Dispute Settlement Body

First dispute settlement cases of 2021 at the WTO — Costa Rica requests consultations with Panama for various restrictions on agricultural products viewed as violating SPS obligations and more; EU requests establishment of a panel to address its concerns with Indonesia’s export restrictions on inputs for stainless steel

Costa Rica’s request for consultations

Costa Rica has filed the first request for consultations at the WTO in 2021. Its request was filed on January 11, 2021 and posted on the WTO website on January 14. See PANAMA – MEASURES CONCERNING THE IMPORTATION OF CERTAIN PRODUCTS FROM COSTA RICA, REQUEST FOR CONSULTATIONS BY COSTA RICA, WT/DS599/1, G/AG/GEN/179, G/SPS/GEN/1873, G/L/1383 (14 January 2021). Costa Rica alleges a host of restraints imposed on various agricultural exports from Costa Rica including on “(i) strawberries; (ii) milk
products; beef; pork; processed poultry meat; cured beef, pork and poultry products (including ham, sausages, mortadella, bacon, chorizo made of pork, chicken and turkey, pâté, pepperoni, salami, legs, ribs, loin of pork, roast beef and beef loin); prepared beef, pork and chicken, chicken and turkey breast, pork rind and dry chorizo; and fish food; (iii) pineapples; and (iv) plantains and bananas.” (Page 1).

Costa Rica’s request for consultations reviews the lengthy efforts at communicating with Panama and the apparent failure of Panama to respond or to provide inspections of facilities in some cases. Costa Rica has been seeking resolution with Panama over the last two years without results. Costa Rica has raised some of the issues in the Committee on Agriculture during 2020. See WTO Committee on Agriculture, SUMMARY REPORT OF THE MEETING HELD ON 28 JULY 2020, NOTE BY THE SECRETARIAT, G/AG/R/95 (19 October 2020)(“The Committee adopted the agenda with the following additions: • Under Part 1.A: The Review Process, matters relevant to the implementation of Commitments under the reform programme raised under Article 18.6 of the Agreement on Agriculture: o Costa Rica raised matters relating to non-tariff barriers to agricultural trade during the COVID-19 pandemic by Panama”). The question from Costa Rica and Panama’s limited response are embedded below.

View-Question-Answer

Indeed press articles from the summer of 2020 reviewed the growing trade concerns that Costa Rica had with Panama’s restrictions on Costa Rica’s exports of agricultural products. See, e.g., MENAFN, Costa Rica protests Panama trade blockade to World body, 8/7/2020, https://menafn.com/1100601315/Costa-Rica-protests-Panama-trade-blockade-to-World-body (“A growing trade dispute between Costa Rica and Panama has landed on the world stage as Costa Rica notified the Agriculture Committee of the World Trade Organization (WTO) that Panama has blocked the entry of Costa Rican products of animal origin to the Panamanian market for over three months. In a statement, issued on Thursday, August 6, the Minister ofAgriculture and Livestock, Renato Alvarado Rivera, and the Minister of Foreign Trade, Dyalá Jiménez Figueres, said that the blockade constitutes ‘a serious commercial problem between both countries.'”); CentralAmericaData.com, Trade Dispute Between Panama and Costa Rica, August 7, 2020, https://www.centralamericadata.com/en/article/main/Trade_Dispute_Between_Panama_and_Costa_Rica.

The bulk of the alleged violations by Panama are to obligations under the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”), with GATT 1994 Article violations (e.g., failure to provide most favored nation access) alleged as well. The request for consultations is embedded below.

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Costa Rica will have a long road (likely measured in years) in pursuing its dispute with Panama and at present, has no second stage dispute settlement option. While Costa Rica has joined the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU, Panama is not a signatory. Hence, absent agreement on how to proceed after a panel report, Panama could file an appeal which could not be heard until such time as there is a resolution to the Appellate Body impasse.

The challenge Costa Rica is having with Panama on restraints based on claims of SPS problems has become increasingly common. For example, while most observers perceive that the wide range of import restrictions by China on goods from Australia flow from China’s unhappiness with Australia’s positions on unrelated matters, China has imposed restrictions often claiming SPS or other problems. See, e.g., 9news, Aussie cherries labelled ‘inferior’ by China, growers worried, January 14, 2021, https://www.9news.com.au/national/china-trade-dispute-cherry-exporters-targeted/9f734bf9-ba2f-4259-bce0-758ff0913cc3. For the more likely reason for Chinese restrictions see my prior post (December 22, 2020, China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/) and last week’s article (South China Morning Post, China-Australia relations: bans on Australian imports ‘beginning to bite’ as commodity exports fall, 8 January 2021, https://www.scmp.com/economy/china-economy/article/3116808/china-australia-relations-bans-australian-imports-beginning).

The EU’s request for establishment of a panel to address its concerns with export restraints on raw materials from Indonesia

The EU filed its request for establishment of a panel today, January 14, 2021. The European Commission’s Directorate of Trade issued a press release entitled “EU files WTO panel request against illegal export restrictions by Indonesia on raw materials for stainless steel” and the request for establishment of a panel is also available from the same website. Both documents are embedded below.

EU-files-WTO-panel-request-against-illegal-export-restrictions-by-Indonesia-on-raw-materials-for-stainless-steel-Trade-European-Commission

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The EU request for establishment of a panel raise two issues where Indonesia’s actions are alleged to violate GAT 1994 Article XI:1 which provides, “No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.” The actions of Indonesia from the request are copied below.

