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BRIEFING PAPER Number 08465, 18 December 2018

World Trade in 2018: the US and the WTO

By Sylvia de Mars

Contents: 1. Status of Negotiations at the

WTO 2. The Trump Administration and

Trade 3. What next for the WTO? 4. The WTO and the UK post-Brexit

2 World Trade in 2018: the US and the WTO

Contents Summary 3

1. Status of Negotiations at the WTO 4 1.1 The Doha Round 4 1.2 Progress in Recent Years? 5 1.3 Consequences of the WTO Stalemate 7

2. The Trump Administration and Trade 10 2.1 America First 10 2.2 Trump and Trade Negotiations 12 2.3 Trump and Trade Law 15 2.4 The Trump Administration at the WTO 19

3. What next for the WTO? 21 3.1 Reform: US Concerns 21 3.2 Reform Proposals 22

4. The WTO and the UK post-Brexit 25

Attribution: White Water Boat / image cropped. Licensed under CC0 Public Domain – no copyright required.

3 Commons Library Briefing, 4 December 2018

Summary The World Trade Organization has struggled for over a decade to complete its next round of trade negotiations and has become the subject of significant criticism as a consequence. Arguments have been made that regional trade agreements such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) may be the only way forward for those countries wishing to liberalise trade further; and the Trump administration has been downright hostile towards the existing WTO acquis, obstructing the appointment of new ‘judges’ to the WTO’s Appellate Body, and thus precipitating an existential crisis for the institution that came into being in 1995.

This paper examines what is happening with the WTO trade negotiations at this time; what the effect of US trade policy has been on both the global trade environment and the WTO; and considers recent proposals that have been made to ‘remedy’ the WTO’s problems.

The context for this paper is the UK’s impending return to WTO membership as a non-EU Member State. Advocates for a ‘hard’ Brexit have argued that the WTO rules will form an adequate basis on which to operate a UK trade policy; however, reliance on WTO rules presupposes a functioning world trade system, and so a closer examination of the impact of post-2016 US protectionism and the failure to agree to new multilateral trade agreements under the WTO banner is warranted.

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1. Status of Negotiations at the WTO 1.1 The Doha Round The World Trade Organization (WTO), like its predecessor General Agreement on Tariffs and Trade (GATT), is not meant to be a static arrangement. Successive negotiating ‘rounds’ between members are intended to reduce barriers to trade further over time; however, negotiations have become increasingly more difficult as the WTO has increased its membership and its remit.

This is specifically the case because as of the Uruguay Round, the negotiations are generally organised around an ‘all or nothing’ principle called the ‘single undertaking’: the WTO seeks full consensus (eg, unanimous agreement) of its entire membership for the whole ‘package’ of negotiations at once.

The last successful round was the Uruguay round, which formally established the WTO in 1994. Negotiating it took eight years, which at the time was a record length for negotiations—but it was ultimately a great success, expanding coverage of the WTO from trade in goods to trade in services, intellectual property rights, and government procurement, among other areas. The next negotiating round, known as the Doha Round, was launched in 2001. According to the WTO:

The Doha Round is the latest round of trade negotiations among the WTO membership. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules. The work programme covers about 20 areas of trade. The Round is also known semi-officially as the Doha Development Agenda as a fundamental objective is to improve the trading prospects of developing countries.

The Round was officially launched at the WTO’s Fourth Ministerial Conference in Doha, Qatar, in November 2001. The Doha Ministerial Declaration provided the mandate for the negotiations, including on agriculture, services and an intellectual property topic, which began earlier.1

All but one of the negotiations are part of a “single undertaking” (they form a single package with all members participating); the exception was the negotiations on the Dispute Settlement Understanding, which were given a separate deadline. Deadlines for all negotiations were set between 2003 and 2005, but to date, negotiations in some of the agreed twenty topics of negotiation agreed in Qatar remain unfinished, with particular problems emerging around agricultural subsidies and the refusal of both the US and the EU to reduce these.2 Negotiations on the WTO’s Dispute Settlement Understanding also remain ongoing.

The Doha Round has been declared ‘dead’ repeatedly over the course of the last decade. The 2008 collapse in talks surrounding agriculture was perceived as an end of the round altogether, but formally, the negotiations

1 WTO, The Doha Round 2 WTO, Agriculture: negotiating modalities

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continued until at least 2015. In 2015, in Nairobi, the Ministerial Declaration stated the following on the Doha round:

We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis. Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations. We acknowledge the strong legal structure of this Organization.3

Some countries—largely developed nations—have considered this the ‘end’ of the Doha round formally, and perceive it as a signal that the Doha ‘goals’ should be pursued by ‘new approaches’. Developing countries, on the other hand, consider the commitment to the Doha round to be ongoing, as exemplified by this statement from India:

The Ministerial Declaration circulated today … reflects the division amongst the WTO Membership on the issue of the reaffirmation of the Doha mandate. India, along with other developing countries, especially most members of the G-33, LDCs, the Africa Group, and the ACP, wanted a reaffirmation of the mandate of the Doha Round.4

1.2 Progress in Recent Years? Despite the uncertain status of the Doha round of talks, however, some progress in further trade liberalisation has been made at the WTO—and it can be argued that this progress was achieved via the types of ‘new approaches’ that are flagged up in the Nairobi ministerial declaration. It has taken the shape of two ‘mini-agreements’ that cover aspects of the Doha round, one concluded in Bali in 2013 and one in Nairobi in 2015.

The Bali Package Following tense negotiations, the ministerial conference in Bali in 2013 produced a package described by the WTO as follows:

The Bali Package has sometimes been described as the first major agreement among WTO members since it was formed in 1995 under agreements from the 1986-94 Uruguay Round negotiations. The most significant for global commerce is the trade facilitation part of the package, which is about cutting red tape and speeding up port clearances.

Much of the rest of the package focuses on various issues related to development, including food security in developing countries and cotton and a number of other provisions for least developed countries.

The package also includes a political commitment to reduce export subsidies in agriculture and keep them at low levels, and to reduce

3 WTO, Nairobi Ministerial Declaration, para. 31. 4 Government of India, ‘India Opposes Non Reaffirmation of DDA’, Ministry of Commerce

and Industry, 19 December 2015

6 World Trade in 2018: the US and the WTO

obstacles to trade when agricultural products are imported through quotas.5

The Trade Facilitation Agreement (TFA) is the first formal new ‘agreement’ concluded by the WTO; it entered into force on 22 February 2017, when the threshold of two-thirds ratification by members was reached. The other areas on which agreement was struck as part of the Bali package contained fewer binding commitments, and in fact only covered limited aspects of the Doha agenda on which agreement had already largely been reached in 2008.

