WTO Faces Cliff-Edge Crisis Next Week as Mediator Eyes Departure

(Bloomberg) --

The World Trade Organization's appeals panel will cease to function starting Dec. 11 when one of its three remaining members plans to step down, according to people familiar with the situation.

Thomas Graham, the chairman of the WTO's powerful appellate body, told officials this month that he won't agree to consider disputes after Dec. 11 when his term ends, said the people who asked not to be identified discussing internal deliberations. Traditionally, panel members whose terms have expired can continue to hear pending disputes.

This will effectively paralyze the most important function of the Geneva-based trade organization -- which upholds, modifies or reverses WTO rulings -- at a time when multilateral relationships have come under assault from protectionist currents.

Read more: U.S. Presses Case to Defang the Global Economy's Trade Referee

The crisis at the WTO was created by a U.S. block on new appointments to the appellate body, which the Trump administration says has overstepped its mandate and infringes on American sovereignty. On Dec. 11, when Graham and one of his colleagues' terms expire, there won't be enough members to decide on new cases. But with Graham's resignation, it also means that pending appeals would be thrown into legal limbo.

The impending appellate rupture comes as the U.S. has threatened to block the WTO's budget -- also over concerns related to the dispute panel -- which would cause the entire WTO to shut down on Jan. 1. Either scenario would leave the WTO's 164 members scrambling to come up with an alternative to the global arbiter of rules that govern nearly $23 trillion in international commerce every year.

Internal Feud

Graham, a 77-year-old American, told WTO officials this month that he wouldn't agree to deliberate appeals after his term is over unless the director of the appellate body, Werner Zdouc, 56, steps down, according to the people. Graham has complained to WTO officials that Zdouc wasn't fit for the office and sought to guide appellate body members toward rulings that coincide with his views.

WTO Spokesman Keith Rockwell and Zdouc both declined to comment.

At a meeting on Nov. 21, WTO Director-General Roberto Azevedo invited the three remaining appellate body members, Graham, Ujal Singh Bhatia of India, and Hong Zhao of China, to share their concerns about Zdouc and asked if they would oppose his removal, the people said. All three said they would be OK with the move.

Last week, Azevedo made the decision to take no action against Zdouc, two of the people said.

WTO members on Dec. 3 will discuss whether Graham and Ujal Singh Bhatia, the other appellate body member whose term ends next week, should be authorized to adjudicate any pending cases after their terms expire. If Graham ends up stepping down on Dec. 11, parties to any pending disputes will not be able to receive a final ruling.

Budget Fight

The internal feud may be rendered moot, however, if the U.S. follows through on its threat to block the the WTO's budget. The Trump administration offered a proposal that would allow funding to continue, but it would drastically reduce money going to the appellate body.

Read more: The WTO Faces a New Threat From Trump, This Time Over Its Budget

The EU, China, India and Turkey said last week they would not support the U.S. compromise because it would put their pending disputes in jeopardy, two of the people said.

WTO members are expected to further discuss the WTO's funding for 2020 during a Dec. 4 meeting of the WTO's budget committee in Geneva.

--With assistance from Zoe Schneeweiss.

To contact the reporter on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net

To contact the editors responsible for this story: Simon Kennedy at skennedy4@bloomberg.net, ;Brendan Murray at brmurray@bloomberg.net, Richard Bravo

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