DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
Henry Kissinger, the former U.S. Secretary of State, starts his book World Order(1), by citing the Treaty of Westphalia. He writes:
What passes for order in our time was devised in Western Europe nearly four centuries ago, at a peace conference in the German region of Westphalia.
It relied on a system of independent states refraining from interference in each other's domestic affairs and checking each other's ambitions through a general equilibrium of power. … [E]ach was assigned the attribute of sovereign power over its own territory. Each would acknowledge the domestic structures … of its fellow states as realities and refrain from challenging their existence.
An interesting exam question would be: To what extent is the Treaty of Westphalia the model for the current world trading system? To what extent did it create a threat to it?(2)
One aspect that stands out immediately as true for the WTO is that it is made up of Members possessing a high degree of sovereignty over their trade. WTO rules and decisions are not required to be incorporated into Member's bodies of domestic law. Compliance in the first instance relies of self-discipline. In the ordinary course, WTO rules will be followed, and promises generally kept, as a matter of either pragmatism or morality or both. If that fails, enforcement of obligations is ultimately possible through retaliation, unless appropriate compensation is offered and paid. However, specific performance cannot be forced.
The parallel between the precepts of Treaty of Westphalia and the WTO is not complete. Challenges to domestic structures are part of the multilateral trading system, not for everything, only for those matters that are subject to a WTO agreement. The following primarily domestic matters, for example, are covered by WTO rules:
- domestic support for agricultural crops is limited by agreement,
- domestic regulations that favour domestic or foreign products are forbidden, as a denial of promised national treatment,
- national treatment is also to be provided for scheduled services,
- domestic standards are not to be applied in a discriminatory manner,
- domestic subsidies are not to be used for consumption of domestic goods in preference to imports.
- other domestic subsidies may become the subject of international disciplines if they cause serious prejudice to the interests of others, and,
- the structure of an economy may be reviewed for enforcement of the agreement on subsidies, if for example, a state-owned enterprise is deemed to be a public body.
With a bit of stretch, there are nevertheless some additional similarities between the workings of the Westphalian arrangements and the WTO. For example, both provide for dispute settlement(3) with some idiosyncratic twists. The Westphalian peace treaties created a Council. "Of the 18 members of the Council, six had to be Protestants, who, when they voted unanimously, could not be overruled. That way, a religious parity was to some extent preserved."(4) In the WTO, the decision of a panel, or when there is an appeal, which is almost in every case, the appellate decision goes to the Dispute Settlement Body, composed of all Members. It, somewhat uniquely, adopts dispute settlement reports by negative consensus, meaning that all have to disapprove a report for it to fail to be adopted. The net effect is somewhat like the provision for unanimity of the protestant Council members in the 1648 agreement, only turned on its head. If there is unanimity within the Dispute Settlement Body of the WTO against a report, a null set, a circumstance that is largely inconceivable, the report will not be adopted. The unanimity rule, or negative consensus, in part creates an equalizing force. A small state can sue a large one, and the case cannot be blocked. A binding decision will stand.
The Treaty of Westphalia did a tolerable job of keeping the peace for much of the 400 years that followed, but obviously, there were major departures from that structure. The WTO has a similar track record. An example is the fifteen years of Boeing Airbus cases between Europe and the United States, where dispute settlement has substituted for unilateral action.
Some current challenges
Reading most of the headlines in the press you would think that the rule of law for the field of international trade relations is an endangered species.
- Massive tariffs are exchanged and threatened between the United States and China, and now Japan and Korea are exchanging trade restrictions.
- No formal rule-making in the form of the negotiation of new multilateral agreements has taken place in the last five years.
- The appellate level of WTO dispute settlement appears to be heading over a cliff into oblivion in three months' time.
- In a world of e-commerce, renewal at year end of the moratorium on electronic transmissions appears to be in doubt.
- The President of the nation that was the moving force behind creating the multilateral trading system, and one of the world's largest trading nations, mentions on more than one occasion the possibility of withdrawing from the WTO.
Clearly this is a time of testing for the World Trade Organization. What of the rule of international trade law?
Some current opportunities
Challenge and related opportunity: What about the US and China exchange of massive increased tariffs and threats of more? What is the related opportunity?
The fact is that no international treaty, the Westphalia one included, can completely ensure against the outbreak of hostilities. The Versailles Treaty (1919), the Treaty of Locarno (1925), and the Kellogg Briand Pact (1928) were all designed to prevent war. No repetition of that objective sworn to by signatories prevented the next World War, although that was certainly the hope. International agreements may avoid or defer the outbreak of hostilities, but they are far from absolute guarantees of tranquil relations if one or more participants decide to start or join a war, trade wars included. This is cold comfort but a fact of life among sovereign nations.
But trade agreements can support peace. There are a series of countries, recently acceded to the WTO, and number who seek entry, for whom the objective is to raise the standard of living of their peoples, integrate into the world economy and build a basis for peace. These include the most recent Members, Afghanistan and Liberia, and those in accession negotiations, Iraq, Bosnia-Herzegovena, Serbia, Sudan, South Sudan, Timor L'Est, Somalia, among others.
If the U.S. and China reach an accord, even an interim one, on their differences, if the principles agreed are potentially of general application, these can be incorporated in the WTO rule-book.
- Challenge and related opportunity: No formal rule-making in the form of the negotiation of new multilateral agreements has taken place in the last five years.
