1. Introduction
US President Trump's attack on the multilateral trading system has entailed the WTO's biggest ‘governance crisis’ since the entry into force of the 1994 Agreement establishing the WTO. The US’ blocking, since spring 2017, of the process of filling AB vacancies continues to disrupt the WTO legal and dispute settlement system; as of December 2019 at the latest, the likely reduction of the AB to one single member (from China) will render the exercise of AB jurisdiction impossible and also undermine the adoption of WTO panel reports following their appeal.Footnote 1 This existential threat to the WTO legal and dispute settlement system is embedded into political WTO governance crises resulting, inter alia, from
• the failures of the Doha Development Round negotiations since 2001 to modernize and adapt the WTO system to the challenges of the twenty-first century;
• the protectionist trade mercantilism of the US Trump administration prioritizing ‘bilateral deals’ and illegal, discriminatory import restrictions over respect for multilateral trade agreements;
• the inconsistencies of China's authoritarian state-capitalism with the WTO objectives of non-discriminatory, market-driven trade competition;
• the geo-strategic dimensions of Chinese and US trade rivalries, as illustrated by the bilateral ‘financial and trade conditionality’ of China's ‘Belt and Road cooperation’ with more than 60 WTO members, or by the ‘stop China’ and ‘national security-strategies’ underlying the US ‘tariff wars’ initiated in 2018, and the arrest – in Canada in December 2018 – of the chief financial officer of the Chinese telecoms company Huawei;
• the increasing number of authoritarian ‘populist regimes’ undermining constitutional democracies and rules-based multilateralism (e.g. by means of ‘Brexit’ and populist disregard for other multilateral treaties protecting transnational public goods like climate change prevention).Footnote 2
The 2018 American and Chinese ‘tariff wars’ and the AB crisis nourish fears that the WTO governance crises, the financial and sovereign debt crises since 2008, the evermore dangerous climate change situation, and the migration crises might repeat a slide into protectionism similar to the 1930s, when the Wall Street crash in 1929 and the US Smoot–Hawley tariff legislation of 1930 provoked a breakdown of the financial and trading system, a slump in output, mass unemployment, tit-for-tat protectionism, political conflicts, and wars. Sections 2 and 3 of this article argue that – even if WTO members cannot prevent the US Trump administration from unilaterally undermining multilateral treaties for multilevel governance of transnational public goods, such as a mutually beneficial world trading system, transnational rule of law, and climate change prevention – the EU and other WTO members remain legally required to protect the WTO legal and dispute settlement system as one of the most important global public goods, at least in relations among ‘the willing world’ ready to protect the reasonable self-interests of citizens.Footnote 3 Section 4 briefly addresses trade-related systemic questions raised by the failures of US constitutionalism and neo-liberalism to protect the rules-based world trading system as one of the legal foundations for multilateral protection of other, interrelated public goods like ‘sustainable development’, economic welfare, and poverty reduction. It asks whether the path-dependent WTO paradigm of ‘member-driven governance’ – and its neo-liberal ‘paradox of liberty’ (i.e. the risk of economic and political markets destroying themselves through abuses of public and private powers) – can be made consistent with the European paradigm of ‘multilevel economic constitutionalism’, which recognizes markets as legal constructs requiring systematic limitations of ‘market failures’ as well as of ‘governance failures’? Can American neo-liberalism and European ordo-liberalism be reconciled with China's state capitalism without destroying the WTO legal and dispute settlement system? For example, could the WTO reconvene and request the WTO Working Group on the Interaction of Trade and Competition Policy (1997–2003) to recommend more precise WTO competition rules (e.g. limiting public and private distortions of trade competition through state-trading enterprises, government procurement practices, subsidies, limitation of intellectual property rights and disregard for private data protection) so as to enhance political WTO ‘member control’ over related WTO disputes on these often imprecise WTO legal disciplines?
2. The US attack on the WTO legal and dispute settlement system
The WTO dispute settlement system remains the only worldwide, multilevel, compulsory jurisdiction for impartial, independent third-party adjudication of international disputes that is accepted and frequently used by more than 100 states, including all five permanent members of the UN Security Council. Just as the US proposal and acceptance of the WTO AB jurisdiction in the early 1990s was due to the exceptional, geopolitical circumstances following the fall of the Berlin wall (1989), China and Russia also accepted this compulsory jurisdiction as unavoidable parts of their WTO accession agreements. If the US succeeds in destroying this historically unique ‘constitutionalization’ of intergovernmental power politics, authoritarian rulers might not consent to its recreation, thereby weakening also related, transnational public goods like the 2030 ‘sustainable development goals’ adopted by all UN member states. US President Trump has repeatedly threatened to withdraw from what he perceives as ‘the terrible WTO Agreements’, inter alia based on his erroneous belief that the US loses most WTO disputes – notwithstanding the fact that the US has won more than 75% of its WTO dispute settlement complaints and, also as a defendant, has been more successful than other WTO members.Footnote 4 US Trade Representative (USTR) Lighthizer and other members of the US government (like Security Adviser Bolton) are declared opponents of restraining the use of US hegemonic power by international courts.Footnote 5 As US trade diplomats have not revealed the final objective of their ‘blocking strategy’, many observers of US trade policies interpret the US blocking of AB vacancies as being aimed at unilaterally terminating the functioning of the AB and the related ‘judicial restraints’ on US trade protectionism, a strategy which previous US governments had already used in order to prevent NAFTA chapter 20 panel proceedings against the US. US trade diplomats at Geneva continue explaining their vetoing of the appointment of WTO AB members in deliberately ambiguous ways:
