GARY SAMPSON. Australia joins group to overcome US blockage of WTO dispute settlement process

In the post Covid-19 world, with global trade in total disarray and predicted to fall by up to 32 per cent next year, Australia has never had a more pressing need of a strong rules-based trading system.

Along with the EU, Canada China, Switzerland and 12 other countries Australia has joined a joint endeavour to overcome the US’s blockage of the WTO’s dispute settlement system by instituting an “Interim Appeal Arbitration Arrangement”. This initiative could well be a launching pad for a much-needed renewal and strengthening of WTO rules and procedures more generally.

In recent years, President Trump has managed to bring the WTO dispute settlement system to its knees prompting Australia (along with China, the European Union, Canada, Switzerland and 12 other countries) to agree to a replacement process: an “Interim Appeal Arbitration Arrangement”. The US is not a signatory. The agreement has been created as a surrogate WTO Appellate Body, the pillar of the much-lauded dispute settlement process of the WTO described by successive Director Generals of the WTO and others as the “jewel in the crown of the WTO”.

It is critical for Australia to have a credible and well-functioning dispute settlement system. According to the government’s most recent “Foreign Policy White Paper”: ‘A rules-based trading system centred on the WTO is fundamental to Australia’s interests. Strong rules that help constrain the exercise of coercive power contribute to global security.’

But rules mean little if they cannot be enforced. Here the WTO dispute settlement system is critical. It is unique in the mosaic of international institutions. Unlike the specialised agencies of the United Nations, the OECD and elsewhere, WTO law is not ‘best endeavours’; it is ‘hard law’. In the event of a dispute, WTO members have agreed to forgo a degree of national sovereignty for their collective good and pay a significant price if they do not respect their obligations.

In the event of a ruling of non-respect, the defending party must bring its offending laws into conformity with the WTO requirements. If not, it must pay compensation to the complaining party for the lost trade or face legally sanctioned retaliation. There have been 561 disputes brought to the WTO and successfully settled. Australia has been a complainant in 8 cases, and a respondent in 16 cases (five relating to plain packaging of tobacco).

What would seem truly paradoxical in the extreme is that the US has been the driving force behind the collapse of the WTO legal system just as it was the prime mover in creating it. It has now chosen to render unworkable its key instrument: The Appellate Body. The false news that surrounds this approach denies belief.

According to President Trump: “The WTO has taken advantage of this country like you wouldn’t believe … we lose almost all the lawsuits in the WTO … It was set up for the benefit of taking advantage of the United States”.

The reality is that the US has been the most frequent and successful user of the system. Of the 595 cases brought to the WTO, the US has been a complainant in 135 and won 125. With a win rate of over 90 per cent its success is greater than any of the other 163 WTO members.

The US has rendered the Appellate Body inoperable via its refusal to agree to the appointments of new Appellate Body judges as the term of sitting members expires. The Appellate Body comprises seven judges and requires three to consider an appeal. The appointment of judges is agreed to on the basis of consensus. Without the approval of the US administration for new appointments the Appellate Body has ceased to be operational. Along with complaints of biased rulings (i.e. cases the US did not win) the US claims the Appellate Body has extended its judgements beyond its brief.

The Australian government is to be congratulated in joining this open-ended initiative with Japan and South Korea likely to join in the future. In fact, this initiative could well be used as a launching pad for a much-needed renewal and strengthening of WTO rules and procedures more generally.

In the post Covis-19 world, with global trade in total disarray and predicted to fall by up to 32 per cent next year, we have never had a more pressing need of a strong rules based trading system. In carrying out this task, just as in the Interim Appeal Arbitration Arrangement, Australia has a leadership role to play.

A slightly different version of this article was published subsequently in the digital edition of The Australian Financial Review on 6 May: https://www.afr.com/policy/economy/bypassing-trump-s-fake-complaints-paves-way-for-wto-renewal-20200506-p54q6q

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Gary Sampson is Professor of International Trade at the Melbourne School of Business, former Director at the GATT and WTO, and Senior Counsellor to the Director General.

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