EU trade latest, WTO disputes

Comment: US divide-and-rule tactics enter WTO as Section 232 cases begin

The launch of dispute panels on US Section 232 panels has brought explosive bilateral power-playing by the US right into the heart of the World Trade Organization, argues Iana Dreyer.

The world sighed in relief when the US and China announced a trade truce at the G20 summit in Argentina last weekend. Also Mexico, the US and Canada inked USMCA, the successor treaty to the North American Free Trade Agreement. Global stock prices in the digital, auto and energy sectors rose: markets cheered. Also, the G20 agreed to reform the WTO, even if it did not pledge to fight protectionism.

But relief was short-lived.

Uneasy truces

It is still not clear what exactly presidents Trump and Xi agreed, nor when the three-month truce they hammered out to leave time to work out the details of the deal would actually start. Now or in January? The ‘deal’ is that both China and the US will scrap car tariffs. Are the two sides serious about this? And would the tariff elimination be on a preferential or on a WTO-compatible most-favoured-nation basis? It’s all up in the air.

Europeans are caught in the middle. Their businesses and supply chains are badly affected by the ongoing China-US trade wars – the US has imposed tariffs on $250 billion worth of Chinese goods. China retaliated with its own tariffs. But if Beijing and Washington cut some bilateral deal and end the sparring, EU businesses could be disadvantaged, too, because it may lead to discrimination against exports or investors from other countries.

The US slapped 25% and 10% import duties on steel and aluminium that also affected European producers after the EU refused to accept a ‘voluntary export restraint’ or quota.

Europeans are not quite sure what will become of their own trade truce concluded last summer between the head of the European Commission and the US president. ‘No new tariffs’ Juncker and Trump agreed, signalling that auto duties the US threatens to impose on national security grounds would not go up as long as the two sides kept on talking about a trade deal. The EU and the US also pledged to start discussing an end to the metals tariffs as well as the retaliatory tariffs imposed by the EU.

Trump has been quoted as saying he wants the G7 countries to achieve “zero tariffs and zero subsidies”. This is likely mostly rhetoric. In practice, Trump’s trade policy has been about strong-arming smaller and weaker countries into accepting export quotas in return for salvaging their trade agreements with the US and signing on to rules preferred by the US (Korea, Canada, Mexico), or simply their exports to the US (Brazil, Argentina). It bullies others into signing trade agreements they don’t want (Japan).

Washington brought the EU and China to the negotiating table after imposing tariffs (hitting China much more than the EU).  The only achievements so far are ‘truces’ hastily agreed between Trump personally and the big bosses in Brussels and Beijing.

National security cases in the WTO

The US imposition of steel and aluminium tariffs last spring on national security grounds has let to an outburst of legalism on the part of nine WTO members. “Let’s go to court.” That’s the approach taken by the EU, its ambassador to the WTO explained.

Nine dispute settlement panels targeting the Section 232 are set to be established following today’s Dispute Settlement Body meeting in Geneva. China, Canada, India, Mexico, the EU, Norway, Russia, Switzerland and Turkey are all questioning the abuse of the WTO’s Article XXI security exceptions. They claim the US is in fact just applying an unnecessary safeguard measure under the disguise of national security.

The US argument is that there is no point in setting up those panels. “There is no finding other than to note that the United States has invoked Article XXI,” the US representative repeated during the latest DSB meetings. “If the WTO were to undertake to review an invocation of Article XXI, this would undermine the legitimacy of the WTO’s dispute settlement system and even the viability of the WTO itself. The text of Article XXI is clear; each WTO member has the right to determine for itself what it considers to be in its own essential security interests,” is the official US position.

Article XXI offers no blank cheque to a country to do whatever it wants. The exceptional measures must be “taken in time of war or other emergency in international relations; or to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security”, the GATT text says. It looks like the nine could indeed have a case.

Washington responded by suing Canada, Mexico, China and the EU for taking their own ‘rebalancing’ or retaliatory cases in response to the US tariffs. The US is arguing their measures are illegal. It rejects, for example, the EU view that the US measures are a safeguards. Hence, in the US view, Brussels’ rebalancing decisions are illegal. Here, too, the US could, in fact, have a case.

Divide and rule?

What is striking in the current episode in the WTO is that the US is trying to avoid dealing with collective issues collectively  and going down the bilateral route instead.

The US refused to set up a single panel. Article 9.1 of the Dispute Settlement Understanding says:  “Where more than one Member requests the establishment of a panel related to the same matter, a single panel may be established to examine these complaints taking into account the rights of all Members concerned.”

The US argues that because the measures were taken for national security reasons, it sees no basis for this dispute and doesn’t agree to the creation of a single panel. Hence, the decision today in Geneva by the DSB to set up nine panels.

Now the ball is in the camp of the WTO secretariat. Will it make use of Article 9.3 of the DSU instead? The article states that if more than one panel is established to examine complaints related to the same matter, to the greatest extent possible the same people shall serve as panellists on each of the separate panels. It also says the timetable for the panel process in each dispute shall be harmonised.

A huge responsibility now falls on the secretariat to follow through. Some observers say they are not sure the secretariat will be able to resist US pressure.

The US is also using different methods in dealing with different countries having filed cases against in the WTO.

Washington doesn’t like Ottawa or Mexico filing a case in the WTO. In Geneva, it reminded them that they had agreed to resolve the metals tariff issues amicably  that was indeed the promise during the renegotiation of NAFTA.

“Canadian and US authorities have been engaging in constrictive discussions towards resolving concerns surrounding these matters,” reads the US statement to the DSB on 21 November. The US told Mexico the same thing.

But USMCA was signed this weekend, and neither Canada nor Mexico sees the end of said tariffs. Instead, they accepted in advance to sign up to WTO-inconsistent quotas on autos just in case the US were to go ahead and introduce new duties under Section 232.

The US also rejects allowing non-government officials – i.e. lawyers hired by countries involved in the Section 232 cases to participate in the proceedings. China complained to the DSB that the US forced its lawyers from the room where pre-panel consultations on the case were taking place.

The US has refused to accept DSB jurisprudence since the 1990s – for example, in an Appellate Body ‘bananas’ case or a ‘Korea washers’ case – where the DSB clearly set out that members have the right to bring in any person they accredited to help them with their dispute settlement proceedings. This is in line with the USTR’s philosophy, which is to see Appellate Body jurisprudence after 1994 as essentially without legitimacy.

What does all this tell us? Clearly, in the coming dispute settlement proceedings on Section 232, the intention of the United States is to face down governments directly in individual panels and exert political pressure on them.

We are not sure there will be a judgement on any of the Section 232 cases. We will know how the DSB thinks in cases where restrictive measures on imports were taken on the basis of national security before it makes judgements on the US cases. The US will certainly react accordingly. There is a dispute between Ukraine and Russia and another between Qatar and Saudi Arabia. Until these rulings come out, the US will most likely have choked off the Appellate Body entirely.

Panel proceedings can continue, of course, but the WTO’s authoritative appellate function is most likely to cease to exist next year. The US is blocking the reappointment of judges whose terms expire. Any report must be drafted by three Appellate Body members – out of seven standing members. The number of members is down to three now.

By trying to bring in the judges to resolve their trade disputes with the Trump administration, it could well be that the nine in the end provoked the entry of the guy with the big bazooka.

One Comment

  1. Many thanks for this very insightful comment and background on the US insistence to pick individual-bilateral fights rather than one collective-multilateral one on its use of the ‘national security’ excuse to impose tariffs with which they violate their very own WTO commitments.

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