WTO Reform Archives - WITA

Key Issues for Reforming the World Trade Organization

Jude Althagafi — Mon, 27 Sep 2021 15:10:05 +0000

The members of the Global Trade & Innovation Policy Alliance (GTIPA), a network of over 40 think tanks in 26 nations, have come together to articulate a positive vision that trade, globalization, and innovation—if conducted on private enterprise-led, market-based, rules-governed terms—can maximize welfare for the world’s citizens (GTIPA, 2017). The members of the GTIPA believe the World Trade Organization (WTO) can play a critical role as a forum for the establishment of rules that enable global trade to occur in a free, fair, and market-oriented manner in accordance with the foundational principles of national treatment, nondiscrimination, transparency, and reciprocity and serves as a forum for the (ideally) impartial, rules-based, and timely adjudication of trade disputes among member nations. A well-functioning WTO is indispensable to a well-functioning international economy. Unfortunately, the WTO is an increasingly constrained organization: It has failed to deliver any new significant trade-liberalizing agreements since the original Information Technology Agreement (ITA) in 1996, progress on the Doha Round remains interminably stalled, and the Appellate Body (AB) system appears broken. Perhaps most worryingly, some nations, particularly China, have elected to embrace economic and trade strategies and policies that are fundamentally antithetical and inconsonant with their WTO commitments, with the WTO proving powerless to effectively intercede. This monograph—authored by a subset of GTIPA members—explores the leading challenges facing the WTO and offers a number of policy recommendations for how to address them.

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To read the full report from the Global Trade and Innovation Policy Alliance, please click here.

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The World Economic Order – Building the WTO Back Better

Jake O'Keeffe — Fri, 02 Jul 2021 15:51:39 +0000

During the 26 years since the WTO was founded, the Members added an agreement to provide duty free treatment to information technology goods and duty-free treatment for pharmaceuticals. They concluded a landmark trade facilitation agreement that takes direct aim at reducing the 24% on average cost of moving goods across borders, a cost that is on top of whatever tariffs exist. They inaugurated peer review of trade regimes through the trade policy review mechanism. Their institutional arrangements provided increased transparency with respect to a large number of government measures that affect trade. In a testament to the WTO’s importance, thirty-six countries have joined since its founding including former members of the Soviet bloc and China, and twenty-three countries are now seeking entry, bringing the WTO to near universal applicability.

Why then the current disquiet, the repeated, largely unheeded call by world leaders and trade ministers for reform of the WTO, the growing unease about the durability and even the relevance of this liberal international trading system. What challenges does the WTO face? What is the path forward?

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To read the full report from the Peterson Institute for International Economics, please click here.

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Revitalizing the World Trade Organization

Griffin Ursin — Mon, 09 Nov 2020 14:51:16 +0000

All three pillars of the World Trade Organization (WTO) have played a key role in promoting “rules-based” international trade for the past twenty-five years.

Negotiations: The negotiations creating the WTO were a major success, leading to a broad range of new rules that prohibit members from raising tariffs beyond agreed-upon levels, restrict non-tariff barriers, and ban discriminatory trade measures. Since then, a few negotiations have helped further lower barriers, including the Trade Facilitation Agreement (TFA) and Information Technology Agreement (ITA). Today, average applied tariffs are approximately half of what they were when the WTO was created, and numerous unfair trade practices have been discontinued.2
Implementation and Monitoring: The WTO recognizes that the implementation and monitoring of commitments are essential to maintaining the integrity of an effective rules-based system. Accordingly, the WTO includes mechanisms to track implementation and rules that require members to notify it of changes in trade policies and share information on trade-distorting practices (e.g., subsidies). Transparency and information sharing promote business predictability, while the discussion of trade-distorting policies often leads to their modification or abandonment before adoption.
Dispute Settlement: The WTO dispute-settlement system helps resolve trade disputes to minimize unilateral action and cycles of retaliation. Many countries use the dispute-settlement system to challenge adverse measures. In most cases, the member losing the dispute changes the offending measure. In other cases, that member exercises its sovereignty and chooses not to change the policy, freely accepting the consequences (retaliatory tariffs). Additionally, many disputes are settled before litigation commences.