A report produced for the US Congressional Research Service gives an assessment of where the Bali Package has left the Doha agenda, particularly on agricultural trade liberalisation:

To the extent that the Bali Agreement represented the low-hanging fruit of the agricultural negotiations, the contentious, last-minute nature of the final result, coupled with the almost minimalist nature of the “concessions”—modest movement on fill-in-rates on [tariff rate quotas], agreeing to agree on export competition and general services, and possible back-sliding on distorting above-market producer price supports as part of the food-security stockholding peace clause deal—have left many trade analysts wondering if the truly ground-breaking Uruguay Round (UR) agreement of 1994 was a one-time event. The UR agreement achieved substantial concessions and commitments across all three pillars of agricultural negotiations—export competition, domestic support, and market access.

India’s insistence on new concessions on food stockpiling—the green box already allows for unlimited food stockpiling for food security purposes, provided the food is purchased at market prices (not above-market prices as India proposes)—would appear to represent serious erosion on domestic support commitments that have already been achieved during previous negotiating rounds.6

While the TFA has consequently been praised as a genuine success, the overall reach of the Bali package was quite limited, and its success has been described as symbolic—in that it demonstrated that some agreement remained possible within the WTO, which had become doubtful by 2013.

The Nairobi Agreement The next ministerial conference that produced clear outcomes was the 2015 conference in Nairobi. Simon Lester, writing for the Cato Institute, summarised the achievements of the Nairobi ministerial conferences:

A number of topics were discussed in Nairobi, not all of which were directly related to the original Doha agenda. One area of success on agriculture trade in Nairobi was export subsidies. There is now a formal decision on phasing out these subsidies. However, its various carve-outs mean that its effectiveness might be somewhat less than suggested, and its full impact remains to be seen. And, while this result should be celebrated, it needs to be

5 WTO, ‘Days 3, 4 and 5: Round-the-clock consultations produce ‘Bali Package’, 5-7

December 2013 6 CRS, Agriculture in the WTO Bali Ministerial Agreement, Randy Schnepf, 13 November

2014

7 Commons Library Briefing, 4 December 2018

recognized that the line between export and domestic subsidies is not as clear as one might think…

Importantly, and unfortunately, the Nairobi package does not rein in domestic agriculture subsidies generally. These subsidies remain high and are proliferating. This is not just a rich-world problem anymore; middle-income developing countries are now big providers as well. In this regard, India has made a big push to legitimize some of its subsidies under the guise of “food security.” In Nairobi, this issue was not resolved, and will remain on the agenda.

… another positive outcome from Nairobi was that the WTO announced during the conference that new trade liberalization had been achieved through a second Information Technology Agreement (ITA-II), an agreement among 53 WTO members to lower duties, on a most-favored-nation basis, on a wide range of technology products. This initiative was not technically part of Doha, but it shows that WTO negotiations can still promote trade liberalization.7

Much like the Bali Package of 2013, Nairobi demonstrated the ability of the WTO to still act as the venue for global trade negotiations—albeit on a much smaller scale than the Doha round originally proposed.

Other Progress While the Doha round’s multilateral negotiations have not progressed beyond Nairobi and Bali, there have been developments in other areas of WTO activity that have also involved negotiations. For one, accessions of new WTO members proceed apace, with Russia (acceding in 2012) as the most sizeable new member in recent times.

The other area in which WTO progress can be observed is regarding the WTO’s plurilateral agreements: those agreements to which membership is optional for Member States. The Government Procurement Agreement (GPA) (with 19 participants), which sets out access conditions for its members’ government purchasing markets, was successfully renegotiated in 2012, with its new version entering into force in 2014.

Other plurilateral initiatives that have been commenced by WTO members in the last decade include negotiations on an environmental goods agreement (with 18 WTO members participating, though talks are at this time suspended) , and on e-commerce (with 70 WTO participating, and talks having commenced in 2018).

1.3 Consequences of the WTO Stalemate Failures to conclude a new WTO settlement to date have not stopped countries from pursuing trade liberalization; it has simply shifted how they have pursued it. Since the 1990s, there has been a proliferation of regional trade agreements being pursued by most WTO members, under the general belief that all trade liberalization (even if partial and not global) will ultimately benefit economies participating in it. The WTO members have also adjusted to the Doha stalemate by pursuing revised and further plurilateral initiatives within the WTO.

7 CATO Institute, Is the Doha Round Over? The WTO’s Negotiating Agenda for 2016 and

Beyond, Simon Lester, 11 February 2016

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As shown in the chart in Box 1, the WTO at this time counts 288 physical RTAs in force, where ‘physical’ groups notifications of trade agreements covering services and goods. These can range from bilateral agreements to regional trade agreements – covering more than two countries, but not necessarily physically in the same geographical region – to so-called ‘mega-blocs’, where an existing regional trading entity (eg, the EU, or Mercosur, or ASEAN) signs a new agreement with a further party. The vast majority of these are ‘free trade agreements’ rather than more advanced stages of economic integration like customs unions or single markets; the WTO records the existence of 18 customs unions in total in 2018.

Examples of recently notified and entered-into-force regional trade agreements include:

• The Turkey-Singapore Agreement on goods and services;

• The Southern Common Market (MERCOSUR) – Egypt agreement on goods;

• The EU-Canada (CETA) Agreement on goods and services;

• The Southern Common Market (MERCOSUR) – Southern African Customs Union (SACU) agreement on goods

The WTO’s bi-annual report on regional trade agreement developments notes at the end of 2017 that current ‘ongoing key negotiations’ include EFTA-Indonesia, EU-Indonesia, China-Norway, and Canada-Singapore. Negotiations on a Regional Comprehensive Economic Partnership (RCEP)

Box 1: Regional Trade Agreements at the WTO

Source: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx

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Agreement (involving 10 ASEAN members and Australia, China, South Korea, Japan, India and New Zealand) commenced in 2017 and are expected to be finalized in November 2018, while the African Union‘s Continental Free Trade Area (CFTA) was signed by 44 of its 55 member states on March 21 2018. 8

EU-Japan negotiations were concluded on 8 December 2017 and the agreement was ratified on 12 December 2018, but ‘after years of negotiations and innumerable delays’, agreement on an EU-MERCOSUR agreement has not yet been reached by the parties, and hopes for progress in September 2018 have not been met.9

NAFTA renegotiations concluded in October 2018 and NAFTA 2.0 or the ‘United States-Mexico-Canada Agreement’ will enter into force once ratified by the parties. The Trans-Atlantic Trade and Investment Partnership (TTIP) negotiations between the EU and the United States remain dormant at this time, whereas US departure from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has resulted in progress in those negotiations: the agreement has now been signed by all 11 parties and is awaiting ratification.

