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Library of Congress Cataloging-in-Publication Data
Names: Bacchus, Jim, 1949– author.
Title: Truth about trade : reflections on international trade and law / James Bacchus, University of Central Florida, USA.
Description: New Jersey, NJ : World scientific, [2024] | Includes bibliographical references and index.
Identifiers: LCCN 2023039675 | ISBN 9789811282102 (hardcover) | ISBN 9789811282119 (ebook for institutions) | ISBN 9789811282126 (ebook for individuals)
Subjects: LCSH: International trade. | International law.
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For any available supplementary material, please visit https://www.worldscientific.com/worldscibooks/10.1142/13564#t=suppl
To my brother Tom and my sisters Debby, Cindy, and Terri, with love and fond remembrance of all our good times together
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About the Author
James Bacchus is Distinguished University Professor of Global Affairs and Director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida. He was a founding judge and was twice the chairman — the chief judge — of the highest tribunal of world trade, the Appellate Body of the World Trade Organization in Geneva, Switzerland. He is a former Member of the Congress of the United States, from Florida, and a former international trade negotiator for the United States. He is the author of the books Trade and Freedom (Cameron May, 2004); The Willing World: Shaping and Sharing a Sustainable Global Prosperity (Cambridge University Press, 2018); The Development Dimension: Special and Differential Treatment in Trade, with co-author Inu Manak (Routledge Press, 2021); and Trade Links: New Rules for a New World (Cambridge University Press, 2022). He is a Senior Research Fellow of the Earth System Governance Project, Global Fellow of the Centre for International Governance Innovation, Adjunct Scholar of the Cato Institute, Distinguished Fellow of the European Institute of International Law and International Relations, Senior Fellow of the Centre for International Sustainable Development Law, Distinguished Global Fellow of the Hellenic Foundation for European and Foreign Policy, and life member of the Council on Foreign Relations. He has been a Visiting Fellow at the Lauterpacht Centre for International Law and Wolfson College of the University of Cambridge in the United Kingdom. He is a leading advocate and activist worldwide for international cooperation, international trade, the international rule of law, global democracy, and global sustainable development.
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Chapter 1 Truth About Trade: Dispelling the Beltway Myths About the World Trade Organization
Chapter 2 Biden and Trade at Year One: The Reign of Polite Protectionism
Chapter 3 Reviving the WTO: Five Priorities for Liberalization
Chapter 4 Some But Not (Yet) All: Plurilateral Agreements and the Future of the World Trade Organization
Chapter 5 The High Price of Buying American: The Harms of Domestic Content Mandates
Chapter 6 Democrats and Trade: A Pro-Trade Policy for the Democratic Party
Chapter 7 The Black Hole of National Security: Striking the Right Balance for the National Security Exception in International Trade
Reflections
Chapter 8 Might Unmakes Right: The American Assault on the Rule of Law in World Trade
Chapter 9 The Digital Decide: How to Agree on WTO Rules for Digital Trade
Chapter 10 TRIPS-Past to TRIPS-Plus: Upholding the Balance Between Exclusivity and Access
Introduction
At first, when I was asked by World Scientific Publishing if I would be interested in submitting some of my previously uncollected essays on international trade and international law for publication, I demurred. I explained that I doubted whether I had written a sufficient number of essays since leaving the Appellate Body of the World Trade Organization to comprise a collection. Then, while on a long airplane flight, I made from memory a list of, to my surprise, several dozen essays I had written and published since then that had not been included in my previous books. I chose the fourteen essays that are collected here for two reasons. First, they are broadly representative of all I have written since leaving the WTO about the need to continue lowering barriers to international trade and about the necessity of upholding trade rules and other international rules through the international rule of law. Second, although some of these essays were written some time ago, the issues they address remain current, and so do many of the points I have made in them. I continue to write as part of my way of continuing to serve the public purposes to which I have now devoted many years during a life of public service. Perhaps, in another several years, there will be another such collection of my writing. In the meantime, I offer these essays as one contribution to the ongoing global debate about the facts and the fates of international trade and international law. My favorite among them — for readers who may not always make it all the way to the end — are the final two, “The Garden” (on the unacceptability of torture) and
xii Truth About Trade: Reflections on International Trade and Law
“Turning to Tacitus” (on the sometimes-high price of freedom). I hope you will enjoy and benefit from reading them all.
