Commentary: Nope, the WTO doesn't treat the US unfairly

Commentary: Nope, the WTO doesn't treat the US unfairly

While it's true that that the United States is sued more often than any other WTO member, and that they have lost many of these cases, it doesn't mean they have been treated unfairly, says one observer.

Donald Trump
President Donald Trump pauses while speaking during a discussion for drug-free communities support programmes in the Roosevelt Room of the White House, in Washington, DC. (AP Photo/Alex Brandon)

ARIZONA: President Donald Trump recently threatened to pull the United States out of the World Trade Organisation “if they don’t shape up.”

His argument is that the organisation treats its single-largest investor unfairly, claiming that the US loses “almost all of the lawsuits in the WTO”.

Is Trump correct that the WTO singles out the US?

While international political economists such as myself recognise that the WTO’s dispute system is imperfect, there is little evidence to justify threats of withdrawal.

THE CASE AGAINST THE WTO

Critics of America’s trade deals – including its commitments in Geneva, where the WTO is based – argue that trade law disadvantages the United States.

As evidence, they point to the fact that the US currently faces near-historic levels of trade litigation.

America’s partners have filed 17 complaints so far in 2018. More than half of those disputes relate to Trump’s steel and aluminum tariffs.

To put that number in perspective, 17 disputes is double the average number of annual filings over the past 15 years. The last time there were so many cases against the US was back in 2002. Not coincidentally, that was when President George W Bush’s steel policies were widely attacked.

Former US President George W. Bush speaks to health workers during a visit to a clinic in Gaborone
Former US President George W. Bush speaks to health workers during a visit to a clinic in Gaborone, Botswana, April 4, 2017. (Photo: REUTERS/Mike Hutchings)

In addition to being sued so often, Trump worries that the US loses a disproportionate number of cases.

Hence, the now frequently heard claim that the United States is being unfairly punished under international trade law.

A NARROW READING OF THE FACTS

The White House is right about two things. First, it is true that the United States is sued more often than any other WTO member. 

Since it was set up in 1995, members have filed 150 complaints targeting US policies. That’s 78 per cent more than there have been against the European Union and more than triple those against China. 

In fact, those 150 cases account for over 25 per cent of all WTO disputes.

READ: Canada takes United States to WTO in complaint over trade remedies

Second, it is also true that the United States lost the vast majority of those cases. Only about half of all WTO disputes end with a formal ruling. The other half are settled or linger for years in the initial consultation stage of the dispute process. 

Among those with a verdict, the US lost entirely or in part 87 per cent of the cases against it.

China has formally launched a World Trade Organization challenge against the US' first round of
China has formally launched a World Trade Organisation challenge against the US' first round of proposed tariffs on Chinese goods. (Photo: AFP/Robyn Beck)

At first glance, that looks like strong support for Trump’s argument. But do these two facts really mean the deck is stacked against the US? 

Not once we put the numbers into context.

WHERE TRUMP GETS IT WRONG

To begin with, it’s worth considering why the US gets sued in the first place.

Part of the explanation is simple: The US hasn’t been shy about protecting its domestic industries, deploying a wide variety of policies to insulate them from foreign competition.

Some of these are highly controversial. For example, the US is a world leader in the use of anti-dumping, a form of duty applied to foreign goods sold below normal market prices.

In order to use anti-dumping legally, countries have to demonstrate material harm to their domestic industries. Naturally, proving that dumping has occurred is open to some debate.

Hence, there have been 126 individual disputes over this policy, accounting for almost 25 per cent of the WTO’s entire case load. This includes the US, which has been sued more than 50 times for its use of anti-dumping duties alone.

Thus, relying on controversial policies at home exposes the US to trade litigation abroad.

Perhaps more importantly, Trump misrepresents America’s losing record.

Donald Trump
US President Donald Trump (AFP/Molly Riley)

Yes, the US loses nearly 90 per cent of panel rulings. But the fact is that every respondent almost always loses to the tune of at least a comparable 90 per cent.

That’s one of the plain realities of WTO dispute settlement. If a country gets sued, and that case ends up before a panel, the respondent will likely lose. 

That’s true of the US, the EU, China or anyone else. That’s partly because litigation isn’t free. 

Complainants are more likely to file, and proceed to a ruling, when there’s high confidence of winning. Otherwise it isn’t worth it.

In sum, the numbers simply don’t support the argument that the US is targeted without cause or that it is treated unfairly. 

Insistence in Washington on using contentious trade policies increases the rate of filings against the US. And, while America loses a lot, it doesn’t lose any more often than the membership at large.

THE ESCALATING CRISIS IN GENEVA

None of this is to say that the system is perfect.

Legitimate grounds for disagreement have created calls for reform. Downstream compliance remains a problem across its 160-plus members. And efforts by the US or others to reform the system – such as to the appeals process to reduce lengthy delays and judicial overreach – have gone nowhere.

As a result, the US has blocked all appointments of appellate judges since Trump took office, reducing the total number from seven to three, which could potentially paralyse the body’s ability to work.

READ: Blocking WTO appointments hurts US goal of resolving unfair trade, holds system hostage, a commentary

The headquarters of the WTO are pictured in Geneva
FILE PHOTO: The headquarters of the World Trade Organisation (WTO) are pictured in Geneva, Switzerland. (REUTERS/Denis Balibouse)

This is bad news for the system. The majority of panel rulings are appealed, and the process cannot function without a consensus over judge appointments.

LOSING AMERICA’S SEAT AT THE TABLE

In spite of the system’s flaws, the WTO has benefits beyond trade promotion. Having a rules-based system is also important for limiting the kind of trade discrimination the White House frequently alleges.

Yet, Trump continues to talk like the WTO is a one-way street. He seems to forget that the US isn’t just the most frequent respondent. It’s also the most frequent complainant.

A political compromise over the appeals process is needed to ensure the WTO functions efficiently. But withdrawing from the agreement, and giving up America’s seat at the table, isn’t going to do much to protect US interests – as we have seen in other areas of international law.

Jeffrey Kucik is assistant Professor of Political Science at University of Arizona. This commentary first appeared on The Conversation.


Source: CNA/nr(sl)

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