• the re-appointment of AB members from the US (like Merit Janow 2003–2007, Jennifer Hillman 2007–2011) was opposed by the USTR because their participation in AB rulings against US legal positions was criticized as ‘unpatriotic’Footnote 6;
• trade law professors proposed by other WTO members (like Kenya in 2013) were ruled out almost immediately by the USTR, even if they had taught at US universities;
• in 2016, the re-appointment of the Korean AB member Chang Seung Wang was blocked by the USTR on grounds of alleged judicial ‘over-reach’;
• at the beginning of 2017, the US blocked the consensus in the WTO Dispute Settlement Body (DSB) for filling WTO AB vacancies for reasons related to the ongoing transition in the US political leadership;
• subsequently, the replacement of AB members Kim, Ramirez, and van den Bossche in 2017, and of AB member Servansing in 2018, was vetoed by the USTR on grounds of ‘systemic’ legal USTR concerns about ‘Rule 15’ of the AB Working Procedures as elaborated by the AB in conformity with Article 17.9 DSU and practiced in WTO dispute settlement practices since 1996.Footnote 7
Such blocking of the filling of AB vacancies on grounds not related to the personal qualifications of proposed AB candidates violates the WTO legal obligations to comply with DSU rules in good faith (cf. Articles 3.10, 23 DSU) and protect the AB as legally prescribed in Article 17 DSU (e.g. as being ‘composed of seven persons’, with vacancies being ‘filled as they arise’ so that AB membership remains ‘representative of membership in the WTO’).Footnote 8
The US continues to state in DSB meetings that it is not in a position to support the launching of the selection processes for new AB members; it considers that the first priority is for the DSB to discuss and decide how to deal with reports being issued by persons ‘who are no longer members of the AB’.Footnote 9 Even though the AB Working Procedures had been adopted in 1996 in conformity with Article 17 DSU and had been applied in WTO practice for more than 20 years, the US reiterates that it ‘remains resolute in its view that Members need to resolve that issue as a priority’. In some DSB meetings, the US also voiced other ‘systemic concerns’ relating to the functioning of the AB, such as criticism of a Korean AB member for having raised issues (‘obiter dicta’) that, in the view of the USA, had not been necessary for the resolution of the dispute.Footnote 10 These broader ‘US concerns with WTO dispute settlement’ and with ‘the approach by the AB’ have been summarized in the President's 2018 Trade Policy AgendaFootnote 11 by focusing on the following cross-cutting issues:
• Disregard for the 90-day deadline for appeals: The US criticizes the AB for not respecting Article 17.5 of the DSU, according to which ‘(i)n no case shall the proceedings exceed 90 days’. In the US view, this raises concerns of transparency, inconsistency with ‘prompt settlement of disputes’, and uncertainty regarding the validity of the report issued after 90 days.
• Continued service by persons who are no longer AB members: The US claims that, notwithstanding ‘Rule 15′ of the AB Working Procedures and its consistent application in WTO dispute settlement practices to date, the AB ‘does not have the authority to deem someone who is not an Appellate Body member to be a member’. In the view of the US, only the DSB – not the AB – has the authority and responsibility to decide whether a person whose term of appointment has expired should continue serving.
• Issuing advisory opinions on issues not necessary to resolve a dispute: The US criticizes ‘the tendency of WTO reports to make findings unnecessary to resolve a dispute or on issues not presented in the dispute’.
• Appellate Body review of facts and review of a member's domestic law de novo: The US criticizes the AB's approach to reviewing facts. Under Article 17.6 of the DSU, appeals are limited to ‘issues of law covered in the panel report and legal interpretations developed by the panel’. Yet, in the view of the US, the AB has ‘consistently reviewed panel fact-finding under different legal standards, and has reached conclusions that are not based on panel factual findings or undisputed facts’. In the US’ view, this is particularly the case for Appellate Body review of panel findings as to the meaning of domestic legislation (which should be an issue of fact).
• Appellate Body claims its reports are entitled to be treated as precedent: The US claims that the AB has asserted its reports effectively serve as precedent and that panels are to follow prior AB reports absent ‘cogent reasons’, which has no basis in the WTO rules. The US puts forward that ‘(w)hile Appellate Body reports can provide valuable clarification of the covered agreements, Appellate Body reports are not themselves agreed text nor are they a substitute for the text that was actually negotiated and agreed’.
• Adding or diminishing of rights and obligations by the AB in various disputes: The US exemplifies these concerns by AB rulings on the following issues: the interpretation of the notion of ‘public body’ under the Subsidies Agreement; the interpretation of the non-discrimination obligation under Article 2.1 of the TBT Agreement; certain interpretations relating to safeguard measures (notably on ‘unforeseen developments’); outcomes in the cases launched by the EU against the ‘Byrd amendment’ (giving the proceeds from anti-dumping/countervailing duties to US industry) and on tax treatment for ‘Foreign Sales Corporations’ (that was considered to be an export subsidy). In the view of the US, the findings in those disputes departed from the relevant WTO agreements as negotiated.
