Transition from WTO to TTC

After long championing the World Trade Organization (WTO) and its predecessor GATT as the key venue for pursuing its commercial economic interests, the United States shifted more than a decade ago toward building alternative trade architecture.

President Barack Obama’s Trans-Pacific Partnership was aimed at crafting an Asia-Pacific trade bloc that left out China, a plan that was upended by his successor. Now, there’s a new body that warrants close attention, United States-European Union Trade and Technology Council (TTC).

Opened for business in 2021, the TTC this week held its third minister-level gathering. Originally designed by the Biden administration to resolve and manage disputes, it’s been evolving into a forum for coordinating economic approaches to systemic rivals of the US and Europe, specifically Russia and China, reports Bloomberg.

With TTC links between Washington and Brussels bureaucrats set up last year, the council found fresh purpose with Russia’s February invasion of Ukraine, enabling more effective coordination on sanctions and export controls.

The TTC reaction to Vladimir Putin’s aggression is also serving as something of a template for China, should Xi Jinping choose to make war on Taiwan. Indeed, there’s already evidence the TTC is emerging as a forum for the US and Europe to link up on issues concerning Beijing.

On December 05, 2022 the TTC served as a venue for discussing President Joe Biden’s push to hobble China’s semiconductor industry. Coincidentally, Dutch officials are already planning new controls on exports of chip-making equipment to China, potentially aligning with the US efforts to restrict Beijing’s access to high-end technology.

Germany, France and other EU members remain much more hesitant to embrace aggressive moves toward reducing China’s place in global supply chains. German Chancellor Olaf Scholz’s visit to Beijing last month with an entourage of business leaders from his country showcased that dynamic.

But the TTC now provides a permanent venue in which moves against China can be debated. With the WTO’s ability to rule on controversial trade measures effectively crippled by its inability to hear appeals (thanks to Donald Trump), the TTC is fast becoming the West’s preferred platform for hashing out global trade strategy. 

The TTC, along with the less formal US-Japan initiative and Biden’s even-looser Indo-Pacific Economic Framework, aren’t technically focused on tariffs and quotas in the way traditional trade-talk forums or free-trade agreements were. 

Instead, these are aimed at the “soft infrastructure” of global commerce—standards, export controls, transparency requirements, investment reviews and labor and environmental rules, explains Stephen Olson, a former US trade negotiator now at the Hinrich Foundation. 

“The parties are essentially creating ecosystems,” Olson wrote in a note earlier this year. “Integration deepens not as a result of trade-barrier reductions, but rather in response to the need or desirability of doing business with partners that maintain similar labor protections or adhere to compatible technical standards.”

Underscoring the strengthening of US-European digital diplomacy—and an apparent determination to manage differences (like EU tax and regulatory policy toward US tech giants), the EU even opened an office in Silicon Valley.

There of course remain plenty of trans-Atlantic disputes, highlighted by European fury over Biden’s clean-energy and electric-vehicle subsidies in this year’s massive Inflation Reduction Act. This week’s TTC gathering, it turned, out provided another chance to address those.

But the council could become increasingly important in other ways, especially as digital trade and associated regulations develop. The TTC gathering in September of last year called out authoritarian regimes for aiming to use technology to implement social control at scale.

Benjamin Larsen wrote in a Brookings Institution paper this week that the TTC can be viewed as the beginning steps towards forming an alliance around a human rights-oriented approach to the development of artificial intelligence in democratic countries.

In May, the two sides of the TTC took strides in another direction, agreeing to set up a Strategic Standardization Information mechanism to share information on international standards development—an area of increasing Chinese interest, as this newsletter highlighted.

The next TTC session is slated for mid-2023 in Europe. It will likely be a forum well worth watching

 

 

 

WTO appoints first woman and African head

Nigerian economist, Ngozi Okonjo-Iweala has been appointed to head World Trade Organization (WTO), becoming the first woman and first African to take on the role amid rising protectionism and disagreement over how the body decides cases involving billions in sales and thousands of jobs.

Ms Okonjo-Iweala, 66, was named Director General by representatives of the 164 countries that make up the WTO, which deals with the rules of trade between nations based on negotiated agreements.

She said during an online news conference that she was taking over at a time when the WTO was "facing so many challenges".

"It's clear to me that deep and wide-ranging reforms are needed … it cannot be business as usual," she said.

Her first priority will be quickly addressing the economic and health consequences of the COVID-19 pandemic.

Strategies may include lifting export restrictions on supplies and vaccines, and encouraging the manufacturing of vaccines in more countries.

Other big tasks include reforming the organization’s dispute resolution process and finding ways for trade rules to deal with change like digitalization and e-commerce.

She takes over after four turbulent years in which former United States president Donald Trump used new tariffs, or import taxes, against China and the European Union to push his America-first trade agenda.

"It will not be easy because we also have the issue of lack of trust among members which has built up over time, not just among the US and China and the US and the EU … but also between developing and developed country members and we need to work through that," she said.

I absolutely do feel an additional burden, I can't lie about that ‑ being the first woman and the first African means that one really has to perform.

"All credit to members for electing me and making that history, but the bottom line is that if I want to really make Africa and women proud I have to produce results, and that's where my mind is at now."

The appointment, which takes effect on 1st March 2021, came after United States President Joe Biden endorsed her candidacy, which had been blocked by Trump.

Biden's move was a step toward his aim of supporting cooperative approaches to international problems after Trump's go-it-alone approach that launched multiple trade disputes.