“Indonesia has restricted exports of nickel ore to different extents and under different rules since at least 2014. In January 2014 nickel was excluded from the regime on the necessary processing and purification of mining commodities for export, which effectively outlawed exports of nickel ore. From January 2017 to December 2019 exports of nickel ore with a concentration below 1.7% were permitted subject to certain conditions, while those of nickel ore with a higher concentration remained prohibited. Since January 2020 all exports of nickel ore, regardless of its concentration, are banned.” (page 1 of request for establishment of a panel)

“Indonesia applies domestic processing requirements with regard to certain raw materials, notably nickel ore and iron ore, prior to them being exported. Domestic processing requirements oblige mining companies to enhance the value of the relevant raw materials through the conduct of certain processing and/or purification operations in Indonesia before exporting them.” (page 2)

While the EU is a signatory to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the DSU but Indonesia is not. Should the EU be successful in its dispute with Indonesia at the panel stage, Indonesia could take an appeal to the Appellate Body which at least at present could not hear it. The EU would likely retaliate against Indonesia if an appeal were pursued where the Appellate Body is not functioning.

Conclusion

It is not surprising that new requests for consultations and new requests for the establishment of a panel continue despite the current inoperability of the second stage dispute settlement (the Appellate Body). As panels have been taking a long time in rendering panel reports, it is possible that reform of the Appellate Body will be accomplished before either the Costa Rica case against Panama or the EU case against Indonesia get to a panel decision. It is also obviously the case that the Dispute Settlement Understanding encourages parties to disputes to resolve them at any time, so neither case may reach a point where an appeal is considered. Alternatively, the parties could agree to not appeal from any panel report or otherwise find a mutually agreeable solution without appeal. However, if either or both cases get to a stage where an appeal is taken, either the case will sit awaiting the return of a functioning Appellate Body or the winning party may opt to take unilateral action and retaliate even though not authorized by WTO DSU provisions.

The following from the WTO webpage on Dispute Settlement, Appellate Body, provides a list of disputes where appeals have been taken but the Appellate Body is not in a position to resolve at the present time. The list and note are copied below (but don’t contain quote marks). There are presently 16 disputes where appeals have been filed where the Appellate Body is not currently working the appeals.

Current Notified Appeals (1)

  • 17 December 2020:  Notification of Appeal by Indonesia in DS484: Indonesia — Measures Concerning the Importation of Chicken Meat and Chicken Products (Article 21.5 — Brazil) (WT/DS484/25)
     
  • 26 October 2020:  Notification of Appeal by United States in DS543: United States — Tariff Measures on Certain Goods from China (WT/DS543/10)
     
  •  28 September 2020: Notification of Appeal by United States in DS533: United States — Countervailing Measures on Softwood Lumber from Canada (WT/DS533/5)
     
  •  28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7)
     
  •  28 July 2020: Notification of Appeal by Saudi Arabia in DS567: Saudi Arabia — Measures Concerning the Protection of Intellectual Property Rights (WT/DS567/7)
     
  •  18 December 2019: Notification of Appeal by the United States in DS436: United States — Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (Article 21.5 — India) (WT/DS436/21)
     
  • 6 December 2019: Notification of Appeal by the European Union in DS316: EC and certain member States — Large Civil Aircraft (Article 21.5 — EU) (WT/DS316/43)
     
  • 19 November 2019: Notification of Appeal by India in DS541: India — Export Measures (WT/DS541/7)
     
  • 9 September 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines II) (WT/DS371/30)
     
  • 15 August 2019: Notification of Appeal by the United States in DS510: United States — Certain Measures Relating to the Renewable Energy Sector (WT/DS510/5)
     
  • 4 June 2019: Notification of Appeal by Canada in DS534: United States — Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada (WT/DS534/5)
     
  • 25 January 2019: Notification of Appeal by the United States in DS523: United States — Countervailing Duty Measures on Certain Pipe and Tube Products from Turkey (WT/DS523/5)
     
  • 9 January 2019: Notification of Appeal by Thailand in DS371: Thailand — Customs and Fiscal Measures on Cigarettes from the Philippines (Article 21.5 — Philippines) (WT/DS371/27)
     
  • 14 December 2018: Notification of Appeal by India in DS518: India — Certain Measures on Imports of Iron and Steel Products (WT/DS518/8)
     
  • 20 November 2018: Notification of Appeal by Panama in DS461: Colombia — Measures Relating to the Importation of Textiles, Apparel and Footwear (Article 21.5 — Colombia)(Article 21.5 — Panama) (WT/DS461/28)
     
  • 21 September 2018: Notification of Appeal by the European Union in DS476: European Union and its member States — Certain measures Relating to the Energy Sector (WT/DS476/6)

Notes

  1. This refers to current cases in which notifications of appeal have been made. As indicated in the opening paragraphs, at the current time the Appellate Body is unable to review any of these notified appeals given the ongoing vacancies.  Back to text

The WTO ends the year with General Council and Dispute Settlement Body meetings

The last meetings at the WTO for 2020 are the General Council meeting (originally set for Dec. 16-17) and Dispute Settlement Body meeting on December 18. The meetings take place against a background of limited progress at the WTO across a broad array of issues of interest to Members. Certainly, there have been challenges to the functioning of the WTO flowing from the COVID-19 pandemic, particularly as the pandemic has affected the ability to hold in person meetings and stretched capabilities of many Members (particularly developing and least developed countries) to participate or coordinate with capitals. But the problems for the WTO run much deeper and have been building over time.

Specifically, 2020 has not been a particularly successful year for the WTO and its effort to remain relevant. The Director-General Roberto Azevedo stepped down a year early reportedly to permit a new Director-General to be selected and help guide the process for the COVID-19 delayed Ministerial Conference to be held in 2021. The selection process for a new Director-General (“DG”) has been blocked from recommending a new DG by the United States refusal to join a consensus and the failure of Korea to withdraw its candidate after the conclusion of the third round of consultations. The delay in appointing a new DG has resulted in calls for a further delay in the next Ministerial Conference from summer to December 2021.

