Revisions to the US-Mexico-Canada Agreement Gains Support of Labor and House Democrats

The Trump Administration has sought to replace/update NAFTA as a priority since taking office. The Obama Administration also wanted to update NAFTA but viewed that as doable within the context of the Trans Pacific Partnership agreement talks. When the Trump Administration withdrew from the TPP in 2017, updating/revising NAFTA became the preferred approach.

In a post from November 16, 2019, I reviewed the possibility that USMCA, if revisions were made to address Democratic concerns, could be an example of bipartisan trade legislation. See https://currentthoughtsontrade.com/2019/11/16/usmca-a-return-to-bipartisan-trade-legislation/.

For roughly a year, the Trump Administration through USTR Lighthizer and the House Democrats have been pursuing negotiations on changes deemed necessary by the Democrats for the USMCA to be acceptable to them. Enforcement of labor and environment provisions and issues surrounding biologics have been at the core of the concerns being explored. Labor and environmental groups have pressed hard for changes that would address their concerns, and the problems they have experienced under other agreements.

In recent weeks, lead negotiators from Mexico and Canada were in Washington to review changes the Administration was seeking and providing further feedback/reactions to whether such changes were acceptable. A meeting in Mexico City today between the main negotiators is intended to permit agreement on revisions acceptable to the three countries.

Earlier today, the President of the AFL-CIO, Richard Trumka, expressed support for the modifications to the USMCA that had been negotiated by the Democratic team with the Trump Administration. Speaker of the House Nancy Pelosi and House Ways and Means Chairman Richard Neal indicated that the House Democrats believed the revised agreement (as reflected in the modifications negotiated with the Trump Administration) was far superior to both NAFTA and the USMCA that had previously been signed by the governments. Indeed, assuming agreement by the three countries to the revisions this afternoon, USMCA as revised, will be ready for Congressional consideration as early as next week.

While the text of the modifications is not yet public, the House Ways and Means Committee Chairman has released a fact sheet which reviews issues pursued by the Democrats that they perceive have been successfully resolved. The text of the fact sheet is included as a PDF below.

USMCA-win-factsheet-

If the USMCA is revised as expected, the timetable in the Congress will likely be expedited and will be supported by large parts of the business community whether agriculture, manufacturing, services and will include support from labor and other groups.

When the text of the agreed modifications is available, the revisions will be added to the comparison documents provided in the prior post that compare USMCA to NAFTA and the TPP agreement that the U.S. had signed (before withdrawing).

To the extent that the USMCA becomes a model for other agreements going forward, there should be greater likelihood of bipartisan support for future agreements just as has developed for USMCA.

U.S.-Japan Trade Agreements to Go Into Effect on January 1, 2020

The two trade agreements that Prime Minister Abe and President Trump announced on September 25, 2019 and that were signed on October 7, 2019 will go into effect at the beginning of 2020.

The U.S. having notified Congress of its intent to enter into negotiations with Japan in 2018, limited what it negotiated in these current agreements to tariff reductions and digital trade (presumably requiring no U.S. law changes) and thus will be handled by Presidential Proclamation. Questions about compliance with consultation requirements have been raised by House Ways and Means Democrats, and there are questions about whether such partial agreements are consistent with U.S. and Japanese obligations under the WTO (GATT 1994 Art. XXIV). Nonetheless, USTR Lighthizer has indicated that following completion of the Japanese approval process last week that President Trump will be issuing a Proclamation this week (week of December 9).

In Japan, the Lower House of the Diet approved the deal in November and the Upper House last week.

The two countries will implement the agreements on some tariff reductions/eliminations and on digital trade on January 1, 2020.

As reported in the Japanese press, Japan is lowering or removing tariffs on various agricultural products to put the U.S. on a level playing field with other countries who continued with the Trans Pacific Partnership agreement after the U.S. withdrew. The value of U.S. agriculture exports covered by reductions or eliminations was listed at $7.2 billion. See The Japan Times, Upper House approves U.S.-Japan trade deal, https://www.japantimes.co.jp/news/2019/12/04/business/economy-business/upper-house-approves-united-states-japan-trade-deal/#.Xe-8w-hKiUk.

In an earlier post, the loss of market share by U.S. agriculture exporters of key commodities in 2019 because of the disadvantage in tariff rates vs. other major agricultural exporters was reviewed. The reduction in US exports has continued through October based on data now available. Thus, U.S. exports of corn (HS 1005) to Japan are down 24.7% in the first ten months of 2019; pork exports (HS 0203) are down 7.58%; fresh or chilled beef exports (HS 0201) are down 8.55%; wheat/meslin exports (HS 1001) are down 13.25%; frozen beef exports (HS 0202) are down 18.05%; frozen fish exports (HS 0303) are down 29.85% and fresh or dried nut exports (HS 0802) are down 7.39%.

The United States is reducing or eliminating tariffs on imports from Japan that in 2018 were around $7.1 billion. There are a few agriculture products but most are manufactured goods. The two countries have committed to starting negotiations on a broader deal (phase 2) to begin in April or May 2020. Total imports from Japan in 2018 were $143.7 billion, so the phase 1 coverage addresses only 4.9% of U.S. imports from Japan. Many other imports from Japan are already duty free. Thus, the products from Japan covered by the phase 1 agreement subject to reductions or eliminations in tariffs accounted for 9.8% of the calculated duties on total U.S. imports from Japan in 2018.

Nearly half of all duties the U.S. collected on imports from Japan occurred on motor vehicles and parts (HS Chapter 87)(49.1% of total collected duties in 2018). While elimination of duties on motor vehicles is a high priority for Japan, any reduction will be part of the phase 2 negotiations.

For U.S. agriculture producers who have had a very difficult time from trade retaliation by many trading partners over the last two years. the phase 1 tariff agreement is welcome news.

As both the U.S. and Japan have high level digital trade systems, the main importance of the digital trade agreement will be as a model for efforts with other countries going forward.

Conclusion

The Trump Administration’s push for a phase 1 deal with Japan to offset significant disadvantages suffered by U.S. agriculture exporters from the U.S. withdrawal from the TPP has received buy-in from Japan (presumably in part to limit the likelihood of action against Japan from the Section 232 investigations on automobiles and parts)and despite the questions on how this piecemeal approach comports with international obligations of both countries.

In what is looking to be a busy finish to 2019 for the United States on trade issues — USMCA appearing close to consideration by the U.S. Congress (the revisions to the agreement to be addressed in Mexico today (Dec. 10) and reportedly sufficient to have the revised agreement go to the House next week); a possible phase 1 US-China deal still possible ahead of new tariffs kicking in on imports from China on December 15 — the U.S.-Japan trade agreement is a market opening event of some importance for U.S. agriculture and the agreement on digital trade is one with a major trading partner and reflects U.S. ambitions.

The WTO Dispute Settlement System – Closing Out 2019 and Implications for 2020

The week of December 2, 2019 saw WTO Members engaged in a variety of year end activities including two added meetings – the resumption of the November 22 Dispute Settlement Body (“DSB”) meeting to explore how pending appeals would be handled post December 10 and another Committee on Budget, Finance and Administration meeting to see if Members could agree to a modified proposed budget to address U.S. concerns on funding for the Appellate Body (“AB”) in light of the imminent reduction of AB members from three to one.

December 3, 2019 DSB Meeting on Pending Appeals

The resumption of the DSB meeting did not result in agreement for how all pending appeals will be addressed with most pending appeals unlikely to be resolved by the current AB members, although it has been reported that the DSB Chair David Walker had indicated that appeals would proceed on four cases (of fourteen pending on December 3) – the two plain paper packaging appeals on Australia’s programs (Honduras (DS435) and the Dominican Republic (DS441), Ukraine’s challenge to various measures in the Russian Federation on the importation of raailway equipment (DS499) and the appeal in the case on U.S. countervailing duties on supercalendered paper from Canada (DS505).

The December 3 resumed DSB meeting did show the continued distance between at least certain WTO members in their view of one of the issues raised by the United States — whether the Dispute Settlement Understanding limits who may authorize individuals to serve as Appellate Body members to the WTO Membership through the DSB. For example, the EU statement confirmed that it viewed the Appellate Body, through Rule 15 of the Working Procedures, as qualified to permit members of the AB whose terms have expired to continue working on appeals that started while they were members. See EU statement at the regular DSB meeting on 3 December 2019, https://eeas.europa.eu/delegations/world-trade-organization-wto/71496/eu-statement-regular-dsb-meeting-3-december-2019_en.

The U.S. statement reviewed their year long effort to get an answer to the question “do Members agree that the Appellate Body does not have the authority to ‘deem’ a person who is no longer an Appellate Body member to nonetheless continue to be a member and decide appeals?” From statements by the EU and presumably others, the U.S. concluded that “members are not in agreement on this fundamental question.” As such the U.S. concluded that “there will be no consensus between Members on how to proceed on the Appellate Body by December 10” and that “[i]n the absence of any shared understanding of the underlying causes and of appropriate solutions, it will be for the parties to each dispute to engage with each other to determine an appropriate way forward.” Statement of the United States at the Meeting of the WTO Dispute Settlement Body (Dec. 3), https://geneva.usmission.gov/wp-content/uploads/sites/290/Nov22.DSB_.Reconvene.Item7_.as_.deliv_.fin_.public.pdf.

Since the DSB meeting on December 3, Morocco withdrew its appeal of a panel decision, Morocco – Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey, indicating that its antidumping measure had terminated in September. See WT/DS513/7 (5 December 2019). And on December 6, the European Union filed an appeal from the second compliance panel ruling in the Airbus case where the panel had found the EU had not brought its programs into compliance with WTO obligations (panel report was circulated on December 2, 2019). See https://www.wto.org/english/news_e/news19_e/ds316oth_06dec19_e.htm. Thus, as of December 7, there remain 14 appeals pending before the Appellate Body.

December 5, 2019 Committee on Budget, Finance and Administration Consideration of WTO 2020 Budget

Meanwhile, the Committee on Budget, Finance and Administration meeting of December 5 resulted in approval of the modified budget proposal for the WTO for 2020. The budget will now be before the General Council for approval in its final meeting of 2019 held on December 9-11. See Agenda item 20, WT/GC/W/793. The U.S. had worked with the Director-General to identify changes in the budget to reduce funds available for Appellate Body members in light of the current situation and only agreed to proceed with the budget for 2020, postponing the 2021 budget approval process until next year. A number of WTO Members, including the EU, China, India and Turkey had expressed concerns about the modifications to the budget, but approval at the Committee level was secured.

Reductions in two budget line items were reportedly made, reducing funding from $2.791 million to $200,000, presumably sufficient to handle appeals that do go forward through the Appellate Body. What such changes in funding will mean for the Appellate Body Secretariat is not yet clear but logically if there is no functioning Appellate Body, there is no need for an Appellate Body Secretariat until such time as the AB has sufficient members to once again hear appeals.

Other Issues Potentially Affecting the Operation of the Dispute Settlement System

Still unknown is whether current AB members whose term expires on December 10 will agree to continue on appeals after that date even on the four appeals where hearings have been had and that press reports indicated that Amb. Walker, the DSB Chair, had indicated would proceed post December 10. To the extent one of the current AB members opts not to continue on any appeal after the end of his term, that would presumably reduce the number of pending appeals that could be heard as it is likely there would be no continuing AB member who could be substituted (would depend on the composition of the AB Division presently hearing the appeal).

Moreover, as one of the four pending appeals identified in press articles as likely to be completed is a case where the U.S. is a party, it is also not clear what the U.S. position will be on that appeal post December 10. It may have agreed to have those appeals where hearings have been had completed if the current AB members are willing to continue to serve. Press accounts are unclear if that is the case.

There is also the question as to whether the Appellate Body Secretariat is disbanded pending the resumption of a functioning Appellate Body. Press reports have indicated that this is possible/likely with existing staff having the option to leave the WTO or accept positions in other WTO divisions. That would obviously make sense from a budget perspective as well as there is no institutional value in paying people who have no discernible workload.

December 6 Trade Negotiations Committee Heads of Delegation Meeting

There is always a flurry of activity ahead of the last General Council meeting of the year. December 6 saw a meeting of heads of delegation for the Trade Negotiations Committee (“TNC”). The TNC is the Committee that oversees ongoing negotiations within the WTO. While there are very important issues being pursued by various groups within the WTO under the jurisdiction of the TNC, for purposes of this post, the issue of interest will be the extent to which the dispute settlement system is a subject of debate.

As the minutes of the meeting are not publicly available, reference is made to three statements – one by Director-General Azevedo, one by EU Ambassador Joao Aguiar Machado and one by Ambassador Dennis Shea of the United States at the meeting. Other relevant statements were undoubtedly made as well.

The WTO put out a news release on Director-General’s statement to the TNC Heads of Delegation Meeting. The long excerpt below provides the Director-General’s views on the state of play on both the dispute settlement system and on the 2020 budget:

“In his remarks, the Director-General said that while the effective suspension of appellate review of WTO dispute rulings is a serious challenge to the global trade body’s adjudication function, it ‘does not mean the end of the multilateral trading system’.
“‘Existing WTO rules still apply. WTO disciplines and principles will continue to underpin world trade. And members will continue to use WTO rules to resolve trade conflicts – in regular WTO bodies, through consultations, via dispute settlement panels, and through any other means envisaged in the WTO agreements,’ he said.
“Members have important decisions to make, with implications for the WTO and for their respective economies, DG Azevêdo said.
“Where we go from here is in your hands. What we do – or just as significantly, what we fail to do – will define the trajectory of this organization.
“On rule-making, your choices could contribute to restoring certainty in the global economy, and help governments manage interdependence in a fast-changing world.
“On the implementation of existing commitments, you have scope to make regular committee work an even more effective vehicle for fostering compliance and addressing concerns about each other’s trade policies.
“And on dispute settlement, you could restore the impartial, effective, efficient two-step review that most members say they want.
“Alternatively, your choices could open the door to more uncertainty, unconstrained unilateral retaliation – and less investment, less growth, and less job creation.”
‘The DG welcomed a compromise reached in the Committee on Budget, Finance and Administration on the WTO’s budget for 2020. The committee’s favourable recommendation has been forwarded to the General Council for endorsement during its 9-11 December session.
“The proposed budget compromise is the result of flexibility and cooperation among members, both here in Geneva and in capitals. It represents a pragmatic response that preserves the WTO system amid turbulence in the wider international system – turbulence that we cannot wish away. I am counting on your help with approval in the General Council.”
DG Azevêdo urges WTO members to find ways forward on
the dispute settlement system, https://www.wto.org/english/news_e/news19_e/tnc_06dec19_e.htm.

Ambassador Machado of the EU’s statement at the meeting is a good representation of the EU position over time and shows the continued sharp difference in views the EU has with the U.S.

“Since our last meeting, the situation of the WTO has further deteriorated. Not only the discontinuation of the Appellate Body’s work has become an evident prospect, but attempts to obstruct the functioning of this Organization through the budget discussion have shattered Members’ confidence in teh WTO. This has diverted us from progressing our negotiation agenda or from finding ways to resume nominations of the Appellate Body Members, which should be the priority. While the European Union is alarmed about the current state of affairs at the WTO, we remain strongly determined to address the challenges in front of us.

