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Investors and businesses are preoccupied with the fate of NAFTA and the escalating U.S.-China trade war. And rightly so.

But an equally serious threat to the global trading system, and Canada’s place in it, is playing out at the World Trade Organization in Geneva.

The Trump administration is engaged in an all-out war on the WTO, accusing it of serially mistreating the United States and failing to rein in China. U.S. President Donald Trump has bluntly warned that if the WTO doesn’t “shape up,” he’ll pull the United States out of the 164-country organization, which sets the rules for global trade and resolves disputes.

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Short of quitting, the United States has been quietly doing its best to cripple the WTO from within. The Trump administration has repeatedly blocked the appointment of new judges to the organization’s appeals body – a tactic that is poised to bring dispute-settlement proceedings to a halt. By the end of this month, the appeals tribunal will be down from seven judges to just three – the minimum number required to hear cases. And two of those judges are due to leave in December, 2019. Worse, the three remaining judges – one each from the United States, China and India − must recuse themselves if they have a conflict of interest. Given that the United States and China are at the centre of most unresolved disputes, these judges may be unable to hear most cases.

“The WTO system is slowly grinding to a halt,” Cecilia Malmstrom, the European Union’s top trade official warned bluntly last week. “It is probably in its deepest crisis ever.”

The hobbled dispute-resolution regime matters a lot to Canada, which is currently fighting U.S. steel and aluminum tariffs as well as key aspects of the softwood-lumber dispute at the WTO. The appeals logjam could prevent or delay Canada from securing final decisions in these cases and relief from U.S. duties.

More broadly, anything that undermines the WTO is bad news for a small, trade-dependent country such as Canada. Global rules and access to independent dispute settlement help level the playing field, preventing larger countries from unfairly leveraging their economic clout.

Like many of Mr. Trump’s rants, there is an element of truth to his grievances about the WTO. The United States is not alone in complaining about the slow pace of dispute resolution and the WTO’s apparent inability to punish countries that willfully ignore its rulings. There is also widespread frustration among countries that the WTO, which operates by consensus, has repeatedly failed to modernize the agreement to deal with such issues as digital trade and subsidies.

The EU recently released a plan to address some of the WTO’s shortcomings, including new rules to deal with Chinese industrial subsidies and state-run enterprises.

Canada is also working on a complementary blueprint for WTO reform, focused on improving the dispute-settlement system and monitoring trade practices. Trade ministers from Canada and what Canadian officials are calling “like minded” countries are slated to meet in Ottawa next month to draft concrete reform proposals.

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But it’s hard to imagine these efforts will appease Mr. Trump. His contention that the United States loses “almost all of the lawsuits” at the WTO is rubbish. It’s true that the United States has been sued more often – 150 times – than any other country since the WTO was created in 1995. And it has lost 87 per cent of those cases that reached a final ruling. But University of Arizona political scientist Jeffrey Kucik pointed out in a recent blog post that a 90-per-cent loss rate is typical for all countries who are sued, not just the U.S. Plaintiffs rarely litigate unless they have a very strong case because the process is long and costly.

Not only is the United States sued more than other countries, it is also the leading complainant with 120 challenges since 1995, Prof. Kucik said. And it has won 90 per cent of those cases.

Mr. Trump and U.S. Trade Representative Robert Lighthizer resent that WTO decisions are binding and that judges sometimes stray into areas of domestic law. The same logic explains why Mr. Trump wants to scrap the North American free-trade agreement’s independent dispute-settlement regime.

Mr. Trump’s apparent goal is a world without common rules and independent arbitration – a world where the No. 1 economy can indiscriminately use tariffs as a weapon to get what it wants, whenever it wants.

For the rest of the trading world, that’s an ominous prospect.

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