TWN Info Service on WTO and Trade Issues (Jun17/17)
29 June 2017
Third World Network

DG Azevedo needs to come clean on his meeting with USTR
Published in SUNS #8489 dated 27 June 2017

Geneva, 23 Jun (D. Ravi Kanth) - The World Trade Organization's Director-General Roberto Azevedo needs to come clean about his meeting with the United States Trade Representative Robert Lighthizer early this month during which the USTR served notice about the changes the Trump administration wants to see in the Dispute Settlement Body, according to people familiar with the development.

In his statement to the US Senate Finance Committee on 21 June, Ambassador 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 Dispute Settlement Body, including the rulings issued by the Appellate Body.

Ambassador Lighthizer said he told Azevedo that there will be "absolutely cataclysmic" consequences if the WTO dispute settlement panel upholds China's complaint against the European Union over the denial of market economy status to Chinese products after 12 December 2016.

The USTR said he is "assuming the WTO will do the right thing", failing which he said he will 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 in the continued denial of market economy status after the end of the 15-year deadline on 12 December 2016.

But the USTR chose to threaten the WTO Chief of far-reaching consequences if the panel and later 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 China's accession protocol, China can be treated as a 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 using domestic prices 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 WTO accession protocol after December 11 and treat the Chinese goods on market economy considerations.

Against this backdrop, the USTR's ultimatum to Azevedo could have serious "systemic" consequences to the functioning of the Dispute Settlement Body, 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 will cease to be an effective body.

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

A group of former World Trade Organisation (WTO) Appellate Body members then wrote to the former Dispute Settlement Body chair Ambassador Xavier Carim of South Africa accusing the US of resorting to "inappropriate pressures" and "political interference" by vetoing the reappointment of a sitting member of the WTO Appellate Body.

Without naming the US in their letter to the WTO's Dispute Settlement Body chair, 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 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 is the third party in a dispute between Panama and Argentina.

Around 30 members of the WTO, including India, the European Union and Brazil, have severely criticized the US action on the grounds that it will irreparably damage the "independent and impartial" functioning of the WTO's highest court for trade disputes.

The US move has 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 had said.

The US action amounts 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", South Korea said.

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 AB 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 a three-page letter 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.

Even the current AB members had then maintained that the rulings and the recommendations of the AB 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 AB, they maintained that the AB 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 that range 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, asked 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 Ambassador Lighthizer straight so that members know what transpired during the meeting.

Otherwise, there is grave danger of "systemic" crisis as well as crisis of confidence in the functioning of the Dispute Settlement Body, trade envoys said.