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U.S. Assaults Multilateral Trading System

Feb 21, 2023
  • Zhou Xiaoming

    Former Deputy Permanent Representative of China’s Mission to the UN Office in Geneva

China and the United States were recently reported to have clashed again on the shore of the usually placid Lake Geneva in late January. However, the haggling at the World Trade Organization is not so much a contest between the world’s two largest economies as it is a battle between the U.S. and all other WTO members. At stake is the integrity, or even survival, of the world trade body. 

Chinese Ambassador to the WTO Li Chenggang characterized the U.S. as a “unilateral bully” and “rule breaker.” The U.S. rejected a WTO ruling in December that found its tariffs on steel and aluminum products from China and three other WTO members on national security grounds breached global rules, and lodged an appeal against the decision.

The U.S., according to Maria Pagan, U.S. ambassador to the WTO, “has been clear in its position for the past seven decades that a party to the GATT and WTO may judge for itself when its national security interests justify raising tariffs or otherwise disregarding multilateral trade rules.” She maintained that once the national security exception is invoked, the WTO has no jurisdiction to determine otherwise.

Nevertheless, in a Cato Institute publication, James Bacchus — former chairman of the WTO’s Appellate Body and a former U.S. congressman — suggests that Washington’s claim is inconsistent with its original position. The U.S. has all along been an avid advocate of the WTO’s jurisdiction over national security exceptions. In writing rule for the General Agreement on Tariff and Trade, WTO’s predecessor, it pushed to include the wording that empowers WTO expert panels to review invocations of the exception. In the years that followed, the U.S. has repeatedly warned other members against a black hole in which national security exceptions would swallow members’ every obligation to the organization.

Apparently, the U.S. has been duplicitous on this issue. While refusing to be bound by the WTO rule, it expects and demands other WTO members to comply. This all-but-me approach embodies American exceptionalism, as is the case with its position on international agreements and treaties such as the United Nations Convention on the Law of the Sea and the Convention on the Rights of the Child.

The U.S. interpretation of a national security exception threatens to shake the foundation of the multilateral trading system. It would give rise to abuse, opening the floodgates of trade protectionism. When members have a free hand to take whatever action they want, protectionist measures in all shapes and sizes will crop up under the cloak of national security, transforming national security exceptions into a fertile land for trade protectionism.

Because of this, even Washington’s closest ally, the EU, sounded a different note. Its delegation to the WTO argued that “national security exceptions cannot be unfettered,” and they are not “entirely self-judging.” The EU concluded that the finding of the WTO expert panel — that America’s measure is not justified by a security exception — “should not come as a surprise.”

Over the past decades, the WTO’s jurisdiction on national security exceptions has been instrumental in keeping the rapacious tiger of abuse in a cage, stopping governments from arbitrarily raising trade barriers and disrupting the flow of goods. WTO members, with the notable exception of the U.S., have been extremely careful about invoking national security exceptions. But Washington’s “leadership” in pursuit of “self-judging” could open a Pandora’s Box, turning the national security exception into a convenient tool for protectionist measures.     

Further, in an era in which the U.S. and some of its Western allies have a penchant for weaponizing trade, the national security exception, if it is to be self-judging, is expected increasingly to be employed in service of geopolitical goals. In a bid to restrict adversaries’ trade, Trump-style tariffs could be imposed on products totally unrelated to national security interests. It is not far-fetched that no product would be beyond the reach of such duties. The fact that Donald Trump slashed punitive duties — which are assiduously maintained by the Biden administration — on steel and aluminum products from Norway and Switzerland on national securities grounds is nothing if not telling. 

Washington certainly sees advantages in bending the national security rule. Ridding the U.S. of the rule’s straightjacket, self-judging gives Washington full rein to impose tariffs at will without worrying about litigation or retaliation. Indeed, when the world is brought back to the rule of the jungle, the world’s most powerful country can hope to be the winner and the dominant global force forever. The rest of the world would, however, be placed at the mercy of the superpower, with small and weak trading nations most adversely affected.

The Biden administration’s reaction to the finding deals a body blow not only to multilateral rules but also to their enforcement mechanisms. In yet another assault on the WTO’s Appellate Body, Washington accused the expert panel of violating U.S. sovereignty, a move likely to dash any hope of a full and well-functioning dispute settlement system by 2024, as set out in the Ministerial Declaration of the WTO’s 12th Ministerial Conference in June.   

Washington’s appeal to the very body that it deliberately paralyzed in December 2019 — and which it has no interest in reviving — is paradoxical, if not farcical. For all intents and purposes, in the absence of a functioning appellate body in the WTO, this move by the Biden administration amounts to blocking the dispute, which begs the question: Did the U.S. cripple the bench to avert being forced to pay remedies for its violations of WTO rules in the first place?

There are good reasons to believe that the U.S. will continue to hold the world’s top trade court hostage if other WTO members refuse to capitulate to its demand for restructuring the dispute system to its satisfaction. In fact, there is increasing concern in Geneva that the White House will keep the watchdog of global commerce in deep freeze despite its pledge to work with other members to fully restore it.

The demise of the appeals system is already having a significant impact on the enforcement of global rules that are essential to the proper working of the multilateral trading system. With no judges to review them, appeals have piled up at the WTO. In addition, indicative of the lost credibility of the dispute settlement system, the dim prospect of being heard anytime soon has deterred members from bringing cases before the WTO court, as evidenced by a sharp decline in new cases. And yet, these consequences seem to be of no concern to Washington. It has other fish to fry.

Trump threatened to pull the U.S. out of the WTO altogether if the world trade body failed to live up to his expectations. By contrast, the Biden administration has vowed on various occasions to work with the organization. But its professed commitment to the WTO should be interpreted as remolding the organization in its own image to better serve its own interests. In truth, the two recent U.S. administrations differ in only one respect: Biden’s White House believes that it is often easier to capture a fortress from the inside than from the outside.

By rejecting the WTO ruling, the U.S. has undermined the rule-based multilateral trading system and placed itself on the opposite side of other members. Once again, it is proving to be part of, not a solution to, the teetering WTO.

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