The Wto - Prospects and Impacts of a Collapse on the Company

Published: 2021-06-17 08:14:23
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Regrettably, with Trump’s election there has been a change of course in the US’ relationship with the World Trade Organization. More specifically, Mr. Trump is attempting an “assault” on the WTO system, whose impact could be massive indeed – with the intention of weakening it in the process. In the light of the difficulties arising from this situation, I have subdivided my response into three section. First, I will turn my attention to a possible violation of WTO-law by WTO-Members in the current trade war. Then, I will analyze the possible repercussion of a breakdown of the WTO. Finally, I will discuss the prospect of an imminent end of the trade war.
Regarding a possible violation of WTO-law in the current trade, Trump’s actions have drawn widespread attention, along with raising myriad legal issues. De facto, he jeopardizes the entire free-trade infrastructure by erecting new trade barriers.First of all, it can be inferred from the articles that Trump does not seem comply with his obligation to maintain tariffs below the bound rate, by taking the protectionist and unilateral measure to impose additional customs duties on steel and aluminum products. However, according to WTO law, its members are exceptionally allowed to impose additional tariffs in cases of national emergency. Trump exploits this loophole under the guise of an alleged threat to national security, which makes it possible to avoid a WTO violation.
In addition, it also appears that he does not comply with his duty to treat every partner the sameway (in accordance with the “most-favored nation” principle), given he wants to impose tariffs on imports from China in general, which is therefore discriminating. Another factor that should not be neglected, is that America has caused a blockade of the Appellate Body, Trump having refused to fill vacant places in the Supreme court. Since the principle of unanimity applies and America withholds from reappointing new judges, after 2019, the Court will not have enough judges to hear a case. At the same time, the constant WTO legal troublemaker China, who has repeatedly been asking for a special treating and been reluctant in joining the WTO, exploits the gaps in the WTO’s rulebook. Particularly, China’s economy and industrial policies have raised concerns, as they are largely regarded as subsidized and state-controlled. That is why Americans are accusing it of “defying the spirit, if not the letter of the rules of the WTO”. On the other hand, trading partners, notably the EU, have been quick to consider countermeasures. Nevertheless, it seems that, for now, the EU is the only trading partner that is trying to “strike back within the rules.”
Concerning a hypothetical collapse of the WTO, there is not really anything pleasing to report for the business. It will undoubtedly cause irreparable harm as the WTO covers 97% of world trade. It will weaken world trading and reduce trade opportunities. As indicated by various Nobel Prize-winning economists , the market will not function correctly in absence of an institutional framework providing predictability and stability. In fact, it does not only impose a threat to global trade but will also have significant repercussions on both “international and domestic political, economic, investment, and security” matters. Without WTO law, nothing can stop countries from unilaterally increasing tariffs, causing retaliatory tariffs as a response and clashing trade sanctions. Undeniably, if tariffs were to rise even above “prior-WTO-tariffs”, this could be a contributory factor in an ensuing recession worse than the one following the financial crisis. On the long run, this will also be likely to generate a general dwindle in world trade. In fact, after the failure of the Doha Round, Jean‐Pierre Lehmann, founder of the Evian Group and Swiss economist, had already predicted that “trade could become more regional, discriminatory, and there will be more conflicts”. Over the past years, this has indeed proven to be an accurate prognosis. Moreover, in case of a breakdown of the WTO, it will become necessary to replace it by signing bilateral treaties and regional agreements. As a matter of fact, free trade agreements (‘FTAs’) have already flourished. This is a legitimate reaction, since less participants means less difficulties in crafting terms that are equally beneficial for all parties involved. However, this is a very controversial issue amongst economists as it leads to a “spaghetti bowl” of rules and regulations, creating a much more complicated legal environment than under the WTO. In addition, this would lead to larger price gaps across borders, since the US would lose its MFN trading status. Conversely, member states would not have to apply MFN tariffs anymore and thus hit others with freely determined tariffs. As a consequence, that system would more closely resemble the elder one: an international order in which countries would make sure that their domestic interests have prevalence and protect themselves from foreign competition. It should also not be forgotten that a collapse of the WTO would involve loss of that access to a crucial forum for dealing with trade disputes. Indeed, they WTO played a large role in encouraging member states to solve their disagreements “peacefully and rationally”. In a world without the WTO, in case of a trade dispute between two countries, the economically strongest of the two would probably have an advantage. A smaller country would also think twice before defying a bigger one.
Overall, along with implicit or explicit threats to introduce quantitative restrictions on products, trade might also be used as a “political weapon” to hurt rivals . In our specific case, the collapse of the WTO will have non-negligible impact for the company, as it relies on foreign markets. It is likely that imposed American tariffs will weaken the company’s ability to compete in the US market. Even if President Trump manages to secure a better deal by taking unilateral actions against China than under WTO law, it is quite improbable that the same can be said about trade relations with Europe outside the WTO.
Finally, about the prospect of an imminent end of the trade war, the following is an attempt to present the probable actions of the Trump administration towards China. In this regard, the power of the federal courts should not be underestimated. It must be stressed that executive actions involving trade are reviewed by both the federal courts and by WTO’s dispute settlement, which controls their consistency with international duties. The “Youngstown Sheet & Tube v. Sawyer” case can be cited to illustrate this judicial review. The Supreme Court limited the President’s power by deciding that his actions were unconstitutional, seeing that they were contrary to current legislation. In fact, authorizing trade restrictions is exclusive authority of the U.S. Congress. Thus, it is still able to end the trade war by invalidating Trump’s trade actions. Even if “the President has assembled the most antitrade team of presidential policy advisers since the 1920s”, it should be taken into account that Lightthizer recognizes the worth of the this extremely useful organization . In addition, China hawks within the Trump administration will also have countervailing power in the White House. Besides, the article also mentions that Trump’s tariffs have “prompted a bipartisan chorus of disapproval”. It is commonly acknowledged that by imposing tariffs on intermediate goods such as steel, their price is raising accordingly, which subsequently affects local manufacturers using steel for their production. It is also conceivable that this might provoke a wave of job loss in those industries. Furthermore, Trump’s tariffs on Chinese imports will also harm American firms, like Apple, that have production sites in China.
Eventually, both countries will suffer heavy losses sides, with the disadvantages ultimately outweighing the advantages. Even in times of “America first”, China remains a vital trading partner, a circumstance that could allow the EU to act as “a bridge between China and America.” As other trade agreements pursuing tariffs reductions without the Unites States are also rapidly multiplying, that might become an incentive for the US and China to settle its difference with China by negotiating and cooperating. Otherwise, the United States will run the risk of its exports not being truly competitive anymore and face greater trade obstacles. But in order for development to take a calmer course, the existing legal framework should not be overlooked anymore and then, maybe just like in February 1995, a trade war between the USA and China will literally be avoided at the last minute by negotiating. In the past, there have also been quite a few extensive pauses in GATT activities. Yet, contracting parties have always resumed bargaining as soon as they were open for discussions again.

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