U.S., EU Team Up Against China in Blasting World Trade Order

(Bloomberg) -- The U.S. and Europe argued the world trading system is failing to live up to expectations, even as China defended the existing order and urged countries to forge ahead with globalization.

As trade ministers from around the world gathered for meetings of the World Trade Organization, the top U.S. trade negotiator said the WTO is focused too much on refereeing legal complaints, which distracts from its core mission of expanding commerce.

“We are concerned that the WTO is losing its essential focus and becoming a litigation-focused organization,” U.S. Trade Representative Robert Lighthizer said in a speech Monday at the WTO’s biennial meetings taking place in Buenos Aires through Wednesday.

Under President Donald Trump, the U.S. has stepped up criticism of the Geneva-based organization, which was founded in 1995 to promote open trade. While the 164-member body is meant to be a forum for countries to negotiate how to reduce trade barriers, talks on a global trade deal have stalled. The U.S. has been blocking appointments to the WTO’s appeals panel, a move the organization says is undermining its ability to handle disputes.

“Too often members seem to believe they can get concessions through lawsuits that they can never get at the negotiating table,” Lighthizer said.

WTO’s Usefulness

With the U.S. questioning the WTO’s usefulness, trade ministers meeting this week in Argentina are expected to make only moderate progress at cutting trade barriers. European Union Trade Commissioner Cecilia Malmstrom reiterated that concern on Monday, adding that the WTO isn’t living up to its potential.

“We need to break down the logjam that’s prevented this organization from playing the part it should in global trade,” she said in a speech “The problems are many but essentially they boil down to one fundamental issue: an inability to discuss issues of concern to members and to agree on a suitable way forward. This problem is systemic and it is beginning to jeopardize the whole organization.”

At the same time, Europe’s five biggest economies are also criticizing U.S. proposals to overhaul corporate taxes that they say could flout WTO rules, while harming trade and investment flows. In a letter to Treasury Secretary Steven Mnuchin, the finance ministers from Germany, France, the U.K., Italy and Spain said a proposed 20 percent excise tax in the House version of the tax bill “could discriminate in a manner that would be at odds with international rules embodied in the WTO.”

Market Economy

Lighthizer has said the WTO isn’t equipped to deal with what his country sees as China’s mercantilist tactics. The U.S. has joined the EU in rejecting China’s claim that, under the terms of its accession to the WTO, it should have graduated last year to market-economy status, which would offer greater protection from anti-dumping duties.

“It is impossible to negotiate new rules when many of the current rules are not being followed,” said Lighthizer, adding that the U.S. is leading talks on how to improve the “sad performance” of many members.

Lighthizer also questioned why rich countries are claiming developing-country status at the WTO, which gives them special treatment.

“We need to clarify our understanding of development within the WTO,” he said, adding that some members are “intentionally circumventing their obligations.”

Speaking shortly after Lighthizer on Monday, China’s Commerce Minister Zhong Shan defended the WTO’s role in facilitating global trade, which is set to grow faster than the global economy this year for the first time since 2014.

“We don’t believe there’s any other institution that can promote trade like the WTO, so we must push ahead with globalization to make the world open, inclusive, equitable,” he said.

China’s position in the WTO has become awkward as it shares interests with the U.S. and other advanced economies on some issues but on others is closer to developing nations, making it difficult to take sides, according to Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.

"What China could do is to call for other members to stick to the WTO and globalization," Tu said in a phone interview Tuesday. "There’s no better way, at least for now."

©2017 Bloomberg L.P.