The US at the WTO

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Controversy is nothing new for the World Trade Organization. Almost twenty years ago, protests at the WTO Ministerial in Seattle revealed deep frustrations with free trade. 

Notwithstanding those concerns, the WTO has endured. By most accounts, countries maintained their commitments to liberalization during the Great Recession -- exactly when market uncertainty heightened incentives to turn away from free trade. 

Part of what makes the WTO work is its dispute system. The WTO provides members with legal, mutually agreed upon procedures for settling disagreements. Through formal dispute settlement, countries can sue trade partners who discriminate. If the system works according to plan, dispute settlement should promote trade cooperation. 

Some have called dispute settlement the "legal backbone" of the global trade regime. However, not everyone thinks the system is effective. The WTO has faced harsh criticism from the Trump White House. The main worry? That trade agreements infringe on US sovereignty. And, more precisely, that dispute settlement unfairly punishes the US government for protecting its firms. 

Let's consider the evidence relating to some of Trump's core claims. 

IS TOO MUCH ASKED OF THE US?

One of Trump's critiques is that America's trade commitments are unfair. Specifically, US has tied its hands more tightly to trade liberalization than other countries. This leaves the US market open to competition while key trade partners remain closed. 

Is there any truth to this claim? Yes and no.

Yes. According to some measures, it's true that the US has made one of the strongest commitments to trade liberalization. Consider what countries commit to at the WTO.

A common misconception is that members set their tariffs at a specific level. That's not strictly correct. Instead, members agree to tariff bindings. Bindings are ceilings above which a country cannot raise it applied tariffs. 

These bindings are specific to countries and products. So let's imagine the US commitments to a binding of 10% on TVs. This means the US government can apply anything from 0-10% and still be within its stated commitments. 

Of course, lower bindings mean less policy discretion. Countries who commit to low bindings leave themselves less flexibility in trade policy.

With that in mind, look at the top 10 and bottom 10 countries ranked by the total average bindings across all products. The US ranks fourth on the list. In the aggregate, the US has tied its hands to keeping its applied tariffs within a narrow window. For those skeptical of the WTO or of free trade, this is evidence that the US got a bad deal.

 
 

No. Tariff bindings are not the whole story, however. There are three things to keep in mind when thinking about America's commitments in Geneva. 

First, countries do not necessarily bind all of their goods and services. Bound averages ignore whether the US (or anyone else) leaves some important industries unbound.

Second, bindings refer specifically to tariffs. That's important. Tariffs are just one of the many policies countries use to protect their markets. In turns out the tariff rates have dropped precipitously around the world in the last few decades. 

As tariffs have gone down, countries have relied more heavily on policies such as anti-dumping, safeguards, domestic subsidies, and a variety of others. The US is no exception. Historically, America is one of the world's leading users of anti-dumping measures. Anti-dumping involves applying duties to goods sold at below normal market prices. Through these measures, members can legally exceed their bindings (assuming permissible use).

 
 

Third, it may be true that US has some of the lowest average bindings. However, these bindings are not out of step with comparable markets. Canada, Japan, and the European Union have all made similarly deep commitments. Thus, when contrasting America's bound average with other countries, it does not stand out among its peer countries. 

Assessment. Historically, the US had a vested interest in maintaining the multilateral trade regime. Therefore, America willingly tied its hands (in many industries) to low tariffs. However, the evidence does not support the view that the US is treated unfairly. Trade-related authorities continue to authorize the use of protectionist policies at a significant rate. Moreover, the depth of America's commitments are perfectly in line with other advanced industrialized economies.

IS THE US PUNISHED UNFAIRLY?

Another one of Trump's main critiques is that the US is punished too frequently, and too severely, under the WTO's dispute procedures. Early in his term, Trump cast doubt on the WTO's legal authority, essentially saying that the US would no longer recognize adverse rulings. These rulings were discriminatory, the White House argued, and infringed on US sovereignty. 

Is there any truth to this claim? Yes and no. 

Yes. It's true that the US gets sued more often than any other member. The US has been sued 145 times in the first 550 WTO disputes. That's 61 more cases than the runner up (the European Union). 

 
 

And yes, the US also loses most of the cases that wind up in court. When a ruling is issued, WTO panels have ruled against the US 90% of the time (on at least one legal argument).

Thus, it's fair to say that the US frequently finds itself in a position where protectionist policies, often anti-dumping measures, are being struck down by the WTO's dispute system. 

No. There are a couple of necessary caveats, however. For one thing, dispute settlement is not a one-way street. The US is targeted more than anyone else, but it also sues other members more often. The US initiated 117 of the first 500 disputes. The rate of US filings significantly outpaces the EU (99 complaints). Therefore, the US government has leaned heavily on the WTO to protect its interests. 

It's possible that one might say "the US has to sue other members so often because Trump is right. Other countries are violating the rules." But there's no evidence to support that claim. The United States is a more frequent user of the kinds of policies commonly disputed in Geneva, including anti-dumping. Over 40 of the filings against the US have implicated anti-dumping measures or practices. 

Perhaps more importantly, the rate at which America loses disputes is entirely consistent with other members. It turns out that defendants who wind up in court "always" lose. Defendants are ruled against about 91% of the time across all cases. The US is not ruled against at a disproportionate rate. 

Assessment. It's true that the US is involved in more cases than other members. But these cases go in both directions. And, the rate at which America loses cases reflects a more general trend in dispute settlement. 

A FINAL WORD

There might be ways in which the US loses from WTO membership. To be sure, some of the US governments' preferred trade practices have come under intense scrutiny. But that is true of all members. 

Looking at the evidence, there is little reason to think that the US is disadvantaged in a systematic way. The US government committed willing to liberalization that is deep but entirely consistent with peer economies. The US also relies regularly on dispute settlement to defend its interests. 

None of this means some countries don't "cheat." One of Trump's major concerns has been that some members bend the rules. There are some areas of the global economy where many would agree. For example, the WTO contains reasonably detailed rules for the protection of intellectual property. There is broad international consensus that some members do not live up to their commitments to prevent intellectual property theft.

However, even if countries violate the commitments, the WTO provides a rules-based system for settling those disagreements. That system may be imperfect, but it's one that the US helped maintain for many years. 

 
AnalysisJeffrey KucikTrade, WTO