Trade

What to do about the WTO’s woes

A crucial cog in the World Trade Organisation is on the precipice of collapse - but what does that mean for New Zealand, and what can, or should we do to fix it?

As a country that must trade to make its way in the world, any threat to that international trading system is disproportionately alarming for New Zealand.

So Kiwi diplomats and trade experts are understandably concerned by the news that a critical part of the World Trade Organisation - its appellate body - may this week become defunct.

Thanks to the United States blocking the appointment of new judges to the panel that hears appeals in trade disputes, the appellate body will on Wednesday (NZ time) fall below its three-member minimum and become unable to hear new cases, barring a last-minute resolution.

Exactly what that means for New Zealand was a topic of hot discussion at an international trade panel arranged by Chapman Tripp in Wellington last week.

Former trade minister and diplomat Tim Groser, who served as New Zealand’s ambassador to the WTO from 2002 to 2005, said the potential dismantling of the appeals process was extremely concerning - and not just for smaller nations like New Zealand.

“I don't believe that the multilateral trading system exists just for the small countries without power, but unquestionably, those without much relative power gain enormous benefits for it.”

However, Groser said the WTO had done little to help its cause in the last 25 years, producing a trade facilitation agreement that one colleague had described as “so thin you could spit through it” but failing to advance its negotiating function in anything other than modest ways.

Vangelis Vitalis, the deputy secretary for trade and economic issues at the Ministry of Foreign Affairs and Trade, described the current impasse as a “very serious and close to existential crisis”.

Former trade minister Tim Groser said the WTO had not done much to ease criticism of its performance in recent years. Photo: Lynn Grieveson.

It was unlikely that the appellate body would immediately cease to function, but it would not take long for that to be the case and countries could not afford to wait to find a solution, he said.

“I think there is an opportunity now...to say to the United States, ‘OK, you broke that system - now what? What is is that we need to pull together?’”

WTO members would need to find creative solutions for issues like intellectual property rights and industrial subsidies, Vitalis said, while determining how to fix the appellate body and revive its negotiating role.

The US had long-standing concerns about the appeals process which were shared by other countries, but the country stood alone in its “wrecking ball approach” to the body.

Groser said that may be due in part to the unlikely nature of its support for the WTO, following the Uruguay round of trade talks which led to the organisation’s creation in 1994.

He was surprised at the time that American negotiators had been able to get the proposal through Congress, but suggested that decision had come back to haunt them as the US better understood how the WTO related to their dislike of “untrammelled international incursions over our sovereignty”.

There were a number of “old hands” within the WTO secretariat who deeply resented the work of the appellate body, while Groser himself was critical of the body’s overreach in some cases.

'Plan A' preference - but NZ not naive

But recognising the validity of American concerns is an entirely different matter from fixing them - so what should, or can, we do in the meantime?

Vitalis said New Zealand remained committed to a “Plan A” of resolving concerns about the appellate body, with Kiwi diplomat David Walker overseeing efforts in Geneva to find a way through.

However, a Plan B, if required, could take the shape of plurilateral approaches to dispute resolution which would always be better for smaller nations like New Zealand.

“I do want to reassure people that we’re not naive about the system, but we are still wanting to make sure that we're not sending the wrong signal by moving too quickly from a process that we still think has some legs,” Vitalis said.

As Groser noted, New Zealand already has a Plan B of sorts, thanks to its 1993 trade policy strategy “not to put all our eggs in the GATT basket” and to develop freestanding FTAs with other countries like China and Hong Kong.

“While we continue to work towards Plan A, the Plan B in terms of giving New Zealand alternative legal frameworks around its trade policy regime...actually gives us a lot of protection we did not have 30 years ago.”

Groser pointed to the “disturbing legal phrase…[that] there is no right without a remedy” as a sign of what could be to come if disputes landed in a no man's land.

While some politicians have sought to downplay the gravity of the appellate body shutting down, noting that other parts of the WTO will still function, Groser pointed to the “disturbing legal phrase…[that] there is no right without a remedy” as a sign of what could be to come if disputes landed in a no man's land.

“If you don’t have [alternatives] in place, the minister of the losing party at the lower court hearing will always inevitably have to say, ‘Well we're hopeful that the impasse over the appellate body will soon be resolved. In the meantime, we have no intention, of course, of settling this because we still think the case is not properly heard at the lower court hearing’.

“These are not hermetically sealed zones, the existing contractual framework obligations and the judicial process to inform them - it’s a very dangerous situation.”

The current spat may not be all that visible to Kiwi exporters. Katherine Rich, chief executive of the Food and Grocery Council, said only the most sophisticated businesses would take note of what was happening within the WTO, but most had a sense that an organisation existed for countries to take trade disputes “almost as a last resort”.

That last resort may be off the table by the end of the week - and how New Zealand, and the world, will handle that remains to be seen.

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