Ugly dance of global hegemon, source of concern and confusion
The new US administration may have threatened to turn its back on the WTO, but the fact is that the multilateral trade body has served its interests well over the years, writes D. Ravi Kanth.
The ugly dance of the global hegemon remains a source of concern as well as confusion. It wants to regenerate industrialization by bringing back all those manufacturing industries that left its shores. More importantly, it seems determined to rejig its trade policy by opting for bilateral free trade agreements and by asserting its sovereign trade policy decisions in contingency measures such as anti-dumping, countervailing (anti-subsidy) measures and safeguard actions – regardless of the multilateral rules it had framed since 1948.
On the face of it, the global hegemon is determined to pursue an aggressive version of the “open door” policy that was first implemented in 1898. That policy began under the dubious slogan of saving Cuba from the clutches of Spanish rule. Several years after the Cuban war, the head of the Bureau of Foreign Commerce of the US Department of Commerce wrote: “The Spanish-American war was but an incident of a general movement of expansion which had its roots in the changed environment of an industrial capacity far beyond our domestic powers of consumption. It was seen to be necessary for us not only to find foreign purchasers for our goods, but to provide the means of making access to foreign markets easy, economical and safe” [cited in Howard Zinn (2013), A People’s History of the United States, 3rd edition, Routledge, p. 306].
The “open door” policy continued to manifest itself under different masks but beneath the surface there remained continuity, regardless of the destruction and violence it wrought in various countries. It wore, for example, a reformist mask since the setting up of the United Nations, the Bretton Woods institutions of the International Monetary Fund (IMF) and World Bank, and followed by the General Agreement on Tariffs and Trade (GATT) in January 1948.
During the last seven decades, the United States, the most powerful nation in history, went on to refine the “open door” policy in ways that suited its overall trade/economic interests and strategic considerations, including its immediate military and trade priorities, according to several studies by historians and economists.
The creation of the World Trade Organization (WTO) in 1995 following the Uruguay Round of trade negotiations was an apogee of that onward march which had begun almost a century ago. Although the Uruguay Round started in 1986 when the US was under a Republican administration, it was concluded by a Democratic president at the official level in December 1993.
Unsurprisingly, there is an underlying chain of continuity in the economic and trade policies followed by the global hegemon since the late 19th century. The US control over the so-called multilateral trade and financial institutions is pervasive in almost all aspects. Barring some minor hiccups here and there, Washington has ensured a brutal grip on decisions taken at the IMF, the World Bank and the WTO.
Little wonder then that before entering the Director-General’s office at the WTO headquarters in Geneva, one has to cross the room of a Deputy Director-General which remained occupied by successive US nominees. Indeed, every decision big or small at the WTO has to be vetted by that Deputy Director-General, who is the link between the US embassy in Geneva and the Director-General’s office, according to several past and present trade envoys.
Trump trade policy agenda
Against this backdrop of continued influence and control over the WTO by the world’s sole superpower, it appears somewhat bizarre to assume that the US under the leadership of Donald Trump will turn the multilateral trade body upside down, notwithstanding the White House’s latest trade policy agenda report which was submitted to the US Congress on 1 March.
“The Trump Administration will aggressively defend American sovereignty over matters of trade policy,” the report says, insisting that the “overarching purpose of our trade policy – the guiding principle behind all our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans.”
“Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and services industry exports,” it claims.
The four major priorities of the Trump administration, according to the document, are “(1) defend US national sovereignty over trade policy; (2) strictly enforce US trade laws; (3) use all possible sources of leverage to encourage other countries to open their markets to US exports of goods and services, and provide adequate and effective protection and enforcement of US intellectual property rights; and (4) negotiate new and better trade deals with countries in key markets around the world.”
It goes on to say that “the Trump Administration will act aggressively as needed”, suggesting that trade remedies such as anti-dumping and countervailing measures will be implemented as per American interests.
The US, which is a major user of the WTO’s dispute settlement system, has accused the system’s panels and Appellate Body of issuing rulings that went far beyond their remit.
The US has also said it was cheated by its trading partners through unfair trade practices like currency manipulation and non-implementation of decisions. Peter Navarro, the top trade advisor to President Trump, has accused Germany of using a “grossly undervalued” euro to “exploit” the US and its EU partners, the Financial Times has reported. Navarro wants Germany to enter into bilateral negotiations to reduce the US trade deficit.
