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U.S. shocks WTO with a novel take on trade dispute rules

© Reuters. The headquarters of the WTO are pictured in Geneva© Reuters. The headquarters of the WTO are pictured in Geneva

By Tom Miles

GENEVA (Reuters) – The United States surprised a meeting of the World Trade Organization on Friday with an interpretation of dispute settlement rules some said was a bid to boost President Donald Trump’s plans to reform the global body.

Its view, expressed by the U.S. WTO representative, was seen as opening the door for individual WTO member states to block appeals rulings in certain cases, undermining a trade dispute system that is highly regarded by many trade experts.

“It’s power politics,” one trade diplomat who attended the meeting said.

Under the WTO’s arcane rules, the global trade body has seven appeals judges, three of whom sign off on each trade dispute appeal ruling.

The current problem is that two of the seven judges have left in recent months and another has a term that expires in December, which will leave only four.

The United States has been blocking recruitment of new appeals judges for several months, exacerbating the risk that the WTO could effectively run out of judges, and piling pressure on other WTO members to accept U.S. plans for reform.

At Friday’s meeting, the U.S. representative said two of the judges in a recent dispute between Indonesia and the European Union had left by the time their ruling was published, so their ruling would only be official if there was unanimous agreement at the meeting.

The United States did not object in this instance, citing “particular and exceptional circumstances”, but said there should normally be “positive consensus” at the meeting to adopt a ruling with too few judges, according to a written U.S. statement provided to Reuters.

“I think it’s the first time somebody said you need positive consensus. It means that any member can block the whole thing,” said the trade diplomat who was in the meeting.

The already congested system is facing a huge backlog of work, and a risk that there will not be enough judges to rule on appeals in disputes such as the long-running spat over subsidies for planemakers Boeing (N:BA) and Airbus (PA:AIR).

Earlier this week China’s ambassador to the WTO, Zhang Xiangchen, said he was concerned that the dispute settlement system and other basic functions of the WTO were at risk from trade protectionism.

“Frankly speaking, the WTO is experiencing the most difficult time,” Zhang told a panel discussion.

“And some even challenge the existing rules in the dispute settlement mechanism. Of course any mechanism needs to keep pace with the times and be constantly improved. But if the core values, the fundamental principles are abandoned, the organization will face a crisis of survival.”

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