The World Trade Organization must be reformed, or it will not survive.
The global trading system is in danger of being swept away by waves of trade protectionism unleashed by the United States and China. And the demise of the liberalized trading order will inevitably mean less international trade, declining exports, faltering economies, job losses, rising poverty, and political instability.
In an attempt to prevent a global economic disaster that would result from the end of liberalized trade, Canada will host a meeting of select members of the World Trade Organization (WTO) later this month with the aim of coming up with a multilateral strategy to save the rules-based approach to trade.
In addition, the conference participants will examine ways to reform the WTO. For example, bolstering the world trade body’s dispute resolution mechanism will reportedly be on the conference agenda.
The Trudeau government and its allies in the WTO are correct in assuming that the international institution must be reformed in order to survive. After all, the United States, which boasts of the world's largest economy, is very unhappy with the status quo. Change is coming--one way or the other.
The Trump administration regards the World Trade Organization with undisguised disdain. For instance, the White House so dislikes the WTO dispute resolution process that it is blocking the appointment of new judges to the body. Moreover, the administration’s bellicose rhetoric indicates that the United States might be preparing to withdraw from the international organization altogether.
Curiously, when Canada convenes meetings of 13 “like-minded” WTO partners on October 24th and 25th in Ottawa, the United States will not be among the invited nations.
Jim Carr, Minister of International Trade and Diversification
Earlier this month, Jim Carr, Canada’s international trade minister, told the Canadian Press that “the best way to sequence the discussion is to start with like-minded people.” The nations invited to the Ottawa conference include: Australia, Brazil, Chile, Japan, Kenya, South Korea, Mexico, New Zealand, Norway, Singapore, and Switzerland, plus the European Union.
Excluding the United States from the preliminary talks to reform the WTO demonstrates an ignorance of recent history. Not only was the United States central to the establishment of the World Trade Organization in the 1990s, it was also the one country that had the power to admit or deny entry to China to the global trading system.
Uncle Sam as WTO gatekeeper
During the presidency of Bill Clinton, Uncle Sam played the role of WTO gatekeeper. Indeed, the United States, which possessed the world’s largest economy in the 1990s, had the final say in which countries would be admitted to the WTO and under what conditions.
According to the Brookings Institution website, the United States “played the lead role in negotiating China’s entry into the world economy.” In a 2001 article entitled Issues in China’s WTO Accession, authored by Nicholas R. Lardy, “this was natural given the large economic stake of the United States in the creation of more open markets globally.”
Lardy writes that “China was a particular focus both because of its rapidly increasing role as a global trader and because beginning in 1991 the terms of its entry were seen as providing a template for WTO membership for a number of formerly centrally planned economies.” And given that China’s largest export market at that time was the United States, “the resulting expanding bilateral deficit with China became a major preoccupation of U.S. policy makers.”
In December of 1996, the U.S. House of Representatives and the Senate passed the Global Agreement on Tariffs and Trade (GATT) with sizeable bipartisan majorities. The trade agreement slashed worldwide tariffs by $740 billion (U.S.). And the deal opened “previously closed markets to American products and services,” former American President Bill Clinton writes in his 2004 memoir My Life.
As President of the United States, Bill Clinton played a pivotal role in China's entry into the WTO.
In addition, Clinton states that GATT gave “poor countries a chance to sell products to consumers beyond their borders.” Moreover, the agreement provided for “the establishment of the World Trade Organization to create uniform trade rules and adjudicate disputes.”
At the time, both Ralph Nader and Ross Perot, who were political mavericks and independent presidential aspirants, campaigned vigorously against GATT. Anticipating the protectionist ‘America First’ trade rhetoric of Donald Trump, the current President of the United States, both Nader and Perot claimed that the trade pact would drastically curtail American sovereignty.
“Their vocal opposition had little effect,” Clinton says of Nader and Perot’s anti-trade campaigns. Their opposition was blunted, in part, because “the labour movement was less intensely opposed to GATT than it had been to NAFTA.”
China and the WTO
As in the current Donald Trump era, America’s trade relations with China were fraught with controversy during the Bill Clinton era. And the Democratic President had to work hard to advance the Sino-American trade agenda.
In 1997, “the House of Representatives voted to continue normal trade relations with China,” but only after “a heated debate,” Clinton recalls. “Although the motion carried by eighty-six votes, it sparked strong opposition from conservatives and liberals who disapproved of China’s human rights record and trade policies.”
