China, Canada among WTO members backing alternate trade dispute scheme

As the U.S. continues to paralyze the World Trade Organization's appellate body, 17 members of the trade organization announced Friday that they will collaborate on an alternative system for resolving trade disputes that emerge between them, following the lead of an initiative by Canada and the European Union.

The announcement was made on the sidelines of the World Economic Forum in Davos, Switzerland, where ministers representing like-minded trading partners have been grappling with how to proceed as a group, unless and until American concerns about the WTO can be resolved.

"We believe that a functioning dispute settlement system of the WTO is of the utmost importance for a rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features," said the joint statement released Friday by the group.

The WTO continues to try to resolve disputes at its committees. Panels are still struck to review complaints and report back with their findings when member countries are alleged to have broken the rules.

But as of December, the WTO's appellate body no longer has enough members to hear any more appeals of these panel reports, arresting the process by which complaints are resolved and retaliation is sanctioned.

The United States is blocking the appointment of any new adjudicators until its concerns — which, in some cases, predate the Trump administration — are addressed and the mandate and scope of the appellate body's jurisprudence are clarified.

Without a consensus among its members on how to proceed, the trade organization is paralyzed.

Canada's complaint about American softwood lumber duties is one of the cases for which an appeal cannot be heard unless this standoff is resolved.

"Our Canadian businesses rely on a predictable, transparent system," International Trade Minister Mary Ng told CBC News on her way home from Davos Friday. "Dispute resolution is an important function of this."

'Not a small task'

Canada's first priority remains finding a permanent solution to the appellate body impasse, but in the meantime, this statement is "really encouraging" and "a big step in the right direction," Ng said.

"These efforts have developed a consensus among a diverse group of members," she said. "It's not a small task."

Canada and the European Union first announced an interim arrangement for resolving trade disputes with each other last July. It didn't replace the appellate body but it serves the same purpose.

Building on that, fifteen more countries have signed on to this idea with this latest initiative, which at the moment remains separate from the system Canada set up with the EU. They are:

• Australia.
• Brazil.
• China.
• Chile.
• Colombia.
• Costa Rica.
• Guatemala.
• Republic of Korea.
• Mexico.
• New Zealand.
• Norway.
• Panama.
• Singapore.
• Switzerland.
• Uruguay.

Many of these countries met in Davos this week as part of the WTO's Cairns group: agricultural exporters who share the  common cause of liberalizing trade barriers.

Not all of Canada's key trading partners (beyond the U.S.) signed on to Friday's statement. Japan, for example, isn't onboard — at least not yet.

The most significant signatory may be China.

Temporary solution

Many American complaints about the WTO stem from doubts that the terms of China's WTO membership are fair.

But a 2018 analysis by researchers from the Cato Institute found that China does a "reasonably good job of complying with WTO complaints brought against it." 

Neither China nor the U.S. was part of the Ottawa group, a collection of WTO members that also held a working dinner in Davos hosted by Ng to continue reform talks that began under Canada's leadership in 2018. Its door was left open to China or any other country that wanted to propose solutions.

Friday's agreement now sets 17 WTO members back on a path to being able to resolve future disputes with China, a dominant player in international trade because of its massive market size, manufacturing capacity and corresponding economic influence.

Ng didn't comment on China's participation specifically but said that "it's a positive thing that all these countries signed on, including China."

Friday's statement characterized this new interim system as "contingency measures" to "allow for appeals amongst ourselves" when the findings of those panels are in dispute and members' rights are threatened. It's based on Article 25 of the WTO's dispute settlement rules, which allow for multi-party interim arrangements.

The statement says it will be in place "only and until a reformed WTO Appellate Body becomes fully operational" and any other WTO members are welcome to join those already signing on.

The Canadian Chamber of Commerce welcomed Friday's statement.

"However, this is only an agreement to make an agreement," it said on Twitter. "Canada and the EU have a mechanism in place, so why reinvent the wheel?"

Confident of more progress: WTO head

Officials must now determine how this new multilateral appeals process will work and what arbitrators will hear its cases. 

"We have also taken proper note of the recent engagement of President Trump on WTO reform," the group's joint statement said.

"We are very much looking forward to discussing WTO reform with the U.S.," Ng said, without providing any specifics on how the U.S. has reacted to this development. "We've talked to all WTO members that this was in the works."

In his closing news conference before leaving Davos Wednesday, the American president told reporters that a delegation from the WTO will visit Washington next week or the week after.

Because the WTO doesn't make top-down decisions, but only proceeds based on a negotiated consensus between members, it's not clear that any kind of deal could result from these talks with Trump, although they could allow the White House to communicate its concerns directly to the WTO's directorate.

"We're going to do something that I think will be very dramatic," Trump said, without elaborating on what he has in mind.

WTO Director General Roberto Azevedo did not address the new temporary appeals system in a news conference in Davos on Friday, but said WTO members meeting in Davos for informal ministerial talks had discussed the tasks ahead, including fixing dispute settlement at the WTO.

"There are options out there, we are trying to fix it, but we're not there yet," he said, adding that many papers and ideas had come forward.

"I would say that I would be confident that more progress will be possible in the short term."

Separately, Deputy Prime Minister Chrystia Freeland arrived in Davos Friday to attend a meeting of the WEF's board of trustees.

She wasn't previously listed among other cabinet members attending the forum. Her trip was announced Thursday in an itinerary posted online, which said she also will "hold meetings with business leaders" before returning to Ottawa Saturday.