Further uncertainty in global trade
2019 has been a rather turbulent period in global trade with the US and China tariff war, the uncertainty regarding Brexit and South Africa’s eligibility under the Generalised System of Preferences to name but a few events. Yet despite this, the global trading system is about to receive another shock that will inevitably bring more uncertainty.
On 10 December 2019, the World Trade Organisation’s Appellate Body will cease to operate. This is due to the fact that the US has been blocking the appointment of judges to the WTO’s Appellate Body and on 10 December 2019 there will be only one remaining judge and the rules stipulate that three judges must hear any appeal.
The WTO’s Appellate Body is a critical component of the global trading system as it acts as the final judge in appeals it hears from decisions by the WTO’s Panels. It can authorise retaliation in the event that the losing member country does not adhere to the decision. The retaliation typically takes the form of increased tariffs to compensate for the losing country’s violation of the rule/s that it has been found guilty of.
Should the WTO lose this final appeal component, it may be possible that the world trading system may revert to the situation experienced under the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT) 1947. Under the GATT of 1947, the dispute settlement system suffered from inadequate enforcement of the world trading rules. Should the WTO’s Appellate Body cease to function as it can no longer hear any new appeals, member countries who are dissatisfied with the outcome of a Panel decision may merely appeal the Panel’s decision as there would never be an appeal nor an authorisation of retaliation.
This situation could lead to numerous instances where the rules are simply violated as there will be no legal retribution through the WTO. However, this does not mean that there will be no consequence for the violating member country. In fact, it is likely that one violation will spark counter violations, such as unilaterally increasing a member country's tariff. This of course has economic consequences for all nations involved. Most worryingly, it is likely to bring greater uncertainty to business in these already ambiguous times.
© Trade Law Chambers 2019