This is a guest post by Joao Otavio Benevides Demasi, a Ph.D student at Maastricht University:
This brief and incomplete essay is written in the broad intersection of WTO Law, World Diplomacy, Economic Policy, Analysis of the International Relations, Political Sciences, and History of International Economic Relations. For the author, a Ph.D candidate at Law scrutinizing the WTO Appellate Body Reports, to verify if there is a wrongdoing, the use of these analytical tools are fundamental to understand the background clash between China and the United States that undermines the conventional multilateral trading system, under the aegis of the WTO, as it is actually known.
There is an intrinsic relationship between Commerce and War, or to make use of a fruitful term of Raymond Aron "generalized wars". Specifically speaking about International Commerce, the liberal journalist Frederick Bastiat wrote "when goods do not cross borders, soldiers will". To quote the view of a theorist of War as a Political Phenomenon, Carl von Clausewitz wrote that "the war is the continuation of politics by other means". As History tends to repeat itself, the current New Mercantile Era can obtain some lessons from the New Imperialist Era of the XVIII and XIX Century. In this vein, a marxist historian, whose ideology this author rejects, would reasonably argue that World War I and, its continuation, World War II, were wars to obtain access to raw materials and markets of the industrialized products of the European metropolis, that is, a war for the control of consumption markets. The early Gordian knot was that the Reich, as a late nation in the industrial race to unify and industrialize itself as a State (1871), together with Italy (1871), were deprived of market access to relevant foreign markets by the 1884-1885 Berlin Conference on the splitting of Africa. In that time, the most part of Africa fell into the hands of Great Britain and France, Portugal kept its colonial possessions, Belgium the Congo, and Prussia, basically, the Nambia and Tanzania. In the New Imperialism, in the Extreme East, Great Britain made war with China to keep the Chinese opium market open by two Opium Wars (1839-1842 and 1856-1860). In 1853-1854, the USA under its Gunboat diplomacy stationed part of its maritime war fleet in the Basin of Edo (Tokyo) as a "diplomatic invitation" to Japan to open its domestic market, and the Meinjin Era started. It is an early application of the 1904 Roosevelt Corollary's emblematic 1900 complete phrase: "Speak softly, carry a big stick; you will go far".
Based on this broad backdrop of this historical perspective one could reasonably foresee that the actual diplomatic-legal issue of "market access" is one that systematically trespasses many different aspects of the life of a State and has posed complicated axiological-ethical questions: in the immigration field, Europe is facing a different immigratory culture - the Muslim immigration, which led to nationalistic parties taking the power; on this side of the Atlantic, President Trump's promise to build a Wall in front of the Rio Grande (Mexico) to stop the illegal economic immigration of the Latinos; in the commercial field, the ongoing US$ 360 billion trade war between the United States of America and China. The malaise of a Trade War is the first relevant step to a diplomatic upsurge of bitterness between countries. Therefore, one can foresee that a flood of litigation on the correct application of the WTO law will come. The second symptom that the multilateral body of laws is ill, as protectionism spreads, will be when countries refuse to implement the Findings and Conclusions of a WTO Report.
Some Prophets of Doom could accurately say that the current world reality, like a New Age of Nationalism (1850-1914), is eroding the triple bases of the liberal view that set the world after the collapse of the Soviet Union: the Francis Fukuiama's "End of the History", the Consensus of Washington - open markets, transnationalize the economy, liberalize the flows of international investments, negotiate commercial treaties; and, finally, the legal efficacy of the WTO's World Trade Court, as a tercium inter partes, to peacefully settle the economics of "market access" and negotiated "market preferences" disputes Among the Nations. These readers of the international reality could arguably say that dialectics have come back as a shape cutting boomerang with people unsatisfied with the so called "gains of the globalization" (to the Transnational Corporations?), electing governments with nationalist agendas mixed with a tonic of religious sentiment.