James Bacchus
Orlando, Florida June, 2023
Chapter 1
Truth About Trade: Dispelling
the Beltway Myths About the World Trade Organization*
Introduction
There are myths throughout the world about the World Trade Organization. In much of the world, the WTO is believed to be a creation of the United States, imposed on other countries — and especially poorer developing countries — through a calculated exercise of the considerable economic leverage of the United States, and intended to bring the rest of the world to heel in embracing American ways and heeding American wishes in the conduct and course of world trade. WTO rules are thought in many other countries to be mainly American rules, even though every WTO rule that applies to all WTO members has been agreed by all WTO members in successive rounds of multilateral trade negotiations. Ignoring this reality, the myth about the WTO in much of the world is that “the Americans are making us do it.”
This belief beyond the borders of the United States is only myth, but it is closer to the truth about trade than the contrasting myth that prevails within the borders of the United States, and especially within the Washington Beltway, where national decisions on trade policy are made
*An abbreviated version of this essay was previously published by the Cato Institute as “The World Trade Organization: Myths versus Reality” (September 26, 2023).
Truth About Trade: Reflections on International Trade and Law
and implemented. Within the Beltway — in the Congress, in the executive branch, in the media, and in many of the trade associations, think tanks, and NGOs that strive to influence trade policy — the WTO is increasingly believed to be, at best, a misguided mistake by the United States in foreign commercial policy, or, at worst, a conspiracy by other countries against the United States, a “globalist” creation designed to constrain the United States from freedom of action in its domestic and international commerce, and to reduce American manufacturing and other economic might with the aim of diminishing the current extent of American say and sway in international trade and in the overall world economy.
More and more, within the Beltway, the WTO as an international institution is being pushed to the periphery of trade debates, and WTO rules and rulings are being ignored in trade decision-making, with reverberating harmful repercussions throughout the WTO-based multilateral trading system as other countries suffer from unilateral US trade discrimination and as some countries begin to emulate the scofflaw practices of the United States in international trade. This is happening because the prevailing suspicion in both major US political parties is that the WTO is an international institution that has somehow been imposed on the United States and is bent on undermining the United States through the application of unfair trade rules rigged against American goods and services. This, too, is only myth, symptomatic of the short-term memory that characterizes much public policy-making; but it is a powerful myth that is politically potent, one that rationalizes the recent retreat by the United States into self-defeating trade protectionism by deceiving Americans into thinking about the WTO that “the foreigners are making us do it.”
The myths about the World Trade Organization that are increasingly assumed to be facts by many within the Beltway, are numerous and too many to recount here. These myths relate to the WTO as an institution, to the ways the WTO makes rules, and to the ways it upholds rules through international trade dispute settlement. These myths are much in need of dispelling as a necessary prelude to the return to a rational US policy of expanding trade with the goal of expanding the potential for human flourishing through shared prosperity. Some of these myths deserving of dispelling follow. With each, the misconception of the myth is dispelled by the truth about trade as it relates to the WTO and to the rules the WTO makes and upholds for the purpose of adding to the flow of trade, and thus to the potential economic gains from trade, throughout the United States and throughout all the rest of the world economy.
Myth # 1 — The WTO is part of a global plot to create a world government
To anyone at all acquainted with the day-to-day reality of the World Trade Organization, the very thought of the WTO as some kind of would-be “world government” is laughable. The WTO is not a government of any kind, and no one anywhere who is involved with the WTO has even the remoted desire to make it one. The WTO is a creation and an expression of internationalism, which assumes and proceeds from the existence of sovereign nation-states in a system of international governance dating back to the Treaty of Westphalia in 1648. In contrast, the globalism that might seek a “world government” transcends the existence of nationstates and contemplates a borderless world. The irony of anti-WTO sentiment is that the more that Westphalian international institutions are undermined, the more the temptation exists to seek as an alternative another and perhaps “globalist” form of global governance.
