DG Azevedo needs to come clean on his meeting with USTR

WTO Director-General Roberto Azevedo has remained conspicuously silent in the face of US moves seen as a threat to the independent functioning of the trade body’s dispute settlement system.

by D. Ravi Kanth

GENEVA: The WTO Director-General Roberto Azevedo needs to come clean about his meeting with United States Trade Representative (USTR) Robert Lighthizer in June during which the USTR served notice about the changes the Trump administration wants to see in the WTO Dispute Settlement Body (DSB), according to people familiar with the development.

In his statement to the US Senate Finance Committee on 21 June, Lighthizer said he had delivered several critical messages to Azevedo on 1 June about the changes that the Trump administration would like to see in the functioning of the DSB, including the rulings issued by the Appellate Body.

Lighthizer said he told Azevedo that there would be “absolutely cataclysmic” consequences if a WTO dispute settlement panel upholds China’s complaint against the European Union over the denial of market economy status to Chinese products.

The USTR said he was “assuming the WTO will do the right thing”, failing which he said he would consult with the US Congress, according to a report in the Washington Trade Daily.

China did not drag the US to the dispute settlement proceedings along with the EU over the continued denial of market economy status. But the USTR chose to threaten the WTO chief with far-reaching consequences if the WTO panel and later the Appellate Body were to concur with China that the denial of market economy status is inconsistent with the commitments undertaken by the EU and other countries.

The US and the EU intend to continue with the 15-year-old practice of subjecting Chinese goods to higher anti-dumping duties based on NME (non-market economy) methodologies.

Under Section 15 of the protocol governing China’s accession to the WTO on 11 December 2001, China can be treated as an NME in anti-dumping proceedings if Chinese firms are unable to establish that they operate under market economy conditions.

Over the past 15 years, Chinese goods were repeatedly subjected to high anti-dumping margins based on other methodologies to determine the normal value of the goods. Instead of domestic prices being used for computing dumping margins, the Chinese goods are often subjected to NME methodologies that invariably result in higher anti-dumping duties.

Beijing has repeatedly informed the US, the EU, Japan and other countries to discontinue with the current practice as per the legal obligation following the expiry of Section 15(d) of the accession protocol after 11 December 2016 and treat Chinese goods on market economy considerations.

“Systemic” consequences

Against this backdrop, the USTR’s ultimatum to Azevedo could have serious “systemic” consequences on the functioning of the DSB, according to people familiar with the development.

The DSB, which has all along been claimed as the jewel in the WTO’s crown for its so-called impartial and unbiased rulings, would cease to be an effective body.

Last year, the US blocked the reappointment of then sitting Appellate Body member Seung Wha Chang from South Korea on the grounds that his rulings went beyond case law and jurisprudence.

A group of former Appellate Body members then wrote to the then DSB chair, Ambassador Xavier Carim of South Africa, accusing the US of resorting to “inappropriate pressures” and “political interference” by vetoing the reappointment.

Without explicitly naming the US in their letter, the former Appellate Body members warned that the decision by one member of the WTO “could threaten to politicize WTO dispute settlement and imperil the impartial independence of every member of the Appellate Body that is required by the WTO Rules of Conduct”.

The US had claimed that Chang’s rulings lacked substance and deviated from the covered agreements of the General Agreement on Tariffs and Trade and WTO jurisprudence. It said Chang and other adjudicators overstepped their mandate while delivering major rulings in four cases: three disputes involving the US and one where the US was the third party.

Around 30 members of the WTO, including India, the EU and Brazil, severely criticized the US action on the grounds that it would irreparably damage the “independent and impartial” functioning of the WTO’s highest court for trade disputes.

The US move raised “serious systemic concerns” and “is an attempt to use reappointment as a tool to rein in AB [Appellate Body] members for the decisions they make on the bench”, South Korea said at the time. The US action amounted to a warning to AB members that if their decisions in trade disputes “do not conform to US perspectives, they are not going to be reappointed”, it added.

The process of reappointment of members to the WTO’s highest adjudicating body will “undoubtedly have serious consequences on the independent functioning of the Appellate Body”, India said.

In their letter, the former Appellate Body members said the US move raised the possibility of “inappropriate pressures by participants in the WTO trading system”.

“There must be no opening whatsoever to the prospect of political interference in what must remain impartial legal judgements in the WTO’s rule-based system of adjudication,” they said in the three-page letter, which was reviewed by SUNS. They also raised grave fears about “upholding the rule of law in international trade”.

Also, “we see it as a prerequisite to providing security and predictability for the rule-based multilateral trading system for the benefit of all of the Members of WTO”, they emphasized.

On their part, the current Appellate Body members maintained that the rulings and recommendations of the body cannot be attributed solely to any one judge because “our reports are reports of the Appellate Body”.

Throughout the first 20 years of the WTO and the Appellate Body, they maintained, the Appellate Body owned all the decisions “as one” to mutually reinforce “the strength of their individual commitment to impartiality and independence”.

“Undermining the impartial independence of the Appellate Body now would not only call into question for the first time the integrity of the Appellate Body; it would also put the very future of the entire WTO trading system at risk,” they warned.

The US has lost many trade disputes because of its continued trade-distorting practices ranging from cotton subsidies to controversial “zeroing” methodologies in anti-dumping actions. In addition, the US has failed to implement several rulings of the Appellate Body.

But, for inexplicable reasons, Azevedo remained conspicuously silent about the removal of Chang.

It remains moot as to how long Azevedo will remain silent about the continued threats from the USTR on the functioning of an impartial and independent DSB, said a trade envoy who asked not to be quoted.

In short, it is important that Azevedo sets the record of his meeting with the USTR straight so that WTO members know what transpired during the meeting.

Otherwise, there is grave danger of a “systemic” crisis as well as crisis of confidence in the functioning of the DSB, trade envoys said. (SUNS8489)               

Third World Economics, Issue No. 641, 16-31 May 2017, pp7-8