National Interest

by Simon Lester

    US trade policy needs general international rules and arbitration; it cannot depend on a series of bilateral agreements.

    In a recent op-ed in The Wall Street Journal, US Trade Representative Jamieson Greer offered some harsh criticism of the World Trade Organization (WTO), calling it “ineffective and dysfunctional.” He was particularly aggrieved by the failure of the governments that make up the WTO to agree on a permanent moratorium on duties on electronically transmitted digital products (such as software and music).

    It is certainly true that many governments have failed to uphold the spirit of the WTO in recent negotiations on various trade issues. But that doesn’t mean existing WTO rules are without value. In fact, for certain tariffs and forms of protectionism, the WTO is the only source of international discipline. A prime example is the use and abuse of the so-called “trade remedies”—anti-dumping or countervailing duties and safeguards.

    Anti-dumping and countervailing duties are said to be about “unfair trade.” Anti-dumping duties address foreign company pricing in the domestic market that is considered too low; countervailing duties address foreign government subsidies. If the low-priced or subsidized imports cause injury to the domestic industry, tariffs can be imposed. And safeguards are tariffs or quotas imposed when imported goods are fairly traded, but an import surge injures the domestic industry.

    A serious problem with all three types of these trade remedies is that governments can abuse them in their implementation. Domestic industries have a financial incentive to limit the competition they face, which may lead them to push the boundaries—in terms of the level of tariffs requested—in their petitions to the government for trade remedies. And governments often face political pressure to keep out imports, so the officials in charge may push the boundaries in their choice of methodologies for the calculations and economic analysis. As a result of these boundary-pushing forces, trade remedy determinations sometimes stray from what is reasonable.

    For the most part, bilateral and regional trade agreements do not provide significant disciplines on the domestic use of trade remedies. Instead, they make a general reference to the rights and obligations established in the WTO rules in this area. The one exception is the USMCA, which has a narrow set of rules allowing appeals of anti-dumping/countervailing duty determinations to a special tribunal rather than to domestic courts. Still, the substance of the trade remedy analysis is not covered here either.

    By contrast, the WTO has an extensive set of rules, developed over decades, providing for detailed substantive oversight of each form of trade remedy. These rules began under the General Agreement on Trade and Tariffs (GATT), the WTO’s predecessor, with a few basic provisions in the original version signed in 1947. They were expanded and refined a bit over the life of the GATT, and then carried over and further elaborated as part of the creation of the WTO in 1995.

    Importantly, these rules are subject to dispute settlement and can be enforced through litigation under the WTO’s Dispute Settlement Understanding. The rules have been interpreted and applied in hundreds of formal disputes, with judicial rulings that clarify the meaning of a wide range of substantive provisions in the agreements. In this way, the rules have helped limit the boundary pushing that governmental authorities might find tempting.

    Unfortunately, the WTO dispute settlement process is not fully functional at the moment. During Donald Trump’s first term as president, the United States blocked appointments to the WTO’s appeals body. The practical impact of this move was that rulings by the first-tier WTO panels could be appealed to a non-existent appeals body, which effectively puts the dispute in limbo.

    However, an EU-led alternative appeals body has emerged, and many governments have signed on. It is perhaps no accident that the first appeal it heard dealt with anti-dumping duties, as trade remedies have been a prime target of WTO complaints. In an appellate award issued in December 2022, Colombian anti-dumping duties imposed on frozen French fries from Belgium, Germany, and the Netherlands were found to violate WTO rules. In March of this year, after a follow-up WTO legal proceeding, the European Commission announced that Colombia had revoked these anti-dumping duties.

    The United States is a major user of trade remedies and, over the years, has expressed concern that WTO rules constrain government authorities too much in this area. Nevertheless, US exporters also face foreign trade remedies they consider unjustified. As a result, having the WTO as an avenue for complaint, either through formal dispute settlement or by raising the issue in one of its committees, is important to US interests.

    In his op-ed, Greer ignores this and other benefits of the WTO. As a result of the WTO’s failures, Greer says, “the US is charting its own course on trade policy—working regionally, bilaterally and, where necessary, unilaterally.” He argues that “[t]he Trump administration’s recent wave of reciprocal trade agreements has been the most successful effort in years to open foreign markets while protecting domestic production and disciplining out-of-control imports.” Regardless of what these deals may achieve, however, they and other bilateral and regional deals do not address the issue of trade remedies. For that, the WTO remains the only game in town.