Entirely separate from the United Nations, the WTO is an international economic organization consisting of governments that has been established by an international agreement among those governments. It is a forum where governments can agree by consensus to establish rules that can lower international barriers to trade, and it is a way for governments to ensure compliance with those rules when disputes arise between them about what they mean. As the WTO website explains, “The overall objective of the WTO is to help its members use trade as a means to raise living standards, create jobs and improve people’s lives. The WTO operates the global system of trade rules and helps developing countries build their trade capacity. It also provides a forum for its members to negotiate trade agreements and to resolve the trade problems they face with each other.”1
Myth # 2 — The United States has no choice but to be a member of the WTO
No country is compelled to sign the WTO agreement and become a member of the WTO. The WTO is a voluntary organization. Every member of the WTO is a member by choice. Furthermore, under the WTO agreement, every member of the WTO can withdraw from membership with six months of notice.2 Yet, no member has ever withdrawn from the WTO for a very simple reason — every member desires the many economic benefits that come with being a WTO member. From time to time, a few
Truth About Trade: Reflections on International Trade and Law
members of the United States Congress introduce proposals to withdraw the United States from the WTO, but they never pass.3 Former President Donald Trump threatened from time to time to withdraw the United States from the WTO, but he never did.4 Even some in the Trump administration must have recognized (and maybe even had the temerity to tell Trump) that the economic price of withdrawal from WTO membership would be too high. For, in the absence of the shelter and benefits of binding WTO rules, the result would be a worldwide free-for-all of discrimination against US trade and the restoration of myriad high tariffs and other high non-tariff barriers to US exports that have been eliminated during decades of WTO multilateral trade negotiations and agreements. Other countries seem of the same mind. At present, there are 164 members of the WTO, accounting altogether for about 98 percent of all world commerce.
Myth # 3 — The WTO is a “free trade” organization
The WTO is not a “free trade” organization. Indeed, the phrase “free trade” appears nowhere in the WTO agreement. Instead, as, again, is explained on the WTO website, “The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development.”5 As is further specified on the WTO website, “The fundamental goal of the WTO is to improve the welfare of people around the world. The WTO’s founding Marrakesh Agreement recognizes that trade should be conducted with a view to raising standards of living, ensuring full employment, increasing real income and expanding global trade in goods and services while allowing for the optimal use of the world’s resources.”6 Very often, achieving this goal means freeing trade; but, in many cases, it can also mean erecting tariffs and other barriers against unfair trade where there is dumping by private companies (basically, selling in the target market at below the cost of production in the home market, with injurious results) or subsidies by governments that cause injury by distorting the marketplace. The past three-quarters of a century have largely been devoted by the members of the WTO to lowering barriers to trade by mutual agreement. The WTO has long been a multilateral means for achieving freer trade; but this has been because the members of the WTO have long wanted it to serve that purpose. There is nothing in the WTO agreement that requires countries to lower their tariffs and other trade barriers unless they have freely chosen and agreed to do so.
Myth # 4 — The WTO aims to fulfill a “neoliberal” agenda of laissez faire and “free market fundamentalism” that mandates the removal of all international barriers to trade
It is sometimes said by critics of the WTO that the purpose of the organization is to implement worldwide a “neoliberal” agenda that would eliminate all governmental restrictions and regulations on trade as part of imposing “free market fundamentalism.” These critics characterize and castigate the WTO as a “neo-liberal” enterprise aimed at instilling a strict laissez faire — a rigid policy of hands-off that privatizes public services, rips holes in the social safety net, and shuns local governmental laws or regulations that might impede the unrestricted flow of global commerce. The truth is, there is nothing in the WTO agreement that requires this or aspires to this. The WTO agreement is replete with places in which all kinds of domestic governmental regulations are assumed. The concern in the context of the trade rules in the WTO agreement is not with whether governmental regulations are imposed; rather, it is with how those regulations affect trade. If those regulations do not affect trade, then WTO rules are not relevant, and there is no justification for the WTO to be involved. If those regulations do affect trade but do not involve trade discrimination, then there is usually no WTO concern. However, if, as written or as applied, those regulations affect trade in ways that cause discrimination against imported products, or between and among imported products, then they may be inconsistent with a member’s obligations under the WTO agreement. In such a case, the WTO agreement provides that the WTO has legal jurisdiction, and the member country whose products are discriminated against, can have recourse to the legal mechanism of WTO dispute settlement.
