Economy & Budget

The WTO is not a disaster, Mr. President. But leaving it would be.

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Not since the 1930s, when global trade protectionism fed the Great Depression, has the U.S. so questioned the value of the international organization that sets the rules for the global trading system, the World Trade Organization (WTO).

Learning from the disastrous consequences of “beggar thy neighbor” trade protectionism, the U.S. took the leading role after World War II to  create a rules-based global trading system, which has evolved into the WTO, and is its greatest beneficiary.  

During the presidential campaign, Donald Trump called the WTO a “disaster” from which the U.S. might “pull out.” We hope that just as his position on other trade issues, like China, has evolved in a more positive way since he was elected president, he and his advisers will recognize the benefits of the 164-member organization, which possess a structure, priorities and rules-based approach that reflects the United States’s influence.

{mosads}WTO rules and procedures cover 98 percent of all global trade. Over 20 countries currently await approval to join, despite the rigorous, years-long process involving fundamental reforms and commitments, which themselves are beneficial to U.S. trade.


For sure, the WTO has its imperfections. With the failure of the latest Doha Round of talks after 10 years of negotiations, it seems clear that the era of huge, multilateral trade agreements are over, given the vast differences of approach between the developed countries, like the U.S. and EU nations, and emerging economies.       

But economic value to the U.S. comes from its dispute-resolution process. As the world’s largest exporter, with well over $2 trillion per year (nearly $800 billion in services alone) and its biggest importer, the U.S. is the greatest beneficiary of the WTO’s disciplines.

Under WTO rules, U.S. goods and services are dramatically less likely to face discrimination, high tariffs, predatory pricing and protectionist treatment in international markets. When they do, the U.S. can use the WTO’s binding dispute-resolution procedures, which give teeth to WTO rules that did not exist prior to 1995, to get relief and restitution. 

WTO membership obligations neither undermine nor displace U.S. law and cannot infringe U.S. sovereignty. It has no enforcement power beyond its dispute resolution process, which helps to prevent full-blown trade wars. Yet, the administration has been considering bypassing the WTO dispute resolution process, and acting unilaterally; this will only encourage other countries to do likewise against the U.S.                                 

Even though WTO cases can take several years to litigate, the U.S. brings more than 20 percent of all the WTO cases filed. The U.S. is involved in almost half of all WTO dispute resolution procedures, as either a complainant or defendant, and wins far more WTO cases than it loses.

WTO rules allow the U.S. to “retaliate” against countries if they do not implement WTO decisions against them. But, even when the United States loses a case, it is up to the U.S. Congress and the executive branch to take appropriate action. 

The WTO continues to support U.S. interests. The Trade Facilitation Agreement (TFA) was formally adopted in 2014 by WTO members and is reducing costs and corruption associated with moving goods across borders, cutting red tape and harmonizing customs procedures. According to the WTO’s 2015 World Trade Report, the TFA may increase annual goods exports by up to $1 trillion.

What would happen if the U.S. quit the WTO?  For one thing, countries would be able, with impunity, to deny to the U.S. the benefit of WTO-agreed, non-discriminatory tariffs and rights available to members as “most favored nations” (MFN). 

Tariffs could be raised to any level against U.S. products. The U.S. would be disadvantaged in competing with WTO member states for access to up to 96 percent of the world’s consumers and would cede leadership on trade to China.  

The share of knowledge-intensive activities and research and development in the U.S. economy is far higher than anywhere else in the world. In 2016, for the 39th consecutive year, the U.S. filed more patents than any other country under WIPO’s Patent Cooperation Treaty. 

Without the WTO, U.S. intellectual property — patents, trademarks and copyrighted materials — which underpin our current and future productivity and growth, could be stolen and appropriated with relative impunity.

Absent a strong, U.S.-led WTO, an estimated 41 million American workers might lose their export-supported jobs. So too the U.S. Chamber of Commerce estimates that an average American household could lose $10,000 in extra purchasing power they gain from WTO-enabled access to low-cost imports, including from China and the intermediate inputs from around the world upon which U.S. industry depends.

Goods prices for U.S. consumers have fallen fairly steadily for years, while the real cost for things like clothing has not changed for nearly 20 years. It would be impossible for the United States to negotiate bilaterally the comprehensive WTO disciplines with even a fraction of its members. 

The Peterson Institute conservatively estimates that the trade battles and barriers that could result from withdrawing from the WTO could cost the U.S. 5 million jobs and, at its worst, about a trillion dollars in annual U.S. GDP. Key U.S. industries, many of which require intermediate inputs from other countries in the increasingly global supply chain, would be badly damaged. Trade retaliation would be likely — China might buy fewer aircraft or soybeans, killing thousands of U.S. jobs.            

WTO membership encourages all its members to keep their markets open, for the benefit of U.S. consumers and U.S. industry. It promotes liberalization in overseas markets, which keeps them open to U.S. exports. Since China joined the WTO in 2001, its average tariff on goods of special export interest to U.S. businesses fell from 25 to 7 percent. 

Exports to China grew by nearly 200 percent between 2005 and 2014. While the WTO’s economic benefits to the United States clearly are substantial, its greatest value is in avoiding the politicization of trade frictions, which otherwise could easily grow into full-blown trade wars.

Weakening or leaving the WTO would be the real “disaster” for the United States, its economy and U.S. global leadership. Rather, the Trump administration should redouble efforts to press China and other lagging countries to fully respect their WTO commitments, and to forcefully act if they do not. 

The WTO remains a key mechanism by which the U.S. can join with others to level the global commercial playing field, make it more transparent and ensure that all countries follow trade rules. The United States should back the WTO forcefully, and lead it with vigor.             


Stuart Eizenstat is the former U.S. ambassador to the European Union, undersecretary of commerce and international trade, undersecretary of state for economic, business and agricultural affairs and deputy secretary of Treasury in the Clinton administration (1993-2001). He was also the chief White House domestic policy adviser to former President Jimmy Carter (1977-81).

Anne Pence is the former international policy adviser to the State Department (1992-2005). 

The views expressed by contributors are their own and not the views of The Hill. 

Tags Criticism of the World Trade Organization Donald Trump International relations International trade Most favoured nation World Trade Organization
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