The WTO’s Dispute Settlement Crisis

“The World Trade Organization is in crisis” is a statement that has practically become the new WTO motto. This particular global organization is comprised of 164 member states and was created on January 1, 1995. The provisional agreement and organization, the General Agreement on Tariffs and Trade (GATT) preceded the creation of the WTO. While the GATT focused mainly with trade in goods, the WTO and its agreements also cover trade in services and intellectual property. Supporting economic development through trade liberalization and in effect promoting peaceful relations are among the fundamental goals that the WTO stands for.

A vital component of the WTO is the dispute settlement body, which enforces the rules established by the WTO and therefore ensures that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed and judgments made by specially appointed independent experts are based on interpretations of the agreements and individual countries’ commitments. It is important to note that this body allows for the enforcement, in particular, of the rules based multilateral system that is established by the WTO. The current state of the WTO is in crisis because the very existence of the dispute settlement mechanism is being threatened. A stalemate between the United States and other members of the WTO, including the European Union and China is what is causing this threat.

Specifically, a U.S. block on new appointments to the Appellate Body will render it irrelevant because there will not be enough judges to rule on trade disputes between countries. At stake are international rules negotiated over five decades by the U.S. and Europe to boost global trade. Among the options that offer temporary solutions to this stalemate include creating an interim court. Based on WTO rules and voluntary participation, to replicate the Appellate Body and issue binding decisions. Another option is to implement stopgap measures which could prolong some of the WTO’s ability to settle disputes. However, this is not a permanent solution. While the EU would like to preserve the WTO and supports a global trade court, the U.S. prefers ad-hoc arbitration for each dispute. There is strong consensus among WTO members as to the necessity of the dispute settlement but there is polarization as to the functioning of the current system. It is clear that there is a need for reform but dismantling of the system which in effect halts the operations and functioning of the WTO as a whole is not the solution.

There needs to be a discussion on what other mechanisms are relevant and perhaps better suited for the current state of global trade which is more politicized and fragmented. Reform of the WTO and the appellate body needs to be driven by its members. The system should remain a rules-based system rather than a power-based system where the strongest members can win trade issues though exerting bilateral economic pressure. The current trading system needs to change, and this is key for the future of not just the global economy but the global system as we know it.

By Hana Hadzibegovic, Junior Staffer

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