WTO Reform Must Start at the Top

A sign of the World Trade Organization (WTO) is seen on their headquarters in Geneva, September 2018.

The World Trade Organization’s (WTO) search for a new leader kicked off in earnest in July when the first batch of candidates for the director general position met with representatives of the WTO’s member governments in Geneva. Such auditions will continue throughout the summer, with the aim of picking a replacement for current Director General Roberto Azvêdo in the fall. Formally, the next director general will be picked through a negotiated consensus among member governments. But, in a reality, a few actors, including the United States, will exercise disproportionate sway. The outcome of this contest will have enormous implications for the future of the WTO and for global trade architecture more broadly.

The selection of the director general has traditionally been a highly contested process, reflecting the divergent priorities among developing and wealthy states. But, this year, it will occur against a background of unprecedented economic turmoil and political conflict that has called the long-term viability of the WTO itself into question. Since Donald Trump’s election, the WTO, for the first time, has had to contend with a U.S. administration that is skeptical of the organization’s core project of reducing international trade barriers. This skepticism has led the White House to escalate long-standing U.S. frustrations with the WTO’s handling of trade disputes by refusing to appoint judges to the organization’s top dispute settlement panel, the Appellate Body, leaving it paralyzed since the end of last year. Amid this deepening crisis, which has been amplified by the economic disruption and de-globalization of the COVID-19 pandemic, Azevêdo announced his intend to step down on August 31—a year before his term was set to expire.

The Trump administration’s efforts to hinder the WTO have been framed—not incorrectly—as a reversion to protectionism. However, in practice, its actions represent more of an escalation (albeit a dramatic one) than a break with the policies of prior U.S. administrations. The Obama administration initiated the practice of blocking Appellate Body candidates when, in 2011, it refused to allow the reappointment of the U.S. nominee. In 2016, it also prevented the reappointment of a Korean judge on the objection that he was acting outside his mandate by substituting his own judgment for that of the text and the parties in trade disputes, leading to incorrect and unnecessary rulings. This second maneuver was an unprecedented act that received significant criticism in the international community.

This frustration with the WTO by successive U.S. administrations can be traced to two interrelated developments that that the architects of the WTO system took insufficient steps to mitigate. First, the widely held belief that the shifting of economic activity to countries with lower production costs and weaker regulatory systems would be offset by domestic economic growth and, in some cases, direct assistance to affected workers and industries has proven hollow. The WTO system, which contains no standards or enforcement provisions relating to labor or the environment, came to be viewed as a major catalyst for offshoring—that is, the practice of moving jobs to places with lower labor and regulatory costs—and, by extension, pervasive economic insecurity.

Second, the WTO framework paid inadequate attention to the questions of excessive concentration and fair competition. This omission has had broad implications for the balance between corporate power and workers, for example, by allowing the emergence of powerful monopolies at both a national and transnational scale. It has also allowed China, in particular, to reap immense benefits from participation in a globalized trading system after its accession to the WTO in 2001 while maintaining anticompetitive practices to the great frustration of U.S. policymakers. Mispriced currency; large-scale giveaways of land, energy, training, and other subsidies; and a coercive approach to securing supply chain investments and advanced technology are all examples of how the WTO has largely failed to rein in the Chinese trade practices that give it a formidable competitive advantage over American manufacturers and those of other advanced economies.

In the face of these trends, Trump and his advisers have characterized their tariff threats and hostility to trade institutions as motivated by a desire to protect the American worker from the predations of global markets. Such claims are hard to reconcile with the White House’s domestic economic agenda, which has unabashedly favored wealthy interests and corporate power at the expense of working people, consumers, and the environment. But even if Trump’s tough rhetoric on trade rings hollow, it would be a mistake to think that the grievances he successfully tapped into during his campaign for the White House have no basis in the lived experience of ordinary Americans. This is to say nothing of the millions of working- and middle-class families in other countries that have experienced economic dislocation as the result of a global economic system that has consistently prioritized the free flow of goods and capital over other considerations.

