Were Trump and Lighthizer right about WTO disputes?

The US’s claim that it is a victim in the WTO is based on a truly blinkered view. And that’s being generous

Victim: the US’s claim is based on a very, very blinkered view | Alex Proimos Sydney, Australia, Wikimedia CC BY 2.0

By Peter Ungphakorn
POSTED JUNE 21, 2020 | UPDATED JANUARY 22, 2021

“We lose the lawsuits, almost all of the lawsuits in the WTO”. So said President Donald Trump in October 2017, just one of three huge untruths he uttered in barely 100 words.

Like the bad loser in the school playground, Trump might as well have wailed: “You’re all cheats!”

But the sentiment persists in US politics and was repeated on June 17, 2020 by Trump’s US Trade Representative, while more broadly an anti-WTO campaign mounts and US belligerence has thrown the WTO into crisis.

JUMP TO

Win some, lose some

Bigger picture

Size matters

Finally

What Trump and Lighthizer said

Why is the analysis crude?

Links

Postscript: the Trump-Lighthizer trade legacy

SEE ALSO

The WTO needs fixing—but not the way this NY Times piece imagines

“The WTO has effectively treated [the US] as the world’s greatest trade abuser,” US Trade Representative Robert Lighthizer complained to the House of Representatives’ Ways and Means Committee.

Others have done some counting to show how wrong these claims are, particularly about cases involving the US.

This article is a small contribution to the discussion. It looks at a wider picture, at a broader range of disputes. The method is a bit rough-and-ready. Nevertheless, it puts Trump’s and Lighthizer’s claims into a more realistic context — that the bigger the player you are, the more likely you are to be involved in disputes, and that’s not necessarily bad.

Victory: Not so clear-cut in WTO disputes | Goke Obasa on Unsplash CC0
Victory: Not so clear-cut in WTO disputes | Goke Obasa on Unsplash CC0
Win some, lose someBack to top

An important point to remember is that WTO litigation is expensive. Countries tend to bring cases only if they are confident of winning at least the major legal claims.

So it’s no surprise that in many of the disputes brought against the US, at least some of the complaints were upheld. The point that Trump and Lighthizer missed is that the same is true of cases in the opposite direction, the ones the US brought against other countries.

Some meticulous counting has already been done. Lawyer Simon Lester found that in 91% of WTO disputes brought by the US against other countries, the ruling upheld the US complaint on at least one count.

In cases brought against the US by other countries, the ruling supported the complaint in 86% of cases — 14% of the complaints were dismissed completely.

And that last number — 86% — is what Lighthizer was complaining about. Only that last number, not the larger first one, the 91%.

“Up to 90% of these disputes have resulted in a report finding the US at least partially at fault. This averages out to five or six successful WTO disputes against the United States every year,” Lighthizer said.

But Lester showed the error of focusing only on complaints against the US. The other side of the coin — the cases brought by the US — shows an even larger proportion of rulings in the US’s favour. He concluded that the US has fared marginally better than other countries in WTO disputes, certainly no worse.

On WTO disputes specifically between the US and China, Jeffrey Schott and Euijin Jung also crunched some numbers. They produced this chart:

Win some, lose some: US-China disputes chart by Jeffrey Schott and Euijin Jung

Schott and Jung took care to clarify what they meant by “winning”. They included issues settled in consultation.

Lester, who only looked at rulings, avoided talking about winning and losing at all.

WTO disputes are complicated. In a typical case the accusations are a list of alleged violations of provisions in WTO agreements.

When Canada complained that China was obstructing canola seed imports, it cited 24 provisions in three WTO agreements:

● Sanitary and Phytosanitary Measures (SPS) Agreement articles 2.2, 2.3, 3.1, 3.3, 5.1, 5.2, 5.4, 5.5, 5.6, 5.7, 7, 8, and Annex B, Annex C, Annex C para. 1(a), Annex C para. 1(b)

● General Agreement on Tariffs and Trade (GATT), articles I:1, III:4, X:3(a), XI:1, XXIII:1(b)

● Trade Facilitation Agreement articles 1.1, 5.1, 7.4

The final ruling can uphold some of the accusations, dismiss others and simply set aside the rest as unnecessary because of the decisions on those other points.

Complaining countries claim victory on the points ruled in their favour. Those complained against claim victory because some of the charges were dismissed.

It’s a bit like getting a combined traffic ticket for speeding and driving without lights. The court says “You’re guilty of speeding. But you’re not guilty of driving without lights because it wasn’t dark enough.” The police “win” on the speeding charge. The defendant “wins” on the lights.

Political scientist Jeffrey Kucik has also provided some detail to challenge the Trump Administration’s claims.

Perspective: a lot of US cases are about steel | Ricardo Gomez Angel on Unsplash CC0
Bigger pictureBack to top

So, to put this in perspective, context matters. We can look beyond US cases, at the top 20 countries involved in WTO disputes. They are “involved” because they lodged some complaints (as “complainant”) or others complained against them (as “respondent”), or both.

