US-China trade

When the US fell out of love with Geneva

John Clarke

Published 19 March 2024

The US went from champions of multilateralism to clearly falling out of love with the system in recent years. Some point to China’s accession to the WTO; others point to the WTO’s judicial overreach. But America’s disillusionment goes back paradoxically to the time Washington planted the seeds that created the WTO.

The World Trade Organization’s Ministerial meeting closed in Abu Dhabi with scant results. The agreements to keep on talking cannot hide the fact that the conclave, broadly speaking, did little more than keep the WTO on life support.

WTO Director-General Ngozi Okonjo-Iweala’s valiant attempts to put a positive spin on the outcome reminded me of the Monty Python "Dead Parrot Sketch", a British satire in which a shopkeeper rebuffs a customer trying to return a dead parrot – sold as a fictitious species "Norwegian Blue" – by insisting that the parrot is variously stunned, resting, or just "pining for the fjords."

Ironically, the US, co-founder of both the WTO and its predecessor General Agreement on Tariffs and Trade, is probably satisfied with the outcome. Washington wanted the e-commerce moratorium but was not ready to make any trade-offs for it. It did not want to see progress towards restoring the WTO Appellate Body. It was adamantly against reform of agricultural subsidies in light of US$20 billion worth of trade-distorting support it pays annually to its farmers, especially in an election year. It could live without a fisheries agreement, if the alternative were to allow unreported Chinese trawling the high seas or a free pass for Indian fishers.

While most commentaries blame Indian intransigence for MC13’s failures, the United States was also responsible for the impasse in Abu Dhabi, given how it blocked especially dispute settlement reform and the agriculture agenda. Just as in past ministerials, the US and India extended a pattern of collusion on agricultural reform that has been evident since at least 2008.

When love breaks down

The American relationship with the WTO may as well share the title of a fine song released in 1995 by the English pop band Prefab Sprout. The song and multilateral body are of the same vintage and narrative. The US went from champions of multilateralism, notably in the 1980s and early 1990s that produced the success of the Uruguay Round and the creation of the WTO, to clearly falling out of love with the system in recent years.

What happened?

Many commentators point to China’s accession to the WTO, often blaming China’s exploitation of loopholes in the multilateral system for producing persistent and large trade surpluses with the US.

Other commentators point to US concern over the WTO’s judicial overreach. WTO rulings against the US in successive cases have increasingly infuriated US officials, prompting the US to block appointments to the Appellate Body – the WTO’s court of appeal – resulting in its effective asphyxiation.

But America’s disillusionment with the multilateral ideal goes further back – paradoxically, to the time Washington planted the seeds that created the WTO’s modern form.

I was witness to US efforts to stall multilateral negotiations in the years immediately following the conclusion of the Uruguay Round. At the Singapore Ministerial of 1996, with the ink barely dry on the WTO Marrakesh Agreement, an impatient Europe sought to launch WTO work programs on competition, investment, transparency in government procurement, and trade facilitation. But the US was not at all interested in new competition rules in the WTO and saw no great need for investment rules, preferring to negotiate bilaterally with emerging economies over which it had great leverage. Washington was not going to pay any price to get a deal on transparency in government procurement. Even on trade facilitation, the Americans favored only a surprisingly narrow agenda.

From Washington Consensus to American exceptionalism

I participated in many discussions between European Union and US interlocutors between 1998 and 2005 featuring US Trade Representative Robert Zoellick, European Trade Commissioner Pascal Lamy, and a large cast of their often equally luminary officials, in which the EU tried largely in vain to secure US buy-in to the four working groups Europe tried to launch in 1995, dubbed the "Singapore issues". It was still an era when a common EU-US position could virtually guarantee success. The US played a patient game in which the EU did almost all the talking, to little avail. The Zoellick-Lamy relationship, while always warm, moved from Zoellick being the rookie at Lamy’s feet to Zoellick chiding Lamy on what to do by 2005.

In fact, if one looks at the history of the WTO and GATT, one must observe that the US has historically been ambivalent about subjecting its laws to multilateral governance. Cast our gaze back to 1945 and the abortive attempt – blocked ultimately by Congress – to establish an International Trade Organization (ITO) as the third Bretton Woods Institution alongside the International Monetary Fund and the World Bank. Congress was unwilling to ratify the ITO, believing it would intrude unduly on domestic economic policy making, which they wanted to remain the prerogative of the US legislator. Hence GATT – the tariff and non-tariff barrier segment of the ITO salvaged from the wreckage of Havana, where final negotiations for the founding of the ITO fell apart – became the sole means to coordinate global trade policy, armed only with dispute settlement teeth sufficiently weak to enable the US – and the EU – to block any panel finding that would require these titans to change their laws.

