This is a guest post from Prof. Ernst-Ulrich Petersmann, European University Institute Florence
In his recent book on Globalists. The End of Empire and the Birth of Neoliberalism (Harvard University Press 2018), history Professor Q. Slobodian describes the WTO as ‘the paradigmatic product of Geneva School neoliberalism’ (at p.25), and the ‘creation of the WTO (as) a crowning victory of the neoliberal project of finding an extra-economic enforcer for the world economy in the twentieth century’ (at 23). Yet, like many other Anglo-Saxon commentators on neo-liberalism, Slobodian overlooks the categorical differences between Anglo-Saxon neo-liberalism and European ordo-liberalism: US neo-liberalism and Chicago School economists prioritize liberalization of market access barriers, deregulation, privatization and financialization of markets in order to empower utilitarian market actors (homo economicus) to pursue their self-interests and enhance the self-regulating forces of market competition as spontaneous information, coordination and sanctioning mechanisms. The German, European and Virginia Schools of ordo-liberalism perceive markets as legal constructs (rather than as gifts of nature), which cannot maximize general consumer welfare without legal limitations of market failures, governance failures and ‘constitutional failures’. GATT/WTO jurisprudence (e.g. on interpreting GATT/WTO rules as protecting non-discriminatory conditions of competition) emphasized the systemic, ordo-liberal functions of states and of the GATT/WTO legal and dispute settlement systems as ‘guardians’ of non-discriminatory conditions of competition. The USTR Report on the Appellate Body of the WTO (AB) of February 2020 perceives WTO law as an instrument of US power politics and disregards ordo-liberal ‘constitutional economics’ justifying the multilateral WTO legal and dispute settlement systems. The legal justifications by the Trump administration of their illegal ‘blocking’ of WTO AB nominations insist on US interpretations of WTO rules and US criticism of AB findings without any evidence that legal interpretations by the AB violated the customary rules of treaty interpretation or the (quasi)judicial AB mandate for impartial, independent and prompt third-party adjudication through quasi-automatic adoption of WTO panel and AB reports by the Dispute Settlement Body (DSB). The 2020 USTR Report – notwithstanding its valid criticism of some WTO rules and dispute settlement practices (e.g. that the AB no longer consults with the parties when deciding to disregard the Article 17.5 deadline) – suffers from legal biases and incorrect claims such as:
- US denial of (quasi)judicial functions of WTO third-party adjudication, even though numerous WTO publications and WTO dispute settlement reports over more than 20 years acknowledged the (quasi)judicial mandates of WTO dispute settlement bodies (i.e. WTO panel and AB reports as adopted by the DSB);
- US disregard for judicial AB arguments in the performance of the Dispute Settlement Understanding (DSU)’s mandate ‘to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’ (Article 3 DSU), for instance whenever the AB found compliance with the time limit of 90 days (Article 17.5 DSU) – which was imposed by US negotiators in 1993 notwithstanding the widespread criticism that no other court seems to be limited by such an unreasonably short time limit – impossible to reconcile with the other AB tasks (e.g. due to illegal US blocking of the filling of AB vacancies);
- contradictory USTR claims that AB legal findings against the US violated the DSU prohibition to ‘add or diminish the rights and obligations in the covered agreements’ (Article 3.2 DSU) – even if the AB had justified these legal findings on the basis of the customary rules of treaty interpretation and its (quasi)judicial mandate -, notwithstanding the USTR’s regular support of AB reports accepting ‘creative WTO interpretations’ advocated by the USTR as a legal complainant;
- US description of US ‘zeroing practices’ as a ‘common-sense method of calculating the extent of dumping’ (p.2) even if their biases had been consistently condemned by the AB and DSB as violations of the WTO obligations of ‘fair price comparisons’ (which are hardly mentioned in the USTR report);
- one-sided focus on WTO texts as interpreted by US negotiators without regard to the customary law and DSU requirements to clarify the meaning of the often indeterminate WTO provisions with due regard also to WTO legal texts revealing the ‘context, object and purpose’ of WTO provisions and the explicitly recognized ‘systemic character’ of what the WTO Agreement calls ‘this multilateral trading system’ (Preamble) and its ‘dispute settlement system’ (Article 3 DSU);
- denigration of AB members as ‘three unelected and unaccountable persons’ (pp. 8, 13) whose ‘overreaching violates the basic principles of the United States Government’ (idem, Introduction), notwithstanding the election of AB members through consensus decisions of 164 DSB member governments (including the USA), their (quasi)judicial mandate, and the approval of WTO agreements (including the DSU) by the US government and US Congress;
- insulting claims that the AB Secretariat has weakened the WTO dispute settlement system by not respecting WTO rights and obligations (p.120).