An important note. The figures used here are crude. They simply count cases that have been opened at the WTO. They include disputes that never reached a ruling — about half of WTO cases. Nor do they look at which way the ruling went: for, against or mixed. (More on the over-simplification at the end of this.)

The figures show that the US is top both as complainant and as respondent. But the US is not out there on its own. The EU runs it a close second, followed at some distance by China, Canada, India, Brazil, Japan, Argentina, South Korea and Mexico.

Top 20 users of WTO dispute settlement, June 2020

The most noticeable difference between the US and EU is the number of cases brought for and against each.

The US has 155 cases against it versus 124 of its own. (Note that a few of the recent cases against the US arose because the Trump administration controversially cited national security as a justifications for raising tariffs on selected imports.)

For the EU, it’s the opposite. There are more cases brought by the EU than against it.

A closer look at the actual disputes is revealing. Of the 155 cases brought against the US, 56 — around one third — were about US anti-dumping actions, and of these 16 — 10% of the cases — involved the US’s controversial method of calculating the magnitude of dumping in each case, known as “zeroing”, explained here.

In other words, if we exclude anti-dumping cases, only 99 were brought against the US, and 116 were brought by the US. That’s quite a turn-around.

Compare: drag the arrows left or right to compare with or without anti-dumping cases

Interestingly, 15 complaints were filed against the EU on anti-dumping — 17% of the total against the EU. Two involved zeroing. The rulings went against the EU. Since then, Brussels has opposed zeroing, filing two complaints of its own against the US.

Anti-dumping causes friction everywhere it’s used. Almost a quarter (22%) of all WTO disputes are about anti-dumping actions.

There’s more. The US faced another (roughly) 34 complaints over its response to other countries’ subsidies — when the US imposed additional import duty to “countervail” the subsidy. (The US has also faced complaints about its own subsidies, including for agriculture and aircraft and under its “foreign sales corporations”.)

Actions against dumping and subsidies are called “trade remedies”. They are taken against actions by exporters or exporting countries.

A third type of remedy is “safeguards”, where tariffs are raised temporarily to deal with import surges or price falls. These are usually (but not always) a reaction to market conditions.

These three remedies play a disproportionate role in WTO disputes, when compared with international trade volumes or the full set of WTO agreements.

For example, around two-thirds of cases against the US are about those three remedies. They involve only a narrow range of products, and only three of the WTO’s 20 or so agreements.

This sheds light on the present crisis in WTO dispute settlement. The US’s objections sound generic, about how appeals have been handled in general. But it does seem that the main problems are about the US losing cases on those three trade remedies, particularly “zeroing” in anti-dumping, an irritant dating back to the Obama administration.

And this relates to particular industries such as steel that Lighthizer had served in the past, as a lawyer specialising in anti-dumping.

How blinkered is that focus? The US is justified to some extent in claiming the concentration on trade remedies is largely because US tariffs are low, increasing its need to respond to unfair trade practices by exporting countries.

On the other hand, the large number of complaints shows that other countries believe the US is not complying with the rules it agreed on trade remedies.

The US counter-argument is that it has complied, but it has fallen foul of an appeals process that overreached its mandate by reinterpreting the agreements — ruling, for example, that “zeroing” is illegal by drawing on other legal principles rather than what was specifically written into WTO agreements. The time allegedly spent “overreaching” into interpretation is also linked to the US complaint that appeals are missing their deadlines.

And that, in short, is how the US justifies paralysing the WTO Appellate Body.

Size matters: bigger traders are involved in more disputes | Hendrik Cornelissen on Unsplash CC0
Size matters: bigger traders are involved in more disputes | Hendrik Cornelissen on Unsplash CC0
Size mattersBack to top

The most obvious point about the top 20 ranking is that countries most involved in disputes are countries that trade most. The correlation is not perfect. The top three traders in goods and services are the EU, US and China. The US and EU lead the field for involvement in WTO disputes, but not China.

China is closer to the next group: Canada, India, Brazil and Japan.

But China joined the WTO at the end of 2001, almost seven years after the WTO was created, and decades after the WTO’s predecessor, GATT, took effect in 1948.

A few more years were then needed for China to settle in as a WTO member, for other countries to start questioning whether it was complying with the agreements and for China itself to be able to launch its own disputes.

Is dispute activity related to trade volume?

The chart comparing the dispute activity of the top 20 with their trade volume is crude in many ways, but it does confirm some relationship between the two — countries that trade more tend to be involved in more disputes.

The WTO itself has argued that a general increase in disputes is not necessarily bad. It can simply be because countries are trading with each other more.

The crude calculation in the chart suggests that perhaps 70% of a country’s involvement in disputes can be explained by how much that country trades. But there are also considerable variations around the trend.