Where are we now? The Bali and Nairobi agreements make clear that multilateralism has not been abandoned by WTO members outright, but it has suffered a significant setback by the endless nature of the Doha round. Proposals have been put forth for several years now to try to scale back the traditional negotiating models at the WTO in the hope of ‘smaller’ agreements more generally, which Bali and Nairobi demonstrated is still possible in the multilateral framework. And, it is worth remembering that Doha itself remains ‘ongoing’—with fisheries subsidies and ‘reform’ discussions active.

However, the already extensive difficulties of negotiating further multilateral agreements via the WTO were compounded by a change in approach to trade policy in the United States following the 2016 presidential election—also clear from the US withdrawal from the CPTPP negotiations and the seeming ‘end’ to TTIP negotiations.

While the US has been a key factor in difficulties in concluding Doha, it has also been one of the driving forces of global free trade, and for that reason, as well as the size of its economy, it has always been a key player in the world trade system and one of the WTO’s so-called ‘quad’ of leading economies. The rest of this paper will consider the components of the US’s changed trade policy, and what impact it may have on the world trading system.

8 WTO, Recent Developments in Regional Trade Agreements (July-December 2017) [Scroll

halfway down the page for the report, which cannot be linked to directly.] 9 Ibid, p 3.

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2. The Trump Administration and Trade

2.1 America First President Trump’s administration’s trade policy has been described as both predictable and extremely confusing by commentators since his election to office in 2016.

The fundamental principle underpinning many, if not all, of the administration’s activities in relation to trade was set out by the President when he formally accepted the Republican Party’s nomination at the 2016 Republican National Convention. In his acceptance speech, he said:

I have a different vision for our workers. It begins with a new, fair trade policy that protects our jobs and stands up to countries that cheat. It’s been a signature message of my campaign from day one, and it will be a signature feature of my presidency from the moment I take the oath of office.

I have made billions of dollars in business making deals – now I’m going to make our country rich again. I am going to turn our bad trade agreements into great ones. America has lost nearly-one third of its manufacturing jobs since 1997, following the enactment of disastrous trade deals supported by Bill and Hillary Clinton.

Remember, it was Bill Clinton who signed NAFTA, one of the worst economic deals ever made by our country.

Never again.

I am going to bring our jobs back to Ohio and to America – and I am not going to let companies move to other countries, firing their employees along the way, without consequences.

My opponent, on the other hand, has supported virtually every trade agreement that has been destroying our middle class. She supported NAFTA, and she supported China’s entrance into the World Trade Organization – another one of her husband’s colossal mistakes.

She supported the job killing trade deal with South Korea. She has supported the Trans-Pacific Partnership. The TPP will not only destroy our manufacturing, but it will make America subject to the rulings of foreign governments. I pledge to never sign any trade agreement that hurts our workers, or that diminishes our freedom and independence. Instead, I will make individual deals with individual countries.

No longer will we enter into these massive deals, with many countries, that are thousands of pages long – and which no one from our country even reads or understands. We are going to enforce all trade violations, including through the use of taxes and tariffs, against any country that cheats.

This includes stopping China’s outrageous theft of intellectual property, along with their illegal product dumping, and their devastating currency manipulation. Our horrible trade agreements with China and many others, will be totally renegotiated. That includes renegotiating NAFTA to get a much better deal for America –

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and we’ll walk away if we don’t get the deal that we want. We are going to start building and making things again.10

A shorthand for the described policy is ‘America First’. The administration draws a direct connection between the US workforce and the US’s international trade agreements, and concludes that these agreements historically have hurt workers, rather than benefitted them. The policy has been described as ‘statist’ and ‘mercantilist’ by commentators, effectively arguing that ‘exports are good [and] imports are bad’. It results in what is called a ‘zero-sum approach’ to trade: there will be a ‘winner’ and a ‘loser’ in any trade negotiation, and the Trump administration will reject those agreements where the US comes out as a ‘loser’.11

In the context of an ‘America First’ trade policy, the Trump administration has been critical of a number of existing and in-progress negotiated agreements that the US has been a party to. As noted above, it has withdrawn from the CPTPP negotiations; the TTIP negotiations are effectively stalled indefinitely; and it has pushed hard for a renegotiated version of NAFTA.

However, the ‘America First’ policies have impacts in other ways, and those can be traced back to the administration’s criticisms of the WTO and ‘global trade’ more generally. A general ‘Buy American’ policy seems to clash with the WTO’s rules on non-discrimination but has nonetheless been introduced by the Trump administration via an executive order. The method of WTO tariff negotiations – whereby members agree to lower their tariffs by equivalent percentages, rather than to equivalent net values – is perceived by the administration to hurt long-standing economic powers, such as the US, vis-à-vis more recent emerging markets (such as Brazil, China and India), who apply significantly higher tariffs to US exports than the US applies to their products.12 Multilateral concessions to lower tariffs are consequently not seen to be in the US interest: rather, if the US offers a 5% tariff on a product, it wants trade agreements that also offer a 5% tariff on that product.

The administration has been highly critical of WTO dispute settlement, and in particular how, in its view, it seems to let China ‘cheat’ at world trading rules that the US complies with. This is not a new US position; however, the Trump administration has been significantly more focused on it than previous administrations have been. In his acceptance speech at the Republican National Convention, President Trump made clear very early on that he perceived WTO dispute settlement as ineffective and would not hesitate to ‘enforce trade violations’ by means of punitive tariffs set in contravention of the WTO acquis.

The next few sections of this paper will discuss these different components of the ‘America First’ trade policy, first by considering how the US has approached trade negotiations since 2016; and second by considering how

10 Politico, Full text: Donald Trump 2016 RNC draft speech transcript, 21 July 2016 11 Chad P. Bown, Robert W. Staiger and Alan O. Sykes, Multilateral or bilateral trade deals?

Lessons from history, p 159. 12 Ibid, p 160.

12 World Trade in 2018: the US and the WTO

the US has approached trade law using ‘Buy American’ and its actions against China as a case study. The final section of this part of the paper will consider the overall impact of ‘America First’ on the WTO.

