China is in preliminary talks to support the European Union’s backup plan for settling international trade disputes as President Donald Trump’s administration gets closer to scuttling the World Trade Organisation’s role in refereeing cross-border commerce.
Yesterday, China’s ambassador to the WTO Zhang Xiangchen told Bloomberg News that Beijing is actively working to support the EU’s vision of an appeal-arbitration model, which essentially replicates the work of the WTO’s soon-to-be defunct appellate body. Until now, only Canada and Norway have endorsed the EU’s plan. “This is not the best option” but “this is an interim solution that can help countries to deal with their disputes,” Zhang said in the interview.
While the conversations are still preliminary, the plan has drawn serious interest from various other WTO members such as Australia, Argentina, Brazil, Chile, Japan and Turkey, according to officials familiar with the matter. “There has been a gradual support for this as a very unfortunate Plan B,” former appellate body member James Bacchus told Bloomberg in an interview. “Now it seems to be the best option, given all the lousy options we have left.”
The Trump administration’s decision to block new appointments to the WTO appellate body will effectively paralyse it on December 11. The panel has the final say in trade rulings that can affect billions of dollars in commerce.
That’s forced governments to select among four options for settling disagreements:
Option 1: Wage trade wars with tit-for-tat tariffs and other beggar-thy-neighbour trade policies.
Option 2: File a claim at the WTO with the knowledge that the losing party may appeal it into legal limbo. Option 3: Launch a dispute with an understanding that neither party will appeal the WTO’s dispute ruling.
Option 4: Engage in an appeal-arbitration system that replicates the work of the WTO appellate body. The US administration has shown a preference for using option one – unilateral tariffs instead of waiting years for a WTO dispute settlement award. Just last month Trump announced by Twitter that he would impose fresh tariffs on Argentina and Brazil’s steel and aluminium exports for what he alleged to be currency manipulation.
Trade officials concede that the second option is basically a waste of time and money and the third option isn’t much better because there’s little incentive for a defending nation to participate if they know they’re going to lose. That is why a growing number of WTO members, except for the US, are beginning to take a hard look at the appeal-arbitration approach.
The model is rooted on an existing WTO rule – Article 25 of the Dispute Settlement Understanding – that permits nations to agree to a voluntary form of arbitration to settle their disputes. Under the EU’s appeal-arbitration approach, the WTO Director-General can select a panel of previously vetted former appellate body members who apply the same procedures of the appellate body to reach a final judgment.
As a practical matter, WTO members who sign on to such an approach will basically undergo the same process as the appellate body. “If enough other countries sign up to the EU proposal, it could work as a stop-gap measure that would temporarily allow the WTO to arbitrate disputes between the other 163 members,” said Chad Bown, a senior fellow at the Washington-based Peterson Institute for International Economics. EU’s Toolkit “But there are downsides,” Bown said.
“The biggest is obviously that the US is unlikely to sign up, so it will not work to solve any disputes that countries have with America.” But the EU has a plan for that, too.
The EU is due as soon as this week to move toward strengthening its trade-policy arsenal by allowing for penalties against nations that undermine WTO rulings by appealing them into a legal void.
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