All these US concerns relate to long-standing AB legal interpretationsFootnote 12 and judicial practicesFootnote 13 that had been justified on the basis of (1) the customary rules of treaty interpretation and (2) the quasi-judicial mandates given by the DSU to WTO panels, the AB and to WTO arbitrators, and (3) had been accepted in the legal practices of the DSB, albeit subject to occasional expressions of concerns by the US. Notwithstanding the continuing DSU reform negotiations since 1998, all the (more than 140) AB reports since 1996 were consistently adopted by the DSB without ‘politically agreed corrections’ of this jurisprudence, as would have been legally possible through ‘authoritative interpretations’ (Article IX:2), amendments (Article X) of the WTO Agreement, or by overruling dispute settlement findings through DSB decisions. Moreover, some of the legal problems (like disregard for the 90 days deadline for appeals) were caused by the USA itself, for instance:
• by insisting on the insertion of such an unreasonably short and – in most pending AB disputes – impossible deadline into the DSU in order to avoid changing the corresponding deadlines for administrative remedies in US trade laws; no other international or domestic court has been constrained by a similar deadline!
• by disregarding the DSU obligations to provide the AB ‘with appropriate administrative and legal support’ (Article 17:7) and fill ‘vacancies … as they arise’ (Article 17:2); and
• by contributing to the increasing number and complexity of appeals (e.g. more than 13 pending AB disputes in November 2018), which – de facto – render compliance with the 90 days deadline impossible without introducing radically new, politically agreed procedures (like ‘summary judgments’ prior to publication of the full AB report, publication of AB reports in the language of the dispute before translation into the other official WTO working languages).
The US has submitted no evidence for its political claims that the judicial AB interpretations have engaged in ‘persistent over-reach’,Footnote 14 for instance by violating:
• the customary rules of treaty interpretation (e.g. by arbitrarily misinterpreting ‘the terms of the treaty’, or by misapplying the duly interpreted treaty terms to the relevant facts established by the panel), or
• the quasi-judicial mandate of WTO dispute settlement bodies (e.g. by not addressing ‘each of the issues raised in accordance with paragraph(s) 6’ and 12 of Article 17 DSU).
This US insistence on its own ‘hegemonic interpretation’ of WTO rules – disregarding the multilateral (e.g. ‘authoritative’ or quasi-judicial) interpretation methods provided for in WTO law – reflects what participants in the Uruguay Round negotiations have criticized as ‘bad lawyering’ by US trade diplomats attempting to impose domestic, US interpretation methods (e.g. in Article 17.6(ii) Antidumping Agreement), notwithstanding their inconsistency with the customary methods of treaty interpretation.Footnote 15 It is, likewise, reflected in the insistence of US trade diplomats on the ‘contractual nature’ of WTO market access commitments, their denial of ‘constitutional’ (e.g. judicial) dimensions of WTO law, their disregard for the dynamic evolution of multilateral treaty systems through ‘argumentative’ and ‘judicial practices’ progressively clarifying and developing WTO rules and principles since 1995, and the refusal of the US to accept other, compulsory worldwide and regional jurisdictions like the International Court of Justice, the International Tribunal for the Law of the Sea, the International Criminal Court or the Inter-American Court of Human Rights.Footnote 16 International lawyers inside and outside the WTO institutions have persistently celebrated the WTO jurisprudence as the ‘crown-jewel’ of WTO legal practices fulfilling the quasi-judicial mandate for ‘prompt settlement’ of WTO disputes, ‘providing security and predictability to the multilateral trading system’ through impartial, independent third-party adjudication, and clarifying ‘the existing provisions of those (WTO) agreements in accordance with customary rules of interpretation of international law’ (Article 3.2 DSU). These customary rules require application also of general rules and principles of international law ‘applicable in the relations between the parties’,Footnote 17 including ‘due process of law’, ‘judicial administration of justice’ in third-party adjudication of WTO disputes, and good-faith-compliance by all WTO members with DSU rules (cf. Article 3.10 DSU) and with dispute settlement rulings adopted by the DSB (cf. Article 23 DSU). The DSU avoids describing WTO dispute settlement panels, the AB and WTO arbitration as ‘courts of justice’ and WTO adjudicators as ‘justices’. Yet, the DSU rules, WTO working procedures for panels and the AB, and WTO ‘rules of conduct’ prescribing impartiality and independence of WTO panelists, AB members and arbitrators have been persistently interpreted by WTO adjudicators and WTO members as providing for quasi-judicial mandates.Footnote 18 The US claims of ‘judicial overreach’ are also criticized as being opportunistic: in many WTO disputes, the US itself suggested and welcomed ‘creative interpretations’ of indeterminate procedural WTO rules (e.g. on admission of amicus curiae briefs, making panel and AB meetings open to the public) as well as of substantive WTO rules (e.g. on recognizing living organisms as ‘exhaustible natural resources’ in terms of Article XX(g) GATT, interpreting a GATS prohibition of ‘anti-competitive practices’ as prohibiting price-fixing cartel agreements). As US trade diplomats have made no effort at demonstrating that the AB jurisprudence has disregarded its quasi-judicial mandate for ‘prompt settlement’ of WTO disputes by clarifying the disputed meaning of WTO provisions through use of the customary rules of treaty interpretation, no other DSB member has so far supported the politically motivated US blocking of the filling of AB vacancies.
