U.S. Says WTO’s Appellate Body Is Invalid, Balks at Compliance

(Bloomberg) -- The Trump administration signaled it’s under no obligation to comply with certain World Trade Organization dispute rulings because the trade body’s appellate function is no longer operational.

In a document published Wednesday, the U.S. argues that Canada cannot legally retaliate against America’s tariffs on Canadian exports of a type of smooth paper used in magazines.

The U.S. rejected Canada’s claim that the WTO required the U.S. to remove its paper duties -- which range from 17.87% to 20.18% -- and said the ruling could not be adopted because none of the three appellate judges who signed off on the decision were “valid.”

The U.S. said the terms for two of the panelists who issued the March 5 ruling had already expired and the third panelist -- a Chinese national named Hong Zhao -- was ineligible due to her affiliation with the Chinese government.

As a result, “there is no recommendation for the United States to bring a measure into conformity,” the U.S. said in its statement published by the WTO.

The U.S.’s maneuver may help Ohio-based Verso Corp. by maintaining punitive duties on Canadian paper companies including Resolute FP Canada Inc., Port Hawkesbury Paper, Catalyst Paper Corp. and Irving Forest Products.

The development presents a legal quandary for the Geneva-based arbiter of trade after the U.S. essentially neutralized its dispute settlement system late last year.

Over the course of the past two years, the Trump administration slowly gutted the WTO appellate body -- a seven-seat panel that handles the appeals of WTO rulings -- by blocking all new nominations and allowing the terms of its current members to expire.

Trade officials have warned that the unprecedented move would damage the functioning of the multilateral trading system, increase uncertainty for businesses and create the potential for escalating trade wars.

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