The Appellate Body, which lost its quorum after December 10, had its last member’s term expire earlier this year. No progress has been made on reforming the Appellate Body process. While a number of Members created an interim arbitration process (“MPIA”), it doesn’t apply to all Members and a number of panel decisions have been appealed (with no Appellate Body, such “appeals” put the case in limbo where WTO authorized retaliation for failure to comply is not possible). Such appeals have been taken by a number of Members, including at least one who is a member of the MPIA against a non-MPIA member.

On the negotiations front, there has been some forward movement on plurilateral talks (negotiations among the willing) but limited progress on multilateral talks or on agreeing on a reform agenda. Thus, there appears to be progress in a number of Joint Statement Initiatives that were launched at the end of 2017 at the WTO Ministerial in Buenos Aires. However, as reviewed in prior posts, there has been a failure to conclude the multilateral negotiations on fisheries subsidies despite a UN Sustainable Development Goals timeline objective of the end of 2020 and despite 19 years of negotiations. Similarly, while many Members have teed up proposals for topics to be addressed by the membership either to address the pandemic or recovery from the pandemic or on WTO reform and while there are remaining items from prior Ministerials, Members have largely been talking past each other or unable to agree on taking items up.

The December General Council meeting covers many topics not all of which are controversial. The Agenda is embedded below. While the meeting was originally scheduled for December 16-17, it was apparently extended to today.

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WTO Members can provide comments on most agenda items if they choose. I review two of the agenda items and provide the U.S., EU and China interventions, to the extent they provided interventions (based on statements released on the webpages of the US, EU and China Permanent Missions to the WTO). The two agenda items are typical of many topics presented where major Members take very different views of proposed initiatives that others have teed up and characterize the general lack of progress at the WTO in addressing new or longstanding issues.

Item 8. COVID-19 and Beyond: Trade and Health — Statement by Cosponsors of WT/GC?223

The Ottawa Group of Members had submitted a proposal for a trade and health initiative. The proposal is embedded below.

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I have previously reviewed the proposal/communication from the Ottawa Group. See November 27, 2020,  The Ottawa Group’s November 23 communication and draft elements of a trade and health initiative, https://currentthoughtsontrade.com/2020/11/27/the-ottawa-groups-november-23-communication-and-draft-elements-of-a-trade-and-health-initiative/. Considering the severity of the COVID-19 pandemic and the relatively limited objectives of the proposed initiative, one wouldn’t have expected opposition from any major player. The European Union, being part of the Ottawa Group, was among the Members who addressed this agenda item.

“Item 8 – COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The COVID-19 pandemic has had a devastating impact on people’s health, well-being and economic prosperity. It has created unprecedented challenges for governments across the world. Most of us – and this includes the EU – have taken a range of trade-related actions with a view to ensuring that essential goods are available to our populations. It goes without saying that safeguarding the lives and health of their people is at the core of every government’s section.

“But the crisis has also exposed the fragility or even a potential negative fallout of unilateral, uncoordinated trade-related actions. If every current exporter were to ban shipments of essential goods, a large portion of the world population would be denied access to the necessary life-saving supplies.

“A global crisis requires global cooperation. With that in mind, the EU fully supports innovative cooperation developed under the Access to Covid Tools Accelerator, and the Covax Facility.  

“Although the response to the pandemic is primarily in the sphere of health policy, trade policy can also contribute to this fight. With the long-awaited discovery of vaccines, we are beginning to see the light at the end of the tunnel, but the operational and logistical challenges ahead of us will still be enormous.

“To succeed in this fight, global cooperation is fundamental. The WTO has a valuable role to play, in particular to ensure that supply chains of essential products remain open, that goods can cross borders quickly, and that the trade environment is stable and transparent.

“The time for WTO Members to take action is now. Through the Communication Covid19 and beyond, 13 Members, including the EU, invite all WTO Members to engage in a Trade and Health Initiative. At the heart of this Initiative lies the belief that each Member should be free at domestic level to take the trade policy actions needed to fight the pandemic in accordance with the WTO framework. But we are also convinced that in the interest of the common public good such actions should be coordinated and transparent. Ultimately, the objective is to create conditions for a more stable and predictable trade environment, which in turn would help to mitigate the impact of the pandemic.

“Therefore we invite Members to proceed in two steps.

“In the first step, we call on WTO Members to take immediate actions to address the current COVID-19 crisis.

“These actions are detailed in the Annex to the Communication and would consist in particular in:

“1) exercising restraint when applying export restrictions on essential goods, ensuring that measures are targeted, transparent, proportionate, temporary and consistent with WTO obligations;

“2) sharing experience and best practices in trade facilitating measures, including on services facilitating the frictionless movement of essential goods as well as in the area of technical regulations;

“3) considering removing or reducing -tariffs on essential goods;

“4) promoting transparency, including by engaging fully in the trade monitoring exercises;

“5) encouraging the WTO Secretariat to cooperate with other international organisations in order to respond more effectively to the current and future pandemics.

“We call on WTO Members to capture these actions in a declaration that should be issued as early as possible and, ideally, by the time of the next General Council Meeting. The agreement on the declaration would be without prejudice to the commitments, if any, that Members might take in the second step.

“The second step is aimed at increasing our global preparedness for any future health emergencies. We propose to explore possible future commitments on the basis of the actions taken as a first step. Ideally, we should seek to achieve progress on this strand of work by the 12th Ministerial Conference.

“We invite all WTO Members to join us in this endeavour and look forward to our successful cooperation.”

EU Statements at the WTO General Council, on 16 and 17 December 2020, https://eeas.europa.eu/delegations/world-trade-organization-wto/90831/eu-statements-wto-general-council-16-and-17-december-2020_en.

