WTO Members Work to Overhaul Trade Watchdog Amid Trump’s Criticism

By Jacob M. Schlesinger in Washington, Paul Vieira in Ottawa and Emre Peker in Brussels (Wall Street Journal)

Updated Oct. 23, 2018 5:28 p.m. ET

Failure to meet U.S. demands could leave global commercial court in limbo: ‘Every case potentially becomes a trade war,’ one WTO official says

President Trump’s complaints about the World Trade Organization have prompted American allies to seek ways to overhaul the body before the U.S. protest effectively cripples the global commercial arbiter by the end of next year.

In the broadest such effort, Canada is hosting a summit opening on Wednesday with a dozen other partners to build support for changes addressing Washington’s criticisms, including concerns that the WTO doesn’t do enough to publicize and penalize trade distorted by government subsidies and weak intellectual-property protections, practices seen as particularly common in China.

The Trump administration also complains the WTO gives too much flexibility to developing countries to skirt rules applying to more advanced economies, and has been too slow to update rules for digital commerce.

Some of Washington’s arguments resonate with other members. “If the WTO is not reforming itself, it risks becoming irrelevant, and that would be a disaster,” the European Union’s trade chief, Cecilia Malmstrom, told reporters this month.

While the meetings are intended to accelerate the first serious WTO restructuring debate in a quarter century, summit participants don’t expect decisions from the two-day session. That is in part because neither the U.S. nor China—the two largest WTO members and the main protagonists in the tensions within the body—were invited. That leaves uncertain the question of whether the slow-moving organization can reach consensus on changes demanded by the U.S. at the pace the U.S. wants.

The members are working against an informal deadline of December 2019. That is when the WTO legal system will grind to a halt unless the Trump administration lifts its veto blocking appointment of new judges to the Geeva court mediating trade disputes among its 164 members.

Washington has used its veto power to cut the size of the seven-judge court down to three members, the bare minimum needed to hear a case. The terms of two of those remaining judges expire Dec. 10, 2019. If they aren’t replaced, the WTO’s “appellate body” will effectively shut down, leaving the organization’s dispute-settlement powers in limbo.

Under that scenario, “every case potentially becomes a trade war,” Alan Wolff, a deputy director-general of the WTO, warned in a recent speech. “The state of nature applies.”

While Mr. Trump has periodically threatened to pull the U.S. out of the WTO altogether, there is no sign he is planning to do so anytime soon. But his criticism has lent a degree of urgency that members say they haven’t witnessed since the organization’s 1995 founding. The U.S. was the driving force behind the WTO’s creation during the heyday of globalization, pushing for common, enforceable rules governing international commerce.

Mr. Trump has repudiated the longstanding American establishment consensus favoring commercial globalization, which he described at a Texas rally Monday night as the “rule of corrupt power-hungry globalists” who want “the globe to do well” and who don’t “care about our country so much.”

For the past two decades, the U.S. has been the organization’s leading defender. WTO advocates say the body’s ability to arbitrate trade fights helped quell a Great Depression-like trade war during the 2008 financial crisis.

His aides argue the WTO undermines American sovereignty and treats the U.S. unfairly. They accuse the trade court of judicial overreach, improperly tying Washington’s hands in protecting American companies from what they consider unfair foreign competition.

The Trump complaints echo some made by earlier administrations, albeit not as vociferously, and are shared in some form by U.S. allies. As a result of pressure from Washington—Mr. Trump’s “disruptively constructive leadership,” as his WTO representative, Dennis Shea, puts it—a number of overhaul efforts have been launched in recent months.

The EU and Canada have released their own blueprints for WTO revision, and European Commission President Jean-Claude Juncker signed a joint statement with Mr. Trump at a July White House meeting pledging to “work closely together with like-minded partners to reform the WTO and to address unfair trading practices.” Japan has been active as well, facilitating a joint push to update global trade rules with the U.S. and EU on the sidelines of a WTO gathering in December.

This week’s Ottawa meeting will include a diverse range of members, including Australia, Mexico, Kenya and Singapore. Canadian Trade Minister Jim Carr said in an interview that his strategy was to start the discussion with “middle powers,” to “maximize the chances of building up a critical mass that can be rolled out to others.”

Beyond the body’s laborious decision-making process, another challenge will be reaching consensus under current circumstances, since a core U.S. demand is that the WTO unite in doing more to brand illegal—and punish—many Chinese trade policies, a position Beijing and its allies are unlikely to embrace.

Many countries “want to be middle-of-the-roaders when, in fact they really need to pick a lane,” Mr. Shea said in a talk this month at the Center for Strategic and International Studies in Washington.

Europeans reject that framing, stressing the need for Chinese support. To that end, Brussels persuaded Beijing in July to work on a separate WTO effort with the EU, positioning the 28-member bloc as a potential arbiter between the two feuding titans.

“WTO reform cannot be done against this or that partner,” an EU trade official said. “We are in a privileged situation because we are part of all these different processes.”

The big question hanging over the WTO is just how hard a line the Trump administration intends to take over the next year—whether serious debate is sufficient to lift the judicial blockade, or swift, concrete action is necessary.

“We’re not going to kick down the road these substantive concerns for several more years,” Mr. Shea said. Asked if the U.S. felt urgency to keep the WTO courts functioning past next year, he demurred, saying, “We’ll see.”

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com, Paul Vieira at paul.vieira@wsj.com and Emre Peker at emre.peker@wsj.com

Appeared in the October 24, 2018, print edition as 'WTO Members to Address Trump’s Criticism.'

RELATED

· Capital Account: For U.S. to Stay in WTO, China May Have to Leave

· When the World Opened the Gates of China

· China Defends WTO Record as Trade Fight Looms