WTO deadlock: What's next for trade - and disputes?

Industry News | | MIC Customs Solutions |

The December 10th deadline for new WTO judges has come and gone, leading to an outcome many had feared.

There was an historic moment for world trade this month as the deadline passed for appointing new judges to the World Trade Organisation's (WTO) Appellate Body, effectively sending the institution into deadlock.

Lead-up to a shake-up

On December 10th 2019, the terms of two of the three remaining judges came to an end, leaving only one in service. This is in contravention of the WTO's charter, which requires at least three - and preferably up to seven - to be on long-term appointment for the body to operate.

The situation came about after the US continued to veto new appointments in protest against what it deemed unfair treatment by the WTO, although other nations had also criticised the organisation for being out of touch with 21st century trading and frequently behind in its own deadlines.

It means the Appellate Body is no longer around to operate dispute resolution mechanisms when they arise between member nations.

Old rules out, a long wait in

Before December 10th, when a complaint was filed, the WTO's General Council would mediate and encourage the two (or more) sides to negotiate. If that didn't work, the Dispute Settlement Body could be asked to set up a panel to make a preliminary judgment.

Should one side still view this as unsatisfactory, the case could be taken before the Appellate Body again for a second and final ruling.

Now, though, this process has been left in limbo. The WTO has said the Appellate Body will continue to work on the four disputes that are pending and have already received hearings. Any other appeals - and there are nine in the pipeline - will be forced to wait until a new and functional Appellate Body has been established.

Unwelcome news

The news has been received with dismay by many, including EU trade commissioner Phil Hogan. He called the situation "a regrettable and very serious blow to the international rules-based trade system".

China's ambassador to the WTO Zhang Xiangchen went even further, saying he would be wearing a funereal black tie to mark "the most severe blow to the multilateral trading system since its establishment".

WTO director-general Roberto Azevedo has tried to play down the severity of the new development, saying the body for settling trade disputes will be fixed, albeit in "a few months".

He told BBC News "intensive consultations" will start immediately and that "significant changes" will be necessary.

"These are extremely complex conversations and negotiations and very political in nature, so we have to understand this is not something that is going to be solved overnight, just like that," he added.

Former chief judge of the Appellate Body Professor James Bacchus, however, went so far as to say that he does not believe a resolution will be forthcoming while Donald Trump remains president of the United States.

What happens now?

As it stands, WTO members can still bring disputes to the trade body and receive an initial ruling. However, any appeal to that ruling has the effect of giving the loser a veto as the ruling is plunged into legal limbo.

This means any WTO member can block the adoption of a panel report by filing an appeal that has every chance of not being heard, which has led to fears that countries could use tariffs and other sanctions to limit imports.

In turn, this could create more protectionist trends, greater uncertainty and decreased trade.

On the other hand, some may see it as a good thing. For example, Mr Trump is now able to retaliate against trade partners without response from the WTO. 

It could also mean an appeal filed by America over a case brought by India against the US concerning subsidies in the solar sector is not heard for some time, effectively giving Mr Trump the upper hand.

Another example is the UK, which could be left in trouble in a year's time when the transition period for Brexit ends. Even if Britain feels the EU is imposing unfair barriers to trade, it would have no recourse for legal repercussions with the WTO Appellate Body as it is now.

On a wider scale, businesses across the globe are likely to face more uncertainty and the potential for escalating trade wars to negatively affect them.

Mr Azevedo had previously said the "law of the jungle" could ensue without a body to enforce international trade rules, so that is what many analysts are now worried about.

Any alternatives in the pipeline?

Meanwhile, some countries have been looking to come up with their own system as the WTO's lies paralysed. The EU has suggested a new interim system for the settling of disputes, which China is reportedly keen to get behind.

Canada and Norway have also teamed up with the EU for an alternate arbitration system against any fallings-out that may occur between themselves, while another possibility is that WTO members could trigger a majority vote that requires new members to start being appointed to the original Appellate Body.

Finally, it is possible that the potential to appeal decisions will be done away with entirely in the future, leaving the WTO's original decisions as the deciding factor.

Whatever is concluded, this is the greatest shake to its foundations the WTO has received since its inception back in 1995.