Trump’s Fear of the WTO

President Trump's speech at the UN General Assembly yesterday has been getting a lot of attention, mostly for issues other than trade. But he did mention trade briefly:

For too long, the American people were told that mammoth multinational trade deals, unaccountable international tribunals, and powerful global bureaucracies were the best way to promote their success.  But as those promises flowed, millions of jobs vanished and thousands of factories disappeared.  Others gamed the system and broke the rules.  And our great middle class, once the bedrock of American prosperity, was forgotten and left behind, but they are forgotten no more and they will never be forgotten again.  

Almost everything in all of these sentences is misleading or inaccurate, but I'm going to focus on just the first sentence.  The reference to "multinational" trade deals -- usually the word "multilateral" is used here -- probably means the World Trade Organization (WTO), which has 164 countries in it.  From 1999 through 2001, I worked at the WTO, so I have some familiarity with the system he is criticizing.  Let's go through his points one by one.

His first complaint is that these multinational trade deals are "mammoth." He is right in a sense. There are thousands of pages of WTO legal texts. Let's talk about why that is.

First of all, a large chunk of this is made up of what are referred to as schedules of tariff reductions. Each country in the WTO makes commitments, on a product by product basis, not to charge above a certain tariff (e.g., no higher than 10% on passenger cars). Clearly, it would be simpler and better if each country just agreed, in one sentence, to charge zero tariffs on all products. But for political reasons, this is the best we can do right now.

Beyond the tariff reductions, there are also long substantive texts of trade rules. For example, the Agreement on Trade-Related Aspects of Intellectual Property Rights is 28 pages. The Agreement on the Application of Sanitary and Phytosanitary Measures is 14 pages. But keep in mind here that many of the rules of this sort have been demanded by the U.S. government on behalf of U.S. business interests as a way to open foreign markets. Certainly, you could shorten the trade deals by excluding some of these rules. But they are mostly rules that somebody in the U.S. government or business community thinks are in the U.S. interest.

Trump and his team have been talking about pulling away from the multilateral, towards the bilateral. It's possible they think this will somehow make trade deals less "mammoth," but the reality is it would simply mean many more deals, all of which would be around the same length in terms of the rules they establish. If you are pursuing the same policies, for example on intellectual property protection, you would have the same rules in multiple agreements. All this would add to the system is complexity.

The second issue is Trump's reference to "unaccountable" international tribunals. Unaccountable is a common term used to criticize courts, as judges are not usually elected. But if you want rules enforced, it is necessary to have some sort of judicial system to adjudicate complaints (as Trump does above, the U.S. often complains about other countries breaking the rules). Are the WTO tribunals any more "unaccountable" than domestic courts? It's a complex comparison, but at the least, the WTO tribunals are accountable to the governments who are the members of the WTO: The WTO appeals judges are appointed directly by the governments themselves. The Trump administration can argue for scaling back the power of WTO tribunals, but it will come at the expense of enforcement of U.S. complaints about foreign protectionism.

Finally, Trump expresses a concern about powerful global bureaucracies. Here, it is important to understand how little power the WTO itself has. It is commonly said that the WTO is a "member driven" organization. People working at the WTO Secretariat are, for the most part, working on behalf of the governments who are members of the WTO. And there really aren't all that many people there. The total number of staff is 634. That's a pretty small number, and keep in mind that many of these people are technical and administrative staff, or economists gathering data. One area where you could argue that the bureaucracy has its own power is in the dispute process, discussed in the previous point. But here we should keep in mind the limits of that power. These tribunals can make rulings, but governments can and have ignored them when they disagree. One prominent example is a late 1990s ruling that an EU ban on hormone treated meat violates WTO rules. Well, the EU still bans hormone treated meat, and shows no sign of bowing to this "powerful"global bureaucracy. The U.S. has ignored a few rulings too, sometimes caving in to pressure eventually, but other times simply maintaining laws that violate WTO rules.

Trump and his team have focused much of their attention so far on renegotiating NAFTA, but there is a good chance they will propose changes to the WTO at some point, most likely in relation to the dispute process. There is always room for refinement of trade rules, so there is no need to panic just yet, but Trump's misunderstandings of the WTO are not a good sign.