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As the United States continues to use tariffs on allies and adversaries alike, the notion of international trade cooperation seems like a distant fantasy. While a recent Sino-American truce sought to ease bilateral tensions between Washington and Beijing, the global trading environment remains characterized by rising protectionism and uncertainty, with the prospect of meaningful trade cooperation hanging in the balance.
This collapse indeed stems largely from American non-compliance with global trade regulations, and further, that American president Donald Trump assumes the lion’s share of responsibility for the corresponding collapse of international trade. However, contemporary political discourse has seldom analyzed this issue with any analytical depth. Underpinning this wave of populist protectionism are concrete measures to dissolve free trade These measures have aimed to circumvent supranational institutions responsible for fostering international trade cooperation, namely the World Trade Organization (WTO). Therefore, to further understand the why and how of the death of global free trade, a more profound analysis of norm deterioration and institutional collapse is due.
The Liberal Experiment
To understand free trade’s collapse, however, one must first recall how it was built. Following World War II, a rules-based trading system, the General Agreement on Tariffs and Trade (GATT) was developed as an unprecedented step in the direction toward globalizing free trade. With the devastating impact of the Smoot-Hawley Tariff and beggar-they-neighbor policies fresh in the minds of American and foreign political elites alike, the impetus came for a cooperative framework grounded in non-discrimination and transparency. Formed in 1947, GATT lowered the tariff levels of its signatories significantly, with the average tariffs rate of 22% at conception dropping to less than 5% in 1994. At what would become the final round of GATT negotiations in 1993, the WTO emerged as its institutional successor.. In many ways, this new institution embodied the fulfillment of a liberal prophecy, seeking to further institutionalize free trade as the defining economic doctrine of the post-Cold War era.
The WTO
The creation of the WTO altered the realm of free trade severalfold. For one, the WTO expanded its reach into the realms of non-tangibles, such as intellectual property rights and services, modifying long-standing assumptions about what trade liberalization entailed. Further, the WTO introduced the “single undertaking” concept. In stark contrast to GATT –where countries were able to pick and choose what codes to abide by –the WTO stipulates members must agree to all terms of the agreement.
The real cornerstone of the WTO, however, was the binding dispute mechanism, the dispute settlement body (DSB). While GATT, the “court with no bailiff” struggled to deal with the rise of interstate disputes, the WTO provided a credible enforcement mechanism, shifting international trade law from a system of voluntary cooperation into one of binding adjudication.
The DSB permitted authorized retaliation, permitting states to tariff one another. While in many ways still a “lose-lose” situation, compliance was incredibly high with only 1% of cases authorizing mutual retaliation. While critics have historically pointed out the irony of permitting a free trade organization to pursue protectionist measures against one another, the relative success of the apparatus served as a testament to its effectiveness. Generally speaking, states were not interested in free trade’s version of ‘mutually assured destruction’, with global cooperation prevailing in most cases.
America ‘filibusters’ the WTO
Unfortunately, the WTO’s era of harmony eventually ended. In 2017, the Trump Administration’s Trade Representative at the WTO began vocalizing frustrations with the ability of other member states to “gain concessions through lawsuits that they could never get at the negotiating table”. As frustrations boiled over, expressed grievances would materialize into non-compliance, as the Americans sought to dig their heels in against the WTO.
Over the next several years, the Trump administration began systematically blocking appointments to the Appellate Body of the DSB. Because WTO appointments operate by consensus, the United States prevented new appointments or re-appointments, citing continued concerns of judicial activism1. Over time, vacancies piled up, gradually hindering the Appellate Body’s ability to function. With over two-thirds of all complaints brought to the WTO being appealed, a vital organ of the WTO was increasingly starved, and by December 10, 2019, the Appellate Body lost the minimum quorum (three members) required to issue decisions.
The result is decisions are appealed ‘into the void’, whereby complaints are moved to a separate jurisdiction that does not exist in actu. With cases stuck in legal limbo, retaliatory mechanisms cannot be authorized, and thus the DSB loses much of its power to adjudicate on international trade disputes.
It is plain, then, that the institutional paralysis of the DSB is a heavy blow to the WTO’s legitimacy. If defendants can simply appeal a ruling into legal outer space and prevent the DSB from using its coercive mechanisms, it follows that any logic of pursuing litigation collapses. Crucially, the trade disputes do not disappear. Rather, failure to find a solution when the “adults are watching” frequently corresponds to states dealing with these issues bilaterally –, where outcomes depend less on rules and more on relative power. Such states of affairs carry a far greater risk of direct conflict, as states are forced to adjudicate matters head-to-head, rather than with the aid of a mediator.
As a caveat to all this, the WTO has found ways to maintain its role in adjudicating international trade, albeit in a limited manner that violates its “single undertaking” concept. Using Article 25 of the WTO, 16 of its member states set up the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), granting them the option to make use of an “expeditious arbitration mechanism” which gives them access to an alternative dispute settlement mechanism.2 Now composed of 56 members, this mechanism has had some success in bringing a return to normalcy to trade despite only assembling about a third of the WTO’s total membership. In this light, the MPIA does not so much mend the multilateral regime as much as it serves as a stopgap.
Statutes of Convenience
Up to this point, the United States has already firmly abrogated itself from any formal responsibility to follow international trade law through the WTO. Further underscoring its unilateral approach, the use of tariffs as instruments of political leverage rather than tools for legitimate economic regulation has become a defining feature of American trade strategy.
The Trump administration’s dizzying cycles of application and removal of tariffs, while seemingly directionless, does find legal justification in federal law. Section 232 of the Trade Expansion Act of 1962, for instance, grants the President the authority to impose tariffs or quotas on imports that threaten to impair national security. These tariffs often cover materials used for military purposes, such as steel and aluminum, although the alarm bells that national security is threatened by other imports, such as furniture are less convincing.
Other acts, such as Section 301 of the Trade Act of 1974, allow the President (through the US’s Trade Representative in the WTO) to take “specific direction” to remedy foreign trade measures that denies the US trade benefits under trade agreements. The nebulous phrase of denying a benefit to the US has corresponded with liberal application of the principles, serving as the legal basis for the disruption of the WTO.
The byproduct of these statutes is a perfect storm for a president to wield trade policy as a blunt instrument, swinging it in a capricious manner at adversaries and allies alike. The vague provisions, intended to promote decisive state policy, are instead warped into a license to disrupt the system of international trade–simply because it can be done.
Final Remarks
The new age of American trade policy presents a fundamental contradiction from its past. Through a purposeful, systematic undermining of the world trade system, the United States has ironically served as both the sculptor and saboteur of world trade, its chisel now turned against its own design. In doing so, America risks weakening both the systems it created, and the credibility that long sustained its leadership within it.
Edited by Jude Archer
The argument defended in this article is solely that of the author and does not reflect the position of the McGill Journal of Political Science, the Political Science Students’ Association, or the McGill Department of Political Science.
Featured image obtained through vastphotos.com
- Judicial Activism, defined as judicial practice where judges make rulings based on their policy views rather than their honest interpretation of the current law. ↩︎
- This mechanism, which “explicitly provides for arbitration as a means of adjudicating WTO related disputes”, enables members to circumvent the procedural strains associated with the Appellate Body. ↩︎
