach its preferred result on zeroing.

To ask here, "Who guards the guards?" is to postulate that in effect the Appellate Body is the guardian of the system and then to ask, is it really answerable to anyone? Logically, the answer to that should be "yes." It is answerable to the members of the WTO. But what if they are deadlocked as they are on so many things?

As to the Lenin question-Who, Whom?-it is another way of thinking about sovereignty. In two short words, it asks, who gets to make decisions? And, who has to follow them? It was the Uruguay Round, of course, that created the WTO. And in 1994, questions about sovereignty were very much a part of the debate surrounding Congressional approval of the Uruguay Round implementing bill. Opponents said American sovereignty was being given away. Those who supported the legislation tended to agree that, yes, some authority was being ceded to the new World Trade Organization, but this was, in a sense, an expression of sovereignty. That is, it expressed the will of the sovereign, the United States, to participate in the organization and secure its benefits, including a system for the binding resolution of disputes.

Our recollections are admittedly dim, but, as we recall those days, the questions of just how much authority was being ceded and to whom were not rigorously pursued. They are now.

On December 20, the Global Business Dialogue will host an event at the National Press Club on the topic:

Watch your inbox for the announcement of this event, with speakers and registrations options.