2.2 Trump and Trade Negotiations As alluded to above, the Trump administration has ‘reset’ a significant number of ongoing trade negotiations and commenced others. The general attitude of the administration is that large multilateral negotiations, including those at the WTO, have not offered significant enough benefits to the United States, and consequently a push for smaller-scale trade agreements has commenced.

The withdrawal from CPTPP and the pausing of negotiations on TTIP are key examples of this, but the most interesting case study of the Trump administration to trade negotiations to date has been the North American Free Trade Agreement (NAFTA).

Renegotiating NAFTA was a key campaign commitment made by Trump, who has described it as “the single worst trade deal ever approved” in the United States.13 He called for either a renegotiation, once elected, or a termination of the agreement; once elected, this turned into a commitment to renegotiate with a withdrawal from NAFTA if Mexico and Canada did not agree to the terms set out by the United States for this ‘new’ NAFTA.

Formal negotiations commenced in 2017, with the Trump administration setting out negotiating objectives in July. The primary priority for the NAFTA renegotiations was to reduce the US’s trade deficit. Secondary priorities concerned amendments to specific provisions seen as hurting the US: for instance, the administration wished to remove provisions that allowed Mexico and Canada to appeal tariffs imposed by the US, and wanted to make it easier for the US to impose quotas or other import restrictions on Mexico and Canada.

The US proposals have been widely described as not being about ‘free trade’, but rather about US protectionism. The US goal in renegotiating the agreement appeared to be to reintroduce trade barriers, not lower them. There has also been significant criticism of the overall goal of ‘reducing the US trade deficit’, which most economists agree is a feature of the US economic structure and not a ‘bug’ of the US economy, and not something that can be tackled by a renegotiated trade agreement with Mexico and Canada.14

As the negotiations progressed over the course of 2017 and 2018, the US also proposed a ‘sunset clause’ that would result in the automatic termination of NAFTA 2.0 unless all parties agreed to keep it in place. This demand was ultimately abandoned but resulted in significant tensions, between Canada and the US in particular.

13 The Washington Post, ‘The First Trump-Clinton presidential debate transcript,

annotated’, Aaron Blake, 26 September 2016 14 The Conversation, ‘Trump’s exports-good, imports-bad trade policy, debunked by an

economist’, Ian Sheldon, 20 April 2018

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In the summer of 2018, negotiations primarily took place between Mexico and the US in light of this tension with Canada – and Mexico and the US announced on 27 August 2018 that they had reached a bilateral agreement on a ‘new’ NAFTA. Canada was invited to join this agreement if it accepted the US demands for further concessions. Whether this has actually happened is not entirely clear, but on 30 September 2018, the US and Canada also reached a preliminary deal.

Congress will need to approve the agreement before it can be ratified by the US, and will see NAFTA 2.0 under its new name, which is the “United States – Mexico – Canada Agreement”, or USMCA.

In summary, the USMCA required the following compromises by the respective parties:

• Increased access to Canada’s dairy markets for the US, which is a US ‘win’;

• Increasing the percentage of auto vehicles that needs to be produced in Northern America before they qualify for tariff-free trade, and a specification that wages paid in those car production factories must be at least 16 US dollars an hour – this is again a victory for the US, which can protect its car industry through this measure at the expense of car production in Mexico;

• Retention of an international dispute settlement system for disputes about the agreement, which was a Canadian ‘red line’ and one where the US conceded;

• A ‘sunset clause’ of 16 years, with a review of the agreement required every 6 years, which is a compromise on the US proposal to have a five-year sunset clause.

The Economist has described the core content of this new agreement, particularly with regards to the automobile industry, as resulting in “lower productivity, higher prices for consumers and a less competitive car-making industry in North America”.15 It notes that the agreement with Mexico was reached mainly as a result of Trump’s “threat to impose tariffs on all car imports”. This would contravene WTO rules, but the administration claims that it is necessary for ‘national security reasons’ – which will be revisited in section 2.3 below.

The Trump administration claims the above agreement was a significant ‘win’, primarily because it will “transform North America back into a manufacturing powerhouse”.16 Dairy and automobile construction in particular have resulted in significant wins for US domestic production – but this will, as the Economist notes, come at a probable cost increase for consumers:

None of this bothers Mr Trump. In his view, the purpose of trade is to maximise exports and minimise imports. The intention of his agreement is clear: to shove firms into abandoning cross-border supply chains in favour of the safe-but-costly option of producing in

15 The Economist, ‘America’s deal with Mexico will make NAFTA worse’, 30 August 2018 16 The White House, ‘Remarks by President Trump on the United States—Mexico—Canada Agreement’, 1 October 2018

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America. Economic might is a weapon to be used in service of that goal.17

One of the most controversial new inclusions in USMCA was introduced by the United States. The agreement precludes parties to the agreement from concluding trade agreements with “non-market” economies; should a party pursue such a deal, the others may withdraw from the USMCA and conclude a new bilateral agreement within six months. David Lawder at Reuters concludes that the provision is primarily aimed at deterring Mexico and Canada from concluding trade deals with China, as part of an overall US trade administration policy to “isolate China economically”.18

The USMCA, even though it has yet to be ratified and come into force,19 can be seen as confirmation that the Trump administration adheres to a mercantilist philosophy in which a reduction of imports is a ‘victory’. The bilateral and small-regional agreements being pursued are also being used to add pressure to non-signatories perceived as harming the US: the “non-market” preclusion clause is part of US efforts to exert pressure on China to capitulate to US demands for different trading practices, further discussed in section 2.3.20

The administration formally notified Congress on 16 October 2018 that it intends to negotiate agreements with the EU, the UK and Japan; under US law21, negotiations with the EU and Japan can commence in January 2019, whereas negotiations with the UK cannot begin until the UK has left the EU. Specific negotiating objectives must be published 30 days before the negotiations commence, but the letters of notification already allude to the primary goals of negotiations with both the EU and the UK being the remedying of trade imbalances – or, rather, reducing the US trade deficit with these countries.

