The WTO Is Having a Midlife Crisis

The WTO is all washed up, gets no respect and its two biggest economies are in a trade war. No one fears the wrath of its Appellate Body anymore because that body has ceased to function

By Farah Stockman

Published: Dec 18, 2020

Image: Shutterstock

If the World Trade Organization were a person, it would be that dude at the bar drinking the afternoon away in his business suit and wondering where it all went wrong. He used to be a big shot.

When the WTO was created in 1995 to write the rule book for international trade and to referee disputes between countries, it was popular and powerful. Unlike most international bodies, it has a dispute-resolution mechanism that was widely used. Its decisions had teeth. If WTO judges decided that a country wasn’t playing by the rules, judges could authorize retaliatory tariffs so that victims could recoup their losses. Even a superpower like the United States generally obeyed the rulings of its seven-member Appellate Body. If a member nation had a law that ran afoul of the WTO treaty, then that law had to go.

But now the WTO is all washed up. Like Rodney Dangerfield, it gets no respect. Its two biggest economies — China and the United States — are in a trade war, issuing tit-for-tat tariffs that violate its rules. No one fears the wrath of its Appellate Body anymore because that body has ceased to function. No new judges have been appointed to replace the old ones whose terms expired. Member states are actively floating alternatives. Its director-general resigned in frustration a year before his term was up.

It’s tempting to believe that Mr. WTO ended up drunk at this bar because he got punched in the nose by President Donald Trump. There’s some truth to that. Trump did cripple the WTO when he refused to appoint new judges so he could get out of having to abide by decisions he didn’t like. But the WTO was on a downward spiral long before it got beaten up by Trump.

If President-elect Joe Biden is going to help fix the WTO, he can’t just roll back what Trump has done. Real recovery requires soul-searching about what went wrong.

When the WTO was born in the 1990s, faith in free markets was at a record high. The Soviet Union had just collapsed. The United States, the world’s sole superpower, embraced an almost messianic belief in the ability of unfettered capitalism to improve lives around the world. Americans pushed more than 100 nations to join together to create a strong international body to remove barriers to international trade and protect investors. Weaker countries agreed because, in theory, it meant they would no longer be at the mercy of the strong. They could get WTO judges on their side.

But the power of the WTO became a problem pretty quickly. Domestic laws and programs that got in the way of “free trade” were swatted aside like cobwebs. The WTO has ordered countries to gut programs that encouraged renewable energy and laws that protected workers from unfair foreign competition, as if international commerce were more important than climate change and workers’ rights.

The WTO wasn’t just powerful. It was ambitious. Unlike the previous trade regulator, known as the General Agreement on Tariffs and Trade, which dealt primarily with tariffs, the WTO aimed to tackle a whole host of things that had little to do with traditional trade. That’s partly because of corporations, which lobbied their governments behind closed doors to rewrite the rules of trade to their advantage.

Investment banks pushed for financial deregulation around the world, rolling back laws like Glass-Steagall, which kept Wall Street from recklessly gambling away pension funds. Pharmaceutical companies pushed to extend their patents, complicating the efforts in developing countries to get access to generic, affordable drugs. Big agriculture companies pushed to lift bans on genetically modified food. People began to grumble that the WTO had fallen in with a bad crowd of bullies or that it had gotten too big for its britches.

The WTO’s decision-making looked even more questionable after the body turned a blind eye to China’s bad behavior. Its judges ruled against government subsidies for locally produced solar panels in the United States and India, on the grounds that they were unfair to foreign producers. But a smorgasbord of subsidies in China were deemed no problem at all.

People began to complain that the WTO just wasn’t up to the task of regulating the world economy. It didn’t help that it took years to render decisions, an eternity in the world of business.

The WTO looked tardy and incompetent.

Now, as the world economy is in tatters from a pandemic and as a future crisis of climate change looms, the WTO is drunk at a bar, waiting to see whether Biden will come to its rescue.

There are some quick fixes that the Biden administration should support, such as the appointment of a new director-general. Everyone but Trump seems to like Ngozi Okonjo-Iweala of Nigeria, who would become the first woman and first African to serve in that post. Removing American opposition to her candidacy might go a long way to building back trust and goodwill after the Trump era.

But Biden shouldn’t rush to fill the seats of the Appellate Body just yet.

The world has a historic opportunity to change the direction of international trade rules and carve out more space for countries to experiment with solutions to climate change and income inequality. Countries around the world could use economic stimulus funding to make strategic investments in green energy with subsidies. That’s what Biden’s Build Back Better plan is all about. But so much of the plan — from subsidies for green energy infrastructure to strong “Buy American” provisions — risks running afoul of WTO rules.

That’s why the incoming administration should use this moment to try to get agreement on some of the deep-seated issues that brought us here in the first place. One reason the world has avoided those tough conversations for so long is that litigation is easier than negotiation. Now that that’s no longer an option, maybe WTO member states will be able to forge an agreement to meet the moment.

There are hopeful signs that Biden intends to do just that. One of his veteran economic advisers, Jared Bernstein, has long argued that the rules of global trade should be revamped to meet the needs of ordinary people, not just corporations. The appointment of Katherine Tai as U.S. trade representative is an inspired choice. In her many years of experience working on U.S. trade policy, she stands out for her commitment to figuring how to balance the interests of corporations with the needs of American society, including workers' rights, environmental protection and racial justice.

She strikes me as the perfect person to stage an intervention.