World trade would be threatened by unilateralism

Dan Steinbock
China is not WTO's litmus test. Trade unilateralism is.
Dan Steinbock

Until recently, rich economies fueled global economic prospects, which are today increasingly driven by large developing economies. What is needed is not a more unilateral WTO, but an inclusive and multilateral WTO.

In the postwar era, the World Trade Organization (WTO) achieved significant reduction of trade barriers promoting trade expansion and facilitating trade frictions.

But it has failed to negotiate a successful round of major trade liberalization since 1994.

The WTO is constrained by increasing polarization within and among developed economies, and deep divides between rich and poor economies.

In the early 21st century, a multipolar world economy needs a multilateral, inclusive WTO.

Established in 1995, international organization replaced the General Agreement on Tariffs and Trade (GATT), created in 1948.

Today, the WTO's mandate is to oversee global trade rules and resolve trade disputes.

The latest round of multilateral trade negotiations, the Doha Development Agenda, was launched in 2001 but it ended in stalemate. The talks have been complicated by persistent differences among the US, European Union (EU), and developing countries on key issues, such as agriculture, industrial tariffs and nontariff barriers, services, and trade remedies.

The timing is telling. The stalemate ensued with the rise of the large developing economies that today increasingly drive the global economy. As rich economies insist on their past privileges, poor economies demand a proportionate voice.

Moreover, the trade stance of the US, the architect of the GATT/WTO system, is changing. Unlike the previous US administrations, the Trump trade-war hawks believed the WTO did not add "value" to American economy. They favored bilateral pressure to multilateralism and international rules.

The Biden administration prefers to use multilateral rhetoric for unilateral trade primacy, but the net effect remains the same.

President Obama, the EU and Japan were supposed to grant China its market economy status (MES) when the key clause in China's agreement to join the WTO expired on December 11, 2016. Yet, they refused to do so. The Trump-Biden stance continues to build on that refusal.

When China joined the WTO, it was written into the agreement that member states could treat China as a "non-market economy."

True picture

Due to the size of the Chinese economy, government intervention, and state-owned enterprises, rich economies argued that Chinese domestic price comparisons must be ignored and "constructed values" should be used to gain a "true picture" of the Chinese economy.

In 2001, Chinese GDP was US$1.3 trillion (12 percent of US GDP).

Today, it is about US$16.9 trillion (74 percent of US GDP), thanks to reforms and opening-up policies. Yet, China is still treated as it was two decades ago, as a pretext for heavy anti-dumping duties.

Since 2001, China has made vigorous efforts to align itself with WTO rules, open its market and abide by WTO rules, as vice-minister of commerce Wang Shouwen said recently. Meanwhile, China's overall tariff level has halved to 7.4 percent, which is lower than that of WTO's developing members and close to that of its developed peers.

China is not WTO's litmus test. Trade unilateralism is.

Recently, the WTO has been strained by US tariffs, counter-tariffs by other countries, and subsequent trade rows.

Several WTO disputes are pending dispute settlement decisions. In one involving US tariffs on China, a panel ruled against the US.

Pursued in the name of national or economic security, unilateral tariffs could derail the credibility of the WTO and its principles fostering new trade restrictions.

The Trump administration amplified these pressures, when it blocked appointment of new jurists to the Appellate Body, which reviews appeals of dispute cases but hasn't functioned since December 2019.

While the EU and others have proposed reforms to address US concerns, thus far they have been rejected by the US.

The Biden administration has pledged to reengage in multilateral cooperation. Yet, it is reluctant to reset Trump's trade policy.

Unilateralism is undermining the system.

Dr Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). The views are his own.

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