American trade law experts – like former US Congressman and WTO AB chairman Bacchus – have interpreted US President Trump's blockage of the WTO AB system – and the discriminatory import tariffs imposed by the Trump administration in 2018 in violation of WTO law (e.g. GATT Articles I and II) – as an ‘American assault on the rule of law in world trade’.Footnote 19 These legal assessments concord with academic and social media observations that ‘the top US trade officials are disdainful of any supranational bodies that might constrain US sovereignty — from WTO rules and dispute settlement panels, to arbitration tribunals used by companies to challenge unfair government policies when they invest abroad’.Footnote 20 In DSB deliberations, WTO members have persistently criticized the blocking of AB nominations by the US; the discriminatory US tariffs on the importation of steel and aluminium have been challenged in WTO dispute settlement proceedings by numerous WTO members – like Canada, China, the EU, India, Mexico, Norway, Russia, and Turkey – on the grounds that, inter alia, their legal inconsistencies with GATT Articles I and II could not be legally justified on national security grounds (Article XXI GATT) or as safeguard measures (Article XIX GATT).Footnote 21 Many adversely affected WTO members also adopted retaliatory suspensions of market access commitments vis-à-vis the USA, which some of these WTO members justified by invoking Article 8 of the WTO Agreement on Safeguards. As the US import tariffs on aluminium and steel had been introduced for economic rather than national security reasons,Footnote 22 and US imports of aluminium and steel had not increased over the past two years, the affected exporting countries claimed to be free to suspend ‘substantially equivalent concessions’ of other obligations as permitted by Article 8:2 of the WTO Agreement on Safeguards in order to maintain the ‘reciprocity principles’ underlying WTO law. China criticized the discriminatory US import tariffs imposed under Section 301 as a ‘trade war’ violating WTO law (e.g. Articles I and II GATT, 23 DSU), without justifying China's retaliatory tariffs by invoking specific WTO rules. Even if the DSU reform negotiations since 1998 have so far failed to enable consensus on agreed DSU amendments, politically agreed reforms of the incomplete and imperfect DSU rules remain certainly desirable. Yet, the mere discontent of US trade diplomats with some adverse dispute settlement findings and with the AB does not legally justify the US blockage, which is widely criticized as a ‘sinister distraction’ from President Trump's political objective of unilaterally blocking WTO AB jurisdiction over US trade restrictions and judicial interpretations of WTO rules restraining US trade policy discretion.Footnote 23
3. Rule of law or rule of power? How should WTO members respond to the US assault on the WTO legal system?
How should WTO members interested in realizing the DSU reform objective of preserving and further strengthening the WTO dispute settlement system respond to the US attempt at rendering the functioning of the WTO AB impossible by blocking the filling of AB vacancies? Section 2 concluded that – just as the US withdrawal from the 2015 Paris Agreement did not provoke other UN member states to abandon climate change prevention, and the 11 signatory states of the Trans-Pacific Partnership Agreement responded to President Trump's withdrawal from this FTA by renegotiating and applying this Agreement among themselves (as from 30 December 2018) in order to enhance their economic welfare – WTO members must comply with their legal obligations to maintain the WTO dispute settlement system for ‘the willing world’, i.e. those citizens and democratic governments who are reasonable enough and ‘democratically capable’ to protect and modernize the WTO trading and legal system as a global public good of existential importance for realizing the universally recognized ‘sustainable development goals’. At the WTO General Council meeting on 12 December 2018, Australia, Canada, China, the EU, Iceland, India, Korea, Mexico, New Zealand, Norway, Singapore, and Switzerland presented joint proposals for overcoming the current deadlock in the WTO AB by amending the DSU in order to accommodate the concerns expressed by the US, notably by
• negotiating new DSU rules for outgoing AB members which make clear on which cases they can stay on to complete the appeal proceedings they are working on;
• ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in Article 17 DSU, unless the parties in the dispute agree otherwise;
• clarifying that the legal issues subject to appeal by the AB do not include the meaning of domestic legislation;
• specifying that the AB should only address issues necessary to resolve the dispute; and
• introducing annual meetings between WTO members and the AB to discuss in an open way systemic issues or trends in jurisprudence.Footnote 24
Three features of these DSU amendment proposals are characteristic:
• They respond to the concerns raised by the US Trump administration so as to strengthen member-control over the AB.
• They were coordinated and initiated without inclusion of the US delegation so as to avoid US obstruction.
• As US trade diplomats fail to indicate under which conditions they are willing to stop their illegal blocking of the filling of AB vacancies, the proposal includes a footnote that, ‘(i)f the amendment of the DSU proves to be impracticable to achieve this objective swiftly, we will consider other legal instruments appropriate for that purpose’.
In an additional ‘Communication from the EU, China and India to the General Council’,Footnote 25 these three largest WTO members propose additional DSU amendments to reinforce the AB's independence and impartiality and to improve its efficiency, for instance by
• providing for a single, longer term of AB members of six to eight years;
• increasing the number of members from seven to nine working full-time, to support the AB's capacity to deliver; and
• ensuring that the selection process of AB members starts automatically when a post is vacant, and that there is an orderly transition with outgoing members.
Again, also this communication was initiated and elaborated without US trade diplomats, as they no longer seem to support this objective of reinforcing the AB's independence, impartiality, and efficiency.
As both proposals were rejected by the US delegation at the General Council meeting on 12 December 2018 and the US Trump administration seems to be unwilling to engage in good faith negotiations on DSU amendments responding to the US concerns, the above-mentioned footnote in the first communication of 26 November 2018 – and its reference to ‘other legal instruments’ available under WTO law for protecting the WTO legal and dispute settlement system – needs to be clarified. These ‘other legal instruments’ include, inter alia:
• Initiation and completion – ‘by a majority of the votes cast’ (Article IX:1 WTO Agreement) in the WTO General Council or WTO Ministerial Conference rather than in the DSB – of the WTO procedures for selection and timely appointment of vacant AB positions. This legally prescribed majority voting by the WTO Ministerial Conference or General Council is justified by the illegality of the US disregard for the collective WTO duties to maintain the AB as prescribed in Article 17 DSU.Footnote 26 The text of Article IX:1Footnote 27 confirms that the WTO Ministerial Conference and General Council are legally required (‘shall’) to overcome illegal ‘blocking’ in the DSB of the filling of AB vacancies by such majority decisions in order to meet the collective WTO legal duties to maintain the AB as prescribed in Article 17 DSU, similar to the existing WTO procedures for appointing the WTO Director-General through a majority decision ‘where a decision cannot be arrived at by consensus’.Footnote 28
• In order to pre-empt objections (e.g. by the US) to such a majority decision as mandated by Article IX.1 WTO, the WTO Ministerial Conference or General Council could also adopt an ‘authoritative interpretation’ based on ‘a three-fourths majority of the Members’ (Article IX:2 WTO) confirming their collective legal duties and existing WTO powers to fill ‘vacancies … as they arise’ (Article 17 DSU) through majority decisions, for instance in view of Article XVI.3 WTO Agreement.Footnote 29 This ‘authoritative interpretation’ could also confirm that such majority decisions on meeting collective legal obligations of all WTO members do not establish a precedent for WTO decision-making on discretionary trade policy issues.
