Leibowitz on Trade: The Future of the WTO System—a Dialogue

A recent Zoom session featured two major players (now retired) in the creation of the WTO—former WTO Director General Pascal Lamy and former U.S. Trade Representative Robert Zoellick. Both have been involved in the regulation of global trade for a long time—I have had the privilege of knowing them and working with them.

They explored where we are in global trade and where we may be going. Their insights (and speculations) are interesting to all who are involved in the global economy—and who is not involved? While the discussion was wide-ranging, I want to focus on three issues that they discussed: China, the developing world, and the impact of the pandemic on world trade.

Concerning China, I was taken by Mr. Lamy’s clear-eyed focus on the major problems that China causes to the global trading system. He noted that China has, despite the hopes of the world, not moved away from the system of state control of trade and commerce since joining the World Trade Organization in 2001. However, the problems we now face are not that China does not play by the rules, but that a rising number of countries, led by the United States, do not respect the rules and therefore bypass them, imposing trade restrictions that have insufficient impact on China to cause them to change their behavior.

The United States’ circumvention of the WTO rules may have made it easier for China to escape scrutiny under the international trading rules. By imposing tariffs unilaterally, the United States has enabled China to ignore WTO rulings because they can never become final due to the emasculation of the Appellate Body. While there are many currently in charge in Washington who believe that U.S. unilateralism is superior to the international rules, the evidence supporting that view is not credible.

Bob Zoellick, who served as U.S. Trade Representative in the George W. Bush (“Bush 43”) administration and was later president of the World Bank, was, as could be expected, sharply critical of his successor Bob Lighthizer and President Trump for undermining the world trading system. He correctly pointed out that the Obama administration first blocked the appointment of a new Appellate Body member in 2016, setting the precedent that Ambassador Lighthizer and President Trump have used to neuter the dispute settlement system. Zoellick was also critical of China’s approach to global trade, but expressed skepticism that they would ever change their behavior. More on that topic later.

Regarding the developing world, both Zoellick and Lamy said that the WTO doctrine of “special and differential treatment” of developing countries was outdated. As a European, Lamy noted the increasing importance of environmental issues in the governance of world trade. For example, if the European Union wishes to control the access of products with pesticide residues, it makes no difference whether the products come from Rwanda, China or the United States. Treating developing countries differently regarding non-tariff issues does seem illogical.

Zoellick agreed, noting that all the WTO issues are related. The impasse in the Appellate Body is due to the failure to negotiate new rules that would amend or overrule decisions of the Appellate Body. That failure in turn results from the unwillingness of WTO members to compromise on issues on which they disagree. Compromise is damaging to the political fortunes of leaders in a democracy—so the rules don’t change, and we have gridlock on everything.

The coronavirus pandemic was a third theme of the conference. We’ve all thought about what a post-pandemic world would look like and how long it will take to reach the post-pandemic stage. The commercial world is recovering in some sectors, but a flare-up of cases and deaths this fall and winter would surely jeopardize all the progress we’ve made in the last few months.

Lamy and Zoellick agreed that the world economy would not soon return to its previous state of prosperity (which was caused importantly by increasing levels of global commerce). Countries are concerned about access to medical equipment, food and basic commodities. Some of the leading suppliers of these important products have shown a tendency to elevate domestic needs over those of people in other countries. For those countries that are or could be self-sufficient, production of medical supplies, food and steel may make sense to them—but Adam Smith and David Ricardo would argue that those countries are not thinking straight because their people will be poorer if they don’t trade. A better solution is to stockpile necessary commodities in good times so that they prevent a shortage and don’t distort the domestic economy to make products that cost too much or lack quality.

After Covid, countries will need to get used to trusting their trading partners to deal fairly. And trust, Lamy and Zoellick agree, is not enough. There need to be rules that allow for vigorous competition without impoverishing their rivals. That admittedly aspirational goal was seriously set back by the virus.

At the end of the session, as usual, there was little said about what the world should do about the WTO—it always seems easier to discuss what should not be done rather than what should.

I have written before about the global trading system, the World Bank and the International Monetary Fund and their important role in remaking the world after 1945. The GATT and its successor, the WTO, advanced the cause of world peace by creating a forum where words and arguments rather than missiles and guns are the weapons. That is still worth pursuing—but we need consensus on that goal before it has even a chance to work.

Businesses and government regulators need to work harder to understand customers and those they regulate, respectively, and countries need to  recognize the limits of government interference in people’s lives. And businesses that abhor regulation need to talk to those who believe the world is changing and that markets are not addressing those changes.

The hotly contested presidential and congressional campaign is hardly conducive to rational discussion. Dialogue is increasingly difficult when everyone is shouting, but it is more essential now than it has been in a long time.

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