The world has changed considerably since the WTO’s creation. It has experienced the rise of the Internet and other advanced technologies, China’s economic expansion, greater skepticism about the benefits of trade, and greater concern about income inequality. The world has changed, and so must the WTO. At the same time, the WTO itself has not met expectations. WTO negotiations have not readily facilitated new rules or additional market-access openings, the implementation and monitoring pillar has not held countries accountable for ignoring its requirements, and the dispute-settlement system has not strictly applied the rules as negotiated. As a result, the WTO is falling far short of its promise and mandate in different ways.

WTO negotiations have failed to update international trade rules to: account for non-market economies and deal with related unfair trade practices, such as forced technology transfer and massive industrial subsidies; account for new technologies, such as the Internet; improve commitments in key areas covered in detail by free-trade agreements (FTAs), such as intellectual property and services; and fully address politically important policy issues, such as labor and the environment. WTO negotiations have also failed to substantially lower or equalize tariff treatment among major economies.

The ability of large emerging economies to self-declare “developing-country” status and avoid taking on the same commitments as competitors has compounded the challenge. Worse yet, many countries claim that trade liberalization and the WTO rules that promote it are anti-development, undermining the WTO’s core mission.

Compliance with the WTO’s implementation and monitoring function has not been widespread, with many members failing to follow the basic notification requirements necessary to ensure the transparency and predictability of trade.

WTO dispute settlement has drifted from its original design. It has failed to properly adjudicate certain disputes, including by inventing new rules without consensus and improperly applying the rules to non-market economies; allowed the WTO Secretariat to wield too much power in decision-making; and taken too long, depriving workers and businesses of real-time solutions.

Accordingly, all three pillars require reform to ensure the WTO retains a constructive and central role in resolving disputes before they spiral out of control, and in shaping international trade rules and behavior. When the WTO is functioning properly, it provides a mechanism to enforce agreed-upon rules in a predictable manner and create new rules to protect workers and businesses. When the rules are inadequate and disputes take too long, countries are more inclined to adopt unfair practices, and may be forced to respond unilaterally to protect their interests.

WTO reform provides the quickest and most constructive path to adequately address China’s unfair trade practices. The US-China Phase One trade deal made important progress on certain structural issues, but did not meaningfully address industrial subsidies or state-owned enterprises (SOEs), and it is unlikely that China will ever address these matters bilaterally given the government’s central role in its economy. Therefore, concerted multilateral pressure that paints these policies as a threat to the global trading system as a whole is necessary to effectuate change. In many respects, the WTO provides the ideal forum for countries to work together to persuade China to change its most problematic behavior. The WTO already has a core set of principles, such as non-discrimination, that are critical to countering such practices, and an existing infrastructure for negotiating, monitoring, and enforcing those rules. The WTO’s membership is also critical—it includes many countries impacted by these issues, as well as China itself. The broad reach of the WTO will also help ensure other countries do not adopt similar non-policies.

The United States has been calling for significant WTO reform for years, and many countries have recently joined the chorus. For example, in December 2018, all Group of Twenty (G20) members endorsed the following language in the leaders’ statement: International trade and investment are important engines of growth, productivity, innovation, job creation and development. We recognize the contribution that the multilateral trading system has made to that end. The system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning.

Despite these high-level statements, WTO members have struggled to gain momentum toward tangible reform. Some blame the United States for refusing to offer specific proposals on dispute settlement, the European Union (EU) for an unwillingness to meaningfully address US concerns on this issue, China for refusing to engage on proposals related to its practices, and India for leading the fight to preserve preferential developing country status for large, emerging economies.

Regardless of who is to blame, the WTO is in crisis, and momentum for ambitious reform must be generated before the system loses its relevance. To catalyze momentum, members should quickly resolve ongoing negotiations while “thinking big” about the future and significantly raising their levels of ambition. The successful conclusion of ongoing negotiations, such as those on fisheries subsidies, will create new confidence in the WTO by demonstrating that the system is still capable of solving problems. But, negotiations will not solve the biggest problems facing the system. Therefore, even as members seek to make incremental progress, they increase their ambition with respect to the overall scope of reform needed to create a system fit for purpose in the twenty-first century and on “outside-the-box” ideas to solve some of the more intractable problems before it is too late.

Any successful WTO reform effort requires the United States and the European Union to better cooperate and coordinate. The United States and EU share common values, jointly spearheaded the creation of the original international trading system, and have both used it to promote trade-liberalizing, market-oriented policies around the globe. The economies of the United States and the EU are also equally challenged by China’s policies. If they cannot reach consensus on how to fix the WTO, it is inconceivable that the rest of the world could do so.

