Multilateral trading system faces ‘most severe blow’
The multilateral trading system is on the verge of being dealt a "most severe blow" on Wednesday when a partial shutdown of its governing body will leave three cases involving Australia – which affect winemakers, sugar producers and tobacco companies – in limbo.
The crisis stems from the United States' refusal to make judicial appointments to the World Trade Organisation's appellate body, which will cease to function when the terms of two of the three remaining judges expire this week.
The US delegation rejected on Monday a last-ditch effort to keep the appeals process working beyond December 11, citing a lack of "convergence among members with respect to an understanding and appreciation of concerns raised".
But Jose Aguiar Machado, the European Union's ambassador, said the "unprecedented situation" was caused by Washington.
"The actions of one member will deprive other members of their right to a binding and two-step dispute settlement system, even though this right is specifically envisaged in the WTO contract,” Mr Machado said.
The Chinese delegation called the shutdown "the most severe blow to the multilateral trading system since its establishment".
Every US president since George W. Bush has criticised the appeals process for overreaching its mandate – creating, as opposed to interpreting, law –and over procedural gripes such as judges overstaying their terms.
But no previous administration has brought the appellate body, which helps ensure that dispute settlement decisions are binding on member states, to a shutdown.
Loose ends
Two out of the 14 cases currently before the appellate body concern Australia's cigarette plain-packaging laws, which were upheld by the WTO in June 2018 but are being appealed by Honduras and the Dominican Republic.
Hearings for the cases, which are being considered together, are complete. But the United States has rejected even the stopgap proposal to allow the appellate body to issue rulings on cases that have already held hearings.
The impending shutdown also creates uncertainties for cases awaiting a dispute settlement.
Since the WTO rules enshrine a right of appeal on dispute settlement rulings, the inability to access an appellate process means the initial decisions may not be binding.
Australia is the complainant in two such cases before the WTO: one against the Indian government for domestic and export subsidies for sugarcane and sugar producers, and the other against Canada for restrictions on the sale of Australian wine in several of its provinces.
The Australian Chamber of Commerce and Industry said the collapse of the appeals process would have "reverberations on the future of trade", given the role of the multilateral trading system as a bulwark against tariff wars and increasing protectionism.
The chamber favours a proposal by former WTO legal affairs director Pieter Jan Kuijper to replace the consensus system with a majority vote, which effectively saps the US of its veto over judicial appointments.
Mr Kuijper has said the move may "lead to the US leaving the WTO in a huff, but that may be repaired under a future administration".
Member states have trodden more carefully, favouring partial agreements –such as the European Union's arrangements with Norway and Canada – to not appeal on any disputes between them but instead resort to arbitration.
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