The United States has taken the position at the WTO that it does not view pursuing negotiations on trade liberalization of medical goods during the pandemic as appropriate. Thus, the U.S. did not support the call for a trade and health initiative and instead highlighted its own proposal for Members to step up trade facilitation efforts. Meeting of the WTO General Council, December 16-17, 2020, U.S. Statements delivered by Ambassador Dennis Shea, https://geneva.usmission.gov/wp-content/uploads/sites/290/GeneralCouncilStatementsDecember2020.pdf.

“COVID-19 AND BEYOND: TRADE AND HEALTH – STATEMENT BY COSPONSORS OF WT/GC/223

“The United States takes note of the communication in WT/GC/223 and thanks the co-sponsors for their statement. We have some initial observations to share today.

“Some context might be helpful. The most recent Trade Monitoring Report by the Secretariat, which was discussed in the TPRB last week, included these assessments:

“o ‘Members have generally expressed and followed a commitment to ensure that trade could flow freely during the pandemic.’

“o ‘Most of the COVID-19 related measures taken on goods since the outbreak of the pandemic were trade-facilitating.’

“o ‘In the services sectors heavily impacted by the pandemic, most of the 124 COVID-19 related measures adopted by WTO Members appeared to be trade facilitating.’

“Against this backdrop, it’s not clear what problem the cosponsors aim to solve, nor how the proposed measures would solve that problem.

“We would encourage deeper reflection. For example, supply chain resiliency doesn’t seem to be about lowering tariffs, or increasing Secretariat monitoring, or encouraging vague cooperation between the WTO and other IOs. It’s about how to prevent disruption when production somewhere beyond your shores is shut down due to an unexpected shock, or when a supplier beyond your shores is suddenly unreliable.

“A second observation also requires some context. The world has been grappling with a pandemic for nearly a year. The public health situation remains very difficult and has been worsening. As of today, more than 1.6 million people have died around the world, including more than 300,000 in the United States.

“Against this backdrop, we question the prudence of asking Members to put new constraints on their rights under the WTO Agreement—not to mention on their duty—to undertake measures to protect human health and life. For example, the idea that such measures might be granted a period of validity of three months seems to misunderstand the moment.

“We take a different view. WTO rules may not have been drafted with a pandemic at front of mind, but our initial observation is that the WTO Agreement seems fit for purpose. Its balance of rights and obligations, if adhered to by Members, will continue to provide stability and predictability as we navigate this very difficult period and, finally, recover.

“We would also like to take this opportunity to highlight an initiative launched in the Trade Facilitation Committee, sponsored by the United States and eight other WTO Members, found it G/TFA/W/25/Rev.1 entitled ‘Supporting the Timely and Efficient Release of Global Goods through Accelerated Implementation of the WTO Trade Facilitation Agreement.’

“This initiative puts a focus on tangible actions WTO Members can take to contribute to timely and efficient movement of health and medical products.

“We encourage all WTO Members to join us in this initiative.”

China did not provide an intervention on agenda item 8.

Item 10, Importance of Market-Oriented Conditions to the World Trading System — Joint Statement by Brazil, Japan and the United States

Over the last several years, the United States has highlighted the inability of the current WTO rules to address the distortions caused by the economic systems of countries like China (“state capitalism” or “non-market economies”). The U.S. has cited decisions by the WTO dispute settlement system that don’t permit Members to address distortions caused by China’s system as proof of the problem. U.S. actions under various U.S. statutes including Section 232 of the Trade Expansion Act of 1962, as amended, and section 301 of the Trade Act of 1974, as amended, are intended to address problems caused by Chinese actions which are not clearly covered by existing WTO rules.

The United States and others view the WTO as premised on competition between enterprises operating in economies that are market economies or operating under “market-oriented conditions”. In the view of the U.S., the WTO system requires Members’ economic systems to converge around market principles. To the U.S., coexistence of different types of economic systems within the WTO is not a long-term viable approach for the WTO. The U.S. view is similarly supported by Deputy Director-General Alan Wolff who in several speeches this year has outlined core principles of the WTO and has opined that the system is premised on convergence not coexistence.

At the same time, the prior Director General, Roberto Azevedo, took the position that it was not for the WTO to take up differences in economic systems in Members.

The EU has taken the view that market-oriented conditions are critical, and the WTO rules need to be updated to ensure that distortions created by different systems are addressable within the WTO. Thus, the EU, U.S. and Japan agreed at the Buenos Aires Ministerial to look at issues like industrial subsidies and other topics to see what modifications were needed to address some of the distortions caused by the Chinese-type system.

Not surprisingly, China has led the opposition to any efforts at either mandatory convergence or efforts to address distortions caused by the state-capitalist system.

The Brazil, Japan and U.S. paper lays out the thinking behind the need for convergence. It is embedded below.

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U.S. Amb. Shea provided the U.S. and other Members logic in continuing to push this item at the General Council yesterday.

“IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“The United States, Brazil, and Japan have requested this agenda item to continue highlighting the importance of market-oriented conditions to the global trading system.

“As a result of our work together, Brazil, Japan, and the United States have released a joint statement (WT/GC/W/803/Rev.1). The joint statement reflects our shared belief in one of the core principles of the WTO: that market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system.

“To that end, the Brazil-Japan-U.S. joint statement affirms that Members’ enterprises should operate under market-oriented conditions and notes the elements that indicate and ensure those conditions for market participants. These criteria reflect the market-oriented conditions and disciplines to which our own enterprises are subject.

“At the last General Council meeting in October, we encouraged Members to review these elements in detail to facilitate more robust engagement on this important issue.

“”It is notable that both in the General Council and informal meetings, we have considerable agreement from Members that these criteria do promote fair trade and have not heard any Member assert that trade is fair if market-oriented conditions are denied by a Member.

