Members of the trade community presented several ideas on Thursday for reforming the World Trade Organization as the U.S. continues to work with the EU and Japan on ways to improve the institution.
Variations on the most-favored nation (MFN) system in certain instances and new rules for subsidies and forced technology transfer were among the ideas suggested for World Trade Organization reform during a trade event in Washington, D.C., on Thursday.
During the annual International Trade Update at Georgetown University Law Center, European Trade Commissioner Cecilia Malmstrom said new WTO rules should be tailored for the 21st century and address issues including industrial subsidies and forced technology transfer.
“If we can effectively reform and update the WTO, we can set the rules for globalization,” she said.
Malmstrom mentioned that the U.S. and EU have both published ideas for WTO reform and that the governments “agree on the diagnosis” of issues that need to be addressed.
In January, the U.S., EU and Japan announced they were working together in a joint effort to reform the WTO, including in the areas of forced technology transfer, industrial subsidies and e-commerce.
Ministers of the three governments have instructed their staffs to finalize trilateral text-based work on industrial subsidies this spring and to engage “other key WTO members” afterward, according to the statement.
Susan Schwab, who was the U.S. trade representative from June 2006 to January 2009, suggested one aspect of WTO reform could involve tweaks to MFN treatment in certain cases.
“If there are individual countries that are standing in the way because they don’t want to play, and because they are consistently shooting themselves and their own economies in the foot, maybe we ought to pass them by and maybe we ought to be thinking about variations on MFN,” Schwab said. “If you don’t want to be a player, you shouldn’t be able to hold it up for everybody else.”
MFN ensures generally equal treatment between all WTO members and generally means that every time a country lowers a trade barrier, it must do so for the same goods or services from all WTO members.
A fundamental challenge facing the WTO is that some parties have erred in implementing obligations after getting defeated in dispute settlement, said Schwab, currently a public policy professor at the University of Maryland and an adviser at Mayer Brown law firm.
“When you file a case … and you win a case, you should have the case resolved,” she said. “And that should involve changing behavior or having compensation, retaliation. It should be fixed somehow. Otherwise, the system has no credibility.”
Schwab said she hopes China can positively contribute to WTO reform efforts by reforming its own economy, although she acknowledged that may not be what happens ultimately.
During the conference, several speakers highlighted potential approaches at the WTO to address China’s nonmarket economy practices.
Terence Stewart, international trade attorney for Stewart and Stewart, said one view is that the U.S., EU, Japan and other WTO members should bring a “massive case” against China at the WTO “for all the things that they have not done that they’re required to do under [China’s] protocol of accession” to the WTO.
“One could go that route,” but other reform initiatives such as the U.S.-EU-Japan effort have a slim chance of success because WTO proposals are adopted by consensus and China is unwilling to approach reform seriously, Stewart said.
“I don’t see any hope of those fundamental issues being addressed, because at the moment, China views themselves as having the benefits of the system, but [views] no controls over the most egregious things that they do,” he said. “So the question is why would they give that up?”
Malmstrom said there is a need for China to be confronted at the WTO, as Beijing is responsible for several global trade distortions and engages in a state capitalist model out of step with WTO rules.
“Let’s work together — Europe and the U.S. and other countries, of course — to try to formulate that strategy because we need a long-term strategy,” she said. “We need systemic changes. We don’t need to have something just agreed [at a] summit that would be shortsighted. It has to be really anchored, and it has to be active in the multilateral system.”
Kelly Ann Shaw, White House senior director for international trade, investment and development, said China is a “huge priority” within the Trump administration’s trade agenda.
She said the WTO is unequipped to deal with China, partly because there are no rules to discipline the country’s unfair trade practices, adding that the U.S. is working with the EU, Japan and “like-minded allies” in the WTO context to address such challenges.
The Trump administration identified issues including China’s licensing, intellectual property theft and forced technology transfer practices in a Section 301 report released in March 2018, Shaw said.
The Trump administration’s Section 301 investigation has resulted in 25 percent tariffs across $50 billion worth of Chinese goods in annual import value and 10 percent tariffs covering another $200 billion worth of goods from the country.
U.S. and Chinese negotiators continue to work toward a resolution of trade tensions.
“There’s a lot of emphasis right now on the China issues, but I think we have to tackle it from multiple fronts,” Shaw said. “We have to tackle it with allies who see things the same way. We’re trying desperately to reform the WTO so that it can adapt and so that we can have a multilateral solution to some of these issues and really bring China in at that point.”