Meera Manoj, Intern at Cyril Amarchand Mangaldas – Advocates & Solicitors. This post won the 2018 KSLR Short Blog Post Competition on International Trade and Investment Law.
The United States (“US”) under the Trump Administration has pursued an aggressive and, at times, contradictory, policy with the World Trade Organisation (“WTO”). While on the one hand it has threatened to withdraw from the WTO and cripple its appellate body, on the other hand, it has continued to aggressively pursue remedies within the WTO Dispute Settlement Body (“DSB”).
This article analyses the broader strategic picture emerging from key actions taken by the US administration in relation to the WTO.
Paralyzing the WTO Appellate Body:
While threatening to withdraw from the WTO and defy its rulings[1], the US has also accelerated a crisis in the Appellate Body’s (“AB”) functioning. The AB consists of seven members who serve a maximum four-year term following appointment, a rule based on consensus[2] in the DSB as per Article 17.2 of the Dispute Settlement Understanding, 1994[3]. The US is currently preventing the nominations of persons to fill three vacancies within the body.
President Trump has justified this firstly by maintaining that the WTO DSB is a rigged system “set up for the benefit of taking advantage of the United States”[4]. This is despite there being ample evidence to indicate that the US has the highest success rate amongst all parties[5].
Another point of contention is the practice of AB members continuing to serve on their pending cases after their term expires.[6] This practice has been followed since the inception of the body and has never been challenged by the US before[7]. It is codified under Rule 15 of the Working Procedures of the WTO Appellate Body[8], and it is common amongst other international tribunals as well, such as under Article 33 of the Rules of the Court of the International Court of Justice[9]. Further, given the tight timelines to complete appeals within 60-90 days, it is impossible to have a new judge step in[10].
Thus, the US attacks on the AB thus appear to be unfounded and contradictory.
More alarming is the fact that if the US continues to oppose appointment and continuation of AB members, there is a high likelihood that the AB will soon become defunct despite having a legal mandate.
Invoking the Article XXI Security Exception
On 1st March 2018, the US announced the imposition of a 25% tariff on steel imports and a 10% tariff on aluminium imports under Section 232 of the US Trade Expansion Act of 1962.[11] In his order, President Trump justified the measure by stating that the domestic steel industry was being negatively impacted by the high level of imports of steel articles, rendering it unable to meet national security production requirements in an emergency.[12]
China swiftly challenged these measures before the WTO DSB under Articles XIX, II:1 and I:1 as being discriminatory and illegal[13]. The US is expected to invoke Article XXI of the GATT to justify the measure.[14] Article XXI (b) (iii), which deals with the invocation of Security Exceptions, allows Members to derogate from all WTO obligations when imposing measures “taken in time of war or other emergency in international relations.”[15] Such a course of action may be adopted by a Contracting Party when “it considers it necessary for the protection of its essential security interests.”[16]
Given the ambiguously worded text, it comes as no surprise that this defence has rarely been invoked in trade disputes. In fact, as was noted from its very inception, the possibility to abuse such a provision is untrammelled. The only safeguard against its misuse is the spirit in which the members are to interpret it[17].
This safeguard may no longer be effective. With the imposition of its tariffs, the US has attempted to drastically lower the threshold of what is considered an “emergency in international relations” to encompass even the poor production performance of its domestic industries. This loose interpretation of Article XXI (b) (iii) GATT poses a serious threat to the stability of the multilateral trading system as it sets a negative precedent that other countries could soon follow to justify a plethora of protectionist measures.
It is perhaps ironic that the US itself cautioned against countries disguising purely commercial measures as security measures during the drafting of Article XXI (b) (iii) GATT[18].
The US in its recent submissions before the Panel in Russia – Traffic in Transit, stated that Article XXI measures are wholly incapable of review by the WTO DSB.[19] The opposing view propounded mainly by the European Union is that countries do not enjoy an unfettered discretion and Article XXI measures must be invoked in good faith with a reasonable explanation provided to the WTO DSB.[20] The trading community may find itself in a paradoxical situation where if the Panel rules against the US it may flout its findings, and if it rules in the US’ favour it will highly destabilise the WTO regime.
Pursuing Claims against other Members at the WTO
Despite the Trump Administration’s criticisms, the US reiterates its interest to work within the WTO and strengthen the trading system.[21] Despite maintaining that the WTO system is flawed and biased against it, the country has recently brought two major disputes before the DSB, against India and China respectively.
Specifically, the US has challenged India’s export subsidy schemes for violating the Agreement on Subsidies and Countervailing Measures (“SCM”).[22] This challenge has the potential to have significant impacts when all developing countries within Annex VII of the SCM Agreement cease to provide subsides contingent on export performance.
