Canada urges U.S. to save WTO from chaos

The global trading system is potentially days away from plunging into disarray, and a Canadian diplomat told a Washington audience this week that the United States must help prevent the chaos. 

Experts gathered at an event in D.C. where they discussed the consequences of the World Trade Organization appeals body, the top enforcement mechanism of global trade disputes, becoming paralyzed.

That's exactly what will happen Dec. 10 barring a drastic course-correction — with potentially wide-ranging consequences on the international trading system built up in the decades since the Second World War.

Following years of pent-up U.S. frustration over the behaviour of the WTO's ultimate dispute-resolution body, the administration of President Donald Trump began blocking the appointment of new panellists. 

As a result, the group's appellate body will stop functioning next month, plunging dozens of current cases into uncertainty and casting a cloud over future ones.

The assessment of experts at this week's gathering is that the Trump administration has steadfastly refused to discuss solutions, preferring instead to let the system break before entering talks about steps forward.

Marvin Hildebrand, who oversees trade at the Canadian embassy in the U.S., told the Washington gathering that Canada has some sympathy for the American criticism of the WTO system's failures.

"But we also call on the U.S. to engage more, and to be more specific, in terms of their concerns and the way forward," Hildebrand told the event, which was hosted by the Washington International Trade Association.

"We would disagree with the view that the right thing to do at this time is to let the appellate body fall into dysfunction."

'What you're creating is chaos'

The WTO appellate panel, which usually has seven people, now only has the legal minimum of three — and two of them will retire on Dec. 10.

The uncertainty stemming from the panel's dissolution would touch every country with business before the WTO, including Canada.

Canada is currently defending itself in cases involving controls over wine sales and subsidies for Bombardier aircraft. It is the complainant against the U.S. in a case involving softwood lumber duties. 

Another expert at the gathering said the ripple effects of the panel's breakdown could extend far beyond current cases and change the behaviour of trading nations.

Bruce Hirsh, who represented the U.S. in various roles at the WTO and was a senior U.S. trade official, said just knowing there's an enforcement mechanism in place encourages countries to respect rules and avoid tit-for-tat tariff fights.

Jennifer Hillman, a former panellist on the WTO Appellate Body, quoted a Joni Mitchell lyric — "you don't know what you've got 'til it's gone" — and said the coming period might be turbulent.

"The law of the jungle" was how Hillman, a former U.S. trade negotiator and now a Georgetown professor, described her fear of what's next.

"[It means] everybody putting on tariffs as they want, and then retaliating against those tariffs with tariffs of their own. And fundamentally what you're creating is chaos." 

She warned that "chaos has a huge economic drag."

What America wants

Hillman's own experience shows the American complaints predate Trump. The Obama administration even blocked her reappointment to the WTO Appellate Body amid speculation it was seeking a more compliant panellist.

The U.S. has several major complaints, Hirsh said. He said they include procedural gripes, like the fact that panellists regularly extend their mandates, citing the need to complete pending cases.

Another complaint: These cases drag on. 

Hirsh said they so frequently brush past the supposed 90-day deadline for a decision that over the last few years, the appellate body simply stopped asking litigants' permission for an extension.

That points to more substantive issues, he said. Those include the body treating a decision in one case as binding on another — like a court applying jurisprudence.

Hillman listed a few other problems. When the system was established in 1995, she said, countries expected appeals to be rare, but 70 per cent of decisions have been contested. In addition, she said they expected litigants to be mainly governments, but WTO cases now feature sprawling submissions from private law firms.

She said some of these problems stem from the fact that the agreement on a dispute mechanism came together in a hurry, at the end of a long negotiating round two decades ago.

"The system has just not turned out as expected," she said.

Terence Stewart, a retired practitioner of trade law and ex-professor at Georgetown University, said other countries have been too slow to respond to U.S. criticisms — and too willing to over-interpret the mandate of the WTO panel as some sort of international court.

"As long as this [Trump] administration is in power, you will not get a functioning appellate body until those issues are addressed," Stewart said.

Who's talking solutions

So, what now?

Hildebrand said Canada is trying to find solutions. Last year, Canada formed the so-called Ottawa Group, comprised of dozens of countries, which has met four times and produced broad reform principles.

He said Canada supports the work of David Walker, New Zealand's envoy to the WTO, who has offered suggestions for addressing the U.S. concerns.

Finally, Canada and the European Union have agreed to set up their own parallel, interim dispute system pending a long-term solution.

But the U.S. isn't involved in these efforts.

In fact, the U.S. is turning up the pressure on its partners. A Bloomberg report this month said the U.S. has threatened to block future funding of the WTO, and privately expressed annoyance over the idea that its budget might wind up supporting parallel dispute bodies.

Meanwhile, it won't even respond to reform proposals. 

The U.S. has said it will not engage Walker's proposals until the countries of the world diagnose what went wrong in the first place, and why the WTO strayed beyond its initial mandate. It also wants countries to agree there's a problem.

Hillman said U.S. partners are starting to get annoyed.

"Everyone is very frustrated," she said. "[They're saying to the U.S.,] 'OK, you're great at pointing out the problem and creating chaos and blowing up the system. But where are you when it comes to coming up with some solutions?'" 

Some participants at the Washington event this week opined that the U.S. appears determined to drag out the issue beyond the Dec. 10 breaking point, and increase its leverage to get the changes it wants.

But one audience member from France raised another theory. In a question to the panel, he referred to a recent quote from Sen. James Risch, the U.S. Republican who heads the Senate foreign relations committee.

Risch has described the U.S. as an "800-pound gorilla," and the audience member opined that perhaps the mighty mammal welcomes a return to the law of the jungle — where might makes right.