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Thursday, June 8, 2023

WTO, the challenge of the United States to the World Trade Organization

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Last week’s events dealt a serious blow to international trade, or rather the hope of subjecting it to shared rules. The situation then escalated the World Trade Organization (WTO or WTO) has asked the United States to lift some restrictions of international trade imported illegally years ago. United States that responded by claiming the right (or power) to override its decisions. The WTO ruling concerns some duties imposed by the Trump administration in early 2018 on imports of steel and aluminum products, which significantly increase their selling price in the US (by 25% for steel and 10% for aluminum).

Prohibition is prohibited

The effect of these measures is to protect local industry from foreign competition, and WTO rules prohibit protectionist measures. Tariffs are permitted, but only at rates resulting from lengthy multilateral negotiations, and these US rates are cumulative with the agreed rates. Following widespread protests, the United States bilaterally negotiated exemptions for some export markets, including the European Union, while maintaining or changing restrictions for others. In its defense, the United States has systematically invoked an exception provided by WTO law, which authorizes measures necessary to protect national security “during a war or other emergency in international relations”. According to the United States, the excessive global production of steel and aluminum, which are then sold at very low prices in international markets, is putting unnecessary pressure on the national manufacturing sector, creating an “emergency”.

More realistically, protectionism aimed at protecting certain industries, concentrated in a few states with high electoral weight (Pennsylvania, Michigan and Wisconsin), is a politically convenient move for the president, rather than compliance with WTO rules. Some states, whose exports are hurt by these tariffs, have challenged them through the WTO dispute settlement system, and the presiding panel of experts agreed that the United States has no recourse to national security because there is no emergency situation and the offending rights should be deleted . The spokesman for the US trade representative immediately rejected the decision, asserting the unquestionable right to protect the country’s security and criticizing the WTO’s inefficiency in restricting the introduction of products sold below cost on the world market, due to the overproduction of industry in China and other non-market economy countries. The communiqué concludes that the United States “has no intention of removing [questi] obligations arising from this dispute”.

The US response

The United States has not decided to appeal the decision for the time being, but opts for the most radical position: openly ignoring it. Biden’s 2020 election was presented by many as a return to respect for international law, after a four-year period of abuse. However, this return to order was selective. Within hours of taking office, President Biden rejoined the Paris Agreement on climate change, which Trump reneged on. But when it comes to the rules of international trade, the Biden administration has not changed course and has continued the policies of the four-year Trump era, especially open hostility to the WTO – often singled out as a scapegoat for China’s dominance in the global economy – and a general impatience with its rules and dispute resolution system. In addition to failing to remove these duties, widely considered illegal, the United States has continued its policy of obstruction of the WTO dispute mechanism and prevented the appointment of members of the Appellate Body, to the point that it has not been done since 2019. works . Without a second-degree process, first-degree decisions – if challenged – cannot become res judicata and thus remain without effect.

China’s role

In this scenario, China has rebuked the United States’ attitude – via a Department of Commerce press release – hoping for a correction. To reiterate that the United States (not China) is in fact the biggest threat to free trade, China filed another lawsuit a few days later. The subject of the dispute is the restrictions imposed last October by which the United States banned or restricted the export of semiconductors and microchips to China, paralyzing the huge Chinese semiconductor industry. The spokesperson for the US Trade Representative confirmed that these restrictions are motivated by national security concerns, alluding to the substantial futility of subjecting them to WTO scrutiny. China is also in the dock for trade restrictions believed to have been imposed by the direction of its foreign policy. Last week, the European Union formalized the start of a new dispute at the WTO over the unfair treatment Chinese authorities have applied against Lithuania since December 2021. Since then, China has radically restricted or banned imports of Lithuanian products, going so far as to remove the country from the list of countries of origin used by China’s customs authorities. This reinforcement is most likely in retaliation against Lithuania’s decision to allow Vilnius to open a “Taiwan” diplomatic mission in November 2021 (for many years no European country had done the same, and in any case the existing representations use it toponym “Taipei”, favored by China).

The European Union

By itself, the European Union claims to obey international rules, but it is clear that it is accumulating a significant array of sanctions with which it prepares and proposes to tackle and limit the trade it considers “irregular” . Among the various initiatives are the imposition of excise duties on goods produced abroad in a polluting manner, a filtering mechanism for foreign investment, the possibility of countering subsidies from abroad to Union companies, an “anti-coercion” to countries restricting trade to exert political pressure on the Union, as well as new rules on corporate social responsibility in supply chains and a ban on goods produced using forced labour. It is clear that the system of international trade rules is going through a moment of fragility. All major players blatantly break current rules in one way or another or prepare to take the law into their own hands in current and future confrontations. Just as the disputes it is supposed to decide multiply, the legitimacy of the WTO is under attack, and with it the stability of international trade law.

* University of Edinburgh and Professor Luiss

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Source: Corriere

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