To this end, this paper proposes an ambitious WTO reform proposal that both the United States and the European Union should be able to endorse, and ultimately work together to promote. In particular, a joint US-EU WTO reform proposal should

address problems with all three pillars—negotiations, implementation and monitoring, and dispute settlement; these functions complement each other and reform is needed in all three to make the system work as a whole;
address the most difficult issues, including China’s unfair trade policies and how to fit a non-market economy into a system built by market economies;
- create new rules to address issues that have emerged since the WTO was created, such as digital trade, and upgrade existing agreements, such as the intellectual property and services agreements, to the higher standards included in many FTAs;
include more robust commitments on politically important issues, such as labor and the environment, which are critical to regaining domestic support for trade;
eliminate the unfairly high tariff rates imposed by certain countries, and bring greater parity in tariff levels among major economic powers;
promote liberalization by all members, not just “developed” economies, while recognizing the unique challenges faced by least-developed countries (LDCs) and allowing for differential treatment predicated on fact-based need;
consider novel approaches to rescue the negotiating function, such as the use of plurilateral agreements that only benefit participants (non-most favored nation), or non-binding commitments for LDCs as an initial approach in certain areas;
increase high-level political engagement from capitals to promote greater ambition in Geneva;
hold countries accountable for failing to follow fundamental rules related to transparency;
fully address the underlying shortcomings of the dispute settlement system by
- ensuring that adjudicators better respect the limited mandate provided by WTO members, and do not create rules to which members never agreed;
- making institutional reforms to improve the transparency and accountability of the process, and address the imbalance in decision-making between the WTO Secretariat and the appointed adjudicators; and
- improving the system’s efficiency so it serves as a viable “real-time” alternative to unilateral action; and
recognize that fixing the negotiating function is critical to fixing dispute settlement in a sustainable manner.

The will of all WTO members will ultimately be necessary to achieve the broad-based reforms envisioned in this paper, but improving cooperation and coordination between the United States and European Union is a necessary start. Section II of this paper further outlines some of the existing problems with the WTO system, while Section III details a joint US-EU reform agenda.

To download the full report, please click here.

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Clete R. Willems is a Nonresident Senior Fellow with the Atlantic Council’s GeoEconomics Center. Mr. Willems is a partner at Akin Gump Strauss Hauer & Feld, where he advises multinational companies, investors, and trade associations on international economic law and policy matters. Until April 2019, Mr. Willems was Deputy Assistant to the President for International Economics and Deputy Director of the National Economic Council.

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Diversification and The World Trading System

Griffin Ursin — Tue, 13 Oct 2020 14:37:10 +0000

Diversification is important because it is associated with economic growth and reduced volatility. Diversification of exports, which provide foreign exchange and enable imports of critical goods, services, and know-how, is crucial for developing countries. The question we address in this brief is how export diversification is affected by trade policies, including multilateral rules, regional trade agreements, and national measures. The record on diversification is poor across a large number of developing countries, especially in Africa, the Middle East, and Latin America. Asian and Eastern European countries have performed better. Though diversification first requires domestic reforms, the current trading system does not help. The world trading system does not support developing countries with export diversification; moreover, the situation is deteriorating. To promote export diversification in developing countries and to sustain long-term global growth, the Group of Twenty (G20) must restore the credibility of the rule-based system. Reducing tariffs and tariff escalation in labor-intensive manufactures is critical. In many developing countries, the diversification potential for agriculture is severely impeded by subsidies, tariff barriers, and protectionist standards. Individual countries can take many steps to foster export diversification, the most important of which are improving the efficiency of their service sector, liberalizing imports of services, and encouraging inward direct investment. Reforms of the world trading system, spearheaded by the G20, can help promote these changes at the country level.

To download the full report, please click here.

T20_TF1_PB8

Uri Dadush is a non-resident scholar at Bruegel, based in Washington, DC and a Senior Fellow at the Policy Center for the New South in Rabat, Morocco. He is also Principal of Economic Policy International, LLC, providing consulting services to international organizations as well as corporations.

Abdelaaziz Ait Ali is a resident Economist who joined OCP Policy Center after five years’ experience at The Central Bank of Morocco.

