The West, led mainly by the United States, seems to be running a bulldozer over the multilateral trade structures built by it painstakingly over the past decades.
Incidentally, a variety of the bulldozer virus seems to be striking at the roots of multilateral trade agreements that governed global trade since 1948.
Unsurprisingly, the developing and the poorest countries are left to face new forms of the law of the jungle.
Though there is no clear definition of what would constitute the bulldozer virus, it, however, broadly indicates an unprecedented assault on democratic institutions and the rule of law whether in the domestic context or in the international, rule-based, member-driven, intergovernmental organisations.
Having covered the global trading system, and the World Trade Organization (WTO), which is reckoned as the custodian of the rule-based multilateral trading system, since 1990, the focus here is on the chilling effect of the bulldozer trade measure being deployed almost on a daily basis.
On Wednesday, August 9, the US “prohibited Americans from investing in some Chinese companies developing advanced semiconductors and quantum computers starting next year, escalating Washington’s efforts to prevent Beijing from producing cutting-edge technology for its military“.
“The move could unsettle fragile efforts to rekindle diplomatic relations with China,” according to the Wall Street Journal. The WSJ report suggested that “beyond banning new private-equity, venture-capital and joint-venture investments in advanced semiconductors and quantum computers, the executive order will also require Americans doing business in China to inform the US government about direct investments in artificial intelligence and other types of semiconductors”.
Pink City meeting
It is against this backdrop, the G20 trade ministerial meeting of industrialised and developing countries to be held in the seven-star hotel, Rambagh Palace, in the Pink City of Jaipur assumes importance. The central issue is how to stop the bulldozer trade measures and policies being implemented by the United States as well as the European Union in the recent flurry of unilateral trade-related environment measures.
The US seems determined to decimate the two-tier dispute settlement system at the World Trade Organization. The WTO was established after the Uruguay Round of trade negotiations in 1995 to replace the General Agreement on Tariffs and Trade that was established after the Geneva Round of trade negotiations in 1948.
Representational image. Geneva Ministerial Conference in May 1998. Photo: Wikimedia Commons/World Trade Organization.
In a similar vein, the US and EU appear ready to dismantle the Paris Climate Change Agreement (The Paris Agreement | UNFCCC). The rapid spread of bulldozer trade-related environment measures is gaining currency both in the national and multilateral organisations. It seems to vindicate the repeat of those horrifying developments that followed after the first World War.
It would be interesting to see how India would resolve the issue of bulldozer measures for atrophying the two-stage dispute settlement system that has been the hallmark of resolving global trade disputes since 1995 or making the Paris climate change agreement redundant.
The two-day meeting in Jaipur, India, on August 25-26, is expected to focus a great deal on reforming the World Trade Organization. The discussions and the final text negotiated by G20 Sherpas, which will be further finetuned with last-minute additions, could test the resolve of New Delhi in accommodating the bulldozer measures being deployed by the US and the EU in the multilateral bodies – whether trade or environment.
The two-day ministerial meeting in Jaipur is expected to be preceded by senior officials meeting for three days starting on August 21. The G20 officials/sherpas from 19 countries are expected to negotiate texts in which India, as the chair and host of the conference is likely to make every effort possible to bring about convergence in apparently five areas.
They include logistics, global value chains, WTO reforms, MSMEs (micro, small and medium enterprises) and their importance after the COVID-19 pandemic, and perhaps, issues concerning food security, according to people familiar with the development.
The G20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States, plus the European Union.
The texts likely to emerge after the negotiations may seem like balanced agreements of convergence in these five areas, but they may not substantively address the real issues in the WTO reform, especially the dispute settlement system.
Do G20 texts matter?
To understand the dynamics of the G20, it is important to keep in mind that since its inception in the shadows of the worst financial crisis of 2008, the value of the outcomes in successive meetings appears exceptionally limited, because they are neither binding on the G20 members nor they could influence developments at other multilateral bodies.
After the Bali G20 declaration was issued last year when the Presidents of the US and China agreed to work together and cooperatively to resolve the multilateral issues, the two countries went their ways intensifying the cold war on semiconductors and a whole lot of investment and finance-related issues.
The only limited value is that the efforts of the G20 sherpas will be included in the final texts that they had negotiated. Having covered two G20 meetings in Turkey and Hamburg (Germany), it is clear that the texts tend to vastly dilute the effectiveness of any outcomes reached at those meetings.
