WTO has played an important role
Donald Trump has paralysed one of the institution's most important functions: dispute settlement
This week, a core function of the World Trade Organisation (WTO) — founded in 1995 to govern the rules of trade between 164 countries — ground to a halt.
The reason for that was US President Donald Trump, who has never really had much time for multilateral institutions. The WTO has been on his hit list for some time as an entity that he says has taken advantage of the US and favoured China.
Now he has paralysed one of its most critical mechanisms: dispute settlement. After repeatedly blocking new appointments to the seven-member body that decides on appeals at the WTO, the Trump administration has rendered it basically unworkable. Without an effective appeals process, why file a complaint at all?
You could forgive the average person for shrugging their shoulders at the thought of a dysfunctional WTO, which over the past two decades has had its fair share of messy moments. Talks in 2001 on lowering trade tariffs around the world, the Doha round, went nowhere. China’s entry into the club has neither opened up its economy, nor created a level playing field when it comes to potentially market-distorting subsidies.
And as for the appeals process, the WTO’s most famous recent case — Airbus vs Boeing — has lasted 15 years without a clear winner. In 2016 Airbus’s boss at the time said the dispute had really benefited only “the armies of lawyers” paid to fight it.
All that said, there is a real and serious significance to the gridlock. Whatever the WTO’s flaws, and the obvious need for reform, Trump’s campaign has moved beyond constructive criticism and into assault. His weapon of choice is the punitive tariff and his target of choice is China, creating precisely the sort of bilateral trade war that the WTO works to avoid.
Indeed, for all of the WTO’s failures to rein in China or deliver tariff agreements, its chief success has been convincing members to stick to a common legal framework rather than fight trade wars. Ralph Ossa, a professor at the University of Zurich, estimated in 2015 that this success was worth $340bn annually to the world economy.
Couple this with the impending departure of the UK from the EU, which would create new potential barriers between Britain and its biggest trading partner, and this is a true milestone in the backlash against the post-Cold War order. That reaction may be justified in some areas, considering globalisation’s legacy on workers’ rights and fair trade, but promising voters a better “deal” by wielding trade policy like a weapon can easily backfire.
Trump’s lofty promises to fight trade cheats and currency manipulators have also resulted in a shrinking US manufacturing sector. And across the Atlantic, the Conservatives’ promise to “get Brexit done” has saddled the UK with divorce papers that give it barely a year to negotiate a new trade deal with an EU eager to defend its market and economic interests.
As world trade shifts from organisation to disorganisation, what is key is the response from actors like the EU and countries in Asia. It is vital for Europe to build and improve on multilateral institutions. The EU will probably keep finding itself in Trump’s crosshairs, and the bloc is not in a position to engage in a prolonged trade war with the US without serious internal disunity.
Academics in France, Japan and Canada have proposed a “Euro Pacific Partnership” covering 40% of world trade that would defend multilateral dispute settlement at the WTO while taking a tough line on enforcing intellectual property, government subsidy, human rights and data-transfer rules. Trump’s actions have made initiatives like this likelier: an EU back-up plan that would create a way to keep on settling international trade disputes without the US has gained support from Canada, Norway and now China.
The alternative is, as plenty of trade officials have noted, the law of the jungle. That might suit Trump — a self-styled “tariff man” — just fine. But everyone else should worry.
• Laurent is a Bloomberg Opinion columnist covering Brussels.