“We have heard statements from one Member dismissing market-oriented conditions as academic, questioning whether these concepts can ever be defined, and asking why we should bother to engage on this topic at the WTO.

“We would like to address these criticisms directly: these concepts are not new; they are not academic; and they have been recognized by others as critical to our efforts to ensure the proper functioning of international trade.

“To give one, prominent example: steel is an area where Members have focused significant attention on the problems caused by non-market policies and practices. Let us consider what the G20 and interested OECD members said in the Global Forum on Steel Excess Capacity, in particular in their 2017 report approved under the German presidency of the G20.

“In examining the conditions leading to excess capacity and recommending an effective response, these countries considered that steel excess capacity ‘is a global issue which requires . . . effective policy solutions to enhance the market function.’1 They considered that ‘the enhancement of market function is essential to ensure that exchanges at the national and international level are based on genuine competitive advantages.’2

“They considered that ‘[o]pen and competitive markets and a market-driven approach to resource allocation based on the competitive positions of steel enterprises should be the driving forces of the steel sector. New investment, production and trade flows should reflect market-based supply and demand conditions.’3

“Among their ‘Key recommendations,’ these countries concluded that ‘Members should consider the extent to which their framework conditions and institutional settings ensure proper market functioning.’4

“They emphasized that ‘[p]articular attention should be given to ensure that,’ inter alia, ‘competition law, trade and investment policies . . . foster a level playing field for competition among companies irrespective of ownership, both domestically and internationally;’ that ‘bankruptcy legislation is effective and procedures are expedited efficiently;’ and that ‘the internal financial market is able to price risk and deal with non-performing loans.’5

“These countries concluded, among their key recommendations, that ‘[a] level playing field should be ensured among steel enterprises of all types of ownership’ and that ‘[a]ll enterprises acting in a country’s steel market should follow the same rules and regulations with economic implications, including bankruptcy procedures.’6

They emphasized that ‘[i]n order to ensure fair competition and a level playing field in the steel industry, it is important that all steel enterprises follow the same rules and reporting requirements.’7

“These conclusions and others agreed by numerous Members under the German G20 presidency confirm a wide recognition that market-oriented conditions are essential to solving the problems we face.

“As we see it, the WTO is an appropriate place for Members to work to address these problems of non-market conditions that undermine fair trade. To say that the WTO is not the place to discuss these concerns is really to assert that the WTO is and should be irrelevant – and we respectfully disagree.

“The elements and criteria identified in our joint statement with Brazil and Japan are essential to ensuring that market-oriented conditions exist across sectors – not just in steel – so that all market participants compete on a level playing field.

“We disagree with those who would say that the importance of these conditions is only academic. The example of the conclusions reached by G20 and interested OECD members on the need for market-oriented conditions in the steel sector demonstrate vividly that this discussion is not academic but is rather at the heart of some of the most significant stresses in the international trading system.

“When a Member takes the position that market-oriented conditions are not worth the time or concern of WTO Members, it sounds as if they do not want to provide a level playing field for other Members. If that is the case, then this discussion is even more important to have. A Member who would dismiss these concerns should explain how we can have a level playing field if some Members offer market-oriented conditions but others do not.

“If one examines the market-oriented conditions criteria, it is clear how each contributes to conditions of fair competition and trade. A review of these criteria also helps to illustrate how a failure to meet these criteria is unfair.

“Take, for example, a business that may try selling into a market, only to find that its competitor is directed to sell at non-market or unprofitable prices.

“Or, for example, consider a business that would like to expand and seeks financing at a market rate, only to find that its state-backed competitor can obtain financing from another State Enterprise at a non-market rate.

“Or, for example, consider a firm that seeks financing from the market at a rate to make its business case, only to be denied because competitors have access to non-market financing that results in over-investing and excess capacity.

“Likewise, it is well known that forced technology transfer remains a large and growing concern. These policies and practices also reflect a failure to respect market-oriented conditions because a forced transfer – or an outright theft – is not voluntary. Forced technology transfer unfairly deprives one actor of its intellectual property, trade secrets, ‘know-how,’ or other valuable knowledge, and gives them to another on non-market terms. We do not think any Member would try to defend cyber hacking or cyber theft to transfer technology to a domestic commercial actor as fair.

“In each of these examples, the failure to ensure market-oriented conditions generates a result that
is fundamentally unfair.

“And we have not heard any Member argue for a different position. Do any Members really believe that fair trade can result when special advantages are given to domestic entities under these conditions?

“Ensuring that market-oriented conditions exist for market participants is critical to realizing the benefits of the international trading system that come from our mutual commitment to these rules. This common foundation is necessary to ensure a level playing field for all Members.

“As we see it, the continued relevance of the WTO will depend on whether it can deliver on the promises of a world trading system based on open, market-oriented policies. The success of our reform efforts will depend on our ability to ensure the fundamental premise of free, fair, and mutually advantageous trade remains intact.

“As we keep in mind the imperative to reform the WTO, we will continue to welcome engagement with Members who seek to strengthen our collective commitment to open, market-oriented policies, to move closer toward these market-oriented conditions, and to ensure a level playing field that benefits us all.

“1 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“2 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 8.

“3 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 9.

“4 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“5 Global Forum on Steel Excess Capacity Report, 30 November 2017, p. 11.

“6 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.

“7 Global Forum on Steel Excess Capacity Report, 30 November 2017, pp. 13-14.”

The European Union comments reflect their longstanding position that market-conditions are important and that is why the WTO rule book needs to be updated to ensure that distortions are addressed. Below the EU’s comments yesterday. The EU position essentially accepts coexistence but tries to address the myriad distortions of non market-oriented economies by adding rules that will hopefully address the distortions and hence permit a form of rational trade on reasonably comparable terms. As noted, the U.S. and Japan are working with the EU on this approach as well and will be supported by many other Members when formal proposals are presented to the WTO.