Mohammed Al Doghan is an Associate Professor at King Faisal University

Muhammad Bhatti PhD, MBA, is an assistant professor in the College of Business, King Faisal University, in Hofuf, Saudi Arabia.

Carlos Braga works in the fields of international economics, macroeconomics scenarios, corporate strategy and international agencies (World bank, IMF, WTO, OCDE, UN).

Abdulelah Darandary is an Economist and researcher at KAPSARC. He primarily works on the KAPSARC Global Energy Macroeconometric Model (KGEMM) project.

Anabel González is host of the Peterson Institute’s Trade Winds virtual event series.

Niclas Poitiers joined Bruegel as a research fellow in September 2019.

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G20 Trade and Investment Ministerial Meeting Communique

Rachel Accorsi — Tue, 22 Sep 2020 17:02:08 +0000

CHAIR’S SUMMARY

G20 members confirmed that they continue to fully support the
objectives of the WTO and share common ground based on its
foundational principles. The views expressed by G20 members can
provide political support to advance the necessary reform of the WTO in
Geneva.

The following section summarizes the G20 discussions into three
categories: (i) common objectives, (ii) foundational principles, and (iii) the
collective vision to advance the WTO reform.

COMMON OBJECTIVES

At their Extraordinary Summit on 26 March, G20 Leaders reiterated the
objective “to realize a free, fair, non-discriminatory, transparent,
predictable and stable trade and investment environment, and to keep
our markets open.” Our discussion highlighted the role of the WTO to
achieve Members’ objectives, and specifically noted the importance of
the WTO rules in supporting economic recovery from the COVID-19
pandemic.

All members reconfirmed their commitment to the objectives enshrined
in the Marrakesh Agreement Establishing the WTO, with most members
noting that some of these objectives are also reflected in the Marrakesh
Declaration.

FOUNDATIONAL PRINCIPLES

With respect to the principles that underpin the WTO, the Chair notes
that G20 members’ responses referred to the foundational principles
embodied in the Marrakesh Agreement and included in the covered
agreements, with most members noting that some of these foundational
principles are also reflected in the Marrakesh Declaration.
The Chair notes the following outcomes of the exchange of views on foundational principles:

• All members agreed to list the following as part of the principles of the WTO:

o Rule of law

o Transparency

o Non-discrimination

o Inclusiveness

o Fair competition

o Market openness

o Resistance to protectionism

o Reciprocal and mutually advantageous arrangements, acknowledging that agreements provide for differential and more favorable treatment for developing economies, including special attention to the particular situation of least developed countries

• Most members stressed that ‘sustainability’ is a principle of the WTO

• Most members stressed that ‘market-oriented policies’ is a principle of the WTO.

• Some members stressed that ‘special and differential treatment’ is a principle that is integral to and underpins the WTO and that should be preserved. Many members, highlighting that WTO rules contribute to economic growth and development, expressed the view that S&DT is a tool to facilitate the achievement of WTO objectives and should be applied on the basis of demonstrable needs.

• Members noted the practice of consensus-based decision making in the WTO, expressly carried over from the GATT in the Marrakesh Agreement. Some members consider this practice to be a principle of the WTO.

COLLECTIVE VISION TO ADVANCE THE NECESSARY WTO REFORM

Concerning the policy vision for how agreed functions of the WTO should be fulfilled to meet agreed objectives, the G20 discussions focused on the need for members to fully comply with the WTO obligations negotiated and agreed to by WTO Members.

G20 members agreed on the need to provide political support to achieve the necessary reform of the WTO and to improve the functions of the WTO. A general sentiment emerged that in order to engage in effective reform, members must fully adhere to existing WTO obligations on transparency. Members shared ideas and referenced initiatives on transparency that could be pursued at the WTO in order to enhance trade predictability and to bolster compliance with WTO notification obligations and recognized the need to support Members that face capacity constraints in meeting their obligations.

All members reaffirmed the importance of multilateral approaches to negotiations. Most members suggested that, using the flexibilities provided by the WTO framework, “open plurilateral” negotiations could be pursued by members who were ready to move ahead on particular issues and highlighted the momentum that, in the light of historical precedents, such initiatives can provide towards multilateral outcomes. Other members recalled existing rules on negotiations and decision making in the WTO and emphasized that new rules be adopted by consensus.

