At today’s Heads of Delegation meeting, the U.S. Ambassador, Dennis Shea, indicated it was his last Heads of Delegation meeting. After expressing his thanks to his fellow Ambassadors, WTO Secretariat and U.S. Mission personnel, Ambassador Shea provided a concise summary of the reasons that the United States has viewed the WTO as unable to make progress in its first 25 years of existence. He flagged that the problem at the WTO in his view is not lack of trust but rather lack of like-mindedness. His statement then reviews three areas where this lack of like-mindedness is most acute — whether the WTO is premised on “free and fair trade based on market competition,” the proper role of special and differential treatment as a bridge versus a permanent “right”, and the role of dispute settlement. While all three areas/issues have caused significant opposition by some WTO Members, the Trump Administration through the efforts of USTR has done an excellent job of laying out the U.S. concerns. Whether WTO reform will be meaningful going forward will be based in large part on whether there is a greater agreement on the basic purpose of the WTO.
While the incoming Biden Administration may very well take a different approach to addressing these areas at the WTO, there is little doubt that addressing these three areas either directly or indirectly will be critical to forward movement of the WTO and a renewed sense of relevance.
Ambassador Shea’s comments can be found here. U.S. Statement by Ambassador Dennis Shea at the WTO Heads of Delegation Meeting, December 14, 2020, https://geneva.usmission.gov/2020/12/14/us-statement-by-ambassador-dennis-shea-at-the-wto-heads-of-delegation-meeting/. Because of the importance of Amb. Shea’s message, the bulk of his statement is copied below.
“As I reflect on my nearly three years at the WTO, one of the roles I think I have played is to expose problems that pre-existed my arrival in Geneva, but were largely ignored despite requiring more forthright attention.
“So, in that spirit, please allow me now to offer some final thoughts and observations.
“I have been hearing recently that what ails the WTO is a ‘lack of trust’ among its members. I respectfully disagree with this diagnosis.
“Colleagues, when each of you takes the floor here at the WTO, I trust that you are faithfully representing the views of your governments. And I believe you trust that I, too, have been conveying the views of the United States government, hopefully with some clarity and persuasiveness.
“As I see it, the core problem at the WTO is not a lack of trust but a lack of like-mindedness. We simply disagree on some fundamental issues. These divides make progress here at the WTO exceedingly difficult and threaten the institution itself.
“Let me point out three areas where I believe the lack of like-mindedness is most pronounced and problematic.
“First, the WTO is designed to support free and fair trade based on market competition. As one of the main architects of the multilateral trading system, the United States has always believed that adherence to market-based policies among trading parties was essential if this system is to work effectively and fairly. We held this belief when we joined the GATT, agreeing to rules dedicated to openness, transparency, and fair, market-oriented competition grounded in the rule of law. We held this belief when we signed the Marrakesh Declaration with its commitment to ‘open, market-based policies.’ And we held this belief when we have insisted in literally dozens of WTO accessions that the acceding party undertake domestic reforms to reduce the role of the state in the economy and increase market orientation.
“Unfortunately, some WTO members apparently do not believe that market orientation is part of the WTO’s DNA. In their view, the WTO is agnostic between market and non-market economies – both belong here on an equal footing. This is not just a philosophical difference; it also has a practical impact.
“In 2001, when China acceded to the WTO, there was much hope that its economy would further open up, liberalize, and embrace market principles. Regrettably, this future has not fully materialized. In fact, we have witnessed significant retrenchment, a process that has been ongoing for well over a decade.
“Today, we see an economic system in China in which state-owned and -influenced ‘national champions’ are lavishly funded by state-owned banks, charged with meeting state-determined industrial policy goals, assisted in this effort by state-sanctioned intellectual property theft and cyber espionage, and supported by a panoply of policies that discriminate against foreign competition. Add to this mix the absence of an independent judiciary where business disputes can be decided fairly, highly restrictive information controls, increasing Party involvement in state-owned and private enterprises alike, and an overall lack of transparency, and the playing field becomes even more unlevel.
‘Such a state-led, non-market economic system is incompatible with the WTO and its norms. To believe the WTO can manage this system’s trade-disruptive impact under current rules and through the dispute settle- ment process is fantasy.
“Second, the United States has long believed that greater integration into the international trading system through compliance with WTO rules is good – a net positive – for a nation’s economic development. While the U.S. has always supported special and differential treatment for LDCs and less developed nations, we believe the ultimate goal of everyone should be full compliance with the rules as laid out in the various WTO agreements.
“Unfortunately, it seems today that the overriding preoccupation of far too many WTO members is to be exempt from the rules. This situation is made worse when some of the world’s largest trading nations and advanced economies claim entitlement to SD&T as of right. So the question becomes: If you don’t want to abide by the rules of this organization, why be a member?
