TWN Info Service on WTO and Trade Issues (Feb20/06)
19 February 2020
Third World Network

US wants to transform WTO into a "market-oriented" body
Published in SUNS #9068 dated 14 February 2020

Geneva, 13 Feb (D. Ravi Kanth) -- The United States wants to transform the World Trade Organization (WTO) into a purely "market-oriented" body so as to ensure that "market-oriented conditions exist for market participants," trade envoys told the SUNS.

The move comes after the US spiked the Appellate Body (AB) for enforcing trade rules and advocating fundamental changes in WTO rules for availing of the special and differential treatment (S&DT) among developing countries.

In a two-page draft General Council (GC) decision, the US says, "the General Council decides to adopt this declaration on the importance of market-oriented conditions to the world trading system."

The US draft decision is expected to come up for discussion at the General Council meeting next month.

Citing the Marrakesh Declaration of 15 April 1994, the US has argued that the establishment of the WTO reflected the desire of Members "to operate in fairer and more open multilateral trading system for the benefit and welfare of their peoples", and during the period of time during which the Uruguay Round was being negotiated, "significant measures of economic reform and autonomous trade liberalization were implemented in many developing countries and formerly centrally planned economies."

However, the US draft decision failed to include the crucial first and second paragraphs in the chapeau to the Marrakesh Agreement Establishing the World Trade Organization that speaks about "enhancing the means" for conducting "trade and economic" relations "in a manner consistent with their [members'] respective needs and concerns at different levels of economic development."

More importantly, the US omitted the second paragraph of the Marrakesh Agreement that recognized the "need for positive efforts designed to ensure that developing countries, and especially the least-developed countries among them, secure a share in the growth in international trade commensurate with the needs of their economic development."

The US draft decision fails to mention that the Marrakesh Agreement also called for developing "an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade (1947), the results of past trade liberalizations [secured during the several rounds of GATT negotiations, including the Enabling Clause in 1979], and all the results of the Uruguay Round of multilateral trade negotiations."

Without naming China that was constantly derided by the US for adopting "non-market-oriented policies and practices," the US wants WTO members to concur with its draft General Council decision that non-market- oriented policies and practices have damaged the world trading system, and would lead to "severe overcapacity, create unfair competitive conditions for workers and businesses, hinder the development and use of innovating technologies, and undermine the proper functioning of international trade."

Washington wants WTO members to affirm that "market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system, to ensure a level playing field for Members' workers and businesses."

It wants the General Council to affirm that "Members' citizens and businesses should operate under market- oriented conditions."

It proposed the following "elements" to ensure that "market-oriented conditions exist for market participants":

(1) decisions of enterprises on prices, costs, inputs, purchases, and sales are freely determined and made in response to market signals;

(2) decisions of enterprises on investments are freely determined and made in response to market signals;

(3) prices of capital, labor, technology, and other factors are market-determined;

(4) capital allocation decisions of enterprises are freely determined and made in response to market signals;

(5) enterprises are subject to internationally recognized accounting standards, including independent accounting;

(6) enterprises are subject to market-oriented and effective corporation law, bankruptcy law, competition law, and private law, and may enforce their rights through impartial legal processes, such as independent judicial system;

(7) enterprises are able to freely access relevant information on which to base their business decisions; and

(8) there is no significant government interference in enterprise business decisions above.

Significantly, the US draft General Council decision has come after Washington's unilateral decision to "cynically strangulate" the Appellate Body, which has become dysfunctional from 11 December 2019.

Prior to the strangulation of the Appellate Body last year, the US had introduced controversial proposals such as "differentiation" among developing countries for availing special and differential flexibilities in the current and future trade negotiations as well as its naming and shaming provisions for non-compliance of notification requirements.

On the US decision to "cynically strangulate" the Appellate Body, and thereby, rendering the WTO's two-stage dispute settlement system redundant, the Office of the United States Trade Representative (USTR) issued a report of more than 170 pages on "the Appellate Body of the World Trade Organization" on Tuesday (11 February).

The USTR's report has listed the reasons as to why, in the US view, the Appellate Body "has not functioned according to the rules agreed by the United States and other Members."

It says the Appellate Body repeatedly failed to "apply the rules of the WTO agreements in a manner that adheres to the text of those agreements."

The Appellate Body, according to the US, has "added to US obligations and diminished US rights by failing to comply with WTO rules, addressing issues it has no authority to address, taking actions it has no authority to take, and interpreting WTO agreements in ways not envisioned by the WTO members who entered into those agreements."

The US says the Appellate Body "has consistently acted to increase its own authority while decreasing the authority of the United States and other WTO Members, which, unlike the individuals on the Appellate Body, are accountable to the citizens in their countries - citizens whose lives and livelihoods are affected by the WTO's decisions."

According to the US, "the Appellate Body's failure to follow the agreed rules has undermined confidence in the World Trade Organization and a free and fair rules-based system."