Recalling Tsukuba Trade Ministers’ call for action regarding “the functioning of the dispute settlement system consistent with the rules as negotiated by the WTO Members”, members agreed that the dispute settlement system is in urgent need of reform. Divergent views were expressed on the nature of reforms that would ensure the WTO dispute settlement system faithfully supports the WTO’s important functions of monitoring and negotiation.

CONCLUSION

The Saudi G20 Presidency extends its appreciation to all TIWG representatives for their feedback and engagement in the Riyadh Initiative. The Presidency notes the following outcomes of the Riyadh Initiative:

• G20 support for the objectives enshrined in the Marrakesh Agreement Establishing the WTO, with most members noting that some of these objectives are also reflected in the Marrakesh Declaration.

• Affirmation of foundational principles of the multilateral trading system with different views being expressed on various issues.

• Determination to tackle the necessary reform of the functions of the WTO and to discuss all proposals in this regard.

• The need for Members to fulfill their notification obligations as a necessary condition for Members to effectively monitor compliance with existing rules.

• Recognition by most members of the value of pursuing plurilateral negotiations on issues where progress can be achieved and emphasis by some members that new rules be adopted by consensus.

• Shared sense that the dispute settlement system needs urgent reform, with divergent views on the nature of such reforms.

The Saudi G20 Presidency sincerely hopes that the Riyadh Initiative will help advance the shared interest of WTO Members in bringing about the necessary reform of the WTO, so it can fulfill its objectives of improving the lives of the world’s citizens and ensuring peaceful, inclusive and sustainable economic development through multilateral cooperation.

G20SS_Communique_TIMM_EN

To download the full communique, please click here

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Can Interim Appeal Arbitration Preserve the WTO Dispute System?

Diego A — Tue, 01 Sep 2020 15:36:58 +0000

If legal obligations cannot be enforced, their value is greatly reduced. International law is famous for its emphasis on soft law—that is, legal instruments with little or no legally binding force. In contrast to the typical approach in international law, the obligations of the World Trade Organization (WTO) stand out as being relatively enforceable. WTO dispute settlement is one of the most developed and legalistic adjudication systems that exists in international law, although it has far less power than a domestic court.

The precise scope of the WTO dispute system’s authority is a proper subject of debate: Just how enforceable should the rules of the WTO be? There are degrees of enforceability, and it is up to the governments that make up the system to decide how much power to delegate to international organizations and other bodies.

The prior trade dispute system that existed under the General Agreement on Tariffs and Trade (GATT) was less enforceable than its WTO successor: losing governments could block the adoption of GATT panel reports by the GATT membership, which meant they had no legal effect. Blocking adoption grew more frequent toward the end of the GATT era and became a concern. As part of the creation of the WTO, governments changed these rules and adoption became, for all practical purposes, automatic. As a result, reports would always have legal effect. At this time, governments also added an appeals mechanism, called the Appellate Body, to review panel reports to ensure that automatically adopted reports were of sufficiently high quality.

In its early years, the Appellate Body received more praise than criticism, but recently the United States has offered strong objections to some of the rulings and behavior of the Appellate Body. The Trump administration has used these objections as justification for blocking appointments to the Appellate Body, which is down to one member and is no longer operating. There is now a fear that the WTO dispute system, without a functioning Appellate Body, has been brought back to the GATT in terms of the degree of its enforceability.

But other WTO members have not been willing to give up on appellate review. They have pushed for a negotiated solution, with changes to the appellate process that might satisfy the United States, but a resolution does not seem to be imminent. They have also put forward a temporary appeals mechanism, known as the Multiparty Interim Appeal Arbitration Arrangement Pursuant to Article 25 of the Dispute Settlement Understanding, to keep the system functioning until a permanent solution can be found. As of July 31, 2020, the MPIA is in effect for the 23 parties that have signed on, and other WTO members may join at any time.

This paper considers the historical development of the Appellate Body, explains the U.S. objections, and then sets out the details of the MPIA and evaluates its prospects. For the WTO dispute system to function properly, two features are crucial: dispute settlement decisions must have automatic effect, and some form of appellate review must be available. Ideally, the Appellate Body itself would be revived, but if that is not possible, many governments are hoping that the MPIA can preserve the effectiveness of the WTO dispute system during the continued shutdown of the Appellate Body.

