It’s essential to bring back binding WTO dispute settlement

The Biden administration has announced its trade policy and relaunched trade discussions with China. Washington officially complained that Beijing is using massive state subsidies and many state-owned enterprises to evade and ignore World Trade Organization (WTO) rules. 

There is an easy fix: Reinstate the trade organization’s binding dispute settlement system that the Trump administration neutered. Then use it to challenge China for violating its commitments.

The World Trade Organization’s Appellate Body ceased to exist on Dec. 10, 2020, when its last member left. Over the past four years, the Trump administration repeatedly had blocked the selection of new tribunal members when their predecessors’ terms expired. As a result, the WTO lost its premier tribunal — a first in its history. 

This is the same tactic former Zimbabwe President Robert Mugabe used against the 15-member Southern African Development Community after a ruling against it. But the U.S. obstruction is much worse in that Washington has destroyed an international tribunal that covers most of the world, including all major powers. 

Many expected the Biden administration to end the paralysis. Despite its professed affinity for multilateralism, however, the White House so far has adopted the same positions as former President Trump — without the tweets. It has refused to consent to new appointments to the tribunal, dismissing repeated calls by more than 120 members of the World Trade Organization.

It is time for the Biden administration to drop its opposition. This would serve to benefit America’s vision for the multilateral trading system. Here’s why: 

First, Washington is better positioned to challenge Beijing’s system of state capitalism with a functioning WTO dispute settlement system than without it. The Trump administration turned to unilateral measures, violating U.S. commitments. It raised average tariffs on Chinese products, for example, from around 3 percent in January 2018 to roughly 21 percent today.

In retaliation, China raised tariffs proportionately against U.S. products — while lowering tariffs for other trading partners. The result was a fall in U.S. competitiveness because of higher-cost imports in America used in production and discriminatory tariffs against U.S. products abroad.

But if Washington instead challenged China’s practices and won in WTO dispute settlement, Beijing would have to comply or face authorized retaliation. This would allow Washington to coordinate a response with U.S. allies similarly affected by the unlawful practices. Without a binding WTO dispute settlement system, this is not possible.

Consider: The United States won a key WTO panel ruling that China’s increasing use of “industrial policies, five-year plans, and other government support programs” supported a finding of “unforeseen development” in the safeguards investigations by the U.S. International Trade Commission.

This decision should allow Washington to impose tariffs on China’s products, without retaliation. It also opens the way for more WTO claims against China’s practices. It should justify a U.S. push for serious WTO reforms on the ground that China has reneged on its commitments to market mechanisms under President Xi Jinping.

Without the Appellate Body, however, China was able to appeal the decision “into the void,” turning the hard-won U.S. victory into an unadopted panel report, having little value. Since the U.S. is planning WTO challenges to China’s subsidies regime and its use of state-owned enterprises, it is crucial to restore binding WTO dispute settlement.

At a minimum, the Biden administration should signal that it is ready to actively engage in clarifications of the WTO Dispute Settlement Understanding as a condition for reinstating binding dispute settlement. Such a move would help to repair Washington’s battered reputation that was sadly tarnished during the Trump era. 

When President Biden took office, he announced to the world, “America is back.” So far, the administration has done little to support this claim regarding trade. By actively working to relaunch binding trade dispute settlement, the White House will help restore U.S. leadership in world trade.

The WTO is scheduled to hold its Ministerial Conference from Nov. 30 to Dec. 3 in Geneva — the first conference in four years. Despite the modest agenda, there are signs that agreement on even its short list of items will be stymied. This not only could deal a heavy blow to the credibility of the WTO; it could further weaken the pandemic-hit global economy. A U.S. commitment to reinstate binding WTO dispute settlement could help reinvigorate hope in multilateralism and global cooperation.

It is time to bring back the “rules-based system” that the Biden administration trumpets.

Gregory Shaffer is Chancellor’s Professor of the University of California, Irvine School of Law, and president-elect of the American Society of International Law. Follow him on Twitter @gregorycshaffer.

Henry Gao is professor of law at Singapore Management University and Dongfang Scholar Chair Professor at Shanghai University of International Business and Economics. Follow him on Twitter @henrysgao.