The United States in the World Trade Organisation: Like a Bull in a China Shop?

Container ship ©fotolia.de/Donvictori

Container ship ©fotolia.de/Donvictori

The United States is one of the founding fathers and architects of the World Trade Organisation (WTO) in Geneva but also one of the most notorious critics of the multilateral trade system. Why is this, and what implications does this have for the future of the rules-based world trade order?

U.S. enterprises have benefitted profoundly from the rules-based trading system and market access provided by the multilateral organisation. Even so, the United States is highly dissatisfied with the two central functions of the WTO: Advancing markets access and setting rules for fair competition as well as enforcement of these rules

Trade Liberalisation and Rules Setting

When the Doha Development Round was launched in 2001, the hope was high that markets would be further liberalised and that new rules would be created to reflect the changing nature of trade. Apart from an agreement on trade facilitation, the Trade Facilitation Agreement, the Round has delivered very little. The United States has since lost hope that the WTO can guarantee fair international competition, particularly with China. The organisation’s rules on subsidies are rather weak. The rules book says little on state-owned enterprises and forced technology transfer. There is also hardly anything on overcapacities and subsequent market distortion in the WTO agreements. The European Union (EU) and Japan shares the view that existing multilateral rules for subsidies, intellectual property protection, for state-owned enterprises, and many other critical areas, are still insufficient. Late 2017, the United States, the EU and Japan therefore founded the Trilateral Forum to address these issues. Furthermore, there is some hope offered by the new plurilateral initiatives in the WTO in the areas of e-commerce, investment facilitation, and Micro, Small and Medium-Sized Enterprises (MSMEs). While the United States is part of the e-commerce talks, it has yet to join the initiative on MSMEs and investment facilitation.

Monitoring: Toothless Tiger?

The United States further criticises that notification obligations regarding trade-related measures have not been adequately enforced. The European Union (EU) also agrees on this. The United States introduced a transparency and notification proposal at the WTO Council on Trade in Goods, which is co-sponsored by the EU and Japan as well as many other WTO members. Central elements of the debate are support measures and incentives (including sanctions) that are so far lacking. Weakness in those two areas are central reasons why members often do not notify their trade measures in a timely and comprehensive manner.

Dispute Settlement: Institutional Overreach?

No other WTO member has utilised the Dispute Settlement Mechanism (DSM) of the WTO as often as the United States to address rule violations on the part of other members. Even so, there are several elements of the DSM that the United States has criticised, even before the start of President Donald Trump’s presidency. First, the United States is quite irritated by the rulings of the Appellate Body regarding U.S. anti-dumping measures and the method of zeroing. In the past, the United States has usually lost cases against U.S. antidumping measures. Second, Washington is highly critical of the Appellate Body. The concerns of the United States, as listed in the 2018 Trade Policy Agenda, relate to the disregard for the 90-day deadline for appeals (Art. 17.5), continued service by persons who are no longer Appellate Body members (Rule 15), the issuing of advisory opinions on issues that are not necessary for the solution of the dispute, and the claim that the Appellate Body reports are entitled to be treated as precedents (judicial overreach).Since this criticism did not lead to any significant changes in the past, the Trump-Administration has started to block the appointment of new members to the Appellate Body. This brought the body to a standstill in December 2019, when the term of two of the remaining three members expired. The body now does not have the necessary number of members to review new cases. In the meantime, several WTO members have tabled substantial reform proposals for the Appellate Body, however, the United States seems to be reluctant to return to the negotiation table.

Developing Countries and Special and Differential Treatment

The United States is also calling for a reform of the special and differential treatment of developing countries. The WTO has no criteria differentiating between developing and industrialised countries. Rather, members self-determine their development status. Consequently, large emerging economies such as China (but also Brazil, Argentina, India, Russia, and many others) are still treated as developing countries and, thus, benefit from special and differential treatment. In September 2018, the United States, together with the EU and Japan, advocated that advanced WTO members “undertake full commitments in ongoing and future WTO negotiations.” On February 15th, the United States proposed four criteria to determine whether WTO members should receive special and differential treatment within a draft General Council decision. WTO members who are also members of the OECD or the G20, classified as “high income” by the World Bank, or account for “no less than 0.5 per cent of global merchandise trade (imports and exports)” should not qualify as developing countries under the proposal. Accordingly, many WTO members would no longer receive special treatment, including China, India, South Korea, South Africa, Singapore, Israel, Mexico, Indonesia, and Chile.

The Crisis of Multilateralism

The position of the United States has thrown the Organisation into a fundamental crisis. Fears that the United States will completely pull away from multilateral institutionalism might not turn into reality. However, further engagement of this key player will depend on the capability of the WTO to reform. At the same time, Washington should keep in mind that other important WTO members will only agree to reforms if the United States demonstrates its own respect for international rules and no longer continues to block the Dispute Settlement mechanism.