“First, we remain resolute to find ways to restore a two-step dispute settlement system at the the WTO, and resume nomination of Appellate Body’s Members as soon as possible. Next week’s General Council will be crucial in this respect and we invite all Members to engage constructively in finding solutions.”

https://eeas.europa.eu/delegations/world-trade-organization-wto/71633/eu-statement-ambassador-jo%C3%A3o-aguiar-machado-trade-negotiations-committeeheads-delegation-6_en

Ambassador Shea’s statement, like that of other Ambassadors at the meeting, covered a range of issues deemed important for the TNC and its work going forward. On dispute settlement, Amb. Shea provided the following thoughts:

“Foruth, with respect to dispute settlement, the United States has engaged constructively over the past year, providing detailed statements in the DSB and the General Council outlining clear positions and articulating our longstanding concerns with the functioning of the Appellate Body. Unfortunately, we have yet to see the same level of engagement from other Members. We have asked repeatedly, if the words of the DSU are already clear, then why have the practices of the Appellate Body strayed so far? This is not an academic question; we will not be able to move forward until we are confident we have addressed the underlying problems and have found real solutions to prevent their recurrence.”

https://geneva.usmission.gov/2019/12/06/ambassador-sheas-statement-at-the-wto-trade-negotiating-committee-heads-of-delegation-meeting/

General Council Meeting, December 9-11, 2019

When the General Council meets starting on Monday, December 11th, among its twenty-four agenda items are two that deal with either dispute settlement (Agenda Item 5) or the 2020 budget (Agenda Item 20). Both agenda items will likely generate a great deal of discussion.

Presumably on December 9th, the General Council will get to agenda item 5, “Informal Process on Matters Related to the Functioning of the Appellate Body – Report by the Facilitator and Draft Decision on the Functioning of the Appellate Body.” The original draft Decision and the revised draft have been discussed in earlier posts and reflects efforts by Amb. Walker (serving as Facilitator to the General Council) to identify possible solutions to the concerns raised by the United States over the last several years on the functioning of the Appellate Body. There will be many WTO Members – undoubtedly including the EU, China, India and others – who will support the draft Decision and urge its adoption. In their view adoption of the Decision would clear the path for the Dispute Settlement Body to start the process for finding replacements for the six Appellate Body seats that either are currently or will be empty after December 10.

The United States has made it clear that the draft Decision does not resolve its concerns, most importantly because there is no understanding of why the Appellate Body has felt free to disregard the limits on its activities.

So expect Agenda item 5 to be contentious but result in no agreed decision being adopted.

On agenda item 20, “Committee on Budget, Finance and Administration – Reports on Meetings of April, June, September, October and November”, this item will likely be taken up on the 10th or 11th (assume the 11th). While again there will likely be a large number of statements and concerns raised about the process, it is expected that the 2020 budget for the WTO will be approved by the General Council.

Regular DSB Meeting of December 18, 2019

The agenda for the upcoming last regular DSB meeting of 2019 is contained in WTO/AIR/DSB/90 dated 6 December 2019. The relevant item for this post, is agenda item 6 which takes up the latest iteration of the proposal to have the DSB make a decision to launch a selection process to fill the six Appellate Body member slots that are or will be open. The proposal is essentially identical to earlier versions and is supported by 117 of the 164 WTO Members. See WT/DSB/W/609/Rev.15, 6 December 2019.

As it has in the past, the United States will not support the proposal, and the year 2019 will end with the Appellate Body unable to hear new appeals, unable to proceed with many of the pending appeals and with WTO Members exploring different options for how they will handle disputes going forward.

Implications for 2020

The 2020 budget reflects the contraction in activity by the Appellate Body even assuming the four pending appeals are completed in 2020. So 2020 will be a year of no or limited Appellate Body activity.

Major players such as the EU, China, India and others are far removed from acknowledging the deep concerns that have been expressed by the United States on the functioning of the Appellate Body, and in many cases disagree that there is even a problem. This impasse suggests that progress on reestablishing a two-step dispute settlement system will be slow if it occurs at all in 2020.

For some, there may be a hope that U.S. elections in late 2020 could lead to a different Administration in 2021 and a different posture on the WTO dispute settlement system. Change may or may not occur regardless of which Administration is in place in 2021. But there is little doubt that 2020 will be a year in which WTO members will need to consider other approaches to resolving disputes. One obvious alternative could be through arbitration under Article 25 of the Dispute Settlement Understanding (the EU has a model it has adopted with Canada and separately with Norway; other approaches could obviously be pursued). Members could also agree to not appeal from panel decisions. Negotiations can also provide ways to address matters of concern to trading partners, as can greater transparency and increased activity in WTO Committees permitting Members to understand and comment on practices of trading partners.

Change inevitably brings discomfort and uncertainty. December 10 and the inability to appeal new panel decisions after that date is the bookmark date for change. 2020 will undoubtedly be a year of discomfort and uncertainty. Let us hope that the WTO Members can find a path to addressing U.S. concerns in a meaningful manner and that an improved dispute settlement system is the result.

Additional Meetings of the WTO Dispute Settlement Body and Budget, Finance and Administration Committee set for December 3 and 5 in search of Resolution of Outstanding Issues.

The WTO’s last General Council meeting of 2019 is scheduled for next Monday-Wednesday (December 9-11). There are unresolved issues on what will happen with pending appeals before the Appellate Body and whether the modified 2020 budget that was introduced last week but received opposition from a number of Members will be approved. Not surprisingly, two additional meetings have been added to the WTO schedule for this week and can be seen in the section of the WTO webpage that shows pending meetings at the WTO.

The first is technically a resumption of the November 22 Dispute Settlement Body meeting to take up issue 7, “pending appeals”. The second is yet another Budget, Finance and Administration Committee meeting to seek approval of the proposed budget as modified by the Director-General in response to the issues raised by the United States on Appellate Body compensation and other matters.

As reviewed in earlier posts, the U.S. is seeking reductions in the budget within the WTO for Appellate Body [“AB”] matters in light of the reduced number of AB members and the likely inability to pursue appeals for some period of time after December 10. The U.S. also is opposed to former members of the AB continuing to hear most of the pending appeals after December 10. There are 13 reported pending appeals before the Appellate Body that will not be resolved prior to December 10. Resolution of how or if those appeals will proceed will presumably be relevant to the resolution of what funds are needed in 2020 for the AB in the proposed budget. Thus, the activities this week are important to providing clarification of what activity by the Appellate Body will occur prior to the resolution of the U.S. concerns on activities by the AB that are inconsistent with existing Dispute Settlement Understanding requirements.

The WTO General Council has had Ambassador David Walker of New Zealand (the current Chair of the Dispute Settlement Body) serving as a facilitator to see if solutions to the U.S. concerns could be found. At an informal General Council meeting of the Heads of Delegations held last Friday, November 29th, press reports indicate that modifications to the draft General Council Decision on the functioning of the Appellate Body that were contained in WT/GC/W/791 received the green light from Members. This indicates that the draft decision could be adopted at the upcoming General Council meeting.

It would be surprising if the modified draft Decision solves the impasse on filling AB vacancies. There are two additions to the draft General Council Decision from the version (JOB/GC/222 Annex) that the United States had dismissed as inadequate in the last General Council meeting on October 15. See my post of Nov. 4, 2019 on the Draft General Council Decision which quotes the U.S. position in full. https://currentthoughtsontrade.com/2019/11/04/wtos-appellate-body-reform-the-draft-general-council-decision-on-functioning-of-the-appellate-body/

First, a paragraph has been added acknowledging that the Appellate Body has not always functioned as intended. “Acknowledging that the Appellate Body has, in some respects, not been functioning as intended under the Understanding on Rules and Procedures Governing the Settlement of Disputes (the ‘DSU’)”. Such a paragraph is undoubtedly important to the U.S. as it reflects agreement that there have been problems – the U.S. position for many years that some other Members have not publicly acknowledged.

Second, paragraph 9 in WT/GC/W/791 has been added to a section previously titled “Municipal Law” but now renamed “Scope of Appeal”. The added paragraph reads, “9. Article 17.6 of the DSU restricts matters that can be raised on appeal to issues of law covered in the relevant panel report and legal interpretations developed by that panel.” The existing DSU limits the scope of appeal as reflected in this new paragraph. While the U.S. presumably supports the language, it is not clear that the concerns that the U.S. has raised about the Appellate Body opining on issues not raised by either party are fully addressed in this paragraph. Should the panel address issues not raised by the parties, the language would indicate the AB can address such issues in an appeal. The two documents are included below.

WTGCW791

JobsGC222

The press article indicates that it is not clear that the U.S. will approve the draft GC decision at the upcoming GC. Washington Trade Daily, December 2, 2019 at 1-2. Indeed, considering the October 15 statement of the U.S. at the General Council meeting, it would be surprising if the few modifications to the earlier draft would be viewed by the United States as adequate. For example on the longstanding problem of creating obligations or diminishing rights of Member, the draft Decision makes no changes to language which simply repeated part of DSU Articles 3.2 and 19.2. As reviewed in earlier notes, there is unlikely to be correction of the overreach problem if 3.2 and 19.2 aren’t clarified to identify situations where obligations are created (e.g., if gaps are filled, silence is construed or ambiguities clarified). Moreover, the U.S. concern reflects a more than 20 year problem of the balance of rights and obligations being altered. Nothing in the draft identifies how Members rights will be rebalanced.

if the U.S. joins other Members in approving the draft Decision at the upcoming General Council meeting on December 9-11, the U.S. could view the adoption of the decision as simply one step in the process needed before the U.S. will lift its hold on filling vacancies. Stay tuned.

The WTO Budget — Will There Be a Resolution in December?

November 2019 proved to be a challenging time for the WTO in terms of getting agreement on the budget for the organization for 2020. Normally, the budget is approved for a two year time period. At the November 12 Budget, Finance and Administration Committee [“BFA Committee”] meeting, the United States had questions on a number of topics including funding for the Appellate Body and its Secretariat with the result that the Director-General’s draft budget was not approved at that meeting. The Committee added another meeting to the agenda for November 27 in the hope of achieving resolution and agreement at the Committee level on the budget for 2020-2021.

Virtually none of the documents that are submitted to or generated by the BFA Committee are made public, nor is there a summary of meetings that is made available to the public. Thus, relatively little is public about events following the November 12 BFA Committee meeting. The Director-General is reported to have revised the budget proposal after consultations with the United States which appeared to leave the total budget for the WTO in tact but to have modified what could be used for the Appellate Body based on the reality of the number of Appellate Body [“AB”} members being reduced to 1 after December 10 which prevents the AB from handling new appeals after that date.

Press accounts suggest that the U.S. agreed to having just a few of the 13 pending appeals concluded with AB funds — specifically the two plain packaging of cigarette cases against Australia brought by Costa Rica and Honduras (DS435 and DS 441). In an earlier note, I had reviewed the likely challenges for the 13 pending appeals in light of when notices of appeal were filed and the possibility of one of the two AB members whose term expires on December 10 apparently not having expressed a willingness to continue to hear appeals past the end of his second term.

Reportedly, the U.S. has also insisted on funding for any arbitration under DSU Article 25 to be handled from the WTO Secretariat and be at the level and amount for panelists vs. Appellate Body members.

Finally, the U.S. has only agreed to funding for 2020 with 2021 to be dealt with next year.

At the meeting on November 27, press reports indicate that objections to the modified budget were raised by the EU, China, India and Turkey. on various grounds (e.g., different treatment for different pending disputes; contractual commitments to the remaining AB member for the remainder of the member’s term; view that it is not the role of the BFA Committee to resolve how pending appeals are handled) with no consensus at the end of the November 27 meeting. See, e.g., Washington Trade Daily, November 28, 2019 at 1-2.

No additional BFA Committee meeting has been added to the WTO list of remaining meetings in 2019. There are two informal heads of delegation meetings ahead of the December 9-11 General Council meeting. One was held on November 29 (informal General Council – heads of deletation) but has no report of what was discussed or whether the budget was being handled in ongoing negotiations with those raising concerns. The next informal heads of delegation meeting is scheduled for Friday, December 6 (TNC – heads of delegation) followed by the three day General Council meeting.

The General Council’s agenda is likely lengthy and will include annual reports from various committees and other entities but has not been made public at this point. However, some documents for review at the General Council are available publicly including the draft General Council Decision prepared by Amb. Walker of New Zealand which is an attempt to find a solution to problems with the dispute settlement system raised by the United States. As the U.S. has already indicated that the draft General Council Decision does not adequately address its concerns, it is not expected that the draft Decision will be adopted by the General Council after it has been presented and discussed.

December 18 is the last regularly scheduled Dispute Settlement Body meeting of the year, and will occur eight days after the last day the Appellate Body has a minimum of three Appellate Body members (assuming no resolution with the United States). Thus, no new appeals filed after December 10 can be heard by the Appellate Body until new members are agreed to.

Amb. Walker, who in addition to being the facilitator for the General Council’s consideration of the issue is the current Chairman of the Dispute Settlement Body, is understood to be working with Members to see if there is an approach to the pending appeals that can be approved. For the reasons reviewed in the Nov. 24 post, it is unlikely that most of the current appeals will be in a position to proceed if all three of the existing Appellate Body members don’t agree to continue to serve under Rule 15 of the AB’s procedures despite the terms for two of the three expiring on December 10. Amb. Walker will be hoping to have an agreed solution ahead of the December 18 DSB meeting. But the resolution on how pending appeals will be handled, if found, is presumably relevant to what the Members agree to for the 2020 budget. The December 18 DSB meeting is the last listed meeting of any WTO group for 2019. Indeed, December 23 – 31 are shown as non-working days for the WTO.

While it is hard to imagine that WTO Members won’t approve a modified budget for 2020 in the coming few weeks, it is likely to be a tense end to 2019 at the WTO with formal or informal additional meetings possible and with some Members having to consider how to handle pending appeals and all ongoing and future disputes.

With the WTO Appellate Body Becoming Dysfunctional on December 11, What Happens to Pending Appeals and Other Open Issues?

There was another WTO Dispute Settlement Body (“DSB”) meeting on November 22, 2019. In addition to the normal agenda item of receiving reports and comments by other members on the status of implementation of recommendations on disputes where reports had previously been adopted by the DSB, there were a number of other agenda items, one of which was not addressed.

First, the United States had put on the agenda making a statement on what it considers systemic concerns on the compensation for Appellate Body.

Second, annually each body within the WTO prepared a report on activity during the year. Adoption of the 2019 draft annual report of the DSB was an agenda item for consideration.

Third, the topic of Appellate Body appointments was an agenda item based on the September 2019 proposal from 117 WTO members.

Finally, there was an agenda item entitled “Pending Appeals” which was meant to permit an examination of how the 13 pending appeals would be handled after December 10 when the number of current Appellate Body members would decline to 1 from 3.

This note looks at several of the agenda items with a focus towards the end on the thirteen appeals which are proceeding at the present time.

I. Compensation for Appellate Body members

As reviewed in a post from November 16, the United States had raised a series of questions on the handling of funds for the Appellate Body and its Secretariat (among other issues) and held up adoption of the 2020/2021 WTO budget at a November 12 meeting of the Committee on the Budget, Finance and Administration. Another meeting of the Committee has been scheduled for November 27, with efforts to provide answers and resolve concerns ahead of that meeting.

At the same time, the U.S. added the agenda item to provide its thoughts on “systemic issues” flowing from the Appellate Body compensation system. The comments on this agenda item were made by Ambassador Dennis Shea and laid out the various elements of the compensation package, the part time nature of the work of Appellate Body members, and the fact that compensation has been paid to individuals whose terms have expired but who continue to handle appeals. See pages 9-12 of Statements b the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, November 22, 2019, https://geneva.usmission.gov/wp-content/uploads/sites/290/Nov22.DSB_.Stmt_.as-handed-out.fin_.public.pdf. U.S. concerns revolved around: (1) the total compensation (some 300,000 Swiss Francs tax free for part time work which is higher than compensation for Deputy Director Generals at the WTO whose work is full time; (2) whether the daily component of compensation contributed to delay in completing Appellate Body decisions, hence undermining prompt resolution of disputes; (3) lack of transparency on expenses; and (4) pay to former members who are continued after terms expire when working on appeals which they started prior to term expiration.

