12/10/2019 | Press release | Distributed by Public on 12/11/2019 18:53
Last month, we held our inaugural briefing on the U.S.-China trade conflict. The panel agreed that China was violating the letter and spirit of the commitments it made when it joined the World Trade Organization in 2001.At the same time, the panelists expressed the view that the administration's tariff-focused, go-it-alone-without-allies approach was unlikely to compel China to change its problematic conduct. The panelists also highlighted the economic pain that U.S. tariffs and Chinese counter-tariffs are causing here at home, and the additional pain that could be felt if the U.S. imposes the next round of scheduled tariffs later this month. Finally, we discussed alternative policy approaches that would maximize the pressure on the Chinese government, while minimizing the pain on Americans in the process. The subject of today's briefing is the WTO itself, with a focus on the causes and consequences of the crisis at the organization's Appellate Body. This might seem like an academic or abstract topic, but it's incredibly important as a practical matter. And it's not getting enough attention here in Congress or in the media. I hope we can distill the issue down to its essence and underscore what's really at stake for American workers, companies, and consumers.
To say this briefing is timely is quite the understatement. The crisis at the WTO is no longer coming; it's now upon us.
The crisis involves the dispute settlement system, which has been called the 'crown jewel' of the WTO. When one of the WTO's 164 member-countries believes another member-country has violated the rules of the global trading system, it can turn to the WTO to resolve its claim.
Typically, a three-person panel will hear the case and render an initial decision. The losing party can appeal that decision to the Appellate Body, which it usually does. The case is not considered final and enforceable until the Appellate Body acts.The Appellate Body is supposed to consist of seven judges who serve a four-year term and can be reappointed one time. At the start of the Trump administration, the Appellate Body had the full slate of seven members.
In 2017 and 2018, the terms of three judges expired and one judge resigned, leaving the Appellate Body with only three judges, which is the minimum needed to hear an appeal. The terms of two of the remaining judges expire today-which means there will be only one judge left. That means no quorum and no functioning Appellate Body.
This is happening because the Trump administration has been blocking the appointment of any new judges to the Appellate Body, to the dismay of other member countries. It is doing so based on a number of substantive and procedural concerns with how the Appellate Body operates.As we will hear from our panelists, the Trump administration's main concern is that the Appellate Body has been engaging in judicial 'activism'-making the law, rather than enforcing the law. Behind this general concern with judicial overreach is a more specific concern. The U.S. wins over 85 percent of cases in which it is the complainant, so claims by the President and others that the U.S. 'never wins' at the WTO are inaccurate. The U.S. does lose about 75 percent of the WTO cases in which it is the respondent. That's actually relatively good compared to other countries. Still, those losses have upset the U.S. government and some U.S. industry stakeholders. The losing cases tend to involve U.S. trade remedies. This is when the U.S. imposes tariffs on another country, based upon a finding by the U.S. government that the other country is engaging in unfair trade practices, like dumping its products into the U.S. market at artificially low prices and undercutting the competition.
On a number of occasions, the Appellate Body has ruled that the U.S. has overstepped its authority in imposing these trade remedies. It's these cases that seem to be at the heart of the Trump administration's concerns with the Appellate Body. To be clear, the Obama administration and the George W. Bush administrations had these concerns as well.
Today, we will ask and answer three questions.First, are the U.S. concerns with the Appellate Body mostly legitimate, mostly illegitimate, or a mix of both? Second, what is the best path forward to break the current impasse? Are there institutional reforms or work-arounds that would lead the U.S. to agree to appoint new judges? Two of our panelists-Jennifer and Jeff-have written extensively on this issue and have put forward numerous creative proposals.
Third, and finally, what are the practical consequences for American interests if no agreement is reached and the Appellate Body ceases to function?This last question is, in my view, the most important one. Just as I am deeply concerned about the wisdom and effectiveness of the administration's approach to China's abusive trade practices, I am deeply concerned about the administration's approach to the WTO.
There's an old adage that says 'you don't know what you've got until it's gone,' and I think that applies here. We may lose some cases at the WTO, and we may not be happy about that, and we may be right that some reforms are required, but destroying the WTO Appellate Body cannot be the right answer.Doing so would be a disaster for U.S. interests and for the rules-based global trading system we've built since the end of the Great Depression. We would essentially be back in the Wild West. The absence of a binding, independent dispute settlement system could turn every trade dispute between nations into a mini trade war, with countries unilaterally imposing tariffs and counter-tariffs on each other. That will mean new and damaging taxes on American companies and consumers-because tariffs are taxes. This will all occur without Congress-which has the taxing power-having passed a law or otherwise blessed the administration's actions, just like we are seeing today in the U.S.-China trade conflict. Speaking of China, I think loss of the Appellate Body will also undermine our efforts to change China's abusive trade practices. I believe the U.S. can do far more, working with our WTO allies, to bring cases against China for a variety of its unfair actions. China has been reasonably good at complying when the WTO rules against it, but we blow this opportunity if we blow up the Appellate Body. I will close with this point. One of our panelists, Jennifer, recently wrote: 'There are very few champions in the U.S. Congress for the Appellate Body. If the Appellate Body crisis is to be solved, it is not likely to be at the behest of members of Congress or other political forces in Washington coming to the rescue.' I hope today's briefing underscores that there are Members of Congress who care about the Appellate Body because we care about America and about the global trading system America has built from the ground up.