The real purpose of the G20 meetings is that they provide space for bilateral meetings among the 19 countries in different configurations during the meeting.
The other purpose – as witnessed by this writer in Turkey and Germany – is for the host, either the president or the prime minister of the country, to receive his counterparts for a photo opportunity and escort them into the main hall.
Of course, the Indian Prime Minister is bound to maximise the value. Maybe it will become handy for his propaganda efforts in the run-up to the 2024 national elections.
Trade ministerial summit
Coming to the G20 trade ministerial meeting, it is well known that the continued divergences between the US and one or two members on the one side, and developing countries like India, South Africa, Indonesia, Argentina, Turkey, and Brazil, on the other, seem somewhat irreconcilable.
The latter may try hard to press for some real/fundamental outcomes in ensuring a robust dispute settlement system, but the chances seem somewhat bleak.
It appears somewhat difficult for India and other few developing country allies to insert any strong language on preserving/safeguarding the WTO’s two-tier dispute settlement system (DSS) in the face of an alleged bulldozer onslaught to kill the Appellate Body as suggested by the former US trade representative Ambassador Robert Lighthizer.
In a similar vein, the EU and US are embarking on unilateral carbon border tax measures in apparent violation of the Paris Agreement and WTO rules.
As part of the emerging comradery, the US may not choose to embarrass India at the meeting and unlikely to dent India’s efforts on dispute settlement (DS) reform by agreeing to a two-stage dispute settlement system, and even the restoration of the Appellate Body (AB).
But that may not mean much since Washington wants to bring the DSS (dispute settlement system) that undergirds the enforcement function of the WTO since 1995, as it seems bent on permanently paralyzing the Appellate Body to an extent that its presence could seem like the proverbial patient caught up in a chronic illness and starvation (like the victims of the latest bulldozer developments in Haryana) unable to perform any task.
The binding rulings of the Appellate Body since 1995 – when the WTO was established – have been its raison d’etre.
WTO dispute settlement reform
The dispute settlement reform is mandated by trade ministers at the WTO’s 12th ministerial conference (MC12) last June.
Paragraph four of the Outcome Document of MC12 states somewhat ambiguously: “We acknowledge the challenges and concerns with respect to the dispute settlement system, including those related to the Appellate Body, recognize the importance and urgency of addressing those challenges and concerns, and commit to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024.”
Though the Geneva mandate doesn’t explicitly mention restoring the two-stage DSS as it existed till December 2019, a large majority of members have continually underscored the restoration of the two-stage dispute settlement system with an un-weakened Appellate Body.
World Trade Organization headquarters in Geneva. Photo: Wikimedia Commons/CC0 1.0G
The US may say that it is ready for the restoration of the two-tier DSS but with an Appellate Body that has “no teeth” to rectify the egregious trade measures adopted by any member, particularly itself, said people familiar with the discussions.
The US remains firm in its stance on allegedly converting the Appellate Body into a proverbial “vegetable”, going by the continuity of the stand taken between the Trump administration and the Biden administration with inconsequential differences.
The former US Trade Representative (USTR) Ambassador Robert Lighthizer praised his successor Ambassador Katherine Tai when she said that the WTO is on very, very thin ice and it really challenges the integrity of the system when two panels struck down measures imposed on grounds of national security considerations.
‘Killing the appellate body’
The Appellate Body, which has passed rulings in hundreds of trade disputes among WTO members, is described as the Jewel of the Crown. However, it has been made dysfunctional since December 2019, when Uncle Sam blocked the filling of seven vacancies. Despite, repeated demands by around 130 members to fill the vacancies expeditiously, the US showed no remorse in the last 67 sittings of the dispute settlement system.
Instead of “killing the Appellate Body” – as proposed by Ambassador Lighthizer – the Biden administration may follow the popular song “Killing me softly…”.
In his latest book, No Trade is Free: Changing Course, Taking on China, and Helping America’s Workers, the former USTR Ambassador Lighthizer, a key official in the Trump administration, seems to play the victim card like his former boss Donald Trump, who is currently facing several legal challenges, said an official who read Ambassador Lighthizer’s book.
Like the religious and ethnic majoritarian politics, which is in full display in several countries, including in the host country of the G20 meeting, the US is playing a similar victim card to claim that it has been given a raw deal at the WTO.
Ambassador Lighthizer says that “more must be done to fix the WTO”, emphasising that “no one is arguing that we should revert from a rules-based system to the so-called law of the jungle in trade relations”.