Here, the US looks like more of an outlier than if we only considered dispute activity. But the numbers include cases the US launched too, and the EU is not far behind. And then there are the points already discussed — about the unusual number of cases involving anti-dumping, countervailing duty and safeguards, and the time it has taken for China to settle in as a WTO member.

In other words, Americans should not be surprised that such a large number of cases involve the US.

It’s not about the rest of the world bullying the US. Far from it. It’s a natural result of size.

Compare: drag the arrows left or right to compare with or without anti-dumping cases

Finally

Some details

What Trump and Lighthizer saidBack to top

Trump’s interview with Fox News:

TRUMP: The WTO, World Trade Organization, was set up for the benefit for everybody but usundefined.

DOBBS: Right.

TRUMP: They have taken advantage of this country like you wouldn’t believe.

And I say to my people, you tell them, like as an example, we lose the lawsuits, almost all of the lawsuits in the WTO
undefined — within the WTO.

Because we have fewer judges than other countries
undefined. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States.

Transcript on Real Clear Politics, of interview with
Lou Dobbs, Fox News, October 25, 2017. Also quoted here

What did Trump get wrong?

undefined Was the WTO set up for everyone but the US? Only if the US was totally selfless. It wasn’t anything of the kind. No country is. The GATT/WTO system was created over the post-War decades when the US was the only superpower in the game. Anyone familiar with the negotiations, the lobbying by US interests and the resulting agreements knows how much went in the US’s favour. The claim is ridiculous.

undefined Does the US lose “almost all of the lawsuits in the WTO”? Absolutely not, as we have seen.

undefined Does the US have “fewer judges than other countries”? This is absurd nonsense. In normal times (when the US is not blocking appointments), there are seven Appellate Body judges, three of them hearing each appeal. So far, one of the seven has always been American. The only comparison is the EU which has also always had one Appellate Body judge, but from different member states. No other country has permanently had one of its nationals on the Appellate Body.

(Before the appeals come panel hearings. Panellists come from a wider range of potential candidates, but never of the same nationality as the parties in the dispute.)

The US has never said anything like that in the WTO, in front of an audience that really knows.

Trump’s claim is pure fantasy.

Meanwhile, here’s Lighthizer at the Ways and Means Committee:

At present, over 150 disputes have been filed against the United States at the WTO, while no other Member has faced even one hundred. Worse, up to 90 percent of these disputes have resulted in a report finding the U.S. at least partially at fault. This averages out to five or six successful WTO disputes against the United States every year.

In other words, the WTO has effectively treated one of the world’s freest and most open economies — with an enormous trade deficit — as the world’s greatest trade abuser.

USTR Robert Lighthizer, testimony to the
House Ways and Means Committee hearing, June 17, 2020

Why is the analysis crude?Back to top

Because:

  • Here, “activity” in dispute settlement is measured by simply adding all WTO legal disputes launched by and against each member. But many cases never proceed beyond the initial steps. Only about half end up with a formal ruling. Some are settled out of court. Some stay inactive for many years. Some just fade away.
  • There are other ways for countries to be “active” in a dispute, particularly by claiming third party interest. This varies considerably and does not always match the country’s dispute activity as complainant or respondent.
  • The trade volumes are simply exports and imports of goods and services added up for each member, taken from the WTO’s Trade Profiles publication. Aside from the usual issues with trade data, the analysis overlooks further possibilities, such as linking disputes on goods with trade volume in goods. But it’s unlikely we’d learn much more.

And what about the variations around the trend? The link between trade volume and involvement in disputes is loose for a number of reasons:

  • It depends on what the countries trade in. Countries entangled in disputes with the US tend to export the types of products that are prone to face remedies, for example steel and aluminium, or textiles, or more recently solar panels. Food and agricultural products are also among the subjects of a larger number of disputes.
  • Some countries are more advanced than others in their ability and inclination to deal with legal disputes.
    This can be seen even clearer by the number of times some countries claim third party rights.
    Outside the top 20 for first- and second-party activity, several countries have made significant numbers of third-party claims, for example Ecuador (36), Egypt (33). Honduras (32), Kazakhstan (35), Norway (104), Saudi Arabia (49), Singapore (57) and Vietnam (33),
  • In some cases, political conflict is channelled into WTO legal disputes. This may explain the large number of disputes involving small Central American countries, for example.

Links on “winning/losing” disputesBack to top

PostscriptBack to top

Updates:
January 22, 2021 — adding Postscript
June 22, 2020 — adding the two interactive comparison charts for disputes including and excluding anti-dumping cases

Photos: Blinkered horse by Alex Proimos, Sydney, Australia, Wikimedia CC BY 2.0; Victory by Goke Obasa, elephants by Hendrik Cornelissen, steel by Ricardo Gomez Angel, all on Unsplash CC0

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU