Where Free Trade Goes to Die
December 2019 was an exciting time for news stories. Among others, North Korea threatened the United States with an ‘unwelcome Christmas gift’, the UK Parliament welcomed Brexit with open arms, and a new hybrid apple hit the shelves that reportedly lasts up to a year in the fridge. Despite this, one event flew dangerously below the radar: when the future of free trade was cast into peril.
This dramatic but underreported event concerns the Dispute Settlement Mechanism of the World Trade Organisation (WTO). The DSM, as it is often termed, is the branch in charge of trade conflicts worldwide; a highly bureaucratic institution that uses the rule of law to de-escalate disputes, clarify regulatory ambiguities, and counter power play. Its Appellate Body (AB), the source of the crisis, was a late stage proceeding responsible for ruling on appeals. A panel of seven, the AB had been gradually whittled down to just three members over the past several years. In December 2019, however, two of the remaining judges terms ended with no replacement in sight. At that point, with three judges required to issue a ruling, the Appellate Body essentially ceased to exist. Since then, the Dispute Settlement process has ended in a gaping hole, with no way of settling appeals on international trade disputes. With the threat of ‘trade war’ growing ever more commonplace, the implications are grave.
The World Trade Organisation is not well understood. Cloaked in jargon and often stagnated by its own bureaucracy, it is often overlooked in favour of more sensational arenas. However, there is no other institution quite like it. Created in 1995, it continues in the vein of its predecessor, the General Agreement on Tariffs and Trade (GATT) to advocate for global free trade and economic interdependence. With the original goal of rolling back the rampant protectionism of previous ages, it now provides the only international forum for countries to negotiate and discuss trade rules. Originally a small group of Western democracies, it now comprises 164 members and 23 observer states. As a result, decolonisation issues have become important too.
Long since regarded as the ‘jewel in the crown’ of the WTO is the Dispute Settlement Mechanism. While the WTO proper has floundered in the face of scandals like the stalled Doha Round and issues like agriculture and data privacy, the DSM is best known for its success. Among other pillars, it holds a strong commitment to equity within the WTO’s diverse membership; taking extra measures to de-mystify the often obscure pathways of international trade. Its jurisdiction spans anything from aircraft parts to intellectual property to bananas, and the results of its rulings permeate virtually all aspects of everyday life.
Without the Appellate Body, cases appealed under the Dispute Settlement mechanism effectively fall ‘into the void’ - without a definitive ruling they can never be enforced. There is now effectively no way of maintaining multilateral free trade; a system regarded as the ideal since the 1920s.
This did not occur by accident. Rather, the crisis is a direct result of the United States government’s systematic blocking of Appellate Body appointments and renewals since 2011. In doing so, it has revealed the naiveté inherent in the WTO’s idealism; rendering it vulnerable to unilateralism and self-interest.
The crisis, often attributed to US President Trump’s volatile foreign policy, was actually a long time coming. The first strike occurred when the Obama Administration blocked the 2011 re-appointment of American panelist Jennifer Hillman, which was soon followed by another in 2013-14. In this sense, the Trump administration only continued in kind. However, the Obama Administration’s decisions stemmed from specific complaints regarding the way the DSM was run. According to trade experts, these included its excessive bureaucracy, judicial power, and lengthy appeal times. In general, the administration stressed a desire for reform rather than destruction. Trump, on the other hand, seems to partake simply for the heck of it.
However, a common theme persists. Research has shown that although leading economies like the USA and European Union file a vast number of DSM complaints, they are also its most frequent defendants. In other words, even as the world’s great powers weaponise the WTO’s structures they have found themselves held almost equally accountable to them. According to Hillman herself, the USA had embraced multilateralism under the expectation that they would be its chief beneficiaries. Upon deciding that the WTO wasn’t doing things their way, a bipartisan effort arose to strongarm it into submission. This policy is what has taken effect now.
From a trade perspective, the crisis is still new. Trade disputes and negotiations are famously bureaucratic; taking so long to unfurl that two months might as well be two days. Consequently, results are difficult to predict. Prior to the crisis, roughly 60% of cases were resolved within the earliest, consultative stage; a coalition of commitment to shared values holding the system together. Even with the USA’s going rogue, cases involving other member states may resolve successfully. However, though most cases never reach a panel ruling 70% of the ones that do are appealed. This implies that despite optimism a significant amount of cases are still in need of the Appellate Body. Moreover, its effects will likely be most keenly felt by developing nations. Despite efforts to enforce equity among WTO member states, leading economies feel much less pressure to actually comply with rulings. Simply put, retaliations from smaller markets barely cast a dent in their GDP. Developing countries rely much more heavily on the legitimacy awarded to them by DSM rulings, which allow them to punch above their weight in a system that commonly advantages those with the most resources.
Issues like Trump’s ‘trade war’ with China are just the beginning. From Brexit to Facebook, the demand for multilateral solutions trade solutions has only become more invaluable in the current age. The WTO has paid the price for its flaws, but its current crisis only demonstrates that it is needed more than ever.