The ascension of these conservative right governments is, in the mind of this author, an answer to the early XX Century globalization wave. They have popped up almost simultaneously in many countries, and, consequently, under the flag of protection to the domestic market and cultural values from "foreign" products and people. For instance, inter alios, the USA, Brazil, Italy, Poland, Austria, Hungary, Israel, Argentina have elected conservative governments. We have seen the Italian Minister of Interior, Matteo Salvini, holding the Holy Rosary in one of the last electoral campaign speeches. In Brazil the nominee Foreign Affairs Minister, H.E. Ambassador Ernesto Araujo, is of the opinion of that globalism is "piloted by cultural Marxism". He also wrote that "the faith in Christ means, today, to fight against the globalism, whose ultimate goal is to break the connection between God and man, making man a slave and God irrelevant." Therefore, the premises of the current World Trade Organization is in check in the great diplomatic chess game, or as Mr. Roberto Azevedo told to the BBC on November 30th, 2018, "This is the moment when some very basic principles of the organization, principles of cooperation, principles of non-discrimination are being challenged and put into question. And I think that it is very serious". Actually one could conclude that an age of nationalism has surged, with protection of the domestic industry and a repeal of the values of the liberal international world order.
As a rule-based system, Trade Legalists see the World Trade Organization (WTO) like the last resource, the lifeline to avoid an increase of the degree of incertitude in a conflictual world. But some have added to the mathematical equation that, to provide stability to the International System as a whole, the WTO Members have to consent to observe the WTO contracted obligations, and, in the case of litigation, to ultimately bring its measures into conformity with its WTO obligations. Although the right to retaliate is an option, the continuous use of this right, instead of consenting with the WTO Reports systematically undermines the effectiveness of the WTO. Over the years, the WTO has faced a struggle between its inoperant institutional face and the hyperactivity of its Judicial Branch. Except for Mr. Azevedo's miracles on the Trade Facilitation Agreement, the WTO is almost inoperant as a trade negotiation fora. It has, however, produced excellent results provided by the WTO-Appellate Body (AB). The hyper-activity of the AB here does not strictly mean judicial activism but an answer to the 136 appeals brought to the AB. In other words, it means that the appeal of almost 66% of the Panel Report became a quasis-negotiation through adjudication, and posed unforeseeable legal questions on the Dispute Settlement Mechanism (DSM). Who in 1995 would think of the amicus curiae controversy? In the long run the "hyper-activity" of this "Afterthought Court" will not work, as the current crises demonstrates.
In a broad sense, the crucial issue of the functioning of the DSM has reverberated on the stability of the World Order. Precisely, just a handful of WTO Members have really used the Dispute Settlement System (USA, Europe, China, Japan, Canada, Brazil, and India). These main users, especially the US, have more than once been unsatisfied with the results of an AB Report. Depending on the case, during the Meetings of the Dispute Settlement these concerns as extravasated, whether reasonable or a "Diplomat's mise-en-scène", (as this author added to the title of his Doctorate Project). One of the façades of the WTO's ongoing problem is that this diplomatic mise-en-scène became a serious play for the USA after the US - Zeroing case. It is why The USA is Zeroing the Appellate Body (the title of a future publication), the US is not so displeased with procedural issues such as the amicus curiae saga, the non-strict observance by the AB of the 90 days rule to issue a Report, the opening of the Hearings, or even the mechanism of appointment of Appellate Body Members, but with substantial and other issues such as the so called "judicial activism", and the so called increasing and/or diminishing the WTO Membership rights. These issues are important together with "systemic issues" raised from certain passages of Panel and Appellate Body Reports (who totally agrees with an AB/R? Nobody.), but in this author's vision they could be held as "secondary" for the purpose of this article.
