Why Trump’s wrong about WTO treating US unfairly

Trump believes the Geneva-based WTO treats the U.S. with disrespect. Martin Good/Shutterstock.com

Why Trump’s wrong about WTO treating US unfairly

President Donald Trump recently threatened to pull the United States out of the World Trade Organization “if they don’t shape up.”

His argument is that the organization treats its single-largest investor unfairly, claiming that the U.S. loses “almost all of the lawsuits in the WTO.”

Is Trump correct that the WTO singles out the U.S.?

While international political economists such as myself recognize that the WTO’s dispute system is imperfect, there is little evidence to justify threats of withdrawal.

The case against the WTO

Critics of America’s trade deals – including its commitments in Geneva, where the WTO is based – argue that trade law disadvantages the United States.

As evidence, they point to the fact that the U.S. currently faces near-historic levels of trade litigation.

America’s partners have filed 17 complaints so far in 2018. More than half of those disputes relate to Trump’s steel and aluminum tariffs.

To put that number in perspective, 17 disputes is double the average number of annual filings over the past 15 years. The last time there were so many cases against the U.S. was back in 2002. Not coincidentally, that was when President George W. Bush’s steel policies were widely attacked.

In addition to being sued so often, Trump worries that the U.S. loses a disproportionate number of cases.

Hence, the now frequently heard claim that the United States is being unfairly punished under international trade law.

A narrow reading of the facts

The White House is right about two things.

First, it is true that the United States is sued more often than any other WTO member. Since it was set up in 1995, members have filed 150 complaints targeting U.S. policies, that’s 78 percent more than there have been against the European Union and more than triple those against China. In fact, those 150 cases account for over 25 percent of all WTO disputes.

Second, it is also true that the United States lost the vast majority of those cases. Only about half of all WTO disputes end with a formal ruling. The other half are settled or linger for years in the initial consultation stage of the dispute process. Among those with a verdict, the U.S. lost entirely or in part 87 percent of the cases against it.

At first glance, that looks like strong support for Trump’s argument. But do these two facts really mean the deck is stacked against the U.S.?

Not once we put the numbers into context.

Where Trump gets it wrong

To begin with, it’s worth considering why the U.S. gets sued in the first place.

Part of the explanation is simple: the U.S. hasn’t been shy about protecting its domestic industries, deploying a wide variety of policies to insulate them from foreign competition.

Some of these are highly controversial. For example, the U.S. is a world leader in the use of anti-dumping, a form of duty applied to foreign goods sold below normal market prices.

In order to use anti-dumping legally, countries have to demonstrate material harm to their domestic industries. Naturally, proving that dumping has occurred is open to some debate.

Hence, there have been 126 individual disputes over this policy, accounting for almost 25 percent of the WTO’s entire case load. This includes the U.S., which has been sued more than 50 times for its use of anti-dumping duties alone.

Thus, relying on controversial policies at home exposes the U.S. to trade litigation abroad.

Perhaps more importantly, Trump misrepresents America’s losing record.

Yes, the U.S. loses nearly 90 percent of panel rulings. But the fact is that every respondent almost always loses to the tune of at least a comparable 90 percent.

That’s one of the plain realities of WTO dispute settlement. If a country gets sued, and that case ends up before a panel, the respondent will likely lose. That’s true of the U.S., the EU, China or anyone else. That’s partly because litigation isn’t free. Complainants are more likely to file, and proceed to a ruling, when there’s high confidence of winning. Otherwise it isn’t worth it.

In sum, the numbers simply don’t support the argument that the U.S. is targeted without cause or that it is treated unfairly. Insistence in Washington on using contentious trade policies increases the rate of filings against the U.S. And, while the America loses a lot, it doesn’t lose any more often than the membership at large.

The escalating crisis in Geneva

None of this is to say that the system is perfect.

Legitimate grounds for disagreement have created calls for reform. Downstream compliance remains a problem across its 160-plus members. And efforts by the U.S. or others to reform the system – such as to the appeals process to reduce lengthy delays and judicial overreach – have gone nowhere.

As a result, the U.S. has blocked all appointments of appellate judges since Trump took office, reducing the total number from seven to three, which could potentially paralyze the body’s ability to work.

This is bad news for the system. The majority of panel rulings are appealed, and the process cannot function without a consensus over judge appointments.

Losing America’s seat at the table

In spite of the system’s flaws, the WTO has benefits beyond trade promotion. Having a rules-based system is also important for limiting the kind of trade discrimination the White House frequently alleges.

Yet, Trump continues to talk like the WTO is a one-way street. He seems to forget that the U.S. isn’t just the most frequent respondent. It’s also the most frequent complainant.

A political compromise over the appeals process is needed to ensure the WTO functions efficiently. But withdrawing from the agreement, and giving up America’s seat at the table, isn’t going to do much to protect U.S. interests – as we have seen in other areas of international law.

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