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Dubai: The World Trade Organisation (WTO) will be forced to end its role as a global peacemaker on Tuesday and analysts are worried this may cripple markets already bogged down by the never-ending US-China trade tussle.
The fact that the world’s biggest economy and the 25-year-old global trade body don’t currently see eye-to-eye is not new. But with the December 10 deadline fast approaching, analysts worry whether dissolving WTO’s Appellate Body, commonly thought of as the supreme court of trade, will have long-term instability across markets worldwide.
“If the WTO’s Appellate Body is unable to effectively perform, in the longer run, a member country may prefer entering into trade treaties that could be bilateral in nature and possibly the bigger economies may consider a unilateral action, and we can assume that the US-China trade issues may open the door for this unilateral/bilateral behaviour of members,” Farhat Ali Khan, Legal Head at Century Financial Consultancy LLC, told Al Khaleej Today.
US President Donald Trump repeatedly threatened to take the United States out of the WTO over the last few years and US officials have been blocking the appointment of judges to the judicial body. As per WTO rules, three judges are required to hear each dispute case, and on Tuesday the number of judges goes below that level with only one person left after terms of the other two end.
“With the one member the judicial body will not be able to perform and this can cause instability across markets internationally,” Ali Khan said. “This impasse will create a credible risk of breakdown of a system that is central to managing disagreements among the world’s most powerful trading nations.”
“Without resolution of this problem, the body soon will not have enough members to review cases and the vaunted WTO dispute settlement system will grind to a halt,” Ali Khan added. “Such a scenario directly threatens the multilateral trade system, currently extremely well-practised between the WTO members.”
The crisis for the global trade body comes as investors worldwide try to make sense of the growing macroeconomic uncertainty arising from the 17-month-long trade disagreements seen between the world’s top two economies.
“The trade tensions seen in recent years have started to give us a taste of what the world might look like without the WTO,” WTO director general Roberto Azevêdo said earlier. “Unilateral tariffs and other trade measures have been met with retaliation in kind.”
“This (impasse) would add to the uncertainty resulting from new tariffs and other trade restrictions. If trade disputes cannot be impartially resolved, the chances are increased that governments will take measures into their own hands and retaliate against allegedly offending parties. This could prompt counter-retaliation and escalation,” Azevêdo added.
The WTO was formed in 1995 to provide a level playing field to all the countries when it comes to forming trade alliances, without which larger countries like United States and China would have looked to dominate. But with the rising possibility of zero governance, global superpowers will take charge.
“A multi-tiered regulatory world could emerge, in which some countries could be marginalised and the right of the strongest prevails,” Azevêdo said. “Swiftly resolving the Appellate Body impasse will be critical to restoring certainty and cooperation to global trade relations.”
President Trump has been transparent of his criticism of the WTO with his repeated comments. He accused the WTO in 2016 of the “greatest job theft in the history of the world”, further elaborating later that China’s entry to the WTO resulted in the loss of 70,000 factories in the US.
Also, during a campaign trail, he also labelled the North American Free Trade Agreement (Nafta), signed in 1994 to make it easier for companies in Canada, United States, and Mexico to do business across borders, “the worst trade deal” signed by the US.
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