What if US withdraws from WTO!
The US threatened on several occasions in recent years to walk out from the World Trade Organization (WTO), an intergovernmental organisation that regulates international trade. This is not the first time that the US threatened to withdraw from international bodies or agreements. US has already pulled out of TPP and the climate change accord, and will withdraw its membership in UNESCO, effective December 2018. Since taking office in January 2017, President Trump and various members of his cabinet have indicated their displeasure with WTO and its rules and regulations. The US has held that the dispute resolution mechanism of WTO is biased against the former and that the latter has been incapable of monitoring whether members are complying with the rules of fair trade. US, along with other countries, have voiced concerns about the inability of WTO to reform itself to keep up with changing times, and to position itself to be the arbiter of international trade in the 21st century. In response, WTO's Director-General Roberto Azevedo said in September 2018 that his organisation can change and it "wants to pursue dialogue with an increasingly critical U.S. to achieve reform in a range of areas, including its consensus-based decision-making process."
There are many grievances that Trump and his advisors, particularly Wilbur Ross, Commerce Secretary and Robert Lighthizer, US Trade Representative (USTR), have articulated and this crescendo of complaints has only gone up since the US-China trade war began earlier this year. Trump has often repeated his argument that WTO is "treating us badly and I hope they change their ways. If they don't shape up, I would withdraw from the WTO." The White House added teeth to its rhetoric by holding up appointments to the organisation's appeals court, impairing its dispute-settlement process.
US has many reasons for its dissatisfaction with WTO, chief among them is its inability to enforce its own rules and the perceived anti-US bias of its dispute resolution mechanism. Before I address the merit of the US case, it needs to be mentioned that the 164 members of WTO have been struggling over the last few years to overhaul the organisation. Now Canada, EU and even China have joined hands to resuscitate WTO since its survival is in jeopardy. As Keegan Elmer wrote in the South China Morning Post, "China is seeking to work with the European Union on WTO reform," adding that China "gives priority to solving problems that threaten the survival of the WTO."
WTO has many flaws, and from the US perspective, a major one is its inability to censure nations that flout WTO's anti-dumping laws and pursue policies that subsidise domestic industries. The current US administration, once it realised that WTO is incapable of dealing with these problems, sidestepped the WTO system and applied tariffs targeting overproduction of steel and aluminium by China and others based on a US national security law which is WTO compliant.
Trump and Lighthizer have also said the WTO is incapable of policing China, according to James McBride of Council on Foreign Relation, a think-tank in Washington. The USTR's 2018 report on China argues that China's state-led economic policy is "inimical to global free trade rules" and renders the WTO effectively irrelevant. "No amount of enforcement activities by other WTO members would be sufficient to remedy this type of behaviour," it states.
The last WTO Ministerial meeting (MC11) held in Buenos Aires has been considered a total failure even by US enemies. Since any change in its rules requires a consensus of member countries, MC11 failed to agree on anything. Another US beef with WTO is the fact that five of the six richest countries, including Qatar and Singapore, claim developing country status at the WTO, without providing any evidence, and this allows them to delay implementing WTO agreements.
US also considers the dispute settlement mechanism of WTO to be slow and biased against the US. When a member country lodges a complaint with WTO, it appoints a panel to hear the case. If found guilty, the respondent country can appeal to WTO's Appellate Body (AB), a court consisting of seven persons, which then adjudicates and its decisions are final and binding. During 1995-2015, "the United States has lost 89.6 percent of the 77 cases brought against it, with an even higher loss ratio of 92.7 percent on cases brought against our unfair trading practice rules. The United States has lost 100 percent of the cases brought against U.S. public interest law," according to "Public Citizen", an advocacy group, based in Washington, DC.
The merit of this argument can be questioned. According to the "Economic Report of the President" for 2018, "The United States has won 85.7 percent of the cases it has initiated before the WTO since 1995, compared with a global average of 84.4 percent. In contrast, China's success rate is just 66.7 percent." However, the US has been sued more often than any other country. To forestall this process, US has blocked recent appointments to the AB.
In defence of the Trump Administration, let it be said that it is following earlier US practices. The Obama administration ignored a series of unfavourable rulings by the AB and blocked the appointment of a WTO judge to the AB for the first time. Under Trump, the United States has continued to block appointments to the AB over concerns that it has exceeded its mandate.
To pacify Trump and to nudge WTO members to expedite reforms, Canada hosted ministers from 13 "like-minded" WTO members at the Ottawa Ministerial on WTO reform on October 24 and 25. The meeting, which included Australia, Brazil, Canada, Chile, the European Union, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore, and Switzerland, worked on three areas: i) Improving efficiency and effectiveness of WTO monitoring and transparency functions; ii) Safeguarding dispute settlement: iii) Creating 21st century trade rules.
Jim Carr, Canada's Minister of International Trade Diversification, promised that the group will "come up with a consensus for reform that we will then roll out to other members of the WTO."
Dr Abdullah Shibli is an economist and Senior Research Fellow at International Sustainable Development Institute (ISDI), a think-tank based in Boston, US. His new memoir, Fairy Tales: Stories from my life will be published by Jonantik soon.
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