Talks on World Trade Organization (WTO) reform continued this past Thursday, January 24, 2019, in Davos, Switzerland. The “Ottawa Group” of 13 members, chaired by Canada, met on the need to protect and increase the functionality of the organization, focusing particularly on the dispute settlement mechanism and transparency aspects.

The United States has objected that the WTO’s existing rules are not adequate to respond to practices of non-market economies (most notably, China). The U.S. points to practices such as failure by countries to comply with transparency obligations to notify government subsidies; the anticompetitive behavior of state-owned enterprises (leading to overcapacity in sectors such as steel and aluminum); and the ability of countries to “self-declare” developing status and maintain exclusions from WTO obligations long after their economic situations have changed for the better.

Many WTO members privately agree with these U.S. concerns about the functioning of the WTO. Where they diverge, however, is over the U.S. approach to the WTO’s dispute settlement mechanisms. Over several administrations Washington has expressed concerns about the operation of the Appellate Body, which reviews panels’ findings, prompting the U.S. to block new appointments to the body. Three judges are required to handle cases, and by December 2019 (or earlier, if conflicts of interest arise with any one judge), only two members will remain. As a result, the WTO will be unable after that date to issue binding rulings in trade disputes.

The EU, Canada, and others have submitted WTO reform proposals in an effort to respond to U.S. concerns over the Appellate Body’s “overreach” and operation. For example, others have proposed that the Appellate Body refrain from interpreting domestic laws and generally act within its 90 day deadline for reviewing a panel’s findings. They have proposed expanding the number of Appellate Body judges from seven to nine, and for limiting the ability of any judge to serve beyond his or her appointment term. Washington has rejected these proposals, saying that they merely perpetuate the faults of the Appellate Body, and do nothing to correct them. Meanwhile, Washington has not set out its own blueprint for how it wants the WTO dispute settlement system to operate.

Greater consensus exists among the Ottawa Group and other WTO members on the need to improve WTO procedures for monitoring and transparency, and the process of notifying members’ trade policies. Some members hope that making progress in such procedural areas will ultimately bring the United States around and ease the way toward reaching greater consensus on the more difficult dispute settlement reforms.

During this meeting, volunteers within the Ottawa Group offered to lead reviews of the functioning of certain WTO committees, with the aim of improving the WTO’s deliberative function, and strengthening its ability to address trade concerns as they arise, without resorting to litigation:

  • Brazil – Sanitary and Phytosanitary Measures Committee
  • Singapore – Technical Barriers to Trade Committee
  • Switzerland – Rules of Origin Committee
  • Australia – Council for Trade in Services
  • Norway will examine the development dimension of WTO reform

It is important to note that the members must reach a consensus in order to make any significant changes to WTO rules. The Group intends to continue talks in May 2019.