International trade and investment are important engines of growth, productivity, innovation, job creation and development. We recognize the contribution that the multilateral trading system has made to that end. The system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning. We will review progress at our next Summit.
Given the opposition of Trump administration National Security Advisor John Bolton to “multilateralism,” (save for an opportunistic use of the United Nations for security resolutions), acknowledging the “contribution” of the multilateral trading system was counted as a small G20 diplomatic victory.
But what does “the necessary reform of the WTO to improve its functioning” mean in practice? How would an improved functioning of the WTO enable the multilateral trading system to achieve its objectives (left undefined by the G20)? A shallow reform would entail measures to improve how the existing system operates; a deep reform would include changes to existing WTO agreements, and the subsequent negotiation of new agreements and objectives. Last, but not least, we should consider whether a shallow reform can enable a deeper reform or is even required to do so.
This article largely concerns the shallow or procedural reforms, though deep or substantive reforms are mentioned by way of illustration. In January, IATP will analyze a few of the deep reform analyses in the South Centre’s “Analytic Notes” series and a November 29 report by the U.S. Congressional Research Service.
The current debates over shallow reform include those about dispute settlement and how WTO-member governments inform (“notify” in WTO terminology) other members of changes in laws that might affect other’s trading interests. For example, a shallow reform would be the November 1 proposal by the United States, the European Commission and several other countries that would require all members to notify on all agreements, with escalating penalties that would culminate in loss of a non-compliant member’s WTO rights, (Inside U.S. Trade, November 8, 2017. Subscription required.)
A deep reform would be to renegotiate the Agreement on Agriculture (AoA) to provide disciplines on the dumping of agricultural goods (exporting at prices below the cost of production). Such disciplines would be like those that already apply to industrial goods. IATP, as noted in our article about China’s complaint of U.S. dumping of sorghum, has long advocated such a reform to dumping, an unfair trading practice supported by major agricultural exporting members.
A yet deeper reform, because it would apply to all WTO rules, would be to prevent trade policy from exacerbating climate change, including in regional trade pacts, (such as the New NAFTA), that claim to be consistent with WTO agreements. For example, James Bacchus, a former U.S. Congressman and member of the WTO’s Appellate Body, has proposed a “climate waiver” from certain WTO rules to bring the organization into the 21st century. However, in the G20 communique, the United States reiterated its withdrawal from the UN Paris Climate Agreement and insisted that it would not participate in any agreement that would infringe on its fossil fuel industries.
In the short term at least, and notwithstanding the dire outlook of the Trump administration’s own National Climate Assessment, there will be no U.S. federal government support for trade policy to support adaptation to climate change or the reduction of greenhouse gases. The proposed 2019 WTO work program for agriculture does not include the prevention of dumping. The European Union insists that changes to the AoA must be linked to other WTO reforms, (Inside U.S. Trade, December 7, 2018). As such, the current WTO member proposals about which the G20 might agree are about shallow reforms.
One of the core functions of the WTO is to enable its members to avoid trade disputes through consultations and to settle those disputes under WTO rules. The Dispute Settlement Mechanism (DSM) has been described as the “crown jewel of the WTO,” and its advocates have proposed ways to “save the crown jewel.” The United States began to block the appointments of new members of the DSM Appellate Body (AB) during the Obama administration as a tactic to force changes in the application of the Dispute Settlement Understanding (DSU) rules, following DSM rulings against the United States. If new members are not appointed by December 2019, the AB will not be able to review appeals of DSM rulings.
The U.S. complains that the AB regularly exceeds the DSU deadline of 90 days for issuing rulings. It opposes AB review of WTO members’ municipal laws and other measures (e.g. government procurement rules), claiming that such laws are matters of fact and therefore unreviewable by the AB. The U.S. opposes the use of AB reports by WTO members as legal precedents. The EU, China and ten other WTO members have tabled a proposal to respond to the U.S. criticisms, (Inside U.S. Trade, November 30, 2018. Subscription required.) The EU, China and India tabled a second proposal to limit AB panelists to a single, longer term and to move AB reform in concert with negotiations on forced technology transfer and subsidies, two other subjects of U.S. complaints. EU Trade Commissioner Cecilia Malmstrom expressed frustration at the lack of concrete U.S. proposals or responses to resolve the AB impasse, (Inside U.S. Trade, November 30, 2018. Subscription required.)
