The World Trade Organisation faces a marginalised status
Agenda on trade and other disputes are increasingly being set elsewhere
The handsome stone edifice that serves as the headquarters for the World Trade Organisation rises like a fortress over Lake Geneva, projecting an air of impregnability. But lately the institution looks vulnerable, sowing worries that global commerce itself may be in jeopardy.
As the US accuses China of predatory trading practices while doling out unilateral punishment, the trade organisation tasked with preserving the peace appears marginalised. The latest indication came last week, when the US President Donald Trump effectively bypassed the trading organisation in announcing plans to impose tariffs on as much as $ 60 billion ( Dh220.35 billion) worth of Chinese imports, from electronics to running shoes.
Flout rules
China was threatening to retaliate with tariffs on some $ 3 billion worth of imports from the United States.
Diplomats and trade officials said the US action — if followed through — would flout WTO rules, given that the US would be imposing tariffs without first adjudicating its grievances. Chinese retaliation would similarly deviate from WTO rules.
The WTO fancies itself a United Nations for global commerce, a place where its 164 membernations convene to hash out clear rules of engagement, seeking to defuse conflict. But as the US and China, the two largest economies on Earth, edge closer to a trade war, the organisation established in 1995 to prevent such hostilities appears increasingly impotent.
In an interview, just before Trump’s announcement of the tariffs on China, the body’s director- general, Roberto Azevedo, expressed concerns that member- states were taking matters into their own hands. “These unilateral actions may lead to an escalation of traderestrictive measures, ending up possibly in some kind of trade war,” Azevedo said. “I’m significantly concerned.”
Trump appeared to acknowledge that he was circumventing the rules- based trading system, asserting that the WTO “has actually been a disaster for us”. “It’s been very unfair to us,” he said.
Yet, in a strange bit of cognitive dissonance, the Trump administration at the same time declared plans to seek justice from the body. The US trade representative, Robert E. Lighthizer, said he planned to file a new case at the WTO to try to halt Beijing’s policy of forcing foreign investors to transfer technology to China.
The administration’s China offensive followed its decision to impose tariffs on steel and aluminium imports. Later, the administration significantly diminished the reach of those tariffs, exempting many of its allies — not least, the European Union.
But diplomats in Geneva said the damage to the global trading system went beyond the impact on metals, dealing a blow to the foundations of the WTO. The Trump administration has justified its steel and aluminium tariffs by claiming US national security is imperilled by a dependence on imported metals. Trade experts have heaped scorn on that claim, noting that the US already produces more than two- thirds of the steel it uses.
The Trump administration’s invocation of national security broke with a deep- seated collective understanding that such claims are verboten as justification for tariffs. Once one country makes such a claim, the argument goes, others feel irresistible pressure to manufacture national security worries to protect their own industries.
Trade disputes at the WTO involving Russia and Ukraine will almost certainly feature the invocation of national secu- rity concerns to justify impediments to trade. The same goes for cases involving the UAE, Qatar and Saudi Arabia.
“It’s no longer unprecedented,” Azevedo said. “But I still believe this is not the best way to go.”
Quiet and orderly, Geneva is generally not a place of drama. But recent weeks have generated anxiety and fear among the bureaucrats and diplomats who make up the trade organisation.
Many said Trump had effectively downgraded the WTO to an optional stop that can be skipped by countries willing to break with rules and tradition in pursuit of self- interest.
Many assumed Trump was using extreme actions as a prelude to negotiation. They cited the fact that the steel and aluminium tariffs initially were to apply to every steel producer on earth and now apply to only a handful of countries, including China.
Diplomats and trade organisation officials acknowledge that the aggressive posture of the US is in part an outgrowth of a substantial failure by the WTO to update its rules to contend with China’s rise.
Transformative opportunity
Back in 2001, when China gained admission to the trade organisation, it was supposed to be the beginning of a transformative opportunity for the world. China would gain access to global markets for its wares, while the rest of the planet would gain entry to China. Some argued that China’s integration into the world economy would encourage its leaders to further embrace market forces and eventually democracy.
In the years since, China has absorbed staggering amounts of foreign investment — much of it from the US — erecting factories that have churned out products shipped to ports around the world. But persistent impediments have limited the chances for foreign investors to cash in.
China has forced foreign companies to engage in joint ventures with Chinese counterparts while transferring technology to China. Chinese state- owned companies have remained a central force in the Chinese economy, securing sweetheart credit arrangements from government- owned banks, cut- rate energy supplies and other subsidies.
China’s president, Xi Jinping, has used its growing commercial might to redouble the power of the state, cracking down on dissent.
Officials and diplomats now concede that the notion that inclusion in the global trading body would encourage China to embrace liberal values is a failure. But the consequences of that failure are sowing worries that the future of the rules- based trading system is on the line.
The WTO is the direct descendant of a global trading pact reached at the end of the Second World War, fuelled by the idea that trade across borders minimises prospects for war. “If the member countries simply begin to take matters into their own hands, disregarding all these principles, all these concepts, we may be in a situation where the global economic environment could deteriorate very fast,” Azevedo said.
“These measures tend to exacerbate nationalistic sentiments. They tend to exacerbate intolerance.”
He fretted that the US continued to block the appointment of new judges to a WTO appellate body that renders judgement on trade disputes between countries. The US has long complained that the process is slow and unfair, relying on archaic rules about fair pricing in the global economy. But Azevedo said the Trump administration had offered no proposals for how to improve the process, while simply refusing to replace judges whose terms expired.
“What is the point of having agreements if there is no means of promoting enforcement?” he asked. “The appellate body situation, if we don’t address it, could lead not now but in the future to a paralysis of the dispute settlement mechanism. This would compromise the whole system.”
These unilateral actions may lead to an escalation of trade- restrictive measures, ending up possibly in some kind of trade war, I’m significantly concerned.” Roberto Azevedo | WTO director- general