In his day job as a diplomat to the World Trade Organization (WTO) here, Stefan Johannesson of Iceland doesn't get to order other countries...
GENEVA — In his day job as a diplomat to the World Trade Organization (WTO) here, Stefan Johannesson of Iceland doesn’t get to order other countries around. As a freelancer for the WTO’s trade court, it has been a different story.
Johannesson led a three-person panel that forced President Bush in 2003 to abandon U.S. tariffs protecting steelmakers from foreign competition, under the threat of $2 billion in sanctions. It was a heady experience for Johannesson: Like more than half of the freelance judges tapped by the WTO to sit on its panels, he had never ruled on a trade dispute before. “I was surprised at the confidence shown in me,” he says.
Barring a last-minute deal, a similar panel soon will convene to decide what could be the most expensive trade dispute in history — a clash between the U.S. and the European Union over tens of billions of dollars in government aid that has gone to the world’s two major airplane makers, Boeing and Airbus. The U.S. this week requested that a WTO panel decide the case, saying months of talks with the EU had led nowhere. European officials quickly said they would countersue.
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The unpredictable WTO, operating with little oversight, has recently made a string of rulings forcing the U.S. to change its laws or pay large penalties. It also has come under increasing criticism for the inexperience of its judges and the wide latitude they are given while working with scant legal precedents.
The WTO’s trade court is a rare institution: an international tribunal with real power over sovereign nations.
Just in the past two years, WTO panels have forced the end of $3 billion a year in U.S. cotton subsidies and $4 billion in annual tax breaks to U.S. exporters. Panels also have approved sanctions against the EU for barring hormone-treated beef from its supermarket shelves.
But an EU study concluded in December 2003 that the panel system should be changed because “panelists do not have time to develop expertise in the procedural and technical aspects of the dispute settlement system.”
Finding qualified panelists that the parties agree on has been a difficult job. Under WTO procedures, the WTO staff offers the parties prospective candidates to hear the dispute. If the parties can’t agree, the WTO offers yet more candidates. In an increasing number of cases, parties that can’t agree on panelists have asked the WTO staff to simply assign judges. In some cases, parties have rejected as many as 40 choices before giving up. Now more than 80 percent of the time, the WTO staff members pick the judges because the countries can’t agree.
Nearly a third of the 303 panel positions in the WTO’s history have gone to citizens of just four countries, Switzerland, Australia, New Zealand and Canada. Americans, meanwhile, have been panelists just eight times.
WTO Secretary-General Supachai Panitchpakdi, who defends the system and its results, acknowledges finding qualified panelists has become more difficult. “The level of difficulty has soared astronomically,” he said. “We have in some areas nearly exhausted the lists of people who are supposed to be experts.”
WTO judges essentially moonlight in their roles while juggling day jobs, and they frequently complain they don’t have sufficient time to devote to their cases. Often, they say, the cases involve thousands of pages of briefs the judges don’t have time to read and are based on precedents that sometimes are so thin they leave panels virtually without legal or historical guidance.
In the Airbus case, the U.S. argues that EU member states have given Airbus $15 billion in the past decade in so-called launch aid for its new plane models. Boeing and U.S. officials want to prevent Airbus from benefiting from the aid on its next plane, the A350, intended to compete with Boeing’s coming 787.
The EU counters that the U.S. government has funneled more than $20 billion to Boeing in defense research-and-development contracts that benefit its civilian business, and that Washington state has offered $3.2 billion in tax incentives to aircraft makers. On top of that, it argues Boeing has lined up a form of launch aid of its own, because Japan is giving loans to subcontractors working on construction of the 787’s wing.
Trade-court panelists often must sift through murky trade agreements to reach their decisions. Unlike legal precedents, which are written with a great deal of precision by judges, trade agreements often are worded vaguely on purpose to avoid disputes on details.
The lack of specifics often forces WTO panels into uncomfortable readings of trade law. An entire case can hinge on a single word. James Bacchus, a former chairman of the WTO’s appellate body that reviews the freelance panels’ cases, said that in one case, the appeals group spent weeks wrestling over shades of meaning of “and/or.”
In the Boeing-Airbus case, the key document to base a ruling on is missing altogether. When the WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade, its founders envisioned special rules to govern aircraft subsidies because the industry has such an unusual history of government sponsorship. At the time, a set of such rules was being negotiated. In the WTO’s formative agreement on subsidies, the global trade body’s framers included a footnote indicating that the WTO should recognize the outcome of industry talks that were then under way.
Those talks collapsed, leaving only the footnote. That means lawyers now will have to argue the Boeing-Airbus case based on broad subsidy rules that were never intended for aircraft makers — leaving the key questions about issues such as loan-payback terms and legitimacy of local tax breaks to be resolved by the panel.
A case last year between India and the EU shows how panelists struggle with such gaps in trade law. Marsha Echols, one of the few Americans to hear a case, was appointed to the dispute, in which India charged that Europe was favoring its rivals such as Pakistan by rewarding countries fighting drug trafficking with special trade deals. Echols, a law professor at Howard University in Washington, D.C., had no direct experience in that area: She had written a book on food safety and trade policy.
In all global trade law, there were only three sentences that pertained to the case — and those were more than 30 years old, from a 1968 U.N. agreement on trade with developing countries. The panel struggled for weeks on how to define the word “non-discriminatory” in a passage of the 1968 law. Echols was surprised at the leeway she and other panel members had. “We had to discern the meaning of words and ideas that had not been interpreted by the WTO,” she said.
Many trade experts believe a WTO decision in the Boeing-Airbus case, possibly banning some types of subsidies but allowing others, could be so confusing that it would be difficult for either the U.S. or Europe to implement it. Meanwhile, it might be unclear how it would apply to other manufacturers, such as Brazil’s Empresa Brasileira de Aeronáutica, or Embraer, which also gets government aid.
Among the skeptics is Peter Mandelson, the EU’s chief trade negotiator, whose combative talks with U.S. officials have led the two sides to request the WTO’s ruling. “Will it be any clearer?” Mandelson wondered out loud at a news conference Tuesday. “I doubt it, I doubt it.”
critical of WTO’s panel system