• As such majority decisions of WTO bodies require diplomatic preparation in order to overcome resistance by US trade diplomats, WTO members might further confirm, and temporarily resort to, the availability of ‘arbitration within the WTO as an alternative means of dispute settlement’ (Article 25.1 DSU) – also for agreed appellate review of WTO panel reports. Yet, such mutually agreed use of arbitration under Article 25 DSU to ensure the availability of appeals entails numerous problemsFootnote 30 that risk further undermining the WTO dispute settlement system.
4. Lessons from European ‘ordo-liberalism’ for reconciling American ‘neo-liberalism’ with Chinese state-capitalism?
Sections 2 and 3 criticized ‘hegemonic, neo-liberal abuses’ of ‘market failures’ (e.g. due to inadequate WTO competition rules) and ‘governance failures’ (e.g. due to illegal blocking of WTO AB nominations); they recommended ‘ordo-liberal’, rules-based responses using the existing WTO legal duties and decision-making procedures for protecting WTO third-party adjudication of disputes, its ‘member-control’, and impartial clarification of indeterminate WTO rules. This section briefly outlines why the ‘constitutional principles’ distinguishing European ‘ordo-liberalism’ from American ‘neo-liberalism’ may also offer coherent strategies for responding to the political ‘governance crises’ of the multilateral trading system as discussed in section 1.
The 1929 financial crisis on Wall Street prompted the US Congress to adopt the infamous 1930 Smoot–Hawley Tariff Act, which erected high tariff walls around the USA, provoked protectionist countermeasures from other trading countries, and deepened the ‘Great Depression’ in North America and Europe. US Secretary of State Cordell Hull's initiatives for the 1934 Reciprocal Trade Agreements Act, and the 1941 Atlantic Charter's commitment by US President Roosevelt and British Prime Minister Churchill ‘to further the enjoyment by all States, great or small, victor or vanquished, of access on equal terms to the trade and the raw materials of the world which are needed for their economic prosperity’, laid the foundations for the post-war US leadership for a multilateral trade and financial system. The 1944 Bretton Woods Agreements establishing the International Monetary Fund and the World Bank, the 1945 United Nations (UN) Charter, the General Agreement on Tariffs and Trade (GATT 1947), its ‘provisional application’ since 1948 as a substitute for the stillborn 1948 Havana Charter for an International Trade Organization, and the eight ‘GATT Rounds’ of multilateral trade negotiations on extending GATT rules by additional trade agreement – including also the 1994 Uruguay Round Agreement establishing the WTO – were all successfully concluded due to US leadership for the multilateral trade and financial system. This post-war US leadership for multilevel governance of transnational public goods has ended with the US Trump administration's de jure or de facto withdrawal from multilateral ‘public goods treaties’ in favour of transactional ‘bilateral bargains’ and illegal trade sanctions exploiting asymmetric US power for advancing mercantilist, national interests (‘America first’). The imposition of discriminatory US tariffs amounting to more than 260 billions of US dollars by executive orders – without congressional approval and effective judicial remedies of US citizens adversely affected by such ‘taxation without democratic representation’ – reveals deeper ‘failures’ of US constitutionalism and neo-liberalism. The ever-broader delegation of trade policy powers to tax and restrict domestic citizens by the US Congress – e.g. in Section 232 (as invoked by the Trump administration for justifying its discriminatory tariffs on steel and aluminium) and in Section 301 of the US Trade Act (as invoked as legal basis for discriminatory tariffs on imports from China) – and the business-driven abuses of US trade remedy laws in clear violation of WTO obligations as confirmed in WTO dispute settlement rulingsFootnote 31, undermine US constitutional law principles of limited delegation, separation, and mutual ‘checks and balances’ of governance powers subject to constitutional rights and remedies of citizens and to democratic and judicial accountability.Footnote 32 In contrast to the compliance of US governments with US court decisions, the hegemonic US external policies tend to avoid limiting US foreign policy powers by compulsory jurisdiction of international courts or regional economic and human rights courts.Footnote 33 Also the limitation of US trade policy discretion by WTO adjudication is increasingly rejected by the US Trump administration, for instance because recourse to US economic power in the strategic ‘trade wars’ with China is preferred over recourse to US military power.Footnote 34
The hegemonic domination of the development of GATT/WTO law by the USA since 1948 entailed that many problems of American democracy, neo-liberalism, and interest group politics undermined also GATT/WTO law and practices.Footnote 35 The US claims that ‘economic security’ is part of ‘national security’ justifying violations of all WTO rules without WTO jurisdiction for judicial review, illustrates the legal inconsistency of the ‘neo-liberal’ trade and security strategies of the Trump administration with the WTO legal system; they are convincingly challenged by numerous WTO members. The 2018 Trade Policy Agenda describes China's market distorting policies (e.g. regarding state-trading enterprises, subsidies, communication services, intellectual property rights, government procurement, competition, and monetary distortions) and its ‘unreasonable and discriminatory efforts to obtain US technologies and intellectual property’ as one of the biggest challenges to the US economy, US security, and the WTO system;Footnote 36 hence, the US ‘Section 301 trade sanctions’ vis-à-vis China were introduced unilaterally without compliance with WTO rules (e.g. GATT Articles I and II) and dispute settlement procedures (e.g. Article 23 DSU). This challenge of the WTO legal and dispute settlement system by US protectionism and by Chinese state-capitalism raises the question: Does the rules-based European ‘ordo-liberalism’ – e.g. its acknowledgment that non-discriminatory market competition requires systemic legal limitations of ‘market failures’ (e.g. by competition, environmental and social laws) and of ‘governance failures’ (e.g. by limited delegation, separation and institutional ‘checks and balances’ among legislative, executive and judicial powers and judicial remedies) – offer lessons for the necessary modernization of the WTO trading, legal and dispute settlement systems?
