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

Farah Stockman’s ideas won’t work because they don’t ‘get’ the WTO

Wrong fix: Farah Stockman’s ideas won’t work because they don’t ‘get’ the WTO

By Peter Ungphakorn

There’s a little anecdote on the World Trade Organization’s website, right at the start of “Understanding the WTO”. As the name suggests, “Understanding” is the principal explainer of how the WTO works. The anecdote goes:

Participants in a recent radio discussion on the WTO were full of ideas. The WTO should do this, the WTO should do that, they said.
     One of them finally interjected: “Wait a minute. The WTO is a table. People sit round the table and negotiate. What do you expect the table to do?”

If we keep that in mind as we read Farah Stockman’s New York Times opinion piece (“The W.T.O. Is Having a Midlife Crisis”, December 17, 2020), then it’s easier to see why so much of the piece is wrong.

There’s nothing wrong with the headline, though. The WTO is indeed in crisis, and yes, you could call it “midlife” if you believe its life expectancy will only be half a century from when it was created in 1995. (More accurately, if this is its midlife, then it will last until the end of this century, to a grand old age of around 150, because the multilateral trading system that the WTO now oversees is already 72 years old.)

Whether or not it’s like a middle-aged drunk at the bar is neither here nor there. It is worth noting that WTO is not staggering quite as much as she suggests — trillions of dollars of trade flows around the world unremarked every year, thanks to the WTO agreements and the boring routine work that never attracts any attention.

Ms Stockman has responded to critics — such as Fletcher School professor Joel Trachtman and the Cato Institute’s Simon Lester — with a blanket dismissal on Twitter.

She wrote: “I’ll say this: Alcoholics have people in their lives who make excuses for them + paper over problems. The instinct comes from a place of love. But in the long run, it doesn’t help. It doesn’t force needed change. Don’t be an enabler.”

That just compounds the error. Far from papering over the problems or “enabling”, there has been a huge amount of discussion about its failings both inside and outside the WTO, and including by some who also criticised her opinion piece.

Take, for example, this 17-page document outlining some ideas from the European Union. And then there’s the Ottawa Group, hosted by Canada. Just to name two initiatives from inside the WTO.

The difference is that these discussions come from understanding how the WTO works (not “love”) and what its real problems are. Ms Stockman clearly doesn’t.

Ms Stockman portrays the WTO as a once-powerful entity that has shirked its responsibility, or worse. It is nothing of the kind.

The WTO is a meeting place where countries thrash out problems that they face with each other.

If they agree, then something gets done. If they can’t agree, there’s no decision. And decisions are by consensus. It’s as simple as that. It’s entirely down to the member governments, in Washington DC, Brussels, New Delhi, Beijing, Tokyo, the lot.

So for a start, Ms Stockman is wrong to say “WTO was created in 1995 to write the rule book for international trade”.

In truth, it was set up in 1995 after its members had completed over seven years of negotiation where they updated the rule book themselves. It’s the members who write the rules. That update was not a birth. It was more like a rite-of-passage of the multilateral trading system that was born in 1948. The General Agreement on Tariffs and Trade (GATT) matured into the WTO.

She’s doubly wrong when she says the WTO has “turned a blind eye” to “China’s bad behaviour”. It’s up to the members. And they do regularly discuss this. They did so again 10 days ago — at the moment Ms Stockman’s piece was being published — when they met as the General Council on December 16–18.

Brazil, Japan and the US again expressed “serious concerns with non-market-oriented policies and practices”, meaning particularly China. The EU and others agreed. See for example the sections on state-owned enterprises and subsidies in this. China and others disagreed. So there was no consensus, and no decision — yet.

Note that China has faced 45 legal challenges in dispute settlement since it joined the WTO in 2001.

But before we all jump to the conclusion that this still amounts to “turning a blind eye”, let’s look in the mirror.

Countries can and do blame the US, EU, Switzerland, Japan and other rich countries for their non-market-oriented policies, including large subsidies for rich farmers, which suppress prices for producers in poorer countries. There are historical reasons for why this is allowed under WTO agreements, but if “the WTO” cannot get off its backside to force the US to cut its market-distorting support for farmers, why blame it solely for not being able to do the same with China?

A solution is possible, but it has to come from negotiations and agreement by consensus. It requires foremost a willingness to negotiate, and then being prepared to accept give and take, to make trade-offs.

