Undermining the WTO
April 27, 2020
Having spent most of the past two months writing about Covid-19 and its impact on the trading system, I thought I would take a break and return to a more traditional topic—the health, or lack thereof, of the World Trade Organization (WTO). The organization has three main functions—conduct negotiations, resolve disputes, and promote transparency and notification—and all three are currently in peril.
On the negotiation front, the WTO has completed one multilateral negotiation since it was formed—the Trade Facilitation Agreement. The much-anticipated Doha Round has been effectively moribund since 2008. The latest attempt at a broad-based agreement, on fisheries subsidies, appears to be in trouble. However, the postponement of the ministerial conference originally scheduled for June may end up providing more time to reach an agreement. The dispute settlement process is in disarray due to the cessation of the Appellate Body (AB). The recent announcement by the European Union and 15 other countries of an alternative to it for those countries has cast more doubt on the likelihood of it returning anytime soon, even though the announcement was clear that the alternative is intended to be temporary.
Similarly, notification requirements are being honored in the breach. CSIS just put out a more detailed study of this issue shows that 48 percent of WTO members had not notified any subsidies in 2017, compared to 25 percent not notifying in 1995, the WTO’s first year. Even a country’s unlikely argument that it did not have any subsidies and therefore had nothing to notify would not relieve it of its obligation to report that fact to the WTO.
So, discipline is breaking down, and it is increasingly clear that the United States is making that situation worse rather than better, despite its argument that it is trying to improve things. Once again, as has occurred so often with this administration, it is a case of right diagnosis, wrong prescription. The administration’s criticisms of the AB are both well-known and well-taken, and there is a surprising amount of agreement on the part of other countries about the AB’s failings, though there is clearly not a consensus on how to fix it. Likewise, the administration’s focus on other countries’ failure to notify or failure to notify accurately and completely is well-taken. The administration deserves credit for identifying the problems and focusing attention on them, something that probably would not have happened if the United States had not pounded the table. Table pounding, however, only takes one so far. Once you have their attention, you need to use diplomacy to bring everyone to consensus, and we have shown less interest in that part of the game, although our approach has differed in the two cases.
On the Appellate Body issues, the administration has put forward no constructive proposals and has criticized those who have. Their argument is that many countries have a fundamentally different view of the purpose of the WTO than the United States, and until everyone comes around to our way of thinking, there is no point in negotiating. It is true that countries are philosophically divided over how “activist” the AB should be, but negotiations over philosophy rarely have happy endings. You can often get others to do what you want, but getting them to think what you want is another matter entirely. Instead, we should be engaging with the numerous proposals on the table and trying to negotiate an outcome that gives us most of what we want. Our failure to do that has led to the European Union and 15 other countries setting up their own alternative appellate process that excludes us. The administration no doubt does not care about being left out, but the next one will because it represents one more nail in the coffin of U.S. global leadership. The WTO is moving on without us, and the more other countries get used to that, the more our ability to influence outcomes declines.
Instead of engaging on the issue, the United States has just had the WTO equivalent of a tantrum and stamped its foot in a recent case we lost to Canada involving certain kinds of paper, saying we do not have to comply because the AB panelists violated the rules. Past administrations would have reinforced the WTO’s legitimacy and honored the outcome. This one has chosen to further undermine the organization, an action that will come back to haunt it in the future, most likely on the issue of notifications. There we have played a more responsible game and have put forward constructive proposals. But since we have alienated most of our potential friends and demonstrated our contempt for the organization, we are not likely to find other countries lining up to agree with us.
Finally, if you have been paying attention this far, you may have noticed I did not say anything about the U.S. role in multilateral negotiations. There the story is not yet written. There is only one truly multilateral negotiation going on at the moment—on fisheries subsidies—and we appear to be playing something of a constructive role—so far. Whether we have any credibility there in view of our other actions remains to be seen, but we should all hope the administration focuses its energy on trying to bring those talks to a successful conclusion rather than on further undermining the other work of the WTO.
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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