Regarding the negotiations with Japan, Brooke M. Ringel at Lexology makes the following observation:

Until as recently as September 26th of this year, Japanese Prime Minister Shinzo Abe had resisted the idea of bilateral talks with the United States, instead favoring the United States’ return to the CPTPP. Recent discussions on the potential for the United States to impose 25 percent tariff on automobile exports from Japan apparently brought Japan to the table. “Japan is an important, but still too often underperforming, market for U.S. exporters of goods,” USTR said in its letter to Congress. “U.S. exporters in key sectors such as automobiles, agriculture, and services have been challenged by multiple tariffs and non-tariff barriers for decades.”22

Again, reducing the US trade deficit seems to be the priority in these bilateral negotiations as well. Not clear at this stage is whether the EU and 17 The Economist, ‘America’s deal with Mexico will make NAFTA worse’, 30 August 2018 18 Reuters, ‘Trade pact clause seen deterring China trade deal with Canada, Mexico’, David

Lawder, 3 October 2018 19 It was signed on 30 November 2018 but is expected to encounter some resistance in

Congress. 20 Reuters, ‘Trade pact clause seen deterring China trade deal with Canada, Mexico’, David

Lawder, 3 October 2018 21 Specifically, the Trade Priorities and Accountability Act of 2015 (known as the “TPA”). 22 Lexology, ‘U.S. Opens Trade Talks with EU, Japan, and the UK’, Kelley Drye & Warren LLP,

17 October 2018

15 Commons Library Briefing, 4 December 2018

Japan (and eventually the UK) will also be asked to sign up to “non-market” clauses, and if they would agree to this as Canada and Mexico have.

From the negotiating strategies and priorities the Trump administration has demonstrated since 2017, it is clear that the administration is pursuing largely US-protectionist trade agreements, rather than actually pursuing a ‘free trade’ policy. We will explore the effects of this change in policy on the WTO in section 2.4 below.

2.3 Trump and Trade Law Other than a re-focusing on bilateral rather than multilateral trade negotiations, the main observable way in which the Trump administration is pursuing a clearly different policy from predecessor administrations lies in its approach to world trade law, and specifically, the body of rules underpinning the World Trade Organization.

To date, three specific sets of action sanctioned by the administration (via Executive Orders from the President, rather than legislation passed through Congress) are believed to challenge if not directly violate existing WTO rules on non-discrimination. The first of these is the Trump administration’s reintroduction of a ‘Buy American’ policy, which is problematic from the perspective of the WTO’s Government Procurement Agreement; the second is its actions against China in what is now commonly agreed to be a ‘trade war’; and the third is the remainder of the so-called ‘Trump tariffs’ levied against other WTO members.

‘Buy American’ The ‘Buy American and Hire American’ executive order, issued by the President on 18 April 2017, sets out the following:

Sec. 2. Policy. It shall be the policy of the executive branch to buy American and hire American.

(a) Buy American Laws. In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.

The key wording of the provision is that it is intended to be ‘consistent with law’; the policy consequently encourages US-produced procurement insofar as this is permitted under the US’s obligations. This has been taken to include its international law obligations under the WTO’s Government Procurement Agreement (GPA), which opens up the government procurement markets of its 43 signatories to other GPA signatories.

However, the Executive Order also instructs the US Trade Representative to assess the extent to which ‘Buy American’ is compatible with those WTO obligations to not discriminate against goods produced by other GPA signatories, insofar as the GPA applies to those:

(e) Within 150 days of the date of this order, the Secretary of Commerce and the United States Trade Representative shall assess

16 World Trade in 2018: the US and the WTO

the impacts of all United States free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American Laws, including their impacts on the implementation of domestic procurement preferences.

Totis Kotsonis of Eversheds explains the intention behind this assessment:

The intention of this review is essentially to establish the effects of each of these agreements on the ability of the United States to promote domestically manufactured goods and domestically sourced construction materials in government procurements by means of the Buy America/Buy American legislation (including the Berry Amendment in the defence sector).

According to White House reports, if any of these agreements is deemed to work against US interests, in that it fails to provide US companies with “fair and reciprocal” access to foreign government procurement markets, the US President may decide to rescind or seek to renegotiate these.23

The ‘Buy American’ Executive Order, on its face, appears to require compliance with the core principles of the GPA. However, this has not stopped WTO members from expressing concerns about its advocacy by the Trump administration. On 18 October 2017, the AP reported that 10 US allies (including Israel, the EU, Canada and Japan) ‘took issue’ with the Executive Order, not least because there were reports circulating that a stronger implementation of the ‘Buy American’ policy was due to be recommended to the President on 24 November 2017.24 No formal protests to the Executive Order have been filed before the WTO’s dispute settlement system to date, but it is clear that the policy has made at least ten other signatories of the GPA nervous about ongoing US compliance with the agreement. Trade war with China This nervousness has undoubtedly been amplified by US actions over the course of 2017 and 2018. The Trump administration launched an investigation in 2017 that aimed to set out how US intellectual property rights were being violated by countries, including China. A US Trade Representative investigation (under Section 301 of the Trade Act of 1974, which permits the President to unilaterally impose fines on a trading partner if it is deemed to be harming US interests ‘unfairly’) found that China enforces domestic laws that permit the Chinese to avoid terms laid out by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.

These suspicions are shared by other WTO members, such as the EU and Japan; however, where they disagree with the US is on how potential Chinese violations of the TRIPS agreement should be resolved. The EU and Japan stressed that the WTO’s Dispute Settlement Understanding should be applied and unilateral action is contrary to the WTO rules.25 On 26 March

23 Totis Kotsonis, ‘The “Buy American, Hire American” executive order, the GPA and the

EU’, 20 April 2017 24 AP News, ‘US allies air concerns about Trump’s “Buy American” Order’, 18 October 2017 25 World Trade Organization, US “Section 301” action against China’s intellectual property

regime questioned at WTO Goods Council, 26 March 2018

17 Commons Library Briefing, 4 December 2018

2018, the US did request consultations with China at the WTO’s Dispute Settlement Body—but this was not its first step in response to China’s perceived violations of WTO law, as the timeline in Box 2 makes clear.26

Box 2: The US-China Tariffs ‘War’

