Exclusive Interview with Former WTO Appellate Body Chairman James Bacchus: The Future of the WTO

WTO expert James Bacchus talked to CTM about the future of the WTO, called for the restoration of the Appellate Body to "ensure that the rule of law is upheld by the WTO," and urged "any of the larger Members of the WTO, with the larger economies, [to] step forward on any of these new issues to show leadership."

Bacchus is a former WTO Appellate Body Chairman and member of Congress, now a Distinguished University Professor of Global Affairs and Director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida.

CTM: The WTO was built decades ago, and many people say that the WTO needs some reforms. Do you agree with that perception? If so, what part of the system do you think needs a change?

Bacchus: I tend not to use the word reform, because that implies that the current rules are not good rules. That’s not the case. The vast majority of existing WTO rules are still fit for purpose and are working just fine. Some of the existing rules need to be improved, because of the circumstances of our world here in the 21st century. But most of the rules, including the most basic rules of non-discrimination, don't require any change at all. What the WTO needs is modernization.

What we need is, first of all, to restore the Appellate Body and ensure that the rule of law is upheld by the WTO. Whatever the rules are, they're not going to be effective unless they can be upheld. Second, we need to reaffirm our support for the basic approach of multilateralism that is enshrined in the WTO treaty. And third, we need to bring the overall body of WTO rules up to date. For instance, this is the 21^st century, and an increasing part of world trade, accelerating rapidly, is digital trade. There are no WTO rules on digital trade. How can that still be, and how can we consider the WTO to be central to the world trading system if it has no rules on digital trade?

And as I have in endless speeches, papers and books, I could go on to list many other things that we’re not doing that we should be doing with new and revised WTO rules, relating to investment, intellectual property, health care, competition policy, environmental goods, and so much more. In particular, I think we need to reimagine trade rules, in many instances, to reflect the urgent need to attain the global goals we’ve established for global sustainable development.

As a practical matter, I think that we may have to proceed plurilaterally with agreements that do not yet include all WTO members, but only the initially willing, rather than proceed multilaterally with full blown agreements that include everyone at the outset. This is not an abandonment of multilateralism. Plurilateralism in the WTO is simply one means of achieving multilateralism. This is how we created the WTO in the first place. The GATT was an agreement on tariffs and trade, but it was accompanied by a whole potpourri of different codes in other areas on issues such as standards and subsidies and dumping and more. When we established the WTO in 1995, all of those plurilateral codes were transformed into multilateral agreements. This is what we can do now, for the most part, and this, I think, is the best practical way to proceed with some of these newer issues. If we don’t proceed with them, then the WTO is increasingly going to be on the sidelines of the world economy.

CTM: We do have some plurilateral talks, such as the ones on e-commerce. But the talks have not made as much progress as many hoped. What do you think is the holdup in the e-commerce negotiations, and how do you think China can contribute to it?

Bacchus: I would appreciate it if any of the larger Members of the WTO, with the larger economies, would step forward on any of these new issues to show leadership. Certainly, digital trade is one in which China could step forward.

This is an issue with many moving parts. I wrote a paper that was published a year or so ago on this issue called The Digital Decide, in which I laid out in great detail how I thought the Members of the WTO could succeed in these digital trade negotiations. The last I looked, at this point, the only issue on which a hundred or so Members involved in these negotiations have agreed is that no one in the world likes spam. Well, at least that’s one agreement.

I think what we need to do is divide these issues up and deal with them individually […] If we agree on a few things, we can then use that as a basis for agreeing on more.

Instead, I think, we’re looking at the broad scope of the entire issue, especially as it relates to privacy concerns and to the desire of a number of countries, prominently including China, to be able to restrict the flow of digital information for reasons that they say relate to their national security. Interestingly, and ironically, the United States, which otherwise wants to paint with such a broad legal brush in excusing domestic actions for supposed national security reasons, argues at the same time that those digital restrictions imposed by the Chinese have nothing to do with national security. I agree with the United States on this point. The Chinese restrictions have everything to do with political oppression, with political control. However, if the United States gets its way in the WTO and saying that national security means whatever each member of the WTO in whichever circumstance decides it means, then China can reach its own definition just as we can.

CTM: Yes, both China and the United States are considering data flows as essential to national security, although for different reasons. On top of that, there are new laws in China, and in the United States as well, which say that economic interests and development is part of national security. How do you see that trend?

Bacchus: I, of course, look, first of all, at these actions through the eye of WTO jurists, and will say that the United States and China are both increasingly inclined to a very broad concept of their sovereignty to enact any laws they wish to enact, despite their international treaty obligations. In the United States, this was certainly true of the Trump administration, but it is also true of the Biden administration. Support for trade protectionism is virtually the only issue on which Republicans and Democrats seem to agree nowadays in the United States, and both parties are wrong in supporting it. Both the United States and China are also both members of the WTO, and in the WTO treaty they have agreed to be bound by certain obligations, and they have furthermore agreed on rules that they have helped write and have concurred in, in concluding the treaty, that if they fail to uphold these obligations, they will face the price of the loss of some of the considerable trade concessions that are otherwise granted by the treaty.

