WTO faces crisis over disputes settlement

The appellate branch of the WTO’s Dispute Settlement Body had been a target of US criticism before President Donald Trump took office. (Reuters/File)
Updated 08 December 2019

WTO faces crisis over disputes settlement

  • Trump’s trade team has both extended that policy and escalated the fight

GENEVA: The World Trade Organization’s capacity to settle international disputes, a core function throughout the body’s 25-year history, is on the brink of collapse following relentless US opposition.

The appellate branch of the WTO’s Dispute Settlement Body (DSB), sometimes dubbed the supreme court of world trade, was a target of US criticism before President Donald Trump took office.

His predecessor Barack Obama’s administration began a policy of blocking the appointment of appeals judges over concerns that their rulings violated American interests.

Trump’s trade team has both extended that policy and escalated the fight.

Barring a shock breakthrough in the coming days, the court will cease functioning on Wednesday.

The WTO appellate branch normally counts seven judges but has just three left — the minimum required to hear an appeal. Two more judges are due to retire on Tuesday.

WTO Director General Roberto Azevedo warned on Friday that the organization was facing a stark choice.

“You could restore the impartial, effective, efficient two-step review that most members say they want,” he said.

“Alternatively, your choices could open the door to more uncertainty, unconstrained unilateral retaliation — and less investment, less growth, and less job creation.” Various reform proposals have secured broad support.

But according to EU trade commissioner Cecilia Malmstrom, there can no solution without US buy-in because the WTO works on consensus.

“This is a dispute between the 163 members of the WTO and the US,” she told the European Parliament last month.

US WTO envoy Dennis Shea argued on Friday that Washington had “engaged constructively over the past year” to resolve the crisis, but would not relent until its concerns were fixed.

“This is not an academic question; we will not be able to move forward until we are confident we have addressed the underlying problems and have found real solutions to prevent their recurrence,” he told a WTO meeting.

US concerns regarding the WTO appeals court include allegations of judicial overreach, delays in rendering decisions and bloated judges’ salaries.

But top American trade officials have also insisted that the US Constitution does not permit a foreign court to supersede an American one — and that WTO appellate judges assert such superiority in international trade law.

Washington reportedly threatened to block the WTO’s 2020 budget over the dispute, raising the prospect of a Jan. 1 shutdown.

The US ultimately backed a provisional budget compromise on Thursday but it included substantial appellate body cuts.

“There is no question the Trump administration has killed the appellate body,” said Edward Alden, a trade expert at the Council of Foreign Relations think tank. “That was its intention, and it has succeeded.”

The appellate body’s demise will place international trade disputes in legal limbo.

Countries will still be able to file grievances and dispute panels can issue rulings, but nations unhappy with those rulings can simply delay enforcement by filing an appeal to a non-functioning court.

The EU, Canada and others have reaffirmed their commitment to a two-step dispute process, arguing that the right of appeal is essential in any legal system.

Brussels and Ottawa have agreed to set up a temporary appellate process, which mirrors the WTO court, and would handle any bilateral disputes that arise during the impasse. Norway has joined that accord.

Leading WTO members also say they are open to wider reform.

“We have made clear that we are fully committed to tackling the root causes of the discontent around the existing system,” the EU ambassador to the WTO Aguiar Machado told AFP.

Another Western diplomat who requested anonymity told AFP the EU was willing to tackle concerns about the court’s “excesses” but said the US must first agree to begin recruiting new judges — a non-starter for Washington.

Some have suggested that a solution might have to wait until after next year’s presidential election in the US.

In the meantime, the WTO has been left diminished.

Since its founding in 1995, the organization has been tasked with promoting liberal international trade through a rules-based system backed by a dispute settlement process.

Trade promotion has faltered as the body has struggled to agree any major new deals and Alden of the Council on Foreign Relations predicted: “There will never be another big, liberalising trade round.”

Certainly, court-backed rule enforcement appears certain to suffer a heavy blow next week.


American Airlines threatens to cancel some Boeing 737 MAX orders

Updated 11 July 2020

American Airlines threatens to cancel some Boeing 737 MAX orders

  • American’s stand comes as airlines are finding financing increasingly difficult and expensive
  • Airlines have canceled orders for more than 400 MAX planes so far this year

DALLAS: American Airlines is warning Boeing that it could cancel some overdue orders for the grounded 737 MAX unless the plane maker helps line up new financing for the jets, according to people familiar with the discussions.
American’s stand comes as airlines are finding financing increasingly difficult and expensive as the coronavirus pandemic has crippled their operations.
American had 24 MAX jets before they were grounded in March 2019. It has orders for 76 more but wants Boeing to help arrange financing for 17 planes for which previous financing has or will soon expire, according to three people who spoke Friday on condition of anonymity to discuss private talks between the companies.
If the companies can’t reach an agreement, American could use MAX financing that is about to expire to pay for jets from Boeing’s archrival Airbus, one of the people said.
Chicago-based Boeing said in a statement that it is working with customers during “an unprecedented time for our industry as airlines confront a steep drop in traffic,” but did not comment on the talks with American. The Fort Worth, Texas-based airline declined to comment.
News of American’s threat to cancel some orders was first reported by The Wall Street Journal.
The situation underscores the strain facing airlines during the coronavirus pandemic. It has grown more difficult and expensive for them to finance planes. American’s negotiating stance doesn’t reflect a loss of confidence in the plane’s safety, the sources said.
The MAX was Boeing’s best-selling plane before crashes in Indonesia and Ethiopia killed 346 people and led regulators around the world to ground all MAX jets.
The coronavirus pandemic has compounded Boeing’s problems by causing a sharp drop in air travel and a loss of interest in new planes. Nearly 40 percent of the world’s passenger jets are idled, according to aviation data supplier Cirium, as most airlines have more planes than they need until travel recovers.
That has made it more difficult to finance planes. United Airlines and Southwest Airlines found foreign lenders who agreed in April and May to buy MAX jets and lease them to the airlines, but those carriers are in stronger financial situations than American.
The 17 planes in dispute were supposed to have been delivered to American at least a year ago. That has given the airline the option of canceling the order without penalty and recovering its down payments now, according to one of the people familiar with the matter. The deliveries have been delayed while Boeing works to fix a flight-control system suspected of playing a role in the crashes.
Airlines have canceled orders for more than 400 MAX planes so far this year, and 320 are no longer certain enough to count in Boeing’s backlog. Some were dropped because the airline buyer ran into financial problems, while others were swapped for different Boeing planes. The company had taken 4,619 orders through May.
Air travel in the US fell about 95 percent from the beginning of March until mid-April. Traffic has recovered slightly since then, but remains down more than 70 percent from a year ago. With little revenue coming in, airlines are slashing spending and preparing to furlough thousands of workers this fall.
American has accepted $5.8 billion in federal aid to pay workers through Sept. 30, reached tentative agreement on a $4.75 billion federal loan, and lined up billions more in available cash from private lenders to survive the travel downturn.