Analysis

'Look like you're doing something': Canada hosts trade reform talks without the U.S.

What happens when the central player who worked to set the rules for the game reconsiders - and flips over the table? Canada has invited 12 "like-minded" trading partners to Ottawa for talks on how to redesign the World Trade Organization now that Donald Trump's America no longer wants to lead it.

2-day gathering of trade diplomats from 13 WTO members kicks off with private dinner Wednesday night

Minister of International Trade Diversification Jim Carr welcomes representatives from 12 "like-minded" trading partners to Ottawa Wednesday for talks on how to reform the World Trade Organization. (John Woods/Canadian Press)

What happens when the central player who helped establish the rules for the game reconsiders — and flips over the table?

Welcome to the World Trade Organization in 2018: an organization approaching a crisis point, now that Donald Trump's America no longer wants to play a leadership role in its negotiations or respect its court rulings.

The U.S. president isn't even sure he wants to be a member anymore. As the world's largest economy withdraws, where does that leave those who still believe in the WTO's rules-based system?

The Canadian government has invited 12 representatives of "like-minded" trading partners to Ottawa for a private dinner Wednesday evening, followed by a day of meetings Thursday.

Trade officials from Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea and Switzerland are coming to this first gathering — the start of a process that may eventually include all 164 WTO members.

Historically, international trade breakthroughs have required the leadership of a smaller group. Canada's hoping to get one going.

"This is meant to be a discussion that is from the bottom up," Canada's WTO Ambassador Stephen de Boer said earlier this month.

In a paper setting up this week's discussions, Canada diplomatically suggested that a "combination of disruption and paralysis has begun to erode respect for rules-based trade."

While not explicitly calling out the U.S., the paper suggested that "in the absence of a single WTO member with the capacity, willingness or credibility to lead, an alliance of members who share a commitment to the multilateral trading system" could build toward a consensus on reforms.

No China, no U.S.

For now, the world's highest-profile trade combatants aren't invited.

The U.S. is leading its own trilateral conversations with the EU and Japan. (When it says 'WTO reform', the Trump administration tends to mean 'cracking down on unfair Chinese practices.')

A representative from China isn't coming, either. Its status in the WTO remains controversial. (Is it really a market economy? Or do its state-owned and controlled corporations tilt the playing field? Those questions may amount to an elephant in the room this week.)

Chinese President Xi Jinping shakes hands with Prime Minister Justin Trudeau during the G20 Summit in 2016. China's state-owned enterprises complicate efforts to reform the WTO. (Damir Sagolj/Reuters)

Why is Canada taking this on?

"We're very good at calling meetings," International Trade Diversification Minister Jim Carr quipped last month in New York.

But in all seriousness, someone had to. James Bacchus, a former congressman from Florida who twice served as the chief judge of the WTO's appellate body (the highest court for international trade), gives Canada credit for trying.

American officials have "shown no real interest in most of the reform agenda and it's not surprising that some of the other countries want to get together and discuss these issues before engaging with the United States," he said, adding that it would be counterproductive to involve America while it's in an obstructionist mood.

"The United States has been stressing the rule of power while undermining the rule of law in international trade. This is inexcusable," he said.

While the Trump administration may prefer to use its economic might to negotiate its own bilateral deals, Bacchus fears a fragmentation of world trade into competing regional blocs.

That wouldn't be a good situation for Canada, which could be trapped inside fortress North America as a client state of the U.S., instead of making the most of deals it's negotiated with European and Pacific Rim partners.

Appellate body on verge of shutdown

The list of American grievances with the WTO is long. Some predate Trump's election.

Take, for example, how WTO rules allow "developing" countries to opt for less strenuous trade commitments than members with advanced economies.

Because there are no fixed criteria to determine which countries are still "developing" (it's self-defining, actually), G-20 economies the U.S. competes strenuously with — South Korea, Brazil, India, Mexico and, yes, China — are treated differently when it comes to cutting tariffs, subsidies and other non-trade barriers.

And then there's dispute settlement. Despite what Trump might say, Americans have won about 90 per cent of their cases at the WTO, Bacchus pointed out.

But the U.S. disagrees with the way the WTO has treated its anti-dumping calculations in arbitration.

Even before the Trump administration, American officials began blocking the appointment of judges to the WTO appellate body — something normally done by consensus — in a direct challenge to its authority to interpret and enforce rules.

