EU, US Panelists Say the Two Sides Are Moving Toward Agreement on WTO Reform

The European Union and U.S. have moved closer to each other's positions on World Trade Organization reform, panelists on a webinar agreed, but that's not to say it's going to be quick or easy to get the appellate body restarted.

The webinar, “Rethinking the WTO, Opportunities for Transatlantic Cooperation,” was hosted March 10 by the Institute of International Economic Law at Georgetown Law Center. Sabine Weyand, former EU director-general for trade, said, “I am perhaps not as pessimistic as others here we can reach agreement on these issues,” referring to the rules on how to calculate trade remedies, and the U.S. practice of zeroing. But, she said, the EU and the U.S. can agree that there should be a special standard of review in trade remedy cases in Geneva. She also agreed with American complaints that the appellate body did not follow the text of the WTO agreement, giving deference to national authorities when more than one interpretation of trade law is permissible.

Weyand also said that Europe agrees that the appellate body has been doing gap-filling because countries have not been successful in negotiating, and that the appellate body lost sight of what it's there to do. She said dispute settlement is “too long, too complex, and increasingly focused on creating jurisprudence as opposed to just resolving the dispute at hand in a streamlined manner.”

Former appellate body member Jennifer Hillman said that it would be wrong for Europeans to think there's been a “sea change in the substance of U.S. trade policy.” Still, she said, there is an incredible window of opportunity to get movement on the impasse in Geneva, with a new WTO director-general and a new administration in Washington. “But I fear it is a short window,” she said. She expects that it will take a long time to find a solution on WTO dispute settlement reform, but thinks there are some intermediate wins that could provide the momentum needed.

Weyand said there are three issues to focus on at the WTO, to restore credibility to the rules-based trading system. One is restoring the appellate body. “We would like to agree very quickly with the U.S. on parameters of a binding, two-tier appellate system,” she said. “We are willing to look at all ideas to make that happen.”

She added: “I do not want to fall into the trap of coming with a ready-made agenda with the expectation that [probable U.S. Trade Representative] Katherine Tai will sign on the bottom line.”

Weyand said countries need to update the WTO rulebook, in order to deal with the fallout of China's state capitalist system. And, she said, the WTO has to explore what contributions it can make to fight climate change, so that first movers on climate “make sure we do not inadvertently restrict trade in a manner that is not necessary and counterproductive.”

Thomas Graham, a former appellate body member whose term ended in December 2019, said he believes appellate body reform must be done in conjunction with rule reform. “Negotiations about appellate body reform should not be rushed. This is not low-hanging fruit,” he said.

Weyand disagreed, saying that appellate body reform should not be conditioned on other issues. But, she said, “we will not be able to fix it in three months or six months but we at least have to have a roadmap achieved” by the next ministerial conference at the end of November. “We need to move sufficiently quickly in order to create confidence that we are able to have a process that leads to an outcome.”

The reason the U.S. and the EU are putting renewed emphasis on getting on the same page in Geneva is that both are concerned about trade distortions resulting from China's government interventions in its economy.

Henry Gao, an associate professor of law at Singapore Management University, studies China, and he expressed doubts that the WTO could be used to constrain China, given that China would have to agree to any changes to the rulebook, and it sees those changes as against its own interests.

Gao noted that in 2008, the U.S. asked China to make concessions in certain sectors, and China refused, asking: “Why didn’t you ask the same from India and Brazil?”

He said other countries should learn from that lesson. “It’s very important that China also get something in return, even if it’s just a token,” he said. He suggested that countries that have higher antidumping tariffs in the case of non-market economies should abandon them “just to give some good will.”

But Weyand said it may be necessary to go the opposite direction to convince China to change. She said that the trilateral discussions between the EU, Japan and the U.S. have been productive, but the countries need to create a broader consensus on what should be done to deal with China's distortions, and then that agreement should be taken to the WTO to bring more countries on board. Once all have agreed on a sufficient level of ambition, then they can engage with China, she said.

She said the issues aren't specific to China's state-owned enterprises. Take subsidies, for example, she said. “I think we have to recognize in the context of the pandemic, in the context of the climate challenge that everyone around the world who can afford it is subsidizing.” She said countries need to figure out how to offer these subsidies “in the least trade distortive manner possible. Otherwise, we will trigger a subsidy war.”

She said countries can use trade remedies and bring WTO cases against China, but ultimately, they may have to coordinate what she called “autonomous instruments,” so that China sees it as “more advantageous to submit to additional disciplines than to be subject to autonomous actions by trading partners.”