WTO Reform and the Rule of Law

[Carlos Lopez is a Senior Legal Adviser at the International Commission of Jurists]

The world trade regime is in crisis. Embattled by attacks on its core elements by powerful trading and economic powers, the institutional framework of rules and mechanisms that govern most of world trade are pushed towards a reform path (some would call it “modernization”). The directions of reform are slow to take shape and it is still unclear the final destination or the even the survival of the whole enterprise.

At the heart of the immediate crisis are the criticisms and subsequent blockage of the WTO dispute settlement system (DSS) by objecting to the appointment of new members of the WTO Appellate Body. The Appellate Body sits at the top of the usually efficient WTO dispute settlement system. It is composed of seven members , but the terms of four of them have expired. Because decisions in the WTO are generally taken by consensus, the US has been able to block the appointment of new members. The Appellate Body needs a minimum of three members to operate at reduced capacity, but is likely to be paralyzed soon if there are no further appointments once the term of two further members also expire during 2019.

It is not a secret that behind the attack on the dispute settlement system –usually considered the “jewel of the crown” in WTO circles– there is a challenge to substantive trade rules that the US and others consider as dated, incomplete, leading to unfair treatment for many WTO Member states and unsatisfactory results. The system, so the argument goes, needs to change to be updated to the realities and needs of this century with rapid growth of electronic commerce and radical transformation of world trade and economics. Paralyzing the dispute settlement system at the core of the WTO system seems to be the strategy to force renegotiation of the whole package.

But the dispute settlement system itself has been questioned by the US and others. The dispute settlement system comprises a dispute settlement body (DSB) representative of the WTO membership, which has the authority to convene expert panels to address controversies. Panel’s findings and conclusions can be appealed to the Appellate Body, whose findings have to be adopted by the DSB. Because of these features, the system is called a quasi-judicial one. But the US questions specifically the work of the Appellate Body, which is accused of overreaching their functions by addressing issues that are not necessary to solve the disputes and assigning to its previous jurisprudence the status of precedent to be followed by panels.

The attack is being countered by an alliance of sorts among European Union states, India and others that agree on the need to preserve the multilateral trading system and its institutions. But there is no agreement among them about the direction of the substantive rule reforms. In this defense effort it is often recalled that the WTO legal system, first and foremost its DSS, represent an expression of the rule of law in the multilateral trading system (as the title of a book edited by G. Marceau suggests). They reflect the image of the WTO as a rules-based system as opposed to a system where economic and political power prevails in the trade relationship between countries.

There is no doubt the WTO trading system – in particular its Dispute settlement System- has contributed to instilling respect for rules into the multilateral trading system. Thanks to the WTO Agreements and their enforcement through the DSS based on rules that are clear and certain trading partners expect predictability in the system. The sanctions applicable in the event of breach of any of those rules are also governed by a set of clear rules and a system steering away from power politics. But all of this applies to the relations between States that are considered – in principle if not in real terms- equal and sovereign. Its impact on the internal order of each country and its effects on the lives of individuals and businesses and investors has received less attention. With evident dismay commentators suggest that it has made little impact in this field. For instance, China, one of the largest beneficiaries of this rules-based system, has a highly opaque and restrictive treatment to individuals, especially foreigners. The Chinese model- a unique model that is generating imitators across the globe- has successfully combined free and rules-based foreign trade with tight internal political control on economic actors and factors.

Beyond international trade relations, the concept of rule of law has strong connections with the protection of the rights of individuals and cannot be dissociated from that role – the human rights and labour rights that in WTO circles no one dares to even mutter. At the Singapore Ministerial Conference 1999, the WTO took the decision to send a discussion over labour standards to the ILO. The reasons were never totally clear but it was officially argued that the main reason was to avoid the use of trade measures for protectionism. Since then and due to this decision and the emergence of myriad regional and plurilateral trade agreements where labour rights and environmental matters have better place, human rights advocates have turned their eyes away from the WTO.

In the meantime, research has shown that social clauses in trade agreements do not have the much feared negative protectionist impact that critics anticipated. Multilateral trade agreements –including the forsaken Trans-Pacific Partnership (TPP)- offer a clearer treatment of labour and environment issues. For instance, the new U.S.-Canada-Mexico Agreement (USMCA) is said to have a more elaborated approach to those issues than other agreements. Will modernization of the WTO follow this trend and contemplate some space to at least ventilate human rights and labor rights issues beyond the limited exceptions to the agreements? There are some grounds for higher expectations in this regard as some WTO Members call for more reflection on the contribution to sustainable development goals. One immediately obvious item for further reflection is the contribution of the WTO system to sustainable goal 16 which explicitly addresses the rule of law. Many State members of the WTO also would like to see some policy coherence between the work of international organisations.

While some of us reflect about these options, the attacks to the independence of a quasi-judicial body such as the Appellate Body, questioning the independence stance of its membership and the doctrine of judicial precedent – all of them part of the constitutional tradition of the United States- should be resisted and denounced. Not only we have to doubt the intentions of those who attack the WTO system and its DSS under various arguments, but we also need to be very careful not to throw the baby out with the bath water. Unilateral forceful measures may or may not be effective in bringing about desired results, but are usually a counterproductive strategy in international relations.