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Info Service on WTO and Trade Issues (Apr23/03) Geneva, 3 Apr (D. Ravi Kanth) — For the 64th time – denoting a period of five years and four months – the United States on 31 March blocked an appeal from 127 countries for resurrecting the World Trade Organization’s Appellate Body (AB), said people familiar with the proceedings. While venting its much-repeated grievances about the AB having deviated from the Dispute Settlement Understanding (DSU), the US, which some members reckon as the “elephant in the room”, called for fundamental reforms of the dispute settlement system, said people, who asked not to be quoted. At the WTO’s Dispute Settlement Body (DSB) meeting on 31 March, the US apparently indicated that it is involved in two informal processes – one with select members that it appears to have launched last year, and the other being currently undertaken by the deputy trade envoy of Guatemala, Mr. Marco Molina, in which around 130 members seem to be involved. Against this backdrop, it remains to be seen what will be Washington’s overall approach and strategy against 163 WTO members who are pressing for the restoration of the binding two-stage dispute settlement system by 2024, said people familiar with the consultations. Also, serious doubts are being cast whether Washington will allow a dispute settlement mechanism (DSM) that is capable of enforcing binding decisions, said people, who asked not to be quoted. From what it said at the DSB meeting, Washington apparently only wants a DSM that supports WTO members in the resolution of their disputes in an efficient and transparent manner, and in doing so limits the alleged needless complexity and interpretative overreach that has characterized dispute settlement in recent years. Clearly, Washington’s approach is a cause for concern as it could take members back to the GATT (General Agreement on Tariffs and Trade) era where disputes were resolved more on the basis of MIGHT is RIGHT, said a former trade envoy. USTR ON DSB REFORM Meanwhile, at a recent US House Ways and Means Committee meeting, the US Trade Representative (USTR) Ambassador Katherine Tai, gave a preview of her assessment of the dispute settlement system. According to a report in the International Economic Law and Policy (IELP) blog on 27 March, the USTR said “the dispute settlement system doesn’t exist in a vacuum, that it is part of the larger WTO institution that we value very, very much for what it stands for, for how it brings together 164 economies in the world and provides us with a forum for dealing with each other and being able to communicate with each other and to resolve the disputes that we have when they come up.” “So the reform of the WTO dispute settlement system is tied to the consensus at the WTO that the entire WTO ought to be reformed to reflect the economy that we’re living in today,” said Ambassador Tai. What is left unsaid, however, is how the US managed to secure numerous concessions from the former facilitator, Ambassador David Walker from New Zealand, who was appointed to address the concerns raised by the US on the functioning of the Appellate Body, and how the US stymied the proposals put forward by the facilitator that were supported by almost 163 WTO members, said people, who asked not to be quoted. At the US House Ways and Means Committee meeting, the USTR said that “we have a special responsibility in dispute settlement, but we are engaging at the committee level. We are bringing written proposals every meeting. We’re also leaning in on how to make this a more functional negotiating forum.” Surprisingly, so far the US has not submitted any proposals on DSB reform, either to the DSB or to any WTO committee, said a person, who asked not to be quoted. According to the report on the IELP blog, Ambassador Tai said that “on dispute settlement, what we are doing is, we are seeking a system that is singularly focused on helping two parties resolve a trade dispute.” “To be a dispute settlement system, as the system was intended. Dispute settlement has evolved into an avenue for judicial rule-making,” she said, arguing that: “It has become synonymous with litigation, very expensive and time consuming litigation, … , and it allows countries to seek through litigation what they could not accomplish by negotiation.” The USTR said, “so the results have significantly damaged US interests through an interpretation that, for example, shields China’s non-market practices and undermines our ability to defend US workers and businesses.” The criticism against China seems somewhat incorrect as Washington has praised the AB whenever it upheld legal challenges brought by the US against China. The USTR informed the US House Ways and Means Committee that “you may also be aware of the recent national security decisions that have come out of the WTO system that are deeply concerning to us and to our national security sovereignty.” Ambassador Tai apparently said that Washington is “engaging on a reform process that requires 164 economies and members of the WTO to agree and this is not about us dictating the terms, it is about us being very honest about what our interests are, what we need the dispute settlement system to do for us, but also to craft a renewed and better dispute settlement system with our partners at the WTO.” She said, “in fact, we’re doing so much work on reform, it is a little frustrating for me that not more people know about it, because the issues can get technical and all of this is happening in Geneva which is far away from Washington, DC.” Ambassador Tai noted that “on dispute settlement, we are on phase three of work in terms of driving an interest-based negotiation conversation, an inclusive process that brings in all of the WTO members, with the goal in mind that for real reform and change to happen at the WTO, we can’t dictate that change.” She added that “it’s got to be negotiated and accepted by everyone.” GUATEMALA’S EFFORTS At the DSB meeting on 31 March, Guatemala’s deputy trade envoy Mr Marco Molina informed members that he is making a statement under his own responsibility. He said that on 2 February, a group of members asked him to convene informal meetings “with the objective of having a substance-based discussion to find practical solutions to the concerns identified by members, aimed at convening to the fulfilment of the mandate that we received from ministers in June 2022.” The ministerial mandate states,”conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all members by 2024.” Mr Molina said that he agreed to start the consultations on Dispute Settlement reform provided there is a critical mass of Members supporting the discussions and more importantly, such negotiations are based on the principles of transparency and inclusiveness. He said he conducted 40 bilateral consultations with members and regional coordinators representing more than 130 members. Guatemala’s deputy trade envoy said a tentative calendar of meetings was prepared. “Let me be clear, even if the process that the delegation of the United States undertook last year was useful, this process is not a continuation of the US-led process,” the facilitator asserted, suggesting that “this process of informal discussions emerged, organically, and I am grateful and honoured by the support that crystalized around it.” More importantly, said Mr Molina, “this process belongs to all WTO Members, and it is our responsibility, as representatives from our governments here in Geneva, to work constructively and to deliver results.” Suggesting