Former White House Staffer Predicts 'Long, Slow Sunset' for WTO, Discusses Roles for Trade Body

The World Trade Organization is steadily headed towards irrelevancy to global trade and is facing a "long, slow sunset," said Peter Harrell, former senior director for international economics and competitiveness at the White House, during remarks at the Georgetown International Trade Update on June 13.

Kicking off the conference with a speech on his prescriptions for U.S. trade policy in the near-, mid- and long-term, Harrell said that to keep the WTO relevant, the interested parties should get beyond the current talks on tactical problems, such as restoring the Appellate Body, and have a broader discussion on the future of the trade body.

Harrell said he saw two possible outcomes for the WTO. The first could be a sort of "global detente" with the U.S. and China, or even the G-7 and China, in which both sides agree that WTO rules will not actually govern trade between them but will be used to govern trade between these nations and third-party countries. On a more long-term trajectory, Harrell floated a potential return to a GATT-type trading arrangement which will have "separate but still quite broad trading blocks," referring to the General Agreement on Tariffs and Trade. Either way, Harrell predicted a slow wind-down for the trade body.

The former White House staffer said that the stage has been set for such a transition, given American unwillingness to accept WTO rules that force the U.S. to treat its allies, such as Germany, the same as China and would "fundamentally constrain our shift back to industrial policy."

Left with the question of where dispute settlement proceedings would occur should the WTO go the way of the dodo bird, Harrell said that the answer may lie in bi- and multi-lateral trade agreements. Noting the success of dispute settlement systems set under the USMCA and even the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Harrell said these venues could match the U.S. desire for a more power-based and less rules-based dispute settlement process. The Appellate Body was not a favorable setting for dispute resolution, according to Harrell, given the unique problems presented by China.

Harrell recommended a recalibration of the tariffs levied by the U.S. against China. Characterizing the attempts to change China via trade engagement as having "run their course," he said the China tariffs should be raised on strategic goods and sectors while lowering them in other, more non-strategic areas as a way to more effectively use the tool.

Looking to the near-term, Harrell suggested various courses of action the U.S. could take with regard to its trade policy. The first is to focus on targeted initiatives, such as the critical minerals agreement proposed by the Biden administration. "It's a very good example of a targeted agreement that has the characteristics needed for success," Harrell said, adding that the U.S. wants to ensure that the minerals themselves are not under Chinese control and that the countries we buy from have high environmental and labor standards. The exporting countries, meanwhile, want access to Inflation Reduction Act subsidies. "Basic negotiating theory would suggest we should be able to figure out a deal here," he said.

Harrell added that crafting regulations with U.S. partners on artificial intelligence and transparency in industrial policy measures could stand as short-term trade goals. AI stands to "dramatically impact" global economies but has emerged so quickly so as to avoid the hardening of national views, presenting an opportunity for collaboration, he said. "This presents a window to work collectively on AI regulations that realistically will matter as much for our economies in the years to come as many traditional trade agenda items."