The United States’ Role in WTO Reform

Intent on creating an “America First” international trading system, the US is conducting an unparalleled and subversive reform of the WTO, which is bound to erode the multilateral free trade system and deal an unprecedented blow to the WTO. Rather than abandoning the accomplishments and making a fresh start, the WTO’S main objectives and principles should be upheld in the

At present, trade protectionism and economic populism are surging in the United States, with the Trump administration believing that the World Trade Organization (WTO) must end the “prejudice” against the US. By making threats and imposing pressure, focusing on plurilateral negotiations, leading the design of next-generation multilateral trade rules, coordinating positions with major allies, and confronting China with extreme attitudes, the US has been promoting WTO reform under the concept of “no construction without destruction,” in order to reshape the international economic and trade rules that maintain US hegemony and “Make America Great Again.” This self-serving practice, with the intention to regain dominance over the changes in global economic governance, is bound to erode the multilateral free trade system, dealing an unprecedented blow to the WTO and spreading inter-state economic and trade competition from bilateral to multilateral fields. The US determination to change the status quo, however, has also become the driving force of WTO reform. Despite highly diverse positions toward the reform, most countries appear to have a general consensus as to how the WTO is to survive: China and the United States must resolve their differences in order to assist WTO reform and achieve win-win results.

Complex Background and Reasons for WTO Reform

With deepening globalization in the 21st century, there is an increased call

for WTO reform. Since Donald Trump took office, the US trade policy has undergone major changes. The United States, as chief architect of the postwar international multilateral economic and trade rules, is now undermining WTO rules and plunging the organization into an unprecedented crisis of survival. Intent on creating an “America First” international trading system, the US is conducting an unparalleled and subversive reform of the WTO.

Global economy facing dramatic changes

Since China’s accession to the WTO in 2001, especially since the 2008 global financial crisis, unprecedented changes have occurred in global economic and trade development, landscape, relations and governance, as well as the world economic order. While emerging economies represented by the BRICS countries are rapidly rising, the US and other developed countries have experienced an overall decline in national strength because of the financial crisis. The trend of a “rising East” and a “declining West” has disrupted the present order of the world economy. The world economic situation at present is quite different from the chaos caused by upheavals in the Soviet Union and Eastern Europe in the late 1980s or the 1997 Asian financial crisis, as emerging markets and developing countries have become the biggest contributors to the current world economy. According to IMF statistics, since the 2008 global financial crisis, emerging markets and developing countries have contributed 70~80% of the world’s economic growth. Despite a complex development environment and the rise of protectionist forces, the world economy still grew by 3.7% in 2018, largely attributed to the high growth of Asia’s emerging markets and developing countries, represented by China which has a growth rate of 6.3%.

Despite the stable but difficult transition and worrying downward pressure that slowed the economic growth to 6.5%, China’s GDP still exceeded 90 trillion yuan, accounting for 16% of the world economy. According to preliminary IMF calculations, the world economy in 2018 reached $84.8 trillion with an increase of $4.8 trillion, to which China contributed more than $1.4 trillion, or over 30% of the world economic

growth.1 China’s annual economic increment is equivalent to Australia’s GDP, which is globally ranked 13th. Currently, there are only 16 countries with an economy larger than $1 trillion, 8 larger than $2 trillion, and only 2 larger than $10 trillion, namely the US and China, and China is the biggest contributor to global economic growth. As Asia has been contributing half of world economic growth, the focus of global economic development is rapidly shifting from the Atlantic region to the Pacific region. Stronger emerging economies in Asia have broken the old paradigm of the world economy, surpassing the US and other Western economic powers which traditionally had great comparative advantages. While international economic and trade relations have entered a new period of adjustment, the WTO, which manages international trade, has been gradually losing its authority as it has not responded to the changes. This has created the impression in the US that emerging powers represented by China have negatively impacted the existing WTO regime, which has been unable to effectively restrain and regulate such impact. This, in Washington’s opinion, has placed developed countries in an unfair competitive environment within the WTO framework, especially with regard to the WTO dispute settlement mechanism.

