Category : International Institutions
Title : How to rescue the WTO ?
Relevance : GS 2
Why has this article been written ?
The USA has circumvented the WTO to impose tariffs on steel and aluminium imports.
Why has USA circumvented the WTO ?
The USA has been complaining of unfair treatment at WTO. It is embroiled in a trade war with China. Both sides have imposed tariffs on goods worth tens of billions of dollars.
How has USA circumvented the WTO ?
The USA is blocking nominations to seats on the WTO’s appellate body, which could leave it unable to hear cases after 2019.
How has the present circumstances affected WTO ?
The WTO was supposed to contain trade disputes and prevent retaliatory pile-ups. Today it appears to be a horrified bystander as the system it oversees crumbles.
Why is China being blamed ?
- Since joining the WTO in 2001, China has not turned towards markets, as the West expected.
- Instead, it has distorted trade on a scale that is far bigger than the dumping and other causes of disputes between market economies.
- The EU and Japan share America’s desire to constrain Chinese mercantilism.
- China’s state-owned firms and its vast and opaque subsidies have distorted markets and caused gluts in supply for commodities such as steel.
- Foreign firms operating in China struggle against heavy-handed regulation, and are required to hand over their intellectual property as a condition of market access.
Why should China agree to WTO reforms ?
- It is in China’s interests to preserve the global trading order because, if China is isolated, it cannot achieve the prosperity that cements its legitimacy.
- The benefits to China of its WTO membership have come not from lower tariffs in America—they were already low—but from the certainty of stable trading relationships.
What lies ahead ?
- Reaching a global agreement that covered every one of the WTO’s 164 members would be extremely difficult.
- The last big round of global trade talks stalled over demands by developing economies such as India for more leeway to protect farmers. New negotiations may be held hostage to these old disputes.
- However, negotiators can skip around them if necessary, by securing a “plurilateral” agreement between groups of big economies. The WTO would still enforce the terms, though they would not apply to its other members.
- The USA can unite most of the world around a set of rules in America’s interest, forming blocs so large that China would have had to choose between compliance and isolation. That was the idea behind the Trans-Pacific Partnership (TPP).
- A WTO fit to handle complaints about unfair competition would be a gift to the world.
- A world in which China is pursued by its critics through the WTO, and faces proportionate retaliation when necessary, is far preferable to one in which a tit-for-tat trade war can escalate without limit.
Conclusion
The USA under present government is hard to predict. It may abandon the WTO. If it does so, other powers will probably go on building links and writing rule, like the trade deal that the EU and Japan signed this week. However, if USA goes for a better alternative, the world trading system may yet be saved. It might even be improved.
