Going rogue is dangerous.
World Trade Organization Director General Roberto Azevedo is increasing his efforts to push back against populist pressures causing World Trade Organization member governments to be more wary of open international trade. In Stockholm last Friday, he said “We are . . . seeing a rise in anti-trade rhetoric and the threat of protectionism remains an issue. Protectionism is the wrong medicine. It would do nothing to address the challenges we face. In fact, it would make them worse. It would not bring jobs back; it would make more jobs disappear. ”
He was speaking in the shadow of a G-20 Finance Ministers meeting that had concluded a few days earlier on March 18. At that meeting, U.S. Treasury Secretary Steven Mnuchin balked at inclusion in the meeting’s communiqué of the usual language condemning protectionism. Instead, the ambiguous phrase “We are working to strengthen the contribution of trade to our economies” was agreed. This presumably was designed to provide the U.S. with policy space for all options with respect to future actions that the U.S. might take to foster its trading interests. Where at times in the past the French or Brazilian representatives might have been expected to resist the expression of freer trade sentiments at meetings of this kind, now it was they who were fighting for inclusion of a pro-trade formula and the American Treasury Secretary who successfully fought for its exclusion. This was a reversal of roles.
Last Friday, Mnuchin doubled down on his position, saying “So long as we can renegotiate [trade] deals that are good for us, we won’t be protectionist. Otherwise we will.” It is noteworthy that this sentiment came not from White House trade hawks Stephen Bannon and Peter Navarro, which would be expected, but from the ostensibly more liberal trade wing of the Administration, the Secretary of the Treasury. This is part of a common theme of the Trump Administration. A few weeks earlier, on February 27, 2017, The Financial Times reported that the White House refused to say whether it remained committed to the WTO: “We aren’t going to comment on trade policy until we have a USTR in place,” said the deputy press secretary. It is one thing to keep some room for development of policy. That is to be expected of a new Administration. It is another to imply that the White House is not sure the U.S. will continue to uphold its international obligations. That is like showing up at the Department of Motor Vehicles to get your driver’s license renewed and saying “I am not sure that I will be obeying traffic rules.”
The risk of the U.S. going rogue may not be the primary threat to the WTO. It is an unwieldy organization of 164 countries that find it very hard to agree on a path forward toward improving the international trading system. The U.S. has exerted a leadership role over the better part of eight decades in favor of past improvements. Most noteworthy recently are the Agreement on Trade Facilitation, which is designed to lower bureaucratic barriers to cross-border trade, and the expansion of the Information Technology Agreement, updating the list of products that receive duty free treatment from the major trading countries.
What happens if the U.S. just decides to sit out future pro-trade efforts in the WTO?
One option is simply that the WTO would have no substantial negotiating agenda. Some might argue that this would be fine. After all, the current WTO rules were largely lived up to during the financial crisis and through the subsequent period of slow economic growth. There is a problem with this approach however. At present, there is a proliferation of preferential trading arrangements taking place. These are regional and bilateral deals that provide for some degree of increased trade but discriminate against non-parties. The Trump Administration’s cancellation of U.S. participation in the Trans Pacific Partnership (TPP) Agreement, and the announced renegotiation with NAFTA, gave a substantial boost to efforts by other countries to make alternative trade arrangements. The certain result will be discrimination against U.S. goods and services once these preferential deals are implemented.
These are not the only costs to the U.S. economy. Two negotiations have been underway among groups of like-minded countries meeting in Geneva Switzerland to improve world trade rules. These are the Environmental Goods Agreement (EGA) and the Trade in Services (TiSA) negotiations. The U.S is a major producer of products that foster a cleaner environment and most of the world’s market now and in the future is going to be outside the United States. The case for a services trade agreement is also very strong. The United States is the largest exporter of commercial services, accounting for 14% of world exports of these services.
There is also the possibility of adding another item for global trade negotiations, and that is e-commerce. Here again the U.S. is a world leader. The WTO was created over two decades ago when digital commerce was not a major factor in world trade. Now it is. The rules of the international trading system should be updated to reflect this change. Protectionism tends to flourish where there are no rules to prevent that from happening. Countries are putting into place or considering restrictions on e-commerce, limiting cross-border data flows and forcing localization of servers. This is damaging to world economic growth and contrary to America’s commercial interests.
What is needed going forward?
First, the United States cannot afford to be side-lined by leaving its front bench of trade negotiators empty. The Senate needs to confirm Robert Lighthizer as U.S. Trade Representative and his Deputies have to be named and confirmed as well.
Second, there will be tests of U.S. trade leadership coming up very soon. In the coming months, President Trump will be attending his first economic summits. The G-7 summit takes place in Italy in May and the G20 Summit in Hamburg in July. It is the usual role of heads of state to provide encouragement for moving forward with negotiations to improve the world trading system. There will be costs for the U.S.economy and for world trade if President Trump approaches these meetings in a defensive crouch.
It can be argued that the regular blessing of theWTO’s agenda at summits became stale and formulaic, and had very little effect. There is only one thing worse than having that experience repeated, and that is to experiment with economic summits in which the U.S. blocks a consensus position against protectionism and in favor of renewed efforts to find common ground in the WTO to improve the rules-based international trading system.
Alan Wolff is a senior counsel at Dentons LLP and is chairman of the National Foreign Trade Council (NFTC). He served as a senior U.S. trade negotiator in Republican and Democratic administrations.