Trump Trade Fight Heads to Global Court as WTO Nears the Rubicon

(Bloomberg) -- President Donald Trump’s plan to reshape America’s global relationships will reach a critical juncture this week when the World Trade Organization decides whether to trigger a landmark dispute over what trade measures nations can use to protect national security interests.

The Geneva-based WTO has long avoided this politically fraught confrontation, which could irreparably harm the organization tasked with deciding international trade disputes. But barring any unforeseen developments, the WTO on Nov. 21 will grant requests from members including China and the European Union to determine if U.S. steel and aluminum tariffs imposed in March -- and based on national security concerns -- are legal.

U.S. trade officials say that the WTO has no authority to mediate national security matters and should simply issue a decision that says the matter is outside of the WTO’s remit. WTO Director-General Roberto Azevedo has gone so far as to warn countries against taking this dispute to the WTO, arguing that it instead “requires conversation at the highest political level.” The fight could end up sidelining the WTO.

“If the WTO finds that Trump’s tariffs are permitted under the national security exception, it opens a gaping hole that would allow any other country the right to impose trade barriers on any product at any moment and for no particular reason other than protectionism,” Chad Bown, a senior fellow at the Washington-based Peterson Institute for International Economics, said in an interview. “Yet if the WTO rules against Trump, he could see this as political justification to do something even more alarming, such as withdrawing the U.S. from the agreement altogether.”

Security Interests

In applying the tariffs, Washington relied on a rarely-used WTO national security exemption, which permits governments to take “any action which it considers necessary for the protection of its essential security interests.” The Trump administration has already blocked the process once, and since the rules don’t allow further preventative actions, the WTO will likely create a dispute settlement panel, which would consist of three experts. Any decision would likely be rendered in 2019 or 2020.

Jennifer Hillman, a professor of law at Georgetown University and former general counsel to the Office of the U.S. Trade Representative, said the U.S. claim falls outside of the WTO’s national security exemption, which applies to nuclear materials, arms and ammunition or measures taken in time of war or other international emergency.

"The U.S. is pushing against any scrutiny of its decision since it cannot withstand the scrutiny," Hillman said in an interview.

Steel as National Security Issue? Here’s the U.S. Law: QuickTake

The dispute request, brought by Canada, China, the EU, India, Mexico, Norway, Russia, Switzerland and Turkey, faces a significant hurdle: The WTO may be unable to render a final decision if the U.S. continues to block new appellate body nominees. By December 2019, the appellate body won’t have the three panelists required to sign off on rulings and will essentially be paralyzed.

The WTO is also expected to grant a series of U.S. disputes over tariffs imposed by Canada, China, the EU and Mexico in response to America’s metal duties. To date, seven WTO members -- Canada, China, the EU, India, Mexico, Russia, and Turkey -- have imposed retaliatory levies on more than $25 billion worth of U.S. goods in response to the American tariffs.

“There is no good outcome,” Joshua Meltzer, a senior fellow at the Washington-based Brookings Institution, said in an interview. “Once the U.S. goes down this path it definitely opens up space for other countries to do the same.”

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

To contact the editors responsible for this story: Richard Bravo at rbravo5@bloomberg.net, ;Ben Sills at bsills@bloomberg.net, Jones Hayden

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