World trade organization (WTO) lost its role after its enforcement arm, the Appellate body, forfeited its function to render any judgments. United States has blocked the appointment of new judges to replace those whose terms have expired yesterday. As of today, the only one acting judge remain in the Body while at least three needed to enforce trade ruling.
European Union called the shutdown of the World Trade Organization's appellate body is “a very serious blow" for the global trading system. The EU Commissioner for trade, Phil Hogan, said “this is a regrettable and very serious blow to the international rules-based trade system, which, for the past 24 years, has relied on the WTO’s Appellate Body – and dispute settlement generally."
Europe will propose ways of implementing sanctions on those countries that are violating trade rules and adopt illegal trade measures as well as sanctions for blocking the renewal of Appellate body. That will mean sanctions against the United States responsible for WTO’s enforcement ruling paralysis.
The EU backed by Canada and Norway is trying to create a temporary replacement panel with the same structure as the Appellate Body. China, Russia, and a number of other countries are considering whether to sign on.
WTO Director-General Roberto Azevêdo has insisted that the demise of the Appellate Body does not mean that the organization’s existing rules no longer have force. “WTO disciplines and principles will continue to underpin world trade. And members will continue to use WTO rules to resolve trade conflicts — in regular WTO bodies, through consultations, via dispute settlement panels, and through any other means envisaged in the WTO agreements,” he said last week. His claim, however, are more inconsistent when no enforcement is in place. The function of WTO without it make no real sense.
Trade agreements are not to be disputed
Trade agreements are the only real arrangement of world trade remaining so far. Does it mean they could not be violated? No, they could and will be if one of the parties consider it effective. “If you have no rules, everyone can do what they want and that would be really, really bad, not least for the smaller and developing countries,” European Union Trade Commissioner Cecilia Malmstrom said last summer.
One can expect more trade tariffs will be imposed by countries with mature domestic market like the United States, China, the United Kingdom, Japan and the European Union. Other countries have to ally their terms or struggle to continue exports.
The United States President administration seemed to be reluctant to the WTO’s fading relevance. Trump has made it clear that he disdains the idea of international regulation of US trade policy. Not only has the US delayed the appointment of the judges to WTO’s Appellate body, but also has cut the funding for the Body, slashing its budget by 93%.
Why WTO has been dumped?
The WTO rulemaking requires full consensus that allows any of 164 members to disrupt any proposal. As a result, such issues like regulating electronic commerce were not resolved. China was allowed to apply relaxed trade rules as for the developing countries despite the size of the world second largest economy.
It seems the almost 35-years era of WTO is ending and will be replaced by the trade agreements without any independent recognized ruling. The other way is to introduce some kind of international court ruling. Regional enforcement vehicles of international trade matters will not be effective.
Meanwhile, trade wars could unwind to a hurricane with the United States in the eye of it.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Indiscriminate reliance on illustrative or informational materials may lead to losses.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2022 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.