Washington Insider -- Thursday

WTO Dispute Settlement Dispute

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

CFTC's Bowen to Exit Regulator in Next Few Months

Having only two commissioners at the Commodity Futures Trading Commission (CFTC) since early this year, Commissioner Sharon Bowen said that has hampered the work by the futures regulator and she will depart her role "within the next few months."

"I am announcing my intention that I will leave the Commission within the next few months, or perhaps sooner if another nominee is confirmed," Bowen said in her closing statement at a meeting of the Markets Risk Advisory Committee. "Why am I doing this? The answer is simple: because, since the departure of former Chairman (Timothy) Massad, the work of this agency has been hampered by only having a two-person Commission when we should be a five-person Commission. In fact, we have not been a five-person Commission since the departure of Commissioner (Scott) O’Malia in August 2014."

Having only two commissioners has made routine business "difficult," Bowen stated, noting it "makes important policy decisions almost impossible. Without a full complement of commissioners to consider the far-reaching implications of our decisions, we are frozen in place while the markets we regulate are moving faster every day. This fact is intolerable to me."

Bowen, a Democrat, pledged to continue her work in her remaining time at the agency to "protect investors, by supporting prudent collateralization, promoting robust transparency, and ensuring vigorous enforcement in the derivatives markets; and I intend to continue to do all in my power to reach that goal." Bowen's term will expire in June 2019.

Confirmed in December 2013, Bowen's departure leaves the CFTC with no Democrats as members. President Donald Trump has nominated two Republicans to positions at the futures and derivatives regulator – current acting CFTC Chairman and Commissioner Christopher Giancarlo (term expires April 2019) to be chairman and Brian Quintenz as a Commissioner to fill a term expiring in April 2020. Giancarlo's confirmation hearing is set for June 22 before the Senate Agriculture Committee while a confirmation for Quintenz has not been set.

Dawn DeBerry Stump was nominated earlier this month for the remaining Republican position on the CFTC. Stump has been the head of a government relations firm she founded and was a senior aide on the Senate Agriculture Committee, handling CFTC issues. She departed that job to work for the New York Stock Exchange and then the Futures Industry Association (FIA). She would fill the spot that was vacated by Mark Wetjen in 2015.

As for the Democratic positions on the CFTC, Trump has not yet selected anyone and will now have to name two Democrats to the futures regulator in the wake of Bowne's announcement. Speculation has been that Rostin Behnam, a current Senate Agriculture Committee staff member, is likely to be picked. Timing, however, is not clear.

Sugar Group Warns Against Concessions to Canada in NAFTA 2.0

Concessions to Canada on refined sugar in North American Free Trade Agreement (NAFTA) 2.0 talks would make effective operation of sugar trade deals with Mexico more difficult, American Sugar Alliance Trade Adviser Don Phillips told the International Trade Commission (ITC) June 20.

Specifically, ending tariffs on sugar from Canada would undercut successful implementation of the recently revised suspension agreements with Mexico, he argued. ITC is examining the likely effects of providing duty-free treatment to products currently subject to duties under NAFTA. The agency will provide its report to the Office of the U.S. Trade Representative (USTR) by August 16 as the three NAFTA countries get ready to reopen the deal.

U.S. and Mexican sugar exporters agreed to revised pacts on sugar trade to replace accords struck in 2014 to settle dumping and subsidy cases brought by the U.S. industry. U.S. sugar refiners had complained that Mexico flooded the market with refined sugar under the original suspension deals.

“Elimination of tariffs on Canadian sugar would increase the supply of unneeded refined sugar weighing on the U.S. market,” Phillips told the agency. He also said Canada has a “decidedly non-reciprocal” relationship with the U.S. in sugar and sugar-containing products.

For more than 20 years, Canada has kept in place prohibitive antidumping duties that bar U.S. exports of refined sugar, he remarked. Since the playing field is already tilted in Canada's favor for sugar and sugar-containing products, NAFTA renegotiations should not worsen the situation, he argued.

Washington Insider: WTO Dispute Settlement Dispute

Infighting at the World Trade Organization is nothing new, of course. However, now with skepticism about formal trade agreements at a high level, a U.S.-European Union (EU) disagreement over the appointment of two replacement appellate panelists could exacerbate delays across the already struggling system, Bloomberg is reporting this week.

