It’s in American interests to lead the way to a fairer playing field.
By Sen. Chuck Grassley of Iowa
Chairman, Senate Finance Committee
Pursuing and promoting global economic freedom is an integral part of the American story. And the World Trade Organization is an important chapter in it. I worry, however, that this chapter in the history of free trade may come to an end if the U.S. doesn’t act quickly to reform the WTO.
Since its creation in 1995, building upon decades of prior multilateral trade negotiations, the WTO has expanded market access for service industries (which employ 80% of Americans), protected intellectual property and eliminated disguised protectionism in agriculture. The European Union’s average tariffs have dropped by 37% and Japan’s by 56%. U.S. agricultural exports increased from $56.2 billion in 1995 to $140.47 billion by 2017. Moreover, the WTO’s dispute settlement system helped tear down a number of other barriers for American farmers and businesses. That means more jobs, higher incomes and increased prosperity for all.
The Covid-19 outbreak has caused some people to question the relevance of the WTO’s mandate to negotiate and enforce trading rules. But the WTO’s expansion of global trade has actually enabled the U.S. to respond to the pandemic. American car companies did not design their production lines to be able to readily switch to making ventilators. They were able to do so thanks to global supply chains, facilitated by WTO rules, which made it possible to quickly source the needed components.
The real threat to the WTO is not the scope of its mandate, but its increasing inability to fulfill it. First, its negotiating function is stalling. Other than an agreement on streamlining customs procedures, the WTO has not delivered any major trade liberalizations in 25 years. Even negotiations on what should be noncontroversial, such as capping environmentally unsustainable fishing subsidies, have dragged on for 19 years.
The need for effective negotiations has never been greater. While the WTO crawls, the world economy continues to sprint — including the digital economy, which didn’t even exist when the WTO was established. We need new rules to ensure a fair playing field, which is why we are negotiating a much needed WTO agreement on digital trade. Meanwhile, a handful of countries are trying to frustrate this outcome so they can adopt discriminatory taxes that target only foreign technology (and predominantly American) companies. We must be at the table to shape the outcome to the benefit of American workers and innovators. We also need rules to confront growing threats, such as China’s industrial subsidies and state-owned enterprises. The WTO is the forum for addressing such trade distortions, where we can expose and alienate China’s bad behavior with other like-minded countries.
Second, the WTO dispute settlement system is in significant need of reform. Disputes drag on for years, such as the 16-year U.S.-EU dispute over aircraft subsidies. Justice at the WTO is often not only delayed but also deficient. U.S. negotiators for the WTO demanded and secured rules that would protect American consumer and environmental protection laws, as well as our laws to combat unfair trade practices. Unfortunately, the WTO’s appellate body has undermined these carefully negotiated rules through indefensible interpretations. The appellate body twice wrongly found against the U.S.’s program to identify tuna harvested without harming dolphins. Because the labeling is voluntary, it should have been outside WTO rules. It was only because of our considerable perseverance that we found a formulation of the program that passed muster under the appellate body’s reasoning.
As with the negotiating function, the need for dispute settlement at the WTO remains. Truly effective dispute settlement would improve our ability to confront China with our allies. There’s precedent in this regard. The U.S., EU and Japan successfully stopped China’s attempt to monopolize strategically critical rare earth minerals through the WTO dispute settlement. China had to choose between complying or facing retaliation from three of the world’s largest economies. That’s the type of leverage the WTO can provide, and why we must fix dispute settlement.
On Wednesday, I will lead a hearing featuring the Trump administration’s chief trade negotiator, Robert Lighthizer, that will look at many of these issues and what the U.S. can do to achieve these changes. In short, the story with the WTO can remain one of stagnation or its members can embrace the cause of reform. A revitalized WTO can play an effective role in the global economic recovery and advance the cause of free and fair global trade. That story, much like America’s story, is a page-turner for farmers, workers and businesses around the world. In my edition, the U.S. leads the charge in writing the rules and shaping the outcomes instead of leaving a dangerous vacuum for China to fill.