China has joined 18 other members including the European Union, Canada, Australia, Singapore and Hong Kong in launching a temporary system for trade disputes at the World Trade Organisation, with the agency’s appeal body having ceased to function in December after the United States blocked appointments of new judges to the top trade court.
The new system, which took effect on Thursday, also includes Brazil, Chile, Colombia, Costa Rica, Guatemala, Iceland, Mexico, New Zealand, Norway, Pakistan, Switzerland, Ukraine and Uruguay, according to a statement published by China’s Ministry of Commerce.
However, other major trading powers, including the US, India, Britain, Japan and South Korea, are not part of the group officially known as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), showing the limitations of its real power to resolve major global trade disputes.
“The new arrangement is aimed to preserve the essential principles of a World Trade Organisation (WTO) dispute settlement system and any WTO member is welcome to join at any time,” said a joint statement from the group.
The new system is designed to preserve the principle enshrined in international trade law that governments have the right to appeal in any dispute
The MPIA was developed in just over three months, after the members announced at the World Economic Forum in January that they would seek to form a new body to work around the demise of the regular WTO panel.
“The countries [in the MPIA] argue that the new system is designed to preserve the principle enshrined in international trade law that governments have the right to appeal in any dispute,” the European Union said in a statement.
The new arrangement is based on Article 25 of the WTO Dispute Settlement Understanding, and mirrors the main features of the WTO appeal system.
The Trump administration has accused the WTO appeal body of overreach and has refused to endorse any new judges since 2017, meaning that the ruling body did not have the minimum three members to continue operation.
The absence of the US, however, make its real power limited, as the US is the largest target of trade complaints
In one of the last rulings before its ceased to function on December 11, the appellate body ruled that China had the legal basis to impose US$3.6 billion in sanctions against the US.
Tu Xinquan, a professor at the University of International Business and Economics in Beijing, said the formation of an interim appeal arrangement showed the desire to hold trade multilateralism among the members.
“The absence of the US, however, makes its real power limited, as the US is the largest target of trade complaints,” Tu said. “It is designed to continue the life of a half-dead body”.
Between 1995 to 2018, 152 trade disputes were lodged at the WTO against the US, followed by 85 against the European Union and 43 against China, according to the WTO’s 2019 annual report.
Tu said that the coronavirus outbreak is expected to accelerate the process of forming regional trade blocks, a development that could further weaken a global multilateral trade system overseen by the WTO.
China has gained a lot from the system since its entry into the trade body in 2001 and Beijing is trying hard to maintain its position in global value chains.
The Chinese government has repeatedly voiced its support for a multilateral trade system, but China’s insistence on its designation as a developing country and its continued strong support for its state sector has, though, irked other WTO members.
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