January 2018 President Trump imposes a 30% tariff on solar panels, to be reduced after 4 years to 15%. President Trump also imposes a tariff of 20% on the first 1.2 million washing machines imported to the US. While not specifically tariffs placed on Chinese goods, China is the world’s leading solar panel manufacturer and exported nearly 0.5 billion dollars of washing machines to the US in 2016. March 2018 In response to the Section 301 report on China, President Trump asks the US Trade Representative to investigate applying tariffs to approximately 60 billion dollars of Chinese goods; over 1300 categories of Chinese imports were identified for these tariff increases. April 2018 China imposes tariffs on 128 products it imports from the US. President Trump responds by noting that he is considering further tariffs on an additional 100 billion dollars of Chinese imports. China files for consultations on the US tariffs introduced in March. May 2018 The White House announces that it will impose a 25% tariff on 50 billion dollars of Chinese goods that have what they describe as “industrially significant technology”, to be identified in June. China notes it will discontinue trade talks with Washington if it imposes further unilateral sanctions. June 2018 President Trump revisits the May tariff promise, and indicates that 34 billion dollars of Chinese goods will have these tariffs applied from July 6, with the remaining 16 billion dollars to be commenced at a later date. China indicates it will respond in kind; the White House declares that the US will impose a further 10% tariff on a further 200 billion dollars of Chinese goods if China responds in kind. China threatens tariffs on 50 billion dollars of US goods. July 2018 The 25% tariffs on 34 billion dollars of Chinese goods enters into effect; China imposes retaliatory tariffs on US goods of a similar value. The US also identifies the ‘further 200 billion dollars’ of Chinese goods that will be subject to a 10% tariff. China indicates it will retaliate with additional tariffs on 60 billion dollars of US goods if the ‘200 billion dollars’ tariff proceeds. August The remaining 16 billion dollars of goods, hinted at in June 2018, are identified and subjected to a 25% tariff in late August. China responds with tariffs on equivalent values of US goods in late August. China files a complaint with the WTO Dispute Settlement Body against the January ‘solar panel’ tariffs, and following the late August tariffs on 16 billion dollars of goods, also files a separate complaint regarding this escalation. September The White House announces that the ‘further 200 billion dollars’, hinted at in June and July, is to commence in late September and will increase to 25% by the end of the year. If China retaliates, the US threatens to impose tariffs on a further 267 billion worth of imports. China retaliates by introducing 10% tariffs on 60 billion dollars of US goods. The majority of US imports into China are now subject to these retaliatory tariffs.

26 Ibid.

18 World Trade in 2018: the US and the WTO

The White House has denied that this is a ‘trade war’, but its escalating nature suggests that the term is appropriate for what is happening between the US and China. The US defends its actions, noting that its tariffs are ‘purely defensive’ and intended only to end Chinese ‘theft’ of US intellectual property. The effectiveness of the measures is highly debatable: the Financial Times reported on 8 November 2018 that Chinese exports grew by 15.6% in October, “defying predictions that US tariffs would hit demand for Chinese-made goods.”27 However, the increasing instability between the US and China is seen to be having a largely negative effect on the global economy, and other countries (like Australia) have voiced their concerns.28

The most recent development in the US-China ‘trade war’ has been a 90-day ‘truce’, agreed following a G-20 summit in Buenos Aires on 1 December 2018. This means that a planned escalation in US tariffs (from 10% to 25% on 1 January 2019) will not take place, on the condition that China buys a ‘very substantial’ amount of US products from the agricultural, industrial and energy sectors. However, if following this 90-day negotiating period, an agreement is not reached, the White House has indicated that the tariff increase will be applied.

Other ‘Trump Tariffs’ China is not the only WTO member to have been targeted by the Trump administration. Whereas there is some sympathy for US concern about China amongst other WTO members, it has alienated many of them by also subjecting them to ‘defensive’ tariff hikes.

The prime example of these are the tariffs that the Trump administration has levied on steel and aluminium originating in virtually all WTO member states—including China, but also covering allies such as the EU, the US and Mexico. The only countries that have been permanently exempted from the 25% tariff rise in steel are South Korea, Argentina, Australia and Brazil, who negotiated such exemptions with the US. Temporary exemptions existed for other countries and with regard to the 10% tariff rise in aluminium, but these have all expired as of summer 2018.

Much like China, Canada and the EU have set up retaliatory tariffs in response to the steel and aluminium tariff increases. Canadian retaliatory tariffs commenced in July 2018, covering an equivalent amount of US imports; and EU retaliatory tariffs cover 180 types of products, equating to 3 billion dollars of US goods.

The US had threatened to impose tariffs on car manufacturers if the EU retaliated against the steel and aluminium tariff, but to date this has not yet happened.

The US has defended its Chinese tariffs as being primarily ‘countermeasures’ to Chinese actions, but its steel and aluminium tariffs have been introduced on a very different legal basis. Section 232 of the Trade Expansion Act of 1962 permits, in limited circumstances, the 27 Financial Times, ‘China reports strong export growth despite US tariffs’, Gabriel Wildau, 8

November 2018 28 The Age, ‘Australia vulnerable to “full-blown trade war” as US-China tension deepens’,

Eryk Bagshaw, 16 June 2018

19 Commons Library Briefing, 4 December 2018

President of the US to introduce tariffs if imports are threatening ‘national security’ because of their volume or circumstances of importation.

While the WTO permits a national security exemption to general trade commitments, it has not been invoked since the establishment of the WTO, and has never been interpreted under the WTO’s dispute settlement system.29 However, both China and the EU opened up a WTO complaint against the steel and aluminium tariffs, in April and June 2018 respectively; and seven other countries have since followed suit, with Switzerland and India being granted requests to establish dispute settlement panels regarding the American ‘metal tariffs’ on 4 December 2014.

2.4 The Trump Administration at the WTO The WTO complaints launched about the ‘Trump tariffs’ and the variety of tariffs imposed on Chinese goods are only one way in which the Trump administration is engaging with WTO processes.

The President campaigned on an anti-WTO platform that challenged how dispute settlement operated, and in particular denounced the WTO’s panels and Appellate Body for too frequently ruling against the ‘defensive measures’ that the US built into the WTO Agreements. The administration continues to object to perceived judicial activism by these panels and the Appellate Body, and while we have not seen any concrete signs of the US actually withdrawing from the WTO—despite threats to and draft bills circulating that suggest the US intends to start ignoring its WTO obligations30—the US has found different means of limiting the reach of WTO law: the appointment process of judges to the WTO’s Appellate Body.31

At the time of writing, the number of Appellate Body ‘judges’ (known as members) is down to three – which is the minimum able to rule on WTO disputes. This is entirely due to Dennis Shea, the US’s WTO ambassador, blocking all replacement appointments to date. The current make-up of the Appellate Body results in further problems:

While the WTO can theoretically operate — at a bare-minimum level — with three judges in the Appellate Body, there are now growing legitimacy problems with the setup. The three remaining judges are from the U.S., China and India — three countries at the heart of some of the world’s most sensitive trade disputes — and judges have to recuse themselves if there are conflicts of interest from their previous careers.32

However, if further appointments are also blocked by the US, the Appellate Body will cease to be able to rule by December 2019; departing member

29 For an overview from October, see Bloomberg, ‘Major WTO Showdown Looks Harder to

Avoid as U.S., China, EU Spar’, Bryce Baschuk and Shawn Donnan, 20 October 2018. There are currently outstanding disputes on the ‘national security’ exception between Russia and the Ukraine and the United Arab Emirates and Qatar, both of which will be heard by panels before any litigation against the US is.

