Will Trump Finally Turn His Trade Guns on the WTO?

(Bloomberg) -- President Donald Trump is following through on his campaign pledges to reshape the global trading system. Is the World Trade Organization his next target? With his administration renegotiating the North American Free Trade Agreement, and already out of the trade pact formerly known as the Trans-Pacific Partnership, the WTO stands as one of the last major, multilateral trade agreements or negotiations that Trump hasn’t disavowed.

1. What are Trump’s intentions on the WTO?

That’s unclear. Axios reported that the president has repeatedly told top White House officials that he wants to withdraw the U.S. from the WTO. It also reprinted what it called the text of draft legislation circulated in the White House that would give Trump unilateral power to ignore basic principles of the WTO and negotiate one-on-one with any country. U.S. Treasury Secretary Steven Mnuchin called the Axios report “an exaggeration," and Axios itself said the draft bill is thought to be "unrealistic or unworkable."

2. What does the WTO do?

It’s an international body that negotiates, monitors and mediates trade rules among 164 members including the U.S., China, Russia and the European Union. Established in 1994 and based in Geneva, it has a goal of reducing obstacles to international trade. It has no authority over its members’ labor rules, antitrust laws, monetary policies or tax rules, so long as such policies do not distort or block trade.

3. What has Trump said about the WTO?

As a candidate, he said the WTO was a “disaster” and threatened to withdraw from the organization. In April 2017 Trump ordered a review of all U.S. trade deals, including its participation in the the WTO, to see if any harm national interests and should be revised or terminated. Trump has mentioned his distaste for the organization repeatedly, saying the WTO is “unfair” and “bad” to the U.S. in posts on Twitter. Robert Lighthizer, Trump’s trade chief, has said that a “slavish dedication” to WTO rules“makes very little sense.”

4. How has the WTO responded?

Cautiously. WTO Director-General Roberto Azevedo has repeatedly warned of the consequences of a global trade war. Last year, Azevedo said the biggest risk to the global trade order is one country taking unilateral action that causes a retaliatory, domino effect throughout the system. Since then, the announcement of U.S. plans to place tariffs on steel and aluminum imports received quick responses of retaliatory measures by other WTO members prompting Azevedo to issue a sharp warning in March: "An eye for an eye will leave us all blind and the world in deep recession. We must make every effort to avoid the fall of the first dominoes.”

5. Has the WTO weighed in on Trump’s tariffs?

Not yet, but it’s fielded objections. Six countries filed complaints to the WTO in response to the metals tariffs, accusing the U.S. of using the measures to protect the steel and aluminum industries from outside competition -- thus violating WTO rules. Lighthizer cites Article XXI of the GATT, which specifies WTO members are permitted to take action necessary to protect essential security interests, to justify the legality of recent metals tariffs.

6. What does the WTO do in a case like this?

Its dispute-settlement system aims to discourage nations from unilaterally raising tariffs or imposing other trade sanctions against one another. The goal is to prevent escalation that can lead to trade wars. The WTO first encourages members to resolve their disputes by seeking a settlement through informal discussions. If that’s not possible, the WTO’s dispute-settlement body will study the matter, issue a ruling and, if required, urge guilty parties to bring their laws into compliance. The threat of a true trade war escalates when countries intentionally bypass WTO rules and ignore its rulings to pursue unilateral tariffs or other restrictions.

7. Are WTO rules legally binding?

For the most part. Each member agrees to abide by the WTO’s various agreements and the individual terms accepted when it joins. That said, the U.S. agreed to join the organization on the condition that the WTO and its dispute system wouldn’t override its obligations and rights. The WTO’s primary legal authority is rooted in the General Agreement on Tariffs and Trade, also known as GATT, which aims to promote international trade in goods. The WTO also oversees certain rules related to trade in agriculture, services and intellectual property, among other issues.

8. What happens if a member ignores WTO dispute rulings?

The country that brought the complaint can ask the WTO to authorize retaliatory trade measures.

9. Could the U.S. withdraw from the WTO?

Yes, but it would be problematic for the U.S. and could leave its companies at a disadvantage. Other countries would be able to unilaterally raise tariffs on U.S. imports and impose burdensome requirements that prevent U.S. companies from competing abroad. The U.S. would also forfeit any ability to overturn unfair trade practices via the WTO dispute-settlement system.

The Reference Shelf

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With QuickTakes News On BloombergQuint