The US remains key to saving the World Trade Organization, but will it?
- Hong Kong’s frustration with the US appeal over its ‘Made in Hong Kong’ label reflects global dismay at the WTO’s crippled dispute settlement function
- Allowing retaliation against US protectionism would revive the WTO but, crucially, Washington must also be persuaded to restore judges to the appeal court
If there is one thing worse than finding yourself embroiled in an international trade dispute, it is discovering there is no way of resolving it.
Such is the existential challenge to the WTO, and its indispensable international rule-making role, that the very future of the organisation may be in jeopardy. This is despite broad recognition that the trade-liberalising leadership of the WTO – and the General Agreement on Tariffs and Trade that paved the way for it – has been pivotal in driving international economic growth and poverty alleviation.
“The system was designed to promote international trade, and it has done so,” wrote Alan Wolff in a policy paper for the Washington-based Peterson Institute for International Economics. He noted that, since 1948, trade volumes have grown 45-fold and trade value about 400-fold, to a record US$32 trillion last year.
Despite these colossal benefits, Wolff, a veteran trade negotiator and WTO deputy director general until two years ago, poses a grave question in his paper: “Can the World Trade Organization be saved? Should it?” Perhaps predictably, he insists it can and should be saved – but whether it will be is another matter.
That a man of Wolff’s gravitas is posing the question reflects the depth of concern over the WTO’s zombie state, and not just because of the freezing of its dispute settlement role.
Efforts to liberalise farm trade, to address e-commerce and digital trade, and to bring order and transparency to the use of subsidies and the role of state-owned enterprises, have made negligible progress. And it has struggled to find traction on climate change and the global management of pandemics.
Perhaps most troubling, the WTO has been all but abandoned by the US, one of its original architects, and the most forceful driver of the rule-based international order that sits at its core. As more countries demand a say in the shape of international trade rules, so US leaders have become progressively grumpier with practices that fail to serve US interests, and increasingly inclined to tackle trade problems unilaterally.
The WTO’s dispute settlement process in particular has been attacked for “overreach”, undermining US sovereign prerogatives. Nowhere is this clearer than in America’s increasing use of threats to national security as justification for tariffs and other protectionist measures against practices particularly concentrated in China.
As many WTO members have protested against the dubious misuse of the national security threat, US officials have become increasingly petulant. As Wolff explained: “The red line position of the United States is that what is in a country’s national security interest is a nonjusticiable issue, a matter that only a sovereign can decide, and a decision that cannot be reviewed.”
Since the WTO’s international trade rules depend on reciprocity, with all parties willing to make concessions, the “non-reviewable, non-actionable” status of protection based on “national security” has created a Catch-22 that the WTO has been unable to resolve.
US is a destructive force for the rules-based global economic order
Wolff has tabled a possible solution, “insulating national security claims from panel review while not shielding members from the consequences of invoking the exception”. In short, anyone harmed by “national security” protections should be allowed to retaliate.
Meanwhile, Hong Kong’s right to export “Made in Hong Kong” goods to the US remains in limbo. And the WTO’s future hangs by a thread.
David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades