For a long time, mega-RTAs such as the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) were being argued to be major threats for the salience of the WTO. The US withdrawal from the TPP a few weeks ago was thought to have taken the wind out of the sails of mega-RTAs and revived the prospects of the WTO. But the just announced 2017 Trade Policy Agenda of the US—the first trade policy document of the Donald Trump administration—has created a crisis for the WTO that is much more serious than what the mega-RTAs had.
The Trade Policy Agenda emphasises that a major thrust of future US trade policy would be: ‘Resisting efforts by other countries – or Members of international bodies like the World Trade Organization (WTO) – to advance interpretations that would weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party. (‘2017 Trade Policy Agenda and 2016 Annual Report’ of the President of the United States on the Trade Agreements Program; Page 2). The emphasis is strong and blunt, removing all scope of reading between the lines. The short point is that the US would no longer accept rulings of the WTO if those were inimical to its interests. The policy agenda also spells out that the Trump administration would firmly defend American sovereignty in trade policy issues. This makes it doubly clear that WTO’s rulings, particularly in disputes involving the US, would not necessarily lead to changes in US policies if such changes did not suit US interests.
The US reflections on the WTO need to be seen in light of a clear disregard on part of the Trump administration for multilateral and regional trade frameworks and preference for bilateral trade deals fixing reciprocal market-access on the US’s terms. It’s interesting that most American bilateral FTAs have already been doing so. Much of the TPP, too, has been negotiated in line with US interests and written in language identical to other US FTAs. Thus, while the Trump administration is maintaining the posture of its predecessors in getting the maximum for the US from deals it would negotiate, it is different in its disregard of regional and multilateral trade rules. Most ostensibly, it has little interest in projecting itself as committed to multilateral and regional initiatives. This is in contrast to the earlier US administrations, particularly the Obama administration, which, while ensuring US remains the major driver of global trade policy, didn’t abandon collective rule-making.
The US’s disregard for multilateral trade rules would have severe consequences for the WTO. If the world’s largest economy begins disrespecting the sanctity of WTO’s dispute settlement, it might encourage others to follow suit. The biggest risk is if countries begin valuing bilateral trade deals with the US so much that they drift away from the WTO. Considering the WTO as a slow, indecisive and fractured framework is not the same as walking away from it. The WTO has just got its biggest shot-in-the-arm in several years by implementing the Trade Facilitation Agreement (TFA) in goods. But it has hardly had time to rejoice. The US Trade Policy Agenda hits WTO where it hurts the most: the WTO’s credibility as an arbiter of trade friction. If national regulations remain un-impacted by it’s decisions on trade disputes, then the WTO practically becomes meaningless.
China has affirmed its faith in the WTO and the multilateral trade framework soon after the US went public with its trade policy. This was expected, as China would now be able to position itself, as opposed to the US, as a supporter of multilateralism and global trade order. This would enable it to attract considerable political capital, particularly support from poor and small economies, which depend critically on the WTO for increasing their shares in world trade. China might eventually be inclined to influence the working of the WTO in a manner that suits itself. China, too, while not taking on the WTO, would not be inclined to let the WTO decisions overpower its own rules and systems. What this might mean in the long-term is the US-China relationship getting structuralised around their ‘use’ of the WTO.
A more proximate concern for the WTO at this point in time would be if more and more countries begin taking cues from the US in declaring their sovereign laws superior to the WTO. This would mean an across-the-board decline in commitment to economic multilateralism. But this might well happen if assurance of security by the US leads many countries across the world to agree to US-driven FTAs that also, implicitly, encourage disregard of the WTO in favour of US trade laws. The US has enough economic muscle backed by positive prospects on productivity growth to remain a major engine of economic growth for the world in the days to come. That would give it the leverage to work out one-on-one trade deals the way it wants and from a ‘transactional’ perspective as president Trump insists. Such a way of doing business around the world is going to hit the WTO very hard.
The author is senior research fellow and research lead (trade and economic policy) in the Institute of South Asian Studies in the National University of Singapore.
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