1104 GMT July 19, 2019
The US, for years the dominant power in the world trading system, and its upstart Chinese challenger are at battle stations. The other big trading economies, particularly the EU and Japan, are trying to talk them down from a full-on conflict in which their own economies are already suffering collateral damage. But nothing has so far deterred President Donald Trump from unilaterally hitting more than $200 billion of imports from China with emergency tariffs and threatening more, FT reported.
If the need is clear then so is the obvious vehicle for de-escalating the conflict — the World Trade Organization. In principle it could resolve the antagonism between Washington and Beijing through providing the forum for litigation and negotiation. But its weaknesses make it an awkward arbiter. At the time the WTO is most needed, its failings become ever more manifest. Without reform, the organization itself will suffer severe, possibly fatal, collateral damage from the US-China struggle.
“Whether we like Trump or not — and I do not like Trump,” Pascal Lamy, a former head of the WTO, told a recent conference at the European University Institute, “I think he must be credited with one thing, which is to have put this issue of WTO reform on the table.”
The WTO was created in 1995 but its founding treaty, the General Agreement on Tariffs and Trade, dates from 1947. The Geneva-based organization, which now has 164 member countries — China joined only in 2001 — sets the basic global rule book for trade and the arbitration of conflicts. True, its negotiating function has not produced a meaningful multilateral deal since its creation. The laborious legislative process, which Lamy once described as ‘medieval’, requires unanimity, and the WTO’s secretariat, the closest it has to an executive, has very little power. Member governments’ last attempt at a deal, the ‘Doha round’ of negotiations, collapsed in 2008 after seven years of acrimony.
By contrast, its dispute settlement process has functioned reasonably well. Panels of arbiters rule on breaches of existing WTO law in cases brought by one member country against another and can authorize retaliation in the form of higher tariffs. Its rulings limiting trade-distorting subsidies, for example, have helped contain the transatlantic dispute over government handouts to Boeing and Airbus.
Governments are still using the dispute settlement system as best they can. Last week a group including the EU, China, Russia, Turkey and Canada started a case against the US over Trump’s tariffs on their steel and aluminum exports.
Yet several factors inhibit the organization playing a mediating role in the US-China antagonism. One is the rapid escalation by Trump of a long established American uneasiness about the WTO dispute settlement, despite Washington continuing to file cases against other governments. Second, the US and other advanced economies say the WTO’s rule book, not substantially changed since 1994, is out of date. But China — and other emerging markets — reject any WTO reform that looks like bullying by the richer countries.
In a speech earlier this month, Roberto Azevêdo, the WTO’s director-general, called for reform and said bluntly: “Without action to ease tensions and recommit to co-operation in trade, we could see serious harm done to the multilateral trading system.”
Successive US administrations, and malcontents on Capitol Hill, have criticized WTO dispute settlement decisions. Much of the fire is concentrated on its appellate body, a tribunal of three judges that reviews rulings by a lower panel. US officials say the AB, which heard nine cases last year, displays undue judicial activism, seeking to fill holes in the WTO rule book rather than interpreting existing law.