The US has also requested consultations with China concerning measures allegedly in violation of the General Agreement on Trade-Related Aspects of Intellectual Property as they purportedly discriminate against foreign patent holders[23].
Conclusion
The participation of the US in the WTO is tainted by its contradictory actions that impair the work and functioning of the WTO.
Even though the actions brought against China and India indicate that the US still considers the WTO to be a viable forum to settle its disputes, the WTO A.B. may well be defunct by the time these cases are decided.
In addition, the loose interpretation of Article XXI (b) (iii) GATT that the US has adopted to warrant the re-introduction of the steel tariffs, of which the US itself has warned against, risks undermining the entire trading system.
It thus remains to be seen whether the US’ love-hate approach to the WTO DSB is part of a larger cohesive strategy or merely chaotic and self-serving.
[1] Office of the United States Trade Representative, ‘The President’s 2018 Trade Policy Agenda’ (USTR, March 2018) <https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf> accessed 10 April 2018
[3] Dispute Settlement Understanding 1994, art 17.2
[4] Ian Schwartz, ‘Full Lou Dobbs Interview: Trump Asks What Could be More fake than CBS, NBC, ABC and CNN?’ (RealClear Politics, 25 October 2017) <https://www.realclearpolitics.com/video/2017/10/25/full_lou_dobbs_interview_trump_asks_what_could_be_more_fake_than_cbs_nbc_abc_and_cnn.html> accessed 3 April 2018.
[5] Gregory Shaffer, Manfred Elsig, Mark Pollack, ‘ U.S. Threats to the WTO Appellate Body’ (2017) 1 Irvine School of Law Research Papers <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3087524> accessed 7 April 2018
[6] Office of the United States Trade Representative, ‘The President’s 2018 Trade Policy Agenda’ (USTR, March 2018) <https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf> accessed 10 April 2018
[7] Gregory Shaffer, Manfred Elsig, Mark Pollack, ‘ U.S. Threats to the WTO Appellate Body’ (2017) 1 Irvine School of Law Research Papers <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3087524> accessed 7 April 2018
[8] Working Procedures for Appellate Review 2010, r 15
[9] International Court of Justice Rules of Court 1978, art 33
[10] Dospute Settlement Understanding 1994, art 17.5
[11] White House, ‘Presidential Proclamation on Adjusting Imports of Steel into the United States’ (White House, 8 March 2018) < https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states/> accessed on 6 April 2018
[12] White House, ‘Presidential Proclamation on Adjusting Imports of Steel into the United States’ (White House, 8 March 2018) < https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states/> accessed on 6 April 2018
[13] Request for consultations by China, United States – Certain Measures on Steel and Aluminium Products, WTO Doc. WT/DS555/1 (April 9, 2018)
[14] Shannon Togawa Mercer, Matthew Kahn, ‘America Trades Down: The Legal Consequences of President Trump’s Tariffs’ (Lawfare, 13 March 2018) < https://www.lawfareblog.com/america-trades-down-legal-consequences-president-trumps-tariffs> accessed 1 April 2018
[15] General Agreement on Tariffs and Trade 1994, art XXI
[16] General Agreement on Tariffs and Trade 1994, art XXI
[17] United Nations Economic and Social Council, ‘Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment’, (United Nations, 24 July 1947) < https://docs.wto.org/gattdocs/q/UN/EPCT/APV-33.PDF> accessed 5 April 2018
[18] United Nations Economic and Social Council, ‘Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment’, (United Nations, 24 July 1947) < https://docs.wto.org/gattdocs/q/UN/EPCT/APV-33.PDF> Accessed 5 April 2018
[19] Third Party Submission of the United States, Russia – Measures Concerning Traffic in Transit WT/DS512, (November 7, 2017), https://ustr.gov/sites/default/files/enforcement/DS/US.3d.Pty.Sub.Re.GATT.XXI.fin.%28public%29.pdf
[20] Roger P. Alford, ‘The Self-Judging WTO Security Exception’ (2011). Scholarly Works. Paper 330. <http://scholarship.law.nd.edu/law_faculty_scholarship/330> accessed 4 April 2018; Third Party Written Submissions of the European Union, Russia – Measures Concerning Traffic in Transit WT/DS512, (November 8, 2017), http://trade.ec.europa.eu/doclib/docs/2018/february/tradoc_156602.pdf.
[21] Office of the United States Trade Representative, ‘The President’s 2018 Trade Policy Agenda’ (USTR, March 2018) <https://ustr.gov/sites/default/files/files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf> accessed 10 April 2018
[22] quest for Consultations by the United States, India—Export Related Measures, WTO Doc. WT/DS541/1 (March 19, 2018)
[23] Request for Consultations by the United States, China—Certain Measures Concerning the Protection of Intellectual Property Rights, WTO Doc. WT/DS542/1 (March 26, 2018)