Published
February 06, 2020
Despite a number of challenges, the U.S. business community has long regarded the World Trade Organization (WTO) as one of the most successful multilateral organizations. The global rules-based trading system it embodies has benefited the entire world — but no one more than the United States.
While the WTO was created in 1995, it built on the foundation of the 1947 General Agreement on Tariffs and Trade (GATT). Combined, the WTO and the GATT have revolutionized world trade. Eight successful multilateral negotiating rounds have helped increase world trade from $58 billion in 1948 to well above $25 trillion today. This 40-fold increase in real terms has brought a rising tide of commerce to nearly the entire world.
Rules-Based Trade
It isn’t just the tariff elimination brought about under the GATT and the WTO that benefits American companies and the workers they employ. The WTO guarantees that U.S. firms operating abroad will receive “national treatment” (i.e., the same rights and responsibilities granted local firms) and “most-favored nation (MFN) treatment” (i.e., treatment as good as that afforded to firms from the most favorably-treated country).
In addition, the arbitrary use of technical regulations or standards to block imports is all too common. The WTO provides rules to guard against this kind of protectionism in disguise. WTO rules also prohibit supposed “sanitary” measures that lack a clear basis in science and are protectionist in intent.
American firms rely on these rules — every day of the year — all around the globe.
If the U.S. Congress passed legislation withdrawing the United States from the WTO, the other 163 WTO member states – representing 99% of the world economy – would be free to raise their tariffs against U.S. exports as high as they liked – and Washington would have no legal recourse. U.S. firms would also lose the protection of the WTO’s rules against discriminatory treatment.
It’s become commonplace to say the WTO’s accomplishments are long in the past, but this isn’t so. The WTO’s Trade Facilitation Agreement, which entered into force in early 2017, is a cost-cutting, competition-enhancing, anti-corruption agreement of the first order. Once fully implemented, it has the potential to increase global merchandise trade by up to $1 trillion annually.
A Forum for Negotiations
That’s not to say the WTO doesn’t need reform. It does. The WTO must become more nimble as a forum for negotiations by making it easier for members to pursue new market-opening trade agreements. Achieving consensus in an organization of 164 member states is obviously challenging, but the absence of consensus cannot be permitted to block negotiations among those seeking to tear down trade barriers or update trade rules.
The U.S. Chamber strongly supports the move to seek new “plurilateral” agreements covering large numbers of WTO members, but not necessarily all. Good examples of such trade agreements include the WTO’s Government Procurement Agreement. Thanks to this agreement, U.S. firms can bid on foreign government contracts worth about $900 billion every year on a level playing field. If the U.S. were to withdraw from the GPA (as some news reports have suggested), those governments would be free to discriminate against U.S. companies.
Another area ripe for negotiation in a plurilateral format is e-commerce. In this field, 80 WTO member states are now engaged in negotiations.
Sometimes, striking a deal among a smaller group can lead to bigger gains in the long haul. That’s the hope with the proposal to strengthen existing WTO rules on industrial subsidies agreed by the U.S., the EU, and Japan in January. This joint effort to put teeth into the WTO’s promises on subsidies and the need for state enterprises to act on the basis of commercial considerations should become the basis for a broader effort within the WTO.
An Adjudicator of Disputes
But the WTO has other roles, including dispute settlement, in which panels rule on disputes and an Appellate Body is available in the event panel decisions are appealed.
The U.S. has been a major beneficiary of WTO dispute settlement, bringing and winning more cases than any other WTO member. In fact, the U.S. has won or favorably settled 75 out of the 79 completed WTO cases it had brought (as of 2016). These wins include cases against discriminatory Chinese taxes on U.S. auto exports, EU subsidies in the aircraft sector, and India’s ban on U.S. poultry. The U.S. could not have secured these wins unilaterally.
The U.S. Chamber supports efforts to improve the effectiveness of the WTO dispute settlement system. As the Office of the U.S. Trade Representative has pointed out, U.S. governments have raised serious concerns about “overreach” in Appellate Body rulings for more than 15 years, noting rulings that it argues are not clearly supported in WTO agreements.
In frustration, the Trump administration has upped the ante by blocking appellate body appointments. The U.S. has come under fire from other WTO members for not offering concrete proposals to resolve its complaints. This crisis has come to a head: In December 2019, the Appellate Body was reduced to a single member and was thus left completely unable to function.
Imperceptible at First, Unstoppable in the End
Where will this lead? There is concern across the U.S. business community that the shuttering of the Appellate Body invites member states to disregard obligations they have undertaken in the WTO agreements. American companies that trade and invest around the world fear this will increasingly be the case.
The U.S. Chamber is quick to make the obvious point that the absence of an Appellate Body does not prevent panels from being formed and delivering rulings under the Dispute Settlement Understanding. More fundamentally, the obligations governments have undertaken remain in full force regardless of whatever may or may not happen in the realm of dispute settlement: The law is the law even when no lawman is watching.
However, American companies fear that other countries’ compliance with the WTO agreements will decline over time. They are concerned that new trade barriers and discriminatory treatment will become even more common. Like the movement of a glacier, this trend may at first be imperceptible, but in the end we fear it will be unstoppable.
In the U.S. Chamber’s view, now is the time to engage on reforming the WTO. New Zealand’s Ambassador to the WTO David Walker was appointed to chart a path forward in consultation with WTO member states, and the so-called Walker Principles he has prepared represent a good basis for negotiation. The U.S. Chamber is urging WTO member states to translate these general principles into a form that can address the concerns that U.S. administrations have articulated over the past two decades.
As U.S. Chamber CEO Tom Donohue said in his 2020 State of American Business address, the WTO’s “rules protect American business from unfair treatment and protectionism. Safeguarding this institution and its dispute settlement system should be an urgent international priority. Let’s not shutter the WTO Appellate Body. Such drastic action doesn’t serve America’s interests.”
As Donohue concluded: “If the World Trade Organization didn’t exist, we’d have to create it.” Safeguarding it should indeed be a key priority for 2020.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
