Author: Editorial Board, ANU
Three and a half years ago the world trading system confronted the threat of its rules becoming unenforceable as the World Trade Organization (WTO)’s Appellate Body seized up amid US objections to its jurisprudence.
This wasn’t merely some arcane bureaucratic spat. The Appellate Body is a cornerstone of the WTO, itself the culmination of a decades-long process of building a rules-based international trading system that stands as one of the greatest achievements of international politics. In its absence, the WTO is unable to meaningfully conclude trade disputes between its members, with many disputes effectively appealed ‘into the void’.
The multilateral trading system, grounded first in the 1947 General Agreement on Tariffs and Trade (GATT) and, from 1995, the WTO, gave countries confidence in opening up their economies and relying on international markets to secure energy and strategic raw material imports that, in the 1930s and before, were more commonly acquired through imperial conquest. With countries largely free from feeling exposed to economic openness being used as a weapon against them, trade policy and economic exchange could largely be pursued separately from the high politics of national security considerations — and trade disputes be resolved without resort to diplomatic or military conflict.
As Arata Kuno explains in this week’s lead essay, ‘there have been more than 600 cases dealt with under [the] WTO [dispute settlement] regime’. But ‘the WTO’s Appellate Body has been non-functional since December 2019 due to US vetoes of the appointment of judges, with the United States claiming Appellate Body overreach’.
US objections to Appellate Body jurisprudence were just the tip of the iceberg of scepticism about the free-trade ethos the WTO embodied, felt acutely in the parts of the United States that were left behind by the country’s flawed response to globalisation, as well as among politicians who felt that China had unfair advantage.
Some think that welcoming China into the WTO was a mistake. A mistake for whom? It helped lift hundreds of millions of people out of poverty — not just in China. It has embedded a market economy in the PRC, entrapment from which no Chinese political leader can escape except at huge cost. China’s growth brought security and prosperity to many in the global economic community.
To be sure, the criticisms the US has made of the WTO are not without some merit. An inability to modernise the WTO rulebook has meant rules are out of date or even absent in emerging areas like the digital economy. With all 164 members effectively having a veto — empowering serial spoilers like India — rulemaking has been difficult, but not impossible.
Both China and the United States are acting as major powers will do when they feel they can get away with ignoring rules. China has used its economic muscle against Japan, South Korea, Australia and others in failed attempts to change their policies.
Meanwhile, the United States is trying to out-China China via the CHIPS and Science Act and Inflation Reduction Act, an embrace of industrial policy and trade favouritism that makes the US energy transition more expensive and violates the global trade rules that the United States used to enforce.
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