What does the future hold for the WTO's dispute body?

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What could the future of global trade look like if WTO reforms are unsuccessful?

While the World Trade Organization (WTO) remains the leading global authority for international trade standards and cooperation, there have been growing questions recently about the relevance of the body and whether it can still be an influential force for good in a changing world.

At the heart of this is the continuing paralysis of the organization's dispute resolution appellate body, which has been unable to make rulings for several years. As a result, many trade disputes continue to go unsettled. 

Although reforming the body to address these concerns is a top priority for the WTO, there remains uncertainty about whether progress can be made - and what the future of the WTO may look like if a solution can't be found.

What's behind the current tensions?

The major issue stems from the refusal of the US to seat new members on the WTO's appellate body. There are now seven vacancies on the appeal body due to retirements and resignations over the past few years, leaving it with not enough personnel to operate.

Washington has been vetoing the appointment of judges since the administration of president Donald Trump, but it has continued to do so under the leadership of Joe Biden, despite hopes in some quarters of a change in approach. 

Among the US' arguments are that the WTO has been overreaching its mandate, as well as concerns with the lengthy time frame of any appeals process, even when the body was functioning.

For instance, the US recently heavily criticized the WTO dispute resolution panel after it ruled against the country on two areas - steel and aluminum tariffs and the labeling of items from Hong Kong. In both cases, the US had cited national security concerns for its decisions  and argued that any action from the WTO against the moves would impose on its national sovereignty. 

US Trade Representative spokesman Adam Hodge said: "The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement."

Is progress on reform likely?

Earlier this month, WTO director-general Ngozi Okonjo-Iweala stated that reforming the dispute resolution is a key priority, adding she hopes to deliver on this by the end of her term in 2025. The US has also expressed a desire to have key issues resolved by the end of the next year.

Other WTO members have also pushed for a resolution. In December, more than 100 countries teamed up to protest the continued blockages. This included traditional rivals such as China and Australia, which have been engaged in a years-long trade war, but who both signed on to a joint proposal calling for selection processes to be launched.

Meanwhile, the representative from Mexico - which is the US' largest trading partner - said:" There is no legal justification for the current blocking of the selection processes, which is causing concrete nullification and impairment of rights for many members”.

Whether progress on this can be achieved, however, remains to be seen.

What could the future of world trade look like?

If reforms cannot be made to dispute resolution processes, some have called into question whether the WTO can remain a relevant, fit for purpose body. At a challenging time economically, when many countries are returning to protectionist trade policies, this could pose several issues. 

While a return to pre-WTO days is not on the cards, a failure to reform the organization and deliver a working mechanism for dispute resolution would mean global trade no longer benefits from a level playing field. If disagreements have to be handled through direct negotiation rather than via the WTO, this will favor larger nations that are better-equipped to cope with any retaliatory measures.

Some commentators have also argued the US' position could undermine the WTO even further. William Reinsch, a trade expert at the Center for Strategic and International Studies, told the Wall Street Journal (WSJ), for example, that there has long been a tacit agreement not to invoke nationals security for trade policy, which Washington has now abandoned.

If other countries follow this precedent, he said: "The whole system is useless: It invites everyone to make a national security claim every time."

However it is not only the US' actions that are proving challenging. The WSJ also noted that in order to make a complaint to the WTO, nations must prove evidence of harm. It claimed  China has routinely bypassed this by imposing import or tourism bans in response to diplomatic rows without making a formal trade connection, which makes it difficult for the WTO to step in.

"The net result is that today the WTO is unable to discipline either its largest or second largest member, leaving a deglobalizing world without an effective cop on the trade beat", the publication stated.