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Trump thumps the WTO

Author: Brad Glosserman, Tama University

The foundation of Donald Trump’s presidency is the drive to ‘make America great again’. That means ending the ‘theft’ of US wealth by other nations through an international order that operates to the ‘detriment’ of US interests — despite this system being established in large part by US efforts. Trump believes that his predecessors (as a result of naivety, incompetence or bad faith) failed to protect US interests in every trade deal in which they participated. He seeks to undo this ‘damage’ by either ripping up or renegotiating these deals to make them more favourable to the United States.

The Trump administration’s assault on the international trade system began on the first day of his presidency by his withdrawing the United States from the Trans-Pacific Partnership. The North American Free Trade Agreement and the Korea–United States Free Trade Agreement are the next targets in the President’s sights.

Less attention has been paid to the administration’s effort to sabotage the World Trade Organization (WTO), which is the primary institution for creating order in the global economy. Trump is convinced that the WTO was established to exploit the United States and to benefit the rest of the world. As proof, he claims that the United States loses ‘almost all the lawsuits in the WTO’ and that the United States is disadvantaged in WTO panels by having fewer judges than other countries. While most experts consider the WTO dispute settlement mechanism to be one of the institution’s successes, US Trade Representative Robert Lighthizer argues that it has undercut US sovereignty and is different from the mechanisms to which Washington agreed when it joined the WTO.

The charges are false. The United States has a higher win rate than any other major user of the WTO system: it prevails in about 78 per cent of the complaints it files (this is compared to an average of 69 per cent over all other WTO member states). When the United States is a respondent, it wins 36 per cent of all disputes (compared to 25 per cent for other WTO member states). The Appellate Body overturns decisions in favour of the United States 35 per cent of the time. When other WTO members appeal against the United States in the Appellate Body, they prevail only 30 per cent of the time.

Those facts have not halted the Trump administration’s attempts to undermine the WTO. This effort is based on the administration’s preference for bilateral agreements over multilateral ones, as the strength of the US economy means that it ‘can do better negotiating individually’. Trump explained at the November Asia Pacific Economic Cooperation CEO Summit that his administration would partner with any Indo-Pacific country on the basis of ‘fair and reciprocal trade’ but would ‘no longer … enter into large agreements’.

In practice, this has meant resistance to the usual rhetoric produced at working level and ministerial WTO meetings: US emphasis on ‘fair’ rather than ‘free’ trade blocked the issuance of a statement at the Buenos Aires 11th Ministerial Conference in December.

Equally corrosive has been US unwillingness to provide the leadership and energy that once helped forge compromise and move negotiations forward. This opposition is evident in two sets of actions.

The first is blocking the appointment of new judges to the Appellate Body, which hears appeals in the WTO dispute settlement mechanism. There are seven positions for judges on the Appellate Body and three are required to hear each appeal. Two judges have recently retired and a third judge’s term expired in December 2017. That leaves just four judges on the Body. Of the four, one judge’s term expires September 2018 and two are from countries frequently involved in disputes (the United States and China), which limits their ability to hear cases. The US position is widely viewed as an attempt to force the WTO to accept Washington’s wishes. In less polite company it is called ‘hostage taking’.

The second involves ignoring WTO rulings and pursuing remedies outside the WTO framework. On 1 March 2017, the administration announced its ‘Trade Policy Agenda’. It warns that the administration will ‘use all possible leverage’ to foster ‘fair, reciprocal’ trade. The agenda dismisses the WTO as an effective instrument to expand trade and economic opportunities. Instead, the United States will act unilaterally against trade partners and ignore rulings that alter US trade agreements. This could unravel the WTO system if other countries join Washington in rejecting rulings that they dislike and in taking action of their own accord.

The WTO is not without its flaws, and the United States is not the only nation that is undermining the organisation. Many WTO activities are not transparent. Due to several governments’ obstinacy, there has been no progress on the Doha round of negotiations and most experts and participants believe that it should be abandoned. The ensuing proliferation of regional trading initiatives yields confusing rules and inefficiencies in business and investment decisions. The Trump administration is right to note that governments do game the system by manipulating some WTO rules and ignoring others.

That is not reason to give up on the system. The WTO contributes to stability, predictability and legitimacy. If the United States, the world’s largest economy and a primary architect of the international economic order, turns its back on its creation, then other countries will do the same. A slide into a world of zero-sum unilateralism is almost certain to follow.

Brad Glosserman is a visiting professor at Tama University’s Center for Rule Making Strategies and a senior advisor for Pacific Forum CSIS.

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