The WTO: A Bystander in the Trade War

It has been almost two months since Donald Trump took the reins of the presidency of the United States, and already the World Trade Organization ( WTO ) has received three complaints from Canada and China regarding its tariff measures. This figure is equal to what Joe Biden faced during his entire administration. The WTO is caught in a crisis of relevance and effectiveness, trying to play its role as a mediator in a context of increasing trade tensions. Although the structure of the WTO was created to promote collaboration among nations, its functioning depends on the willingness of its members to cooperate, as there is no central authority to impose guidelines.

The WTO operates based on consensus, ensuring that each country can participate in decision-making. However, this method of operation can lead to institutional paralysis during critical moments, especially when the interests of major economic powers conflict. The trade war initiated by Trump highlights the limitations the WTO faces. Under his administration, the United States has adopted a unilateral approach, imposing tariffs on both allies and adversaries to protect its domestic industry and combat practices it deems unfair, particularly those from China. According to Roberto Zapata, former Mexican ambassador to the WTO, “the reality is that the organization is going through a complicated situation, as it is increasingly difficult to reach consensus, and the vision for the future of the multilateral trading system is becoming more fragmented.”

The stance of the United States reveals a deeper dissatisfaction: the perception that the WTO cannot control economies it considers “non-market”, such as China. Nevertheless, both the United States and China are among the leading financial contributors to the WTO, with contributions of 11.4% and 11.2%, respectively. Marco Linscott, former assistant U.S. trade representative for South and Central Asian Affairs, points out that American discontent stems from the lack of reciprocity in tariffs, as emerging economies benefiting from trade with the U.S. maintain high rates. The variability in tariff levels among members is notable; while the United States has an average consolidated tariff of 3.4%, the European Union stands at 4.9%. In contrast, China has an average of 10%, Brazil at 31.4%, and India at 50.8%. Linscott, in an article for the Hinrich Foundation that promotes fair and sustainable global trade, argues that the WTO is facing a crisis of relevance. The failure of the Doha Round, which began in 2001 and collapsed in 2015, left the modernization of trade rules unresolved.

Samantha Atayde, a consultant at RRH Consultores and who was Mexico's chief negotiator for the USMCA, mentions that one of the flaws of the WTO lies in the fact that its dispute resolution mechanism is largely inoperative. During Trump's first term, the United States blocked the appointment of judges for the appeals body. This means that any country attempting to use the WTO mechanism must reach consensus with the other party on using alternative resolution methods. Otherwise, the case ends up in limbo. “The first drawback is that there is no functional appeals body, and the second is the time it takes to resolve disputes,” clarifies Atayde.

Keith M. Rockwell, a senior researcher at the Hinrich Foundation, notes that despite the criticism, it is unlikely that the United States will distance itself from the WTO, as doing so would mean ceding global leadership in trade regulation to China, something they would hardly accept. The attempts by WTO members to avoid conflicts with the new administration have generated discontent in Washington, especially with the quick reappointment of Director-General Ngozi Okonjo-Iweala. Rockwell warns that there is concern in Geneva that Trump may make decisions that could further jeopardize the organization's stability. Former U.S. trade representative Robert Lighthizer proposed creating a new trading system exclusive to nations with democratic governments and mostly free economies, which would include lower tariffs for members of the new group, while non-democratic countries would face higher tariffs. However, according to Rockwell, this proposal has an uncertain future, as while many WTO members are dissatisfied, it is difficult for them to leave the institution to join a system led by an unreliable partner.

In conclusion, the current state of the WTO and its inability to adapt to the new dynamics of global trade underscore the need for reform within the organization. Nations must ensure that there is a fair and equitable trading system that promotes cooperation and minimizes tensions, which is key to sustainable economic growth. Adapting to these changes will be vital for economic stability and the well-being of countries in an increasingly competitive global environment.