Press reports from the day of the DSB meeting indicated relatively little interest/sympathy by other trading partners on the U.S. concerns including on the size of the compensation. See, e.g., Inside U.S. Trade’s World Trade Online, U.S. Questions WTO Appellate Body compensation as others lament impending paralysis, https://insidetrade.com/daily-news/us-questions-wto-appellate-body-compensation-others-lament-impending-paralysis.

From the earlier U.S. statement of concerns on how to remedy the Appellate Body disregard of clear requirements under the Dispute Settlement Understanding, the U.S. statement provides a potential “why” answer to part of the disregard. Failing to meet the required 60-90 day deadline for appeals results in longer work on any given appeal and hence higher compensation, potentially encouraging longer decisions, coverage of additional issues, etc. and making timely delivery of AB decisions more difficult.

Should the U.S. insist that the AB compensation system be reviewed and potentially modified before agreeing to opening the Appellate Body nomination process, obviously a protracted and difficult process will become more complicated and presumably more drawn out.

II. Appellate Body Proposal to Start the Appointment Process

Not surprisingly, the same proposal to start the process of finding new Appellate Body members that had been presented in October by Mexico and 116 other WTO members was resubmitted for consideration at the November 22 DSB meeting. Once again the U.S. found itself unable to agree to moving ahead with the process for finding six Appellate Body members to fill the existing vacancies and the two that will occur when existing terms expire on December 10. So there is actually nothing new on this agenda item or the outcome at the recent DSB meeting.

Ambassador David Walker’s draft General Council Decision which is an effort to present a possible road forward to addressing U.S. concerns was not taken up within the DSB (other than a review of the effort at resolution contained in the draft annual report of the DSB) but will be on the agenda for the December 9-11 General Council meeting. As reviewed in an earlier post, the U.S. has already rejected the draft General Council Decision as not meeting its concerns. Thus, the General Council meeting in December is not likely to provide a breakthrough on the current impasse. So an obvious question is what happens on December 11?

The panel process of dispute settlement will continue as before. Thus, for the many cases proceeding through panel deliberations, one can expect those panels to continue without interruption. WTO Members have the option of agreeing to arbitration under Article 25 of the DSU, as the EU has done with Canada and with Norway. Similarly, WTO Members can agree not to take an appeal in a given dispute such that the panel report would be what is adopted absent a negative consensus. It is understood that some WTO members are considering this or have agreed to this approach. Thus, December 11 marks not the collapse of the dispute settlement system in its entirety, but rather a need to evaluate options for WTO members as they look at pending or future disputes or face a process where there is no automatic adoption.

A large number of WTO Members have participated in at least one dispute in the first 25 years of the WTO. Other WTO members, who have not been a complainant or a respondent have participated as a third party in one or more cases. While that is true, the number of cases where a Member is either a complainant or a respondent is very small for nearly all countries. The attached table looks at information from the WTO Dispute Settlement listing (looked at on November 22, but not reflecting the EU request for consultations filed against Indonesia on November 22). Six Members (U.S. (11.16/yr), EU and member states (9.44/yr), China (3.61/yr), Canada (2.52/yr), Russian Federation (2.42/year), and India (2.24/yr)) have seen two or more disputes filed each year of membership. Eight others have between one and two disputes each year (Brazil, Argentina, Japan, Mexico, Korea, Ukraine, Australia, and Indonesia). Everyone else (121 members) have less than one dispute per year including 81 who have never either filed a dispute or been a respondent in a dispute in the first twenty-five years of the WTO and 46 of whom have also never been a third party in a dispute.

WTO-Member

The EU’s agreements with Canada and Norway are important for Canada and Norway but relatively minor for the EU itself, other than creating what they hope will be an approach that other trading partners of theirs will agree to. For Canada, 23.81% of the disputes where Canada has been a complainant or respondent have been where the EU was the other party. For Norway, 3 of 5 cases they have been involved in have been with the EU (60%). However, for the EU, Canada and Norway represent less than 6% of the disputes in which they have been a party.

So how disruptive the reduction in Appellate Body membership to one member as of December 11, 2019 will be is uncertain and will depend on actions by a number of major players in terms of ongoing disputes..

III. Pending Appeals Before the Appellate Body

Agenda item 7 on the November 22, 2019 DSB meeting was “Pending Appeals. A. Statement by the Chairman.” WTO/AIR/DSB/89.

In the Dispute Settlement Body’s draft Annual Report (2019), the following brief discussion appears on what the Chair of the DSB was doing on the issue of pending appeals. WT/DSB/W/651 (8 November 2019) at 4:

” Finally, he said that he would be consulting with delegations who had pending appeals before the Appellate Body ahead of 10 December 2019 to see how to deal with those appeals. He said that he would revert to this matter at the November DSB meeting (WT/DSB/M/436).”

While the WTO does not have a summary of the November 22nd DSB meeting up on its webcite as of 11/24 2:30 p.m. (ET), a press article from the 22nd indicated that the agenda item wasn’t pursued as the Chair had not found agreement on how to deal with the 13 pending appeals. The U.S. was apparently the holdout in reaching agreement on how to proceed. Inside U.S. Trade’s World Trade Online, U.S. Questions WTO Appellate Body compensation as others lament impending paralysis, https://insidetrade.com/daily-news/us-questions-wto-appellate-body-compensation-others-lament-impending-paralysis.

In looking at the thirteen appeals that are understood to be underway and the relevant DSU articles on Appellate Body practice rules, there appear to be a number of potential issues that will need to be addressable if the issues are in fact present and the appeals are to proceed.

First, eight of the thirteen appeals were noticed by the appellant after 30 September 2018 the last day of Mr. Shree Baboo Chekitan Servansing’s four year term. See DS541, DS534, DS523, DS518, DS513, DS510, DS461, DS371. After that date, there have been only three Appellate Body members, all of whom would have to be hearing the appeal and no substitute would be possible if one of the two members whose terms end on December 10, 2019 decided not to continue on an appeal after that date. See DSU Art. 17.1; Working Procedures for Appellate Review, WT/AB/WP/6 16 August 2010, Rules 6.(3) and 12 and 13. It is understood that one of the two Appellate Body members whose second term expires on December 10 has indicated an unwillingness to continue to serve on the appeals after the expiration of his term. If correct, absent a decision by the DSB on how those appeals can proceed, the appeals will presumably terminate or be in a state of limbo pending restoration of the membership of the Appellate Body. The United States is a party in four of the eight cases.

Of the other five appeals, it is unclear if a similar situation exists in terms of the composition of the Division hearing the appeal (DSU Art. 17.1 has appeals heard on a rotation basis) and if so, if the remaining AB member would be available to maintain the appeal at three members (two former members and the remaining current member).

For all thirteen appeals, after December 10, 2019, the appeals could only be handled in two or all three of the people hearing the appeal were individuals whose terms expired, hence falling into the space that the U.S. has reviewed as to the lack of authority for the Appellate Body have non-AB members complete appeals that were started when they were members. The U.S. is a party in five of the thirteen pending appeals.

Expect that the DSB Chair David Walker will continue to search for an approach that is acceptable to all members. Don’t be surprised if no consensus is reached. Two known events in December are possible situations where better understanding of the issues will surface: the December 9-11 General Council and the December 18 DSB meeting.

Below is a reverse chronological listing of the thirteen pending appeals:

DS541, India-Export Related Measures (U.S. complainant); notice of appeal, Nov. 19, 2019.

DS534, United States – Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada; notice of appeal, June 4, 2019.

DS523, United States – Countervailing Measures on Certain Pipe and Tube Products (Turkey complainant); notice of appeal, Jan. 25, 2019.

DS518, India – Certain Measures on Imports of Iron and Steel Products (Japan complainant); notice of appeal, Dec. 14, 2018.

DS513, Morocco – Anti-Dumping Measures on Certain Hot-Rolled Steel from Turkey; notice of appeal, November 20, 2018

DS510, United States – Certain Measures Relating to the Renewable Energy Sector (India complainant); notice of appeal, August 15, 2019.

DS505, United States – Countervailing Measures on Supercalendered Paper from Canada; notice of appeal, August 27, 2018.

DS499, Russian Federation – Measures Affecting the Importation of Railway Equipment and Parts Thereof (Ukraine complainant); notice of appeal, August 27, 2018.

DS476, European Union – Certain Measures Relating to the Energy Sector (Russian Federation complainant); notice of appeal, September 21, 2018 [The WTO webpage shows this dispute still being on appeal before the Appellate Body, but the case is not included in the list of 13 pending appeals on the WTO webpage] .

DS441, Australia – Certain Measures Concerning Trademarks, Geographical Indicators and Other Plain Packaging Requirements Applicable to Tobacco Products (Dominican Republic complainant); notice of appeal, August 23, 2018.

DS435, Australia – Certain Measures Concerning Trademarks, Geographical Indicators and Other Plain Packaging Requirements Applicable to Tobacco Products (Honduars complainant); notice of appeal, July 19, 2018.

DS461, Colombia – Measures Relating to the Importation of Textiles, Apparel and Footwear (21.5, Panama complainant); notice of appeal, November 20, 2018.

DS371, Thailand – Custom and Fiscal Measures on Cigarettes from the Philippines; notice of appeal (2nd recourse to 21.5), September 9, 2019; notice appeal (1st recourse to 21.5), 9 January, 2019).

IV. Conclusion

WTO Members are continuing to look for alternatives to the present appeal process as they await further developments both at the General Council and the Dispute Settlement Body. The U.S. has been looking for adherence to the original DSU commitments and is unwilling to accept simple reaffirmation of those principles in light of the longstanding problems flagged by the United States. The core disagreement on the purpose of the dispute settlement system between the U.S. and the EU (and like minded Members) has made meaningful progress difficult.

What is certain is that the brave new world of a more complicated dispute settlement system within the WTO arrives in less than three weeks. How long the changed status will continue is unclear. Current indications are the wait will be long in fact before the Appellate Body is back functioning with the concerns of the U.S. at last addressed in an enforceable manner. For the U.S. a major concern should be achieving a restoration of the rights and obligations that were agreed to through negotiation and that have been lost through overreach actions by the Appellate Body.

The WTO budget and the Appellate Body — Potential Fireworks at the end of 2019

On December 11, the WTO Appellate Body will be down to one member based on the current impasse created by the U.S. insistence that significant problems with the dispute settlement system be addressed before new Appellate Body members are added. Earlier posts have reviewed the impasse and underlying issues at some length.

On November 12, the U.S. reportedly blocked adoption of the 2020-2021 budget proposal from the WTO Director-General at the meeting of the Committee on Budget, Finance and Administration. There were a series of written questions about the budget received from Members ahead of the November 12 meeting, including a six page document entitled, “CBFA questions received from the United States relating to the coordination, governance and administrative responsibilities of the multi-donor voluntary contribution trust funds”. WT/BFA/INF/6, 7 November 2019. The written questions are not publicly available at the present time.

A version of the 2020-2021 Budget Proposal from the Director-General that is available publicly is from 10 September 2019 and is document WT/BFA/W/492 (38 pages). Pages 23-24 review the budget proposal for the Appellate Body and its Secretariat (Section 3.2). The proposal shows the budget for the Appellate Body Secretariat staff at 4.573 million Swiss Francs/year, Appellate Body Members Fees and other temporary assistance as 871,000 Swiss Francs/year, other resources as 136,000 Swiss Francs/year and contributions to special reserves as being 2.0 million Swiss Francs/year. In mid-November 2019, 1 Swiss Franc was worth $1.01.

Press reports on the WTO meeting indicate that the U.S. was opposed to the budget for various reasons, including the provision of funds for the Appellate Body (AB) and its Secretariat for 2020-21 because of the impasse which would render the AB dysfunctional (arguably meaning no funds would be required until the impasse is resolved).

The U.S. also raised questions as to where funds for arbitration under DSU Article 25 would come from, including whether funds would be diverted from the AB. The EU has concluded agreements entitled “Interim Appeal Arbitration Pursuant to Article 25 of the DSU” with Canada and separately with Norway. These agreements call for the use of former AB members to act as arbitrators (in groups of three the same as AB Divisions) and use of AB Secretariat staff for such arbitrations.

Concern was also expressed on what was done with AB funds from 2018 and presumably 2019 because of the reduced number of AB members. See, e.g., Washington Trade Daily, November 13, 2019, “US Blocks WTO Budget” at 1-2; Bloombergs, Bryce Baschuk, November 12, 2019, “U.S. Raises Prospect of Blocking Passage of WTO Budget”, https://www.bloomberg.com/news/articles/2019-11-12/u-2-is-said-to-raise-prospect-of-blocking-passage-of-wto-budget.

The U.S. intends to develop its concerns on budget matters in multiple fora within the WTO. For example, the U.S. has added an agenda item (no. 4) to the upcoming Dispute Settlement Body meeting on November 22, “4. Statement by the United States on systemic concerns regarding the compensation of Appellate Body members”. WTO/AIR/DSB/89, 12 November 2019.

One can envision a number of concerns that could be raised by the United States. For example, based on its concerns about former AB members continuing to handle disputes after their term has expired, the U.S. could raise concerns about any payments (fees and expenses, etc.) to such individuals. Similarly, the U.S. could raise concerns over the total compensation including expenses that go to AB members whose work is part time only, particularly if the overall level of expenditures per AB member exceeds what full time compensation is for judges at appeals courts or the Supreme Court.

It is not clear if the U.S. will use the agenda item at the DSB meeting to also question whether WTO Members can utilize Appellate Body resources and staff for DSU Article 25 arbitration work or whether that issue will be left for the budget discussion.

Based on the Budget Finance and Administration Committee meeting of this past week, the U.S. statement at the November 22 DSB meeting is likely to be a detailed review of its concerns on how AB and Secretariat funding has been handled. The U.S. statement will almost certainly see responses from many other Members defending the status quo. The conflict on the budget issue adds to the tension among the membership on the likely continued impasse on the AB vacancies and the imminent shut down of the AB for future appeals pending a resolution on the many concerns raised by the U.S. on the functioning of the dispute settlement system.

The current approved budget ends at the end of 2019. So achieving an approved budget in the remaining weeks of 2019 is critical to the continued functioning of the WTO. Whether the U.S. will block the budget, achieve some accommodation or simply approve the budget in the coming weeks creates the focus for WTO Members. There is a three day General Council meeting on December 9-11, and there is an assumption that the matter will be resolved by then, if it is to be resolved this year. What is certain is that the last weeks of 2019 will see increased tensions within the WTO and likely fireworks at formal meetings.

USMCA – A Return to Bipartisan Trade Legislation?

Trade legislation historically was an area of bipartisan agreement. For the last twenty years or so, it has been increasingly difficult to find bipartisan support for trade agreements and implementing legislation. If the consultation process between the Trump Administration and House Democrats results in a set of modifications to the USMCA that garner larger Democratic support, we may be seeing a roadmap for greater bipartisan efforts in the trade arena going forward.

