The Fight Over the World Trade Organization Has Begun

COMMENTARY Global Politics

The Fight Over the World Trade Organization Has Begun

Oct 28th, 2020 5 min read
COMMENTARY BY
James Jay Carafano

Vice President, Kathryn and Shelby Cullom Davis Institute

James Jay Carafano is a leading expert in national security and foreign policy challenges.
The Trump administration has clarified the U.S. position on the WTO’s developing country status across the board. Alex Wong / Staff / Getty Images

Key Takeaways

China has used its economic power to bully, bribe, corrupt, and steal its way up the global economic supply chain, with only limited resistance from the WTO.

The WTO is limited to the agreements of its members and negotiating new agreements should be a much bigger part of what it does today.

While the United States pursues a WTO reform agenda, it can’t wait on the organization to grow our economy.

Even repentant “panda huggers” and liberal internationalists have acknowledged that the World Trade Organization (WTO) is no longer up to the task of dealing effectively with the full range of challenges Beijing presents today’s global trading regime.

There’s no point in debating whether Beijing should have been admitted to the WTO in the first place. It’s in. And the United States shouldn’t just pull out and leave the field there free to China. So, what now?

China has used its economic power to bully, bribe, corrupt, and steal its way up the global economic supply chain, with only limited resistance from the WTO. It is past time to plug the loopholes that allow this.

International organizations have become battlegrounds for today’s great power competition. The United States must act to protect its interests and foster equitable global norms—just as it did in the 1990s. After the Soviet Union collapsed, America was guiding international organizations to establish responsible rules for international relations. But that effort has been short cut by the rise of great power competition, in which we see nations like China trying to exploit organizations to their advantage. Beijing’s strategy of attempting to infiltrate and control key international organizations is well documented.

There are two prominent and very different views on how to deal with this challenge. One is to just cut and run, decoupling from China and disengaging from international organizations. But a “take your ball and go home” approach makes no sense. It simply gives Beijing free rein to do whatever it wants.

On the other hand, the opposite option of “just being there” won’t work either. Playing nice and hoping your good example will inspire China to respond in kind sounds nice. But we tried that approach for two decades and, let’s face it, it has done nothing to deter China’s aggressiveness. In great power competition, participation trophies and attendance awards don’t count for anything.

The best way forward is to look at each organization, assess the state of malicious influence and level of risk it poses to our interest, and then make a judgement call which of three options is best: to reform it, withdraw from it, or replace it.

The WTO is a good place to start. The organization provides useful functions that can’t be easily replaced. It is worth an effort to try to make it more effective and more immune from unfair and malicious influence. In practical terms, it will be five years before another congressional vote on U.S. withdrawal is possible. The clock is ticking. We need meaningful reform between now and then to rebuild American support and confidence in the WTO. Regardless of the outcome of the election, this ought to be on the next administration’s to-do list.

The first step is to identify what reforms we really need. Once we agree on the must-haves, we can get plot what we need to do and start building a global coalition to press those reforms home. Here is a list that makes sense.

Concern Number One is Beijing’s continued addiction to stealing other people’s intellectual property. China has failed to uphold many of its WTO ascension commitments (including theft and technology transfer practices). The U.S. should file a dispute against China’s continued failure to protect intellectual property at the WTO. This is more likely to impact China’s bad economic practices than unilateral action.

We also need to end China’s “developing country” status. Yes, this was a part of the deal that admitted China and yes, in part, it was justified by the many other things China agreed to that most developing countries don’t. But times have changed. By any objective standard, China—now by some measures the world’s largest economy—is no longer a developing country. It’s time to take another look at this bargain.

The Trump administration has clarified the U.S. position on the WTO’s developing country status across the board. As a result, countries such as Brazil, South Korea, Singapore, and Taiwan have recently agreed to give up this status. For the sake of current compliance and future negotiations at the WTO, the United States should push for the organization to establish a hard boundary for developing status: the upper bound of the World Bank’s lower-middle income level—measured by gross national income per capita—now at $4,045.

China is the biggest abuser of loopholes in the way the WTO treats “state-owned enterprises.” These gaps allow governments to put their fist on the scale, distorting the free market to make sure it’s the state-owned enterprise that always wins and profits. We need to continue administration’s initiative to work with the European Union and Japan to address this and other distortions associated with non-market economies.

The United States also has to do more to make the WTO do its job. We should bring more dispute cases at the WTO. America has benefited more from the organization’s dispute settlement process than any other member, but the United States can’t continue to benefit if it’s not using the system. Washington should file, encourage other members to file, and join other members’ WTO complaints against abusive Chinese practices. And it should pursue reforms that will allow for a quorum of the appellate body to hear cases.

It’s also time to end the rope-a-dope practice that drags disputes out forever. The United States needs to lead an effort to shorten the time it takes to establish a dispute panel and implement a dispute ruling. Dispute litigation at the WTO can run longer than the dispute problem exists. Cutting these two down can shorten litigation by as much as a year.

The digital economy is the fastest growing component of the global economy. We need a WTO that effectively addresses this key engine of growth. We should push for WTO agreements on digital commerce, services, and investment. The WTO is limited to the agreements of its members and negotiating new agreements should be a much bigger part of what it does today. The more agreements between members, the more the WTO can be used to resolve these disputes.

While the United States pursues a WTO reform agenda, it can’t wait on the organization to grow our economy. The free world won’t remain free long if it can’t deliver on prosperity. Economic investment and partnerships are particularly crucial for recovery in the post-coronavirus world. Washington should aggressively negotiate free trade agreements.

Reform at the WTO can be slow. Side agreements at the WTO and preferential free trade agreements with nations like the United Kingdom, Taiwan, Japan, Georgia, Switzerland and Kenya can help lay the foundation for economic prosperity while we wait for the WTO to get its act together.

This piece originally appeared in the National Interest https://nationalinterest.org/feature/fight-over-world-trade-organization-has-begun-171181