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09/07/2018 | WTO Faces Existential Threat in Times of Trump

Martin Hesse

U.S. President Donald Trump has set his sights squarely on the World Trade Organization in Geneva. Even its critics are worried that without the organization, the world of trade would revert to the law of the jungle.

 

Roberto Azevedo, the director general of the World Trade Organization (WTO), is enjoying the moment. Outside, in front of the neo-classical Centre William Rappard, the headquarters of the WTO, Lake Geneva is glittering in the spring sun, while inside, Azevedo is not facing a particularly challenging start to his day. His agenda calls for him to open the Natural Disasters and Trade Symposium - a routine duty.

Azevedo shows up in the conference hall 10 minutes late, shakes hands and chats briefly with colleagues. He is met with goodwill on all sides - which has become a rarity for the guardian of free trade in these turbulent times.

The director general then speaks about how free trade can help countries recover from earthquakes or hurricanes, listing off a few examples and making a plea for stronger WTO involvement. He ends his talk with a sort of disclaimer: "As ever, precisely how we do this is up to our members."

It is a single sentence that perfectly describes the fundamental dilemma facing the WTO. It is essentially a system of trade treaties between its members, the adherence to which is monitored and moderated by the Geneva-based organization. In times of crisis, everyone looks to the 630 men and women who work in the Centre William Rappard, but the WTO takes no initiative. Everything it does, the organization never tires of repeating, must be at the initiative of its members.

The members, though, in particular U.S. President Donald Trump, have ensured that the WTO is itself being rocked by an earthquake at the moment. And when it is over, the global trade order could lie in ruins.

Ever since Trump introduced punitive tariffs on imported steel and aluminum, it has become clear just how serious the threat facing global economic regulations has become. And that the U.S. president isn't shying away from openly attacking the system of global trade that has been in place since the end of World War II. "The WTO has been a disaster for this country," he ranted in March before imposing the punitive tariffs.

A Symbol of the Madness

Trump has also threatened the EU, and Germany especially, with automobile tariffs and has slapped $50 billion worth of duties on Chinese goods while threatening additional tariffs worth $200 to 400 billion more. Those now under attack from the White House have sought to defend themselves by imposing tariffs of their own -- with the motorcycle brand Harley-Davidson having recently become the symbol of the madness of this trade war.

It is the kind of escalation hardly anyone thought possible only a few months ago.

Azevedo is aware of how serious the situation has become. "There's no question that global trade is facing a crisis," he says. If tariffs were to climb to the levels they were at before the WTO was established, he continues, it could result in an even worse recession than the one seen following the 2008 financial crisis. Still, Azevedo insists, "the WTO is built for these moments."

The problem is that the attacks from the U.S. president are not striking a unified, strong organization determined to defend itself. On the contrary, the WTO has been sidelined for some time. It has been largely forgotten by supporters of free trade because most significant trade barriers were removed so long ago. Anti-globalization activists, meanwhile, have moved away from targeting their erstwhile enemy number one, preferring instead to focus their ire on regional trade deals such as the Trans-Atlantic Trade and Investment Partnership (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA).

Yet ever since Trump's election, it is no longer just the influence and relevance of the WTO that is at stake. But its very existence.

Absent rapid and decisive reform, the organization won't survive. But there will be no reform if the U.S. and the rest of the world don't get their acts together. And it doesn't look as though that is going to happen any time soon. It's a real dilemma.

In the hallways and conference rooms of WTO headquarters, the feelings of impotence and anger have become palpable. Employees describe the developments as "concerning," "alarming" and "threatening," and speak of a "catastrophe," a "dark phase " and "Pandora's box" that has been opened and which could bring disaster to the world.

Returning to the Jungle

"The problems are coming from the behavior of a single country that would like to return to the jungle," a senior WTO official says, without identifying the U.S. by name. The WTO, he says, can claim credit for having established a rules-based system that is rooted in the principle of non-discrimination and lent authority by the consensus of its 164 members. It levels the playing field between strong and weak countries, between industrialized and developing economies, with the goal of increasing prosperity for all. But, the senior official says, the spirit of the WTO has evaporated.

