What Does the WTO Appellate Body’s Decline Mean for South Korea?

The global trading order recently passed a major inflection point and is heading in a foreboding direction for Seoul. With the term expiration of two of the three remaining World Trade Organization (WTO) Appellate Body judges on December 10, the most pre-eminent international organization governing trade is effectively no longer able to settle disputes among its 164 members. For a small, open economy that is heavily dependent on trade like South Korea, this potentially represents a significant challenge to a key pillar of its economy.

The demise of the Appellate Body is directly attributable to the Trump administration’s intensely skeptical approach to international trade. In the past two years, the White House has waged a war of attrition against the Appellate Body, refusing to consider any nominees while the tenure of incumbent judges slowly ran out. The departure of the two judges in December – resulting in the panel falling short of the three-judge quorum needed to issue a ruling – clinched the victory Trump’s trade team was looking for. Now, if a country does not like the outcome of a trade dispute case in a lower court it can still send it up to the appeals panel, but, because the Appellate Body cannot issue a ruling, the case will effectively be in limbo, thereby allowing the guilty party to avoid the lower court’s prescribed trade remedy such as tariffs against their own goods.  

The desire to declaw the WTO was driven by the Trump administration’s belief that the  Appellate Body too frequently ruled against the United States – particularly over its use of countervailing duties – as well as its use of past rulings as binding precedent. Indeed, these same concerns led the Obama administration to similarly begin blocking the appointment of judges in 2016, but the current White House has pursued this path to its very end. The vacuum left behind by what now amounts to a toothless WTO threatens to send the current multilateral legal system into a downward spiral of beggar-thy-neighbor protectionism.

Few countries have as much to lose from the collapse of the global trading order as South Korea does. The country’s rapid economic development over the second half of the 20th century was largely made possible by the gradual opening of global markets led by the United States through the auspices of the General Agreement on Tariffs and Trade (GATT). As the South Korean economy has grown – transforming from one of the world’s most impoverished countries in the 1950s to 12th largest economy in 2018 – so too has its dependence on trade for growth. Trade as a percentage of GDP rose from just 14 percent in 1960 to its peak of nearly 110 percent in 2012, though it has dropped to a still quite high 83 percent in 2018. 

Since the inception of the WTO in 1995, Seoul has been among the most active users of the WTO dispute settlement system in advancing its trade interests. Over the past 24 years, South Korea has raised 21 complaints at the WTO, the 10th most in the organization. Of those cases, it has only lost four outright, though four are still ongoing. Beyond the many cases it has brought forth, South Korea has joined an additional 127 cases as a third party, giving Seoul a voice in other dispute proceedings. Of course, South Korea has also been prone to criticism from other countries through the dispute settlement process, though it has fared well in these instances. Seoul has faced 18 cases as a respondent, losing only two; an additional two are still open.

To render the WTO Appellate Body ineffectual is, at the very least, to take away a critical trade policy tool from Seoul, but it likely has much worse implications. This is probably best seen through the complaints South Korea has brought to the WTO that will now go unaddressed. Of the four open complaints, three are against the Trump administration’s trade actions. Seoul has raised issue with U.S. safeguards on South Korean washing machines and photovoltaic cells needed for solar panels as well as the use of anti-dumping and countervailing duties. Measures such as these, implemented on dubious grounds, are a hallmark of the Trump trade agenda that will go unchecked without a strong WTO. The White House will also likely see the recent Phase One trade deal with Beijing as a justification of its widespread application of tariffs and other trade actions, further encouraging their use. 

Moreover, Seoul’s final ongoing WTO case, against Japan, possibly suggests Trump’s tactics may be spreading. Last summer, Japan removed South Korea from its whitelist of preferred trading partners, adding an extra layer of regulatory oversight for Japanese suppliers to export crucial parts to major South Korean semiconductor producers. There has yet to be a recorded case where the government has stopped these shipments to South Korea; Tokyo claims the decision was made over concerns with Seoul’s export control regime. However, there is a compelling argument the action was taken for political reasons in response to an ongoing historical issue, and that raises questions about whether Japan leveraged its economic interdependence with South Korea for unrelated political ends.  

Despite the challenges that have already befallen the trade order, the writing is by no means on the wall just yet. For all of its strengths, the WTO was far from being in perfect working order before Trump took office. Some are optimistic that the decline of the Appellate Body will finally force WTO members to tackle longstanding issues that have been too difficult to address previously, including those raised by the Trump administration as well as transparency and speed. Others, particularly in the United States, are more welcoming of reverting to a nonbinding dispute settlement system as was the standard under GATT. However, this presupposes extensive commitment to absolute gains-based trade cooperation, which does not seem to be where several key actors are heading. Nevertheless, in the near term the WTO will likely not fade away into irrelevance, though it will be a husk of what it once was until the Appellate Body is restored.

For South Korea, maintaining a cooperative, rules-based international trading system is integral to its economic success. While the WTO is not necessarily a precondition for this, the institution is best suited to ensure the survival of liberal trade norms at a time of so much uncertainty, making the fall of its most authoritative body a major blow to Seoul. South Korea has already undertaken efforts recently to uphold the institution’s legitimacy by declaring that it would self-identify as a developed rather than a developing country in future WTO negotiations, but will need to build on this goodwill in the upcoming 12th Ministerial Meeting in June to help find a way out of the current impasse.