30 Axios, ‘Exclusive: A leaked Trump bill to blow up the WTO', Jonathan Swan, 1 July 2018 31 Reuters, ‘Trump threats, demands spark “existential crisis” at WTO’, Tom Miles, 24

October 2018 32 Politico, ‘EU calls Trump’s bluff as he takes an ax to the WTO’, Jakob Hanke and Hans von

den Burchard, 27 August 2018

20 World Trade in 2018: the US and the WTO

Ricardo-Ramirez-Hernandez described this as ‘asphyxiation’ of the WTO. The general perception is that not only would this make dispute settlement dysfunctional, but it would make all further trade negotiations within the WTO pointless, as any agreed changes to the WTO agreements would not be effectively enforceable.

The US argument has been that their position on the Appellate Body’s activism has been consistent for fifteen years, and that its primary concern is that the Appellate Body actually applies the rules set out in the WTO Agreements as set out; according to the US, this would mean permitting the US to use dumping-related trade defence mechanisms against China in the way it proposes to do.33 This is not the only US complaint about the Appellate Body’s functioning, however:

Dennis Shea - U.S. ambassador to the WTO and deputy United States Trade Representative - has said the judges have “strayed” and taken liberties with their own rules of procedure, ignoring deadlines and staying on cases after their official departure dates. Shea says such breaches may invalidate their work.34

To date, this voiced dissatisfaction with the WTO has resulted in a push for reform negotiations and the blocking of new Appellate Body members, rather than a US withdrawal from the WTO or the adoption of domestic US trade laws that expressly violate core WTO provisions. However, as the sum of US trade policy manoeuvres described in this paper so far should make clear, the US is signalling to the WTO that unless it reforms in a way that meets US concerns, it will not hesitate to ignore WTO rules and work to boycott the WTO’s ability to regulate trade. The third section of this paper will consider how reform can be achieved, given the ‘failures’ that have characterised the Doha Round (as explained in Section 1 of this paper), and what proposals for non-Doha reform have been put forward to date.

33 It is worth stressing here that the US was instrumental in drafting the provisions of the

so-called Safeguard Agreement, and its provisions are heavily influenced by, if not copies of, US law on trade remedies.

34 Reuters, ‘Trump threats, demands spark “existential crisis” at WTO’, Tom Miles, 24 October 2018

21 Commons Library Briefing, 4 December 2018

3. What next for the WTO? 3.1 Reform: US Concerns As the primary ‘complainant’ against the WTO, it is important to understand what issues the US would like to see resolved in ‘reform’ negotiations. Politico’s summary of US grievances is a helpful starting point:

First, the U.S. thinks judges should not be allowed to continue working on a case once their terms have expired. Second, it does not want WTO judgments to have precedent value. Every case should be judged independent of old cases. Third, Washington says the court should comply with a 90-day deadline for issuing reports. While that deadline is mentioned in the WTO treaties, in practice judges often take longer.

Fourth, and most crucially, Washington thinks that Appellate Body judges have “overstepped” their mandate by interpreting WTO law beyond what’s foreseen in the treaties.

United States Trade Representative Robert Lighthizer, who is spearheading the current blockage, has a long-running feud with the WTO over the level of tariffs imposed. The WTO’s Appellate Body decided in 2006 that the way the United States calculated dumping [the so-called ‘zeroing’ method] artificially inflated the duties. Lighthizer has always claimed that this was clearly an overreach by the WTO’s judges, since nothing in the WTO treaties formally forbids calculating anti-dumping duties in the more aggressive manner that Washington uses.35

As the above sections will have made clear, there are also US concerns about how WTO polices subsidised industry and intellectual property rights violations, which the US again perceives as disadvantageous:

The United States has also teamed up with the European Union and Japan to push for tighter rules on government subsidies of exports, state-owned firms and the forced transfer of technology from foreign partners, issues often raised in U.S. criticism of China’s trade practices.

They also want to end the way two-thirds of WTO members, including China, declare themselves “developing” and thereby qualify for about 140 provisions in the rules that grant benefits and more lenient treatment to developing nations. Taiwan recently won U.S. praise for voluntarily renouncing such benefits.36

The US position on how to ‘reform’ the Appellate Body appears to be best summarised by Dennis Shea’s comments at a trade summit on 4 October 2018:

We have yet to see any proposals here at the WTO. People say ‘where’s your list of negotiating demands?’ We already agreed,

35 Politico, ‘EU calls Trump’s bluff as he takes an ax to the WTO’, Jakob Hanke and Hans von

den Burchard, 27 August 2018 36 Reuters, ‘Trump threats, demands spark “existential crisis” at WTO’, Tom Miles, 24

October 2018

22 World Trade in 2018: the US and the WTO

negotiated a system (when the WTO was created) in 1995 and the Appellate Body has strayed from that system.37

As for wider reform of the WTO rules, there is no known US position available.

3.2 Reform Proposals The EU, as shown in section 3.1 above, shares some of the US concerns. It has produced reform proposals to address both US concerns about dispute settlement and about the means in which anti-dumping and subsidies are handled under the current WTO rules. The Center for Strategic and International Studies summarises the 18 September 2018 EU Commission ‘concept paper’ as such:

These proposals aspire to level the playing field between member states by creating stronger rules and definitions governing state-owned enterprises and “market-distorting subsidies.” The EU paper also calls for improving transparency and subsidy notifications from member states, removing investment barriers in service industries, and adopting specific rules to discourage forced technology transfers. These recommendations encourage stronger punitive measures against repetitive or intentional non-compliance from member states.

Regarding the Dispute Settlement System, the concept paper recommends expanding the Appellate Body panel from seven to nine judges, redefining membership of the Appellate Body from part-time to full-time, and allotting more resources to the Appellate Body Secretariat.38

These proposals in many ways reflect separate proposals for reform published by the International Monetary Fund, the World Bank and the WTO itself on 30 September 2018, although those also go further in some other areas:

The WTO, IMF and World Bank jointly called for new rules to address the expanding role of electronic commerce along with investment and services trade in the 21st century.

