Policy paper 225

Saving the WTO Appellate Body or returning to the Wild West of trade?

A year ago, the world was still wondering whether to expect a hard Trump or a soft Trump, and whether the new US president would be ready to adopt aggressive unilateral measures to balance the American trade deficit. Now, in the face of punitive measures targeting a specific product or country, and alternations between sanctions and concessions, the countries most exposed are adjusting their own retaliation measures.

Beyond this, European concerns are relate to Donald Trump’s desire to either disentangle himself from multilateral trade rules, or his destabilisation strategy to strengthen the disciplines of the World Trade Organization (WTO).
Will the US continues to block the appointment of judges at the WTO’s Appellate Body, the cornerstone of international trade regulation, to the point that they could blow up the dispute settlement system? In that case, one would have to brace for a trade war. Trade would no longer be rule-bound: we would be back in a Wild West replete with no-holds-barred showdowns. Or could the United Stated – along with the European Union, Japan and others – be serious about tackling the distortions that Chinese state capitalism is causing in the global economy, and that are having a more decisive impact on the US trade deficit?
The WTO needs its two legs: litigation and negotiation. It is by bringing China to the negotiating table that we can restore the confidence of the United States in the ability of the WTO to enforce fair rules. This would enable the litigation component to continue to playing its role in reducing trade tensions.
This policy paper, by Elvire Fabry, senior research fellow at the Jacques Delors Institute, and Erik Tate, research assistant at the Jacques Delors Institute, examines Washington’s criticisms of the Appellate Body, reviews the procedural reforms that could improve its operation, and advocates multilateral disciplines that should be more tightly enforced so that dispute settlement mechanisms facilitate fair trade. If the US President’s vision turned out to be more short-termist, it would be up to Europe and the other major powers to preserve a plurilateral regulatory framework, which would be all the more needed to counter the new disruptive factor that the United States would become.