Former USTRs Say WTO Needs Major Changes to Get Things Done

Former U.S. trade representatives Carla Hills, Susan Schwab and Michael Froman said the next director-general of the World Trade Organization will have an uphill climb to achieve changes they all believe are needed at the institution. The three spoke during a Washington International Trade Association webinar July 16. Froman said the fundamental problem is “a lack of global consensus around trade. And there’s a lack of political will to get things done.”

Before any progress can be made on negotiations, appellate body revisions or any other initiative at the WTO, the new leadership must work with countries to develop consensus and mobilize political will, Froman said.

Hills said politicians need to examine domestic distribution issues so that the public will be more pro-trade. “Trade creates growth, but domestic policy distributes the growth,” she said.

Schwab said the WTO hasn't achieved much since the trade facilitation agreement. “If you can get traction on e-commerce that would be very significant,” she said, referring to one of the two negotiations underway in Geneva. But even with an e-commerce deal, unless the WTO can address some fundamental questions, it's going to continue to be troubled, she said. Those questions, she said, are: Which countries are developed or developing? And, how do you determine nonmarket conditions? She said that's broader than just state-owned enterprises, and covers questions of heavy-duty subsidies and industrial espionage. Schwab said it's also not just China.

Additionally, she said, the WTO has to settle the question of dispute settlement -- how much should the appellate body be making decisions on questions that were not negotiated by the members decades ago?

Froman said that while the discussion on subsidies has centered on China, that so many rich countries have been subsidizing industries during the COVID-19 crisis creates an opportunity to collaborate on guardrails without making it about China. European Union trade officials also have talked about this idea (see 2004090040).

He said the EU, Japan, Canada and the United States can agree on what's an appropriate subsidy for industry in these times, and when it should be withdrawn.

Moderator Wendy Cutler, Asia Society Policy Institute vice president, asked the former USTRs if there should be room in the WTO to negotiate plurilateral agreements where countries not in the agreements don't get the benefits. She framed this as moving away from the most-favored-nation principal, but Schwab said as limiting as MFN is, the idea that plurilaterals must cover “substantially all trade” in the area is considered. China left the environmental goods plurilateral, and because it produces such a large amount of environmental goods, that killed the possibility for a deal. Without greater room for plurilaterals, the WTO will continue to be frozen, because a few countries always block trade liberalization proposals, Schwab said.

Froman agreed, saying there's a need for allowing a plurilateral that doesn't incorporate the MFN principle but is open to those that didn't negotiate it as long as they accept the deal's obligations. He said it would help with the growing calls for trade reciprocity.

But Froman criticized the current USTR's discussion of raising the U.S.-bound tariff rates. He cited three risks with raising tariffs, no matter the mechanism: one, the cost of tariffs to consumers and buyers of intermediate goods; two, exporting countries might retaliate; and three, other countries might imitate us.