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Info Service on WTO and Trade Issues (Jul25/04) Geneva, 30 Jun (D. Ravi Kanth) — The continuation of the World Trade Organization to serve as a multilateral trade body based on rules and consensus-based decision-making appears to hang in the balance, amid United States President Donald Trump’s seemingly unstoppable assault on the rules-based multilateral trading system (MTS) and the European Union’s proposed alternative to the WTO, said people familiar with the development. With Washington seemingly echoing that “the sovereignty of the United States must remain paramount” at the WTO while the EU is toying with the idea of an alternative to the “grid-locked” WTO, the continued survival of the 166-member global trade body with binding rules and obligations on its members appears to be in peril, said people familiar with the development. In a paper published on 25 June, Petros C. Mavroidis, a former WTO official who later became a leading trade academic, and Henrik Horn, another trade academic, argued as to “why the US and the WTO should part ways”. To begin with, the Trump administration’s nominee as Washington’s trade envoy to the WTO, Mr Joseph Barloon, reportedly told the US Senate in a written reply that “the sovereignty of the United States must remain paramount,” according to a report in the Washington Trade Daily (WTD) on 24 June. If confirmed by the US Senate, Barloon said he will “ensure that our participation in WTO does not undermine the authority of the American people to govern themselves through their elected representatives. I am committed to defending the interests of the United States in all WTO negotiations.” He went on to suggest that “the current state of the World Trade Organization is deeply flawed” and “many member countries routinely fail to meet their obligations to properly notify changes in their domestic laws that affect trade,” according to the WTD report. Highlighting “lack of transparency” as one of the root causes along with China’s alleged non-market economic policies, Barloon said that “if confirmed, I will advocate for greater transparency within the WTO and work to hold member states accountable for meeting their notification responsibilities.” On China, Barloon said “admitting China into the WTO was a mistake” and “the fundamental incompatibility with non-market, authoritarian systems and democracies presents challenges.” While Washington recently concluded a seemingly partial bilateral trade agreement with China, whose supplies of critical rare earth minerals and magnets are crucial for the survival of a range of American industries, the comments of the likely new US trade envoy to the WTO seem like the proverbial “pot calling the kettle black”, said people familiar with the development. Moreover, when the US has seemingly become “a serial violator” of the WTO rules, with its unilateral measures that have allegedly “wrecked” the global trade body, making it almost dysfunctional, the likely new US trade envoy’s comments seem to not only lack credibility but will hardly be taken seriously by aggrieved members, said people familiar with the development. However, it is moot why the new US appointee to the WTO is criticizing China, while President Trump himself appears to be “glorifying” the bilateral trade deal with Beijing, said people familiar with the development. US-CHINA DEAL President Trump, mentioning on 26 June that the US had signed a trade deal with China, emphasised that “we’re having some great deals. We have one coming up, maybe with India, a very big one.” Later in the same breath, he indicated that not all countries on his list that are facing reciprocal tariffs, first announced on 2 April, will likely get a trade deal. “Some we’re just going to send them a letter and say thank you very much. You’re going to pay 25, 35, 45 percent,” President Trump added. The deal between the US and China – the details of which have not been made public – suggests that both sides seem to have secured some concrete gains in regard to the supply to the US of critical minerals by China on one side, and the US lifting some sanctions as well as resuming the export of advanced technology items to China, on the other, said people familiar with the development. In response, China, on 27 June, said that it will approve the export applications of “controlled items”, but cautioned that the US must deliver on its commitments made in the 12 May Geneva agreement and later in the agreement reached in London early this month. As the 90-day deadline over the allegedly WTO-illegal reciprocal tariffs announced on 2 April by President Trump fast approaches on 9 July, there is no clarity yet on how many deals will be concluded by the US. So far, there have been two partial agreements – one with China and another with the United Kingdom. Although the US Commerce Secretary Howard Lutnick on 26 June said that the White House is close to reaching agreements with several countries – reportedly “a whole bunch of deals” – he also suggested that Washington “will send letters to everybody who’s responded to us.” Countries will be put in the right category and a tariff rate “will be set, and off we’ll go,” Lutnick maintained, expressing confidence that the US could get a deal done with the European Union. The White House on 26 June also suggested that the 90-day deadline on the reciprocal tariffs could be extended, though President Trump on 29 June denied that suggestion. EU’S ALTERNATIVE TO WTO In a separate but related development, the European Commission President Ursula von der Leyen on 26 June reportedly signalled that leading EU member countries like Germany