And even when GATT was transformed into the WTO in 1995, Congress added an explicit procedure allowing it to reconsider WTO membership every five years. Such resolutions were introduced in Congress (but thankfully failed) in 2000, 2005, and most recently in 2020, by Trump supporter Sen. Josh Hawley (R- Missouri).

There is a pattern. The deep-seated US aversion to subjecting its domestic laws to international institutions or foreign courts is the same US exceptionalism that explains American hostility to the WTO’s judicial function. It also explains America’s refusal to join the International Criminal Court and other international bodies.

Bliss was it in that dawn to be alive

Seen from this perspective, the US’ buoyant embrace of multilateralism during the Uruguay Round, its readiness to end unilateral trade measures, and subject American laws to unelected WTO panels, were an aberration. The period roughly from 1989 to 1995 represented the high-water mark of Western hegemony over globalization. The fall of the Berlin Wall and the collapse of Communism affirmed the supremacy of the North Atlantic model. These were the glory days of the European single market, the North American Free Trade Area, and the WTO, expressed in the triumphalism of Francis Fukuyama’s 1992 paean "The End of History" and the completion in 1989 of a giant glass pyramid at the Louvre Palace, President Francois Mitterrand’s extravagant statement on the modern transparency of contemporary globalization placed right in the front yard of a French monument to the Renaissance.

The successful conclusion of the Uruguay Round was a tectonic shift in global economic and political affairs. America had won.

The negotiating method and climate in Geneva in the 80s and early 90s were also significantly different from today. Fewer members made negotiations easier. A non-interventionist Director General (called Executive Director at the time) told ambassadors to sort out their differences amongst themselves. Geneva-based ambassadors did most of the work, unlike today’s system of leaving decision-making to mostly futile mini-ministerial meetings. Above all, a high degree of trust, even complicity, between the ambassadors themselves was key. I recall well the strong relationship between EU ambassador Paul Tran Van-Thinh and US ambassador Rufus Yerxa, which was instrumental in putting together a balanced package that embodied the Uruguay Round and persuaded the US to bring its laws under the jurisdiction of the WTO.

There is no such trust today, and it will take time to rebuild it.

"The past is a foreign country…"

…is the famous opening line of L.P. Hartley’s 1953 novel The Go-Between, a coming-of-age classic about how history sometimes provides a guide for the future. Reflecting on the heady events in the early 1990s, at least four things will need to emerge now if the US is to find faith again with multilateralism.

First, WTO members will have to take more seriously the US’ deep-seated reservations over the WTO’s dispute settlement system and, as with all negotiations, swallow some pride, and be ready to meet the US halfway for reasons of broader public interest. This is not out of reach. Members are beginning to signal that they recognize this need.

Secondly – and now it becomes more difficult – the US will have to accept that it is increasingly one of three or four players in a multipolar world and there is no going back to an earlier era. China is here to stay and is not going to become weaker as a force with a role to determine global affairs. One will have to cooperate with China, not ostracize it. This will take both imaginative leadership in the US and elsewhere as well as concrete changes in Chinese economic policy. So far there is scant evidence of such a shift.

Thirdly, it may take a major exogenous shock to prompt the major trading powers to set aside their internecine quarrels and cooperate multilaterally again. September 11, after all, did contribute to the decision to launch the Doha Round. This mind-focusing event could be an escalation in the conflagration of current wars; a major and dramatic shock to global food security; or/and a major climate event.

And there is a fourth intangible catalyst. It is what New Zealand’s former Trade Minister Tim Groser often referred to as "an alignment of the stars". Call it chance or serendipity, perhaps most easily imagined as the arrival on the scene by individuals who can change the narrative and turn conflict into cooperation.

I consider the likelihood of this concatenation of circumstances to be highly unlikely. The US and others, including China and the EU, are moving in the direction of disengagement rather than international cooperation. A return anytime soon to the once-in-a-generation heyday characterized by the early 1990s is hard to envisage. When love breaks down, we join the wrecks.

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