the need to do things differently “if we want different results,” he offered his take on the 17 February meeting he held with a large number of members. Apparently, he said that his process would not be a top-down approach but squarely anchored on a bottom-up process. Mr Molina said that “the process is also innovative: I created an online template for the submission of proposals, where Members can identify their concerns, propose the respective solutions, and explain the rationale.” He said he created a template to facilitate “the identification of the substantive issues and provides a common format, which, in turn, fosters more focused conversations.” Significantly, Members have submitted 70 proposals, the facilitator said, suggesting that he “catalogued all these initial proposals in a table, which using a traffic-light system, is attributed the colour red.” A copy of the confidential catalogue of the proposals, seen by the SUNS, suggests that “all proposals are distributed to all Members.” The facilitator suggested that informal discussions will be held in small groups. “Each cluster of small-group meetings offers four options to accommodate the availability of delegates,” the facilitator said. A MIXED RESPONSE A large majority of countries, including China seem to have supported the informal process. One proposal calls for having two layers of the decision-making process that “provides predictability and confidence in the dispute settlement system. Governments are more inclined to apply a ruling that is well- reasoned.” Incorporating the concept of geographical representation in the selection of panelists would guarantee that there is a balance in the representation of all WTO members in a given Panel, as maintaining a balance is pertinent to guaranteeing inclusivity at the Dispute Settlement System. In its response to the informal process outlined by Guatemala’s deputy trade envoy, India apparently said that it participated in the previous informal consultations led by the US and accepted the continuation of an informal process in the understanding that the informality of the process was at its core. India seems to have suggested that “it is this informality, which enabled us to continue to participate in a process,” emphasizing that ” a formalized reporting to the DSB has systemic implications for processes and functions of WTO bodies in other negotiating tracks, and further reporting must be done only in informal mode and not be listed as part of the agenda of the DSB.” The Indian delegate apparently said that the DSB is not the correct forum to address various aspects of the process as described by the volunteer convener. New Delhi apparently underscored that the discussion about listing this as a DSB agenda item was a crucial issue, which was discussed at a break-away informal meeting and was not brought back to the plenary. India seems to have shown its preference for resolving issues at the delegate and technical level as part of the informal process, suggesting that reporting should be done only when a solution is matured. Reporting to the DSB should not take place until the discussions take some sort of shape and form, it said. India reiterated its commitment to fulfilling the MC12 mandate but cautioned that in doing so members must also have a system that is equitable and accessible, not just in theory, but in a meaningful way when it comes to the delegations on the ground. Indonesia expressed concern that the current discussions are not formalized, arguing that an informal process with the participation of a limited number of delegations would not be conducive to producing a consensus-based reform. Indonesia emphasized that the discussion on this process needs to start in a formal mode as agreed by Ministers at MC12, as it would be the only way to achieve meaningful results supported by every member and ensure full transparency and inclusivity, said participants familiar with the discussion. China apparently thanked the facilitator and the efforts made by him to explore ways to make the process transparent and inclusive. In order to understand the concerns raised by some members, in particular with regards to the intense schedule which makes it challenging for LDCs and developing members to follow the discussion, China said it is open to working with members with a view to fine-tuning the already good organization of the discussion, bearing in mind the urgency of the task ahead, as well as the fast-approaching deadline. China expressed its sincere hope that this positive momentum and the collaborative atmosphere could be maintained, and the members could continue focusing on the core issues openly and pragmatically so that the options for addressing the various concerns could be narrowed down before the summer break. The European Union apparently appreciated the opportunity in the DSB to address the ongoing discussions on dispute settlement reform. While thanking Guatemala’s official for his “tireless work”, the EU said there seems to be a positive change in the DSM reform negotiations. Brussels underscored the need for the discussions to continue in a focused and result-oriented manner, so as to have a well and fully functioning dispute settlement system by 2024. The US praised the facilitator for volunteering his time and energy to coordinate an inclusive and member-driven process. Contrary to the existing Dispute Settlement Understanding, the US seems to have said that success in dispute settlement reform efforts depends on understanding each other’s interests in dispute settlement. The US seems to have rejected complaints about openness and participation in this process, as all delegations were invited, and a wide representation of the membership took part regardless of development levels. The US indicated that members have presented options for a different kind of process, adding that members can have that conversation in the appropriate setting, but our priority remains to continue the current process. Nigeria (on behalf of the African Group), the Russian Federation, Cambodia (on behalf of the LDC Group), and Bangladesh seemed to have supported the informal process. “OTHER BUSINESS” Under the agenda item of “other business”, the US intervened to comment on the panel ruling against the US origin-marking requirement. It described the panel’s ruling as “flawed” because of its interpretation of Article XXI of the GATT 1994 in the panel report. The US said that its actions against Hong Kong, China were based on well-grounded determinations implicating US essential interests. Hong Kong, China said the panel report categorically reveals the erroneous views of the US, clearly concluding that the origin-marking requirements arbitrarily imposed on goods from Hong Kong, China by the United States are inconsistent with the WTO rules. According to Hong Kong, China, the US has violated the most-favoured-nation (MFN) treatment requirement, which is a bedrock principle of the WTO and the cornerstone of the multilateral trading system. China subtly reminded the US that it is inappropriate to raise systemic problems under “other business”. China argued that the “security exception” provision should not serve as the basis for “safe harbour” protectionism and rejected “in the strongest terms” the US unilateral judgment and interference in other members’ internal affairs. Lastly, China told the US that the WTO dispute settlement mechanism is a forum to resolve trade disputes based on the WTO rules, rather than a place to discuss political issues. +
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