WTO faces an identity crisis as Trump weighs going it alone By Shawn Donnan

In the final days of his presidency Barack Obama opened a trade case against China that was meant as a capstone to his administration’s economic battles with Beijing. The litigation brought at the World Trade Organization was nominally against illegal subsidies Beijing used to help its aluminium industry, however US officials who had spent more than year working on it saw it as something bigger. They were launching a guided missile at the financial infrastructure of China’s state-directed economy.

Announcing the case, Mr Obama pointed to the low-interest state bank loans, cheap electricity and other government subsidies that China had used to fuel a “global glut” in aluminium and steel. All were illegal, he argued, and all were causing pain for China’s competitors internationally.

“We’re taking action to protect the workers — at home and around the world — who are hurt every day by these policies,” Mr Obama declared.

The move was intended to both make a statement and hand over a systemic case that Mr Obama’s successor, Donald Trump, could take up as he entered the White House promising his own economic war against China. The Obama administration went even further, seeking the help of allies in places like Brussels where officials to this day are still considering bringing a similar case.

Almost a year on, however, the aluminium case brought by the Obama administration lays dormant, just one victim of the dramatic change in US trade policy that Mr Trump has orchestrated.

Armed with his instinctual suspicion of multilateral institutions, Mr Trump has turned the WTO from what his predecessors saw as a strategic tool into a strategic target. The lack of interest in the aluminium case strikes to the heart of the administration’s trade agenda: rather than trying to use the WTO and its processes to pursue US objectives, Mr Trump has expressed a clear preference for unilateral action and going around international institutions.

“Simply put, we have not been treated fairly by the World Trade Organization,” Mr Trump told fellow Pacific Rim leaders in Vietnam last month, pointing to countries like China that for too long had been gaming the WTO system. “We can no longer tolerate these chronic trade abuses, and we will not tolerate them.”

The result is that as trade ministers from the WTO’s 164 members gather in Buenos Aires on Sunday for their biennial conclave, they are confronting what many see as an accelerating existential crisis for both the two decades-old body and for the postwar trading system. And the US, the one-time guarantor of that architecture, is now leading the assault.

Mr Trump’s charges against the WTO hinge on his belief that the creation of the institution in the 1990s helped cause the economic heartache that hit many American communities as they lost jobs to new competitors in China and elsewhere.

Administration officials argue the WTO has failed in its mandate to negotiate new rules for the global economy and locked the US into mismatched tariffs. Its current procedures were never designed to cope with the brand of state capitalism that China has ridden to success for three decades, they say. Advocates of the WTO may proclaim its dispute settlement process as a barrier to trade wars, but US officials argue the disputes take too long and end up in the hands of an appellate body that they accuse of encroaching on the sovereignty of WTO members.

In a 2010 paper, written when he was a leading trade lawyer in Washington, Robert Lighthizer, Mr Trump’s trade tsar, argued that the US should thumb its nose at the WTO more often. And for all intents and purposes that is what he the Trump administration appears to be setting out to do.

“I believe that there is one challenge on the current scene that is substantially more difficult than those faced in the past, and that is China,” Mr Lighthizer told a Washington audience earlier this year, calling its efforts to force technology transfer, and to “distort” markets in China “a threat to the world trading system that is unprecedented”.

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“Unfortunately, the World Trade Organization is not equipped to deal with this problem,” he added. “We must find new ways to ensure that a market-based economy prevails.”

The Trump administration’s assault on the WTO so far has had a passive-aggressive quality.

Diplomats in Geneva say that since Mr Trump’s election the US has been playing a back-seat role in most WTO negotiations. “The US has been absent for 12 months now,” says one senior trade diplomat. “They are not at all in the game.”

Ahead of previous WTO gatherings, the US has played a leading role in driving the negotiating agenda. This time around officials from other countries working on possible deals, on issues like eliminating illegal fishing subsidies around the world, say they just hope the US does not block any action.

Yet the US has also taken more direct aim at the WTO’s dispute function and started acting on its complaints about the appeals process.

For months now it has blocked the filling of vacancies on the WTOs seven-member appellate body for technical reasons that some officials in Geneva believe mask a more sinister agenda to bring down the WTO’s dispute system altogether and remove it as a restraint on the sort of unilateral trade action — whether in the form of tariffs or other measures — that Mr Trump would like to take.

Trump administration officials argue their fight over the appellate body is built on longstanding US complaints and point to the Obama administration’s own moves to block the appointment of judges.

Michael Froman, Mr Obama’s top trade official, disputes that. “Our beef with the appellate body was that certain members were way too creative in creating law. It wasn’t about blowing up the binding dispute settlement itself,” he says.

Officials from other countries, moreover, express frustration with the new administration in Washington, saying it has yet to make clear what it wants to see happen at the WTO.

“Everyone is willing to work on reforming the system. But we need to know what it is going to mean,” says Cecilia Malmström, the EU trade commissioner. “If we didn’t have [the WTO’s dispute system] it would be the total Wild West. And that would not benefit the US.”

One of the ironies of the Trump administration’s approach is that the US is far from alone in seeing flaws in the WTO.

Source: https://www.ft.com/content/38c56f52-d9a5-11e7-a039-c64b1c09b482

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