“But sticking with the current WTO would actually entail betraying the core principles of a rules-based system, because this organisation has shown itself to be chronically incapable of proceeding according to those principles.”
The Biden administration, with some alleged degree of sophistry, is essentially following the Trump administration, said negotiators who are involved in the DS reform discussions.
For example, the US is now pursuing unilateral measures like the hundreds of billions of dollars in subsidies being provided to promote “green” industrialisation as well as for transforming the semiconductor industry in ways that China can never compete with the US.
Ambassador Lighthizer argued that “the dispute settlement system should be scrapped”.
He said, “A new one, modeled after commercial arbitration, should be put in its place. There should be a one-stage panel process with a vote of the WTO member states being able to overturn the decisions. Further, the decisions should be on the basis of party negotiations and not be binding. The strawman of the law of the jungle versus the status quo cannot obscure the fact that the current system is a massive failure on its own terms – and certainly with respect to US interests. The status quo is not an option.”
In the ongoing DS discussions, the US seems to be adopting the diktats pronounced by Ambassador Lighthizer. For example, the US has issued a statement spelling out its views on what needs to be done in the face of growing opposition to some of its demands.
Already, the US proposal on Appellate Review in the ongoing DS discussions was rebuffed in what is being seen as its move to practically eliminate the Appellate Body, said people familiar with the development.
At the informal discussions chaired by the facilitator, Marco Molina, deputy trade envoy of Guatemala, on June 8, several countries including China, the European Union, Canada, Australia, India, Pakistan, and South Africa appear to have opposed the US proposal, said participants familiar with the discussions.
During the plenary meeting, the facilitator tried hard the whole day (two sessions of three hours each) to see if the members could make progress on the US proposal, but his attempts were proved to be in vain, said people, who took part in the meeting.
The US proposal on Appellate Review in the facilitator’s so-called Yellow Box of proposals that are supposed to be more refined for further discussions, calls for an “amendment” to Article 17.2 of the Dispute Settlement Understanding to expedite appointments to the Appellate Body and also a “mechanism agreed by the Parties”.
As per Article 17.2 on Appellate Review in the WTO’s Dispute Settlement Understanding (DSU), “the DSB (Dispute Settlement Body) shall appoint persons to serve on the Appellate Body for a four-year term, and each person may be reappointed once. However, the terms of three of the seven persons appointed immediately after the entry into force of the WTO Agreement shall expire at the end of two years, to be determined by lot. Vacancies shall be filled as they arise. A person appointed to replace a person whose term of office has not expired shall hold office for the remainder of the predecessor’s term.”
Similarly, under the “scope of appeal/review mechanism” in the facilitator’s Yellow Box, the US proposed that the new Appellate Body would agree to the following conditions, including:
- Limited to issues of law covered in the panel report and legal interpretation developed by the panel;
- Standard of review for questions of law, under which an appellant must establish that the panel:
a. Was guilty of gross misconduct, bias, or serious conflict of interest, or otherwise materially violated a rule of conduct;
b. Seriously departed from a fundamental rule of procedure;
c. Manifestly exceeded its powers, authority, or jurisdiction, and any of these acts by the panel materially affected the decision and threatens the integrity of the process.
In short, the G20 trade ministers’ meeting is going to be assessed for what the trade ministers would have to say on the US’ bulldozer efforts on the critical dispute settlement WTO reform, including on the strength, or lack thereof, of the two-tier system.
Bulldozer on Paris Climate Change Agreement
In a similar vein, the US and the EU have gone against their Paris commitments of providing climate finance and technology to developing countries. While the $100 billion financial commitment remains unfulfilled, the EU has imposed a carbon border adjustment mechanism (CBAM) on its imports which will not only adversely impact the exports from developing countries but also lead to disproportionate changes in global real incomes with advanced countries’ real income increasing by $2.5 billion and developing countries’ real income falling by $5.9 billion.
Interestingly, United Nations Conference on Trade and Development (UNCTD) finds that CBAM will be able to reduce global carbon emissions by only 0.1%. Other advanced countries like the US and the UK are also discussing the imposition of CBAM.
In conclusion, it is safe to say the G20 meetings for various chapters at colossal expenditure to the exchequer may seem like Emperor’s new clothes without any outcome worth the name for posterity.
Ravi Kanth Devarakonda is a senior journalist based in Geneva.
