A U.S. Offer to Keep the WTO Alive Comes With Painful Conditions

Bryce Baschuk
1 / 2

WTO Members Agree on a 2020 Budget, Averting Jan. 1 Shutdown

(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

The Trump administration, which threatened this month to block the World Trade Organization’s 2020 budget, offered members a proposal that would allow it to continue operating, but would hamstring the WTO’s appellate body, which officiates disputes that affect billions of dollars in commerce every year.

The U.S. said it would back the 197.2 million-Swiss franc ($197.6 million) budget for 2020 with the condition that no more than 100,000 francs be paid to appellate body members, an 87% reduction from the full budget allotment, and spending by the body’s operating fund also be limited to 100,000 francs, a 95% reduction, according to the text of an internal memo seen by Bloomberg.

If approved, the U.S. proposal would avert a likely WTO shutdown on Jan. 1.

Washington has argued that the appellate body, which is a panel that upholds, modifies, or reverses WTO rulings, has overstepped its mandate and threatens American sovereignty. The Trump administration has said it would block the WTO’s entire budget, maintaining that the organization’s compensation structure creates an incentive for appellate members, who can make more than 300,000 francs a year, to string out cases to boost pay.

The office of the U.S. Trade Representative and the U.S. delegation to the WTO didn’t immediately reply to requests for comment. WTO Spokesman Keith Rockwell declined to comment.

The budget threat comes on top of a hold the U.S. has placed on new appointments to the WTO’s appellate body, which won’t be able to rule on new cases next month, in effect suspending its most important function.

The U.S. budget offer also stipulates that only the WTO secretariat -- and not the WTO appellate body -- may provide funding for a proxy dispute settlement system recently championed by the European Union, Canada and Norway as a way to keep the panel running.

WTO members plan to consider the U.S. proposal during a Nov. 27 meeting of the WTO budget and finance committee in Geneva.

While all WTO decisions are made by consensus, the U.S. has an important say in funding matters because it contributes more money than any other single country to the annual budget -- 22.7 million Swiss francs in 2019, according to WTO data.

--With assistance from Samuel Dodge.

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

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

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.