Date of this Version
Yeutter Institute International Trade Policy Review, October 17, 2022
The absence of a functioning Appellate Body at the World Trade Organization (WTO) leaves the dispute settlement mechanism weakened, and countries may be more likely to pursue their domestic policy goals in ways that restrict trade. Industries with relatively large export exposure like US agriculture will be particularly vulnerable in this new chaotic regime. The deterrent effect is more important than you think An integral part of the world trading system has been the WTO’s dispute settlement mechanism, which enables the WTO to enforce the rules the Members signed up for. Knowing you could get sued in the WTO for not following the rules tends to deter bad behavior. Citing need for reform, however, the US has blocked appointments to the body responsible for reviewing appeals and this has left the enforcement mechanism ineffective. Countries can still bring cases but there is no Appellate Body so the losing party can indefinitely delay the process by appealing the panel decision into a void, leaving the issue unsettled. The WTO is inherently a member driven organization and the dispute settlement function can be seen as a way for members to “check” each other on following the rules. When Members designed the Dispute Settlement Understanding, they were saying, “we commit to following the rules that we made for ourselves and if we don’t follow them, then we subject ourselves to retaliation.” Disputes inevitably arise from time to time, so having a place to sort things out before a trade war ensues is essential. The most important function of the dispute settlement mechanism might just be the deterrent effect—that is, policymakers and legislators are deterred from designing laws and policies that would violate the WTO rules. The deterrent effect has been hard to measure. Until now.