The United States can ignore WTO rulings, but that does not legally stop the WTO from being able to authorize legally imposed economic sanctions against the United States through the withdrawal of these previously granted trade concessions, which could be very expensive, amounting to billions upon billions of dollars in lost trade annually. Now, the practical lay of the land right now is that there is no Appellate Body. So, what the United States is doing, hypocritically, and what other countries are starting to do as well when they lose WTO cases before panels, is appeal to an Appellate Body that does not currently exist because there are currently no appellate judges. And when they do that, because the Appellate Body is not there to hear the appeal, then they are denied their right of appeal, which is guaranteed them in the WTO treaty. So, the WTO Members as a whole cannot adopt a panel ruling and there is no way to enforce the rule of law in world trade.

This is a way of being able to return the WTO to what we tried to get away from in the GATT decades go, a situation in which those countries that lost legal judgments by independent and impartial trade jurists could nevertheless block the implementation of those rulings. I was in the Congress at the time and working to conclude the WTO agreement, and one of our principal motives for doing so was to make sure we could have binding judgments that could be upheld, because the United States was the biggest victim of other countries blocking GATT rulings. Right now, the US is smiling to itself and thinking it's getting away with something. But truth be told, what the United States is doing is setting itself up to be victimized by similar actions by other countries, including China.

CTM: There are some political considerations in why the U.S. is doing what it is doing, right?

Bacchus: That’s the problem with the whole issue. In the United States, we spent decades trying to remove these types of legal rulings from politics, and render them according to the rule of law as upheld by independent and impartial jurists chosen by agreement of the parties to the disputes. Now we’re retreating from that. We’re backsliding, if you will, away from our previous strong commitment to binding dispute settlement. And we’re retreating, therefore, from the rule of law, returning to the rule of power. The United States is a very large country and we have a lot of clout in the world. But I continue to believe that we Americans are better off living in a world that’s governed by the rule of law and not by the rule of power.

CTM: In the recent USTR 21^st report on China’s WTO compliance, it says that, and I quote, “it has become clear that the new and more effective strategies including strategies to invoke taking actions outside of WTO when necessary, are critically needed to address those problems.” Do you think it means there is now a tendency of going outside of WTO even when dealing with issues that are under the WTO’s umbrella?

Bacchus: Let me be more precise here. There are a great many issues relating to the global economy that do not fall within the jurisdiction of the WTO. And where that is the case, such as, for example, many areas of international finance or foreign direct investment, then the United States and every other member of the WTO is perfectly free legally to go outside the WTO and try to find a solution. But where a measure affects trade, that measure falls within the legal scope of the WTO agreement. And if the United States, for example, has a problem with another country, if they believe that other country is acting unfairly as it affects trade in violation of its trade obligations to the United States, then the United States, like every other WTO member, has agreed to go first to the WTO for dispute resolution, and a judgment, before engaging in retaliation. It has agreed in such circumstances not to act unilaterally but to act multilaterally.

The United States is ignoring this requirement of international law in a treaty which the United States signed voluntarily. Interestingly, so far, whenever the United States has done this, the countries that have challenged these unilateral actions of the United States in WTO dispute settlement have not brought claims under the particular provision of the Dispute Settlement Understanding that requires seeking a multilateral approach rather than taking unilateral action first. This is Article 23.1 of the Dispute Settlement Understanding. I think that's been done out of some kind of misguided sense of deference on their part. But to me, this is a clear violation. If you have a problem with another country relating to a measure they’ve taken that affects your trade, and you’re a member of the WTO, then you have a treaty obligation to go first to the WTO for a judgment on whether that action is, in fact, one that’s inconsistent with WTO obligations, before you act yourself, period. And if the United States wants to do otherwise, that it’s simply a scofflaw. And it cannot pretend to be upholding the international rule of law.

CTM: The USTR report mentioned China’s state subsidies and forced tech transfer.

Bacchus: Last time I looked, we have a whole agreement on subsidies and countervailing measures. While I was on the Appellate Body, I ruled along with my colleagues on quite a few cases that arose relating to claims under this agreement. And as you and I know, because we combined with our friend Simon Lester in writing an article that said so, the United States has for whatever reason chosen not to challenge China for violations China has made of some of these WTO subsidy obligations. I do not understand why. Certainly, these subsidies rules can be improved, but it’s simply a mistake to say that the WTO offers no remedy to China’s industrial subsidies. If the government provides a subsidy that is prohibited under WTO rules or that has adverse trade effects under the WTO rules, then you can countervail against that subsidy, if that country refuses to withdraw it. This is black letter WTO law, and there are dozens of subsidies cases in which these rules have been proven to work.

With its array of subsidies, China certainly offers quite a few new nuances in the context of the WTO, but China is not the only state driven economy in the WTO. There are many other countries that rely heavily on subsidies of all kinds: Brazil, for example, India, for example, the European Union, for example. And oh, by the way, here in the United States, we just passed hundreds of billions of additional dollars of industrial subsidies ourselves. Depending in part on how they are implemented, quite a few of them may turn out to be inconsistent with WTO rules.

Again, I look at these matters through a legal prism. I’m not unmindful of the political stakes involved. I was a Member of Congress myself, and I don’t recall ever losing an election. But I think it’s important, indeed essential, that we continue to rely on and strengthen the international legal system that tries to transform what would otherwise be political decisions resolved by the age-old maxim of “might makes right” into legal decisions that are based on whether an action affecting trade is or is not in compliance with the previously agreed set of international rules. Might does not make right. The United States government, at least in trade, seems to have forgotten that.