Solutions, Solutions

It is easy to write about problems. They’re big, they’re visible, and they’re a pain. Writing about solutions is harder because you actually have to come up with answers, which, in turn, invites readers to respond with emails explaining why your answers are either stupid or wrong. Not an incentive to start down a path that is perilous anyway. Nevertheless, I’m going to be bold and give it a try, if only because I don’t have any other topic for this week. So, I’m going to tackle three problems—the World Trade Organization Appellate Body (AB), China, and the European Union—and tell you what we ought to do about them. Then I’m going to retreat into my Bethesda bunker and refuse to read all the emails telling me how wrong I am.

The first issue is the AB. I’ll spare you the history. Suffice it to say it’s out of business, largely because the United States got tired of its overreach and refused to allow the appointment of new members. It is also true that, as with a number of other policies, there is a good bit of agreement on our diagnosis of the problem but very little on our tactics for resolving it.

A number of countries have put forward proposals for fixes, none of which the United States has supported, even though they address our criticisms. My solution is to approach this as a people problem rather than a rules problem. There already are rules on issues the United States has raised, like the timing of reports, and Ambassador Lighthizer has argued persuasively that the AB frequently went beyond its Uruguay Round mandate. In other words, the rules are there; the Uruguay Round text is there. Having more rules won’t change anything. The problem is the members of the AB who ignored the rules. The solution: have members that will adhere to the rules and stay within the Uruguay Round’s limits.

The administration has taken the first step—it has disposed of the offending members, but it has done nothing to bring on board an improved group. That will not be easy, due to the resentment our actions have created, but it has to occur eventually if the AB is to function again. Of course, if the administration’s real goal is to make sure it goes away forever, then for them the problem is already “solved,” and nothing more needs to be done. For those of us who think a functioning dispute resolution system is a good idea, the best solution lies in repopulating the AB with members who will stay within their mandate.

I have written about China before, and others are writing entire books on what the problems are, and what should be done about them. Again, I’ll spare you the history except to say this is another case of right diagnosis, wrong prescription on the part of the administration. The solution lies in recognizing that the Chinese are not going to meet our demands for structural change, not because the demands are bad economics—they are not—but because they are bad politics. They would inevitably reduce the Party’s control, which is the last thing any self-respecting Chinese Communist Party leader will agree to. Knowing that, we should focus on what we can control—our economy—and not on what we can’t—their economy.

That means spending more time and money running faster and less time trying to stop them. But we should not abandon the latter. When China cheats or breaks the rules, we should continue to call it out and prosecute in the United States, at the World Trade Organization, and in Chinese courts when appropriate, but we must understand that won’t be enough. Nor will more tariffs do the job. If the United States wants to maintain its technological competitiveness, we must make sure our innovators have the tools they need to compete. CSIS will shortly make public the work of its Commission on Affirming American Leadership, which addresses this issue directly, so stay tuned.

This is not specifically a decoupling strategy. That is happening anyway, not only for economic reasons but also due to Xi Jinping’s repressive treatment of minorities, journalists and students, and his actions in Hong Kong, and it will likely continue regardless of U.S. trade policy. Holding them accountable should be an important part of U.S. policy, but that should not allow us to abandon the more important goal of getting our own economic policy right.

Finally, Europe is the knottiest problem. We have much in common economically, culturally, and politically, but we can’t seem to get the trade relationship right, ironically for reasons that are economic, cultural, and political. One solution is to start small and build on each accomplishment. Lighthizer and now-former EU trade commissioner Phil Hogan just started that with lobster. We’ll see if Hogan’s successor is willing to continue that approach.

The more important difference with the EU is over standards and regulations, where we have each gone down different paths, ours more descriptive and theirs more prescriptive. Forty years of on-and-off negotiations have not produced satisfactory results, with plenty of blame to go around. The solution is to begin with low expectations, proceed sector by sector rather than comprehensively, and look for mutual recognition opportunities, for standards or for testing procedures, rather than trying to harmonize.

This is also a public opinion problem. Many Europeans believe their standards are higher than ours and that a trade agreement would be a regulatory downgrade. As with most things, the truth is somewhere in the middle. European standards are higher than ours in some cases and not in others. Solving that part of the problem will take strong political leadership that will not just negotiate agreements but sell the results. And that, like the Appellate Body situation, is a people problem, not a policy problem, and one for which I have no immediate solution. 

So, problems solved? Probably not, but definitely some things to think about.

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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