World Trade Organization

2020 Business Issues Guide

World Trade Organization

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Reform of Dispute Settlement System Major Topic in 2020

• Support the removal of trade-distorting practices to foster a level playing field.

• Appellate Body will lack a quorum in 2020; solutions are needed to restore the dispute settlement system.

• Services trade is expanding faster than trade in goods, growing an average of 5.4% per year for the last 15 years.

Background

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations, and ratified or approved in their parliaments or legislatures. The goal is to help producers of goods and services, exporters and importers conduct business.

In 1994, the U.S. Congress approved the trade agreements resulting from the Uruguay Round of multilateral trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT). The agreement liberalized world trade and created a new WTO, effective January 1, 1995, succeeding the 47-year-old GATT.

The GATT had been created in 1948 to expand economic activity by reducing tariffs and other barriers to trade. The Uruguay Round agreements built on past successes by reducing tariffs by roughly one-third across the board and by expanding the GATT framework to include additional agreements.

The WTO is a multilateral treaty subscribed to by 164 governments, which together account for the majority of world trade (with more than 20 nations negotiating their accession).

WTO Function

The basic aim of the WTO is to liberalize world trade and place it on a secure foundation, thereby contributing to economic growth and development, and to the welfare of people around the world. The functions of the WTO are:

• administering WTO trade agreements;

• providing a forum for trade negotiations;

• handling trade disputes;

• monitoring national trade policies;

• offering technical assistance and training for developing countries; and

• cooperating with other international organizations.

The ultimate goal of the WTO is to abolish trade barriers around the world so that trade can be totally free. Members have agreed to reduce, over time, the most favored nation duty rates to zero—along with abolishing quotas and other nontariff barriers to trade. Currently, there are more than 60 agreements dealing with goods, services, investment measures and intellectual property rights.

Part of the Uruguay Round agreements creating the WTO requires the White House to send a report to Congress evaluating U.S. membership in the organization every five years. Following the report, members of Congress may introduce legislation opposing U.S. membership.

Impact

Successful multilateral negotiating rounds have helped increase world trade, while the WTO estimates that the 1994 Uruguay Round trade deal added more than $100 billion to world income. The World Bank estimates that new successful world trade talks could bring nearly $325 billion in income to the developing world and could lift 500 million people out of poverty. Other studies have shown that eliminating trade barriers would mean $2,500 per year in increased income to the average U.S. family of four. Trade liberalization can create new jobs, higher incomes and economic growth for countries around the world.

For U.S. businesses, successful implementation of WTO negotiations would translate to:

• expanded market access for U.S. farm products;

• expanded market access for U.S.-manufactured goods;

• reduced cost of exporting to some countries; and

• improvement in foreign customs procedures that currently cause shipment delays.

Past Activity

The WTO remained under scrutiny by President Donald J. Trump in 2019, as President Trump threatened to pull the United States out of the WTO. Although the U.S. has considered the prospect of blocking passage of a WTO budget to dismantle the global trade organization, the U.S. has successfully used the WTO’s consensus principle, which requires all 164 WTO members to agree on any decision, to block all new appointments to the Appellate Body. As a result, when the terms of two members of the Appellate Body came to an end in mid-December, the body no longer had a quorum.

Trump administration spokespersons have said the WTO’s dispute settlement system threatens U.S. sovereign rights and has strayed from its original mandate. U.S. Trade Representative Robert Lighthizer stated that the dispute settlement system allowed nations to gain concessions that they never would have been able to get at the negotiating table.

The European Union and other major nations have come together to develop a new broad appeal-arbitration agreement, calling for a revamp of the WTO. Countries have supported the United States’ drive for greater transparency and discipline within the WTO, but also have stated it is important to uphold the global commercial order under growing tensions, not dismantle it.

Anticipated Action

In 2020, the European Union along with China, Brazil, Australia, Japan and other major nations will propose their plans for the dispute settlement body, hoping to revamp the WTO. The EU has suggested a multi-party “interim appeal arbitration” initiative, while Australia and Brazil are pushing for a “plurilateral initiative,” which would be more responsive to U.S. concerns. Although the United States has already rejected reform proposals, the lack of a quorum in the Appellate Body may force members to address the problems within the current system.

The California Chamber of Commerce is hopeful the major trading economies can come to a consensus on a reform of the WTO in 2020. The revamp should address the functioning of the Appellate Body, encourage greater transparency and enhance discipline for members who fall behind on their reporting obligations.

The Twelfth WTO Ministerial Conference is expected to be held in Kazakhstan from June 8 to June 11 in 2020. Modernization and reform of the trading system will be a major topic.

CalChamber Position

The CalChamber, in keeping with longstanding policy, enthusiastically supports free trade worldwide, expansion of international trade and investment, fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business.

The WTO is having a tremendous impact on how California producers of goods and services compete in overseas markets, as well as domestically, and is creating jobs and economic growth through expanded international trade and investment.

The WTO gives businesses improved access to foreign markets and better rules to ensure that competition with foreign businesses is conducted fairly.

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Policy Contact

Susanne-Stirling-2012-300x300Susanne Stirling
Vice President, International Affairs