How to Straighten Out the WTO

The trade body's judgments are arbitrary, secretive, and made by nonprofessionals. Here's how to fix all that

By Paul Magnusson

Is Uncle Sam sporting a "kick me" sign on his back? It certainly seems so at the Geneva-based World Trade Organization. The 146-nation body, created in the mid-'90s as a forum for global trade expansion talks and a court to settle disputes, has handed the U.S. a string of costly losses. The latest: A July ruling overturning President George W. Bush's 2002 decision to give the beleaguered U.S. steel industry a breather by levying temporary tariffs on imports.

Altogether, the U.S. faces more than $6 billion in yearly trade sanctions from its losing streak. And with the WTO's negotiators set to reconvene in Cancun, Mexico, on Sept. 10, American lawmakers are losing patience. Some want to appoint a panel of U.S. judges to review the legal reasoning behind the WTO decisions. Others propose pulling out of the trade body altogether.

The trend "is beginning to undermine a lot of U.S. confidence in international trade laws and support for international trade agreements," says Senator Max Baucus (D-Mont.), the ranking Democrat on the Senate Finance Committee who's pushing the commission idea


  No, the U.S. isn't likely to bolt the WTO. Its creation was an achievement of almost 20 years of trade liberalization. But as a July 30 report from Congress' General Accounting Office shows, something is definitely amiss in Geneva. The U.S., according to the GAO, has faced "substantially more challenges" in the world trade forum, is more likely to lose rulings than other countries, and is far more apt to face the highest penalties.

WTO panels are particularly hostile toward any actions intended to counter foreign-export subsidies, illegal dumping, and sudden import surges, such as the U.S. steel tariffs, the GAO concluded. "There's a definite tilt against the U.S. in critical cases," says Representative Phil English (R-Pa.), "We're finding the WTO process to be very frustrating and the decisions to be extraordinarily arbitrary."

Of course, the U.S. deserves to lose some cases. Washington needs to scrap a $5 billion-a-year tax subsidy for U.S. exporters that the WTO has justifiably ruled illegal, for example.

Yet, even if you agree with the findings of the organization's panels -- and some legal experts do -- the trade body's judicial process is so fraught with secrecy and conflicts of interest that it seems more like a kangaroo court than the impartial panel the WTO framers intended. To restore the WTO's credibility and to undercut critics who want the U.S. out, here's what should be done:

Introduce More Transparency

The panels hear testimony in secret. Filings are confidential. Interested parties -- affected businesses, labor unions, or environmental groups -- often can't file briefs on cases. Decisions aren't announced promptly, and the judges' reasoning may not be published for months. So let in the light. Webcast the sessions, allow amicus briefs, and release the pleadings.

Go Professional

Panelists, often trade officials or private lawyers from other nations, volunteer to serve, unpaid, as judges. Conflicts of interest abound, since panelists can be engaged in trade disputes with other countries on the same issues being adjudicated. The amateur judges often make up rules as they go along. Private meetings with one side in a dispute are not uncommon. The WTO should create a permanent, paid judiciary and set procedural rules.

Show Some Restraint

The WTO charter specifically allows for temporary measures to aid a domestic industry about to be overwhelmed by unfairly priced imports. Such relief raises public support for free and fair trade generally. Dispute panels should approve the so-called safeguard measures as long as the facts of the case are correct, just as the WTO charter requires them to do. "There are rogue panels substituting their own judgment for national authority, and that happens repeatedly," insists Alan Wolff, a former deputy U.S. Trade Representative who now represents U.S. steel companies.

Follow Precedent

WTO judges aren't legally bound by previous decisions. So rulings rarely are the basis for future actions. Case law, the foundation of most legal systems, can't work unless judges follow precedent. That's where professional trade jurists, trained in following precedents, could be crucial.

Under the legislation that prescribed U.S. participation in the WTO, Congress is to vote in 2005 on whether to stay in the organization. Meanwhile, discussions within the WTO on reforming the dispute-panel process have stalled. That has the Bush Administration worried. "We're not entirely pleased about how some WTO panels decided," says John Veroneau, legal counsel at the U.S. Trade Representative's office. "But let's not throw out the baby with bathwater."

Veroneau has a point. When the WTO's top negotiators meet in Mexico next week, reforming the WTO tribunals should be moved to the top of the agenda.

Magnusson covers international trade in Washington

Edited by Douglas Harbrecht

Before it's here, it's on the Bloomberg Terminal.