Wednesday, June 29, 2022

The WTO is Meeting for the First Time in Years. Can It Survive?

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Headquarters of the World Trade Organization in Geneva, Switzerland. Getty Images

The 12th Ministerial Conference comes at a time when many countries, including the United States, are shifting away from unfettered free trade and the global institution set up to encourage it.

The band is getting back together — but will it be a farewell tour?

For the first time in five years, World Trade Organization (WTO) members are gathering for a Ministerial Conference in Geneva, where they will work to address a whole host of issues. Some are pretty specific, things like increasing COVID-19 vaccine availability and removing subsidies that contribute to overfishing. Members also are expected to work to address growing global food insecurity challenges due to Russia’s unjustified invasion of Ukraine.

But the meeting notably comes at a time when globalization has a bit of an image problem. Many countries, including the United States, have [quite rightly] begun efforts to become less reliant on vast global trade networks and grow their own industries, especially for critical goods. Trade hasn’t gone completely out the window, mind you, but trends appear to be moving toward what the Wall Street Journal described as “friend-shoring,” with nations focusing more on trading with allies rather than using trade to create new relations.

A stronger WTO may have been able to shape global policy and use trade to help address some of the current crises. But the body has been weakened over the decades, and is in desperate need of reform.

And that’s really the big thing to watch this week: Will the WTO be able to regain relevancy — or will it fall like others before it?

There’s a reason that AAM President Scott Paul is so skeptical, and it starts with the WTO’s Appellate Body. Well actually, it starts a little over 20 years ago, when China officially joined the WTO.

As Scott Paul pointed out late last year, China’s entry into the WTO has been a disaster for American workers. About 3.7 million U.S. jobs were lost between 2001 and 2018 due to the growing trade deficit with China, and the U.S. offshored so much of its production that we are unable to make many of the things we need, including for critical things like national security and even basic medicine.

American policymakers certainly deserve some of the blame, as both parties encouraged globalization for decades. But China’s government has been a particularly bad player, and the WTO hasn’t been able to do much about it.

The Chinese Communist Party (CCP) has largely refused to follow global trade rules, employing market-distorting practices like massive subsidies and state-owned enterprises to dominate global industries. China also stands accused of stealing intellectual property, has weak environmental laws, and even uses forced labor to make products exported around the world.

In theory, China’s entry into the WTO was supposed to open its market and help end many of these practices. But, the opposite happened. China managed to weaponize globalization.

Seems like an opportunity for the WTO to show its strength, right? Well… nope.

A 2017 report from the U.S. Trade Representative found:

“WTO rules are not sufficient to constrain China’s market-distorting behavior. While some problematic policies and practices being pursued by the Chinese government have been found by WTO panels or the Appellate Body to run afoul of China’s WTO obligations, many of the most troubling ones are not directly disciplined by WTO rules or the additional commitments that China made in its Protocol of Accession. The reality is that the WTO rules were not formulated with a state-led economy in mind.”

Instead of addressing China’s constant trade cheating, the WTO’s Appellate Body instead turned its attention to the United States, issuing 38 separate decisions against the U.S. since 1995, five times the number of decisions issued against any other member. The U.S. accounted for just 12.7% of trade remedy measures imposed by WTO members from 1995 to 2015, but was subject to 57.5% of the WTO’s decisions in trade remedy disputes, according to a 2017 report.

And that’s lead to lost support for the WTO among many American policymakers from both parties.

“In decision after decision, the WTO has ruled against the U.S. and weakened our laws designed to fight back against subsidies and illegal dumping,” Sen. Sherrod Brown (D) pointed out. “The WTO has undermined the tools our businesses need to defend themselves and their workers. We need a reset of our trade relationship with China, starting with a reset at the WTO.”

A reset began under former President Donald Trump. Never a big fan of globalization or vulnerable institutions, Trump took action by blocking the appointment of new judges to the Appellate Body, which essentially froze it. It’s been frozen ever since.

Trump’s now out of office, and the Biden administration has been far more respectful of the WTO as an institution. But President Biden and his team don’t seem in a hurry to get the Appellate Body back up and running, either — at least not without some major changes. In a speech in October 2021, U.S. Trade Representative Katherine Tai noted that “reforming dispute settlement is not about restoring the Appellate Body for its own sake, or going back to the way it used to be.”

The biggest problem facing the WTO may be that it was built for a different time. In arguing to keep the body, WTO Secretary-General Ngozi Okonjo-Iweala told Politico that “splitting up the world’s economies and supply chains into political blocs would have damaging consequences.”

But frankly, that’s already happened. As Politico noted in the same piece, President Biden routinely describes the U.S.-China rivalry as the competition of the 21st century, a battle between democracy and autocracy. And in this case, unfettered trade actually drove a lot of the tension between the two nations.

The complaints about the WTO in this particular blog piece, of course, are American complaints. But the WTO has also failed other countries in any number of ways, as Nick Dearden of The Guardian pointed out, making it even harder to come to a consensus on how the global trade body should actually operate.

All WTO member countries would have to come to an agreement to institute reforms. And given that the WTO has 164 member countries, and all of them have their own set of issues, it’s a big hill to climb.

Trade lawyer Kelly Ann Shaw, who represented the U.S. in litigation before the WTO and served in the Trump administration, told the Wall Street Journal that there’s little momentum to actually get anything done. “I don’t think the WTO is at risk of imploding, but I do think it’s at risk of death by irrelevance, which is what we’re seeing play out right now,” she said.

Roberto Azevedo, who served as WTO director-general between 2013 and 2020, had even less favorable things to say, telling the Journal that the WTO has been “deteriorating quite considerably.” This is the dude who ran the place for seven years.

So, things aren’t looking good in Switzerland! But in any case, we’ll keep a close eye on this week’s big meeting. We aren’t getting our hopes up that anything major will come out of it, but hey — long-awaited breakthroughs occasionally happen.

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