CATO WTO

Simon Lester is the Associate Director at Cato’s Herbert A. Stiefel Center for Trade Policy Studies.

To download the full paper, please click here

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The World Trade Organization: An Optimistic Pre-Mortem in Hopes of Resurrection

Rachel Accorsi — Thu, 06 Aug 2020 13:49:40 +0000

EXECUTIVE SUMMARY

For decades, multilateral trade rules operated to keep government protectionist impulses in check. They provided a foundation of openness for international commerce, as well as a framework for liberalisation and integration. With the trade rules as a guarantor, capital and value chains spread across the globe.

The creation of the World Trade Organization (WTO) in 1995 saw these rules reinforced with a feature that is nigh unheard-of in international law: binding and non-optional dispute settlement. For the first time, an international panel of legal experts would have the final say on the legality of trade measures, whether those implementing them liked it or not. On 10 December 2019, a procedural blockade by the world’s largest economy, the United States, culminated in that 24-year experiment being put on hold, perhaps permanently.

The loss of the WTO’s Appellate Body does not mean the global trading system is in anarchy, but it does move it a significant step closer to unilateralism and transactionalism in trade policy. Moreover, the Appellate Body crisis is just one of the areas where the WTO is bleeding, and the WTO is just one symptom of a global trading system besieged.

Policymakers looking to restore predictability and order must grapple with a WTO that has struggled to negotiate new rules and enforce and monitor existing ones; which civil society distrusts; and on which business has largely given up as a source of solutions. The global consensus, based on the underlying wisdom of sacrificing some sovereign policy space to allow predictable, rules-based trade, has never been weaker. There are no easy answers, but one thing is certain: technocratic fixes from Geneva and ministerial press releases bereft of specifics will not be enough.

CONCLUSION

This Appellate Body crisis may abate, and the impending budget crisis may be averted, but the WTO’s challenges run deep. Unless the consensus on gradual liberalisation and rules-based trade can be rebuilt, the WTO will continue to fall short of the political will required to move beyond current impasses and inefficiencies. Ministerial calls for unspecified reforms, or reforms with no chance of securing consensus from the very players they target, will continue to sound hollow.

The United States has to be central to any future plan. No amount of technical work, statements of concern, or speeches in the General Council can fix a trading system to which the world’s largest economy is uncommitted. US allies and trading partners with an interest in maintaining a rules-based multilateral trading system will need to use collective and creative diplomacy to pressure the United States to return to a productive member of the WTO, if not a leader as it has been in the past.

Whatever the future of the WTO, governments who believe in rules-based trade must look inwards and begin rebuilding the interest and engagement of business and civil society. Business must be convinced to devote the time and resources to shape and inform trade policy, and civil society actors must be brought, however sceptically, into the tent. That is not going to be easy, but the decades of economic growth and prosperity enabled by predictable, rules-based trade, show that it is worth it.

Grozoubinski,WorldTradeOrganisation

Dmitry Grozoubinski is a former Australian trade negotiator and diplomat, now based in Geneva where he serves as the Executive Director of the Geneva Trade Platform and founder of the consultancy ExplainTrade.

To read the full analysis, click here.

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WTO Annual Report 2020

Zimar Batista — Wed, 01 Jul 2020 16:49:27 +0000

The 2020 Annual Report provides a comprehensive account of the WTO’s activities in 2019 and early 2020. The report begins with a message from WTO Director-General Roberto Azevêdo and a brief overview of the past year. This is followed by in-depth accounts of the WTO’s main areas of activity over the past 12 months. Spotlights highlight major WTO events and initiatives.

anrep20_e

To view the full report, please click here

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Resolving the WTO Appellate Body Crisis, Volume 2

Emma Donahue — Mon, 01 Jun 2020 21:19:38 +0000

Further to the December 2019 paper, “Resolving the WTO Appellate Body Crisis: Proposals on Overreach”, this paper suggests additional approaches to reforming the World Trade Organization Appellate Body in order to restore a consensus in favor of its restoration and ensure ongoing, sustainable support for its operation.

That task is more essential than ever as a step towards reinvigorating the WTO so that it may serve as an effective forum for addressing the trade fallout from the coronavirus crisis. Members need not await the end of that crisis to make progress towards the goal of agreeing on steps to make the Appellate Body operate as intended in 1995. Should there be agreement on that goal, Members can advance solutions now, whether as part of provisional arrangements or through efforts to achieve a permanent solution.