Although Trump’s successor may well take a less confrontational view toward multilateral institutions, including the WTO, returning to the pre-Trump status quo on trade is neither desirable not politically feasible. Even today, both Republican and Democratic lawmakers in Congress are pushing legislation to withdraw congressional approval of the WTO’s implementing legislation, which would effectively end U.S. participation in the WTO system. And while that outcome is unlikely, anxiety over economic integration will almost certainly continue to influence electoral outcomes in the United States and abroad.

The selection of the next WTO director general thus provides a critical opportunity for the WTO members to begin a process of meaningful reexamination and reform of the WTO system, along with the approach to trade that underlies it. If the members select a director general who favors the status quo or minor technical adjustments over bolder proposals to address major structural challenges, the institution will almost certainly continue to obsolesce in the face of strong political opposition within the United States and potentially other advanced economies.

This is not to say a new WTO director general should embrace protectionism or isolationism. But if the next director general is to be effective, they will need a healthy pragmatism about the past failures and future promise of the WTO. With this vision, the next director general could help create an equitable economic order that distributes the benefits of trade broadly—not just among countries but also across socioeconomic groups. In more precise terms, the WTO’s membership needs to find a leader who is candid about the enormous blind spots and gaps in the current WTO system regarding the well-being of workers; the existential threat of climate change; excessive concentration of economic power; and the extreme fragility of global supply chains. Acknowledging these shortcomings is not the same as knowing exactly how to redress them—which will ultimately depend in large measure on the WTO members themselves—but it is an essential first step.

It should not be beyond imagination for a WTO director general to acknowledge that the WTO rules have chilled and obstructed the implementation of regulations of indisputable environmental value—for example, to admit that trade agreements lacking enforceable labor and environmental standards undermine inclusive prosperity in advanced economies or that the WTO has failed to address the undermining of fair competition arising from both China’s state capitalism as well as growing monopoly power in the West. Such an openness to revisiting the ideological underpinnings of globalization will have greater bearing on the long-run survival of the WTO than the handful of short-term fixes currently being put forward as a reform agenda for the body. That agenda, which includes changes to Appellate Body procedure limiting the discretion of judges and the creation of an alternative dispute resolution body on an opt-in basis runs the risk of entrenching the WTO’s shift away from a negotiating forum toward a kind of quasi-judicial body that produces more litigation than cooperation.

Instead, a wide range of ideas should be on the table. The incorporation of labor, environmental, and certain other fair competition standards into anti-dumping calculations represents a simple and targeted fix, as would the creation of a new “nonsustainable economies” designation that would penalize failure to maintain certain standards. A wider ranging approach, modeled on the Havana Charter that the New Dealers crafted after World War II, would link WTO preferences to the enforcement of separate international labor, environmental, currency, and other relevant standards.

In addition, the WTO members could look to largely forgotten but institutionally sophisticated models of trade from the pre-hyperglobalization era as inspiration for other structural changes. For example, the Multi-Fibre Agreement of 1974 aimed at countering the market’s tendency toward concentration by arranging a country-by-country allocation of global textile and apparel market share, while commodity agreements targeted agricultural trade conflicts and the tendency toward monopoly’s downwards pressure on farmer incomes that, in part, arise from structural overcapacity.

At the moment, none of the candidates put forward for the director general position have expressed a clear view on how the WTO can plot a path to a more sustainable model of trade. This is hardly surprising. After all, there are still a number of influential countries who are generally satisfied with the way the WTO system is working for them. But if there were ever a time to break from the established conventions on trade—and in the absence of a more unified progressive approach, the troubling direction that Trump is taking it—the time is now.

Trevor Sutton is a fellow for National Security and International Policy at the Center for American Progress. Andy Green is managing director of Economic Policy at the Center for American Progress.