“Item 10 – IMPORTANCE OF MARKET-ORIENTED CONDITIONS TO THE WORLD TRADING SYSTEM – JOINT STATEMENT BY BRAZIL, JAPAN, AND THE UNITED STATES (WT/GC/W/803/REV.1)

“As the EU stated at the previous meeting of General Council, market-oriented conditions are central to allowing a level-playing field. The EU has repeatedly expressed its concerns with non-market-oriented policies and practices that have resulted in distortions to the world trading system.

“The role of the WTO – and therefore the role of all of us, as its Membership – is to ensure that there are effective rules in place to eliminate these distortions and to ensure a level-playing field. There are clearly gaps in the WTO rulebook that do not enable us to do so. These gaps must be addressed through the negotiation of new or updated rules to address the issues raised in the statement of the US and its co-sponsors. We look forward to discussing, in the coming months, how the rule-book can be supplemented and to work towards a negotiation of new rules to fill the gaps.”

China does not view it as the WTO’s role to seek convergence among different economic systems. China has always been sensitive about what it perceives are actions by other WTO Members to impose China-specific rules or otherwise discriminate against China’s system or interests. In prior General Council meetings, China has presented more detailed arguments on why they don’t view the topic raised by the United States to be an appropriate one for the WTO to take up. In a consensus-based organization, China obviously believes that it can prevent this issue being taken up for formal discussions. China’s Ambassador Zhang Xiangchen delivered the Chinese intervention on December 17 on the agenda item. Like U.S. Amb. Dennis Shea, Amb. Zhang Xiangchen’s time in Geneva is ending. His comments reflect his long history with the Chinese government and its accession process. See Statements by H.E. Ambassador Zhang Xiangchen of China at the WTO General Council Meeting, December 16-17, 2020, Agenda Item 10: Market-Oriented Conditions, http://wto2.mofcom.gov.cn/article/chinaviewpoins/202012/20201203024189.shtml.

Agenda Item 10: Market-Oriented Conditions

“Mr. Chair, as a Chinese saying goes: ‘Not even mountains can stop the river from flowing into the sea’. In the relationship between market and government, market obviously has the decisive power. This is a common sense. What we need to discuss here is- in today’s world, who is actually going against this common sense? Who is undermining the common rules of the international market, such as the ‘Most-Favoured-Nation’ principle? Who is artificially altering and impeding the international flow of production factors? And who is bringing WTO back to the ages of ‘might is right’? Dennis mentioned recommendations contained in the Report of Global Forum on Steel Excess Capacity this morning, the question immediately comes to my mind is who is taking measures in the name of national security to distort normal trade in steel sector? If we cannot have a clear answer to these questions, and if we, as WTO members, cannot take effective measures to undo the damages and prevent future disruptions to the system, empty talks about market orientation is nothing but a quixotic quest that leads us to nowhere.

“Ambassador Shea said in the July General Council meeting: ‘what we’re concerned with is ensuring fair competition and a level playing field; not interfering with the ability to govern’. I have to say that I have serious doubts about this statement.

“The ‘market-oriented conditions’ in the US proposal is nothing new. From my perspective, it is an extension of the ‘non-market economy’ standard in countervailing investigations under the US domestic law. In fact, through these domestic standards, the US has high-handedly judged the economies of other countries, and the extensive application of this standard led to arbitrary decision on using the ‘surrogate countries’ data. These unilateral actions have made a lot of companies both from China and other developing members suffer from unjust duties, affecting millions of jobs. From our experiences, these standards are utterly incompatible with the non-discrimination principle of the multilateral trade system.

“The same is in the countervailing investigations. Let me give you an example. A small company in a remote village of Shanxi province produces cast iron sewage pipes. They had completely no idea why in July 2018, their company was placed on the list of countervailing investigation by the US. The determined countervailing rate amounted to 34.87%.

“We had a look at how the investigation arrived to such an erroneous conclusion. First, it was determined that since there’re state-owned enterprises in China, there must be a market distortion in production factors in China. Second, based on the first assumption, the countervailing rate was calculated using the prices in the third country market, while completely ignoring the real market prices in China. According to this reasoning, the company received various kinds of subsidies, including on purchases of iron ore, scrap iron, coke, electricity and even on interest rates of loans. In fact, the company received none of these so-called subsidies. The support it received from the government, if any, is only 0.12%. There’re many more examples of such distortions of using the US’s own standards to inflate the subsidies of other countries, which can be found in the studies by professor Simon Evenett from St. Gallen University.

“The term ‘market-oriented conditions’ may sound completely harmless. However, not all that is wrapped in gold paper is a chocolate. My chef likes to pick mushrooms on his weekends walks and has developed quite a bit of knowledge of mushrooms. He tells me: beware of the brightly coloured ones, they’re most likely to be poisonous.

“Thank you.”

From the above, it is clear that the WTO Members are not finding multilateral solutions or agreeing on issues of great immediate importance to address. This inability to reach agreement on matters that need to be addressed has been true for years and will likely continue to be true in the coming years and will delay meaningful movement on WTO reform that is desperately needed to restore relevance to the WTO.