The suggestions in this paper could be implemented either through decisions, agreed interpretations or amendments to the Understanding on Rules and Procedures Governing the Settlement of Disputes (the Dispute Settlement Understanding, or DSU). They include:

1) Providing clear guidance that Appellate Body reports do not constitute binding precedent, but may, as with panel reports, be cited for their persuasive value;

2) Replace the Appellate Body secretariat with clerks seconded from the WTO secretariat;

3) Provide guidance on the role of adjudicators and of the Appellate Body that emphasizes their role of assisting WTO Members in resolving disputes rather than making law.

Resolving the WTO AB Crisis vol2 06042020

To read the full report, click here.

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The U.S. Should Make Greater Use of the WTO, Not Withdraw

Diego A — Wed, 13 May 2020 17:33:56 +0000

Every five years, under U.S. law, Congress may consider whether to withdraw the U.S. from the World Trade Organization (WTO). This consideration is now ripe—at the same time the world grapples with the health and economic impact of COVID-19. A healthy debate over the costs and benefits of trade should, as always, be welcome in Congress; however, actual withdrawal from the WTO would cost Americans billions of dollars at a time when America most needs it. Withdrawing from the WTO is not just the opposite direction U.S. trade policy should be heading, but would add insult to injury as the 2020 recession continues.

KEY TAKEAWAYS

1. While healthy debate over the costs and benefits of trade should be welcome in Congress, actual withdrawal from the WTO would cost Americans billions of dollars.

2. The WTO is not a perfect institution and warrants criticism and oversight. The U.S. should work harder to reform the institution, not withdraw from it.

3. Instead of withdrawing, Congress should consider ways to take greater advantage of the WTO and work with free trade allies to address China’s abuses of the system.

Background

In recent years, the WTO has taken on an outsized role in debates about trade, and both supporters and detractors have been guilty of exaggerating the organization’s importance. The WTO is not a global governing body, directing flows of goods and services around the world or even setting and enforcing trade policies on its members. Its actual role is far more limited, as a forum of negotiation and a venue for the resolution of disputes between its members. It has no independent power to enforce its decisions.

The WTO has proven to be a useful tool for the United States and other countries in promoting fair and mutually beneficial trade among its members. U.S. businesses and consumers have benefitted enormously from voluntary participation in its negotiations and mediation exercises.

In addition to hurting the fragile state of the U.S. economy, withdrawal would undo many economic gains over the past few years, not to mention damage decades’ worth of employment and investment in current supply chains.

Congress should instead consider ways to take greater advantage of its WTO agreement. Congress should push the Trump Administration and other governments to uphold their WTO commitments. And where Congress feels the WTO is lacking, for example, when countries like China are gaming the system, it should work with free trade allies to reform the institution and address China’s abuses of the system.

U.S. Views of the WTO and Trade

In 1995, the U.S. led the establishment of the WTO. Since then, U.S. sentiment toward trade has ebbed and flowed, but generally has grown more positive. As of early 2020, 79 percent of Americans considered trade an opportunity for economic growth.

Only 19 percent considered trade a threat to the economy. In the past, sentiment toward trade has only grown negative during times of economic disruption, such as after China joined the WTO in 2001 and during the 2008 financial crisis.

But we have yet to see an increase of negative sentiment toward trade during the current crisis.

Criticisms of the WTO are not new. Previously, critics have called out the institution for failing to address certain concerns, such as the effects of state-owned enterprises, intellectual property theft, or lack of investment rules. Others have called out the WTO as being inefficient, as its dispute-settlement process can sometimes take years. Others have blamed the institution for less relevant concerns, such as the rise in China’s economy or disruptions to U.S. manufacturing employment in the early 2000s.

Many of these criticisms are based on a misunderstanding of what the WTO can do and lamentation over what critics think it should be doing. A better understanding of the limitations of the WTO might prompt a better debate over trade.

Withdrawing from the WTO

Congress may submit a joint resolution withdrawing its approval of the WTO Agreement every five years. Resolutions were submitted in the House of Representatives in 2000 and 2005. However, each failed after 80 percent of members voted against these resolutions.

A resolution has never been submitted in the Senate.