To Clinton’s way of thinking at the time, the often contentious Sino-American trade relationship “could be improved only through negotiations leading to China’s entry into the World Trade Organization.” And he states that before those negotiations were completed, the United States “needed to stay involved with, not isolate, China.”
In October of 1997, Clinton welcomed Chinese leader Jiang Zemin to Washington, D.C. for talks about trade and human rights. Clinton pressed Jiang to release some dissidents. And he recalls telling the Communist leader that “in order for the United States and China to have a long-term partnership, our relationship had to have room for fair, honest disagreement.”
According to the two-term President, Jiang agreed. And then the two men debated “how much change and freedom China could accommodate without risking internal chaos.”
After his meeting with Jiang, Clinton “went to bed thinking that China would be forced by the imperatives of modern society to become more open, and that in the new century it was more likely that our nations would be partners than adversaries.” However, in the fullness of time, it has become clear that Clinton was wrong on both counts.
China is not more open today than it was back in 1997. Indeed, the Internet, including social media, is heavily censored in China. And when it comes to the right to freedom of expression and the right to freedom of religion, belief and conscience—rights guaranteed under the United Nations Declaration on Human Rights—China is no freer today than it was during the time of the horrific Cultural Revolution unleashed by Chairman Mao.
The imprisonment of a least a million Uighur Muslims in Communist re-education camps demonstrates that the current Communist regime that rules China is not prepared to allow Chinese society to become more open or free.
As for China and the United States becoming partners, Clinton was way off the mark. In the Pacific region, the United States and China are strategic competitors. In fact, China’s territorial expansion into international waters in the South China Sea and East China Sea, coupled with a naval build-up in the Pacific region, indicate that Beijing aims to displace the United States as the dominant naval power in the Pacific.
Despite Clinton’s concerns about the state of human rights in China, he used his joint 1997 Washington press conference with Jiang to reaffirm Sino-American cooperation. And he pledged to do all he could “to bring China into the World Trade Organization.”
Early problems
The WTO has had problems with process from the outset. For example, President Clinton travelled to Geneva in 1998 “to urge the World Trade Organization to adopt a more open decision-making process, take more account of labour and environmental conditions in trade negotiations, and listen to the representatives of ordinary citizens who felt left out of the global economy.”
In June of 1998, accompanied by his family and several members of his Cabinet as well as six members of Congress, Clinton paid a visit to China. Rep. John Dingell of Michigan was one of the visiting dignitaries and the longest-serving member of the House of Representatives. “John’s presence was important because Michigan’s dependence on the automobile industry made it a center of protectionist sentiment,” Clinton writes. “I was gratified that he wanted to see China firsthand, to make his own judgement about whether China should join the WTO.”
During the China visit, Clinton and Chinese leaders discussed “the remaining issues we still had to resolve in order to bring China into the World Trade Organization.” The American President was “strongly in favour” of bringing China into the WTO in order “to continue China’s integration into the global economy, and to increase both its acceptance of international rules of law and its willingness to cooperate with the United States and other nations on a whole range of other issues,” he recalls.
In April of 1999, Zhu Ronzji, Premier of China, visited the White House for the first time “in the hope of resolving the remaining obstacles to China’s entry in the World Trade Organization,” Clinton writes. Outstanding issues included greater access to China’s auto market.
Another stumbling block was the Communist regime’s insistence on a five year sunset clause for the so-called surge agreement, which permitted the United States to restrict a sudden jump in Chinese imports. “It was an important issue in America,” Clinton states, “because of the surge we had experienced in imported steel from Russia, Japan, and elsewhere.”
Without progress on the outstanding issues, the U.S. Congress was prepared to reject the trade deal with China, effectively blocking China’s entry to the WTO.
The Battle in Seattle
In December of 1999, the WTO convened in Seattle and was met by massive and sometimes violent anti-globalization street demonstrations. The protests, which came to be known as ‘The Battle in Seattle,’ marked a turning point in the fledgling anti-globalization movement.
Clinton notes that anti-globalization protests were staged at subsequent international financial meetings. “I was convinced they would continue until we addressed the concerns of those who felt left out and left behind,” he writes of the movement that eventually gave rise to the Occupy Wall Street movement and energized populist movements in parts of North America where globalization has decimated the manufacturing sector and caused major job losses and economic misery.
