Just Say No to the WTO

This week, the 13th Ministerial Conference of the World Trade Organization (WTO) is taking place in Abu Dhabi. The informal dispute settlement reform talks have made some progress in a few areas, but the one area where there has been no progress is the now defunct Appellate Body (AB). The WTO AB should die an ignominious death, and the U.S. should oppose any restoration. The Obama administration first blocked judicial appointments to the WTO AB in 2011, and the Trump Administration extended this to a complete blockade of new appointments in 2017. The Biden Administration has continued this blockade on appointments, but started the current reform negotiations in 2022. Nonetheless, the blockade of appointments should be maintained because U.S. concerns about the AB’s behavior have not been addressed. 

This is not a question of free trade or protectionism. This is a question of fairness, spanning three administrations with vastly different approaches to trade policy. 

The Office of the United States Trade Representative (USTR) clearly articulated the AB’s failure to comply with WTO agreements when it published its Report on the Appellate Body of the World Trade Organization in 2020. In essence, the AB has failed to apply WTO rules in a way that “adheres strictly to the texts of those agreements.” USTR highlighted numerous examples of how the AB altered member states’ rights and obligations through “numerous erroneous interpretations of WTO agreements.” In other words, the AB judges engaged in judicial activism by expanding the AB powers beyond the scope of the treaties to which that the U.S. had agreed. The AB was intended to interpret existing treaties, not create new laws and obligations binding on member states. 

This is an important issue because many of the AB’s decisions against the U.S. go right to the heart of American law and even social policy. For example, U.S. states and Congress have always regulated gambling, and the U.S. never would have knowingly given this authority over gambling to foreign judges at the WTO. Also, such small countries have little ability to supervise this industry which is used by terrorists and other criminals to launder money. Yet the AB ruled that U.S. restrictions on gambling were unlawful trade barriers that hurt Antigua and Barbuda—a postage stamp country that has long been a recipient of U.S. aid. The WTO ordered the U.S. to pay $21 million annually to Antigua and Barbuda and to change its gambling laws. This is just one of many shocking examples of how the AB has infringed upon American sovereignty.  

The AB was never intended to be so ambitious, but rather was originally intended as a failsafe against WTO dispute panel decisions that contained errors beyond a reasonable degree. Over time, the AB went far beyond its authority to declare that its own reports, which further expanded the scope of the authority granted in WTO agreements, should be accepted as precedent. This is not what was originally agreed by the U.S at the founding of the WTO, but there were indications that our competitors saw the WTO as a means to contain American commercial power. European Union Commissioner Sir Leon Brittan stated after the Uruguay Round Agreement which created the WTO:

A major trading partner such as the United States now has fewer levers with which to impose its views on other countries because it has formally agreed to be more mindful of the rules of the multilateral game. This has always been an objective.

This problem has been compounded by politically motivated judges, who have repeatedly shown bias against the U.S. and in favor of their home countries. These biased judges have ruled against the U.S. at least partially in 90 percent of cases, and the U.S. became the most sued-against country at the WTO, despite the fact that we arguably have the freest trade system in the world. To add insult to injury, U.S. taxpayers are the largest contributors to the WTO budget, at over $26 million dollars per annum. 

In the absence of a functioning AB, the EU, China and 21 other countries came together in 2020 to form the Multi-Party Interim Appeal Arbitration Mechanism (MPIA). This is not a workable solution, because the MPIA includes non-market autocracies that presume to issue binding judgments on free-market economies. Fortunately, MPIA decisions only apply to participating members and do not apply to other WTO members.  

These failures have not been rectified, even after years of U.S. objections. In fact, the AB’s failures have magnified the shortcomings of the WTO as a whole, because the AB effectively supplanted the WTO’s negotiating function when America’s trade competitors realized that they were better off focusing on litigation rather than negotiations. The WTO should return to a focus on negotiations between parties to a dispute as a basis for resolution, not unaccountable and biased appointees expanding their power through an internationalist version of judicial activism. Former U.S. Trade Representative Ambassador Robert Lighthizer remains correct when he recommends that the AB be “scrapped” and replaced with a fair dispute settlement system based on commercial arbitration. The MPIA is not the answer.

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