"The opportunities provided by information technology and other fundamental changes in the global economy are yet to be reflected in modern areas of trade policy," the report said.

The three institutions also advocated the more so-called use of plurilateral talks to help unblock trade negotiations that have failed to advance at the multilateral level.39

The EU position on ‘market-distorting subsidies’ is very similar to the US position, but the parties diverge greatly on dispute settlement. The reforms proposed by the EU regarding the Appellate Body in particular have been met with disapproval by the US:

37 EURACTIV.com with Reuters, ‘US says it cannot support some of EU’s ideas for WTO

reform’, 5 October 2018 38 Center for Strategic and International Studies, ‘WTO Reform: The Beginning of the End or

the End of the Beginning?’, Jack Caporal, 23 October 2018 39 Bloomberg, ‘WTO, IMF, World Bank Seek “Urgent” International Trade Reforms’, Bryce

Baschuk, 30 September 2018

23 Commons Library Briefing, 4 December 2018

US Ambassador Dennis Shea told a packed audience at the WTO that the United States could not accept EU ideas for reforming the WTO’s Appellate Body, effectively the supreme court of world trade, by giving the judges longer, single terms and giving the secretariat more funding. “Our view is that that means less accountability for the Appellate Body. We cannot support something that makes the Appellate Body less accountable,” Shea said.40

A further meeting on 24-25 October 2018 between 13 WTO members, including the EU, excluded both the US and China as these early discussions of reform were seen as more likely to lead to successful outcomes if they were between ‘likeminded’ countries:

[Canadian trade minister Jim] Carr said the group of countries he’s convened ultimately wants to persuade Washington of the continued usefulness of the WTO, but for now the best way forward is without the U.S. in the room.

“We think that the best way to sequence the discussion is to start with like-minded people, and that’s whom we have invited and they’re coming,” Carr told The Canadian Press.

“Those who believe that a rules-based system is in the interests of the international community will meet to come up with a consensus that we will then move out into nations who might have been more resistant.”41

The outcome of the Canadian ministerial gathering was an agreed general commitment to WTO reform – but without specific commitments, and without input from less ‘like-minded’ WTO members.

The ‘like-minded’ countries unveiled a formal proposal to ‘overcome the current deadlock’ in the Appellate Body on 26 November, to be presented before the WTO General Council on 12 December 2018. In summary, the proposal suggests the following measures to address US concerns:

- Putting in place new rules for outgoing Appellate Body members which make clear in which cases they can stay on to complete the appeal proceedings they are working on;

- Ensuring that appeal proceedings are finished on time in line with the 90-day timeframe set out in the WTO rules, unless the parties in the dispute agree otherwise;

- Clarifying that the legal issues that are subject to appeal by the Appellate Body do not include the meaning of domestic legislation;

- Indicating that the Appellate Body should only address issues necessary to resolve the dispute;

- Introducing annual meetings between WTO members and the Appellate Body to discuss in an open way systemic issues or trends in jurisprudence.42

40 EURACTIV.com with Reuters, ‘US says it cannot support some of EU’s ideas for WTO

reform’, 5 October 2018 41 Global News, ‘U.S. not invited to Canada’s upcoming trade meeting—only “like minded”

nations allowed’, Mike Blanchfield, 4 October 2018 42 European Commission, ‘WTO reform: EU proposes way forward on the functioning of the

Appellate Body’, 26 November 2018

24 World Trade in 2018: the US and the WTO

The EU, co-sponsored by China and India, has separately put forward proposals to ‘reinforce the Appellate Body’s independence and impartiality and to improve its efficiency’, which include proposals for longer terms for judges (6-8 years) as well as increasing their numbers (7-9 working full-time). As noted, the US is not a formal sponsor of any of these proposals.

At the 1 December 2018 G-20 summit in Buenos Aires, the G-20 also discussed WTO reforms and, at US insistence, formally noted in its meeting communique that the WTO was ‘currently falling short of its objectives and there is room for improvement’. However, no further proposals for change were included in the communique, which only noted that the G20 ‘support the necessary reform of the WTO to improve its functioning’.

The 12 December WTO General Council meeting resulted in the US rejecting the EU’s two tabled proposals to resolve the WTO dispute settlement system:

“The proposals would not effectively address the concerns that members have raised,” Deputy U.S. Trade Representative Dennis Shea said in prepared remarks seen by Bloomberg. “With respect to the proposal advanced by the European Union, China, and India, it is hard to see how it in any way responds to the concerns raised by the United States.”

The crisis surrounding the Appellate Body consequently continues to date, with no solutions that are acceptable to the US on the horizon.

25 Commons Library Briefing, 4 December 2018

4. The WTO and the UK post-Brexit Upon leaving the EU on 29 March 2019, the UK will retake full control of its representation at the WTO. It will be a member that may not have approved schedules, and there are indications that there will be challenges to the intended UK approach to rolling over existing EU trade agreements to the UK43 and the UK’s allocation of EU tariff-rate quotas44 – but in principle the UK will be able to participate in WTO proceedings and benefit from WTO commitments from 30 March 2019 onward.

As the WTO is failing to ‘negotiate’ a way forward, it is very heavily dependent on the dispute settlement system to offer opinions on controversial issues, which has fuelled the US’s protests of the Appellate Body mechanism. There is thus a circular set of ‘crises’ happening at the WTO, and it is not clear how either will be resolved.

A few observations about the current global trading environment and what its consequences will be for the UK outside the EU can be made:

1. The UK’s WTO rights may be more difficult to enforce at the WTO in practice in the absence of a fully functioning dispute settlement system.

2. Reform is both urgent and very difficult to achieve urgently; the Doha Round is an extreme example of slow progress, but disagreement between key members on how to ‘fix’ the WTO means that even more limited reform (intended to keep the US in the WTO) will be a challenge.

3. The areas in which the WTO is seen as needing reform the most include those that are key components of the UK economy; this is particularly true for services liberalisation and e-commerce, which is much more limited under the WTO regime than it is under EU rules.

4. Regardless of progress at the WTO, bilateral trade agreements are the primary basis on which most countries are currently advancing their policy, and the UK (under the terms of the EU’s Common Commercial Policy) cannot conclude any new ones until after it has left the EU.

43 Financial Times, ‘UK has rolled over only 14 of 236 EU international treaties’, James Blitz

and George Parker, 29 October 2018 44 Financial Times, ‘Trade partners attack EU plan for post-Brexit import quotas’, Jim

Brunsden, 12 November 2018

BRIEFING PAPER Number 08465 4 December 2018

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