“The process of interdependence probably could not be reversed, but the WTO would have to be more open, more sensitive to trade and environmental issues,” Clinton told the WTO delegates at the Seattle convention. In addition, he declared that wealthy nations needed to do more to ensure that the less fortunate also benefited from globalization.
In the final year of his mandate (2000), Clinton attended the World Economic Forum in Davos, Switzerland to discuss the popular uprising against globalization. The forum, which brought together international business and political leaders, was an appropriate place to discuss concerns about growing inequality, the WTO, and liberalized trade.
Clinton told the forum that globalization had failed to help people in the developing world who were living in extreme poverty. Nor had it done anything to provide access to clean water to the most vulnerable. And globalization was doing nothing to help millions of children who did not go to school, or kids who died of preventable diseases.
“Even in wealthy countries, the constant churning of the economy was always dislocating some people, and the United States wasn’t doing enough to get them back in the workforce at the same or higher pay,” Clinton writes.
In addition, Clinton recalls that “the WTO was perceived as being too captive to wealthy countries and multinational corporations.”
In May of 2000, Clinton actively promoted the China trade bill that would pave the way for the Communist country’s entry to the WTO. In September of that same year, both the House of Representatives and the Senate approved the bill establishing normal trade relations with China, setting the stage for its admittance to the World Trade Organization.
“I was convinced that in time it would prove to be one of the most important foreign policy developments of my eight years,” Clinton says of his efforts to integrate China into the international rules-based trading system.
Protectionism
The assault on the WTO is merely a manifestation of the Trump administration’s protectionist ‘America First’ trade policy that employs tariffs and threat of tariffs to force trade partners to yield concessions.
The protectionist policies of the Trump administration are intended to re-balance trade arrangements that are supposedly unfair to the United States. For example, the administration has invoked national security to impose heavy tariffs on foreign steel entering the U.S.
The Trump tariffs have sparked retaliatory responses from America’s trading partners, including Canada. However, Canada has had to also target other steel producers to prevent them from dumping their cheap products, once destined for the American market, on Canada. To that end, the Trudeau government has imposed a temporary 25% surcharge on seven products, including heavy plate, concrete reinforcing bar, energy tubular products, hot-rolled sheet, pre-painted steel, stainless steel wire, and wire rod.
Earlier this week, the heads of the WTO, the International Monetary Fund (IMF), the World Bank, and the Organization for Economic Cooperation and Development (OECD) issued a joint statement calling for the international community to reaffirm its commitment to liberalized trade while eschewing the trade protectionism.
Christine Lagarde, the IMF’s Managing Director, told reporters on October 10th that the international trading system was endangered by protectionism, and that could lead to greater disruption of the system.
The day before, Jim Yong Kim, the head of the World Bank, took to social media to promote international trade. “In an interconnected world, trade is the engine of growth,” the Korean-American stated in an October 9th post on Twitter. “Robust and inclusive trade is key to our mission to end poverty. Now is the time to press for trade reforms that can deliver greater prosperity for all.”
Speaking to reporters on October 11th, the World Bank expressed concern that the trade war between the United States and China threatens the global trading system, as a whole.
Cooperation, not confrontation
If Canadian Prime Minister Justin Trudeau is serious about saving the World Trade Organization and stemming the rising tide of trade protectionism, he must engage with U.S. President Donald Trump on these issues. Canada and the United States recently concluded protracted trade negotiations that were often acrimonious and nasty. But the deeply flawed process eventually led to the United States, Mexico, Canada Agreement (USMCA), a modified version of the North American Free Trade Agreement.
President Trump and his officials are brash and often rude, employing intimidation tactics to secure trade concessions. And the Trudeau government can sometimes be sanctimonious, smug, and passive aggressive when it comes to dealing with the Americans.
If the World Trade Organization is to be saved, both the Trump administration and the Trudeau government must change their ways. Trump has stop acting like a bully and play the role of a builder, one who is dedicated to shoring up the crumbling global trading order. And Trudeau must not presume to lecture Trump on the world stage.
In the final analysis, only international cooperation, not confrontation, can prevent the demise of liberalized trade.
However, the WTO cannot be saved if the United States is not included in the preliminary talks to reform the international institution. Given America’s historic role in the establishment and expansion of the WTO, Canada must invite U.S. representatives to the Ottawa conference.
Geoffrey P. Johnston is a Canadian journalist who specializes in international affairs, human rights, humanitarian issues, religious freedom, and Canadian foreign policy. Please follow Geoffrey on Twitter @GeoffyPJohnston