US President Donald Trump has been calling the shots on many aspects of international trade, and has acted promptly to secure his country’s interests. His recent actions, however, could upend the entire World Trade Organization (WTO).
Last week, the WTO made headlines when Trump threatened to exit the global entity.
This comes at a crucial time when the US is locked in a multifaceted trade war with China, Turkey, Russia, and Iran, having imposed tariffs on exports from all four countries.
With isolationist and protectionist ideology spreading across the globe like wildfire, with controversial decisions as BREXIT shaking the international community, the World Trade Organization has a greater role to play now than ever before in recent years.
Yet, Trump’s recent actions could undermine the entire framework the 23-year old Organization has established.
A knee-jerk reaction to globalization
In what is perhaps a reaction to the rapid globalization that kick-started in the 20th century, which no one had been adequately prepared for, the world’s nations have been closing in on themselves in recent years in a wave of pseudo-isolationism.
With the BREXIT announcement to pull out the United Kingdom from the European Union, and the subsequent election of Donald Trump as President (a man who utilized slogans such as “Make America great again” to get himself in the oval office), the world has been going through a difficult phase – a phase where countries are breaking off from larger international collectives.
Amidst this subdued chaos, business and trade is kept intact and functioning through one organizing body: the World Trade Organization.
But what is the WTO exactly?
The WTO describes itself as “the only global international organization dealing with the rules of trade between nations.”
“At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.”
Currently, the WTO has 164 members. According to a 2016 report by the Peterson Institute for International Economics, the WTO handles 98% of world trade, making it the single most important global entity for mediating trade relations between countries.
Its greatest system for resolving disagreements is the case settlement mechanism. According to their site, “resolving trade disputes is one of the core activities of the WTO. A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.”
According to their info, over 500 disputes have been brought to the WTO and over 350 rulings have been issued since 1995.
“The global economy would have had a much harder time recovering ,” General Roberto Azevedo, director of the WTO, said on “Squawk on the Street.”
The US, which had a major hand in founding the WTO in 1995, continues to play a major role in the running of the Organization. In fact, they are the country that has won the greatest number of settlements filed with the WTO, according to Forbes. As a respondent, they have also won the highest percentage than any other member country.
Just last week, the US issued a dispute complaint against Russia for placing tariffs on some of their exports, even though Russia’s actions were in retaliation to the tariff war the US had started.
This latest anecdote is a strong reminder of why the WTO is so important for mediating international trade, as Trump’s aggressive policies are rubbing many the wrong way.
In fact, Trump’s tariffs don’t exactly sit well with WTO regulations.
Countries are finding ways to abuse the system
“The WTO is facing an influx of disputes from countries using national security as a justification for tariffs,” Bloomberg writes. “This exploits a loophole in WTO law that permits its 164 members to take any action they consider necessary to defend ‘essential security interests.’”
Hypothetically, if one nation wanted to make sure the WTO would not interfere with their sanctions on another competitor country, they can often cite the aforementioned “essential security interests.”
The WTO has caught wind of this abuse, and is calling for countries to sit down and discuss their problems rather than flinging sanctions at each other while dragging the WTO into it.
“National security is something that is not technical,” Azevedo said. “It is not something that will be solved by a dispute in the WTO. That requires conversation at the highest political level.”
Trump is doing more than just threatening to leave
The US could throw a greater wrench into WTO affairs than just leaving.
Last week, Reuters reported that the US is threatening that it would block the reappointment of one of the WTO’s four remaining appeals judges in September.
If Shree Baboo Chekitan Servansing, a trade judge from Mauritius, is not reappointed when his term expires on September 30, only three will remain — the minimum for the system to function, according to Reuters.
The standard number of appeals judges is 7.
Two of the remaining three judges have terms that will expire in December 2019. If the US continues its blockade until then, the entire WTO dispute system could unravel, leaving countries to escalate their ongoing trade wars.
It’s safe to say that this cannot end well for anyone. Unless these countries sit down and have a conversation, the entire trade system established by the WTO could come to an end, sending global trade in a downward spiral.