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Economy

Will the US Withdraw From the World Trade Organization?

Aug 26 , 2019
  • Zhou Xiaoming

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

Last week, US President Donald Trump declared that the US would withdraw from the World Trade Organization if it did not “shape up” and, in his view, stop unfairly penalizing U.S. trade while being soft on China. Though this was not the first time Trump’s remarks made headlines, Mr. Trump‘s utterance again caught the attention of the world.. If nothing else, the Trump administration has become known for quitting international organizations.

President Trump’s statement elicits many questions, including: what are the US’s objectives for WTO reform? How likely is it that Mr. Trump will follow through with his threat?

The US helped spearhead the creation of the WTO, and nearly 24 years after its formation, the US aspires once again to reshape the organization in its image. Fundamentally the United States has two objectives for the WTO reform:. The first goal is the abolition of the appellate body, with arbitration in the style of the General Agreement on Trade and Tariffs replacing rulings of the WTO court.

Over the past two years, the Trump administration has blocked the appointment of new judges to the appellate body. Consequently, there will be only one sitting judge after December 11, 2019 which is when two of the three currently-sitting judges retire. Following this fateful date, the lack of the quorum to hear appeals will cause the WTO’s appellate body to cease its ability to function.

To address the concern of the US, over 100 members of the WTO have co-sponsored a proposal. However, the move was rejected by the US, which has so far refused to table its own proposal. Although the US endorsed the joint declaration made during the June G20 summit in Osaka on the basis that there is a need to take immediate action on this important issue, currently it has chosen to sit on its hands and do nothing.

Obviously, the Trump administration’s motive is to bury the appellate body; in doing so, the US will pave the way for the reintroduction of arbitration, the system adopted in the era of the WTO ‘s predecessor organization. Unlike the rulings of the appellate body, arbitrations are not binding, and their enforcement is subject to the agreement of the parties concerned. It is apparent that such a system favors the stronger party. As the most powerful nation in the world, the US enjoys absolute advantage and strengths, and will always win out in any trade disputes with other members — might makes right.

The second US objective is to set new trade rules that favors itself. For this, the Trump administration is attempting to invalidate the standard WTO guidelines for determining and labeling “developing countries.” To achieve this goal, the United States sets its own criteria for determining whether a country should be treated as ”developing country” and attempts to impose those standards on the WTO. Moreover, the US has presented the WTO with an ultimatum, demanding that the organization adopt the US proposal within 90 days. However, the US’s move is backfiring.

In addition, the Trump administration, along with the EU and Japan, intends to set rules for China, which the US believes has reaped huge benefits in international trade at the expense of American businesses. Since the end of 2017, the trade ministers from the three parties have met six times to discuss issues such as market economies, state owned enterprises, and industry subsidies. In its determination to change China’s economic behavior, the US is working with its European and Japanese partners to develop special rules on these issues.

However, the Trump administration is not likely to succeed in its efforts. On the appellate body, the US’s position is one of virtual isolation, with nearly all of its allies taking the opposing point of view. Regarding this topic, a ratio of 163 countries opposed to 1 country in favor is quickly becoming a reality in the WTO. No country, except for the US, is willing to accept the rule of the jungle. Furthermore, to prevent the collapse of the appellate body, alternative or parallel schemes are now being floated by other members of the WTO. The EU and Canada are joining forces to push a parallel system that appeals to an increasing number of members. When the idea of a parallel appellate body system is widely accepted in the WTO, then the US’s objective will have been defeated.

Regarding the setting of trade rules, the Trump administration is also bound to face more disappointment than success. Thanks to the failure of the developed countries in delivering on their commitments, the Doha Round of trade negotiations among WTO members was terminated, leaving many countries wounded and bitter. The US’s move to define “developing countries” based on its own standards is viewed as another maneuver to further damage the developing countries’ prosperity. And there are suggestions that the US’s move is also a ploy to drive a wedge between the bloc of developing nations. Thus, it is not hard to imagine that the US’s demand will meet strong resistance and opposition, Similarly, China is not prepared to comprise on what it considers its key principles.

Another factor that will make success more difficult to achieve for Mr. Trump is the manner in which the world trade body makes decisions.. The WTO makes its decisions on the basis of consensus: the agreement of every member is essential for any resolutions to be adopted. As it is, the US’s scheme has no way of winning the consent of all the members of the organization, thus its outlook does not appear encouraging for Washington.

Together with the International Monetary Fund and the World Bank, the WTO is regarded as one of the three pillars of the world economic order today. Despite that from time to time it demonstrates scorn and at times even hostility towards the WTO, the Trump administration has not abandoned the organization—far from it. The WTO continues to be useful, if not valuable, for the US, a fact evidenced by the US suing China at the organization while, in a clear violation of WTO rules, it slammed punitive tariffs on Chinese imports.

As a matter of fact, the Trump administration, rather than being impatient and abruptly exiting the WTO as it did with the Paris Climate Accord, UNESCO, and the Iran nuclear deal, is inclined to stay on in the organization—at least in the near future, It would be much more effective to influence WTO reform by working from inside the organization. It would also be quite inconceivable for Trump to leave an important front vacant for China to fill, as the US perceives China as its “strategic competitor.”

The US is currently developing a new global trading system with the US at the center. This system is built on a web of bilateral trade agreements, each with the US acting as one of the participating parties such as the US-EU and US-Japan trade deals. Ultimately designed to take the place of the current multilateral trading system, the project is currently in progress and still requires more time to become complete. Before the new system is in place there is no viable reason for the US to say goodbye to the WTO.

More importantly, Trump’s decision to leave the WTO — if it occurs — is subject to the approval of the US Congress. To remain a member of the WTO is in the best interest of the US, and Members of Congress who support such a strategy are in a dominant position; Trump is expected to confront insurmountable difficulties if he tries to proceed with his threat. Furthermore, the future of the relationship between the US and the WTO would be made even more uncertain if a Democrat candidate wins the next general election. 、

The conclusion? Trump’s threat, if anything, should be interpreted as bluffing, intended to extract more concessions from other members of the WTO during the reform negotiations. About one and a half years ago, Former Director General of the WTO Pascal Lame cautioned WTO members and suggested that they begin to prepare for the US withdraw. However, it now looks as though there is no strong justification for concern over such an event in the near future. Relax.

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