A block on the World Trade Organization’s dispute settlement process has paralyzed progress in steel cases, including those pertaining to Section 232, which could result in a disparity between steel prices in the United States and those in the rest of the world, according to two trade experts.
The US has prevented WTO appellate body members from hearing appeals and handling disputes by refusing to give its consent to fill empty seats, according to Jack Caporal, an associate fellow with the Scholl Chair in International Business at the Center for Strategic and International Studies.
Seats in the WTO’s appellate body are term-limited and require consensus from all WTO members to fill, but the US will not give its approval due to longstanding concerns, he said.
“The US has a few complaints about how the appellate body has historically operated," Caporal told Fastmarkets. "The US' concerns of the appellate body go back beyond the [President Donald] Trump administration, beyond the [Barack] Obama administration and into the [George W. Bush] Bush administration."
US officials are concerned that the WTO’s appellate body has not been meeting its own obligations, he said. For example, the appellate body has exceeded their deadline of 90 days to issue a ruling.
“There are a host of other procedural rules that the appellate body has continued to not follow, and for the US that fits into the overall pattern of the appellate body seizing authority of operating outside its WTO members,” Caporal said. “The big, immediate impact would be on the disputes other countries have filed against the US over the Section 232 tariffs... The panel reports in the initial decisions in those disputes are expected later this year, but if there’s no appellate body to further those disputes then it’s left in legal limbo.”
Another example of a case in "legal limbo" is the US’ decision to appeal a compliance panel ruling in a steel dispute with India filed on December 18. In 2018, India proposed to increase import duties on 30 products from the US, including certain steel goods, in a tit-for-tat move against the US Section 232 tariffs on steel and aluminium following its unsuccessful request for an exemption.
“What the US has said is that they intend to negotiate a solution with India, but we haven’t seen one yet and the fact that this litigation has been going on for all this time with no resolution doesn’t make me particularly optimistic that there will be one,” according to Jennifer Hillman, senior fellow for trade and international political economy at the Council on Foreign Relations.
There are two possible outcomes for this case between India and the US: “India decides to do something unilaterally because they’re fed up with the process and the US is blocking, or alternatively they work out some mutually agreed solution,” she said.
“What is pretty clear from looking at the data is when you do this, you create a big discrepancy between the world market price for a product and the US price,” Hillman said.
Fastmarkets’ daily steel hot-rolled coil index fob mill US was calculated at $29.64 per hundredweight ($592.80 per short ton) on February 7, down by 13.4% from $34.22 at the same time last year.
Fastmarkets’ latest assessment for steel HRC, import, cfr main ports India was at $530-535 per tonne on Friday, up by 1.9% from $520-525 per tonne a year earlier.
“If the [US] steel industry literally wants to operate isolated from the rest of the world, than maybe we'd be better off with the 'might makes right' system," Hillman said, raising the question of whether it's better for the system to be run by certain powerful individuals versus a rules-based system. "It’s pretty clear already from the aftermath of the steel tariffs that that [might makes right] system is not working.
Fastmarkets’ latest weekly price assessment for steel hot-rolled coil, import, cfr main port Northern Europe, was €470-490 ($519-541) per tonne on February 5, widening downward from €480-490 per tonne at the same point last year.
Fastmarkets’ steel hot-rolled coil index export, fob main port China was at $470.07 per tonne on February 10, down by 9.5% year on year from $519.17 per tonne.
"The current administration has made the calculus that there’s more value in reforming the appellate body now than there is being able to continue to complete the WTO conditions in the short term... It prevents us from using a very important tool in the US' international trade tool box, which is the dispute settlement system," Caporal said.
"I think history will be the judge as to whether or not this administration does more damage to the WTO or ultimately has taken some extreme action that they think is necessary to push the WTO in the right direction [in] the long term," he added.