Sixteen years ago, a brash trade lawyer named Robert Lighthizer was nominated to represent the U.S. at the World Trade Organization’s appellate body, which officiates disputes that affect billions of dollars in commerce every year.
WTO members, however, chose a different candidate. And now Lighthizer, as the U.S. Trade Representative in Washington, is arguing that the very dispute settlement system he nearly became a part of either needs to be drastically reformed or dismantled.
The arc of Lighthizer’s rocky relationship with the WTO is hurtling toward a potentially dramatic inflection point. The pressure he and the Trump administration are applying on the WTO may, in just a few weeks, render the Geneva-based arbiter of trade inoperative.
The Trump administration, which previously threatened to block the WTO’s 2020 budget, offered members a proposal this week that would allow it to continue operating, but would hamstring the WTO’s appellate body.
The U.S. said it would back the WTO’s 197.2 million-Swiss franc ($197.6 million) budget for 2020 with the condition that no more than 100,000 francs be paid to appellate body members, an 87 percent reduction from the full budget allotment, and spending by the body’s operating fund also be limited to 100,000 francs, a 95 percent reduction.
The Trump administration argues that the organization’s compensation structure creates an incentive for appellate members, who can make more than 300,000 francs a year, to string out cases to boost pay.
While all WTO decisions are made by consensus, the U.S. has an important say in funding matters because it contributes more money than any other single country to the annual budget — 22.7 million Swiss francs in 2019, according to WTO data.
WTO members plan to consider the U.S. proposal during a Nov. 27 meeting of the WTO budget, finance and administration committee in Geneva. If approved, the U.S. proposal would avert a possible WTO shutdown on Jan. 1.
Spokesmen from the WTO and the office of the U.S. Trade Representative declined to comment.
The move comes on top of a hold the U.S. has placed on new appointments to the WTO’s appellate body, which won’t be able to rule on new cases next month, in effect suspending its most important function.
Washington said that the appellate body, which is a panel that upholds, modifies, or reverses WTO rulings, has overstepped its mandate and threatens American sovereignty.
The possibility of a WTO shutdown was serious enough that WTO Director-General Roberto Azevedo on Nov. 13 sent a message to the WTO’s 646 employees to tell them not to be concerned about their job security.
“There’s no need to change things at this time,” Azevedo told Bloomberg in an interview. “But we are following it closely.”
Despite Azevedo’s public optimism, WTO officials were said to be considering contingency plans — such as budget cuts to the organization’s non-essential functions for the first half of 2020.
The WTO has a surplus of 48 million Swiss francs ($48.2 million) from its previous budget, which could keep the WTO’s lights on in Geneva until April 2020 if the U.S. budget proposal does not pass this week.
The push to retool the judicial panel is led by Lighthizer, who previously complained that “too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table.” Lighthizer argues that appellate body members have strayed from their original mandate, which justifies the current block on new members.
The seven-person panel, already down to the minimum of three required to sign off on cases, will cease to function after two more members end their terms at midnight on Dec. 10.
While WTO members can still bring disputes to the trade body and receive an initial ruling, any party to the dispute could appeal that ruling into legal limbo – thereby providing the losing party with a veto.
Paralysis of the WTO appellate body may be acceptable to Lighthizer, who has shown a clear preference for using a powerful domestic trade weapon – Section 301 of the Trade Act of 1974 – which offers the U.S. a faster and more effective way to penalize other countries.
Azevedo has said a world economy that lacks the ability to enforce international trade rules would mark a return to the “law of the jungle.”
WTO members aren’t sitting idly by, and over the past two years dozens of members have offered substantive proposals to address the Trump administration’s concerns — all of which have been rejected. Countries have even appointed New Zealand’s Ambassador to the WTO, David Walker, to identify ways to address the Trump administration’s complaints, but that process has also failed to alleviate U.S. concerns.
Meanwhile, there is a growing push among non-U.S. members to endorse a WTO rule that allows former appellate body members continue to adjudicate cases they were assigned prior to the end of their tenure.
Though this could help the appellate body to limp along for another year or so, the plan could be dealt a blow if Thomas Graham, a U.S. lawyer who is one of the appellate body’s last remaining members, makes good on his threat to step down at the end of his term on Dec. 10.
Finally, the European Union, Canada and Norway are continuing their efforts to broaden participation in a proxy dispute arbitration system that they argue could supplant the WTO appellate body for any future bilateral disputes among those nations. EU’s chief trade negotiator Cecilia Malmstrom said discussions on that front continue, even as she expects the appellate body to lose its authority next month.
The Trump administration has criticized the EU for setting up a alternative arbitration system rather than addressing U.S. concerns about the appellate body head on. The U.S. budget offer stipulates that only the WTO secretariat – and not the WTO appellate body – may provide funding for such a system.