“I’ll answer that question: Clearly, participation in the global trading system results in benefits. That’s why WTO membership is valuable. But the system cannot be sustained if members continue to extract benefits without making commensurate contributions.
“The third area where the lack of like-mindedness is pronounced is, of course, dispute settlement. As expressed in the Dispute Settlement Understanding, the WTO membership never charged the Appellate Body with creating a corpus of international trade jurisprudence – its role was to promptly make recommendations that would assist the DSB in resolving individual disputes. The role of issuing authoritative interpretations of the WTO agreements that are binding on all Members has always been reserved to the Members themselves, acting in the Ministerial Conference or the General Council.
“The intended mandate of the Appellate Body was therefore always a limited one – to correct legal errors by panels and to do so expeditiously.
“The debate over the past three years demonstrates that some WTO Members have a fundamentally different vision for appellate review than the limited role set out in the DSU. They see the appellate reviewer as an independent international court charged with establishing binding precedent, enforcing ‘coherence,’ filling gaps in the agreements, and creating a global common law of trade.
“”This clash of visions simply can’t be papered over with a few word tweaks here or there. It requires a much deeper conversation, one that the U.S. has repeatedly sought.
“And let me add that concerns about Appellate Body overreach and rule-breaking are longstanding and shared across the political spectrum in the United States.
“With these wide divergences among the membership, it’s no wonder that the WTO has underperformed over the past 25 years – just one multilateral agreement, the Trade Facilitation Agreement, and no multilateral outcome that reduces tariffs and improves market access.
“On fish, it is true we have made some progress thanks to the efforts of Santiago Wills with help from Didier Chambovey and despite this year’s unique challenges. But let’s be serious: this negotiation has been ongoing for nearly twenty years, and by that measure, progress is very modest. This is certainly not the timeline of an organization aspiring to be effective and relevant.
“Where the WTO goes from here, I do not know. But, in my view, building greater like-mindedness and a sense of shared purpose around a common set of values will be essential if the system is to survive and live up to its significant potential. To those who wish to engage in this enterprise, I will be rooting for you.”
As noted in other posts earlier this year, the issue of whether the WTO requires convergence of economic systems over time or can survive in a mode of coexistence is a critical one. Convergence has been flagged as a core principle of the WTO by Deputy Director-General in several speeches to groups in 2020. While it may be “easier” to get movement of WTO Members in reform talks by simply focusing on changes desired to agreements (or to new agreements), whether such alternative approaches are sufficient will depend in large part on how extensive they are in addressing the myriad types of distortions that other economic systems can generate.
Similarly, there are huge gaps between the views of developed countries and large and advanced countries who have self-selected “developing” as their category in terms of the adequacy of contributions of Members based on changing economic strengths of individual Members. While some countries have agreed to not seek special and differential treatment in future agreements, many major countries have to date refused to view the issue as appropriate for discussion.
Finally, on the dispute settlement system, I have written often on the problems that have been identified by the U.S. over the years. There is no question that the U.S. has laid out in great detail the problems with the system and the lack of agreement on the limited purpose of the system. While it may be possible for the U.S. to put forward a set of proposals that will correct the problems identified and limit the ability of panels or the Appellate Body to deviate, Amb. Shea’s comment that there are major differences among majors on the purpose of dispute settlement is clearly correct. As such it is not clear that meaningful corrections will be acceptable to others who seek the reinstatement of the Appellate Body. While I believe that the U.S. under the Biden Administration should put forward its proposals to correct the challenges, including how to rebalance rights and obligations when overreach is addressed, it remains to be seen if other WTO Members will actually be willing to correct the system if they are not willing to embrace what the U.S. has viewed as the clear and limited purpose of the dispute settlement system.
Amb. Shea has a General Council meeting on December 16-17 and the year’s final Dispute Settlement Body on December 18. Presumably those will be his last meetings at the WTO. The United States during the last four years has attempted to map out the major problems with the existing WTO. The actions taken to gain focus or attention have sometimes been controversial, and the underlying message has often been unwelcome by some or many WTO Members. That doesn’t mean that the concerns raised aren’t the fundamental challenges for the WTO generally and for the U.S. and many others in particular with the existing system’s operation. It is often difficult to be the messenger of unwanted news. Amb. Shea and his USTR colleagues deserve a lot of credit for their willingness to be the bearer of unwanted news and to provide the factual and legal background to support the U.S. concerns.
A new chapter will begin in 2021. On trade issues at the WTO, the Biden Administration has a complex set of issues to address in the coming years. They will benefit from the efforts of USTR Lighthizer and Deputy USTR Shea and the entire USTR team to lay out in detail over the last four years the challenges to the fairness of the system at the present time. Whether their efforts will make a difference for the incoming Administration will depend on the ability to generate coalitions and like-mindedness of purpose in fact with our trading partners.