The Trump administration has said it will not allow new AB appointments unless and until its proposals for mandatory notifications and penalties for failure to notify are accepted by all WTO members. Notifications provide information on which WTO members base counter-notifications, such as that in May by the U.S. against India’s agricultural price supports. If consultations on counter-notifications do not resolve the plaintiff’s concern, the plaintiff can then initiate a DSM process.
President Donald Trump has continued the Obama administration’s AB demands, but imperiled the viability of DSM reform negotiations by repeatedly threatening to pull the United States out of the WTO. Former AB member James Bacchus said in October that the Trump administration’s demands on AB reform and mandatory notifications—particularly of government subsidies to industries—has led to an “existential crisis” at the WTO. For many developing countries, the notification requirements are a costly administrative burden, with few—if any—trade benefits.
The notification demands are particularly directed at China, which, according to the U.S. Trade Representative, has not informed the WTO of subsidies to its State Owned Enterprises (SOEs). Those demands are part of broader U.S. demands that China dismantle its SOEs, the backbone of China’s state-led economic development model, and otherwise remake its economy as a “free market.” The U.S. submitted a legal brief in early November in a EU-China WTO dispute to deny China’s demand to be treated as a “market economy.”
The European Commission, China and seven other WTO members have initiated DSM cases against so-called national security (Section 232) tariffs the Trump administration applied unilaterally to imported steel and aluminum products, with myriad exemptions that are alleged to violate WTO safeguard rules. The U.S. has begun a dispute against those members for retaliatory tariffs against the Section 232 tariffs, (Inside U.S. Trade Nov. 30, 2017. Subscription required.) The U.S. duly notified those tariffs but claims that they are exempt from WTO’s jurisdiction. In October, Dennis O’Shea, the U.S. ambassador to the WTO told the Dispute Settlement Body that any dispute ruling on the Section 232 tariffs would “delegitimize” the WTO and undermine its “viability,” (Inside U.S. Trade October 29, 2017 subscription required.)
If a dispute against the United States cannot be brought under the DSM without delegitimizing the WTO, it is unlikely that a reform of the DSM and the notification system can bring about the deep reform, indeed, the revolution, that the U.S. seeks in China’s economy. What Stephen Cohen called the “Failed Crusade” of the Clinton administration to make Russia into a “market economy”—with its destruction of Russia’s public services and takeover of public assets by state officials transformed into capitalists—will be among the “lessons learned” by China’s WTO negotiators. Indeed, China may view its state supported oligarchs as merely counterparts to those headquartered in the United States and heavily subsidized by U.S. taxpayers.
A reformed Appellate Body and notification system would be applied to all WTO members. But would those members get anything in return for agreeing to, or at least complying with, those shallow reforms? The outlook for a deep WTO reform, in return for accepting shallow reform, is not promising.
On November 23, 2017, at a preparatory meeting for the WTO ministerial meeting in Buenos Aires, the United States, the European Union, Japan, Canada and other industrialized countries refused to consider the proposals of the Group of 90 developing countries for implementing the Special and Differential Treatment (SDT) provisions in 10 WTO agreements. SDTs include compliance delays and transition periods for implementing WTO rules. The developed country delegations said that there was no evidence that the SDT provisions were not working. Instead, they proposed to shut down the 16-year-old Doha Development Round work program and move on to new issues, such as investment facilitation and market access in the digital economy.
Then-IATP senior trade advisor Sophia Murphy wrote from that meeting, “Now in Buenos Aires, [USTR Robert] Lighthizer avoided even a reaffirmation of U.S. commitment to multilateralism. In his opening speech, he suggested the WTO had a problem when so many of its members did not want the rules to apply to themselves. He is right, starting with the United States.”
But will an abandonment of multilateralism and the “development dimension” of trade policy help resolve the myriad problems of the global economy, even the problems diplomatically phrased in the G20 communique? Most WTO developing country members and the UN Conference on Trade and Development (UNCTAD) don’t think so. The 2018 UNCTAD Trade and Development Report, Power Platforms and The Free Trade Delusion, presents a convincing and highly documented case: Carving development out of the WTO mandate, in favor of negotiating new agreements to advance the digital economy and other issues of interest to developed country companies, will not support the sustainable global economy the G20 Leaders say they want.