That has put a lot of pressure on countries to do plurilateral deals or to focus on free trade agreements. At the WTO in Buenos Aires at the Ministerial Conference in 2017 a series of Joint Statement Initiatives were started by “the willing”. Initiatives have been started on e-commerce, services domestic regulation, investment facilitation, MSMEs, among others, and a progress report was provided on December 18 which suggests good progress and the possible announcement of plurilateral agreements by the next Ministerial Conference, with MSMEs having announced some preliminary results. See WTO, Coordinators f joint initiatives cite substantial progress in discussions, 18 December 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.htm; Progress on the JSIs: Communication by the Co-coordinators of the JSIs, December 18, 2020, https://www.wto.org/english/news_e/news20_e/jsec_18dec20_e.pdf. The communication is embedded below.

jsec_18dec20_e

Since 2008 when the Doha Development Agenda negotiations didn’t achieve a breakthrough in the summer negotiations, the United States and many other countries have pursued bilateral and plurilateral FTAs and plurilateral agreements on subject matter topics in an effort to achieve forward movement on trade liberalization and updating rules to address current commercial realities. The latter, if open to others to join and if benefits are provided on an MFN basis, can be a stepping stone to multilateral agreements over time. The JSIs begun at the end of the Buenos Aires Ministerial in 2017 are examples of plurilateral negotiations that could be multilateralized over time. All of the JSIs are important. Obviously a multilateral trading system in 2020 without rules on e-commerce is not covering a critical issue of growing importance to international trade. So the JSIs hold out some hope for a trading system whose Members have lost a sense of common purpose and forgotten or disagree on core principles.

December 18 Dispute Settlement Body meeting

The last Dispute Settlement Body meeting of the year at the WTO had an agenda similar to most DSB meetings this past year. While for Members each item on the agenda may be relevant or important, for purposes of this post, I will be limiting myself to a review of agenda item 9, Appellate Body Appointments. A large portion of the WTO membership has month after month put forward a proposal to get the process for selecting new Appellate Body members started. Today’s meeting included the issue and the underlying document, WT/DSB/W/609/Rev.19 which is embedded below.

W609R19

The efforts to appoint new Appellate Body members has been being blocked by the United States. The United States blocked starting the process once more today. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, December 18, 2020, pages 14-17, https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as_.deliv_.fin_.public.pdf.

Below is the United States statement on agenda item 9, Appellate Body Appointments: Proposal by Some WTO Members (WT/DSB/W/609/Rev.19). As it is the last Trump Administration handling of the Dispute Settlement Body and the reasons for the inability to move forward on reconstituting the Appellate Body or the needed Appellate Body Reform, the entirety of the U.S. intervention is provided below. The U.S. provides both its evaluation of the divisions within the Members on whether there is a significant problem with the actions of the Appellate Body, its view of the refusal of Appellate Body members in general to recognize the problems they were creating, and its identification of the multiple possible reasons why Members have permitted the Appellate Body to stray so far from the agreed limited role of the second tier review in disputes.

“• As the United States has explained in prior meetings, we are not in a position to support the proposed decision. The systemic concerns that we have identified for more than 16 years and across multiple U.S. Administrations, remain unaddressed.

“• Over the past three years, we have engaged in many discussions with Members – on a bilateral basis, in small groups, and in large settings. After three years of effort, what have we learned?

“• First, we have learned that the Appellate Body thinks it did no wrong. We know this because, despite U.S. action on appointments under both the Obama Administration and the Trump Administration, the Appellate Body did not change its approach. In fact, it expanded and deepened its WTO-inconsistent practices and interpretations. This reflects an institution that came to view itself as more important than the rules – and the Members – that created it.

“• We have learned that the Appellate Body turned out to be less expert than panelists in adjudicating disputes under the DSU. We know this because the United States catalogued numerous substantive interpretive errors by the Appellate Body.1 In most cases, a panel reached a correct interpretation, and the Appellate Body got it wrong. And so, while some Members may think the Appellate Body did a better job than panels – we think the record shows the opposite: panels generally respected WTO rules, and the Appellate Body far too often did not.

“• We have learned that some Members think the Appellate Body did no wrong. This is regrettable because we have not heard any convincing defense of the Appellate Body’s errors in interpreting the DSU or substantive WTO rules. The ongoing denial by some of any AB errors reflects, in part, a fundamental divide among Members on the proper role of the Appellate Body in the WTO and the global trading system more generally.

“• We have learned that some other Members may think the Appellate Body did wrong, but are content to maintain the status quo. We do not understand how a Membership that proclaims its support for a rules-based trading system can nonetheless accept persistent rule-breaking by its dispute settlement system. This unwillingness on the part of some Members may unfortunately reflect a Membership incapable of holding WTO institutions, including the Appellate Body, accountable. Experience shows, however, that without accountability, there can be no reform.

“• And we have learned that some reform-minded Members think the Appellate Body did commit serious errors, and bravely see a need for real, fundamental reform – reform so that the WTO dispute settlement system supports the WTO as a venue for discussion and negotiation between Members, rather than undermining the WTO and converting it into a mere litigation forum.

“• So I think it is fair to say that we have learned a considerable amount. Members have deepened their understanding of the issues and, in some cases, sincerely wrestled with the challenge before us.

“• But of course, many questions remain.

“• There is the question that everyone here knows well – the ‘why’ question. Some Members may be tired of hearing it, and we could similarly tire of having to ask it – but the question is too important to the future of the WTO to ignore it.

“• Despite best efforts by the United States to push the conversation forward, we have heard very little from other Members on their views of how we arrived to this situation – where the Appellate Body had ignored the clear limits placed on it under the DSU and rewrote the substantive rules set out in the WTO agreements.

“• In meeting after meeting, we posed this question to the Members. We explained why the ‘why question’ was so important. But most Members did not want to undertake this critical, reflective exercise.

“• In the absence of engagement from Members, we offered several potential explanations based on conversations and on our own reflections. For example, we noted:

“o 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.

“o Another cause could be that some WTO Members believe that the Appellate Body is an independent ‘international court’ and its members are like ‘judges’ who have more authority to make rules than the focused review provided in the DSU.

“o Relatedly, some Appellate Body members viewed themselves as ‘appellate judges’ serving on a ‘World Trade Court’ that is the ‘centerpiece’ of the WTO dispute settlement system. Of course, such an expansive vision of the Appellate Body is not reflected in the DSU.