Ironically, it hasn't been the critics of globalization on the left that have so weakened the reputation and influence of the WTO. The organization has only itself to blame for its decline -- or its founders, to be precise, with the United States leading the way.

The U.S. and other industrialized nations made several concessions to developing economies when the WTO was founded in 1995 and significantly reduced their tariffs. In return, they were able to push through stronger protections for intellectual property. They hoped that the strategy would help slow China's rise.

But from the U.S. perspective, the system has not been beneficial. And once China joined the WTO in 2001, that dissatisfaction only grew, partly because the Chinese proved adept at taking advantage of the rules. Even today, there is significant dissent within the WTO because the economic superpower China is still classified as a "developing nation" by the organization, which gives it certain privileges. On the other hand, China is fighting for recognition as a market economy, to which both the U.S. and the European Union are opposed because it would mean they could no longer defend themselves against state-subsidized Chinese exports with anti-dumping duties.

On top of all that, the WTO is facing a more fundamental problem: its size and its sluggishness. Negotiating rounds focused on removing tariffs have become increasingly complex. And because everything is up for negotiation at the same time, every member state can paralyze the process by simply exercising its veto. The Doha Round, launched in 2001, is a perfect example: It never achieved any results and has become symbolic of the WTO's failure.

Concentration and Boredom

In Geneva, WTO officials are quick to contradict claims that the organization is failing. Work is continuing, they say, and they insist that it continues to be valuable. Even the Americans, they emphasize, are still playing a constructive role on a day-to-day basis.

That day-to-day looks like this: It's a morning in April and the Market Access Committee is meeting in a sound-proof conference room located in a subterranean floor of the WTO headquarters. Interpreters are sitting in their booths to one side while the moderator of the negotiating round is positioned at the front of the room behind an elevated row of tables. The delegates, a diverse group all clad in formal business attire, are sitting at long rows of tables, each with a laptop on the table in front of them along with the name of the country from which they hail. Their faces alternate between concentration and boredom.

They are the workers in the engine room of world trade. They grease the gears of bureaucracy, optimize the flow of goods and eliminate hindrances. An EU diplomat takes the floor and thanks the U.S. for their bilateral talks focused on details from the world of fisheries and agriculture. The Americans answer just as politely.

Everything here follows a well-established ritual. An issue is introduced with reference to its file number, statements are read out for inclusion in the minutes and attention then shifts to the next item on the agenda.

But that is about the extent of the normality. WTO trade experts have grown extremely concerned about a possible scenario that could spell the end of the organization: the collapse of the dispute settlement gateway used to find solutions to disagreements.

The system, and the Dispute Settlement Body upon which it rests, is at the very heart of the WTO - in a certain sense, it is its raison d'être. It is the most visible improvement made since the General Agreement on Tariffs and Trade (GATT), in negotiations that ended in the early 1990s, reduced tariffs on manufactured goods from 40 percent to 5 percent.

The Dispute Settlement Body makes an initial ruling within an average of 15 months in disputes between two countries. If the country at the wrong end of the ensuing Dispute Settlement Understanding is unsatisfied, it can file an appeal with the Appellate Body.

Appearances Are Misleading

This system has long worked relatively well, with a majority of the 553 conflicts having been resolved. In almost every case, the country on the short end of the verdict has accepted the court's decision and implemented it.

Now, though, all of that is in danger, with the Dispute Settlement Body having become a central battlefield in Donald Trump's trade war. It has been years since the body has received as many complaints as it has in recent months. The EU, Canada, India and others have all filed grievances stemming from the steel tariffs imposed by Washington; the U.S. is going after China due to the alleged violation of intellectual property rights; and the Chinese are complaining about the targeted tariffs introduced by Washington. Just since the beginning of the year, 18 new complaints have been filed.

No country is the target of more grievances than the U.S. And no country has filed more objections than the U.S.

One could see the complaints filed by the U.S. as a sign that even the U.S. government still values and supports the WTO. But appearances are misleading. The Americans use the system when it seems opportune to do so, but they are also doing all they possibly can to sabotage it.

The U.S., for example, has sought to justify its recently implemented tariffs with national security interests. Such a rationale has rarely been used in the history of the WTO and it is not really something that the Dispute Settlement Body can resolve. The determination of what is in a country's national security interests, after all, is ultimately a political question. By making that claim, the U.S. is calling the entire system into question.

