Trade Deals vs WTO: Is Trump Hastening The World Trade Organization's Demise?

NDTV

2 days ago

The World Trade Organization (WTO) is a key institution of global governance that was founded in 1995 as a successor to the General Agreements on Tariffs and Trade (GATT), established in the wake of World War II. The period just before the Second World War was an era of protectionism that saw high tariffs imposed by the US, and the GATT was signed by 23 countries in 1947 to tackle the tariff barriers and facilitate international trade. The current Trump tariffs may not be mimicking the pre-WWII period, but they are certainly reminiscent of that.
The world has witnessed the impact of the Smoot-Hawley Tariff Act of the 1930s. So, the question that arises is, why would US President Donald Trump tread a similar path a century later? There is a growing viewpoint that the Trump administration is using tariffs as a negotiating tool to pressure countries to strike bilateral trade deals with the United States. While sovereign nations are free to decide what works in their interest, America's stress on bilateral deals is a more nuanced move.
At the heart of this move is a strategic shift that risks rendering the World Trade Organization irrelevant. This is because one of the basic principles of the WTO is non-discrimination - Most Favoured Nation (MFN) and National Treatment (NT). That means member countries need to extend similar concessions to all members in the WTO. So, if President Trump strikes trade deals with a few countries and drops the tariffs for them, for example, on steel and aluminum, while continuing with high tariffs for some other countries, it would be flouting the WTO principle. In essence, any preferential treatment emerging from the deals would undermine the MFN concept - even though the cover that the US could use is one of the two exceptions under MFN - that Free Trade Agreements are valid if they are comprehensive.
Political scientists like Timothy Sinclair, Margaret Karns, and Karen Mingst stress that the power of a high-profile subset of key intergovernmental organizations - like WTO - rests on mutual benefits from conformity to the system. The US is clearly deviating from conforming to a system of which it was at the forefront of building.
At this moment, it appears that President Trump is the executioner-in-chief of this strategy of deviation; however, one of the first steps towards weakening the WTO was taken during the Obama administration and later followed up by the first Trump administration. The Dispute Settlement System (DSS), a vital organ of the trading system, is being virtually strangled due to a lack of quorum in its Appellate Body (AB).
Through three US administrations, starting with President Barack Obama's, Washington has accused the WTO's Appellate Body of overstepping its boundaries, making new trade rules in its decisions that were not negotiated by the WTO's 166 member economies. In 2016, the US blocked the reappointment of a South Korean judge to the Appellate Body. In 2018, the Trump administration blocked the reappointment of two other judges, rendering the Appellate Body non-functional.
Conservative US think tanks have alleged bias by judges in the Appellate Body, demanding that the US completely withdraw from the WTO. A write-up in the Heritage Foundation by Andrew Hale in March 2024 said that judges had repeatedly shown bias against the US and in favour of their home countries. 'These biased judges have ruled against the US at least partially in 90% of cases, and the US became the most sued-against country at the WTO, despite the fact that we arguably have the freest trade system in the world.' This is not just the Conservative viewpoint, it seems to have bipartisan support despite not being entirely rooted in reality.
Late last year, the then-outgoing American ambassador to the WTO, Maria Pagan, had warned that if the world wanted the US to be part of the international rules-based trading system, then it should 'take us seriously".
The United States, which had emerged as the strongest economy after World War II, was the driving force in the international trade regime back in the day. 'Nothing of consequence was achieved without US leadership. Today, this is no longer the case,' said Keith M. Rockwell in Postcard From A Disintegration: Inside the WTO's Fraying Seams.
The US is now the world's second-largest trading nation, pushed behind China. Rockwell believes that the Cold War mentality gripping Washington stems from its anxiety over China. The US believes 'China has somehow rigged the multilateral trading system, shirked its responsibilities, and gamed the dispute settlement function".
Hence, it appears that the US stand on the Appellate Body is either to destabilise the WTO leading to its demise or to use it as a lever to negotiate on its terms on contentious issues like self-designation of developing countries, agricultural subsidies and Trade Related Intellectual Property Rights Agreement (TRIPS) - all of which have seen a pushback from the Global South in the past.
In an article titled The Global South in the WTO: Time to Go on the Offensive, published by Foreign Policy in Focus, Walden Bello says that as resistance by developing countries under the leadership of India, Brazil, and China to attempted restrictive moves of the US in the WTO grew, 'the United States began to move away from a strategy of multilateral trade liberalization via the WTO".
In fact, Professor and Canada Research Chair in Global Policy, Kristen Hopewell, wrote in 2023 that China and India formed a surprising alliance at the WTO that has been highly successful in bringing an end to American dominance and sharply curtailing the ability of the US to set the rules of global trade, which has resulted in a 'vertical forum shifting' by the dominant power; it is now at the brink of abandoning the WTO and pursuing bilateral trade more actively. This is underway with President Trump's multiple trade deal dialogues currently - from India to Canada and Indonesia.
The US has trade relations with more than 200 countries, territories, and regional associations around the globe. With over $7.0 trillion in exports and imports of goods and services in 2022, per the Office of the US Trade Representative, the significance of the US participation in a rules-based trading system cannot be overstated. But with nations being compelled to seal bilateral deals with the US in a hurry, they may end up collectively helping the US write the WTO's epitaph.