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ANALYSIS-WTO dispute system robust, keeps global trade open

Published 02/05/2010, 06:35 AM
Updated 02/05/2010, 06:39 AM

* Global trading system alive and well, disputes show

* "Enforcing what you've paid for"

* WTO members account for 95 percent of world trade

* China more assertive, Brazil sophisticated in using system

By Jonathan Lynn

GENEVA, Feb 5 (Reuters) - A spate of disputes at the WTO this week, far from suggesting the world is on the brink of a trade war, shows the global trading system is alive and kicking.

The biggest economic downturn since the Great Depression led many to fear a return to 1930s-style protectionism.

But the World Trade Organisation says the world economy ended 2009 about as open to trade as before the crisis -- not least because countries can sort out their trade differences according to an agreed system of rules.

This week's disputes turn on highly technical issues such as implicit subsidies on out-of-quota exports, or the controversial U.S. method of calculating anti-dumping duties known as zeroing. What they have in common is that China, the United States, the European Union and other trade powers are not slugging it out in tit-for-tat trade wars but using the rules of the global trading system to resolve their disputes.

The resilience of the dispute system contrasts with the lack of progress in the Doha round of trade talks, launched in late 2001 and likely to miss yet another deadline this year.

The Doha talks aim to update and improve the rules of the current trading system, largely in place since 1994.

But trade experts say the WTO, and the global trading system, is much more than trade negotiations.

"Doha could collapse and the set of rules the WTO has would still provide a very healthy system," said Brendan McGivern of international law firm White & Case.

When the Doha talks appear to be moving forward, governments may be inclined to hold back on launching disputes.

"But if the dispute settlement kicks in, it's an indication that the WTO is doing a good job,"said Rory Macrae, partner at European lobbyists GPlus Europe in Brussels.

FROM UNFAIR PRICING TO FOOD SAFETY

So far this week:

-- Brazil, Australia and Thailand called on the EU to withdraw plans to export an extra half a million tonnes of sugar outside agreed quotas, hinting they would revive a previous dispute they won over EU subsidies;

-- Vietnam launched its first trade dispute since joining the WTO in 2007 with a case against U.S. anti-dumping duties on shrimp based on zeroing;

-- The European Union said it would seek $311 million a year in retaliation against the United States for failing to comply with WTO rulings on zeroing;

-- China launched a trade dispute against the European Union over anti-dumping duties on shoes.

Three of those cases are based on anti-dumping measures -- duties imposed on unfairly priced imports, one of the most fertile sources of trade disputes and particularly sensitive when jobs are under pressure as now.

Kicking off another row of this kind, China said on Friday it would impose heavy anti-dumping duties on U.S. chicken.

But looking at the whole range of disputes, it is clear that they cover far more than anti-dumping and similar remedies.

Popular issues range from subsidies, where the biggest cases involve state aid for airlines like Airbus and Boeing, to the many cases on abuses of food safety, most of which involve the United States as plaintiff or defendant.

"You have countries using the system to enforce concessions they've paid for," said McGivern of White & Case.

This is the argument of U.S. President Barack Obama, who is trying to make trade palatable to sceptical U.S. voters by underlining U.S. determination to enforce existing deals as it aims to double exports over five years.

"Free trade only works in a system of rules where all parties live up to their obligations," U.S. Commerce Secretary Gary Locke said on Thursday, spelling out how enforcement is central to Obama's National Export Initiative.

While Obama may have China in his sights, one striking development is the way China is becoming more assertive.

The dispute over duties on shoes launched on Thursday was Beijing's second against the European Union and only its seventh overall since joining the WTO in 2001. In that time it has been the target of at least 17 cases.

For China, one model is its fellow emerging economy Brazil, which plays the dispute system with great sophistication, recently winning the right to impose hundreds of millions of dollars of retaliation on U.S. intellectual property such as drugs and other goods in a case about U.S. cotton subsidies.

Not all countries are in the WTO -- Russia, Algeria and Iran are among those still outside and not bound by its rules -- but members account for 95 percent of world trade.

And even the most litigious see the advantages of a system that gives every country the same rights.

Indian Commerce Minister Anand Sharma said the crisis had demonstrated the value of a system where trading partners played by mutually agreed rules.

"It was a rules-based system that prevented world trade from collapsing during the economic crisis and the global economy stands to gain much," he said after a meeting of trade ministers last Saturday on the sidelines of the Davos Forum. (Editing by Tim Pearce)

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