December 27, 2018 / 7:09 PM / 6 months ago

Breakingviews - Small nations will lose most from U.S. WTO fight

The World Trade Organization WTO logo is seen at the entrance of the WTO headquarters in Geneva April 9, 2013. REUTERS/Ruben Sprich

WASHINGTON (Reuters Breakingviews) - Small countries will lose the most from a U.S. fight over the World Trade Organization. The global trade body’s appeals panel may be paralyzed next year because of U.S. obstinacy. Yet America, China and the EU can wring concessions without filing complaints over commerce disputes. Minnows like Panama and Moldova lack other recourse.

The WTO’s appellate body is supposed to pick from a pool of seven judges to make up three-member hearings panels. Their ranks have, however, dwindled to three because America has been blocking judicial appointments since 2016. Terms for two of the three remaining judges are up in December 2019. If Chinese judge Hong Zhao has to recuse herself because a case involves China, the appeals body will lack a quorum.

In the meantime, cases are piling up. China, Canada, the European Union and others have filed complaints this year against the United States because of tariffs imposed by the U.S. government. Despite President Donald Trump’s criticisms of the WTO, the United States has brought cases against countries that imposed retaliatory levies. These large countries have leverage outside the WTO, and can resort to measures such as import duties, foreign-investment restrictions or visa limitations.

Small nations lack meaningful levers. The WTO is essentially their only channel to resolve trade disputes between each other as much as their bigger peers. For example, the Dominican Republic said it would lift the duties on plastic bags and rolls of fabric after the WTO in 2012 ruled in favor of Guatemala, Honduras and El Salvador, who had lodged a complaint two years earlier. Or take Panama’s 2007 complaint against the European Union regarding a system of tariffs and quotas that favored bananas from African and Caribbean nations. The WTO had previously ruled against the EU in similar cases. In 2012, the EU signed a landmark agreement with Latin American countries that gradually reduced tariffs.   

Minnows will suffer even more if a defunct appeals panel leads to a trade free-for-all.  They rely on WTO protection from discrimination and benefit from the transparency that the organization promotes. Each of its 164 members’ tariffs are filed at the organization, which discourages behavior that violates global trade rules. Chipping away at that system puts the smallest countries at a big disadvantage and will most harm some of the poorest nations in the world.

- This is a Breakingviews prediction for 2019. To see more of our predictions, click reut.rs/2R6H5pG

Breakingviews

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