But unblocking the appointment is only the start in dealing with US concerns about the WTO that date back to the Obama administration.

The US had blocked the appointment of new judges to the WTO's appellate body, essentially freezing its ability to resolve extended and complex trade disputes.

The US Government has argued the trade organization is slow-moving and bureaucratic, ill-equipped to handle problems posed by China's state-dominated economy, and unduly restrictive on US attempts to impose sanctions on countries that unfairly subsidies their companies or export at unusually low prices.

Chad P. Bown, senior fellow at the Peterson Institute for International Economics, said unblocking Ms Okonjo-Iweala's appointment was "a very good first step" in re-engaging with the WTO.

In particular, the WTO faces "a ticking time-bomb" in the form of other countries' challenges to Trump's use of national security as a justification for imposing tariffs, a little-used provision in US law rejected by key US trading partners in Europe.

Ms Okonjo-Iweala has been Nigeria's finance minister and, briefly, foreign minister, and had a 25-year career at the World Bank as an advocate for economic growth and development in poorer countries.

She rose to the number two position of Managing Director, where she oversaw US$104.1 billion in development finance in Africa, South and Central Asia, and Europe.

In 2012 she made an unsuccessful bid for the top post with the backing of African and other developing countries, challenging the traditional practice that the World Bank is always headed by an American.

She has a bachelor's degree in economics from Harvard University and a PhD in regional economics and development from the Massachusetts Institute of Technology.

South Korean Trade Minister Yoo Myung-hee withdrew her candidacy, leaving Ms Okonjo-Iweala as the only choice.

Her predecessor, Roberto Azevedo, stepped down on 31st August 2020, a year before his term expired.

Trade will be the toughest test for Biden’s foreign policy

Joe Biden campaigned to restore America’s standing in the world by repairing ties with the US allies, create greater domestic equity through improvements in the Affordable Care Act and aggressive efforts to advance the interests of women and minorities, and accelerate US efforts to reduce greenhouse gases.

Biden can’t accomplish these massive programs without big deficits or taxes, which a Republican Senate is not likely to permit. He could pay his campaign debts with surgical improvements to the ACA funded by dedicated levies, and coax Republican cooperation by offering torts reform and bending to wherever ideas the GOP may have about improving competition. He also needs more aggressive enforcement from Justice Department Civil Rights Division and Departments of Labor and Education.

Internationally, Biden must reckon with a China that will soon have a larger economy, has an impressive navy, is flexing its muscles in the South China Sea and Straights of Taiwan, and suppressing democracy in Hong Kong. At best we are in a stalemate and at worst, we could be pulled into a ruinous confrontation that establishes China as the pre-eminent power in the Pacific.

France and Germany combined are as populous as and about four times richer than Russia. Clearly the Europeans can afford to entirely provide for their own defense. The Europeans will be told, albeit more politely, to do much more for themselves, because America’s resources are needed in the Pacific.

China’s economy is at once complex—a state-orchestrated market system, similar to  that of Germany and Japan in the 1930s—and simple—a free rider in the international trading system created principally by the World Trade Organization (WTO).

The WTO permitted China to accomplish export-led growth and create an economic and military juggernaut that is now bent on reshaping the entire global system to serve the values and vision of the Chinese Communist Party.

The WTO system was designed to link together democratic market economies and assist developing countries by establishing rules that promote trade based on comparative advantage. The agreements very much look as if they were written by economists to create work for lawyers.

Beyond reducing tariffs and quotas—quite effectively but for agriculture and textiles—the WTO agreements lay out general rules for product standards, customs administration, subsidies, intellectual property regimes and other instruments of domestic policy that clever bureaucrats can manipulate for mercantilist purposes. It leaves to dispute settlement panels and an Appellate Body to elaborate their situational meaning.

The rules are general, because technology and the ways governments can subvert open trade are constantly evolving. A de facto common law system has emerged, which when it works well, provides predictable limits on the protectionist pressures special interests can bring to bear on domestic politicians.

China’s economic system is too inconsistent with Western market economies for the WTO to accommodate. It has run circles around WTO dispute settlement and does most whatever it likes. It targets Western industries by closing its markets, forces foreign investors to transfer technology to gain market access, and subsidizes exports. It has accomplished dominant positions, for example, in solar panels and 5G technology.

The Obama and Trump administrations responded by refusing to approve judges to the Appellate Body and that crippled dispute settlement. The Europeans, Chinese and others countered  the US policy by creating a contingent arbitration mechanism outside the WTO to review dispute settlement panel findings.

China should not be in the WTO, but the Europeans want to deal with Beijing there. China has grown too large for the United States to confront without allies, and the Europeans want tangible gestures that show Trump era abuse of America First is over. President Donald Trump’s steel and aluminum tariffs are on the table but the Europeans have quite a laundry list of issues.

Ambassador Robert Lighthizer proposed replacing the Appellate Body with bilateral arbitration that would not set precedents—but without precedents, the WTO system is rudderless and subject to the whims of the biggest player—soon to be China.

The Biden administration could approve the appointment of new appellate judges but condition that on an American exception for dispute settlement with China.

That would permit the United States to impose remedies it deemed necessary to counter China’s aggressive protectionism and force the Europeans and other advanced industrialized countries to consider the same. China needs trade to prosper. Excluding China from WTO dispute settlement would force it to take multilateral negotiations more seriously or face increasing isolation.