Why the WTO Is Caught in Trump’s Trade-War Crossfire

1. What is the WTO?

The WTO, based in Geneva, provides a forum to negotiate deals, settle disputes, and monitor trade practices. It started life in 1995, replacing the General Agreement on Tariffs and Trade, which was developed after World War II. While the GATT regulated trade in goods and reduced tariffs and other barriers, the WTO also covers services and intellectual property. A smoothly running WTO provides businesses with the certainty they need to invest and operate abroad, and fosters growth and economic integration. Since its creation, global trade has almost quadrupled in value. Yet, in recent years the WTO has fallen behind the massive shifts in the global economy, such as the proliferation of digital trade.

2. What are the rules?

The WTO’s 164 members, representing 98% of world trade, make commitments not to discriminate between trading partners or between their own and foreign goods and services. They also agree to lower trade barriers; to have predictable and transparent trade policies; and to discourage unfair practices such as export subsidies. Some exceptions are allowed for protecting the environment, health and national security. Least developed countries receive technical assistance, duty-free treatment and quota-free access to foreign markets.

3. Why is the WTO dysfunctional?

The U.S. paralyzed the WTO appellate body by blocking appointments to the seven-person panel for more than two years. A global court for trade, it has been unable to issue judgments on new cases since December 2019 because there aren’t enough active members. Although WTO nations can still receive an initial ruling on a dispute, a losing party can now appeal it into legal limbo. As a result, governments can impose measures without fear of WTO-sanctioned retaliation. Trump’s complaint is that the WTO evolved into a legal tool for nations to exert pressure on the U.S., and his top trade official called it a “litigation-centered organization.”

4. What about the U.S.-China dispute?

The U.S. accuses China of discriminating against foreign companies and providing advantages to local rivals through direct subsidies, cheap land and electricity. The Trump administration also argues that China’s WTO status as a developing country—which it’s had since joining in 2001—provides it with unfair advantages. But China, now the world’s second-largest economy, has resisted efforts to rescind special privileges that it argues were hard-won concessions obtained during its entry into the organization. Any nation can declare itself a developing country upon joining the WTO, giving it more time to implement tariff cuts and increased access to foreign markets.

5. What do other nations say?

There’s broad agreement that the WTO needs reform. Insiders acknowledge some of the Trump administration’s concerns with the process for appeals, though most nations disagree with the strategy of shutting down the appellate body entirely. The WTO generally has a poor record of negotiating trade deals and the most recent round of trade talks—the Doha development agenda—failed spectacularly. Over the past 25 years the organization has only approved one multilateral accord, the Trade Facilitation Agreement, which is designed to simplify and harmonize global customs procedures. The system is also cumbersome: All WTO decisions must be adopted by consensus, which means any nation can block an agreement for any reason.

6. What are the prospects for reform?

Efforts to make changes stalled in the run-up to the U.S. presidential election in November 2020 and the naming of a new WTO director-general to replace Roberto Azevedo, due the same month. Meanwhile European Commission President Ursula von der Leyen said she wants the European Union to lead reforms, and established an interim arbitration system for trade disputes while the WTO appellate body is paralyzed. While the U.S. has made several reform proposals, none have the full backing of WTO members. The EU—as well as Japan, Canada, Australia and New Zealand—does support some U.S. recommendations. These include encouraging governments to submit timely and comprehensive details about their trade practices.

©2020 Bloomberg L.P.