The global economy is about to be shaken to its foundation.
By the end of this year, the World Trade Organization (WTO) will largely be unable to mediate disputes among its 164 members. The United States can single-handedly prevent this looming crisis.
The problem is that the Trump administration is blocking appointment of new jurists to the WTO’s appeals court, called the Appellate Body. Because the WTO works by consensus, this blocking will deprive the Appellate Body of the requisite number of jurists it needs by December 2019. Without an appeals court, the global economy will become less predictable and less stable. This will cost the United States dearly. Markets at home and abroad will react terribly.
Why is Trump doing this?
Like several of his predecessors, Trump argues that the Appellate Body has sometimes sought to legislate from the bench. Pointing to a single U.S. loss over an arcane anti-dumping methodology, the complaint is that the WTO has, at times, engaged in judicial activism, creating new laws through its rulings. Trump thus complains about “precedent,” insisting that he will not unblock appointments to the Appellate Body until the WTO promises that its past rulings will not be taken as binding on future ones.
The problem isn’t precedent. Past WTO rulings serve as guidance, sometimes loosely, sometimes strongly. As the largest user of dispute settlement, the United States depends on this being true. Indeed, the U.S. and other countries have recently challenged Europe’s new regime on endocrine disruptors, a case that, if soon filed, will implicate countless agricultural exports from this country, and will be unwinnable without strongly relying on precedent.
The problem, instead, is fear of legislation from the bench. Yet, the WTO already prohibits judicial activism. It’s written as Article 3.2 of the Dispute Settlement Understanding. What’s missing, however, is a mechanism to enforce it. Trump should demand an enforcement mechanism in exchange for unblocking appointments to the Appellate Body.
What would such a mechanism look like?
Here are some building blocks. Appellate Body jurists can write dissenting opinions. These are a good indication that part or all of a ruling begs closer scrutiny. Where there is a dissent, former Appellate Body jurists could examine whether part or all of the ruling smacks of judicial activism. If the answer is yes, then the ruling should be sent back to the Appellate Body with instructions on where clarification is required, and why.
If the Appellate Body ceases to function, countries will be forced to take matters into their own hands. Several already are. In a dispute between Indonesia and Vietnam, for example, the two sides have agreed not to appeal the verdict in their case if the Appellate Body isn’t functioning after December. This solution isn’t replicable; these countries are debating compliance with a verdict that has already been handed down, not challenging the verdict itself.
Europe and Canada have gone further still, designing a new arbitration system to serve in lieu of the Appellate Body for cases they bring against each other at the WTO. While creative, this solution will require both sides to agree on a lot about their dispute in advance, including, ironically, past Appellate Body practice.
If the past is any indication, the mechanism I’m proposing won’t get much of a work-out. Even the Trump administration is hard-pressed to offer anything like a list of disputes in which it alleges the WTO has legislated from the bench. But there is a place for such a mechanism, and it does directly addresses the U.S. complaint.
The United States played a lead role in designing the rules-based global economy that it is now putting at risk. There are only a few months left in which to fix things. It’s time to stop the debate about precedent and, instead, address concerns about judicial activism directly. This can and should be done.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and host of the podcast TradeCraft.