4.1 Lessons from the ‘Geneva School’ of ordo-liberalism?
The American ‘Chicago School of law and economics’ and the ‘Virginia School of public choice and constitutional economics’, like the German ‘Freiburg School of ordo-liberalism’ and ‘Cologne School of social market economy’, focused on interactions of legal rules and economic principles in the regulation of national economies. The economists and lawyers cooperating in the ‘Geneva School of multilevel ordo-liberalism’Footnote 37 were more attentive to questions of international economic order as a condition for empowering welfare states and limiting abuses of public and private powers through multilevel, legal, institutional, and judicial guarantees of non-discriminatory market competition. European advocates of ‘multilevel ordo-constitutionalism’ acknowledge that the EU's ‘micro-economic common market constitution’ (e.g. based on multilevel competition law, environmental and social law, common market rights, and judicial remedies) and ‘macro-economic monetary constitution’ among EU member states (e.g. based on multilevel fiscal, debt, monetary, financial and other economic disciplines and institutions protecting monetary stability and convertibility) go far beyond what may ever be acceptable and politically feasible in worldwide, multilevel governance of public goods among UN/WTO member states. Yet, some of the basic constitutional, competition, and social policy principles of ‘ordo-liberalism’ have influenced the progressive legal construction, social embedding, and political legitimation of the WTO legal and dispute settlement system, for instance in
• designing multilevel legal restraints of trade policy instruments according to their respective economic efficiency (as illustrated by Articles I–III, XI GATT);
• separating trade and monetary policy instruments (cf. Article XV GATT);
• interpreting GATT/WTO market access commitments as protecting non-discriminatory conditions of competition;
• protecting sovereign powers to regulate and protect non-economic public goods (cf. Articles XIX-XXI GATT);
• providing for legal accountability and multilevel judicial remedies limiting rule-violations and other abuses of power (e.g. in Articles X, XXIII GATT); and
• promoting progressive evolution of the incomplete GATT/WTO system through progressive legal and political clarifications and development of the often indeterminate GATT/WTO rules and underlying principles.Footnote 38
Arguably, the ‘Geneva ordo-liberalism’ underlying the multilevel WTO dispute settlement system offers coherent constitutional and competition principles also for modernizing WTO rules on non-discriminatory conditions of trade competition, ‘special and differential treatment’ of less-developed economies, and transnational rule of law – i.e. the three main targets of US criticism of inadequate WTO rules and practices. De-escalating the 2018 ‘tariff wars’ by progressively transforming the 1994 WTO Agreement into a ‘WTO 2.0 fit for the 21st century’ requires more coherent competition law principles (Section 4.2), social market economy principles (4.3), and multilevel judicial protection of transnational rule of law (4.4) aimed at further limiting market distortions and ‘populist trade protectionism’, promoting social acceptance of WTO rules (e.g. by protecting the ‘losers’ from trade competition, targeting ‘special and differential treatment’ in WTO rules more precisely), and protecting ‘predictability and security for the multilateral trading system’ (Article 3.2 DSU) as the de-centralized, legal foundation of the global division of labour. Such agreed WTO reforms could also redress the ‘imbalance’ between the very successful use of the WTO dispute settlement system for clarifying disputed interpretations of WTO rules and the much less successful, political negotiation- and legislative-functions of WTO members.
