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U.S. Raises Prospect of Blocking Passage of WTO Budget

Bryce Baschuk
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U.S. Raises Prospect of Blocking Passage of WTO Budget

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The Trump administration ratcheted up its pressure on the World Trade Organization by raising the possibility of blocking the approval of the institution’s biennial budget and effectively halting its work starting next year.

During a regular meeting of the WTO budget committee in Geneva on Tuesday, a U.S. delegate expressed concern about the organization’s payments to the appellate body, which the Trump administration says has overstepped its mandate, according to two people familiar with the matter.

The U.S. also expressed its concerns about funding being diverted to a proxy dispute settlement system recently championed by the European Union, Canada and Norway, the people said.

Because WTO decisions must be made by a consensus among all 164 members, the U.S.’s blocking maneuver would threaten the proper functioning of the organization responsible for overseeing the rules of global commerce. The members have until Dec. 31 to adopt a budget for 2020 and 2021 and they will take up the issue again next Tuesday.

If the U.S. unilaterally kills off funding, it could imperil the future of the WTO’s work and force countries to fundamentally rethink their reliance on it to negotiate trade deals and settle the surging number of disputes.

Spokesmen for the WTO and the U.S. Trade Representative declined to comment.

The move marks an escalation in the Trump administration’s approach toward the trade body, which President Donald Trump has threatened to withdraw from entirely. The Trump administration also blames the WTO partly for allowing China to grow into a rival economic power over the past two decades by flaunting the rules.

The U.S. contributes more money than any other single country to the WTO’s annual budget -- 22.7 million Swiss francs ($22.8 million) in 2019, according to WTO data. The total budget for 2019 was 197.2 million francs, the same as a year earlier.

Trump, U.S. Trade Representative Robert Lighthizer and other U.S. critics argue that the WTO dispute settlement system threatens America’s sovereign rights and has strayed from its mandate.

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The U.S. plans to deliver a statement about the “systemic concerns regarding the compensation of appellate body members” at the Nov. 22 meeting of the WTO dispute settlement body, according to a document published Tuesday by the WTO.

Over the past two years the Trump administration has blocked all new appointments to the WTO appellate body, which has the final say in upholding, modifying, or reversing WTO rulings that often affect some of the world’s biggest companies and billions of dollars in international commerce.

The seven-member appellate body is now operating with just three active members, which is the minimum required to sign off on WTO appellate rulings. The terms for two of those members are set to expire on Dec. 10.

Thomas Graham, a U.S. lawyer who is one of the appellate body’s last remaining members, recently said he may leave at the end of his term on Dec. 10, rather than stay on to adjudicate the cases he has already been assigned -- as has been done in the past.

One of the Trump administration’s key complaints is that former appellate body members have continued to deliberate appeal cases they were assigned prior to the expiration of their terms.

Graham’s departure would throw all pending and future appeals into legal limbo because there wouldn’t be enough appellate members to resolve disputes.

About a dozen appeal cases are pending, including a dispute over EU restrictions on Russian natural-gas imports and a pair of U.S.-Canadian disputes over paper and softwood lumber.

Canada, the EU and Norway have already agreed to set up an alternate channel for settling trade disputes in order to sidestep the looming deadlock.

The EU plan would create an alternate arbitration process that would continue the “essential principles and features” of the appellate body with a panel of former appellate body members. It’s envisaged as a stopgap measure to be used until the U.S. resolves the impasse.

Outgoing EU Trade Commissioner Cecilia Malmstrom argues that the step is necessary to prevent the the international trade system from devolving into the “rule of the jungle.”

“If you have no rules, everyone can do what they want and that would be really, really bad, not least for the smaller and developing countries,” she said in July.

--With assistance from Shawn Donnan.

To contact the reporter on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

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