Trump makes progress in efforts to unravel World Trade Organization
Unable to complete his campaign promise to kick China out of the World Trade Organization, President Donald Trump has moved to unravel the trade body.
On the campaign trail, Trump promised to reverse the decades-long U.S. approach to trade.
"That means reversing two of the worst legacies of the Clinton years… First, the North American Free Trade Agreement, or NAFTA. Second, China's entry into the World Trade Organization."
But given the legal structure of the WTO, one country can't kick another out of the trade organization.
So here's how the Trump administration has worked around that.
The WTO sets and implements trade rules for the 164 member countries. When one member country files a complaint against another, the disputes panel deals with it. The panel makes a ruling, and countries can appeal that decision to the appellate court. That body of judges comes to a final and binding decision.
The panel is supposed to have seven judges, three of whom are needed on each case. But the body is down to the minimum of three, two of whom are set leave in December 2019.
Trump has blocked every discussion related to reappointment, according to Jennifer Hillman, a former member of the appellate body and a law professor at Georgetown University.
If any of the three judges needs to recuse himself for legal reasons on a case, the panel ceases to function, according to Phil Levy, senior fellow on the global economy at The Chicago Council on Global Affairs.
That could have significant consequences, Hillman explained, because rulings are no longer binding.
"Every dispute runs the risk of a mini trade war because the winning side will say, I'm not going to wait forever, so I'm going to go ahead and retaliate, at which point the losing side says, I will retaliate against your retaliation," Hillman said.
The steel and aluminum tariffs Trump imposed on Mexico, Canada and the European Union in March have also put the WTO in a bind. Trump claimed the imports were a threat to national security. But the trade body only considers as a national security threat the trade of nuclear materials or arms, or a measure taken during a time of war or other similar emergency.
Affected countries filed a complaint, but the administration countered that national security is self-judging.
Trump's tariffs "put the WTO in a position where it has to say, the United States is right, national security is up to the country -- in which case it falls apart," Levy said. That's because anyone would then be able to impose tariffs or quotas and attribute them to the umbrella term of national security.
Ruling against the United States, on the other hand, gives Trump the pretext to take the United States out of the WTO. That would still require an act of Congress. But without compliance from the American chief executive, the international trade body would probably lose its sway over other members, Levy said.
Robert Scott, director of trade and manufacturing policy research at the free trade-wary Economic Policy Institute, said the WTO lacks real authority to impose sanctions anyway, but agreed that U.S. withdrawal would nonetheless "open a huge can of worms."
Trump cannot kick China out of the WTO, given the legal restrictions. He is, however, working to effectively stymie the trade body. We rate his promise Compromise.
Phone interview with Phil Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, Dec. 12, 2018
Phone interview with Jennifer Hillman, professor of practice at the Georgetown Law Center, Dec. 12, 2018
Phone interview with Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, Dec. 13, 2018
Email interview with Jacob Kirkegaard, senior fellow at the Peterson Institute For International Economics, Dec. 11, 2018
WTO, About, accessed Dec. 12, 2018
WTO, Appellate Body Members, accessed Dec. 12, 2018
WTO, ARTICLE XXI, accessed Dec. 12, 2018
The Guardian, Trump's WTO threats matter – especially to a post-Brexit Britain, Sept. 2, 2018
New York Times, Trump's National Security Claim for Tariffs Sets Off Crisis at W.T.O., Aug. 12, 2018
Bloomberg, Trade as National Security Issue? Here's What the U.S. Law Says, May 24, 2018
Trump threatens to ignore WTO in 'aggressive' America-first approach
President Donald Trump promised as a candidate that he would reverse China's membership in the World Trade Organization, which had been approved by the international group during the Clinton administration.
His promise is part of an attempt to penalize China for undercutting American manufacturers.
Already, his administration has sent a big signal that it could take unilateral action to protect American workers in an annual trade policy report.
In March 2017, the White House introduced an outline of the new trade approach to Congress, which included a sharp shift from existing trade policy. The White House vowed to ignore the World Trade Organization if necessary to advance American interests and promote trade of American goods.
The report did not specifically mention reversing China's membership in WTO. One explanation might be that it's not legally possible.
Before we get into what the report says, here's some important background: China sought membership in the group of nations that developed rules for international trade. The country needed approval from two-thirds of WTO members, so China worked to develop trade deals with all of them, including the United States.
President Bill Clinton made a successful push in 2000 for Congress to grant China normal trade rights, dropping several tariffs and trade barriers for the emerging global power. Before then, those rights had to be revisited each year.
In 2001, the 142 WTO member nations — including the United States — voted unanimously to accept China, with some special conditions attached.
Jeff Schott, a senior fellow at the Peterson Institute for International Peace, said Trump cannot actually reverse China's entry into the WTO. Trump can, however, withdraw from the WTO himself and thereby deny China the access to U.S. markets it obtained by joining the WTO.
The White House hasn't gone that far, but they have already taken some steps to disregard the group.
In particular, the Office of the U.S. Trade Representative report said, "It is time for a more aggressive approach. The Trump Administration will use all possible leverage to encourage other countries to give U.S. producers fair, reciprocal access to their markets."
The report cited data that shows that U.S. industrial production grew by almost 71 percent from 1984 to 2000, but only grew by less than 9 percent between 2000, the last full year before China joined the WTO, and 2016.
"These figures indicate that while the current global trading system has been great for China, since the turn of the century it has not generated the same results for the United States," the report said.
This new approach would give the United States the possibility to impose tariffs on countries that they think have unfair trade practices without the consent of the other members in the WTO.
Chinese foreign ministry spokesman Geng Shuang responded to the administration's announcement by saying that China's own support for the WTO would not change.
Trump has not pursued steps to reverse China's membership in the WTO, because he can't make such a decision unilaterally. But the administration's trade policy does indicate that the United States is prepared to ignore the WTO to advance its own trade goals unilaterally.
We rate this promise In The Works.
Politico, Full transcript: Donald Trump's job plan speech, Jun. 28, 2016
The New York Times, The China trade vote: A Clinton triumph; House, in 237-197 vote, approves normal trade rights for China, May 25, 2000
Slate.com, "Waking the Sleeping Dragon," Sept. 28, 2016
The New York Times, Experts warn of backlash in Donald Trump's China trade policies, May 2, 2016
The Washington Post, Trump suggests ignoring World Trade Organization in major political shift, Mar. 1, 2017
Office of the United States Trade Representative, 2017 Trade Policy Agenda 2016 Annual Report of the President of the United States on the Trade Agreements Program, Mar. 1 2017
Reuters, China says supports WTO after U.S. trade threat, Mar. 2, 2017
E-mail interview with Jeff Schott, Apr. 25, 2017