Lighthizer, whose office did not respond to a request for comment, told U.S. lawmakers in March his ultimate goal is to reform the WTO and he sees the appellate body as leverage. “If you are not willing to be bold and use the only leverage you have with the WTO, which is to say that we won’t approve the appointment of appellate body members without reform, then I don’t know any other way to do it.”
One major reform goal, enunciated in a presidential memo last week, is unwinding the WTO system that now allows China and other WTO members to label themselves “developing countries.” The U.S. has long argued that gives those countries unfair advantages in the WTO ranging from being able to hold the line on higher tariffs in negotiations to taking more time to comply with existing agreements.
By blocking new appointments the U.S. has steadily eroded the appellate body’s ranks as judges’ four-year terms expire. Once made up of seven members the body now has only three, the minimum number required for a panel. Two more members’ terms expire Dec. 10 and the last member’s term ends in December 2020. The body is likely to limp on for a year or two, though it will be unable to hear new appeals. Judges whose terms have expired are being allowed to continue work on cases they are already assigned to.
But the assault on its foundations goes beyond staffing.
Among the Trump administration’s goals is killing the rule prohibiting WTO members from unilaterally blocking appellate rulings. And that is not something the EU-Canada arbitration proposal would prevent.
The U.S. wants to see a return to the “positive consensus” rule that fell out of favor after a 1980s surge in trade disputes. Under the WTO’s predecessor, the U.S. and other countries increasingly vetoed dispute rulings, which left the system broken and led to a rise in unilateral trade retaliation. Eventually that led to calls for peace and the 1994 creation of the WTO and its binding dispute system.
The return of its dispute veto powers would help the U.S. as it prepares to defend a series of WTO challenges to its invocation of national security as justification for tariffs on steel and aluminum. It could also help the U.S. avoid WTO-sanctioned retaliation for targeting foreign trade abuses with unilateral tariffs under Section 301 of the Trade Act of 1974 -- the key instrument Lighthizer has deployed in his trade war with China.
Lighthizer’s allies say their real concern is sovereignty after years of what they see as the WTO imposing obligations the U.S. never agreed to. “That was always going to be very, very troubling to a country like ours that thinks rules and regulations are the responsibility of the U.S. and are brought about through a democratic process here as opposed to being imposed on us from the outside,” Vaughn said.
The fight is not over yet. Some in Geneva still argue it’s too early to say the U.S. is winning with other WTO members rallying around the institution. Or, that the EU and Canada are playing into Trump’s hands when the U.S. has yet to delineate its own plan and continues instead to pursue its trade wars.
“It’s a fallacy to say that they are playing into U.S.’s hands because we don’t even know what those ‘hands’ are,” said Alan Yanovich a Geneva-based attorney at Akin Gump Strauss Hauer & Feld LLP. “All we have seen so far is an inclination to destroy: Destroy trade and destroy institutions.”