The biggest crisis in the WTO is about the appeals stage of dispute settlement, and the US’s refusal to allow new Appellate Body judges to be appointed. Ms Stockman says president-to-be Joe Biden should hold back on allowing new appointments, but she does not explain why, and nowhere in the piece does she look at the reasons behind the US’s position.

To many, it’s about the US objecting to losing WTO lawsuits over protection for US industries, particularly iron, steel and aluminium. It’s about the sway of powerful lobbies over US trade policy, as also happens with agricultural subsidies.

To understand this, we can’t ignore the details. Much of it is about something controversial called the “zeroing” method used to counter dumped imports. The US accuses the Appellate Body of over-reaching its authority in ruling that the method is illegal. The US says the appeals judges did this by using too much interpretation, more than the rules allow, to try to fill in ambiguities and gaps in WTO agreements.

Some countries opposed to zeroing nevertheless agree with the US about the Appellate Body over-reaching its powers. The EU is one major group. But the US has refused even to discuss proposed solutions with them.

None of that comes up when Ms Stockman tells Mr Biden to keep blocking the appointments. She just wants to use the threat to keep the WTO crippled as leverage to force countries to negotiate.

She says: “One reason the world has avoided those tough conversations for so long is that litigation is easier than negotiation”.

There’s no evidence for the claim. On the contrary, negotiations may have been made more difficult because WTO member governments fear that any outcome will be deprived of legal backup.

And if WTO members are more willing to discuss China’s subsidies and state enterprises, that’s probably because of unilateral US tariffs, not the Appellate Body crisis.

Here, briefly, are some more untruths or other strange statements about the WTO:

  • The “wrath” of the WTO Appellate Body? It deciphers the agreements that countries have negotiated and signed. Would we talk about the “wrath” of the US Supreme Court, which is far more powerful?
  • Neither the WTO nor its previous guise (GATT) is anything like a “trade regulator”. It’s a set of agreements, which member governments implement themselves.
  • The WTO has ordered countries to gut programs that encouraged renewable energy and laws that protected workers from unfair foreign competition, as if international commerce were more important than climate change and workers’ rights.” This is plain wrong. No one’s programmes have been gutted. The WTO has no rules preventing the protection of workers’ rights or action against climate change.
  • If a member nation had a law that ran afoul of the WTO treaty, then that law had to go.” The WTO was deliberately designed to have no power to intervene in its members’ laws.
          Take the “Irish pub” case. It is now 17 years since WTO dispute settlement found that US copyright law violated WTO’s intellectual property rules — it allowed bars, restaurants and shops to play music without paying royalties. Seventeen years later, that law remains unchanged. So does the EU’s ban on “hormone beef” despite being deemed illegal in 1999.
          Countries usually comply with dispute rulings because they want other countries to comply too. But sometimes domestic politics prevents them from doing that, and the WTO can do nothing about it.
  • The WTO has not blocked bans on genetically modified food.
  • The issue of affordable medicines is far more complicated than the piece implies. The rules in the WTO have always been a balance between different objectives.
  • I can’t comment on Glass-Steagall reform other than to point out that Messrs Trachtman and Lester both say the WTO had nothing to do with it. They both go into more detail about other issues too.

On one point perhaps we can agree. Mr Biden should overturn the US’s position on the WTO’s next director-general. He should back the Nigerian Ngozi Okonjo-Iweala, who has overwhelming support among WTO members, but is short of consensus support because of the US’s objection. Or at least he should drop the objection.

A WTO director-general can be influential, but has no power over the rights and obligations of the US or any of the 163 other WTO members. So allowing Ms Okonjo-Iweala’s appointment would just be a symbol of the US’s return to multilateralism. It would help the crippled WTO to heal a bit.

And then the US could work in the WTO, to put it properly into rehab, and to get more of what America wants, as could the rest of the membership.

Ms Stockman tweets about the “deep flaws that its members have failed to address”. By refusing to engage on Appellate Body reform, the US has been one of those members. Mr Biden has the chance to correct that American failing.

See also:
Were Trump and Lighthizer right about WTO disputes?
Arbitration — the stop-gap when WTO appeals are unavailable
● More on WTO dispute settlement

Updates: December 28, 2020 — typographical and editing errors corrected

Image credits:
Drawing of negotiators at the table — WTO

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

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