The USTR Report acknowledges that its purpose ‘is not to propose solutions’. The Introduction to the Report repeats what the US ambassador has stated in DSB meetings since 2017: ‘WTO Members must come to terms with the failings of the Appellate Body set forth in this Report if we are to achieve lasting and effective reform of the WTO dispute settlement system’. Yet, nothing suggests that – if WTO members should accept the false US claims of the AB’s ‘persistent overreaching… contrary to the Appellate Body’s limited mandate’, and ‘the Appellate Body’s failure to follow the agreed rules’ – the US would be willing to comply with its DSU obligation of filling AB vacancies ‘as they arise’ (Article 17.2 DSU) and return to WTO third party adjudication and appellate review as prescribed in the DSU. Past WTO members’ ‘appeasement’ of false USTR claims (e.g. in Ambassador Walker’s mediation proposal for overcoming the WTO dispute settlement crises) never changed the USTR’s refusal to return to WTO third party adjudication as prescribed in the DSU. The ‘Economic and Trade Agreement’ signed by the Chinese and US governments on 15 January 2020 provides for discriminatory Chinese commitments to buy US products, discriminatory US import tariffs and US trade restrictions (e.g. targeting Chinese technology companies) without third-party adjudication. This bilateral ‘opt-out’ – by the two largest trading nations – from their WTO legal and dispute settlement obligations seems to be the policy option preferred by those USTR officials who pursue additional ‘bilateral US trade deals’ and now publicly reflect on US withdrawal from the WTO Agreement on Government Procurement, and on ‘unbinding’ US tariff and market access commitments, in order to better use power asymmetries in rebalancing bilateral US trade deficits through bilateral reciprocity negotiations, as advocated by Trump’s trade policy advisor P. Navarro. The US-China trade deal provision for dispute settlement through unilateral USTR determinations seems to illustrate the hegemonic trade mercantilism, which USTR Lighthizer would like to impose on the rest of the world. De facto, the US Trump administration already disregards WTO rules (e.g. GATT Articles I, II and III) and WTO dispute settlement procedures whenever it suits US political interests and US interest group politics.
WTO members willing to defend the multilateral WTO legal and dispute settlement system should beware of hegemonic US power politics undermining WTO law and denying global public goods like multilateral trade and environmental protection systems. The response to the USTR demand of ‘why’ the WTO dispute settlement crises have emerged seems obvious: as WTO members have failed to adequately control WTO jurisprudence, the US Trump administration prioritizes mercantilist power politics rejecting multilateral legal and judicial restraints on its ‘asymmetric deal-making’. The response to the question of ‘how’ to reform the WTO dispute settlement system must be to defend, and reform the rules-based, multilateral trading system, while continuing pragmatic use of Article 25 DSU ‘appellate arbitration’ as a temporary substitute for circumventing the illegal US blocking of the WTO AB system. Appeasement of US destruction of the WTO legal and dispute settlement systems has systemic repercussions far beyond the WTO. Without a multilateral WTO dispute settlement system, the UN sustainable development goals, climate change mitigation, future WTO negotiations, and also US efforts at inducing market-oriented reforms in China’s totalitarian state-capitalism are unlikely to succeed. Authoritarian strongmen may benefit from intergovernmental power politics and neo-liberal interest group politics. Yet, citizens all over the world will suffer from neglect of the ordo-liberal task of limiting governance failures and ‘constitutional failures’ in multilateral governance of transnational public goods.
