Jennifer Freedman explains what awaits the World Trade Organization in 2019.
Appellate Body impasse will come to a head
Foremost on the minds of many people is whether the WTO’s dispute settlement system will even survive the year intact in light of the continue US block of efforts to fill Appellate Body vacancies. Washington has laid out a slew of reasons for its position, insisting that the Appellate Body has overstepped its mandate and failed to follow the rules by insisting that its rulings must serve as precedent “absent cogent reasons”.
As we have reported many times over the past year, WTO members including the EU, China and India warn that the impasse risks undermining the trade body’s entire dispute settlement system. Nothing looks set to change this year, as the Trump administration appears resistant to any and all proposals to break the deadlock.
The US ambassador to the WTO, Dennis Shea, said last month that the EU’s proposals to address the issue by overhauling the WTO fell short, but Washington hasn’t come up with any suggestions of its own on just what needs to be done. Sadly, there is no reason for optimism that things will change any time soon.
With just three judges left on the seven-member Appellate Body, look for problems to arise when an appeal involves China. That’s because Chinese AB member Zhao Hong would have to recuse herself from any case involving her homeland, which means there wouldn’t be enough judges to handle the appeal.
The top candidate to create this problem is a US challenge of Beijing’s support for Chinese wheat, rice and corn farmers. The confidential “final report” on this case was supposed to have been issued to both sides by last month, according to the WTO, though it’s unclear when the decision will be made public as there are translation issues. But it will certainly come out this year, and an appeal would normally be likely.
Another dispute slated for a decision this year that is sure to go to the Appellate Body – and force Zhao to recuse herself – is China’s huge complaint about the EU’s trade defence rules and its failure to treat the country as a market economy. The panel chair said in November that the final report would be issued in the second quarter of 2019. This means an appeal this year would be a good bet – except for the fact that there won’t be enough Appellate Body members to deal with it.
Davos meeting may signal future of e-commerce initiative
With the World Economic Forum’s annual meeting taking place in Davos in just over two weeks, governments are gearing up for planned closed-door discussions during the event on a proposal to restrict state interference in business-related data. A group of WTO members led by the EU, the US, Japan, Australia and Singapore hopes to win the trade body’s backing for the initiative and to make it public later this month.
The WTO’s first-ever rules governing data in commerce would prevent governments from forcing companies to disclose proprietary secrets such as source codes and algorithms, according to media reports. The group behind the proposal is seeking to start formal negotiations as early as mid-2019, with the aim of the new rules entering into force in 2020. Many developing countries, suspicious about the influence of large tech companies on e-commerce issues, may oppose the initiative, however. Initial discussions are likely to involve just a small number of WTO members.
But the success of the proposal will hinge on whether Beijing is ready to relax strict laws on data storage and cybersecurity. Although China was actively involved in the exploratory talks on the matter, the country has tightened control over cross-border information and may resist ambitious rules on freeing up data transfers. Many expect the Chinese to try to water down the initiative.
The first signs on where the proposal is headed could emerge during the private Davos talks. A political agreement during the annual meeting that provides a mandate for technical work on the initiative to begin would represent a glimmer of hope that the WTO can still negotiate trade deals. Donald Trump, who is making his second trip to the Swiss Alpine resort as US president, is reportedly planning to confer with Chinese Vice President Wang Qishan during the forum.
Key trade ministers will also hold talks on the sidelines of the Davos meeting to discuss the WTO’s future, including the Appellate Body situation, the future of multilateralism and the rise of protectionism. These mini-ministerial conferences are a regular occurrence at WEF annual meetings, but the outcome typically involves words rather than action.
Can the WTO reel in a fisheries agreement this year?
Last month, WTO members said they were committed to stepping up negotiations on fisheries subsidies in 2019 to meet an end-year target for an agreement. They still have 12 months to clinch a deal that the EU, the US and other have called a litmus test for the WTO’s ability to negotiate new rules. An agreement is also seen as vital to ensure the sustainability of fishery resources and protect the environment.
But countries remain far apart on issues such as “special and differential treatment” – that is, carveouts that would exempt developing economies from provisions that discipline how much aid they give their fishing sectors. Indeed, the EU said in December that members’ positions actually widened in 2018. Nevertheless, heads of WTO delegations agreed to intensify the talks, saying it was time to shift to a negotiating mode favouring compromise and consensus.
Watch this space in the coming months to learn whether words translate into action on the fisheries file.
Rulings expected on China market economy status, Boeing-Airbus
One of the most significant rulings expected this year is the aforementioned decision on China’s complaint about the how it is treated in EU dumping investigations. China has, of course, also lodged a similar challenge against the US, though this dispute hasn’t gone beyond the “consultation” stage.
Beijing says both Brussels and Washington have failed to honour a pledge in China’s 2001 WTO accession agreement that it would be regarded as a market economy within 15 years. If the WTO sides with China, the EU will have to comply quickly, or risk undermining the rules-based multilateral trading system.
The WTO is also expected to rule this year on Washington’s request to slap punitive duties on the EU to compensate for losses the US incurred because of illegal European subsidies for Airbus. Last July, the US asked for a WTO arbitration panel to set the level of tariffs it could apply on the bloc’s exports.
The EU, which says it has removed the illegal subsidies, has asked the WTO to determine whether it has complied. The compliance panel probably won’t issue its report this year, however. The chair told the Dispute Settlement Body in November that, due to the complexity of the dispute, the panel did not expect to complete its work in 2019.
In the meantime, the bloc is also awaiting an Appellate Body report on a 2017 compliance ruling involving a 2012 appeals ruling that found Washington State’s tax rebates for Boeing were illegal.
While there is little chance the WTO will rule this year on complaints by the EU, China, India and six other WTO members about US duties on steel and aluminium, trade pundits will be keeping a close eye on these cases. The WTO has agreed to examine the legality of the so-called Section 232 tariffs, but has yet to appoint panel members – something we can expect this year.
The trade body has agreed to rule whether increased duties imposed by the EU, China, Canada, Mexico and Russia on certain US imports in response to the Section 232 tariffs breach global trade law. However, panellists in these cases have also not yet been named.
Adding fuel to the fire, the EU announced just last week that it would press ahead with definitive safeguard measures on foreign steel. The measures, in place since Washington first imposed the Section 232 levies in July, aim to ensure that steel diverted from the US doesn’t end up flooding the European market.