How the World Trade Organization Resolves Trade Disputes
Trump's Tariffs Flout the WTO's Process
One of the World Trade Organization's functions is to resolve international trade problems. Fortunately, any member can file a complaint with the WTO against another member they believe is dumping, unfairly subsidizing or violating any other trade agreement. If the WTO decides the case is valid, it has the authority to levy sanctions on the offending country.
The staff will then investigate to see if a violation of any multilateral agreements has taken place. The WTO staff first try to settle disputes through consultations. Since 1995, members had filed more than 500 disputes. Only about a third needed to be reviewed by a panel before being resolved. Most of them were settled “out of court” or are still in the consultation process. As a result, only 350 formal rulings needed to be issued. The WTO offers a chronological list of dispute cases.
Not surprisingly, the United States has been either a complainant or defendant in about half the WTO disputes. The Office of the United States Trade Representative represents the United States in these cases. As China's economy grows, it is involved in more trade disputes.
The benefit of the WTO process is it prevents the damaging consequences of trade protectionism. That's when countries retaliate against offending country's dumping, tariffs or subsidies by doing the same or worse. That creates a downward spiral which hurts both countries' economic growth. Trade protectionism helped extend the Great Depression, where global trade fell by 25 percent. Nations can apply to the WTO to resolve their dispute instead of raising tariffs.
In July 2016, the United States filed a dispute with China. It claimed China was taxing exports of high-demand raw materials. These include antimony, graphite, and magnesia. China mines more than two-thirds of the world's supply of each of these metals. The export tax increased the prices of these exports between 5 percent to 20 percent. That put U.S. high-tech companies, such as Qualcomm and DJO Global, at a disadvantage. They must pay more for these essential raw materials than Chinese-based companies.
That makes their prices higher on the global market. Their only solution is to open Chinese-based manufacturing plants. That takes jobs away from American workers.
The European Union nearly the same case at the same time. The United States won similar cases against different raw materials in 2009 and rare earth metals in 2012. As a result, the chances of winning are good. That will keep these manufacturing jobs in the United States. But it may take years since the dispute process is thorough and lengthy. That's why almost 70% of cases a settled by negotiation.
Trump Ignored the WTO Process
On March 8, 2018, President Trump announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. America is the world's largest steel importer. The move was targeted toward China. Trump promised to reduce the U.S. trade deficit with China. Its economy depends heavily on steel exports.
On March 22, 2018, the Trump administration announced it would levy tariffs on $60 billion of imports from China. It would also limit on U.S. technology transfers to Chinese companies. China requires foreign companies who want to sell products in China to share their trade secrets with Chinese companies. China retaliated by saying it would do what was necessary to protect its rights.
Both moves flout the WTO's trade dispute process. All members should bring their case to the WTO before imposing tariffs. If both countries had ignored the WTO, it could have made the organization irrelevant.
But on April 10, 2018, China filed a formal complaint with the WTO. It said Trump's tariffs flouted international law. It brings the organization back into the dispute.
Formal Dispute Timetable
A typical dispute process takes a year if there's no appeal, and 15 months if the defendant appeals. That happens with about half the decisions. The WTO will shorten the resolution time if perishable goods are involved. On the other hand, some disputes have been ongoing since 1995. Here are the steps and timetable in a typical dispute resolution case.
Steps and Length of Time
- Consultations: Initial complaint filed. WTO Director tries to mediate a resolution. 60 days.
- Review panel set up. Both sides submit their cases in writing. 45 days
- Panel reports to disputing parties. Six months.
- Panel reports to all members. Three weeks.
- Report adopted by dispute settlement body if no appeals. 60 days.
- Appeal. 60-90 days.
- Settlement body adopts appeals report. 30 days.
- If found guilty, defendant states its intention to comply. 30 days.
- If the defendant doesn't comply, it must compensate the plaintiff. 20 days.
- If it doesn't, the plaintiff can ask the WTO to impose trade sanctions. 30 days.
- "The U.S. Filed a WTO Dispute to Save U.S. Jobs -- by Increasing Imports From China. Here's Why," The Washington Post, July 26, 2016.
- "When Partners Attack," The Economist, February 11, 2010.