Now, only the bare minimum number of judges required to hear an appeal — three — remain on the WTO bench. Two of them have terms that expire in 2019.

Could members appoint more using a majority vote instead of consensus? Maybe. But consensus decision-making has been a way for smaller or less-developed countries to have stronger voices. They may not want to switch to decision-making by majority vote.

In the meantime, no judges means no binding arbitration.

"WTO rules work because they're enforceable," Bacchus said. "If they cannot be enforced, then they won't work and countries will have no incentive to improve the rules or write new rules, because they won't work either."

National security cases coming

Bacchus is among those who think members who still want WTO arbitration could set up a parallel system that works the same way, except without the U.S.'s participation.

"That's really the only way," said Nicolas Lamp, a former lawyer with the appellate body in Geneva, now an assistant professor at Queen's University's faculty of law. "The U.S. is not interested in a solution."

U.S. Trade Representative Robert Lighthizer is no fan of the WTO's binding arbitration system. He wants to return to a system where countries were free to disregard the decisions of dispute settlement panels. (Win McNamee/Getty Images)

U.S. Trade Representative Robert Lighthizer would rather return to the system in place before the WTO was founded in the mid-1990s, in which members were free to ignore panel decisions.

Now that the U.S. has emasculated the appellate body by blocking judge appointments, it has a de facto veto to keep panel decisions from being enforced if they aren't to Washington's liking.

"It's pretty clear why they'd want that [veto] right, when you think of the 'national security' cases coming up," Lamp said, referring to the recent wave of challenges to both Trump's steel and aluminum tariffs and the retaliatory tariffs levied by members like Canada in response. "If [the cases] don't go the U.S.'s way, they're going to veto them."

WTO Director-General Roberto Azevedo, who is expected at the Ottawa meeting, isn't keen on the WTO adjudicating high-stakes tariffs cases like this. Is it the WTO's job to define what's essential to a country's security? That's not the kind of technical dispute this arbitration system was meant to resolve.

And for the WTO, it's a lose-lose proposition. If a panel allows the U.S. tariffs to stand, it could open the floodgates for protectionist tariffs worldwide, all citing "national security." If the U.S. loses, it's hard to imagine the Trump administration agreeing to be bossed around by a supranational panel out to interfere with its economy.

Could these cases blow up the WTO once and for all?

Canadian Debra Steger, the first director of the WTO's appellate body, doesn't think so. Tough cases have been brought before, and it survived.

"Panels take forever," she points out. They take time to form and then, sometimes, two or three years to make up their minds.

"Let's wait and see what happens in the midterms," she said. "I'm not convinced this guy [Trump] is going to be in power forever."

Too Trump-centred?

In the meantime, she fears too many of the reform proposals are centred on trying to accommodate the criticisms and concerns of the current U.S. administration.

"Canada has adopted some of the U.S. lines that just aren't correct," she said. "Everybody's bashing the appellate body now, which is just stupid. It has not been overreaching. I don't accept that."

The appellate body is trapped in a Catch-22, she said. Because it's difficult to draft and clarify rules by consensus — the multi-year Doha Round negotiation meant to address many current issues collapsed without meaningful progress — more and more issues are ending up in arbitration. But when arbitrators interpret rules in the absence of clear direction, judges are accused of trying to make the law, not uphold it.

Brazilian Roberto Azevedo, Director-General of the World Trade Organization, presides over an organization badly in need of reform, after years of failed negotiations, controversy over the terms of China's membership and now a building crisis over its inability to appoint new appellate body judges. (Martial Trezzini/Keystone/Associated Press)

Another set of reform proposals recently circulated by the EU wasn't as focused on overhauling the appeals process.

But all the complex and sometimes competing proposals currently in circulation lack a clear focus, Steger said.

The most urgent issues — maintaining an arbitration process and, when consensus is not possible, enabling change through "plurilateral" deals between willing partners — should take priority, she said.

So back to Thursday's meeting agenda. Subtract the times indicated for opening and closing statements, photo opportunities, a lunch and a press conference, and these 13 members really have only about three hours to talk.

"I don't think they're going to get very far beyond the big picture," she said. "They've put way too many issues out there.

"Maybe the point is to look like you're doing something?"

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