Home World Economy As WTO members meet in Argentina, the organisation is in trouble

As WTO members meet in Argentina, the organisation is in trouble

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“EVERYBODY meets in Buenos Aires,” said Cecilia Malmstrom, the European Union’s trade commissioner, days before heading there for the World Trade Organisation’s (WTO) biennial gathering of ministers, which opens on December 10th. Some non-governmental organisations have been blocked by the protest-averse Argentine authorities, but a meeting of people will indeed take place. One of minds is another matter.

Most participants can agree on one thing. The WTO, which codifies the multilateral rules-based trading system, needs help. President Donald Trump has railed against it and threatened to pull America out. Without American leadership, there is little hope of reaching new deals. And even as the WTO’s dealmaking arm is paralysed, the Trump administration is weakening its judicial one by starving it of judges.

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Despite Mr Trump’s threats, America does not seem on the verge of crashing out of a system it helped to construct, to rely entirely on bilateral trade deals and remedies. He may think that true reciprocity means American tariffs to match Chinese ones. (For goods, America’s average 3.5%, China’s 9.9%.) But Congress is likely to stymie attempts to raise duties, and anything he does manage will face swift and painful retaliation. Robert Lighthizer, the United States trade representative, seems to be sticking to the WTO’s rules for now. On December 4th, for example, he requested evidence relating to solar-panel imports to help make the case that any tariffs would be WTO-compliant.

But an institution can be damaged without blowing it up. Over the past few weeks organisers of the meeting in Buenos Aires have been managing expectations down. No one thinks much will be agreed on. Some sigh that a committed American administration might have achieved an agreement on curbing fishing subsidies, revived one easing barriers to trade in environmental goods, and organised an ambitious agenda for e-commerce. Instead, the Americans have been bickering over the language in a proposed joint statement. They quibble with references to the “centrality of the multilateral trading system” and to “development” as an objective.

Still, it is unfair to blame the Trump administration alone for the likely lack of progress in Buenos Aires. The dealmaking arm of the WTO has not worked for years. India routinely holds agreements hostage to its demands. The Chinese scuppered an agreement over environmental goods. Some developing countries complain that deals to help them should be agreed on before new areas are opened up. Updating the rules needs consensus among all 164 member countries, which is almost unattainable. “Even the US at its most constructive isn’t going to fix the system where it is now,” says Andrew Crosby of the International Centre for Trade and Sustainable Development, a Geneva-based think-tank.

The sabotaging of the WTO’s appellate body, however, is clearly the handiwork of the Trump administration. On December 11th the term of Peter Van den Bossche, the European judge on the body, will expire. He will be the third judge whose reappointment the Americans have blocked.

On the present course, by the end of 2019 too few judges will be left to rule on new cases (three are required). Mark Wu, a law professor at Harvard University, worries that gumming up the judicial arm may make countries doubt that the WTO is the best forum for settling disputes. “The risk is less of an immediate explosion,” he says, “than a slower death by a thousand cuts.”

Mr Lighthizer has hinted at a return to the old, pre-WTO system of resolving trade disputes—by national muscle rather than lawyers. Ms Malmstrom says she cannot envisage going back to that. But the impasse has no obvious way out. Any manoeuvre to bypass the American blockage of the appellate body would be politically, if not legally, untenable. And the Americans have not said what reforms they want.

Bull in a China shop

As the Trump administration kicks at the working leg of a limping institution, it is worth recalling that previous American administrations have also felt frustrated with the WTO. Few would disagree that it needs reform. In particular, China, described by Ms Malmstrom as the WTO’s “problematic client”, has an economic model that sits awkwardly inside the WTO system. The organisation’s rules were drafted in the early 1990s with transitional economies like those of Eastern Europe in mind. Hosuk Lee-Makiyama of the European Centre for International Political Economy, a Brussels think-tank, says they are toothless against China’s “state-capitalist model”, which is far more influential than was envisaged. A case working its way through the dispute-settlement system concerning China’s treatment by its biggest trading partners (see article) highlights an old tension between the WTO’s most important members.

If the frustrations are familiar, the strategy is not. To brandish a stick at China, the previous American administration sued it at the WTO for subsidising export industries. Dangling a carrot, it negotiated a big regional trade deal with “21st-century rules”. This administration is all stick and no carrot. Asked whether she thinks the Trump team wants to destroy the system, Ms Malmstrom says: “I don’t know.” Mr Trump may think that the system is so broken that it must be smashed before it can be fixed. His approach risks making that view self-fulfilling.

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