This author is sure and is open to being highly criticized for sustaining the point that some of these (and other) issues are "secondary" (the number of the AB Members, the years in the position etc.), but in my modest view, the real issue is the implications for the USA of the US - Zeroing Report to itself. Not that other issues are not relevant, but all these reiterated criticisms against the AB, some true, others Diplomatic mise-en-scène, have accrued to the point of triggering, in part, the current crises. This author thinks that, in a scale of values, the US - Zeroing report has a special relevance. In the US - Zeroing case, the zeroing methodology was correctly outlawed as a valid anti-dumping tool to impose levies on imported goods. Anti-Dumping measures are one of the very important protectionism resources to the countries. The United States was deprived of one of its most important tools of international commerce. Therefore, to fight back the US is Zeroing the Appellate Body as a means to extract unilateral "additional gains", notably under the rubric of the "judicial activism" to frame the AB. Accordingly, as Mr. Azevedo said in the same mentioned interview to BBC: "I would say this is the worst crisis not for the WTO but for the whole multilateral trading system since the GATT [General Agreement on Tariffs and Trade, that preceded the WTO] in 1947". It is a side symptom of a free-rider trying to benefit from the International System at the cost of trade gains of other countries, all based on a nationalistic biased speech. Indeed Americans feel that they, and their houses truly are, full of Chinese stuff. To blame the other ("foreign powers") is a well described strategy by the diplomat Machiavelli in the book "Il Principe". Hyperbolically speaking, the average American thinks that all products that they have are from China, "it is all from China". This feeling (or reality?) is based on a considerable trade deficit with the "Communist" China and is felt in other countries too due to the so called Chinese anticompetitive practices. It is why The US is zeroing the Appellate Body, to obtain a reversal, in my very, very strict view, on the US - Zeroing Report. With this reversal anti-dumping measures can be proliferated indiscriminatorally.
Beyond the conflicts of interest that can paralyze the AB functioning right now, if the current path is not changed before 10 December 2019, the Appellate Body will be reduced to two Members and will stop to work. Consequently, without the "jewel of the crown" the diplomatic-legal nature of the WTO will change. Until then, contradictorily, the WTO Members (including the US) keep filing appeals. In the context of the WTO crises, the US already publicized its line of diplomatic trade conduct on the WTO. On September 18, 2017, the USTR Ambassador Lighthzer said, "before the WTO, under the GATT, and there was a system where you would bring panels and then you would have a negotiation. And, you know, trade grew and we resolved issues eventually. And, you know, it’s a system that, you know, was successful for a long period of time." Likely, the US wants to negotiate the result of the Report, turning the system into a power-ruled system again. If the US wants to prolong the agony, in a gesture of grace, the USA can diplomatically just agree with the appointment one new Appellate Body Member for a limited period of time, thus keeping the erosion of the Multilateral Trade System to a slow death, while it seeks to obtain concessions. Inter alios, it would depend on the US electoral calendar, but if the Trump Administration wants the word of the USTR Lighthzer implemented right now, it is achieving its political goal.
In 2014, Pope Francis declared that a 'piecemeal' World War III has begun (War in Syria as a proxy war between US and Russia as well as Saudi Arabia and Iran). We have seen all these clashes take shape in the WTO which is accruing one more ingredient to the already conflicting and acrimonious diplomatic agenda between the USA and China. Inter alios, there are problems of commerce, of a military race (in certain fashion similar to the pre-World War I), of the domain of the "Sea of China", of the control of the petrol routes. We hope that "goods, and not soldiers, cross borders" in a foreseeable rule-based manner. In July 26 1941, when the US embargoed the supply of oil to Japan (which represented 80% of Japanese importation) and seized all it assets in the US, Japan opened hostilities against the US by bombing Pearl Habor in December 1941, what, in military history, turned to be an ill-fated preventive strike. If there is not a tercium inter partes, what just remains is the ultima ratio regis, God or the cannons. Let us see if the agreement negotiated in the G-20 Meeting in Argentina for a 90 days deterrence in the escalation of trade tariffs will really cool down the sino-american trade war, or it is just diplomatic mise-en-scène in a broad (irreversible?) framework