“o Finally, we also noted that the compensation arrangements for AB members rewarded their delays and staying on beyond the end of their terms, and we learned that there was very little transparency and accountability for the compensation claimed.

“• Besides these, we also heard from a former member of the Appellate Body, Mr. Graham, who was willing to speak out candidly on these issues.2 He put forward a number of reasons ‘why’ the Appellate Body erred and was unwilling to correct those errors – and these remarks deserve attention from all WTO Members. Among his observations on why the Appellate Body behaved as it did:

“o (1) A ‘prevailing ethos’ to act like a court, and not be accountable to WTO Members,

“o (2) the degree of control by Appellate Body staff,

“o (3) an over-emphasis on ‘collegiality’ that created ‘peer pressure to conform’,

“o (4) an ‘excessive striving for consensus’ that ‘led to excessively long and unclear compromise reports’ and ‘encouraged over-reach, gap filling, and advisory opinions’,

“o (5) ‘a sense of infallibility and of entitlement, to stretch the words of agreed texts, and to stretch decisions beyond merely resolving a particular dispute, so as to create a body of jurisprudence’, and, finally,

“o an ‘undue adherence to precedent’, ‘not only as to outcomes, but also as to reasoning, definitions, and obiter dicta’, which ‘made it more important to know the past’ than to ‘openly consider[] whether the past should be reconsidered.’

“• None of these potential reasons ‘why’ are addressed in the decision before the DSB today. Starting a selection process would therefore simply revive the interpretations and practices that the United States has, for years, explained as contrary to the WTO agreement and unacceptable to us.

“• Nor do these potential reasons ‘why’ suggest a problem that can be resolved by simply agreeing on words that repeat, with feeling, existing WTO principles. Many Members have been unwilling to confront this difficult reality.

“• Looking ahead, we must find ways to ensure that the limitations we Members imposed on all WTO adjudicators in the DSU are respected. We have to consider and grapple with the damage to the WTO, as a forum for discussion and negotiation, and as a rules-based system, for continued failure to adhere to those limitations.

“• While there are many problems in international trade that require discussion of new norms and rules, the United States considers that the rules that we were able to agree in 1995 represent some important progress in bringing greater fairness and market-orientation to international trade.

“• As we see it, the Appellate Body has effectively written a new, less-market-oriented, less reciprocal, and less mutually beneficial WTO agreement, which we never agreed to, and which I believe no U.S. Government would agree to. The United States will continue – as it always has – to engage with Members on these important issues.

“1 See United States Trade Representative Report on the Appellate Body of the World Trade Organization, February 2020, pp. 81-119, available at https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf; see also, e.g., Dispute Settlement Body, Minutes of the Meetings WT/DSB/M/294, paras. 103-127 (statement of the United States concerning the Appellate Body report in US – Anti-Dumping and Countervailing Duties (China) (AB)); WT/DSB/M/346, para. 7.7 (statement of the United States concerning the Appellate Body report in EC – Seal Products (AB)); WT/DSB/M/211, paras. 37-40 (expressing concerns with the Appellate Body’s interpretation of Article 2.4.2 of the Antidumping Agreement); WT/DSB/M/225, paras. 73-76 (expressing concerns with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing); WT/DSB/M/250, paras. 47-55 (expressing concerns that the Appellate Body wrongly claims that its reports are entitled to be treated as precedent and must be followed by panels absent “cogent reasons”); WT/DSB/265, paras. 75-81 (expressing concern that the Appellate Body’s findings incorrectly expanded the scope of the proceedings, concern with the Appellate Body’s interpretation of the Antidumping Agreement with regard to zeroing, and concern that the Appellate Body had failed to apply the special standard of review under the Anti-Dumping Agreement); WT/DSB/M/385, paras. 8.8-8.19; WT/DSB/M/73 (expressing concerns with the Appellate Body’s interpretation of the Safeguards Agreement).

“2 Farewell speech of Appellate Body member Thomas R. Graham, available at https://www.wto.org/english/tratop_e/dispu_e/farwellspeechtgaham_e.htm.”

Current U.S. Trade Representative Robert Lighthizer is quoted as saying to the BBC in an interview this week, “What you had really was an organisation that migrated from a negotiating organisation into a litigation organisation. And that was not healthy. Now we have a situation where we’re trying to create a new organisation, we have to massively reform the appellate body * * *.” BBC News, December 17, 2020, We’re proud of what we’ve done, says Trump’s trade chief, https://www.bbc.com/news/business-55345826. The U.S. has viewed the Appellate Body as simply one part of dispute settlement, and the core WTO function to be to permit Members to negotiate updated and new agreements. The WTO Members also meet to understand actions Members are taking (requiring an understanding of actions taken to implement obligations and transparency in national actions). While a dispute settlement system is important, it was never intended to be the dominant piece of the organization. The EU and Canada in conferences in Geneva this year have each agreed through their panel participants that WTO panels and the Appellate Body are not courts and panelists and Appellate Body members are not judges. But the membership is a long way from getting back to the original purpose and limited role of the dispute settlement system. As long as that is the case, it is likely that there will be limited progress on restoring the Appellate Body and making the reforms critical to ensuring it limits its role to that envisioned by the DSU. I don’t believe that the problems of the WTO’s dispute settlement system will disappear when the Trump Administration’s term ends next month. U.S. concerns go back to the late 1990s and have grown over time for both political parties. Thus, while the Biden Administration may over time put forward what it believes is necessary to achieve necessary DSU reform, there is unlikely to be a resolution and a restoration of the Appellate Body until there is a greater agreement on the underlying problems and purpose of the dispute settlement system. If the U.S. appraisal of the current positions of Members is correct, the road to resolution will be long indeed.