Photo by CHUTTERSNAP on Unsplash
Protectionism has been on the rise due to the economic challenges that threaten many countries now such as the effects of the pandemic and the Ukrainian War. As the economic impacts of the Ukrainian War dragged on, countries looked towards protectionist measures to protect their domestic producers. Export curbs implemented in the world only stood at an average of 21 per year from 2016-2019, but in 2022, it rose to 139. While slowing economic growth is one of the reasons for the rise in protectionism, the World Trade Organization (WTO) has an important role to play as well. When the United States (US) blocked the appointment of new judges to the appellate body, it greatly limited the WTO’s ability to resolve trade disputes. In addition to that, the US’s implementation of many trade protection measures under the facade of “national security reasons” served to undermine the WTO and set the blueprint for countries to get away with implementing trade protection measures. Hence, this essay seeks to discuss how the WTO has led to rising fragmentation in world trade.
First, the removal of the WTO appellate body. Ever since the Trump-led US blocked the appointment of new judges to its highest dispute settlement panel in 2018, that has left the WTO without any appellate body to hear appeals regarding trade disputes. From then on, many have doubted the credibility of the WTO in handling trade disputes. Historically, for the past 20 years, the presence of the appellate body has allowed for orderly processes to be done to settle trade disputes. As of now, 29 cases are still left in limbo, highlighting the weaknesses of the dispute settlement system. The loss of the appellate body has led to the situation where many legal reports/rulings are not adopted as they are not finalised. When a country appeals a ruling and raises it to the appellate body, the case cannot be concluded considering how the appellate body is able to modify or even reverse the report. Hence, many countries have exploited this, bringing up a report to the non-existent appellate body, leading to reports not being finalised and not having to be adopted. One key example was India, who implemented export subsidies for its sugarcane and sugar producers. Guatemala, Thailand, Australia and several other countries raised concerns over these measures to the WTO. While the panel report was given on 14 December 2021, India immediately launched an appeal on 24 December 2021. With the appeal being raised, India did not have to adopt a WTO report that condemned India’s use of export subsidies. This is a prime example of India abusing the non-existence of the appellate body. As such, the loss of the appellate body has led to a rise in protectionism, where countries impose export subsidies/export controls freely knowing that there are no consequences.
Next, it is the growing disregard and lack of respect for the WTO because of the example set by major powers. Now, due to a lack of resolution to key trade disputes, it is evident that countries already feel as if they do not need to fulfil any of their WTO obligations of upholding free trade. Countries can simply come up with their reason that justifies trade protection. One key example of a major power disregarding the WTO is the US in the semiconductor export ban, the US claimed that national security was the reason for its decision to implement the export control. Now, certainly, there is a solid case for national security to be a reason for the export ban. However, it does not help the WTO in advancing and achieving the mission of rules-based trade and the mission of free trade that the WTO champions. Another similar example was the steel and aluminium tariffs implemented by former US president, Donald Trump. Just last year, President Joe Biden refused to accept a WTO ruling that stated that the US violated WTO regulations, for the sake of protecting its domestic manufacturers. Ironically, the US is the country that founded this rules-based trading system. If even the US does this, how would other countries regard WTO regulations seriously? Evidently, the US has instead provided a blueprint for other countries to follow when they want to escape from the consequences of implementing trade protection measures.
With such ineffective dispute settlement issues, the Multi-Party Interim Appeal Arbitration Agreement (MPIA) was established. The MPIA was created by several members of the WTO like the European Union (EU), China, Australia and many other countries to ensure that there is an orderly process to dealing with appeals. It has had some success like in their handling of the Columbia anti-dumping policy. Columbia had implemented anti-dumping tariffs on the export of frozen fries from EU countries like Belgium. On appeal by Columbia, the MPIA ruled against Columbia’s implementation of anti-dumping duties as it was inconsistent with the anti-dumping agreement in the WTO. Columbia disagreed with the claims but mentioned that they would implement and adopt the report, signalling a success in the MPIA’s ability to settle disputes. However, countries like the US have yet to endorse it and many WTO member states are still not on board with it. Also, the MPIA cannot be a permanent solution to the lack of an appellate body. From here on, the US should take the charge as a global power to enact change and reforms to the WTO. If it does not agree with the appellate body, that is okay, as there are flaws with that system, such as the lengthy process as part of the system. However, the US must take the lead in implementing a better dispute settlement, for if not, world trade will continue to be fragmented.
In conclusion, the WTO’s ineffectiveness and the lack of regard for the WTO by major powers has contributed greatly to the fragmentation of world trade. From here on, countries in the WTO, especially the US must look for methods to resolve the rising protectionist measures implemented by countries. While temporary solutions like the MPIA have had some success, the WTO needs long-term reforms that can improve their ability to resolve and settle trade disputes.
References
Comments