Trump’s prolonged assault of WTO means its ruling against Chinese tariffs is essentially moot
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On Tuesday, the World Trade Organization ruled that tariffs the Trump Administration imposed on Chinese imports in 2018 are a violation of international trade rules—handing China a symbolic victory in the prolonged trade war.
But the ruling is unlikely to have any practical effect. The Trump White House, long scornful of the WTO, has neutered the body’s key arbitration court—the Appellate Body—creating a loophole that could leave the dispute unresolved.
For the Tuesday ruling, a three-person panel considered a complaint filed by China in 2018, which argued that tariffs Washington imposed on $200 billion worth of Chinese imports violated international trade rules. Under WTO regulations, members must treat each other as equal. Levying sanctions against only one member state contravenes that credo.
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In its ruling, the panel found that the “United States has not met its burden of demonstrating that the measures are provisionally justified” and so “recommends” the U.S. “bring its measures into conformity” with WTO rules.
“This panel report confirms what the Trump Administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices,” U.S. Trade Representative Robert Lighthizer said in response to the WTO ruling.
China’s Ministry of Commerce, of course, welcomed the “objective, impartial” ruling and urged the U.S. to fall in line.
To satisfy the WTO ruling, the U.S. would have to remove the tariffs it initially imposed on China way back in 2018. If it doesn’t, then the WTO could authorize China to impose counter-tariffs on the U.S. Such approval would be moot, however, as China has already met U.S. tariffs in kind.
China has imposed tariffs on $110 billion worth of U.S. imports but, because the U.S. has not filed a WTO complaint against China’s tax action, the WTO panel hasn’t moved to review China’s actions.
If the U.S. now does nothing, the current tariffs on each side stay in place—but China can at least claim the moral high ground.
Alternatively, the U.S. could appeal the WTO ruling, sending the decision to the WTO’s Appellate Body—an appeals court presided over by seven judges appointed by the WTO’s Dispute Settlement Body (DSB). Doing so would kick proceedings into judicial purgatory as the WTO’s rulings can’t be implemented until the appeals process is complete.
And, thanks to the U.S., the Appellate Body is currently in disfunction—meaning an appeal won’t be reviewed anytime soon.
The U.S. has railed against the WTO’s dispute settlement system for years, with complaints pre-dating the Trump Administration. Washington has accused the dispute body of overreach and unfairly limiting the U.S.’s ability to protect itself against dumping and subsidies.
According to the Center for Strategic and International Studies (CSIS), Washington’s criticism of the DSB comes despite the U.S. being a “prolific user” of the dispute settlement process, winning a majority of complaints. In a bid to force reform in the WTO—or to simply frustrate its efforts—the U.S. has hijacked the process for appointing judges to the Appellate Body.
“The WTO body is unique in that it is the only international court where elections of a judge is dependent on consensus voting,” says Kyle Freeman, a partner at professional services firm Dezan Shira & Associates.
The U.S. has used its position in the DSB—which is made up of representatives from all 164 WTO member states—to veto new appointments to the panel, whittling down the Appellate Body’s total membership. Judges serve a single four-year term on the Appellate Body, which needs a minimum quorum of three in order to conduct reviews.
In December last year, two of the remaining three judges reached the end of their terms. The U.S. blocked new judges from taking their place, leaving the Appellate Body, with a single judge, unable to convene.
“Unfortunately, in the absence of an appellate body the U.S. can appeal this ruling into a legal void and the members of the WTO won’t be able to adopt the report on the panel ruling,” Freeman says.
According to Freeman, there are multiple discussions within the WTO about how to resolve the impasse. Canada and the European Union, for example, created an interim appeals procedure to circumvent the Appellate Body last year. Other members, including China, signed up for the alternative scheme in January. The U.S. has not.
In response to the WTO warning, President Donald Trump said the WTO might have done the U.S. “a big favor”—prompting speculation the White House will use the ruling to further its narrative that the WTO is antithetical to U.S. interests.
“We’ll have to do something about the WTO,” Trump said. “Because they’ve let China get away with murder.”
More must-read international coverage from Fortune:
- Trump wants to end U.S. reliance on Chinese manufacturing ‘once and for all.’ U.S. firms aren’t complying
- Hong Kong’s citywide COVID-19 testing has become a barometer of public trust
- Trump has long wanted to kill a Russia-Germany natural gas pipeline. Navalny’s poisoning could do it for him
- More than manufacturing: India’s homegrown COVID vaccines could transform its pharma industry
- China’s top chipmaker could be Trump’s next target in the trade war
Source: Business – Fortune