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U.S. Approach Leads to Heated Exchanges at Final 2018 WTO Meetings

Dennis Shea, U.S. ambassador to the World Trade Organisation, continued to spar with his colleagues in the final meetings of the multi-lateral body for this year. At a 12 December gathering of the WTO General Council, for example, Shea objected to proposals put forward by the European Union and 11 other members, including India and mainland China, to reform the WTO Appellate Body.

The United States has blocked any new appointments to the Appellate Body since mid-2017, and with the expiry of prior Appellate Body members’ terms only three of seven seats are currently occupied. The terms of two of the current Appellate Body members will expire in December 2019, making the current situation increasingly untenable. Since three panellists are required to hear an appeal, the Appellate Body is at risk of losing any ability to carry out its work. The United States argues that it is blocking appointments because the Appellate Body regularly violates the 90-day deadline to rule on cases, rules on issues not specific to the case in question, and inappropriately cites prior cases as precedent.

At the most recent meeting, Shea continued to decry the proposals as having the potential to worsen the problems plaguing the Appellate Body. While Shea recognised that the proposals “to some extent acknowledge the concern the United States has been raising in the WTO for years -- namely, that the Appellate Body has strayed from the role agreed for it by WTO Members,” he insisted that, upon closer scrutiny, they “would not effectively address the concerns that Members have raised” because they “appear to endorse changing the rules to accommodate and authorize the very approaches that have given rise to Members’ concerns.” According to Shea, “rather than seeking to make revisions to the text of the Dispute Settlement Understanding to permit what is now prohibited, the United States believes it is necessary for Members to engage in a deeper discussion of the concerns raised, to consider why the Appellate Body has felt free to depart from what WTO Members agreed, and to discuss how best to ensure that the system adheres to WTO rules as written.”

Mainland China’s WTO Ambassador Zhang Xiangchen responded by defending the proposed changes, noting that the United States had not come forward with any specific ideas of its own. “First, the joint proposal by the EU, China and other Members aims to respond to and address a particular Member’s concerns on appellate process, maintain and strengthen the independence and impartiality of the Appellate Body, promote text-based substantive discussions among WTO Members, and launch the selection process for Appellate Body Members as soon as possible,” he said.

Following the General Council meeting, WTO spokesman Keith Rockwell addressed reporters, emphasising the importance of restoring the Appellate Body to its full complement of members. Rockwell argued that if the Appellate Body can no longer issue rulings “it would have a knock-on effect in terms of existing rules, but also in terms of appetite for negotiating new rules or more reforms if there was no guarantee that whatever was negotiated could be enforced.” He also observed that “the fact that these issues are being taken up in the General Council is indicative of the seriousness with which the members are taking it.”

The United States and mainland China have engaged in other recent sparring in Geneva. At a Council for Trade in Services meeting held on 7 December, the United States asked whether mainland China's cybersecurity law could restrict cross-border information transfer and require data localisation in the mainland. Mainland China’s representative to that meeting disagreed with those claims and questioned whether recent Committee on Foreign Investment in the United States changes would harm mainland Chinese firms.

At the WTO’s Updating Trade Cooperation conference on 11 December, Ambassador Shea expressed other concerns about the WTO vis-à-vis mainland China, including regarding fishery subsidy negotiations due to be completed by the next ministerial meeting in 2019. He noted referring to mainland China that “the largest commercial subsidizer of fishing in the world claims developing country status and may seek special and differential treatment and that will be an obstacle.” Ambassador Zhang’s comments at this conference referenced a WTO concept paper released by Beijing in November that stated, among other things, that mainland China “will never agree to be deprived of its entitlement to special and differential treatment as a developing member.” The concept paper asked that WTO reform “address the long-term distortion of international agricultural trade by over-subsidization from developed measures.”

Zhang also told the conference that mainland China would reject changes to WTO rules that would result in mainland Chinese state-owned enterprises being labelled as public bodies. The definition of a “public body” is critical because the WTO’s Agreement on Subsidies and Countervailing Measures defines a “subsidy” as a benefit conferred by a government or a public body. The definition of a “public body” has been an important issue at the WTO; an Appellate Body ruling in December 2014 said the United States had to prove that a public body had a government function or authority, overturning a previous dispute settlement panel ruling. This threatens to prevent the United States and the EU from considering mainland China as a non-market economy for purposes of trade remedy proceedings.

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