The Americans, to be sure, aren't entirely off base with their criticisms of the WTO. Some of the organization's rules are unclear, left intentionally vague out of consideration for national anomalies. China has proven particularly adept at exploiting this. The result is a surfeit of disputes that end up before the WTO court, and the body's verdicts are assailable because they essentially replace political decisions that were never made. "It is not for adjudicators to make law by their rulings," says Ujal Singh Bhatia of India, the head of the Appellate Body. "That is the job of WTO members."

It is this appellate court that is in danger of being paralyzed by Trump's policies. And it is Washington that has been largely blocking the appointment of new members to the Appellate Body to replace those who have left, with the result that the seven-member body has shrunk to four. If the number of members sinks below three, the body will no longer be able to function.

Virtually Dead

That would mean that those countries that lose their cases before the Dispute Settlement Body could avoid compliance by simply appealing the case to a non-functioning Appellate Body. And if rules are no longer enforceable, they lose all meaning. "If the system of settling trade disputes was to erode, the consequences would be dramatic," warns Director General Azevedo.

One could also say: Should that come to pass, the WTO would be virtually dead.

That threat, though, has been enough to awaken the survival instinct in people like Karl Brauner. The wiry diplomat from Germany has been deputy head of the WTO since 2013, having led the foreign trade policy division of the German Economics Ministry for several years before that. When it comes to trade issues, he has seen it all.

But he is enraged by what is currently taking place. "You can't change the rules of football just because one player suddenly begins playing a different style," Brauner says. The basic principles, he says, should not be abandoned. "We have to uphold the accomplishments of the WTO and somehow find our way through this dark phase," he says.

Simply continuing as before, however, is not possible - that much is clear to everyone involved. And that is why the constant references to the fact that only member states can initiate changes has begun to rankle WTO staff in Geneva so much. Each day, after all, they watch anew as some members clearly demonstrate their complete lack of interest in the organization.

Even Director General Azevedo, a man who rarely loses his composure, has begun openly pushing member states to take the necessary steps. "Yes, of course," he responds when asked if the WTO needs to be reformed. "Most of our rules date back more than 20 years to a time when people did not have cell phones or email addresses."

Azevedo says he has spoken about the need for WTO reforms with German Chancellor Angela Merkel and French President Emmanuel Macron. "I have told them both - and other leaders as well - that if members decide that this is the way to go, they will have my full support."

With or Without Donald Trump

Brauner and others have become much clearer about the kinds of reforms they would like to see: They want the WTO to be given the right to take the initiative. Such a change would mean that the director general and his team, independent of changing member-state governments and their interests, would be able to initiate new negotiating rounds and submit reform proposals for the dispute resolution process or other problematic areas.

Berlin and Paris are both open to granting the WTO greater powers. First, though, the EU's Trade Policy Committee would have to review any concrete proposal. Once agreement is reached there, European leaders could then seek to gather the support of other WTO members.

"We can't just suddenly pull the plug on the WTO, says Roland Süss. Coming from him, it is a surprising statement. Süss, after all, is a co-founder of Attac in Germany, an organization critical of globalization, and has been sharply critical of the World Trade Organization for years. "International trade needs enforceable rules," he says. "But also rules for the approach to the environment, labor and human rights."

He believes it was a mistake not to have embedded the WTO within the United Nations at the very beginning, where it could have been linked to the International Labor Organization and other UN groups. As such, Süss isn't surprised that the WTO is in trouble. He believes that the primary reason for the trade organization's struggles is that countries are increasingly finding themselves in direct economic competition with each other. Even within the WTO, he says, member states are pursuing their own short-term interests. America first. Germany first. China first.

Süss, in fact, no longer excludes the possibility of a world without the WTO. "Maybe it won't exist anymore in 10 or 20 years," he says. "But bilateral agreements likewise aren't the solution." He says a discussion must begin on what could replace our current economic order.

Those in Geneva, though, haven't yet gone quite that far. At WTO headquarters, they are still hoping the Americans will turn back from the jungle.

With or without Donald Trump.

Spiegel (Alemania)

 



 
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