Shipping cranes stand on the container shipping terminals of the Port of Hamburg in Hamburg, Germany. (Photographer: Krisztian Bocsi/Bloomberg)  

EU Weighs Changes to WTO Rules to Appease U.S.

(Bloomberg) -- The European Commission proposed ways to resolve the Trump administration’s concerns over the functioning of the World Trade Organization, in a bid to avert a looming crisis that could undermine the WTO’s ability to arbitrate trade disputes.

“The dispute settlement function of the WTO is at grave danger, and swift action by members is needed to preserve it,” according to an internal memo drafted by the EU’s executive arm and seen by Bloomberg. The memo, dated July 5, has been circulated to the European Union’s 28 national governments and is subject to consultations and approval.

The commission offered several ways to fix the WTO dispute system, including a proposal to increase the number of appellate body members from seven to nine, and respond to U.S. concerns that the panel has overstepped its mandate. The U.S. is blocking nominees to appeals 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 commerce.

‘Grave Danger’

The commission’s proposal seeks to address a half-dozen U.S. complaints about the way the panel works that the Trump administration cited in its 2018 trade policy agenda report. The main concern was the “activist approach of the appellate body on procedural issues, interpretative approach, and substantive interpretations,” according to the report.

Since August 2017, the U.S. has blocked nominees to the WTO’s appellate body saying it has overstepped its mandate. If the U.S. continues its hold, the body will be paralyzed in late 2019 because it won’t have the three panelists required to sign off on rulings.

WTO Director-General Roberto Azevedo has said the U.S. move could eliminate the WTO’s role as a trade-dispute forum and lead to a “domino effect” of trade retaliation. The European Commission said the appellate body should seek to meet its statutory 90-day deadline to decide appeal cases, or ensure extensions.

The U.S. has repeatedly criticized the fact that the appellate body hasn’t completed a case within 90 days since May 2014. The commission said WTO members should agree to permit outgoing appellate body members to complete their analysis on any pending appeal cases that began during their term.

Veto Right?

The U.S. administration has repeatedly criticized that former panel members stay in service after their term expires. The commission proposed that WTO members should change rules to clarify that the panel should deliberate only those matters that are “necessary for the resolution of a dispute.”

Both the Trump and Obama administrations have criticized the appeals body for making unnecessary findings or issuing advisory opinions that exceed the mandate of WTO dispute settlement rules. The commission said WTO rules should be clarified to ensure that appellate body members do not seek to interpret the meaning of national regulations -- another U.S. complaint.

The commission called for upholding a WTO rule that has prohibited a single-country veto of appellate rulings since 1994. That’s a rebuff to the Trump administration, which has signaled it wants to revert to the earlier procedure that allows any WTO member country to reject dispute rulings for any reason.

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