Trade war: WTO's dispute settlement body is slowly being rendered obsolete

Activists from India protesting against the World Trade Organization’s 11th ministerial conference inside the hotel where the conference was being held in Buenos Aires, Argentina, on December 12, 2017 | Photo: Reuters
As global markets continue to shake up over the impending fallout of a full-blown trade war initiated by the United States against China and other nations, the US administration is quietly pulling the plug on the crucial global mechanism designed to settle such disputes.

 

The dispute settlement body (DSB) of the World Trade Organization (WTO), the principal body tasked with arbitration between nations on many trade disputes, is slowly being rendered obsolete. The US continues to block the appointment of appellate body members who are effectively chosen as judges by the DSB.

 

“The US has single-handedly and consistently blocked the appointment of judges to the seven-member appellate body,” notes senior trade expert and Jawaharlal Nehru University professor Biswajit Dhar. 

 

Currently, three of the members have retired, while a fourth will retire later this year. Each case requires at least three sitting members.

 

The absence of these judges slows the settlement process as well as reduces the scope of immediate trade remedy for developing or smaller economies, says Dhar.

 

Why other countries are angry

 

While their judgement has an enormous impact on the global trading architecture, individual rulings can lead to shifts in bilateral trade. Case in point, India in 2015 had lost a case initiated against it by the US challenging the stringent restrictions on imports of poultry. Now, India is in the process of amending the health department guidelines paving the way for American chickens. Domestic breeders -- producing an estimated 3.5 million tonnes of chicken annually -- fear that cheaper produce from the US could eat up at least 40 per cent of their market share.

 

As per the WTO rules, those dealing with the nomination of the judges need unanimous support of all members. “We have a DSB compromised by the blockage in the appointment of appellate body members and this would be the focus of coming conversations among members,” WTO Chief Roberto Azevedo noted in Delhi last week. He was in India to attend a two-day WTO mini-ministerial meeting organised by the government, where more than 50 key member nations converged. While the members struggled to reach common ground on matters of trade, there was a rare consensus against the US on its consistent blocking of the DSB.

 

However, being at the receiving end of global criticism has not fazed Washington DC, which continues to drag its foot on the issue. Instead, after focusing on China for the larger part of his first year in office, India and other nations have made their way into US President Donald Trump’s tariff duty waiving rhetoric. Trump recently voiced his disappointment over “unfair” treatment of American exports to the country even as India enjoys free access to the US market.

 

Much at stake for India

 

India has a direct stake in the dispute settlement body's functioning as it is fighting a number of disputes at the DSB. Earlier this month, the US lodged another case against India's on-going export promotion schemes. Policymakers in the government have lost sleep over the issue that may force India to stop all export subsidies it provides across industries and value chains.

 

Developed nations led by the European Union, Australia and the US have long argued that export subsidies provide an unfair competitive advantage to recipients, arguing that WTO rules prohibit them. However, a limited exception to this rule is for specified developing countries that may continue to provide export subsidies temporarily until they reach a defined economic benchmark of a $1000 per capita income. India was initially within this group but was informed last year by the WTO Secretariat in a report that it had crossed the threshold in 2015.

 

“India is set to argue that the law invoked by the US — the Agreement on Subsidies and Countervailing Measures (ASCM) — allows it a window of eight years to phase out these subsidies,” a senior Commerce Ministry official told Business Standard. But with the odds stacking up against India, having a proper judicial mechanism in place will be of invaluable help, he adds.

 

But experts caution that the US has its sights on a larger target. “The US is on one hand consistently blocking the appointment of judges to the seven-member panel and on the other, lodging newer cases at the DSB. This is part of a larger plan to destabilise the WTO structure and force India and other nations to come into a bilateral agreement with the United States,” says Abhijit Das, head of the Centre for WTO Studies.