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Comment: Lamy’s ‘lonesome cowboy’ scenario won’t resolve Appellate Body impasse

Slow is often the norm at institutions such as the World Trade Organization, but efforts to fill vacant seats on the WTO’s Appellate Body really haven’t made a bit of progress. The reason for the standstill, as trade aficionados well know, is Washington’s refusal to support starting the process to replace judges on the seven-person panel. No one – including the Trump administration, perhaps? – seems to know what the US actually wants to happen so the process can begin.


And that’s why former WTO chief Pascal Lamy says it might be time for the Geneva-based trade body to contemplate kicking the US out. Calling this the “lonesome cowboy” scenario, the Frenchman told an event hosted by UNCTAD yesterday that members might have to “build a WTO minus the US”.


“If a major power does not want to play by the rules of internationally disciplined trade, the others will have to react,” Lamy said.


While Donald Trump threatened during his campaign for the US presidency to pull out of the WTO, it’s unlikely he’ll do so. Despite his past comments that the trade body is a “disaster”, Trump’s advisers have doubtless impressed upon him that the US benefits from being a WTO member. He hasn’t made any noises for quite a while about withdrawing.


Easy to exit, but at what cost?


It’s not awfully difficult, in terms of the process, to exit the WTO. Article XV of the Marrakesh Agreement that established the WTO spells out the process — a country must submit written notice of its withdrawal to the director-general, and this notice will go into effect six months later.


Trade experts at the Peterson Institute for International Economics have said that leaving the WTO would likely prove disastrous for the US, with American exporters losing critical market share around the world. This would translate into job losses at the most competitive and profitable US companies. And the US would face the very real risk of losing ‘most-favoured nation’ rights that give it preferential access to other WTO members’ markets at mostly zero or low import tariff rates. So although a US exit would remove the only barrier to kick-starting the Appellate Body selection process, it’s probably not in the cards.


But equally unlikely is Lamy’s suggestion that WTO members will get together to boot the US out. Although the trade body would survive a US departure, there would be major geopolitical implications – including handing leadership of the world trading system to China, which WTO members including the EU have criticised for flouting global trade rules, flooding the market with cheap steel and unfairly subsidising domestic industry, among others.


The Marrakech Agreement provides for the suspension or expulsion of a member in only one specific situation. As Peter Van den Bossche and Werner Zdouc note in their book The Law and Policy of the World Trade Organization: Text, Cases and Materials, there is no procedure to suspend or exclude … members that systematically breach their obligations under the WTO agreements. There are also no rules or procedures for the suspension or expulsion of members that are guilty of gross violations of human rights or acts of aggression”. Van den Bossche’s second term as an appeals judge ended in December and Zdouc is director of the Appellate Body Secretariat.


But WTO rules “actually allow for expulsion, or something akin to it, not just for reasons of high politics but for mundane matters of trade policy”, according to The History and Future of the World Trade Organization. Article X of the Marrakech Agreement provides for amendments to WTO accords and states if a single member were to block the adoption of an amendment to a WTO agreement, the membership could invite that member to leave voluntarily or could even eject that member.


What does the US actually want?


Still, there seem to be little appetite among most WTO members to expel the US. Even though Washington doesn’t always play by the WTO rules, losing the planet’s biggest economy would rock the global trading system and further damage the organisation’s fragile reputation.


So how to tackle the Appellate Body crisis? A group of 37 WTO members including the EU, Brazil, China, India, Russia, South Korea, Switzerland and Turkey have submitted a new proposal aimed at filling the three empty seats on the WTO’s only permanent court.


The 15 February communication is pretty much the same as a joint proposal introduced by Mexico last month – and which was endorsed by 58 WTO members – to fill the vacancies. Last week’s communication calls for the start of three separate selection processes and the creation of a selection committee. Members would have to submit nominations of candidates within 30 days, and the committee would be asked to make recommendations to the Dispute Settlement Body within 60 days of that deadline.


This proposal is as unlikely to get off the ground as those that preceded it. The US will no doubt block the proposal when it’s introduced at the DSB’s 28 February meeting and reiterate that its rather vague procedural concerns must be addressed before the Appellate Body selection process can begin. Maybe, just maybe, Washington will actually detail just what needs to be done for the US to lift its objection. But probably not.


It’s not clear just what needs to happen to finally break the impasse over the Appellate Body selection process. But despite Pascal Lamy’s evident frustration and concerns that the dispute settlement system will be undermined, ultimately the solution will have to involve the US getting on board, not getting out.

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