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Senate Finance Committee Agrees WTO Is Broken, But No Consensus On a Fix

July 30, 2020

By CPA Staff

The Senate takes a stab at reforming the World Trade Organization. But is it even fixable anymore?

Yesterday’s Senate Finance Committee hearing on reforming the World Trade Organization showed that leaving the beleaguered institution is not top of mind with them. Everyone seems keen on fixing what’s fixable, with significant doubts among panelists and members of the Committee that it is fixable.

“The WTO is important, but it is broken and to get a consensus on this is going to be a problem,” said Ohio Republican Ron Portman, a former Trade Representative under George W. Bush. His “let’s fix it” approach was the focus of yesterday’s hearing with testimony from ex-WTO Appellate judge Thomas Graham; trade fellow at the Council on Foreign Relations, Jennifer Hillman; and International Food Policy Research Institute fellow Joseph Glauber. One witness from the corporate sector (UPS) and one from the non-governmental sector (World Wildlife Fund) also spoke to the Committee.

Portman noted that he had tried, and failed, in 2006 to get China subsidies removed for fishing. They’re still subsidizing large fleets beyond China shores.

“The desire for reform cuts across party lines and across branches of government,” he said. But the WTO has been ineffective at addressing China’s non-market, techno-nationalism.”

Portman asked Senate Finance Committee Chairman Chuck Grassley (R-IA) to put up a resolution about WTO reform, not a WTO exit, in the fall. Members of Congress proposed a debate on leaving the WTO a few weeks ago, but despite a requirement to vote on the issue in the original legislation, Congressional leadership scrapped the debate. Grassley didn’t commit to a date on any new WTO resolutions. From where we sit, free-trader Grassley will be on board with reforming, not leaving, the WTO.

“The WTO has helped U.S. foreign policy goals of opening economies. They have had some important successes in the past, but we cannot live in the past,” he said. “The President said we need change in the WTO. Other countries' trade barriers are too high and I agree. Countries like China and India got a lot richer but have refused to take on any more responsibilities and claim they are entitled to special treatments because they are developing countries. That China should get the same benefits as Cameroon is ridiculous. We have to get the WTO back on track,” Grassley said, citing making it an effective forum for trade agreements and fixing the Appellate Body, something Trade Representative Robert Lighthizer thinks is broken beyond repair.  

The CPA position on the WTO is that it was a bad idea in the first place. It should not have been formed, and China should not have been allowed in as a member in 2001. The WTO is incompatible with China’s Frankenstein monster economy of state capitalism. The WTO’s narrow, rules-based approach has paradoxically enabled trade deficits that have deindustrialized large swaths of the U.S., mostly in favor of China, now a global industrial hegemon.

On the corporate side, Laura Lane, the corporate affairs chief for shipping multinational UPS, said the WTO was needed at the very least to create organized shipping policies. ”The WTO is important for UPS because 96% of world consumers are outside of the U.S. and those markets have benefited from the predictability of rules set by the WTO.”

On the NGO side, Michelle Kuruc, vice president for Ocean Policy at the WWF, took a hidden jab at the Trump Administration, blaming it for the WTO being stuck in the mud.

But ex-WTO judge Graham praised the U.S. for raising the issue of WTO failures.  “The world would not be talking about fixing the WTO if the U.S. did not take a very firm stance on it as it has,” he said. “The EU has been unwilling to talk about tinkering with it, other than basic reform.”

This is a tug of war between an international bureaucracy, effectively responsible to no one, enjoying the power of making international rulings from their palatial Geneva headquarters, and 164 national WTO members, none of them having the will power to drive actual reform.  On this week’s hearing, Senators seem to believe that reforming the global body could work. Yet, even by outgoing WTO director-general Roberto Azevedo’s own assessment, the WTO has failed on big-ticket items like agriculture subsidies in the Doha Round, arguably one of the signature WTO issues that’s gone nowhere for around 20 years.

Democratic Senator from Oregon, Ron Wyden, said he doesn’t want to leave the WTO.

“China would control it,” he said, bringing up the perennial boogeyman of what would happen if the U.S. left the WTO. Wyden showed that he understood some of the issues around China, from unfairly exploiting its emerging market status, to the need for e-commerce trading rules and even environmental sustainability whereas China pollutes far more than any other country.

Hillman’s approach is to fix the Appellate Body, with the U.S. leading the charge. Like the WWF’s Kuruc, she blames the U.S. instead of the nations that are profiting from its defects, or the international bureaucracy that actually runs it.

According to Graham, under Obama and then Trump, the U.S. has been tiptoeing towards the exit for years.

Graham is a little more in line with CPA  thinking, even though his testimony leaned with the Committee’s focus on reforming the WTO, not leaving it. You can read his March indictment of the Appellate Body here.

The U.S. listed its complaints about the Appellate Body in a 110-page report this year, but the EU has failed to recognize the depth of Washington’s critique of the dispute settlement mechanism, Graham told the Committee.

“I am not willing to blame the United States,” Graham said. “The U.S. wants deep and serious Appellate Body reform and will bring the WTO to a halt if it doesn’t happen. China is a difficult fit in the WTO rules-based system of market competition. I don’t see how the Appellate Body can be restarted until a core of the WTO members can come to grips with how China fits in that system.”

As China’s economic policy exists now, it doesn’t fit at all.

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