Thomas Graham (US) and Ujal Singh Bhatia (India) retired on 11th December, 2019. They both completed a second term of office as members of the Appellate Body (AB) of the World Trade Organization (WTO). They leave behind a solitary judge- Hong Zhao (China) to preside over a pipeline of thirteen appeals at the de facto Supreme Court of world trade. Zhao’s appointment ends in November 2020.
Since the Appellate Body is now reduced to just one from its requisite strength of seven, then a quorum of three members as required for adjudicating any trade dispute will remain unfulfilled. The steel and aluminium tariff wars have reduced the number of judges from seven to just one.
What is at stake inside a baroque stone palace on the shores of Lake Geneva, is the fate of a little-known part of a little-understood institution. The WTO has found itself in a predicament of powerlessness. This orchestrated folding exacerbates the prospect of more intense conflicts over trade and financial regulation in the future.
The WTO is the largest international economic organization in the world. It commenced on 1st January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which was inaugurated in 1948.
Since its lofty creation, the landscape of international trade has changed visibly from the emergence of fragmented global value chains and the proportion of online transactions, to China’s ascent to becoming the world’s second largest economy and the proliferation of a new generation of bilateral trade deals, like the Canada–EU Comprehensive Economic and Trade Agreement (CETA), and multilateral pacts like the Trans-Pacific Partnership (TPP) that has been revamped by suspending twenty provisions to create the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which a post-Brexit England finds enchanting.
Mixed economic data suggest a stall, but not a collapse of globalization, while there is some evidence of deglobalization in the aftermath of the 2008 financial crisis. Cross-border financial flows have been reduced and global trade is not growing as swift prior to the crisis, but that may be an effect of technology truncating supply chains. Protectionist measures are on the rise and political deglobalization has advanced much further.
Globalization rests on a complex structure of regulating cross-border flows and on embedding domestic rules within an international order. The present global political zeitgeist runs counter to existing methods and regulations and against the multifaceted rules designed to manage economic globalization. The elixir prescribed by populist myth makers is that dissolving international entanglements can make life simpler, less regulated, and above all, less subject to the dictates of an administrative class. Modern economic nationalism is a radical “disembedded unilateralism.”
The WTO impasse precipitates a call to revise the legal framework for trade. Beyond that, the choice is death or dormancy. Thus far, trade frictions have not caused a global recession. But long-term investment by multinationals has dropped by 20% in the first half of this year.
Disembedded unilateralism has made the WTO extraneous and takes us back to a time when trade contentions between nations were settled, not with legal pleadings, but with tariffs.
Economies upturned by unilateral tariffs have responded with trade boycotts. These have affected tens of billions of dollars in exports and has led the International Monetary Fund, the OECD, and the WTO itself to repeatedly downgrade global growth estimates due to rising trade tensions.
For nearly 25 years, the WTO refereed the tactics and tricks of cross-border trade. Abdulqawi Ahmed Yusuf, President of the International Court of Justice, believes that multilateralism presents a framework for predictability and stability. João Pedro Vale de Almeida, the Head of Delegation of the European Union, wishes for a safer and fairer world governed by commonly agreed rules and effective global institutions to guarantee stability, security, human rights, prosperity and development. Donald Trump is lucid- “America first doesn’t mean America alone.”
As the US withdrew from the Trans-Pacific Partnership, Xi’s “One Belt One Road” pushed China’s Trojan Horse deeper into Europe, Asia, the Middle East and Africa with a vast logistics and transport network of roads, ports, rails, pipelines, airports, transnational electric grids and fibre optic cables. Like the Dutch, the British and the Japanese in the heyday of their imperial enlargement, Beijing is on an assignment.
The new interconnectedness of the 21st century has literally unplugged the world from the WTO. Before 1995, the system was less predictable and less fair. The GATT, the WTO’s predecessor, had rules but had no independent arbiters to enforce the rulebook. The Appellate Body offers impartiality and legal clarity. This is precisely why trade rose from 41% of world GDP in the year before it was created to 58% in 2017.
Professor James Bacchus, a former chief judge of the WTO, contends that the asphyxiation of the WTO is an attempt to swap “the rule of law” in trade with “the rule of power”. Director General of the WTO Roberto Azevedo conceded that the dispute settlement mechanism needs revising. Clearly, without revision the world will become poorer and there is no comfort and joy in poverty.