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As US turns sceptic, WTO faces uncertainty

Last Updated 11 December 2017, 19:24 IST

As officials from the 164 countries in the World Trade Organization gather in Buenos Aires this week for their first major meeting in two years, they will be watching to see whether the United States, once the group's
biggest advocate, is seeking to subvert it.

The WTO knits together countries around the world by working to reduce trade barriers and resolve disputes among its members, but it has come under criticism not just from globalisation's critics. Its supporters have said it has fallen short of its ambitious goals to create trade agreements among scores of countries with different economies, cultures and income levels.

But it has never faced such uncertainty as it does now, when its longtime leader and champion, the US, has turned into a sceptic - putting the future of the group and the kind of broad trade agreements it is aimed at forging in doubt.

In recent months, the Trump administration has led the US in stepping back from its traditional role at the head of global institutions like the WTO, creating a vacuum in leadership and throwing their future into question.

The change reflects a philosophy, shared by the president and his top trade advisers, that the current global structure of rules and organisations compromises the US' sovereignty and cheats US workers. In his first year in office, President Donald Trump has criticised international agreements like the North Atlantic Treaty Organization, pulled out of the Paris climate change accord and the Trans-Pacific Partnership, and began renegotiating trade deals with Canada, Mexico and South Korea.

Like many of the administration's positions, its view of the WTO represents a historic shift, said Douglas Irwin, a professor of economics at Dartmouth College. "The Reagan and Bush administrations wanted to create it," he said. The Clinton, Bush and Obama administrations tried to strengthen it. Now we have an administration that is very sceptical of it, and some would say has tried to undermine it."

Trump and his trade advisers criticise the WTO for failing to police what they describe as China's infractions of global trade rules. China's entry into the organisation in 2001 accelerated the hollowing out of US manufacturing jobs, as imports of cheap Chinese products boomed. But the Trump administration has argued that China never held up its end of the bargain by curtailing the role of its Communist government in the economy.

Late last month, the US said it would join the European Union in an action involving China about that very matter. In discussing that dispute, a senior White House official said that it was unclear whether the WTO could work when China, the world's second-largest economy, clearly did not share the goal of moving toward a market-based system.

But what the Trump administration intends to do about the organisation's perceived shortcomings is less clear. Some of the measures proposed under Trump's "America First" economic policy appear to make use of the WTO, while others could violate its rules and undermine its very existence.

Most notably, the US could run afoul of the international convention with actions it might take as a result of investigations into imports of cheap solar products and washing machines. In the past, the WTO has decided that tariffs imposed as a result of these kinds of "safeguard" investigations, which aim to protect domestic industries from a surge of imports, violate its rules.

In a separate investigation into China's infringement of US intellectual property, administration officials are currently debating whether to use existing global rules (by filing trade cases through the WTO) or break them (by erecting the kind of across-the-board tariff on Chinese imports that Trump often pledged during the campaign).

Some of the tax policies the US is considering might also run afoul of the organisation's guidelines. In a report published on Thursday, a group of lawyers and academics argued that a proposal intended to exempt the foreign income of domestic corporations from US taxes might not comply with the WTO or bilateral tax treaties.

The question, trade analysts say, is what the Trump administration would do if the WTO rules against these policies. Several administration officials have suggested that they might respond by ignoring the trade organisation or withdrawing from it altogether - two options that might weaken the organisation enough to serve as a death blow.

"On China, there's lots that can be done using our current trade laws," said Dan DiMicco, a trade adviser to the Trump administration. "We can go to the WTO and file more trade cases. And if they don't work with us, we can leave the WTO."

Worrisome developments

Proponents of the trade group are also concerned by what they describe as the Trump administration's effort to undermine the organisation's system for settling trade disputes among its members.

Since Trump came into office, the White House has blocked the appointments of new judges to a body that considers appeals, slowing the pace at which the WTO can process trade cases. As more judges see their terms expire in the coming months, experts fear the dispute settlement system could be paralysed.

Trump's top trade negotiator, US trade representative Robert Lighthizer, has been critical of the appellate body for passing judgments outside the scope of the original WTO agreement - akin to what some in the US term "judicial activism."

In a speech in Washington in September, Lighthizer said that Americans tended to view the trade group as a contract with clearly defined rights. "Others - Europeans, but others also - tend to think they're sort of evolving kinds of governance," he said. "And there's a very different idea between these two things."

The Trump administration has also been slower than its predecessors to bring trade cases against other countries at the WTO - cases that the US frequently wins, said Chad Bown, a senior fellow at the Peterson Institute for International Economics. That could soon result in a situation where the US is losing cases, but not winning many - a set of circumstances that could fuel opposition to the WTO in the White House.

In other matters, however, the Trump administration is making use of the organisation's rules. That includes the decision to join the European Union in arguing its case before the WTO for not labelling China a "market economy" - a distinction that would entitle China to preferential economic treatment that the US feels it does not deserve.

So far, the Trump administration's "America First" policy does not appear to be greatly dampening international trade.

The WTO is projecting that global trade in goods will grow 3.6% this year, more than double the rate last year, as economies around the world continue to strengthen. On Monday, the organisation announced that its members introduced fewer measures to restrict trade between October 2016 and October 2017 than they had the previous year.

"Every country in the world hates the WTO, they just hate all the other alternatives worse," said Rufus Yerxa, president of the National Foreign Trade Council and the WTO's former deputy director general. "That's really the lesson that the US has to draw. It's easy to hate some system of rules. The question is, what's the alternative?"

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(Published 11 December 2017, 18:02 IST)

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