The Democrats have highlighted concerns in four areas – enforcement, labor, environment and pharmaceuticals. Labor (as reflected in the position of the AFL-CIO and its member unions) has felt that prior trade agreements, including NAFTA, resulted in situations where workers have not benefited and have in fact seen economic opportunities shrink. The shrinkage was a result of jobs moving off-shore, with imports into the U.S. from such off-shored facilities ramping up and reducing U.S. employment. Indeed, the possibility of moving to Mexico has been viewed by labor as a constant threat applied by management in many companies to reduce income expectations of workers. NAFTA has not been viewed by labor as helping improve significantly working conditions in Mexico nor the problems of labor rights in Mexico. How to achieve meaningful improvements has been a major concern of labor and many Democrats. For labor, the result of past trade agreements has been a documented stagnation of wages and reduced employment in manufacturing. The concern with North American neighbors has been reinforced by the large and growing trade deficit with Mexico in particular. For labor, agreements that don’t result in actual improvements in the opportunities for workers as well as the companies are simply unacceptable. A race to the bottom on worker rights and environmental protections is not acceptable to labor or to environmental groups.

The Trump Administration introduced certain provisions into the USMCA that were intended to address certain Administration concerns over the trade deficit with our neighbors. The Administration also elevated labor and environment from side letters to integral chapters of the Agreement, an important improvement over NAFTA. While recognizing improvements over prior agreements, Democrats have signaled that some modifications are critical for their support.

USTR Lighthizer and his team have been involved in negotiations with Democratic House members over a number of months. While the specifics of the proposals and counter-proposals are not public, press accounts indicate that resolution of Democratic concerns/demands could be close. Moreover, the Mexican government has been visited by Congressional Democrats, and the President of Mexico has forwarded communications on his commitment to fulfilling Mexico’s obligations under the USMCA labor chapter.

Speaker Pelosi stated at her weekly press conference this past week that “I do believe that if we can get this to the place it needs to be which is imminent, that this can be a template for future trade agreements, a good template.” House members involved in the negotiations agree negotiations are progressing, but have indicated a deal is not yet imminent. https://thehill.com/policy/finance/trade/470580-usmca-deal-close-but-not-imminent-democrats-say. The next few weeks will likely indicate whether agreement can be reached on the four topics being negotiated.

Obviously, the vast majority of the USMCA will not be disturbed by any agreement between the Trump Administration and House Democrats. And any modifications to the agreement or acceptance of additional side agreements, etc., obviously need to be agreed to by Mexico and Canada and result in implementing legislation that is approved by Congress. But without agreement between the Administration and the House Democrats, USMCA implementing legislation will not be taken up by Congress. Thus, agreement between the Administration and House Democrats in the next few weeks is priority number one for the USMCA moving forward.

For those with an active interest in the USMCA and how the agreement, before modifications, compares to the NAFTA or to the Trans Pacific Partnership (as signed by the U.S., but before the U.S. withdrew), I include below side-by-side documents of several chapters (14 on investment, 20 on intellectual property, 23 on labor, 24 on environment, 31 on dispute settlement) and one side letter (on biologics). The side-by-side documents were generated by my firm prior to my retirement. Presumably modifications to the agreements or additional side letters, etc. that are agreed to by the Administration with the House Democrats will key off of the enclosed chapters and side letter.

USMCA-Side-by-Side-Chapter-14-Investment

USMCA-Side-by-Side-Chapter-20-Intellectual-Property-Rights

USMCA-Side-by-Side-Chapter-23-Labor-1

USMCA-Side-by-Side-Chapter-24-Environment

USMCA-Side-by-Side-Chapter-31-Dispute-Settlement

MX-US_Side_Letter_on_Biologics

The Continued Problem of Inconsistent Transparency at the World Trade Organization

The World Trade Organization has attempted over the years to improve its transparency both for the benefit of Members and for the needs of the public in many countries with active interests in the issues being discussed within the WTO. Because the WTO is a member driven organization, there has been a long standing tension between the desire of some for greater transparency and the unwillingness of others to make their submissions available to the public.

Back in 2010, I wrote a trade flow for my law firm which reviewed how the WTO was failing to honor the objectives of greater transparency through the wholesale adoption of a category of documents labeled “JOB” which largely were not made available ever for public review. Nine years later, there has been some improvement and some backsliding in transparency at the WTO.

JOB documents are not the only documents hidden from view in many situations. There is a category of documents called “room documents” (“RD”) that similarly are never released for public review. The classification of documents as JOB documents (or as other unavailable types) is a matter of self-selection by the WTO Member submitting the document and can lead to essentially irrational differences. For example, during the WTO Doha negotiations, the chairs of all negotiating groups except dispute settlement released draft negotiating texts as public documents, and many/most/all of the submissions by members of positions, etc. were also available to the public. For many years, the dispute settlement negotiation group was alone in not releasing the draft text or many of the negotiating proposals.

Similarly, the resort to “informal meetings” means that there are no minutes of the meeting that are kept or released to the public after some period of delay. Looking at the Fishery subsidy negotiations, many documents of submissions by parties are available, but there are no minutes for the many informal meetings, just very abbreviated “summaries” provided.

When there is an inconsistent approach to the treatment of similar documents or when there is movement from formal to informal with a loss of transparency, the public loses and there can be a dimunition in trust of how the WTO is functioning.

Look at the area of agriculture negotiations. There are 202 documents that are shown in the WTO document system with a “JOB/AG” number (these include corrections or revisions) going back to July 1, 2010. Before that time, JOB documents were not broken out by area or typically listed but would occasionally be referenced in statements by the Director General or in Committee reports. Of the 202 JOB/AG documents listed on the WTO document file, 141 are not available to the public. Many of the public documents date from 2017 but there are documents in the last three years that are also not public even if earlier documents of a similar nature were public. For example, JOB/AG/163 is a Report of the Chairman of the Committee on Agriculture in Special Session (31 July 2019) and is not public. Yet another report by the same Chairman from 12 days earlier is public (JOB/AG/162). Moreover, to the extent types of documents are now treated as public, there is no system for going back and correcting classification of earlier submissions. And for categories like room documents there is no system for ever making such documents public.

Despite some progress in the first twenty-five years, the WTO has a lot of room for improvement in ensuring that the public can monitor and understand developments in all areas of its operation. WTO Members need to develop more consistent policies on how they treat their own submissions and work with trading partners to maximize transparency.

Below is a trade flow I posted on my law firm’s website on May 12, 2010:

Opening Up the World Trade Organization: How the Promise of Greater Transparency Has Been Compromised By the Wholesale Use of “JOB” Documents

The World Trade Organization (“WTO”) is an intergovernmental organization that came into existence in 1995.  Its predecessor, the General Agreement on Tariffs and Trade (“GATT”), had received relatively little notice and operated largely out of public view.  However, the growing importance globally of trade, the expansion of rules to areas traditionally viewed as domestic in nature, and a dispute settlement system that was more binding on participants all increased the pressure on the WTO to improve its transparency to the public. 

Indeed, when the U.S. Congress was considering implementing the Uruguay Round Agreements that created the WTO into U.S. law, increasing the transparency of the new organization was of great importance.  This is reflected in section 126 of the URAA and the House Report and Statement of Administrative Action on the section:

Sec. 126.  Increased Transparency

The Trade Representative shall seek the adoption by the Ministerial Conference and General Council of procedures that will ensure broader application of the principle of transparency and clarification of the costs and benefits of trade policy actions, through the observance of open and equitable procedures in trade matters by the Ministerial Conference and the General Council, and by the dispute settlement panels and the Appellate Body under the Dispute Settlement Understanding.

19 U.S.C. § 3536.  House Rep. No. 103-826(I) at 35 (1994):

Section 126.  Increased transparency

Present law.

No provision.

Explanation of provision

Section 126 of H.R. 5110 directs the USTR to seek adoption by the functional bodies of the WTO of procedures that will ensure broader application of the principle of transparency.

Reasons for change

Through the adoption of more open and equitable procedures, it is the intention of the United States to improve our ability to assess the costs and benefits of WTO trade policy actions.  Members have been concerned, particularly with respect to dispute settlement panels and the Appellate Body, that closed meetings and the lack of public availability of documents upon which decisions are based serve to undermine confidence in the decisions of these functional bodies.

Although it is more traditional in international bodies to conduct meetings and make decisions behind closed doors, the Committee believes that the WTO will gain more respect and build confidence if they follow the U.S. experience of providing more open access to the public with respect to key policy or dispute-settlement determinations.  It has become a high priority for the U.S. to persuade other member nations of the WTO to work with us to open the process, provide greater access, provide for voices of dissent and differing views to be heard, and in general make the WTO more accountable to those who are affected by international decision-making.

See also Statement of Administrative Action accompanying the Uruguay Round Agreements Act, H.R. Rep. No. 103-316, 103d Cong., 2d Sess., vol. I, 678-679 (1994).

            The United States was not the only country interested in greater transparency, and the WTO early on did adopt a number of steps to improve transparency.  One such step was the creation of a broader system for derestricting documents so there would be greater public awareness of issues.  See, e.g., WT/L/160/Rev.1 (26 July 1996) (procedures for the circulation and derestriction of WTO documents); WT/L/452 (16 May 2002). 

While WTO meetings generally have not been opened to the public, there has been movement, where disputing parties consent, to open at least some dispute settlement meetings and hearings to public viewing.  The WTO has also done some outreach to the public through formal meeting days in Geneva, the opportunity to submit comments on their webpage, improved access to the public portion of ministerial meetings, briefings on ministerials, and other events, and through other means.  So the WTO can fairly be said to be more transparent than its predecessor, the GATT.  Although many countries continue to have concerns about increased transparency, there are various proposals being considered as part of the ongoing Doha Round —  both within the review of the dispute settlement system and in the Rules negotiations — for additional steps to increase transparency.

But there is one growing problem, in particular, within the WTO that undermines at least some of the progress made in increased transparency that is neither necessary nor, in this author’s view, desirable.  It is the growing presence of “JOB” documents within the system.  Under the WTO classification system, documents which are given a “JOB” number do not become part of the “official WTO documents” and hence escape either categorization, listing, or derestriction to the public.  Indeed, members of the public only know such documents exist because they are referenced in official documents that are public.  Whatever the merits of having documents that are never derestricted, the “JOB” classification is a matter of self-selection, resulting in situations impossible for the public to comprehend.  Thus, a chairman’s draft text [JOB(08)/81 of July 2008] in the dispute settlement negotiations is not available to the public (though it is referenced in the Chairman’s report to the Trade Negotiations Committee, TN/DS/24 (22 March 2010)), while chairmen’s draft texts are available publicly in agriculture, non-agricultural market access, Rules and other areas.  What is the logic of this differential treatment of chairmen’s texts?  There is no obvious answer.

Similarly, in an area like “trade and environment,” some proposals from WTO Members are public while others – including from the United States — are “JOB” documents and not publicly available.  See TN/TE/19 note 19 listing JOB(09)/132 (Canada; European Communities; Japan; Korea; New Zealand; Norway; Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Switzerland and United States) (9 Oct. 2009); JOB(09)/169 and Add.1 (Saudi Arabia (6 Nov. 2009 and 15 Dec. 2009); TN/TE/W/75 and Add. 1 (Japan, 27 Nov. 2009 and 16 Feb. 2010) and JOB/TE/2 (Philippines (16 Feb. 2010).  For years, one couldn’t find a public summarization of the competing lists of goods and services that would potentially qualify as environmental for the Doha negotiations, although such summaries are now part of the annual reports.  See TN/TE/19 Annex III.  Why is this permitted?  How can Members square such actions with activity in areas like Rules where all papers have been made public or like agriculture where virtually every country has public submissions?

The problem exists within the Secretariat, which routinely marks summaries as JOB documents.  The problem extends to the Director General, who frequently references in his comments to the General Council or Trade Negotiations Committee one or more JOB documents (e.g., TN/C/M/29 at 2 (referring to JOB(08/132)).  Indeed, the problem exists for all Members, including the strongest advocates of increased transparency like the United States.

The public has no idea how many documents are so marked.  Just from the numbers on some of the JOB documents referenced in other public documents, it appears there may be literally thousands of documents a year that avoid public disclosure or scrutiny.  In addition, the public cannot find a listing of all such documents to be able to at least understand what was submitted even if it is not made public.  Historically in the GATT days, the public could reference an index of documents with full titles even if the document was restricted and not publicly available.  Why should the WTO permit such a retreat from public dissemination of basic information?  Why should the public, increasingly affected by actions of the WTO, accept this state of affairs?  Are there steps that can be taken to drastically reduce if not eliminate this practice?  Why shouldn’t JOB documents that do exist be derestricted just like all “official” documents?

The answers would seem obvious.  For many in the public, there is no justification for the secrecy and “black box” approach to the creation or maintenance of “JOB” documents.  Thus, the best course of action would be to eliminate the use of such categories and require all documents circulated to members to be part of the WTO document collection and subject to derestriction rules.  At a bare minimum, the WTO and its Members should circumscribe which type of documents can legitimately be claimed as such, require prior JOB documents to be reclassified if they don’t meet the criteria, provide a public catalogue of all existing and future “JOB” documents, and determine why a derestriction process should not be applied.

Under the current approach, the WTO and the WTO membership permit entire topics to disappear from public view.  Such an outcome is not acceptable to many Members.  It should be corrected for the good of the system and to honor the public’s right to know what is being discussed by the Members in the WTO.  Correction doesn’t require the completion of a round.  It just requires common sense and the will to keep the promises to make the organization more transparent and more accountable to the people of the world. 

Background Materials on WTO Appellate Body Reform Challenges — The Critical Issue of “Overreach”

I have written over the years many articles on the concerns certain WTO dispute settlement reports have raised for WTO Members that panels and the Appellate Body were creating obligations not contained in the various WTO agreements. One of the early cases where the issue was raised was U.S. – Wool Shirts and Blouses, DS33, where Costa Rica claimed that “The observations of the panel and the Appellate Body had diverged
from past practice and had modified the balance of rights and obligations which they claimed to be seeking to protect.” (WT/DSB/M/33, p. 12 (June 25, 1997)). That was only two and a half years after the WTO came into existence and was more than twenty-two years ago.

Dozens of WTO Members have raised concerns over the years. In past publications or presentations, I have cataloged a number of the disputes. An early U.S. complaint occurred in US – FSC, DS108, in 2000, nineteen years ago. During 1995-2019, the U.S. has identified problems of overreach and other issues in cases the U.S. has won at the WTO, lost at the WTO or where it has been a third party. Indeed, Congress was concerned enough about the issue of WTO dispute settlement overreach (creating obligations or diminishing rights) that it required a report on how to address the situation within the WTO as part of the Trade Act of 2002 (19 U.S.C. 3805(b)(3) – some seventeen years ago. As stated in the Congressional findings to that Act, “support for continued trade expansion requires that dispute settlement procedures under international trade agreements not add to or diminish the rights and obligations provided in such agreements.” 19 U.S.C. 3801(b)(3). The crisis in the WTO on dispute settlement flows from a host of issues, but none is more important or long standing than the failure of the WTO Membership to correct the problem of panel and Appellate Body overreach. Unfortunately, the proposal contained in the Draft General Council Decision on Functioning of the Appellate Body, basically to simply restate what Articles 3.2 and 19.2 of the Dispute Settlement Understanding have said since the start of the WTO is a non-starter for the U.S. See my post of November 4.

A paper (“The Broken Multilateral Trade Dispute System”) prepared for a program at the Asia Society Policy Institute on February 7, 2018 is attached and provides additional background on a number of the U.S. concerns. While the paper looks at disputes through 2017, the problems of overreach and the other issues raised by the United States have continued to the present time.

