World Trade Organization at a Crossroads

During the May 2020 recognition of World Trade Month, and in the current worldwide political climate where trade policy has risen to a tier one issue, the World Trade Organization (WTO) finds itself at a crossroads.

The current Director General is departing early, so discussions over his successor will provide an opportunity to consider a new beginning for the organization.

Every five years the U.S. Congress has the opportunity to vote on withdrawing from the WTO. This spring 2020, there have been two separate resolutions in the U.S. House of Representatives and the U.S. Senate, but they may have run out of time to vote, due to the timetable outlined in the 1994 Uruguay Round Agreements Act.

The Uruguay Round act, together with the 1974 Trade Act, approved U.S. entry into the WTO. The last vote on WTO membership took place in 2005, when the House defeated the withdrawal resolution proposed by then-Representative Bernard Sanders of Vermont by a vote of 338-86. The U.S. Senate has never voted on a withdrawal resolution.

Despite President Donald J. Trump’s concerns about the WTO, the administration did not call for withdrawal from the membership organization in the annual Trade Report, but indicated: “Despite the serious challenges facing the World Trade Organization, the United States values the WTO and is working diligently within the organization to find solutions.”

At issue is the nonworking dispute settlement mechanism and new rules to counter nonmarket economic practices.

Impact

The WTO has a positive impact on how California producers of goods and services compete in overseas markets, as well as domestically, which creates 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. Trade liberalization can create new jobs, higher incomes, and economic growth for countries around the world.

California’s $3 trillion-plus economy is one of the 10 largest in the world. International-related commerce accounts for approximately one-quarter of the state’s economy.

Although trade is a nationally determined policy issue, its impact on California is immense. California exports goods to more than 225 foreign markets around the world.

The WTO, with 164 member nations, is the only global international organization dealing with the rules of trade between nations. 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 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 (MFN) duty rates to zero—along with abolishing quotas and other nontariff barriers to trade. Currently there are more than 21 agreements dealing with goods, services, investment measures and intellectual property rights.

The General Agreement on Tariffs and Trade (GATT) was 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 under the newer WTO.

The WTO accounts for more than 98% of world trade. More than 20 governments are currently negotiating or due to negotiate accession to the WTO.

Departure of Director General / New Beginning

In a sudden announcement on May 14, WTO Director General Roberto Azevêdo of Brazil revealed his early departure. Azevêdo said in a statement that he timed his departure, which falls a year before his term formally ends, so a selection process wouldn’t distract the WTO’s next big ministerial conference that is now likely to be delayed into 2021.

The next major WTO meeting could be a turning point for discussions on the future of the organization. The June 2021 12th Ministerial “M 12” meeting is tentatively scheduled to be held in Kazakhstan.

The discussion will now center on from which continent or region the next Director General should hail. Previous Director General Pascal Lamay was from France. The conversation about the next Director General may well help set the tone and agenda of the membership organization, as well as provide an opportunity for a new beginning.

Regardless, this Geneva-based organization is an important player in global trade. The California Chamber of Commerce, in keeping with long-standing 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.

Staff Contact: Susanne T. Stirling