Overreach at the WTO

This contribution was triggered by Simon Evenett's biting essay on proposals for a new European Union trade agenda: specifically, in response to Evenett's argument that "as a vehicle for advancing Europe's commercial interests…limits of what the WTO dispute settlement system can deliver have been reached." Further, he charges that: "It appears that some are so besotted with the 'power' of multilateral trade rules that they actually believe that governments will be cowed sufficiently by losing WTO disputes that they will bring themselves back into compliance with those rules…In some disputes the commercial interests at stake are so big that compliance is unlikely and the magnitude of sanctions so large that their imposition would significantly disrupt the trade." In going forward with a WTO reform agenda, he posits that the EU--and other WTO member states--should be chastened by the lessons from the Doha Round failure and from the reactions to the global economic crisis, lessons that cast great doubt on "certain governments willingness to be further bound in legally binding accords and whether those accords can be effectively enforced through WTO dispute settlement."

These indictments are all well taken, but then Simon Evenett suggests that the major problem is "case selection": I will argue below that the problem is more fundamental to the legal system. As long as WTO member states are promised legal victories--one party is right and the other is wrong--then there will be an ineluctable movement toward seeking absolute vindication even (or especially) where WTO rules are murky or contradictory.

Evenett later in the essay moves to solid ground when he sets forth a potential trade policy agenda that reflects the new realities of the global economy, particularly the emergence of global supply chains that require cooperation among collaborating firms. This would include, among other things: national treatment or mutual recognition for regulatory systems; science-based regulatory decision making; greater due process, including rights of review; and stronger consultation mechanisms.

Crucially, however, he admits that at least at the outset, this new agenda will have to consist of "cooperative non-binding accords: binding enforceable approaches offer little realistic prospect of success, at least in the short run."

Over the past decade it has become clear that deep-seated societal views in different countries and regions do not lend themselves to rapid evolution or submission to a legal demand from a WTO panel

I think Evenett is on to something important concerning a viable future for the world trading system. Further, I would argue that the logic of his statement, in the context of the assignment to plot a course for future EU trade policy, provides the opportunity for a revival of Europe's older, more pragmatic view of the role of GATT in disputes among major trading nations. Until the sweeping changes in dispute settlement instituted during the Uruguay Round, which moved the system far down the road to excessive legalism, two distinct theories of dispute settlement had existed in an uneasy combination. On one side were the "pragmatists," who argued for a "diplomatic" approach that stressed conciliation and problem-solving over legal precision: by and large European trade officials espoused this view. As a Swiss GATT Director stated in the late 1980s: "GATT cannot be a world trade court. Conciliation is our priority; it is not our job to determine who is right and wrong."

On the other side were--and are--the "legalists," led by the Americans, who held that legally binding rules would produce more certainty, predictability and fairness for all GATT/WTO members. At the end of the Uruguay Round, cowed by the threat that the US would act unilaterally absent legally binding judgments, Europe caved and a new more judicialized system was established: the most far-reaching change was the introduction of "automaticity," whereby decisions by WTO panels or the Appellate Body stand unless there is a consensus (virtual unanimity) among WTO members against the decision.

Ironically, the new legalism that promised greater certainty came into being just as GATT/WTO rules vastly extended the reach of the trade regime. New rules for health and safety; regulation of services such as telecommunications, banks, insurance, securities; intellectual property; and the environment, plunged the multinational trading system into complex issues that went deep into the social and economic structures of member states. As Sylvia Ostry, a trade scholar and former Canadian trade negotiator, stated: "The degree of obtrusiveness into domestic sovereignty bears little resemblance to the shallow integration of the GATT with its focus on border issues…The WTO has shifted from the GATT model of negative regulation--what governments must not do--to positive regulation, or what governments must do."

Over the past decade it has become clear that deep-seated societal views in different countries and regions do not lend themselves to rapid evolution or submission to a legal demand from a WTO panel--thus, Evenett's examples regarding large aircraft subsidies or Chinese export taxes--to which could be added GMOs, climate change, and pressure to challenge social justice issues. (Before he became WTO Director General, Pascal Lamy had argued for special provisions, and exemptions, for a collection of national "collective preferences," that coincide with the deep-seated social mores described above).