Terence-P.-Stewart-Asia-Society-Paper-re-dispute-settlement-WEB-VERSIO.._

The U.S. Trade Deficit – Data for First Thirty-Three Months of the Trump Administration (2017-Sept. 2019)

The U.S. trade deficit has been at extraordinarily high levels for many years, having ranged from $766.6 to 818.0.billion/year during 2005-2008 (2nd term of President George W. Bush).  After a sharp contraction in trade during the 2009-2010 period as the country dealt with the great recession flowing from the financial crisis that started in 2008 (with resulting significantly lower trade deficits), trade deficits ran from $689.5 to $745.5 billion/year during the 2011-2016 years of President Obama’s tenure (2016 trade deficit was $735.3 billion).

President Trump has had a significant focus on trade issues during his presidency.  His Administration has attempted to address the chronic trade deficit the country has developed over the last fifty years through improved trade deals, aggressive enforcement of various trade laws and some domestic actions (regulations and taxation).  Despite these actions, the first two years and nine months of the Trump Administration saw a significant expansion of the trade deficit in 2017 ($793.4 billion) and 2018 ($874.8 billion) – an increase by 2018 of 18.97% over 2016 levels) – with a stabilization in the first nine months of 2019 (up 1.43% from the first nine months of 2018 at $647.6 billion).

A growth in the trade deficit during 2017-2019 reflects various causes including:  (1) continued economic growth in the U.S. and slower growth rates in much of the rest of the world; (2) a delay in the trade balance effects flowing from the Administration’s trade actions against China under Section 301 of the Trade Act of 1974 and against many countries on steel and aluminum under Section 232 of the Trade Expansion Act of 1962; (3) retaliation by various trading partners for actions taken by the U.S.; and (4) shifts in currency values.

The huge trade deficit with China declined by $38.5 billion or by 12.77% in the first nine months of 2019 reflecting the large tariffs applied by the U.S. on huge parts of Chinese exports to the U.S. which exceeded the contraction in U.S. exports to China flowing from retaliation by the Chinese.  However, there was more than a $47.7 billion increase in the deficit from trade flows with other countries during the first nine months of 2019.  Below are some of the countries with whom the U.S. trade deficit has increased in the first three quarters of 2019 by more than $5.0 billion.  Data reflect the size of the increase in the U.S. trade deficit with the particular country: :

Country or Group of Countries Increase in U.S. Trade Deficit
9 months 2019
Mexico $17.0 billion
European Union (28) $12.0 billion
Vietnam $11.7 billion
Switzerland   $7.3 billion
Taiwan   $6.5 billion
Subtotal $54.5 billion

Vietnam and Taiwan could be in some significant part the result of shifting shipments from China to neighboring countries where Chinese or other producers have investments, where producers have found alternative sourcing or where there has been shipment of products from China which have been mislabeled as to origin.

Similarly, the large increase from Mexico may reflect in part a move back to Mexico or increased sourcing from Mexico for companies previously sourcing from China.    An UNCTAD Research Paper (No. 37) entitled “Trade and trade diversion effects of United States tariffs on China” released recently made similar findings for imports in the first half of 2019.  https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2569.  As noted in the Abstract to the paper (page 1):

“This paper finds that United States tariffs against China have resulted in a reduction in imports of the tariffed products by more than 25 percent. The analysis finds that China’s export losses in the United States have resulted in trade diversion effects to the advantage of Taiwan Province of China, Mexico, the European Union and Viet Nam among others. The analysis also finds that those effects have increased over time. The analysis finds some preliminary evidence that Chinese exporters may have started to bear part of the costs of the tariffs in the form of lower export prices. Overall, the results indicate that the United States tariffs on China are economically hurting both countries. United States losses are largely related to the higher prices for consumers, while China’s losses are related to significant export losses.”

The shift in trade balance for the mentioned countries and for the U.S. as a whole is explained in the following table which shows the change in U.S. total exports and in U.S. general imports during the first nine months of 2019 vs. the same period of 2018:

Country US Exports US Imports US Trade Balanace
China  -$15.2 BN  -$53.0 BN  +$47.7 BN
Mexico    -$4.3 BN +$12.8 BN   -$17.0 BN
European Union (28) +$14.0 BN +$26.0 BN   -$12.0 BN
Vietnam   +$1.0 BN +$12.7 BN   -$11.7 BN
Switzerland    -$4.5 BN   +$2.8 BN     -$7.3 BN
Taiwan   +$0.5 BN   +$7.0 BN     -$6.5 BN
Subtotal (Mex.-
Taiwan)
  +$6.7 BN +$61.3 BN   -$43.5 BN
From all countries =$15.2 BN    -$6.0 BN     -$9.2 BN

Thus, in the first nine months of 2019, US trade with China fell in both directions, with imports from China declining by $53.0 billion and U.S. total exports to China declining $15.2 billion.  Trade with Mexico and Switzerland saw declines in U.S. total exports to each country (-$4.3 billion and -$4.5 billion respectively) while imports from those countries into the U.S. increased (+$12.8 billion and +$2.8 billion).  For the European Union, Vietnam and Taiwan, the U.S. saw total exports increase, but at much slower amounts than the increase in U.S. imports from those countries.  

When looking at the 2-digit HS categories that saw the largest changes in the U.S. trade balance with China in 2019, the three largest improvements in the U.S. trade balance with China were in HS chapters 84, 85 and 94 dealing with nonelectrical equipment, electrical equipment and furniture respectively. The U.S. trade balance with China improved by $17.0 billion, $18.8 billion and $4.0 billion for these three chapters respectively, largely due to contractions in imports from China on those items.  In a prior post (October 13) on the announced likelihood of a first phase U.S.-China agreement, I reviewed the contraction in U.S. exports of agricultural products, particularly soybeans, that happened in 2018 (down $10.2 billion from 2017).  There has been some limited improvement in U.S. exports of soybeans in the first nine months of 2019 and so no agriculture products saw huge declines in exports in 2019 or large reductions in the US trade surplus with China this year.

 Some of the U.S. trade balance improvement vis-à-vis China on these specific manufactured  goods was offset by increased deficits with Mexico ($1.7 billion for Chapter 84, $1.3 billion for Chapter 85), the EU ($6.9 billion for Chapter 84), Taiwan ($4.3 billion for Chapter 84, $1.7 billion for Chapter 85) and Vietnam ($0.5 billion for Chapter 84, $7.6 billion for Chapter 85, $1.3 billion for Chapter 94).

The challenge for any administration attempting to change trade flows is the time it takes to achieve new agreements, to implement specific actions, and to design and obtain approval for new legislation.  Such challenges reflect the state of play for many of the Trump Administration’s trade efforts to date.  Benefits from the initial agreements with Japan signed on October 7 will likely be seen in 2020 if Japan is able to implement the agreements through legislation this month as is reported as possible in the media.  Changes from the USMCA will depend on whether and when Congress takes up implementing legislation.  The Administration is hoping to conclude and sign a first phase trade agreement with China yet this year.  Such an agreement with China will likely result in at least a standstill on tariffs against China and likely some reductions in tariff levels phased in over time based on results of implementation efforts by both sides.  An agreement with China would also improve market conditions for some U.S. products shipped to China, with reported commitments for increased purchases of various U.S. agricultural products as but one example.  Discussions are ongoing with other countries on specific trade concerns, and so additional improvements in market access may yet occur during the current term of President Trump’s Administration. 

Businesses understandably look for predictability in both the trade environment and the rules of engagement with trading partners.  With the heavy focus on revising domestic trade policy and the aggressive use of legislative tools on the books, the Trump Administration’s efforts to date have created a great deal of uncertainty for businesses.  Some businesses have been harmed at least short term, others have benefited from the actions taken by the Administration.  Whether the changes being pursued by the Administration will achieve the objectives sought is an open question.  A review of the changes in trade flows (U.S. imports and U.S. exports) from the Trump Administration’s first thirty-three months in office show that changes towards greater trade balance will not occur quickly nor without a fair amount of disruption to supply chains, business models and companies and many workers.  A more sustainable trade environment is an important objective.  Not since the early 1970s has an Administration been concerned about large and increasing trade deficits.  The Trump Administration has been concerned and has been attempting to change domestic and international trade policy to restore greater balance.  Whether meaningful change will occur is almost certainly a multiple Administration project.  Whether the project will be pursued will depend in part on what is achieved under the current Administration.

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WTO’s Appellate Body Reform – The Draft General Council Decision on Functioning of the Appellate Body

At the October 15, 2019 General Council meeting, agenda item 4, involved a report from H.E. Dr. David Walker (New Zealand) as the Facilitator on the informal process he had been assisting related to the functioning of the WTO Appellate Body.  More specifically, Ambassador Walker, who is also serving this year as the Chairman of the Dispute Settlement Body, has been working with WTO Members as they attempt to address the U.S. concerns with the operation of the Appellate Body (“AB”) and obtain removal of the U.S. blockage of starting a process of filling Appellate Body vacancies.  Amb. Walker submitted under his own authority, after several months of meetings with WTO Members and review /discussion of a range of submissions by various Members suggesting approaches to address U.S. concerns, a draft General Council Decision.

The Appellate Body’s membership will be reduced to one (vs. seven when the Appellate Body has a full number of members) after December 10, 2019 as two of three existing AB members terms expire then.  After December 10th, the AB won’t have three members to assign to hear appeals filed after that date absent removal of the blockage and new members being appointed.  This is not new news, but the draft General Council Decision is an important effort to move the process of finding solutions to the problems identified by the United States (and other countries).  The draft General Council Decision can be found as an Annex to JOB/GC/222.  https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/Jobs/GC/222.pdf.

Unfortunately, while there are sections of the draft decision that address each of the major issues raised by the United States, the draft falls short of actually providing any assurances that the problems of the past won’t continue going forward.  The U.S. Statement on the agenda item at the General Council meeting on October 15 makes the U.S. ongoing concerns abundantly clear:

“We thank the Facilitator, Ambassador David Walker, for his considerable efforts to date and for his report to Members.

“We have also listened carefully to the discussions. As we have explained, the fundamental problem is that the Appellate Body is not respecting the current, clear language of the DSU.  While a number of Members have expressed concern with actions or approaches by the Appellate Body, others appear willing to tolerate – or even encourage – those actions.   If we WTO Members cannot agree that we should be concerned that the Appellate Body has broken the plain rules that Members agreed to in the DSU, then it is difficult to see how we can find solutions to a “problem” we do not agree exists.  By denying that they are concerned about persistent rule-breaking by the Appellate Body, some WTO Members seek to avoid the deeper question: why did the Appellate Body feel free to disregard the clear text of the agreements?

“We cannot find meaningful solutions without understanding how we arrived at this point. Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.  It is possible that some explanations may cut across several of the issues and be of a systemic nature.  For instance, one cause could be the ongoing challenges facing the WTO negotiating function and its oversight function, leading to unchecked “institutional creep” by the Appellate Body as Members push to achieve through litigation what they haven’t achieved or can’t achieve at the negotiating table.

“Another cause could be that some WTO Members believe that the Appellate Body is an “international court” and its members are “judges” who inherently have more expansive authority than is provided in the DSU, for example, to create “jurisprudence” and fill gaps in the WTO agreements.  This view may be shared by some who have served on the Appellate Body.  It is also possible that some explanations for why the Appellate Body felt free to depart from the clear text of the DSU may be specific to the concerns that have been raised.

“For example, Article 17.5 of the DSU could not be more clear or categorical that appellate reports must be issued within 90 days.  While the DSB minutes record that some WTO Members raised concerns about the Appellate Body’s exceeding 90 days, particularly without even consulting the parties, the minutes also record a few Members excusing the breach of our agreed rules.  Did the attitude of these Members contribute to a mindset among the Appellate Body that the WTO’s rules and deadlines did not need to be respected?

“On so-called “cogent reasons”, the Facilitator’s Report suggests that Members agree that “precedent” is not created through WTO dispute settlement.    If this is so, then why did some WTO Members advocate for the Appellate Body to assert that its interpretations must be followed by panels absent unidentified cogent reasons?  And why then does the Appellate Body assert a precedential value for its reports like an authoritative interpretation that only WTO Members in the Ministerial Conference or General Council can give?

“As a result of these fundamental questions not yet being addressed, we do not see convergence among Members with respect to an understanding and appreciation of the concerns raised.

“It is important to recognize that suggested convergence on statements in the Facilitator’s Report that largely reflect the existing text of the DSU does not indicate convergence on the understanding of the problem and the situation in which Members now find themselves. It simply will not work to “paper over” the problems that have been identified with new language that the Appellate Body and some Members could subsequently argue means the Appellate Body can continue operating the way that it has.

“To find a solution to the concerns raised, WTO Members will need to reach a shared understanding that the Appellate Body has failed to follow the rules agreed by Members and the role assigned to it by the Members. And let me repeat – the purpose of this process is not to re-negotiate the rules already agreed by Members to establish and govern the WTO dispute settlement system.  Rather, we need to find a way to ensure the system operates as agreed by Members.  Consequently, simply re-affirming the current WTO rules that have been broken persistently does not resolve the problem.

“In addition to these threshold considerations, we question whether there is convergence on the suggestions presented in the Facilitator’s Report.  For example:

  • “With respect to the issue of Appellate Body members whose terms have expired, the proposal would appear to depart from the DSU and provide for an undetermined term for those former Appellate Body members.
  • “Regarding the 90-day deadline for Appellate Body reports, the DSU text is already clear, and yet the Appellate Body has failed to respect it. What reason would there be to think this language would ensure a different result?
  • “With respect to the issue of appellate review of questions of fact, we are concerned that the Appellate Body would say it is already abiding by the text in the Facilitator’s Report, especially since the Appellate Body has interpreted DSU Article 11 to convert questions of fact into questions of law, and we hear WTO Members expressing different views on the meaning of Article 11 of the DSU.
  • “With respect to advisory opinions, similarly, the Appellate Body presumably considers that it is already abiding by the text in the Faciliator’s Report. What basis is there to consider that this language would have a different result?
  • “Regarding the issue of precedent, the Appellate Body has relied on the reference in the DSU to security and predictability to justify its “cogent reasons” approach, and we are concerned that the proposed language does not address the issue.
  • “With respect to the issue of overreach, it is clear that the Appellate Body would say that it already abides by the text of Article 17.6 of the Anti-Dumping Agreement and, in turn, the text in the Facilitator’s Report. The problem is that the Appellate Body has adopted an erroneous interpretation of Article 17.6 that renders it inutile.  We have not yet seen convergence on how to address this issue, or other instances in which the Appellate Body has departed from the plain text of other covered agreements.

“And we would note that there are a number of concerns that have been expressed over the years with respect to the Appellate Body’s approach to substantive provisions in a variety of areas, such as national treatment and technical barriers to trade, safeguards, subsidies, countervailing measures, and antidumping duties.  Concerns related to the Appellate Body departing from the plain text of the covered agreements and upsetting the careful balance of rights and obligations struck by Members have not yet been part of the discussions.

“In sum, the Facilitator’s Report suggests agreement among some Members that the DSU imposes clear limitations on the Appellate Body.  We appreciate that some progress has been made through engagement by Members and the efforts of the Facilitator and others.  But we fail to see convergence on how to ensure that those limitations are respected going forward, and what are the consequences for continued failure to adhere to those limitations.  To find an appropriate and effective solution, it is imperative for Members to engage in a discussion on how we have come to this point.

https://geneva.usmission.gov/2019/10/15/statements-by-the-united-states-at-the-wto-general-council-meeting/

Other Members have been unwilling to explore how the operation of the dispute settlement system has come to the situation it is in at present.  Thus, it is unlikely that one will see meaningful progress in narrowing the differences between the U.S. and others on a core concern of the U.S.  That said, there is always the possibility that WTO Members could examine each of the issues from the perspective of how the system can be made to comply with the DSU requirements beyond simply the language of the DSU.  Stated differently, what are the consequences for failure to comply with DSU limitations by the Appellate Body?