The disagreement is how to begin the selection process to replace two existing appellate body members, Ricardo Ramirez-Hernandez and Peter Van den Bossche whose terms will expire in the next several months.

At last week’s meeting of the WTO dispute settlement body the EU said it would not move forward on the process to appoint a replacement for Ramirez until the U.S. agrees to launch a parallel process to consider Van den Bossche's replacement. If WTO members are unable to agree on a replacement for Ramirez-Hernandez before the end of June, the seven-member appellate body will be reduced to six members beginning July 1.

Several WTO members said the impasse holds major implications for the functioning of the DSB and could have significant repercussions as WTO mulls a series of crucial disputes that affect the U.S. and the EU. The appellate body is a key component of the WTO dispute settlement system because it has the final authority to uphold, modify, or reverse the legal findings of a DSB panel.

Each of the seven members of the WTO appellate body is appointed for two four-year terms through a unanimous decision of all 164 WTO members. Typically, WTO members begin the process to consider replacements for outgoing appellate body members five to six months before the expiration date of their final term.

Though WTO members often disagree over appellate body appointments, countries do not usually block the process to consider nominations for new appellate body members. As a result, a group of Latin American countries are saying that the impasse could undermine the credibility of the overall dispute settlement system.

The Latin American countries urged members to immediately begin the selection process of Ramirez-Hernandez's replacement and complete the process no later than November 22. However, the EU refused and insisted that both appointment proceedings should commence simultaneously and be completed by October 24.

Panama noted that Ramirez-Hernandez is the only Spanish-speaking member of the appellate body and urged members to consider extending his term. Japan opposed Panama's suggestion and said that extensions are only permitted in exceptional circumstances when a member is working on a case that has not been completed before their term ends.

The U.S. has avoided engagement on either nomination until now, but the recent confirmation of Robert Lighthizer to be U.S. trade representative spurred the U.S. to consider a replacement for Ramirez-Hernandez. The U.S. delegation at the June 19 meeting said the Trump administration is still undergoing a transition process and because of that, could not agree to launch the selection process for Van den Bossche's replacement.

USTR says it is “reviewing issues related to the appointment of appellate body members with Ambassador Lighthizer,” USTR spokeswoman Emily Davis told Bloomberg. “Due to the near-term expiration of the term of Mr. Ricardo Ramirez, the United States is agreeable to launching a process related to that vacancy even as our internal review process continues,” she added.

Chinese delegates to the WTO echoed other members' concerns about the “systemic” implications of the impasse. “If new appellate body members could not be selected as vacancies arise, there is no doubt that the current delay will be even more severe,” the Chinese delegation said at the June 19 meeting.

China is engaged in a series of high-profile WTO disputes with the U.S. and the EU, including the extremely important dispute about how both antidumping and countervailing duties against Chinese producers should be calculated. If the DSB rules against the U.S. and the EU in the “market economy” case, it could hurt their ability to protect domestic producers from an influx of cheaper Chinese products.

Besides discussing new appellate body appointments, WTO agreed to launch an investigation into the legality of U.S. trade restrictions on Turkish imports of steel pipes and tubes. Though the U.S. opposed the formation of the panel investigation, WTO rules prevent members from blocking establishment of a panel a second time. The dispute comes as the industry awaits a final decision on whether the Trump administration will extend its 2014 countervailing duties to all Turkish rebar producers and exporters.

Turkey alleged that the U.S. did not adhere to WTO rules because it applied improper calculations of CVDs and misrepresented the Turkish government's role in steel manufacturing, among other concerns. However, the U.S. delegation said Turkey's allegations were unwarranted and pledged to vigorously defend U.S. measures and interests in the case.

So, there is a great deal of concern in U.S. and international trade policy circles about the longer-term vitality of the WTO as the global trade rule regulator. The failure of the Doha Round, the U.S. withdrawal from the Trans-Pacific Partnership; the continuing uncertainty about the near-term fate of NAFTA; as well as the recent increases in global protectionism are all casting shadows over the future effectiveness of the WTO. Efforts to revitalize the dispute settlement structure are important to the system’s effectiveness—and, should be watched closely by producers as they proceed, Washington Insider believes.

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