September 23, 2019
Last week was largely a time of waiting for various shoes to drop. Japan, India, China, European Union, and the United States-Mexico-Canada Agreement (USMCA) are all in various stages of discussion or negotiation with plenty of rumors floating around but no actual facts that could provide a basis for comment. This week should bring some clarity, at least with respect to Japan and India and perhaps China and the USMCA. Meanwhile, the absence of any real news presents an opportunity to mention a couple recent Scholl Chair projects that might be of interest.
First, however, I should mention the letter 110 House Democrats sent last week to the president asking that the USMCA “meaningfully address climate change” by including “binding climate standards” and agreeing to remain in the Paris Agreement on climate change. This is another illustration of the point I made last week about trying to squeeze solutions to all the world’s problems into a trade agreement. This time it’s a case of too much too late. The president, unfortunately, has made climate change denial a signature issue. Demanding that he reverse himself and keep the United States in the Paris Agreement is asking for far more than the administration could ever agree to, and Democrats are doing it at a time when the negotiations are already well-advanced. If I were cynical, I would say it is a classic poison pill designed not to improve the agreement but kill it. Since I want to be more charitable than that, let’s just say it’s one more example of a common tendency of both the left and right in Congress: letting the perfect be the enemy of the good. Unfortunately, in the trade world, no agreements are ever perfect, and the best you can do is “good.” If you insist on perfect, you end up with nothing.
Second, in an effort to add a few facts to the USMCA debate, the Scholl Chair conducted a review of previous trade agreements to see how often they were reopened after signing—one of the issues being debated right now on USMCA. It concluded “…of the 12 agreements reviewed, six were subject to subsequent modification. In all six cases, new side letters were signed after the agreement was signed. In three cases, the text of the agreement itself was reopened.” The full paper can be found here.
Third, the Scholl Chair published a major study called The WTO at a Crossroad. Reflecting the challenges the organization is facing—the likely suspension of the Appellate Body in December, other demands for reform; the inability to conclude negotiations; and, perhaps most serious, the rapid changes in the global economy led by advances in digital technology that are reshaping it faster than the WTO can handle—we examined three scenarios for the future: continuation of the status quo, U.S. withdrawal from the WTO, and successful reform. Our topline conclusion was:
Only the reform scenario yields predictability and stability in global supply chains. The status quo and withdrawal scenarios will at a minimum generate business uncertainty and stymie investment and global growth but may encourage companies to invest in the United States to avoid fallout from withdrawal or erosion of the global trading system. The upside of that investment, however, would be limited by uncertain access to 95 percent of the global population that lives outside the United States.
Unfortunately, at this point the reform scenario appears the least likely. Most likely is that the WTO will continue to stumble along with the status quo. The United States is in a position to influence that outcome. It is both insisting on reform and making it more difficult by blocking Appellate Body appointments. U.S. hardball tactics have captured the attention of other members, which previous administrations had failed to do, but now that it has their attention, the United States needs to seize the opportunity to push reforms along, which requires a change in tactics and putting proposals on the table. Failing that, U.S. trading partners can only conclude that the objective is not to save the WTO through reform but to effectively kill it through obstruction.
The United States is far from the only problem child. For example, when it comes to multilateral negotiations, India is usually the biggest obstacle, but the demise of the Appellate Body constitutes the current crisis, one which, to paraphrase Rahm Emmanuel, it would be a shame to waste.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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