When a veto is not just a veto – Is the US undermining the WTO?

Last week the headline of a story in the Financial Times that immediately caught attention: US accused of undermining WTO. As interesting as I found the headline, I filed it away as a should read, a story for a later date. Well, it was almost a week later but I finally read the story. I just figured it was just a bit of hyperbole from some country feeling the sting of countervailing duties or some other trade remedy levied on its goods. Truth be told I thought it was China responding to the US in their latest trade skirmish where the US has imposed a 265.79% anti-dumping duty on Chinese made steel.

Boy was I very WRONG!

What exactly am I talking about?

The article was in fact about the USA vetoing the reappointment of a member of the seven-person World Trade Organization‘s (WTO) Appellate Body. For an outside observer not familiar with the WTO, this is a seemly innocuous act at worst and at best the Americans simply seem to be exercising a right that it holds. So what is the big deal?

From the article’s opening sentence I was gripped. I could not believe what I was reading. Why would the USA do this? Why would they oppose the reappointment of South Korea’s Seung Wha Chang, a well-respected and renowned international trade law expert?

When a veto is not just a veto

What the USA has done is not simply to break from tradition – Appellate Body members customarily serve two four year terms – but if WTO members including the European Union, Japan and Brazil are to be believed is to undermine the independence of a key, if not the key WTO organ. The importance of the Appellate Body to the WTO and the whole global trading system cannot be over stated. It is the ability, and one could argue a key distinguishing feature, of the WTO as the successor to the General Agreement on Tariffs and Trade (GATT), to effectively resolve trade disputes between its members that underpin the global trading system.

There are three interconnected and interdependent reasons in my opinion that explain this feather ruffling move by the USA. And they are:

  1. Appellate Body has allegedly overreached: The Americans have expressed the opinion that the Appellate Body has in at least three cases involving the US overreached and delivered decisions in the’abstract.’
  2. US politics: This decision, I believe has been greatly influenced by US politics, especially the Presidential race. This is time to act tough especially when it comes to trade matters.
  3.  China to attain market economy status: China holds the position that it will attain market economy status automatically in December which is 15 years after its accession in 2001. However, the US holds that China’s accession documents are more ambiguous. Market economy status is important because it allows China to put up a better fight against anti-dumping duties (note the steel situation mentioned above). The Appellate Body will eventually have to settle the matter.

So is the US undermining the WTO?

The fact several WTO members believes this to be true is of real concern.

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