How The World Trade Organization Resolves Trade Disputes Twenty-three years ago, a lot of countries agreed to follow certain trade rules. If a country broke one of those rules, they agreed the World Trade Organization could make them pay. As the U.S., China and the EU negotiate trade disputes, a look at a past case explains how these issues should get resolved.

How The World Trade Organization Resolves Trade Disputes

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Twenty-three years ago, more than 100 countries agreed to follow certain trade rules. If a country broke one of those rules, they agreed the World Trade Organization could make them pay up. As the U.S., China and the EU negotiate trade disputes, Sarah Gonzalez with our Planet Money team looks at one past case to explain how they're supposed to get resolved.

SARAH GONZALEZ, BYLINE: Trade disputes can start over the tiniest things, like flavors. OK. So in 2009, the U.S. made it illegal to make or sell flavored cigarettes. Lawmakers said that chocolate and cherry and coconut-flavored cigarettes were too appealing to kids. The country of Indonesia had been sending hundreds of millions of clove-flavored cigarettes to the United States for decades.

And they noticed that the U.S. actually made an exception for one flavor, mint - menthol. And menthol cigarettes are mostly produced in the United States. So Indonesia sent a letter to the World Trade Organization in Geneva, Switzerland, saying the U.S. was discriminating against a foreign product in violation of one of the main trade agreements.

PASCAL LAMY: They come with their lawyers and their brief, and they fight their case.

GONZALEZ: That's Pascal Lamy. He ran the World Trade Organization during the clove v. mint case. And he says the first meeting between disputing countries is like any negotiation.

LAMY: Except there's quite a lot of translation going on.

GONZALEZ: The U.S. and Indonesia didn't agree on a solution, so they had to agree on three outside experts who would review the rules. Now even more lawyers showed up in Geneva, this time with cartloads of paperwork.

LAMY: These people love tons of paper. You know that.

GONZALEZ: A year and a half later, the experts sided with Indonesia. So the U.S. appealed. And the final decision went to three World Trade Organization judges. They're called the appellate body.

Do you wear robes?

JAMES BACCHUS: No. (Laughter) Nor does the appellate body wear wigs.

GONZALEZ: James Bacchus was one of the first WTO judges. He says they all have to shed their nationalities at the door. They represent the whole world. And they can't talk to anyone.

BACCHUS: We refrain from dinners, cocktail parties or anything of that sort. To the extent we socialized, we socialized among ourselves.

GONZALEZ: The stakes are high. Their decisions affect trillions of dollars of trade. Four and a half years into the clove case, the judges determined that the United States had violated an international trade agreement. There was some secret settlement. But the United States kept its ban on flavored cigarettes, and Indonesia instead started sending flavored cigars.

That's how trade disputes are supposed to get resolved. The appeals process is like the Supreme Court of the WTO. But under the Trump administration, the United States is threatening that part of the process. All 164 countries who are part of the WTO, they have to agree on who the appellate judges are. Roberto Azevedo is the current head of the World Trade Organization. He says there are supposed to be seven judges. There are currently four, and the U.S. is blocking all other countries from nominating replacements.

ROBERTO AZEVEDO: So we don't even begin to look at the names. We don't even receive the names of the candidates. That is unprecedented.

GONZALEZ: Azevedo says two more judges are on their way out, and the WTO needs three to hear a case.

AZEVEDO: When it goes to two, then at that point in time, the appeals process is effectively paralyzed.

GONZALEZ: Azevedo says countries have to want to settle disputes to avoid trade wars.

AZEVEDO: If we don't all try to observe the disciplines and the results of the disputes, then the system doesn't function.

GONZALEZ: And by the way, the United States has brought more cases to the WTO than any other country in the world. And it's won almost all of them. For NPR News, I'm Sarah Gonzalez.


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