The World Trade Organization (WTO) is teetering. The Trump Administration has attacked it repeatedly, blocked moves to restock its judicial panels, and looked skeptically on its multilateral decision-making process. For an organization that embodied the results of decades of trade liberalization and emerged triumphantly in the mid-1990s, this has been a remarkable fall from grace. In this brief, we ask why the WTO is worth saving, consider the complaints lodged against it, and suggest what would be required for a serious rescue attempt. There are several reasons to hope, but more reasons for concern.
Is the WTO Worth Saving?
This past month, an emergency gathering in Ottawa of “like-minded” countries began to explore ways in which to rescue the global trading system. It was a select gathering, though; it notably omitted the United States and China, the two largest economies in the world. While the Trump administration has treated the World Trade Organization with a combination of neglect and outright disdain, much of the rest of the world is alarmed at its perilous state and thought it might be best to concoct a plan in the United States’ absence.
But why should anyone care about the WTO? Why not instead opt for the bilateral trade agreements so favored by the Trump administration?
A first reason is that multilateral liberalization, more so than regional deals, has been where large global trade changes have traditionally taken place. For example, there is a common belief that NAFTA, originally concluded in 1993, marked the moment when the United States opened its markets to Mexico. In fact, the United States had roughly 3 percent average tariffs on Mexico before NAFTA was signed; those tariffs were locked in when Mexico joined the Global Agreement on Tariffs and Trade (GATT) in 1986, the predecessor organization of the WTO. NAFTA largely marked the moment when Mexico reciprocated.
A second reason is that the GATT and WTO have been the centerpiece of the global trading system and the source of impressive economic gains. One study suggested those gains were over $18,000 per US household and disproportionately benefited poorer households. This is essentially the economic efficiency argument for a rulesbased global trading system: by letting countries specialize in the goods they can produce most efficiently, by allowing businesses to operate at an efficient scale, and by providing affordable goods for purchase, there are large economic benefits that accrue to all participants.
A third, related reason is that a multilateral system brings a common set of rules, which makes exporting easier for US companies, particularly smaller ones. Instead of having to figure out different rules for each market they try to enter, a single multilateral system like the WTO – which now has 164 member countries – eliminates this complication.
Yet these three arguments continue to hold little sway with the Trump administration. President Trump does not seem to put much stock in economic efficiency arguments and has an oft-expressed belief that the United States is at a disadvantage negotiating in a multilateral setting. If there is any hope of the Trump administration playing a constructive role in saving the multilateral trading system, something beyond efficiency arguments will be needed.
Here, then, is a fourth, practical reason why the WTO offers benefits that bilateral agreements cannot: It is relatively easy to remove tariffs on a bilateral basis; it is very difficult to address many important non-tariff barriers and subsidies through bilateral talks. In a recent letter to the Wall Street Journal, several prominent conservative voices urged the Republican President to “pursue the endgame goal of zero tariffs.” They reminded him of his aspiration to “drop all Tariffs, Barriers, and Subsidies.” The addition of “barriers and subsidies” to the mix is not a trivial one.
These non-tariff barriers can take the form of inspection regimes, regulations, or biased government-purchasing programs, as just three examples. Subsidies may be directed at all farmers of a given crop, or all producers in a given industry. In any of these cases, lowering these barriers and subsidies tends to decrease them for all trading partners. Thus, few countries will be willing to give them up in bilateral negotiations; there would be too many countries outside of the negotiations – from whom concessions might otherwise have been demanded – that would stand to benefit. The WTO offers a unique opportunity to address these broad-based barriers in a way in which the United States can generate maximum benefit for its concessions.
Finally, a fifth reason to care about the WTO is that the Trump administration will soon discover how difficult it is to move trade agreements through Congress. In the last dozen years, the US Congress passed the trade deal with Peru in 2007, then deals with Colombia, Korea, and Panama in 2011.The latter three deals lingered for years, stranded by political impasse. Getting trade deals through Congress is difficult, regardless of size.
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