But where pragmatism and diplomacy will be needed in the future, the current legalistic WTO system precludes and forestalls such flexibility. Early on, J. H. H. Weiler, a strong advocate for the new judicial system, nevertheless candidly admitted that it was at odds with diplomatic accommodation. Though the law is supposed to be objective and dispassionate, he stated, when two parties believe that the law is on their side and litigate, then it "becomes a profession of passion, of rhetoric, of a desire to win…all inimical to compromise. And he noted: "'We can win in court' becomes in the hands of all too many lawyers an almost automatic trigger to 'we should bring the case.'"

On mediation and conciliation--formally a part of the DSU process--Alan Wolff, a prominent U.S. trade lawyer, has stated: "(it) has disappeared as a meaningful step in the process. To consult openly is to risk your country's case as an advocate, as any admission is going to be used against you. Only consult seriously if you wish to confess judgment and make amends: that is the lesson of the DSU."

Change, even from Europe, will be difficult: the legal system has spawned a new set of powerful interests on the continent itself. Emulating the highly litigious U.S. society, new generations of EU trade lawyers now have a stake (earnings not least) in the system.

But whatever the obstacles, Simon Evenett's points and themes are highly relevant to the process of plotting a future course for EU trade policy.

In that light, attention should be paid to proposals to rein in, or at least deflect a backlash against, the current WTO dispute system. This essay is not the place to set forth such reforms in detail. But several suggestions are worth exploring as the process unfolds. First, where the texts are unclear or contradictory, panels and the AB should be allowed or even instructed to adopt the non liquet doctrine--or in effect, "it is not clear." Invocating this doctrine would allow the judicial panels to throw the issue back to the WTO General Council or to trade round negotiations. Critics of non liquet have argued that it is prohibited because international law is necessarily "complete"--or that it is the duty of judges to step in and fill gaps. However, proponents of 'completing' the law and 'gap-filling' in the contentious areas described by Evenett reflect a dangerous technocratic myopia that will increasingly bring into question the legitimacy of the DSU process.

Alternately, the WTO could adopt a variation of the so-called "political issue" doctrine developed by the U.S. Supreme Court. The doctrine is meant to provide a means for the judiciary to avoid decisions that have deeply divisive political ramifications and thus, in the opinion of the court, should be settled through more traditional democratic processes, involving both the legislature and the executive. For the WTO, this would again drive the responsibility back to the negotiations table or to the General Council.

Much of this may seem beyond the possible--given the almost decade-long failure of substantive negotiations in the Doha Round. But whatever the outcome of Doha, a deep rethinking of the premises and operations of the global trading system is now inevitable. In that circumstance, all portions of the Uruguay Round bargain and structure should be on the table--including dispute settlement.

Claude Barfield is a resident scholar at AEI.

Sources

Claude Barfield, "WTO Dispute Settlement System in Need of Change," Intereconomics, May, 2002.

Simon Evenett, "A Future Agenda for EU Trade Policy As If the Real World Really Mattered, Voxeu, September 25, 2010.

Robert E. Hudec, "The New WTO Dispute Settlement Procedures: An Overview of the First Three Years," Minnesota Journal of Global Trade, 1999, no. 1, 8-16.

John H. Jackson, The World Trading System:Law and Policy in International Economic Relations, 2d ed., Cambridge, Mass: MIT Press.

Sylvia Ostry, "The WTO: Institutional Design for Getter Governance," Paper presented at the Conference on Efficiency, Equity, and Legitimacy: The Multilateral Trading System at the Millennium," Kennedy School of

Government, Harvard University, Cambridge, Mass., June 1-2, 2000.

R. Phan Van Phi, "A European View of the GATT,"International Business Lawyer, 10 (1986), 150-151.

J.H.H. Weiler, "The Role of Lawyers and the Ethos of Diplomats: Reflections on the Internal and External Legitimacy of WTO Dispute Settlement," Jean Monnet Working Paper, Harvard University Law School, September 2000.

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About the Author

 

Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
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