What’s Wrong With The World Trade Organization?



Phil Levy | Forbes

One of the rare points of agreement in global trade policy is that the World Trade Organization (WTO) is in trouble. U.S. President Donald Trump has threatened to withdraw. A meeting last December of ministers from WTO countries failed to produce any notable progress. Last week, alarm over the situation drove a group of countries to try to work out a solution in Canada without the world’s two biggest economies at the table.

It is a remarkable fall from grace for an institution that, a mere two decades ago, seemed to set the effectiveness standard for international bodies. When the WTO emerged from global negotiations in the mid-1990s, it seemed to offer broad coverage of trading rules, a strengthened dispute settlement mechanism, and the prospect of a forum where political disagreements over trade might regularly be hammered out. It was the last of these that proved a critical failure.

To see why the failure of subsequent WTO negotiations has proven so important, we can look first at two key criticisms the Trump administration has recently leveled against the institution.

The first concerns the treatment of non-market economies. U.S. Trade Representative Robert Lighthizer has argued that the WTO is not equipped to handle an economy like China and that it was a mistake to admit China to the WTO in the first place. Of course, a pressing concern for the WTO is the burgeoning trade war between the United States and China. The current stage of conflict commenced when the Trump administration decided not to await justice from the WTO but instead to impose tariffs on China for alleged intellectual property rights violations unilaterally.

While economies that feature heavy state intervention can pose particular problems for more market-oriented economies, the real question is what best to do about it. To the extent that Ambassador Lighthizer was implying that his predecessors had naïvely considered China a market economy when admitting it to the WTO, he is mistaken. China’s 2001 protocol of accession explicitly called for China to be treated as a non-market economy for 15 years. That provision effectively allowed the United States and other major economies to hit China with higher tariffs than they would have been allowed, had China been considered a market economy.


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