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President Donald Trump at a meeting with Caribbean leaders at Mar-a-Lago, Palm Beach, Fla. President Donald Trump at a meeting with Caribbean leaders at Mar-a-Lago, Palm Beach, Fla., March 22, 2019 (AP photo by Carolyn Kaster).

Trump’s Search for Absolute Sovereignty Could Destroy the WTO

Monday, March 25, 2019

The World Trade Organization is in crisis. Member states doubt its capacity to spur economic liberalization, counter China’s market-distorting policies or resolve deepening trade disputes. But the biggest threat it faces comes from its erstwhile champion, the United States. President Donald Trump is determined to weaken, even destroy, the organization. The White House speaks the language of reform, yet its ultimate objective is not to fix it but to nix it. The administration’s antipathy is rooted in the conviction that the WTO violates American sovereignty.

The president has made his instincts clear. “If they don’t shape up, I would withdraw from the WTO,” he warned last August. His national security adviser, John Bolton, is no fan, either. Writing in The Wall Street Journal in March 2017, a year before joining the administration, he recommended that Trump simply ignore any adverse judgments by the WTO’s dispute resolution mechanism. The United States may soon face that prospect, having clearly violated WTO rules by slapping trading partners with steel and aluminum tariffs on specious “national security” grounds.

Meanwhile, the administration has sought to paralyze the WTO’s judicial functions by blocking appointments to its Appellate Body, the ultimate arbiter of trade disputes. The body now has only three judges—down from its full complement of seven—the smallest number with which it can operate. On Dec. 11, the terms of two judges will expire. Unless they are replaced, the WTO’s already overburdened system for settling trade disputes, called the “dispute settlement understanding,” will come to a grinding halt. The administration is losing no sleep over this prospect. It regards the WTO as having gone off the rails, imposing new obligations on the United States without the latter’s sovereign consent.

Conservative nationalists have long warned that the WTO threatens American sovereignty. Their critique has three elements. The first concerns the binding dispute settlement understanding, which obliges all member states to submit disputes to WTO panels for adjudication, with any appeals sent to the Appellate Body for final judgment. Under the WTO’s forerunner, the General Agreement on Tariffs and Trade, the United States had retained some flexibility to protect certain industries and delay or potentially ignore adverse dispute rulings. This began to change with the Canada-U.S. Free Trade Agreement in 1987 and the North American Free Trade Agreement seven years later, both of which included a binding dispute resolution provision. In 1995, the WTO extended this principle globally, limiting U.S. unilateral action.

The WTO poses a second danger, nationalists claim. It holds out the possibility, however remote, that other member states could legislate new trade rules over U.S. objections. Although the WTO has traditionally operated by consensus, amendments to WTO legal instruments can in principle be approved with support from only two-thirds or three-quarters of the entire membership, depending on the nature of the provisions. Conservative legal scholars complain that this strikes at the heart of sovereign authority, potentially requiring the United States to accept new obligations to which it has not consented.

A third sovereigntist qualm is that the Appellate Body will invariably succumb to alleged “judicial activism.” Conservatives worry that WTO judges will begin legislating from the bench, issuing interpretations and decisions that expand the body of international trade law beyond what WTO founding members envisioned. The Trump administration claims this is already occurring.

A quarter century ago, such concerns nearly derailed U.S. ratification of the WTO treaty. Bob Dole, the Republican Senate majority leader at the time, even proposed a “three strikes and you’re out” provision: If the WTO issued three consecutive judgments against the United States, the latter should walk. Dole eventually relented, mollified by then-President Bill Clinton’s agreement to set up a commission to review the fairness of WTO decisions. It never amounted to anything.

A genuine multilateral WTO reform effort could make headway—but only if the White House abandons its my-way-or-the-highway attitude.

Still, securing ratification of the WTO was not easy, given widespread opposition from Democrats who feared that WTO rules would make it impossible to uphold high labor and environmental standards, much less export those standards globally. Clinton prevailed only with support from a majority of Republicans.

Today, the WTO is back in the crosshairs. This time, Republicans are the ones taking aim. In late February, the Trump administration blasted it for infringing on U.S. prerogatives. “The United States remains an independent nation, and our trade policy will be made here—not in Geneva,” the office of the U.S. Trade Representative insisted in its 2019 trade agenda. “We will not allow the WTO Appellate Body and dispute settlement system to force the United States into a straitjacket of obligation to which we never agreed.”

The WTO clearly needs reform. One obvious priority is to overhaul a country classification system that allows economic powerhouses like China—and even South Korea in the agriculture sector—to gain preferential treatment by designating themselves as “developing countries.” Another is to crack down on state intervention, including by China, which distorts markets to the disadvantage of trading partners.

There is reason to believe that a genuine multilateral reform effort could make headway—but only if the White House abandons its my-way-or-the-highway attitude and recommits itself to a rules-based trading system. Over the past year, mid-level U.S. officials have worked with their European and Japanese counterparts on potential WTO trade and investment rules to cover non-market practices, including those related to technology transfer, industrial subsidies and state-owned enterprises. In September, the parties released a joint statement committing to this goal. The following month, Canada convened representatives from a dozen nations with the objective to “strengthen the multilateral trading system.”

The EU, meanwhile, has offered its own proposals for WTO reform, including streamlining the functioning of the Appellate Body. These hopeful developments suggest that the United States could, if so inclined, mobilize a coalition of like-minded trading partners to reform the WTO and press China to end its market-distorting practices.

Unfortunately, there is scant evidence that the Trump administration is committed to this multilateral route. In December, it rejected the EU’s proposals, signaling little interest in reforming the WTO, including its Appellate Body. The White House’s overriding goal is to restore the flexibility in international trade it enjoyed back in 1994, under the old pre-WTO regime.

This is a sad and ultimately counterproductive turn in U.S. trade policy. In its search for absolute sovereignty, the Trump administration is placing the entire rules-based international trading system in jeopardy—and endangering U.S. national interests in the process. Without the protections afforded by WTO rules, U.S. goods and services would surely face greater discrimination and barriers abroad, and the United States would lack a proven multilateral mechanism through which to seek relief and restitution.

Stewart Patrick is the James H. Binger senior fellow at the Council on Foreign Relations and author of “The Sovereignty Wars: Reconciling America with the World” (Brookings Press: 2018). His weekly WPR column appears every Monday.