Being an export-oriented beef industry and veteran of the mCOOL fiasco, Canadian cattle producers know what the initials WTO stand for (World Trade Organization).
The mCOOL deal boldly illustrated one of the major problems with the WTO — it takes forever to get anything resolved. Our joint experience with mCOOL was not the worst example. The case against Airbus and European companies subsidizing its business has finally been resolved this year. It only took 15 years.
Both American political parties and multiple presidents have expressed displeasure with the operations of the WTO. But the combination of President Trump and U.S. Trade Representative Robert Lighthizer has provided a method to bring things to a head. The U.S. has for some time refused to confirm new appointments to the panel that adjudicates appeals to the WTO. So unless something had been resolved after this column was written (as of December 10), the panel no longer has a quorum to handle cases.
Even Europe agrees that some reforms are necessary, but in usual fashion — my Euro-skepticism is coming out here — nothing has been done but talk, talk, talk.
So what are the big problems?
We’ve referred to the glacial pace of decision-making at the WTO. Efficiency is not there and today’s fast pace of market competition and change demands better and faster decisions.
Then there is the charge of the appellate body going beyond its mandate, in effect making new rules instead of enforcing the ones agreed upon. The WTO members have agreed-upon rules, and those rules should be applied to specific cases. Similar to what happens in America, where leftist political parties have tried to get through the courts what they couldn’t get through Congress, frustrated and aggressive WTO members have pushed the appellate process to get rulings that other member states don’t favour and haven’t agreed to.
Longer-range, the U.S. is used to a free market system where individual companies compete with each other to satisfy the market and grow by doing that better. China is an example of a country that selects “national champions,” state-directed companies that get support, favouritism and special financing from the national government, to boost them beyond what they could achieve on their own. The EU is actually considering developing programs to do the same thing for certain companies in European countries (“Now Is a Good Time to Modernize the WTO,” Wall Street Journal, 12/02/19). Is it any wonder reform efforts at the WTO have foundered?
Both the Chinese and the European countries must listen way too much to American mass media, as they are reportedly leaning toward stalling until President Trump and Lighthizer aren’t around anymore. There is the possibility that could happen in 2020 but the odds are pretty high against it. Which means over five more years of paralysis — both in reform philosophy and actual case resolution. They can expect no quarter from either Trump or Lighthizer, who have demonstrated resolve and long-term vision in trade dealings.
Even the two parties in the U.S. that agree on very little these days, agree on the U.S. position on WTO reform as the Trump administration has outlined it. It is unlikely that the U.S. position on WTO reform will change all that much no matter who is president.
Of course, many folks complain that there are countries that pay lip service to the WTO and then go do whatever they please. While China is cited most often, they aren’t the only ones. And there is the issue of “developed” countries and “developing” countries. Rules allow advantages to developing countries yet China — hardly a struggling developing country — has been allowed to keep its developing status and use rules designed for much smaller economies. Part of the problem is applying WTO rules to the totally different economic model the Chinese have developed. China has a state-run economy in which company officials, company trade secrets and even customer data can be demanded at any time by the national government. Of course, the national government is the Chinese Communist Party.
That array of issues is a huge component of President Trump’s problem with China, as many companies, including high technology companies making things important to military applications, have been victims of such hijackings, while trying to do business with Chinese partners.
That the WTO has not been able to resolve such a simple yet gigantic question about the world’s largest exporter of goods is in itself a telling measure of its failure to adapt. President Trump’s drastic measures to deal with China on his own may not have been necessary if the WTO had been doing its job. But herding all the WTO countries in one direction to reform things has proven too difficult so far.
President Trump has not been shy about using drastic measures if he felt the situation called for it, so his tactics at the WTO should not be underestimated.