China, Canada among WTO members backing alternate trade dispute scheme

As the U.S. continues to paralyze the World Trade Organization's appellate body, 17 members of the trade organizationannounced Friday that they will collaborate on an alternative system for resolving trade disputes that emerge between them, following the lead of an initiativeby Canada and the European Union.

The announcement was made on the sidelines of the World Economic Forum in Davos, Switzerland, where ministers representing like-minded trading partners have been grappling with how to proceed as a group, unless and untilAmericanconcerns about the WTOcan be resolved.

"We believe that a functioning dispute settlement system of the WTO is of the utmost importance for a rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features," said the joint statement released Friday bythe group.

The WTO continues to try to resolve disputes at its committees. Panels are still struck to review complaints and report back with their findings when member countries are alleged to have broken the rules.

But asof December, the WTO's appellate body no longer has enough members to hear any more appeals of these panel reports, arrestingthe process by which complaints areresolved and retaliation is sanctioned.

The United States is blocking theappointment of any new adjudicators until its concerns which, in some cases,predate the Trump administration are addressed and the mandate and scope of the appellate body's jurisprudenceare clarified.

Without a consensus among its members on how to proceed, the trade organization is paralyzed.

Canada's complaint about Americansoftwood lumber duties is one of thecases for which an appeal cannot be heard unless this standoff is resolved.

"Our Canadian businesses rely on a predictable, transparent system," International Trade Minister Mary Ng told CBC News on her way home from Davos Friday. "Dispute resolution is an important function of this."

'Not a small task'

Canada's first priority remains finding a permanent solution to the appellate body impasse, but in the meantime, this statement is "really encouraging" and "a big step in the right direction," Ng said.

"These efforts have developed a consensus among a diverse group of members," she said."It's not a small task."

Canada and the European Union first announced an interim arrangement forresolvingtrade disputes with each other last July.It didn't replace the appellate bodybut it servesthe same purpose.

Building on that, fifteen more countries have signed on to thisidea with this latest initiative, which at the moment remains separate from the system Canada set up with the EU.They are:

• Australia.
• Brazil.
• China.
• Chile.
• Colombia.
• Costa Rica.
• Guatemala.
• Republic of Korea.
• Mexico.
• New Zealand.
• Norway.
• Panama.
• Singapore.
• Switzerland.
• Uruguay.

Many of these countries met in Davos this week as part of the WTO's Cairns group: agricultural exporters who share the common cause ofliberalizing trade barriers.

Not all of Canada's keytrading partners (beyond the U.S.) signed on to Friday's statement. Japan, for example, isn't onboard at least not yet.

The most significant signatorymay beChina.

Temporary solution

Many American complaints aboutthe WTOstem from doubts that the terms of China's WTO membership are fair.

But a 2018 analysis by researchers from the Cato Institute found that China doesa "reasonably good job of complying with WTO complaints brought against it."

Neither China nor the U.S. was part of the Ottawa group, a collection of WTO members that also held a working dinner in Davos hosted by Ngto continue reform talks that began under Canada's leadership in 2018. Itsdoor was left open to China or any other country that wanted to proposesolutions.

Friday's agreement now sets17 WTO members back on a path to being able to resolve future disputes with China, a dominant player in international trade because of its massive market size, manufacturing capacityand corresponding economic influence.

Ng didn't comment on China's participation specifically but said that "it's a positive thing that all these countries signed on, including China."

Friday's statement characterizedthis new interim system as "contingency measures" to "allow for appeals amongst ourselves" when the findings of those panels are in dispute and members' rights are threatened. It's based on Article 25 of the WTO's dispute settlement rules, which allowfor multi-party interim arrangements.

The statement says it will be in place "only and until a reformed WTO Appellate Body becomes fully operational" and any other WTO members are welcome to join those already signing on.

The Canadian Chamber of Commerce welcomed Friday's statement.

"However, this is only an agreement to make an agreement," it said on Twitter. "Canada and the EU have a mechanism in place, so why reinvent the wheel?"

Confident of more progress: WTO head

Officials must nowdeterminehow thisnew multilateral appeals process will work and what arbitrators will hear its cases.

"We have also taken proper note of the recent engagement of President Trump on WTO reform," the group's joint statement said.

"We are very much looking forward to discussing WTO reform with the U.S.," Ng said, without providing any specifics on how theU.S. has reactedto this development. "We've talked to all WTO members that this was in the works."

In his closing news conference before leaving DavosWednesday, the American president told reporters that a delegation from the WTOwillvisitWashington next week or the week after.

Becausethe WTOdoesn't maketop-down decisions, but only proceeds based on a negotiatedconsensus betweenmembers, it's not clear that any kind of deal couldresult from these talks with Trump, although they could allow the White House to communicate its concerns directly to the WTO's directorate.

"We're going to do something that I think will be very dramatic," Trump said, without elaborating onwhat he hasin mind.

WTO Director General Roberto Azevedo did not address the new temporary appeals system in a news conference in Davos on Friday, but said WTO members meetingin Davosfor informal ministerial talkshad discussed the tasks ahead, including fixing dispute settlement at the WTO.

"There are options out there, we are trying to fix it, but we're not there yet," he said, adding that many papers and ideas had come forward.

"I would say that I would be confident that more progress will be possible in the short term."

Separately, Deputy Prime Minister Chrystia Freelandarrived in Davos Friday to attend a meeting of the WEF'sboard of trustees.

She wasn't previously listed among other cabinet members attending the forum. Her trip wasannounced Thursday in an itinerary posted online, which said she also will "hold meetings with business leaders" before returning to Ottawa Saturday.