As the Trump administration sees it, the continued ballooning of the US trade deficit (which touched $648 billion in manufactured goods last year) and the loss of 5 million jobs during the last 16 years demonstrate that multilateral, regional and even bilateral trade agreements have only brought deindustriali-zation and destruction.
In short, the US is suggesting that its ever-increasing trade deficits are an offshoot of the manner in which it was duped by its trading partners which refused to play by the rules governing so-called “fair and free trade.”
“Plainly, the time has come for a major review of how we approach trade agreements,” says the president’s trade policy agenda report, which emphasizes that “going forward, we will tend to focus on bilateral negotiations.”
The report speaks incessantly about “sovereignty” but doesn’t quite say that Washington would not abide by WTO rules or rulings it doesn’t like. (The US has charged that several WTO rulings have crossed their remit.)
However, even a cursory look at the litany of so-called trade crimes perpetrated by the US at the WTO indicates that Washington has consistently followed a practice of not implementing adverse WTO rulings since 1995. Barring a couple of decisions involving the EU, the US has largely frustrated the developing and the poorest countries in a variety of trade remedy disputes by not fully implementing the WTO Dispute Settlement Body’s recommendations. Indeed, the US has virtually created a mega-industry for imposing illegal anti-dumping and countervailing measures, including the infamous Byrd Amendment, over the past 20 years.
[The US’ anti-dumping actions are based on the “zeroing” methodology. Under this practice – which has been condemned time and again by the WTO Appellate Body – negative dumping margins (arising from higher export price as compared with normal value) are either excluded from the calculation of the weighted average or included with a value of zero by the US anti-dumping investigating authorities.]
A simple glance at the number of disputes it won and lost proves that what Washington is saying about being conned or cheated would be tantamount to “fake news”. So far, the US has launched more than 100 trade disputes against other WTO members while facing more than 125 disputes against its allegedly unfair trade practices. Every month, the US is criticized for not implementing rulings in a half-dozen cases for over 10 years. Moreover, the US’ measures in a range of trade-distorting cases were condemned by the Appellate Body. The US ranks first among countries in not implementing the WTO’s rulings by bringing its laws and regulations into compliance, thereby causing “systemic” shocks with “chilling” effects.
The US deserves kudos for having created “lawlessness” for failing to implement rules it had crafted during the Uruguay Round. Besides, the US is the major subsidizer of agriculture and even hi-tech exports.
Successive US administrations have criticized the WTO dispute settlement panels and Appellate Body whenever they lost trade disputes. Last year, the US even blocked a second term for a sitting Appellate Body member Seung Wha Chang on the grounds that his rulings went beyond the WTO’s covered agreements. It is easy for the US to claim that every deal it did till now is a dog, but Washington also succeeded in imposing unilateral trade deals for more than a century.
Nevertheless, the WTO Director-General Roberto Azevedo appears ready to appease the new US administration and acquiesce to its threats to ignore the Dispute Settlement Body decisions. “It is clear that the United States has a variety of trade concerns, including about the WTO dispute settlement system,” Azevedo said on 28 February, after securing a second four-year term. “I am ready to sit down and discuss these concerns and any others with the trade team in the US whenever they are ready to do so.”
It is shocking that the WTO’s Director-General is ready to discuss the Dispute Settlement Body rulings with the new trade administration in Washington, said a trade envoy who asked not to be quoted. “Instead of maintaining distance from the independent and impartial Dispute Settlement Body mechanism, the Director-General is signalling that he is ready to address Washington’s concerns,” the envoy said.
However, given his track record of ensuring that American trade demands are realized, such as the Trade Facilitation Agreement or the continued use of trade-distorting export credits for farm products and food aid, it would not be a surprise if Azevedo chose to prostrate himself before the US trade administration, according to another trade envoy.
Significantly, the billionaire new US Commerce Secretary Wilbur Ross has made it clear that despite the criticism levelled against the multilateral trade body, the WTO “in some ways” is necessary as an arbiter of global trade.
Effectively, the Trump administration would use the WTO’s Dispute Settlement Body because of the rules it had framed during the previous Uruguay Round, while turning its back on any future change in the multilateral trade rules.
In conclusion, the trade policy missiles being fired by President Trump will continue to form part of the arsenal built by successive American administrations since President William McKinley (1897-1901).
The only difference is that Trump appears somewhat like the notorious Robespierre of the French Revolution who had followed a policy of “we must smother the internal and external enemies of the Republic or perish with them.” (SUNS8419)
Third World Economics, Issue No. 634, 1-15 February 2017, pp14-16