The WTO Is a Crucial Entity for Avoidance of Brutal Trade Disputes
Tariffs, like those off-again on-again ones on Chinese imports, have helped roil markets and are now fueling fears of an economic slowdown. Perhaps with the president considering steps like additional tax cuts, warnings of casualties from the trade war are finally resonating in the White House.
But tariffs are just one front in the president’s trade war. The World Trade Organization is another. The administration’s displeasure with the WTO is less visceral for average Americans than tariffs, but arguably more important to the future of the global trading and economic growth.
The WTO has promoted trade across the world by dramatically lowering tariffs and other trade barriers. It established a rules-based approach to trade and a forum for resolving trade disputes between nations.
Until now, the United States has been a stalwart leader in WTO efforts to break down protectionist barriers and drive open markets. As a result, U.S. manufacturers, farmers, and large and small businesses have broader access to international markets and consumers and businesses have access to more affordable goods. This has helped raise the standard of living for Americans and people around the world.
Yet the administration seems intent on pulling the plug on the WTO. Granted, it needs updating. The world has changed markedly with the advent of digital trade and the growing influence of state-owned enterprises like China’s, and WTO rules haven’t kept up. The U.S. is not alone in these concerns and the administration is engaged in resolving some of these issues, such as crafting new rules for e-commerce.
But it has reserved special contempt for the WTO’s Appellate Body — the WTO’s version of an appeals court where a member country can appeal a ruling on a trade complaint made by a lower dispute settlement panel. Some U.S. concerns are shared by other member countries. The Appellate Body should render decisions within the requisite 90-day period, and judges should obtain the appropriate approval to continue working on cases after their terms expire. But other U.S. contentions, such as judicial overreach, are more controversial and will take time to resolve.
Although these objections were also raised by the Obama and Bush administrations, the Trump administration has elevated them to a crisis. It has blocked the appointments to the seven-member Appellate Body, which today has just three judges, the minimum necessary to function. D-day is Dec. 11, when two of the remaining judges’ terms expire.
Creating such leverage might be a good strategy to achieve results, except addressing the administration’s concerns has thus far proven impossible. Trump’s trade team has summarily rejected proposals such as the European Union-led effort. U.S. Ambassador to the WTO Dennis Shea told the General Councilthat “with respect to the proposal advanced by the European Union, China and India, it is hard to see how it in any way responds to the concerns raised by the United States.” This kind of response is hardly constructive, especially because the proposal was crafted in part to address issues raised by the administration.
What will the administration consider acceptable? Tim Phillips, president of Americans for Prosperity, asked U.S. Trade Representative Robert Lighthizer in a recent letter to “put forward a specific proposal to serve as a guidepost to craft meaningful Appellate Body reform that would meet the administration’s objectives.” Crickets. Sen. Charles Grassley, chairman of the Finance Committee, got a similar response earlier this summer.
The problem is no one truly knows the administration’s end game.
The administration’s actions are even more puzzling in light of the opportunity presented to use the dispute resolution process to better address some of China’s problematic trade practices. This would be particularly effective if working with other member countries. China has for the most part typically complied with WTO judgements against it, yet the administration isn’t interested.
In the meantime, the clock is ticking. Rendering the Appellate Body toothless could lead to an unwinding of the entire dispute-resolution process – the WTO’s “crown jewel” – and even possibly the WTO itself.
Global trade could turn to an atavistic eye-for-an-eye, frontier approach to trade that is less likely to resolve differences and keep trade barriers low. Or member countries could pursue the kind of plurilateral agreements the administration has shunned, like the Trans-Pacific Partnership. But going it alone has put U.S. firms at a distinct competitive disadvantage. Either outcome would severely limit U.S. access to foreign markets and pose massive risks for Americas businesses, workers and consumers.
Continuing the trade war will mean more American casualties. If, as Lighthizer has insisted, the administration is serious about fulfilling our WTO obligations it should start by answering the question: What’s the way forward on the Appellate Body?