4.2 Need for additional WTO competition rules
The WTO agreements on trade in goods, services, intellectual property rights, civil aircraft, and government procurement include numerous rules for protecting non-discriminatory conditions of competition and preventing anti-competitive abuses of public and private powers, like Article 8 TRIPS Agreement on ‘abuses of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’.Footnote 39 The WTO Working Group on the Interaction of Trade and Competition Policy (1997–2003) systematically explored the competition policy dimensions of WTO rules and the impact of anti-competitive practices of enterprises on international trade; its work promoted the, today, general acceptance among WTO members of the importance of mutual synergies between WTO rules and competition law principles (e.g. on non-discrimination, transparency, procedural fairness, prohibitions of price-fixing cartels, and discriminatory market-sharing agreements).Footnote 40 The Group suspended its work on proposals by some WTO members for a possible ‘multilateral framework on competition policy’ following the WTO Ministerial Conference decisions at Cancun in 2003. Yet, it could be re-convened whenever WTO members reached agreement on negotiating more precise competition disciplines in the WTO, for instance in view of the fact that about 135 WTO members (including all five BRICS economies) now have national competition laws. The inadequacy of WTO rules for restraining anti-competitive abuses of ‘state-capitalism’ (such as forced technology transfer), other trade distortions (e.g. in new sectors like electronic commerce, maintenance of competition in digital markets), and state-owned enterprises is increasingly recognized as one of the biggest regulatory challenges of WTO members. Recent analyses of competition policies emphasize that – also inside the US – antitrust policies are less and less effectively enforced vis-à-vis powerful market actors (like the FAANG: Facebook, Apple, Amazon, Netflix, and Google) in many economic and technology sectors.Footnote 41 Hence, all WTO members, including China, might find it in their national self-interests to de-escalate the US trade sanctions against alleged ‘unfair competition’, for instance by avoiding the ‘over-load’ of the WTO dispute settlement procedures with these disputes and mandating the WTO Working Group on the Interaction of Trade and Competition Policy with elaborating ‘member-driven guidelines’ for additional WTO competition disciplines in particular policy areas (like anticompetitive state-trading and intellectual property practices). Also US trade lawyers emphasize that President Trump's pursuit of ‘bilateral deals’ offers no substitute for using multilateral WTO negotiations and WTO dispute settlement procedures for clarifying general WTO legal disciplines for protecting non-discriminatory conditions of competition against the increasingly perceived risks of competitive distortions and ‘unfair trade’ undermining the legitimacy of the WTO system.Footnote 42
4.3 Need for embedding trade competition into ‘social market economies’
President F.D.Roosevelt's ‘New Deal’ of the 1930s, the ‘social market economy’ progressively established in Germany since the 1960s, and the EU law commitments to a ‘competitive social market economy’ (Article 3 TEU) with evermore guarantees of social rights structured around three priorities – equal opportunities for education, professional training, and access to labour markets; fair working conditions; and access to social protection and health care for all – offer three historical examples for successfully responding to economic and political crises and EU integration challenges by protecting social rights of workers, their families, and human rights. The more economic globalization and changes in technologies (like automation, robotics, and artificial intelligence) threaten economic security (e.g. for less skilled workers in import-competing sectors) and communitarian identities, the more citizens criticize political elites if they favour the powerful (e.g. through bailouts of banks following the financial crisis of 2008, insufficient banking regulations, tax reductions privileging capital owners), neglect the social adjustment challenges for workers and their families, and remain indifferent towards domestic inequality and social injustices. Economists argue that the economic causes of ‘protectionist populism’ (e.g. President Trump's conception of foreign policies as mercantilist business deals stripped of non-economic values like prevention of climate change and protection of refugees and immigrants) require stronger economic and social adjustment policies providing more compensation and safety nets for the ‘losers in trade competition’.Footnote 43 The claim that European populism is less ‘anti-trade’ than populism in the USFootnote 44 suggests that the WTO legal system would also benefit from stronger protection of the social dimensions of world trade. For instance, ‘special and differential treatment’ of less-developed WTO member countries could be defined more precisely in terms of local ‘capacity building’ (e.g. as in the WTO Trade Facilitation Agreement), in conformity with the universally agreed ‘sustainable development goals’ in the UN 2015 Resolution on the 2030 Agenda for Sustainable Development.Footnote 45 WTO law does not prevent diverse, national welfare state policies, and social labour market interventions. Yet, populist and authoritarian disregard for global public goods (like climate change prevention, human and labour rights) and for ‘social market economies’ is bound to undermine social support for, and democratic legitimacy of, open trading systems if they are perceived by people as ‘unfairly’ privileging powerful interest groups and business elites. Meeting the 2019 deadline for a WTO agreement limiting fishery subsidies – as envisaged as an integral part of the UN sustainable development goals – can, likewise, boost synergies between UN and WTO law by enhancing social recognition that the WTO is an indispensable part of worldwide governance of public goods far beyond promoting consumer welfare through non-discriminatory trade competition and transnational rule of law. The more the ‘disconnect’ between UN/WTO law and citizens undermines social and democratic support from citizens for public goods, the more important becomes the European ordo-liberal approach to applying trade and economic rules, not only as rights of governments, but also of citizens and non-governmental economic actors in order to promote legal, democratic, and judicial accountability of governance agents vis-à-vis citizens as their ‘democratic principals’.