The members are pledged to reach a negotiated result this year to create disciplines on fisheries subsidies, which would cap a 20-year negotiating span. In addition, the sponsors of the Joint Initiatives on E-Commerce and Investment envision a negotiated text taking shape by the next Ministerial Conference to be held in Nur-Sultan, Kazakhstan, in June 2020. Thus the deadlock over setting new rules may be overcome.
- Challenge and opportunity: What of the future of the Appellate Body (AB) in the WTO?
On December 10, 2020, the terms of two of the remaining three AB members will end. This will prevent the filing of new appeals before the Appellate Body, as three AB members are required to render any decision. This AB may continue to work with respect to existing appeals, a very full docket.
To file an appeal when none is possible, means that a dispute settlement panel decision in that case will be final. This could result in the worst instance in self-help being resorted to, meaning retaliation and counter-retaliation.
The opportunities are at least two-fold. One is that Members will handle their disputes more pragmatically, in the interim and going forward. The other is that reforms are under consideration that might be part of a package of changes that would cause the United States to lift its blocking of nominating new Members of the AB to fill vacancies. The AB problem is not basically a technical one, although technical solutions can help in finding a resolution. It is both substantive and perhaps systemic, and more than superficial solutions will more than likely be needed.
An observation: An appellate process is valuable to correct egregious errors of panels, if and when they occur (which will be relatively rare) and to establish some legal consistency among different panel outcomes. To be workable, without expanding the number of AB members and the staff to immense proportions, not every case should be reviewed de novo. If a matter is left to lawyers to the exclusion of policy makers, or where legal services or outside counsel dominate dispute settlement, WTO members' long-term interests and those of the multilateral trading system can get lost. If a lawyer in a dispute sets as his or her objective winning the one case, and makes every possible argument, and appeals every possible issue, and an appellate body deems it necessary to address every claim made, the system breaks down under the weight of the lawyering.
- Challenge and opportunity: The renewal at year end of the moratorium on electronic transmissions appears to be in doubt.
Members accounting for over three-quarters of the world's economy are negotiating rules for the management of the trade aspects of electronic commerce. While subjecting "electronic transmissions" to customs duties, if practicable, would be potentially disruptive, the thought that the moratorium might expire creates an incentive to put more detailed and updated rules into place.
- Challenge and opportunity. Possible withdrawals from the WTO.
No WTO Member has given formal notice that it is leaving the WTO, 36 have joined the WTO since it was founded in 1995, creating an organization of 164 Members covering 98% of world trade. Twenty-two countries at present are seeking to join the WTO and most (and perhaps all) of the few remaining have expressed an interest.
Various positions taken by the principal founder of the organization have given rise to consideration of changes that might be made in it, as well as support for reform from the G20 Leaders and Trade Ministers.
Paracelsus(5)the 16th Century German Swiss physician famously stated “What is there that is not poison? All things are poison and nothing is without poison. Solely the dose determines that a thing is not a poison."
The Treaty of Westphalia is said to have initiated the concept and reality of the sovereign nation-state. In the Treaty's construct, the nation-state was assured sovereignty over domestic affairs, and, if one defines sovereignty as including the freedom to act as it wishes in the world at large, each nation-state gave up a measure of sovereignty by promising to respect the integrity of other nations' borders.
Agreeing to international rules impinges on an individual nation's freedom of action in some respects in return for having its rights to act respected by other nations. The WTO, as it has evolved, contains two examples on either end of the spectrum of an individual Member's ability to influence events. New WTO rules have been adopted only by consensus (interpreted to mean unanimity or at least absence of any objection) and adoption of dispute settlement reports by negative consensus (also by unanimity, with no possibility of objection by any less than the entirety of the Membership). This is very different from domestic decision-making that most of us are used to. Legislatures do not act by unanimous consent, and judicial decisions can be modified in the usual case by legislative action. In a domestic setting, the legislature applies a corrective if the courts go too far, and vice versa. The surrender by the individual citizen of personal freedom is thus not complete in a country governed by the rule of law as we have come to expect it). The same can be true of an international organization that has enforceable commitments, as long as there is the possibility of influencing decisions.
As the world is full of paradoxes, here is yet another. The presence of requirement of consensus, positive and negative, designed for peaceful relations causes tension in an international setting, where there is the opposite of automaticity for rule-making and the reverse for adoption of dispute settlement negotiations. In the first case, a Member has the option of acting for the whole body of 164 Members if it wants to prevent a rule from being adopted, a form of super-sovereignty, and it experiences the opposite with respect to dispute settlement -- it has no ability whatsoever to influence a quasi-judicial finding becoming final without modification. It is not clear that either result was intended by the founders of the WTO. Consensus which appears to be perfection, can be anything but if carried too far (see the dictum of Paracelsus). Absolutes are not workable. The two types of consensus only survive if they are applied with comity and common sense.
The Treaty of Westphalia as the source of the nation state and respect for the interests of others created a balance. A commitment to international cooperation, which is embodied in the WTO, is based on this balance – much freedom of action with respect for the interests of others. No creation of humanity is so perfect that it need not be adjusted after the passage of time and the acquisition of experience. In the area of rule-making this has led to the creation of joint initiatives (endeavors not endorsed by all, but by a majority) and for dispute settlement, the consideration of reforms.
There is another paradox. The treaty of Westphalia launched what was to become the modern nation state in the name of achieving stability. Which it did for a time. When the spirit of nationalism rises to an excessive level, it crowds out the interests of others. Marching under the banner of "me before you" makes international cooperation nearly impossible. Again, applying the maxim of Paracelsus, nationalism which to a degree is necessary, contains within it the seeds of, if not destruction, the nullification, of much of what is achieved for the world through the multilateral trading system.