What follows is my personal effort to identify some consequences of actions that have long concerned the United States.  Obviously, only the U.S. can determine what will address its concerns.  But possibly some of the following suggestions, if part of any final package, could address some of the ongoing and longstanding U.S. concerns.  The text, other than what is both in bold and underlined, is the draft General Council Decision that is contained as an Annex to Amb. Walker’s October 15, 2019 report to the General Council.  Job/GC/222.  Only one number has been deleted – “6” (60 days has been changed to 90 days under the first topic).

DRAFT GENERAL COUNCIL DECISION ON FUNCTIONING OF THE APPELLATE BODY

The General Council,

Conducting the function of the Ministerial Conference in the interval between meetings pursuant to paragraph 2 of Article IV of the Marrakesh Agreement Establishing the World Trade Organization (the “WTO Agreement”);

Having regard to paragraph 1 of Article IX of the WTO Agreement;

Mindful of the work undertaken in the Informal Process of Solution-Focused Discussion on Matters Related to the Functioning of the Appellate Body, under the auspices of the General Council;

Recognizing the central importance of a properly functioning dispute settlement system in the rules-based multilateral trading system, which serves to preserve the rights and obligations of Members under the WTO Agreement and ensures that rules are enforceable;

Desiring to enhance the functioning of that system consistent with the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”);

Decides as follows:

Transitional rules for outgoing Appellate Body members

Only WTO Members may appoint members of the Appellate Body.  

The Dispute Settlement Body (the “DSB”) has the explicit authority, and responsibility, to determine membership of the Appellate Body and is obligated to fill vacancies as they arise.

To assist Members in discharging this responsibility, the selection process to replace outgoing Appellate Body members shall be automatically launched 180 days before the expiry of their term in office. Such selection process shall follow past practice.

If a vacancy arises before the regular expiry of an Appellate Body member’s mandate, or as a result of any other situation, the Chair of the DSB shall immediately launch the selection process with a view to filling that vacancy as soon as possible.

Appellate Body members nearing the end of their terms may be assigned to a new division up until 90 days before the expiry of their term.

An Appellate Body member so assigned may complete an appeal process in which the oral hearing has been held prior to the normal expiry of their term if completing such appeal is consistent with Article 17.5 of the DSU or any mutually agreed extension by the parties.

90 Days

Consistent with Article 17.5 of the DSU, the Appellate Body is obligated to issue its report no later than 90 days from the date a party to the dispute notifies its intention to appeal.

In cases of unusual complexity or periods of numerous appeals, the parties may agree with the Appellate Body to extend the time-frame for issuance of the Appellate Body report beyond 90 days.1 Any such agreement will be notified to the DSB by the parties and the Chair of the Appellate Body.

Failure to complete the appeal within 90 days of the notification of intent to appeal, or such other time as the parties agree to, shall result in the appeal terminating with no decision.  In such situations the Dispute Settlement Body will consider adoption of the panel report but rights of the complaining party under Articles 21.6 and 22 of the DSU shall not apply.

The Appellate Body will supply the Dispute Settlement Body with a description of steps taken by the Division to complete any such appeal within 90 days and any modifications to Appellate Body procedures and practice that will be pursued by the Appellate Body to ensure such failure to comply with the 90 day rule is not repeated.   

1 Such agreement may also be made in instances of force majeure.

Municipal Law

The ‘meaning of municipal law’ is to be treated as a matter of fact and therefore is not subject to appeal.  Where the Appellate Body nonetheless addresses the meaning of municipal law in an Appellate Body report, either party may request that the paragraphs of the Appellate Body report dealing with such issue or issues and any conclusions drawn therefrom  be striken, and the Appellate Body will reissue the decision without such paragraphs forthwith.  Compliance with the 90 day requirement will be measured from the date of the revised decision.

The DSU does not permit the Appellate Body to engage in a ‘de novo’ review or to ‘complete the analysis’ of the facts of a dispute. 

Consistent with Article 17.6 of the DSU, it is incumbent upon Members engaged in appellate proceedings to refrain from advancing extensive and unnecessary arguments in an attempt to have factual findings overturned on appeal, under DSU Article 11, in a de facto ‘de novo review’.   Where Article 11 is invoked by a Member seeking review on appeal of whether the panel failed to make an objective assessment, any other party may file an objection.  The Appellate Body will consider the claim only in extraordinary circumstances of facial bias in the assessment by the panel.  A Member raising such a claim that is dismissed will be assessed costs to the Member who filed an objection.

Advisory Opinions and Appellate Body Economy in Decisions

Issues that have not been raised by either party may not be ruled or decided upon by the Appellate Body.   Where issues not raised by either party are addressed in the Appellate Body report, the addressing of such issues constitutes the provision of an advisory opinion and is inconsistent with DSU Article 17.12 .  Either party may request that the paragraphs of the Appellate Body report dealing with such issue or issues and any conclusion based thereon be striken, and the Appellate Body will reissue the decision without such paragraphs forthwith.  Compliance with the 90 day requirement will be measured from the date of the revised decision.

Consistent with Article 3.4 of the DSU, the Appellate Body shall address issues raised by parties in accordance with DSU Article 17.6 only to the extent necessary to assist the DSB in making the recommendations or in giving the ruling provided for in the covered agreements in order to resolve the dispute.  The Appellate Body’s indicating that other issues raised need not be addressed to resolve the dispute satisfies the requirements of DSU Article 17.12.

Precedent

Precedent is not created through WTO dispute settlement proceedings.

Consistency and predictability in the interpretation of rights and obligations under the covered agreements is of significant value to Members.

Panels and the Appellate Body should take previous Panel/Appellate Body reports into account to the extent they find them relevant in the dispute they have before them.  The Appellate Body shall not reverse a panel decision on any issue solely on the basis of the panel not conforming to a prior Appellate Body report where the panel has identified different factual and/or legal issues.  

‘Overreach’

As provided in Articles 3.2 and 19.2 of the DSU, findings and recommendations of Panels and the Appellate Body and recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.   In a large number of Panel and Appellate Body reports, one or more parties and/or third parties have raised concerns about the Panel or Appellate Body adding to or diminishing the rights and obligations contrary to Articles 3.2 or 19.2 of the DSU.

To clarify situations where rights and obligations are being added to or diminished, Panels and the Appellate Body will not fill gaps in agreements, construe silence to indicate obligations or construe ambiguities in language of existing agreements to require a particular construction.  Any such actions by a Panel or by the Appellate Body is inconsistent with Articles 3.2 and 19.2 of the DSU.

Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report concerns about the creation of rights or obligations inconsistent with Articles 3.2 or 19.2, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such request will be for the limited purpose of having the Appellate Body determine whether on the specific issues raised where the party complained of creating rights or obligations the clarification of meaning provided in this General Council decision would result in a changed decision on the particular issue.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.      

Panels and the Appellate Body shall interpret provisions of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“antidumping agreement”) in accordance with Article 17.6(ii) of that Agreement.  Any party to an Appellate Body report that raised at the DSB meeting considering adoption of the Appellate Body report that Article 17.6(ii) was not applied in interpreting the antidumping agreement, will have 90 days from the adoption of this General Council decision to request a review of the Appellate Body decision.  Such a request will be for the limited purpose of having the Appellate Body determine whether a different outcome on one or more issues would have resulted had the Appellate Body applied Article 17.6(ii)  of the antidumping agreement.  The Appellate Body will render decisions on all such requests within 90 days and will accept no additional briefing or argument from parties.  Where the report would have been different on one or more particular issues, it is sufficient for the Appellate Body to so indicate.  Where the same decision on an issue would have been made, the Appellate Body shall provide a detailed explanation.       

Regular dialogue between the DSB and the Appellate Body

The DSB, in consultation with the Appellate Body, will establish a mechanism for regular dialogue between WTO Members and the Appellate Body where Members can express their views on issues, including in relation to implementation of this Decision, in a manner unrelated to the adoption of particular reports.  Such mechanism will be in the form of an informal meeting, at least once a year, hosted by the Chair of the DSB.

The Appellate Body Secretariat will prepare and circulate to the DSB at least 60 days in advance of such a meeting a document which reviews:

(a) for any Appellate Body member whose term is or has expired in the last 12 months, assignments to appeals within 90 days of the end of the term and any appeals on which the AB member continued to work after his term expired and whether such continuation was authorized by the parties to the appeal;

(b) the time from notification of intent to file an appeal to the AB decision in each case filed in the last twelve months (and for the first such report and any subsequent reports where appeals are not current with the 90 day requirement) to an AB report (or revised report where paragraphs are requested to be deleted as addressing issues not raised by any party) and copies of any write-ups filed where reports were not filed within 90 days;

(c) a list of AB reports where paragraphs were requested striken and time from request to rerelease of AB report;

(d) a list of requests for review in appeals pursuant to Article 11 of the DSU of panel decisions as not being an objective assessment, how each request was resolved, and for such claims that were not properly filed whether costs were paid by the party raising the issue;

(e) the number of AB reports where parties requested review based on statements made at prior DSB meetings that rights or obligations were being added to or diminished and/or that Article 17.6(ii) of the antidumping agreement was not applied or was applied inappropriately, timing of resolution by the Appellate Body and the number of issues where a different decision was rendered.

Where the Appellate Body has been unable to comply with the requirements of the DSU as clarified by this General Council Decision, it is expected that the Appellate Body Chairman will present at the informal meeting the action plan being pursued by the Appellate Body to achieve full compliance with the terms of the DSU and this Decision. 

To safeguard the independence and impartiality of the Appellate Body, clear ground rules will be provided to ensure that at no point should there be any discussion of ongoing disputes or any member of the Appellate Body other than as it relates to compliance with this General Council Decision. 

The October 28, 2019 WTO Dispute Settlement Body Meeting – Another Systemic Problem Flagged by the United States

The United States has been raising concerns for many years on a range of issues with the operation of the dispute settlement system, particularly actions by the Appellate Body.  Time has run out to prevent some hiatus in the functioning of the Appellate Body after December 10 when the current membership of the Appellate Body goes from three to one with vacancies going from four to six of the seven member body.  There is a requirement within the Dispute Settlement Understanding to have three Appellate Body members handle any appeal from a panel report.  The likely process for finding replacements for Appellate Body vacancies, once authorized (see, e.g., WT/DSB/W/609 and revisions 1-14) will take a number of months.  With the continued impasse within the Dispute Settlement Body (“DSB”) as recently as the last DSB meeting on October 28, WTO members now certainly face a gap for appeals from panel decisions issued around or after December 10.  A few WTO members have formalized agreements among themselves for procedures to handle resolution of disputes for such time as the Appellate Body lacks adequate membership to conduct appeals relying on the authority for members to resolve disputes through arbitration.  The European Union and Norway have signed an agreement similar to the one that the EU and Canada had submitted previously (see post of Oct. 9).

Of interest in the press release on the October 28 DSB meeting from the WTO, was the issue raised by the United States on the problems posed by the Appellate Body’s past interpretation of Article 6.2 of the Dispute Settlement Understanding (“DSU”).  Article 6 of the DSU reads as follows:

“Article 6: Establishment of Panels

“1.     If the complaining party so requests, a panel shall be established at the latest at the DSB meeting following that at which the request first appears as an item on the DSB’s agenda, unless at that meeting the DSB decides by consensus not to establish a panel.

“2.     The request for the establishment of a panel shall be made in writing.  It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.  In case the applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference.”

The WTO press release on the DSB meeting indicated that the U.S. had claimed that the Appellate Body (“AB”) had “adopted an erroneous interpretation of Article 6.2 in past rulings which required a member to explain ‘how or why’ the measure at issue is considered to be violating WTO rules, a requirement that does not appear in the DSU text.”  The result of the AB interpretation was more complicated  disputes with a large number of procedural challenges which both increased the time to complete disputes and the uncertainty for parties.  https://www.wto.org/english/news_e/news10_e/dsb_28oct19_e.htm

One of the cases before the DSB on October 28 was a dispute brought by Japan against Korea (DS504, antidumping duties on pneumatic valves from Japan).  Korea had challenged whether Japan had satisfied the “who or why” construction identified in prior Appellate Body decisions.  The panel found a number of Japan’s claims to be outside the panel’s terms of reference.  While the Appellate Body in the particular dispute disagreed with the panel, the issues that had been found outside of the panel’s terms of reference were not capable of decision based on the record.  The United States used the pneumatic valve case and the interpretation of Article 6.2 as another example of the problems that have been created in the dispute settlement system by the Appellate Body not limiting itself to actual text of the DSU.

Japan agreed with the United States that the “how or why” requirement for panel requests was inconsistent with Art. 6.2.  Canada took a different view, agreeing that at a minimum the specific WTO provisions alleged to be infringed needed to be identified  “although there may be cases where just citing the provisions does not cover the requirements of the DSU; ultimately a judgment must be made on a case by case basis.”  Id.

As the WTO struggles to achieve agreement on the future of the dispute settlement system, the different perspectives on the correct interpretation of Article 6.2 of the DSU show the challenges that are faced to restore a fully functioning dispute settlement system at the WTO.  Moreover, when the Appellate Body adds obligations to Members’ ability to bring disputes, the AB contributes to the delay in achieving final resolution of disputes, making it more likely timelines for appeals will not be respected.

U.S. Statement at the DSB Meeting Provides More Detail

The U.S. statement at the October 28 DSB meeting on the issue of Article 6.2’s proper interpretation was 4 1/3 pages in length (pages 10-14.  https://geneva.usmission.gov/wp-content/uploads/sites/290/Oct28.DSB_.Stmt_.as-deliv.fin_.public.pdf). (“U.S. Statement”).

The U.S. identifies AB decisions that imposed the requirement on a complaining Member “to explain ‘how or why the measure at issue is considered by the complaining Member to be violating the WTO obligation in question.’”  Id. at 10 (referencing three AB decisions in footnote 2, EC -Selected Customs Matters, para. 130; China – Raw Materials, para. 226; US – Countervailing Measures (China), para. 4.9).  The consequences for Members can be significant, as issues plainly sought to be challenged are rejected as not properly before the panel and complaining parties face procedural issues resulting in delay and increased costs.  The U.S. noted that sixteen challenges had been brought by defending Members under Article 6.2’s construction put forward in earlier AB decisions. Indeed, “Over the past two years, over 30% of panel reports addressed Article 6.2 and the Appellate Body’s incorrect element of ‘how or why’.”  U.S. Statement at 12.  Defending parties seek to strike claims where the complaining party has not provided the basic arguments (the how or why) the complainant will be making in its later submissions.

To the extent that panels reject claims as not covered by the terms of reference, the complaining party is denied the opportunity to have its concerns examined.  Early termination of challenges to issues can result in truncated records before the panel, limiting what can be achieved through an appeal but also extending the time for final resolution (and to the extent rejection of claims are appealed) contributing to the inability of the AB to complete appeals within 90 days.

The U.S. also reviewed the history of the language in Article 6.2 of the DSU that had been interpreted by the AB as requiring an articulation of how or why the measure in dispute violated WTO obligations.  The language had been adopted in Montreal at the mid-term Uruguay Round meeting as part of improvements to the GATT dispute settlement rules (id. at footnote 8 citing GATT, Improvements to the GATT Dispute Settlement Rules and Procedures, Decision of 12 April 1989, L/6489, 13 April 1989, Section F(a)), and had never been construed to require a showing of “how” or “why” until the Appellate Body came up with that construction.  The first case cited in footnote 2 in the U.S. Statement (EC – Selected Customs Matters) was an Appellate Body decision issued in 2006.