are considering an alternative to the crisis- ridden WTO. Ms Von der Leyen is understood to have proposed to EU leaders the launch of a Europe-led initiative to establish a structured trade cooperation with Asian countries, potentially laying the groundwork for an alternative to the grid-locked WTO, according to a Euronews report. The EU leaders appear to have discussed the possibility of overhauling the WTO’s institutional framework, including its stalled dispute resolution mechanisms, to better reflect the current global trade landscape, according to Euronews. “The WTO hasn’t worked for years,” German Chancellor Friedrich Merz said in a press conference following the summit, framing persistent dysfunction under both the Trump and Biden administrations as a major issue. “Commission President Ursula von der Leyen presented leaders with different options of trade deals, labelling as the most attractive a closer cooperation between the EU and members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a regional trade pact of 11 Pacific Rim countries and the UK,” according to Euronews. She introduced the initiative as a potential first step toward reshaping the global trade order, said the Euronews report. “I said that we can think about this as the beginning of redesigning the WTO – of course, understanding what should be reformed positively within it,” Ms Von der Leyen told reporters after the summit. According to Euronews, she stressed the importance of learning from the WTO’s shortcomings and showing the world that “free trade based on rules” remains achievable with a wide group of willing partners. “This is a project we should truly engage in. CPTPP and the European Union – that’s my team,” she said, adding that the EU must take the lead in managing this initiative. Asked whether the United States should be involved, Ms Von der Leyen replied: “As far as I understand, the Americans left the CPTPP at a certain point.” The CPTPP countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Meanwhile, on 27 June, the United Kingdom joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), now with 57 members. However, the MPIA, a mechanism that replicates the WTO Appellate Body’s functions for participating members, covers only 57.6% of global trade and does not address the broader institutional crisis, according to the Euronews report. The WTO has been effectively paralysed since December 2019, when the US began blocking appointments to the Appellate Body, rendering the two-tier dispute settlement system dysfunctional. TIME FOR US & WTO TO PART WAYS In a paper published on 25 June by the Centre for Economic Policy Research, an independent pan-European non-profit organization, two leading trade policy writers and academics – Henrik Horn and Petros C. Mavroidis – made a cogent case as to why the US should part ways with the WTO. The two academics argued that “the US embrace of power politics in the trade arena violates both the letter and spirit of the WTO’s General Agreement on Tariffs and Trade, undermining the integrity of the multilateral trading system.” According to the two writers, the continued violations by the US “are unlikely to cease in the foreseeable future,” and that, “Bipartisan consensus in the US favours a toothless WTO, a position at odds with most WTO members.” Therefore, the two academics pointed out that if the US continues to disregard its obligations, the best option for preserving the credibility of the WTO would see the US withdraw from the Agreement. According to Mr Horn and Mr Mavroidis, “the advent of the second Trump presidency has caused the worst crisis that the WTO has experienced.” They suggested that “the policies the Trump administration is pursuing violate fundamental commitments in the WTO Agreement, as well as its spirit: * The US committed to respect thousands of binding tariffs, negotiated with the rest of the WTO membership, as part of its acceptance of the WTO Agreement. The US is disregarding these obligations by violating the core prohibition to unilaterally increase duties that have been capped (Art. II GATT). * The bilateral deals of the second Trump administration, such as those with the UK and China, violate the most-favoured nation (MFN) non-discrimination clause (Art. I GATT) by not being applied to all WTO members. * The bilateral deals also defy the quintessential purpose of the WTO – promoting multilateral negotiations – which can be carried out either on a product-by-product basis or on a more global scale (Art. XXVIII bis). * The US has not paid its WTO membership fee for two years running (2023, 2024), which has been financially challenging for the WTO. * The US continues to cripple the dispute settlement system – the crown jewel of the agreement – by blocking the appointments of new Appellate Body judges, thereby undermining enforcement of the agreement.” Consequently, “the best option for the WTO, and for the world economy, would be for the US to respect its WTO commitment,” the two academics argued, suggesting that “this does not seem likely to occur.” They therefore believed that “the best option from the point of view of the WTO would be for the US to leave the organisation.” In conclusion, they said that though “the US was a driving force behind the creation of the GATT/WTO,” Washington “has shown little interest in engaging in much-needed reform of the agreement; it now violates almost all of its tariff bindings; it violates the fundamental MFN provision; it continues to block Appellate Body appointments, paralysing a central feature of the dispute settlement system; and it does not pay its membership dues.” +
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