Fundamental changes in US economic, political and social environment

The US economy has been recovering in the wake of the 2008 global financial crisis. If such a trend continues until June 2019, it will be the longest growth cycle in US history. However, the structural problems of the US economy remain unchanged, and the economy is stuck in “mediocre growth.” According to statistics from the US Congressional Budget Office (CBO), the actual potential GDP growth rate of the US is only 1.6% from 2008 to 2018, far below the longterm average of 3.2% from 1991 to 2001 before the global financial crisis.2 As the

most important driving force of US economic recovery, the monetary policy of quantitative easing has reinvigorated the capital market and produced the wealth effect, but it is imperceptible to ordinary people, and long-standing social problems remain, such as wealth disparity, social polarization, and class stratification. The development of economic globalization, the advent of the Fourth Industrial Revolution, the large-scale outsourcing of manufacturing industry and the development of industrial automation have plunged the US into a situation with fewer jobs in the manufacturing industry, stagnant wage growth. The interests of blue-collar workers have been severely affected, and the income gap across the society is becoming wider. According to the Forbes’ 2018 Global Rich List, the wealth of the three richest people in the US, namely Jeff Bezos, Bill Gates and Warren Buffett, has totaled more than $260 billion, equivalent to the combined wealth of the lower half of the US population, i.e., more than 160 million people or 63 million families. The current concentration of wealth and power in the US is close to the extreme level of the “Gilded Age” in the early 20th century. Adding insult to injury, the surge of immigration has given rise to American populism, protectionism, and economic nationalism.

It was with this background that Donald Trump took office, and he has been attributing people’s dissatisfaction to the unfair international trading system and the “non-market economy practices” of countries such as China, which he claims have caused serious and real impacts on the global economic and trading system. Trump’s assuming office has led to frequent political chaos, characterized by greater divergence within the US political structure, differences between executive and legislative branches, bipartisan fights, and confrontation between the establishment and the anti-establishment. In addition to the hardliners in his administration, Trump himself is also apparently a hardliner, hoping to gain some economic and trade interests and achieve an “America First” agenda in order to consolidate domestic support and downplay political chaos. Therefore, in multilateral economics and trade, the Office of the US Trade Representative (USTR) has made it a major priority to promote WTO reform, and hopes to shape the narrative and grasp dominant

rules-making power in next-generation international economics and trade by establishing new rules, changing old rules, and eliminating redundant rules.

Stronger calls for reform to the multilateral trading system

Early at the beginning of the 21st century, there had been calls for reforming the WTO. The failed WTO Ministerial Conference in Seattle in 1999 and the fruitless Cancún Ministerial Conference in 2003 indicate the serious and multifaceted challenges facing the WTO. WTO members have complained about the serious inaction of the organization and its inability to adapt to new developments of the international economy. The Doha Development Round negotiations, which have been going on for nearly 20 years, have achieved almost nothing in core areas of trade in goods, trade in services, anti-dumping, countervailing and new trade issues, except for a few new agreements such as the Trade Facilitation Agreement in 2015. This has caused widespread dissatisfaction within the international community.

During the Seattle and Cancún WTO Ministerial Conferences, criticism came mostly from NGOS, such as trade unions, industrial associations, environmental protection organizations and human rights groups. Today, major opposition to the WTO multilateral trading system comes from its most important member, the United States, which is the founder of the WTO’S predecessor, the General Agreement on Tariffs and Trade (GATT). Shortly after assuming office, Trump threatened to replace multilateralism with unilateralism and even withdraw the US from the WTO. At the beginning of 2018, the Trump administration completely abandoned the rules of the multilateral trading system. Based on domestic laws, it unilaterally initiated trade sanctions against imports from China, the European Union, Japan, and Canada, among others, which incurred counter-measures from China and other WTO members. This has made trade frictions the temporary norm in international trading relations and plunged the international trading order into serious confusion. Besides, the US has repeatedly blocked the appointment process for new members in the WTO Appellate Body, bringing the dispute settlement mechanism almost