While the apparent (at least partial) movement away from the “how or why” requirement in the recent Japan-Korea dispute by the Appellate Body decision is welcome, the continued confusion on what is required for a complaining party to have its issues considered  by a panel will both continue to challenge future panels and will complicate the ability to have a dispute settlement system that is operated to ensure it conforms to agreed rules by sovereign states – stated differently, permits the system to function as envisioned when created in the Uruguay Round. 

Two Initial U.S. Trade Agreements with Japan – What They Cover and What Will Follow

On October 16, 2018, US Trade Representative Robert Lighthizer sent letters to Congress informing Congress of the President’s intent to enter trade negotiations with Japan.  Section 105(a)(1)(A) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 was referenced in the letters.  The letters indicated that negotiations with Japan could proceed in phases, that the administration would consult with Congress and that Administration negotiating positions were consistent with the priorities and objectives contained in section 102 of the 2015 law.  In December 2018, USTR published a summary of the Administration’s specific negotiating objectives with Japan.

Less than one year later, on September 25, 2019, President Trump and Prime Minister Abe announced that agreements had been reached on certain market access issues (agriculture and some other products by Japan; a large number of industrial goods and a few agricultural products by the U.S.) and a digital trade agreement between the two countries.  The two agreements and a series of side letters were signed on October 7.  It is expected that the two agreements will take effect on January 1, 2020, following action by the Diet in Japan and the publication of tariff reductions by the Administration in the U.S. pursuant to existing tariff reduction authority (and assuming the obligations of the U.S. under the digital trade agreement do not require any changes to U.S. law).   As indicated in the original notification, the negotiations are being undertaken in phases, with additional negotiations to commence four months after the two initial agreements take effect as reviewed in language on USTR’s webpage.

On October 7, 2019, USTR Robert Lighthizer and Ambassador of Japan to the United States Shinsuke J. Sugiyama signed the U.S.-Japan Trade Agreement and U.S.-Japan Digital Trade Agreement. In addition, as announced in the September 25, 2019, Joint Statement of the United States and Japan, the United States and Japan intend to conclude consultations within 4 months after the date of entry into force of the United States-Japan Trade Agreement and enter into negotiations thereafter in the areas of customs duties and other restrictions on trade, barriers to trade in services and investment, and other issues in order to promote mutually beneficial, fair, and reciprocal trade. Entry into force of the U.S.-Japan Trade Agreement and U.S.-Japan Digital Trade Agreement is currently pending finalization of domestic procedures in both countries.

https://ustr.gov/countries-regions/japan-korea-apec/japan/us-japan-trade-agreement-negotiations

Help for U.S. Agriculture

Having pulled out of the Trans Pacific Partnership [“TPP”] agreement in 2017, the U.S. has been anxious to achieve an agreement with Japan – a country that the Administration has indicated accounts for 95% of GDP of countries within the Comprehensive and Progressive Agreement for Trans-Pacific Partnership [“CPTPP”] with whom the U.S. does not presently have an FTA.  Japan has been a large market for U.S. beef, pork and wheat among other agricultural products.  With the CPTPP having entered into force on December 31, 2018 for Japan and many of the major agricultural export members of the CPTPP (Australia, Canada, Mexico and New Zealand) and with the Japan-EU FTA (entered into force February 1, 2019), U.S. agriculture has been concerned with loss of market share with the significant differences in tariff rates applicable to imports from Japan’s CPTPP partners and available to the EU.  In addition, U.S. agriculture has been buffeted over the last two years by retaliation by various countries in retaliation for US actions under section 232 on steel and aluminum products (China, EU, Canada, Mexico, India, Turkey, Russia) and under section 301 for intellectual property and other issues by China.

Looking at domestic exports to Japan of a few U.S. agricultural products, it is clear that U.S. exporters were seeing reduced volume and value of products in 2019.  Volume data are shown below along with the percent change between the first eight months of 2018 and 2019 (quantities are in metric tons):

Product 2016 2017 2018 Jan.-Aug. 2018 Jan-Aug. 2019 % Change
Beef –HS 0201 & 0202 203,852.8 258,193.7 278,800.7 191,672.7 173,023.5 -9.73%
Pork – HS 0203 361,530.9 365,130.6 366,626.0 245,970.0 233,698.2 -4.99%
Wheat – HS 1001 2,700,066 3,049,369 2,860,624 1,942,929 1,678,292 -13.62%
Corn – HS 1005 11,891,952 12,390,152 15,276,106 10,972,609 8,874,393 -19.12%

In contrast to declining U.S. exports to Japan in the first eight months of 2019 compared to the comparable period in 2018, total imports into Japan from all countries increased for three of the four products reviewed.  For beef, Japan imports increased by 1.13% on a volume basis.  Similarly, imports of pork products into Japan increased by 4.29% on a volume basis.  Total imports of corn into Japan also increased slightly (0.79%) on a volume basis.  While the volume of wheat imports from all countries declined by 7.91%, the rate of decline was significantly smaller than the contraction of US exports to Japan of wheat.  Thus, the U.S. saw reduced market share in all four of these major product categories and in many others as well.  Indeed US domestic exports of all agricultural products (HS Chapters 1-24) grew 15.28% on a value basis between 2016 and 2018 from $11.89 billion to $13.71 billion before declining 7.75% in the first eight months of 2019.  There were many US export categories that saw declines in value  during the first eight months of 2019 (HS 0201, fresh or chilled beef, -6.7%; HS 0202, frozen beef, -18.8%; HS 0203, fresh, chilled or frozen pork, -6.2%; HS 0303, frozen fish other than fish fillets, -28.4%; HS 0802, nuts, -8.0%; HS 1001, wheat, -18.3%; HS 1005, corn, -16.2%; HS 1201, soybeans, -1.7%).

Annex I to the U.S.-Japan Trade Agreement identifies the various commitments on liberalization that Japan is making, almost all on agricultural products. 

https://ustr.gov/sites/default/files/files/agreements/japan/Annex_I_Tariffs_and_Tariff-Related_Provisions_of_Japan.pdf 

USTR’s fact sheet provides the following summary of benefits for U.S. agriculture:

“In the U.S.-Japan Trade Agreement, Japan has committed to provide substantial market access to American food and agricultural products by eliminating tariffs, enacting meaningful tariff reductions, or allowing a specific quantity of imports at a low duty (generally zero). Importantly, the tariff treatment for the products covered in this agreement will match the tariffs that Japan provides preferentially to countries in the CP-TPP agreement.

“Out of the $14.1 billion in U.S. food and agricultural products imported by Japan in 2018, $5.2 billion were already duty free. Under this first-stage initial tariff agreement, Japan will eliminate or reduce tariffs on an additional $7.2 billion of U.S. food and agricultural products. Over 90 percent of U.S. food and agricultural imports into Japan will either be duty free or receive preferential tariff access once the Agreement is implemented.

KEY ELEMENTS: U.S. AG EXPORTS TO JAPAN

Tariff Reduction:  For products valued at $2.9 billion, Japan will reduce tariffs in stages. Among the products benefitting from this enhanced access will be:

  • fresh beef
  • frozen beef
  • fresh pork
  • frozen pork

Tariff Elimination: Tariffs will be eliminated immediately on over $1.3 billion of U.S. farm products including, for example:

  • almonds
  • blueberries
  • cranberries
  • walnuts
  • sweet corn
  • grain sorghum
  • food supplements
  • broccoli
  • prunes

“Other products valued at $3.0 billion will benefit from staged tariff elimination. This group of products includes, for example:

  • wine
  • cheese and whey
  • ethanol
  • frozen poultry
  • processed pork
  • fresh cherries
  • beef offal
  • frozen potatoes
  • oranges
  • egg products
  • tomato paste

Country Specific Quotas (CSQs): For some products, preferential market access will be provided through the creation of CSQs, which provide access for a specified quantity of imports from the United States at a preferential tariff rate, generally zero. CSQ access will cover:

  • wheat
  • wheat products
  • malt
  • glucose
  • fructose
  • corn starch
  • potato starch
  • inulin

Mark Up: Exports to Japan of wheat and barley will benefit from a reduction to Japan’s “mark up” on those products. Japan’s imports of U.S. wheat and barley were valued at more than $800 million in 2018.

Safeguards: This agreement provides for the limited use of safeguards by Japan for surges in imports of beef, pork, whey, oranges, and race horses, which will be phased out over time.”

https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2019/september/fact-sheet-agriculture%E2%80%90related

There are also five side letters on specific agricultural products and one on safeguard provisions.  The specific products covered by such letters are alcoholic beverages, beef, rice, skimmed milk, and whey.  These side letters can be found here:  https://ustr.gov/countries-regions/japan-korea-apec/japan/us-japan-trade-agreement-negotiations/us-japan-trade-agreement-text.

What Japan Gets from the U.S. in terms of Tariff Reductions

Annex II contains the list of liberalization commitments on tariffs on goods the U.S. is providing Japan under the agreement.

 https://ustr.gov/sites/default/files/files/agreements/japan/Annex_II_Tariffs_and_Tariff-Related_Provisions_of_the_United_States.pdf 

The U.S. agreed to some liberalization of a limited number (42) of six-digit HS categories.  USTR indicated in its fact sheet that imports from Japan in these 42 categories had been $40 million in 2018.  Twelve of the forty-two categories involve plants and cut flowers, two deal with yams, six deal with melons of various types, one covers fresh persimmons, two with green tea, ten with confectionery products, one with chewing gum, one covers soy sauce, and seven cover various other items.

The bulk of what Japan obtains in tariff liberalization occurs in industrial goods (chapters 25-99) though motor vehicles and parts are not part of the liberalization.  There are some chemicals, a few rubber products, mirrors, some steel products and the vast majority from HS Chapters 84 and 85. 

As the Administration is not intending to submit implementing legislation, the Administration is limited to the tariff reduction authority contained in Section 103(a)(3) of the Bipartisan Congressional Trade Priorities and Accountability Act, 19 U.S.C. 4202(a)(3).  Thus, for  any of the products on which liberalization is to occur where Column 1 tariffs are greater than five percent ad valorem,  tariffs will be reduced but not eliminated.  Most products in HS Chapters 84 and 85 included for tariff reductions are below 5% but many agricultural products and certain industrial tariffs (e.g., bicycles and parts, HS 8712 and HS 8714) are above 5%.

WTO Compatibility

Both the U.S. and Japan intend to pursue further negotiations starting in early May 2020.  Certainly the Administration summary of negotiating objectives articulate aims which comport with obtaining a comprehensive trade agreement that would be comparable to other FTAs in terms of trade in goods coverage.  But the U.S.-Japan Trade Agreement dealing with tariffs does not by itself qualify as a Free Trade Agreement (“FTA”) within the meaning of GATT Article XXIV:8(b) where substantially all tariffs on goods trade are eliminated within a reasonable period of time.  The Agreement’s failure to provide for duty-free treatment for substantially all trade in goods is true for Japan’s treatment of imports from the U.S. as well as the U.S.’s treatment of imports from Japan.  For example, U.S. exports to Japan in 2018 were only 20% in agricultural goods, with fully 80% of exports in industrial goods.  With few exceptions, industrial goods are not the subject of the current agreement in terms of Japanese liberalization (though Japan has zero tariffs on many industrial goods already).  Similarly, motor vehicle goods and parts are not part of the trade liberalization.  There are Column 1 tariffs for most HS Chapter 87 goods.  Excluding bicycles and parts which are part of the current agreements, imports from Japan under just Chapter 87 were more than $53 billion in 2018 or some 37% of total imports.  Thus, the current agreement, absent a future enlargement would likely be viewed as violating MFN requirements of the WTO as not a permissible FTA under GATT Art. XXIV:8(b).

There have been no disputes over whether particular FTAs  fail to satisfy the requirements of Article XXIV, and it is novel for a trade agreement to be done in phases.  Assuming the U.S. and Japan complete their negotiations and implement the resulting enlarged agreement in the next year or two, the final agreement will likely be WTO consistent, regardless of views of the phase approach and initial agreement reached.

U.S.-Japan Digital Trade Agreement

Digital trade is a rapidly growing part of international commerce.  The U.S. has been seeking either a digital trade chapter (e.g., U.S.-Mexico-Canada Agreement [“USMCA”]) or where negotiations are done in phases, as a stand-alone agreement.  The latter is what has emerged from the talks to date with Japan.  The U.S.-Japan Digital Trade Agreement has been described by the Administration as the “gold standard” and similar to the chapter in the USMCA.  The USTR fact sheet lays out what the agreement achieves as perceived by the Administration:

“FACT SHEET U.S.-Japan Digital Trade Agreement

“As two of the most digitally-advanced countries in the world, the United States and Japan share a deep common interest in establishing enforceable rules that will support digitally-enabled suppliers from every sector of their economies to innovate and prosper, and in setting standards for other economies to emulate.

“The United States-Japan Digital Trade Agreement parallels the United States-Mexico-Canada Agreement (USMCA) as the most comprehensive and high-standard trade agreement addressing digital trade barriers ever negotiated. This agreement will help drive economic prosperity, promote fairer and more balanced trade, and help ensure that shared rules support businesses in key sectors where both countries lead the world in innovation.

“Key outcomes of this agreement include rules that achieve the following:

  • Prohibiting application of customs duties to digital products distributed electronically, such as e-books, videos, music, software, and games.
  • Ensuring non-discriminatory treatment of digital products, including coverage of tax measures.
  • Ensuring that data can be transferred across borders, by all suppliers, including financial service suppliers.
  • Facilitating digital transactions by permitting the use of electronic authentication and electronic signatures, while protecting consumers’ and businesses’ confidential information and guaranteeing that enforceable consumer protections are applied to the digital marketplace.
  • Prohibiting data localization measures that restrict where data can be stored and processed, enhancing and protecting the global digital ecosystem; and extending these rules to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.
  • Promoting government-to-government collaboration and supplier adherence to common principles in addressing cybersecurity challenges.
  • Protecting against forced disclosure of proprietary computer source code and algorithms.
  • Promoting open access to government-generated public data.
  • Recognizing rules on civil liability with respect to third-party content for Internet platforms that depend on interaction with users.
  • Guaranteeing enforceable consumer protections, including for privacy and unsolicited communication, that apply to the digital marketplace, and promoting the interoperability of enforcement regimes, such as the APEC Cross-Border Privacy Rules system (CBPR).
  • Ensuring companies’ effective use of encryption technologies and protecting innovation for commercial products that use cryptography, consistent with applicable law.

“Together, these provisions will set predictable rules of the road and encourage a robust market in digital trade between the two countries – developments that should support increased prosperity and well-paying jobs in the United States and Japan.”

https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2019/october/fact-sheet-us-japan-digital-trade-agreement

The agreement represents the U.S. achieving the negotiating objectives that it identified for digital trade in USTR’s summary of negotiating objectives (page 6) – no customs duties on digital trade (Art. 7 of Agreement), non-discriminatory treatment of digit trade in Japan (Art. 8 of Agreement), rules to limit interference with transborder flows of data (Art. 11 of Agreement), rules preventing governments from disclosing computer codes or algorithms (Art. 17 of Agreement), and limiting non-IPR civil liability for online platforms for third party content (Art. 18 of Agreement).  https://ustr.gov/sites/default/files/2018.12.21_Summary_of_U.S.-Japan_Negotiating_Objectives.pdf

There are, of course, many other provisions in the Agreement, some dealing with privacy, some dealing with access to government information, some dealing with cybersecurity.  In light of the stand-alone nature of the Agreement, the U.S. has also included exclusion provisions for national security and other purposes (e.g., GATT Art. XX, prudential purposes).