Much like withdrawal, Congress must approve all U.S. trade agreements. And the WTO is by far the U.S.’s largest trade agreement. The institution is made up of 164 members and covers 98 percent of global trade.

Meanwhile, the U.S. only has preferential trade agreements with 21 countries, including a recent trade agreement with Japan, and has recently begun negotiations for a trade agreement with the United Kingdom. The Phase One agreement with China is not a trade agreement in the same sense: It is a bilateral settlement of disputes.

On an annual basis, 32 percent of the U.S. economy (as measured by gross domestic product) relies on the flow of goods and services through trade. Overall, the U.S. economy has experienced a 1.45 percent increase in welfare because of its membership in the WTO.

But a recent estimate suggests that a total disintegration of trade agreements including the WTO could cost the global economy $2.7 trillion.

Given that U.S. economic growth already decreased 4.8 percent in the first quarter of 2020, and now with 14 percent unemployment, such a massive disruption to U.S. trade would be dangerous.

As for the rest of the world, while the U.S. is one of the world’s largest sources for trade, leaving the WTO would not mean an end to the WTO. Other members, such as China and the European Union, would continue to reap the benefits of preferential trade with each other as the U.S. races to negotiate and codify into U.S. law new trade agreements. It has taken the Trump Administration over three years to negotiate and implement two trade agreements with our friends in Mexico, Canada, and Japan. Other countries may prove more difficult in negotiating new trade agreements.

China and the WTO

China’s membership in the WTO poses major problems for the organization. In fact, much of the reform needed by the WTO revolves around the challenges China presents, from the power of its state-owned companies and its massive state subsidies to forced technology transfer and the developing-country status that affords it preferential treatment. China’s state-led economic model was not a problem when it truly was a developing country. Now that China is the second-largest economy in the world, it is. Working with its allies, the U.S. absolutely must address these contradictions.

To be clear, however, one place China is not generally a problem is one that touches directly on the WTO’s current core competencies: dispute settlement. Of the 124 complaints the U.S. has filed against other countries, China was the recipient only 23 times. The U.S. has also joined WTO members nine other times in their complaints against China. The U.S. usually wins its complaints, and China abides by the WTO’s judgments.

This process needs to be sped up, but throwing it away would hurt the U.S.—not China.

On the other hand, if the real issue with China and the WTO is China’s economic growth, there is little withdrawing from the WTO would do about that. China’s economy was able to grow in the 2000s because of the economic reforms it implemented to liberalize and join the WTO. Leaving the WTO would not restrict China’s ability to import goods from around the world at lower prices to its benefit. As for the future of China’s economy, illiberal reforms since the 2008 financial crisis have left China’s economy with massive amounts of debt, greater aversion to foreign competition, and in greater need of foreign investment.

Chinese officials are hoping leaps in government-directed technology gains will help offset China’s slowing economic growth. But anything that cannot go on forever will stop. And China’s non-market approach to the market is one such thing.

WTO Today, WTO Tomorrow

The U.S.’s growing negative sentiment towards China—given the role it has played in suppressing information about the COVID-19 virus and spreading disinformation about the virus’s place of origin—is well-founded. But it should not distract from the fact that trade’s popularity with Americans is likewise well-founded.

Therefore, Congress should:

Reject calls to withdraw from the WTO. Previous congressional attempts to withdraw have failed. The cost to the U.S. from withdrawing and trying to negotiate all-new bilateral trade agreements far outweighs any perceived benefit withdrawal could bring.
Work to reform the WTO and ensure it effectively addresses the China challenge. History shows the U.S. is very successful in winning cases at the WTO. It would be a shame to have the ability to dispute other countries’ bad trade practices but not use it. Those areas where the WTO is lacking can be negotiated in reform, such as addressing China-related issues, accelerating the dispute-settlement process, and including a digital commerce agreement.
Take a hard look at current trade laws. U.S. frustration with the WTO may have less to do with the institution and its members and more to do with current U.S. trade laws. Fixing America’s broken trade laws, such as Section 232 of the Trade Expansion Act of 1962, would be a good start.

Conclusion

The WTO is not a perfect institution, and therefore warrants criticism and oversight. That is why the U.S. should work harder to reform the institution it helped create 25 years ago. Withdrawing from the WTO is not just the opposite direction U.S. trade policy should be heading, but would add insult to injury as the 2020 recession continues.

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