When China was admitted to the World Trade Organization (WTO) in 2001, the theory was that membership would gradually move China to a more market-oriented economic stance. Under Deng Xiaoping’s leadership, through the ’80s and to some extent his successor Hu Jintao until 2003, that direction of reform had at least begun. The WTO membership and the demands of regulation by a world trade body would continue that process, the thinking went.
President Xi Jinping does not subscribe to that economic theory, having increased the role of state-run businesses through special treatment, government support, and subsidization.
While China’s economic behavior has not been transformed under Xi, that is just one aspect of many countries’ unhappiness with the WTO. But President Donald Trump and U.S. Trade Representative Robert Lighthizer have not only lost patience with the WTO; they have doped out a method for bringing reform efforts to the fore or else. Unless some work around is crafted before then, the appellate panel that rules on trade disputes will cease to have a quorum. The U.S. has been blocking appointments to the panel so that the panel would run out of judges.
The beef industry’s experience with the WTO and mandatory country-of-origin labeling (mCOOL) demonstrated one of the big complaints about the WTO: It takes forever to get anything resolved. Ours was hardly the worst experience. The case against Airbus and European companies subsidizing its business was supposedly resolved this year—after a 15-year struggle—but lately more of the row has sprung up again.
For an agricultural power that exports significant portions of its production, not having an efficient, fair arbiter of international trade is a definite problem.
Democrats, Republicans, and multiple presidents have expressed displeasure with the operations of the WTO but little has been accomplished. Even Europe agrees that some WTO reforms are necessary but nothing has been done but talk. But the combination of Trump and Lighthizer has provided a method to bring things to a head. In addition, it turns out the U.S. has also been pressing to get WTO budget money drastically reduced for the appellate panel, further hampering its function.
Besides the snail’s pace of resolution, what are other problems?
There is the charge that the appellate body has been going beyond its mandate, in effect, making new rules instead of enforcing. The WTO members have agreed upon rules, and those rules should be applied to specific cases. But it doesn’t always work that way. Like politics here, where certain parties try to accomplish through the courts what they couldn’t get through Congress, frustrated and aggressive WTO members have pushed the appellate process for rulings that member states haven’t approved.
Longer-range, the U.S. attempts to have a free market system where individual companies compete to satisfy the market and grow according to success. That’s not everyone’s approach. China is one country that chooses “national champions,” state-directed companies that get support, favoritism, and special financing from the national government, the advantages boosting them beyond their international competition. The EU is actually considering programs to do the same thing for certain European companies, according to the Wall Street Journal’s Dec. 2 opinion piece, “Now Is a Good Time to Modernize the WTO.”
There are a number of serious players in international trade that pay lip service to the WTO and then are allowed to ignore the rules.
Then there is the issue of “developed” countries vs. “developing” countries. Rules allow advantages to developing countries, yet China—hardly a struggling, developing country—has been allowed to keep its “developing” status and utilize rules designed for much smaller economies. Part of the problem is applying WTO rules to the totally different economic model the Chinese have developed. They have a state-run economy in which company officials, access to company trade secrets, and even customer data can be demanded at any time by the national government. Of course, the Chinese Communist Party is the national government.
That arrangement is a key component of Trump’s negotiations with China. Many companies, including high technology companies making things important to military applications, have been duped or ignored the long-term consequences of forced technology transfer, while trying to do business with Chinese partners.
That the WTO has not been able or willing to reclassify the world’s largest exporter of goods as no longer “developing” is stark proof that it has serious governing problems.
The diplomats and the bureaucrats in both China and the European countries are not in a hurry, as is usual for their type. They are reportedly leaning to stalling until Trump loses the election in 2020 and Lighthizer is gone. That’s not impossible but certainly a lot less likely than foreign diplomats think.
So, what do the professional bureaucrats propose to do for another five years? It seems unlikely they want to do without the WTO appeals panel for that length of time. Besides, both our political parties have indicated their positions are similar to what the Trump administration has put forward. So that could well mean Trump and Lighthizer will force the member countries into serious discussions and some meaningful reforms.
Trump’s drastic measures to deal with China on his own would perhaps not have been necessary if the WTO had been doing its job. But herding all the WTO countries into some seriously needed reforms has proven impossible so far.
Trump has been bold confronting China on his own, not wanting to wait and wait, trying to build some consensus movement with other nations. While some observers say China has responded in some way to rulings against it at the WTO and more cases should be brought against it, waiting for such a process to drag out through an inadequate WTO process is not Trump’s or America’s business style.
After all, to us this is business, not a game of diplomatic chess. — Steve Dittmer, WLJ columnist
(Steve Dittmer is EVP of the Agribusiness Freedom Foundation and has been working in and around the beef business for over 40 years.)