The Administration’s ability to enter into the agreement and have it take effect on January 1 is premised presumably on the agreement being consistent with existing U.S. law and practice and hence not needing legislative amendments to address.

WTO Consistency

Because the WTO’s primary agreements flow from the Uruguay Round, there is limited coverage of digital trade within the WTO (there has been a moratorium, extended at each Ministerial on imposition of customs duties on digital goods).  Thus, there are no WTO-consistency issues with the Agreement Between the United States and Japan Concerning Digital Trade Agreement.

Conclusion

Japan is the world’s third largest economy and an important trading partner for the United States.  The intention to start negotiations with Japan was one of three notifications of intended negotiations sent to Congress by the Trump Administration (Canada and Mexico, the EU being the others).  USMCA is awaiting final amendments to permit a Congressional vote and the EU talks have not advanced significantly at this point.  The Administration has adopted the novel approach of doing negotiations with Japan in phases.  The first phase of tariff liberalization has focused on U.S. agricultural interests and offsetting disadvantages for US agricultural exporters from the CPTPP entering into force at the beginning of the year and the Japan-EU agreement which took effect on February 1, 2019.  The agreement appears to move U.S. agricultural producers back to a competitive position with the other major agricultural exporters covered by the CPTPP and Japan-EU agreements.  The legitimacy of the first agreement depends on there being a broader agreement with Japan that the U.S. reaches in reasonably prompt fashion. 

The second agreement on digital trade reflects the continued growth and importance of digital trade to both the U.S. and Japan and the adoption of provisions the U.S. has been pursuing in recent years.

In short, concluding the two agreements should be helpful to U.S. trade interests.  However, there is a lot of work left to do with our important trading partner and ally, Japan, to achieve an overall result that is consistent with our WTO obligations.       

U.S.-China Trade – Some Possible Progress Announced on October 11, But a Long Road Ahead?

On Friday, October 11, 2019, President Trump and Vice Premier Liu He of China announced a “phase one” deal, although the President indicated it could be three to five weeks (possibly more) before the deal was in writing and ready for Presidents Trump and Xi to sign.  Topics reportedly covered in this first phase include agricultural market access (which President Trump expressed in terms of anticipated agricultural product purchases by China to be ramped up over the next two years to $40-50 billion/year), addressing some sanitary and phytosanitary issues of concern to the U.S. (including issues involving biotechnology) in China, greater access for U.S. financial service providers, apparently addressing some aspects of intellectual property concerns though others will be addressed in a “phase 2” and agreement around transparency in foreign exchange markets.  See Remarks by President Trump and Vice Premier Liu He of the People’s Republic of China in a Meeting, October 11, 2109, https://www.whitehouse.gov/briefings-statements/remarks-presemt-trump-vice-premier-liu-peoples-republic-china-meeting/.

The President has put off increasing tariffs on $250 billion in imports from China from 25% to 30%, an increase that had been set for October 15.  No decision has been made by the U.S. on the tariffs scheduled on most remaining imports from China which are scheduled for December 15, though Amb. Lighthizer made clear that there was sufficient time for phase one to be completed and signed ahead of that date.  Tariffs already in place remain in place for the time being.

The U.S. had thought it was close to a deal with China in early May 2019 only to have the “papering” of the perceived agreement blow-up as China was perceived by the U.S. as backtracking on a host of issues where the U.S. had understood there was agreement.  Back in late April, early May there was a reported 150 page draft of a comprehensive agreement.  Not surprising, there are concerns in the media and in business that the “papering” of the phase one agreement may yet prove illusive.

But the announcement that the two countries are actively engaged in negotiations and are hopeful of completing a phase one shortly is obviously good news for many groups in the U.S., in China and around the world.

How Important Could a Phase One Agreement Be?

          A. Agriculture

U.S. farmers and ranchers have been particularly hard hit by retaliation of trading partners whether for U.S. actions on national security grounds (Section 232 action on steel and aluminum) or in response to the Administration’s actions under Section 301 in an effort to address various perceived unfair trade practices of China (forced technology transfer, theft of IP, among other issues).

In the case of China, U.S. exports of agricultural products increased from $6.5 billion in 2007 to a high of $22.6 billion in 2013 and 2014 and were still at $18.7 billion in 2017 before retaliation by China commenced in 2018.  U.S. agriculture exports declined $10.2 billion to just $8.5 billion in 2018.  Some increased purchases of soybeans by China in midyear 2018 have resulted in an increase from the extraordinarily low 2018 exports through August of 2019 ($7.6 billion vs. $7.1 billion for first eight months of 2018). 

For the period 2007-2017,  US exports of soybeans accounted for more than half of all US agricultural exports to China (from 54.9% – 75.9%) and were 65.4% of total US agricultural exports in 2017 before retaliation by China on soybeans and other agricultural products resulted in soybeans dropping to just 36.5% of US exports in 2018.  The U.S. exports of soybeans declined $9.1 billion in 2018 from 2017 levels and accounted for 89.2% of total US agricultural export declines to China ($10.2 billion) in 2018.

Not surprisingly, a great deal of focus on the agricultural market access has been to get China to increase imports, particularly of soybeans.  US exports of soybeans to China declined from 31.7 million metric tons in 2017 to just 8.2 million metric tons in 2018 (and are 5.1 million metric tons higher for the first eight months of 2019).  Remarks by President Trump and Vice Premier Liu He on Friday indicated that orders have been placed which either bring the total purchases of U.S. soybeans by China to 20 million metric tons or for an additional 20 million (not clear from the transcript).  2016 saw the largest U.S. exports to China of soybeans, 36.1 million metric tons.

For China to purchase $40-50 billion in agricultural goods will in fact require a significant broadening and deepening of market access by many other competitive U.S. agricultural products, including grains, corn, beef, pork, chicken to name just a few.  Thus, the success of the agricultural market access agreement with China will depend both on the decisions of the Chinese import entities that control certain agricultural products and the elimination by China of tariffs and sanitary and phytosanitary obstacles that have limited U.S. market access to date.

B.  Financial Services and Exchange Rates

The U.S. has a very competitive financial services sector.  Increased liberalization by China would obviously be appreciated by U.S. companies and would benefit China as well.  Press articles from earlier this year indicated that the Chinese were contemplating liberalization of the financial services sector for WTO members generally, thus the agreement between China and the U.S. may simply reflect movement in China’s overall position on financial services.  How important the liberalization will be to US service providers will depend on (1) the text of the agreement reached, (2) how China implements the terms, and (3) what enforcement mechanisms are available should implementation suffer from some of the same types of problems US financial service providers have been dealing with for the last fifteen years.

While currency manipulation/misalignment has been a long term concern of the U.S. with China and with a number of other countries, it is unclear what actions are contemplated by the phase one agreement as outlined last Friday and whether misalignment will be addressable in a meaningful manner if problems arise or are viewed by the U.S. as continuing.

Addressing Market Distortions in Non-Agricultural Goods is Critical to Any Balanced Final Package (Phase 2 or later).

While restoring and improving access for US agricultural products is certainly a very important part of achieving better balance with China, the Section 301 investigation handled by USTR focused on intellectual property issues primarily involving non-agricultural goods.  Other long simmering challenges have included the massive distortions created by China’s enormous subsidies, the continued dominant role played by state-owned and state-invested enterprises in China , and China’s continued state direction of large parts of the economy.

U.S. exports of nonagricultural goods to China have accounted for more than 80% of total U.S. exports to the country in nearly every year since 2007 and were above 92% in 2018 following initial retaliation by China.  While the 2018 decline in total US exports to China were almost 100% in agricultural goods (at the aggregate level not individual HS categories), more than 100% of the decline in the first eight months of 2019 have been to nonagricultural goods, including heavy hits to U.S. exports of motor vehicles and parts and civil aircraft.  Moreover, the US trade deficit with China is entirely in nonagricultural goods.  In 2017, total trade deficit (domestic exports – imports for consumption) was $383.8 billion, with the deficit on nonagricultural goods running $395.5 billion.

While President Trump indicated that there was agreement in the phase one package on some intellectual property issues, the public won’t be able to evaluate the nature of any modifications in nonagricultural trade until the phase one agreement is finished and signed.  Almost certainly the most difficult issues for nonagricultural goods (including state subsidies, China 2025 policies, etc.) are not presently part of the announced phase one package, meaning any addressing of more than 80% of our trade with China will likely not occur until 2020 or later.   

Enforcement is Important; Can it Be Achieved?

USTR Lighthizer has been working hard throughout the process of negotiations with China to obtain an agreement that has meaningful and effective enforcement provisions.  The U.S. experience with China since its accession to the WTO has too often been one of both a failure by China to implement certain commitments and the lack of meaningful and effective enforcement tools when such situations arise and need to be addressed.  It is understood that what enforcement tools the U.S. sought back in April/May 2019 were viewed as problematic and/or unacceptable by China then.  The remarks on Friday by President Trump and others make clear that enforcement issues continue to be worked on the seemingly simpler phase one issues but have not yet been resolved.  This is certainly an area where problems may arise ahead of a phase one agreement and, as significantly, for any later phases.

Conclusion

The U.S.-China trade relationship is obviously important to each country and more generally to the world at large.  The current strains on the global economy and on the two countries’ economies have been increasing periodically over the last year and a half with additional actions taken by each country to increase the challenges for the other while negotiations have been inconclusive.  The facts that a partial deal may be achieved in the next month or so and that further escalation is put on hold should be good news for many businesses in the U.S. and China and elsewhere in the world.   

Whether the U.S. and China will be able to conclude the phase one agreement promptly and move forward expeditiously with the remaining critical issues in a phase two agreement are open questions.  Success would do a lot to move the world to a more sustainable and integrated world trading order.  Failure will deepen an economic malaise taking hold in much of the world to the detriment of many including many of the world’s poorest.

Here’s hoping that success and not failure will mark the October/November 2019 time period. 

The World Trade Organization in Crisis – the Last Two Months of the Appellate Body Absent Reform Is Just One Example

The World Trade Organization currently has 164 members (countries and customs territories), with an additional 22 countries in the process of pursuing accession.  While the WTO has attracted a lot of interest and greatly increased membership since its start in 1995, it is an organization in trouble and of diminishing relevance despite its important role and broad membership.  While the challenges facing the WTO dispute settlement system are an obvious example of an unresolved problem, dispute settlement is by no means the only area of concern.

Challenges with the Negotiations Function

Historically, the most important function of the WTO’s predecessor, the GATT, was negotiating reductions in tariffs and other trade barriers.  With a much broader membership under the WTO and with divergent economic systems for some major players from the historic market-based model,  the negotiating function has been seriously hampered and the rules-based system does not adequately address differences in economic systems.  While there have been some successes in expanding liberalization (e.g., information technology agreement, trade facilitation, agriculture export subsidy commitments), the consensus based approach and different interests of various major participants has largely prevented the WTO from maintaining a system reflecting current global issues and technologies and the differences in economic systems, with members relying on other vehicles to address pressing issues.

Members are attempting to reach agreement on limiting fisheries subsidies (now in the 18th year of negotiations) by the end of 2019 against a background of a continuing worsening of the overfishing problem globally.  Moreover, discussions on broader reform within the WTO have been being held over the last year or two, including efforts to restore vitality to the Committee process through improved notifications (see below) and addressing some of the practices of different economic systems that are destabilizing global markets in a wide range of products.  The likelihood of any significant breakthrough on fundamental reform seems implausible in light of the dramatically different interests of key members and the need for consensus.

Challenges to the Committee Oversight Function

A second function of the GATT and now the WTO has been a committee process that is supposed to permit Members to monitor the activities of other members through various notification requirements and an ability to identify current concerns and potentially identify solutions acceptable to the broader membership.  While the committee structure exists, notifications are spotty at best and the committee process has been reduced in importance for most of the first 25 years of the WTO through lack of focus by participating Members and other reasons.  There are committees which appear to have functioned reasonably well over periods of time, but this critical aspect of the WTO is not making the contributions that it could and should make.

Time is Running Out for the Appellate Body’s Continued Functioning

The third core area of the WTO is dispute settlement.  While there have been hundreds of disputes during the first 25 years of the WTO and while most Members are supportive of the system, there is a continuing crisis that flows from a core departure by the Appellate Body from the agreement that established the system, the Dispute Settlement Understanding (“DSU”).  While many/most of the Appellate Body decisions are accepted by most/all countries, fundamental concerns with a system at odds with the agreed purpose of dispute settlement have been raised by the United States for more than 17 years (and indeed flow from Appellate Body actions stretching back close to 20 years). A core problem is the lack of effective ability of Member states to correct erroneous decisions of the Appellate Body which has meant that a system intended to help Members resolve disputes between themselves has instead turned into a system where rights and obligations are not a reflection of agreements but rather the views of the Appellate Body members.

While there are important Members who are happy with a system where rights and obligations are identified by the Appellate Body whether or not trading partners agreed to such obligations or rights, the creation of rights and obligations through dispute settlement is a fundamental departure from the agreed terms of the Dispute Settlement Understanding and is unacceptable to the United States.  As no appeal can be heard where there are not at least three members of the Appellate Body, the Appellate Body will cease to operate (at least temporarily) after December 10, 2019, when the number of Appellate Body members declines from three to just one.

The United States has gone to extraordinary lengths over the last year or more to both identify its concerns and chronicle the history of the development of the issues.  Some Members have made proposals to address one or more U.S. concerns through modifications to the DSU or through other means. But the proposals to date have failed to address the question raised by the U.S. as to why the Appellate Body has been willing to depart from the requirements of the DSU in the first place.  Without understanding that question, why would modifications to the DSU result in a correction of action by the Appellate Body going forward?

The last Dispute Settlement Body meeting was held on September 30, and there was no resolution of the concerns of the U.S.  at that meeting.  There are future meetings (before December 10) presently scheduled for October 14 and November 22.  There does not appear to be any realistic scenario in which there is a resolution before December 10, which will result in the Appellate Body ceasing to operate until there is a resolution.

Some countries – the European Union and Canada – have agreed to create an “arbitration” substitute for disputes between themselves and can be expected to seek agreement with other Members.  See JOB/DSB/1/Add. 11.  Members have the right now to agree to arbitration in lieu of the panel or Appellate Body system.  DSU Art. 25.  The proposal by the EU and Canada has already resulted in questions from the U.S. not on whether arbitration among willing Members is permitted but whether, inter alia, the specific agreement between the EU and Canada exceeds the limits of the DSU by making arbitration decisions among willing Members somehow more than a resolution between the parties themselves.      

Conclusion

USTR Lighthizer has indicated that the world would need to create something like the WTO if it didn’t exist.  The U.S. under the Trump Administration just as under prior Administrations, has worked hard within the WTO to identify issues of concern and seek forward movement.  Therefore it is not a correct reading of the actions of the United States to suggest that the U.S. is not supportive of the WTO.

An organization that sovereign states subscribe to and adhere to and that can address a rapidly changing world environment for the benefit of all participants is what the WTO is supposed to be.  Without important reforms, unfortunately, the WTO will become less and less relevant to global commerce and to the lives of people around the world.   It is the responsibility of the WTO Members to identify and adopt the changes that are needed to achieve the reforms needed to keep the WTO relevant.  That takes leadership and an ability of the major players to understand what current economic realities prevent acceptable solutions.  

 Unfortunately, taking the dispute settlement situation as an exemplar, major players are failing to address the departures from the DSU that have caused such concerns for the United States for the last two decades.  That approach simply ensures a diminished relevance for the WTO and increased conflict between trading partners.