Washington argues that "no WTO member can trust existing or new rules will be respected as written" due to the Appellate Body's "persistent overreaching."

"The conduct of the Appellate Body has converted the WTO from a forum for discussion and negotiation into a forum for litigation," the US has claimed.

The Appellate Body's overreach "has increased its own power and seized from sovereign nations and other WTO Members authority that it was not provided."

The US provided the following examples:

* The Appellate Body consistently ignores the mandatory deadline for deciding appeals;

* The Appellate Body allows individuals who have ceased to serve on the Appellate Body to continue deciding appeals as if their term had been extended by WTO Members in the Dispute Settlement Body;

* The Appellate Body has made findings on issues of fact, including issues of fact relating to WTO Members' domestic law, although Members authorized it to address only legal issues;

* The Appellate Body has issued advisory opinions and otherwise opined on issues not necessary to assist the WTO Dispute Settlement Body in resolving the dispute before it;

* The Appellate Body has insisted that dispute settlement panels treat prior Appellate Body interpretations as binding precedent;

* The Appellate Body has asserted that it may ignore WTO rules that explicitly mandate it recommend a WTO Member to bring a WTO-inconsistent measure into compliance with WTO rules; and

* The Appellate Body has overstepped its authority and opined on matters within the authority of WTO Members acting through the Ministerial Conference, General Council, and Dispute Settlement Body.

Further, the Appellate Body has imposed new obligations through "erroneous interpretation of WTO agreements," the US has argued.

The US has said that "the Appellate Body has attempted to fill in "gaps" in those agreements, reading into them rights or obligations to which the United States and other WTO Members never agreed."

The Appellate Body's errors "favored non-market economies [China] at the expense of market economies, rendered trade remedy laws ineffective, and infringed on Members' legitimate policy space."

Significantly, the US, which always criticized developing countries for seeking "policy space", has now argued that its "legitimate policy space" has been infringed because of the Appellate Body's erroneous rulings.

According to the US, the errors committed by the Appellate Body include:

* The Appellate Body's erroneous interpretation of the term "public body" threatens the ability of Members to counteract trade-distorting subsidies provided through SOEs (state-owned enterprises), undermining the interests of all market-oriented actors;

* The Appellate Body has intruded on Members' legitimate policy space by essentially converting a non- discrimination obligation for regulations into a "detrimental impact" test;

* The Appellate Body has prevented WTO Members from fully addressing injurious dumping by prohibiting a common-sense method of calculating the extent of dumping that is injuring a domestic industry ("zeroing");

* The Appellate Body's stringent and unrealistic test for using out-of-country benchmarks to measure subsidies has weakened the effectiveness of trade remedy laws in addressing distortions caused by state-owned enterprises in non-market economies;

* The Appellate Body's creation of an "unforeseen developments" test and severe causation analysis prevents the effective use of safeguards by WTO Members to protect their industries from import surges; and

* The Appellate Body has limited WTO Members' ability to impose countervailing duties and anti-dumping duties calculated using a non-market economy methodology to address simultaneous dumping and trade- distorting subsidization by non-market economies like China.

The US says that the Appellate Body's functioning and the litany of errors it had committed are not "altogether surprising," as a group of former Director-Generals of the GATT and WTO expressed concerns that seem prescient today: "Our concern is that the dispute settlement system is being used as a means of filling out gaps in the WTO system; first, where rules and disciplines have not been put in place by its member governments or, second, are the subject of differences of interpretation. In other words, there is an excessive resort to litigation as a substitute for negotiation. This trend is dangerous in itself. The obligations which WTO members assume are properly for the member governments themselves to negotiate. The issue is still more concerning given certain public perceptions that the process of dispute settlement in the WTO is over-secret and over-powerful" (Arthur Dunkel, Peter Sutherland, and Renato Ruggiero, Joint Statement on the Multilateral Trading System, February, 2001).

Therefore, the US wants members to address the original sin as "how and why the WTO arrived at the current situation" for any "reform to be meaningful and long lasting."

"This will require WTO members to engage in a deeper discussion of why the Appellate Body has felt free to depart from the role Members assigned to it," the US has demanded.

"Without this understanding, there is no reason to believe that simply adopting new or additional text [as proposed last year by the facilitator Ambassador David Walker of New Zealand, who is also the chair of the Dispute Settlement Body], in whatever form, will solve these endemic problems," Washington has argued.

Lastly, the US has warned by saying that "if the WTO dispute settlement system is to remain viable, it must be returned to the role WTO members assigned to it in the WTO agreements - to assist WTO Members in the resolution of trade disputes by applying the WTO agreements as written."

Disturbingly, the US has not offered any solution to rectify or improve the Appellate Body's functioning until now other than levying charges in the 170-page report, said a trade envoy, who asked not to be quoted. +