4.4 Limiting WTO power politics by multilevel judicial remedies
Impartial and independent third-party adjudication of disputes is a much more ancient paradigm of ‘constitutional justice’ than modern ‘constitutional democracies’. The less citizens with, today, universally recognized human rights can perceive economic, political and legal regimes as ‘just’Footnote 46, the less they are likely to politically support international rules and comply with them voluntarily. The GATT/WTO trading system has helped countries to lift billions of people out of poverty. Yet, its legitimacy depends also on helping countries to protect the rule of law and other public goods demanded by citizens. President Trump's transactional, mercantilist approach to trade policy undermines WTO law, judicial administration of justice, and what the Preamble of the WTO Agreement describes as ‘the basic principles underlying this multilateral trading system’. As US trade diplomats have made no effort at demonstrating that the AB has neglected the customary rules of treaty interpretation or the judicial AB mandate of ‘prompt settlement’ of WTO disputes over the interpretation of often indeterminate and incomplete WTO rules through judicial clarification of WTO law and dispute settlement procedures, other WTO members remain reluctant to support US reform proposals driven by US business interests’ discontent with judicial limitations of US trade protectionism. Just as US withdrawal from the 2015 Paris Agreement has been no reason for other UN member states to abandon their climate change prevention policies, President Trump's disdain for the WTO legal and dispute settlement system offers no reason for other WTO members to no longer comply with their WTO legal obligations, as democratically prescribed by parliaments when they approved the WTO Agreement. European ordo-liberalism prioritizes a ‘rule of law perspective’. Hence, European lawyers remain reluctant to support US proposals for rewarding the US provocation of the ‘AB crisis’ by exempting trade remedies from the AB jurisdiction,Footnote 47 or by establishing a special AB division and AB secretariat for reviewing WTO panel reports on trade remedies.Footnote 48 It seems unrealistic that such DSU amendments will be supported by the necessary ‘consensus’ of WTO members, and that such DSU reforms will prompt President Trump to comply with what he denounces as ‘the terrible WTO agreements’. Nor does it make sense to preclude more than 50% of WTO complaints from the AB jurisdiction. Yet, as the US concerns with the ‘judicialization’ of the WTO legal and dispute settlement system are primarily of a political nature, the establishment of an AB division specialized in trade remedies disputes, and supported by staff with special expertise in economics, could be part of a ‘political compromise’ on resolving the WTO AB crisis. Yet, such ‘power politics’ must remain subject to adequate legal safeguards (e.g. for protecting the independence and overall coherence of AB jurisprudence endorsed by different AB divisions). Giving in to US interest group politicsFootnote 49 – without any coherent criticism of AB jurisprudence limiting abuses of trade remedy laws and defending compliance with WTO rules in conformity with the customary rules of treaty interpretation – not only disregards the reasonable interests of WTO members in maintaining non-discriminatory conditions of competition and rule of law; it also risks inviting similar power politics by other WTO members. For instance, as antidumping authorities often impose antidumping duties on grounds of ‘injurious dumping’ without empirically establishing competitive distortions caused by ‘dumped imports’, China and other WTO members might reject similar presumptions of market distortions in case of state-owned enterprises as ‘public bodies’ in the sense of the WTO subsidy and countervailing duty rules, or treating limitations of intellectual property rights as ‘unfair competition’.
5. Conclusion
This paper has recommended resolving the WTO AB crisis by defending the rule of law through use of the existing WTO rules on decision-making for the filling of vacant WTO positions (Articles IX.1 and 2 WTO Agreement) and for amending the DSU (Article X:8 WTO Agreement). The US objective of blocking the functioning of the AB, or proposals to overcome the AB crisis by resorting to general international law principles, offer no convincing alternatives.Footnote 50 Neither President Trump's trade protectionism nor the five BRICS economies offer coherent blueprints for realizing what the G20 Summit Declaration of 1 December 2018 described as ‘necessary’ modernization of WTO law and governance. Hence, this paper also recommended the competition law-, ‘social market economy’- and rule-of law-principles of ‘Geneva ordo-liberalism’ as guidelines for resolving the broader WTO governance crises. The inability of WTO members to conclude their Doha Round negotiations, to adapt WTO law to modern regulatory challenges, and to adopt ‘authoritative interpretations’ responding to criticism of the dynamically evolving WTO jurisprudence confirms the – often lamented – ‘imbalance’ between the law-making and judicial functions of the WTO; this calls for institutional and legal reforms, such as the institutionalized dialogue between the DSB and the AB proposed by the EU. Power-oriented, diplomatic callsFootnote 51 for limiting judicial review of protectionist violations of agreed WTO rules approved by parliaments are rightly resisted by most WTO members. For instance, US threats of disregarding WTO panel and AB findings on the pending WTO disputes over ‘national security justifications’ of discriminatory trade sanctions, or on the ‘market economy status’ of China, are inconsistent with the DSU obligations of ‘prompt compliance with recommendations or rulings of the DSB’ (Article 21.1 DSU). The EU initiatives for responding to the US criticism by improving WTO rules through agreed amendments, annual meetings between the DSB and the AB, and, if necessary, majority decisions securing timely appointments of the AB – similar to the existing WTO procedures for timely appointment of the WTO Director-General – are to be welcomed. WTO members must de-escalate the 2018 ‘tariff wars’, advance WTO modernization, and avoid ‘over-loading’ the WTO dispute settlement system with clarifying insufficiently precise WTO rules (e.g. on state-owned enterprises). These policy reforms could be facilitated by acknowledging the ordo-liberal need for elaborating more coherent competition rules limiting market failures, promoting social adjustment to import competition and related technology challenges, and protecting transnational rule of law and judicial remedies as legal and institutional restraints on ‘governance failures’. ‘Fast thinking’Footnote 52 in response to US power politics and to US discontent with AB rejections of US claims must remain checked by the ‘slow reasoning’ in democratic institutions, multilateral WTO negotiations, and in ‘courts of justice’. The necessary accommodation of different perspectives and interests can be facilitated by recognizing that WTO law and governance have become important parts of modern welfare states protecting rule of law and economic and social welfare of their citizens. Without protecting rule of law and rules-based settlement of transnational trade disputes as prescribed in WTO law, and without resisting neo-liberal abuses of the inadequate WTO legal limitations of ‘market failures’ and ‘governance failures’, citizens and democratic parliaments will lose trust that WTO law should govern world trade and, thereby, all our lives.
The constitutional dimensions of ordo-liberal limitations of ‘market failures’ and ‘governance failures’ in European law and WTO law are often disregarded, such as the insight that anti-competitive abuses of public and private power are a perennial challenge of every economy (e.g. also of Chinese state capitalism and US market capitalism) that require constitutional restraints on abuses of public and private power and institutional ‘checks and balances’ protecting private ‘market rights’ and the enforceability of trade and competition disciplines.Footnote 53
