Article content continued
Moreover, there is good reason to suppose they will become more common. In combatting COVID-19, governments have extended unprecedented financial support to their own companies. As industries resume production, ramping up idled capacity, they will turn to foreign markets to absorb large elements of that production. When these subsidized goods are exported, they can generate trade complaints from local producers who want to stop them with anti-dumping and especially countervailing (anti-subsidy) duties.
For years, the multilateral order has provided some measure of discipline on the use of trade remedies. That was because inappropriate remedial action by one WTO member against another’s imports could be challenged under the WTO dispute settlement system.
But today the WTO system is paralyzed. The U.S. has been blocking appointments to the organization’s Appellate Body, its court of last resort, which no longer has an effective quorum. Whatever happens on the U.S.-China trade front, the WTO adjudication system’s current dysfunctionality can only encourage more widespread deployment of trade-remedy actions, including retaliatory tariffs on imports, since countries no longer have to fear an adverse WTO ruling.
A different set of concerns arises from the use of Investor-State Dispute Settlement (ISDS) mechanisms. The right of foreign investors to invoke binding arbitration against host countries is enshrined in thousands of country-to-country investment protection treaties around the world. Governments everywhere have enacted exceptional support measures to deal with the pandemic, with huge amounts of capital being directed toward struggling local industries. Targeted relief to home-grown enterprises, which many such measures involve, increases governments’ exposure to claims by foreign investors of discriminatory or unfair treatment.