Myth # 5 — The WTO is not a “neoliberal” free trade organization but rather an organization committed to statedirected economic outcomes through “managing trade”
Senator John Hawley of Missouri, among others, has accused the WTO of performing “the role of managing the world economy,” including world trade.7 In truth, the WTO is no more an organization committed to “managed trade” than it is one committed to “free trade.” The extent to which WTO agreements and the rules contained within them either “manage”
6 Truth About Trade: Reflections on International Trade and Law
trade by limiting it or “free” trade by opening it, is a matter entirely for decision-making by the WTO members in their ongoing negotiations. For example, the members have decided that state trading enterprises — a form of managed trade — are permitted under WTO rules so long as they “act in a manner consistent with the general principles of nondiscrimination” in the WTO agreement.8 The WTO members have also decided that, so long as they follow certain standards and procedures set out in WTO rules, members will remain free to apply trade restrictions to counter what they perceive to be unfair trade practices. WTO rules are only a reflection of the collective cooperative will of the WTO members themselves. The members can decide to lower or eliminate tariffs and other obstacles to trade, or they can decide to keep them. The WTO agreement leaves it to individual countries to set their own trade and other economic policies. The WTO is simply an international legal framework for enabling the multilateral making of trade decisions by the 164 countries and other customs territories that have agreed of their own choosing to participate in the framework.
Myth # 6 — The WTO undermines the sovereignty of the United States
The WTO does not undermine the sovereignty of the United States or any other member of the WTO. The WTO is frequently called a “memberdriven” organization because (in contrast to some other international institutions) it is an institution that can only act when and if and how its members choose to act. In fact, the entity called “the WTO” is really nothing more nor less than its members choosing to act as something they have chosen to describe as “the WTO.” (It is politically convenient back home throughout the word to pretend, when acting pursuant to a WTO obligation or ruling, that “the WTO” is some alien and overweening Leviathan compelling such action; but this is not so.) True, there are about 620 people — mostly economists, lawyers, translators, and administrative staff — working for the WTO members in an ornate Italianate building on the shore of Lac Leman in Geneva, Switzerland, which is adorned with an ornate sign labeled “the WTO.” But none of these people can take any action that binds the organization other than the most basic ministerial and administrative tasks. Only the members of the WTO acting together — usually by consensus — can take actions that affect international trade.
This is not an undermining of their sovereignty. This is an exercise of their sovereignty; for each of the 164 WTO members has made a sovereign choice that participating in the WTO is in their sovereign interest. We Americans have made this choice knowing that, as trade scholar Daniel Griswold has aptly put it, “Trade agreements do not limit our freedom as individual Americans. They are written to limit the power of governments to interfere in the peaceful commerce of their citizens. By limiting the scope of government action, trade agreements actually enhance the liberty and prosperity of the people living in the participating countries.”9
Myth # 7 — The WTO harms the American economy
According to Donald Trump, “The WTO…was set up for the benefit for everybody but us. They have taken advantage of this country like you wouldn’t believe.”10 This is the ascendant and bipartisan Beltway myth. The truth is, according to a study by the Bertelsmann Foundation in Germany, the GDP of the United States has been increased by about $87 billion since the establishment of the WTO in 1995 — more than any other country. Every member of the WTO has benefited from their membership in the multilateral trading system since then; but the United States has benefited more than all the rest.11 A study done for the Business Roundtable found that international trade supports nearly 39 million American jobs. One in every five American jobs is linked to imports and exports of goods and services. In the first twenty-five years following the establishment of the WTO, trade-dependent jobs grew more than four times as fast as US jobs generally. Every one of the fifty US states realized net job gains that can be directly attributed to trade.12
In another trade study, economists at the Peterson Institute for International Economics estimated “that the payoff to the United States from trade expansion — stemming from policy liberalization and links to the global economy and improved transportation and communications technology — from 1950 to 2016 (was) roughly $2.1 trillion … (and) that US GDP per capita and GDP per household accordingly increased by $7,014 and $18,131, respectively.”13 Further, “disproportionate gains probably accrue(d) to poorer households.”14 The truth is, domestically, the United States has done a poor job since the turn of the century of making certain that the American people widely benefit from the considerable gains the United States has garnered overall from trade. This, however, is
Truth About Trade: Reflections on International Trade and Law
a failure of the politicians in both political parties in the United States. It is not the necessary economic result of freer trade or the fault of the WTO, which, quite rightly, does not make decisions about how the gains from trade are distributed domestically by WTO members. Those sovereign decisions are made, as they should be, by the WTO members themselves. Do we want the WTO deciding what the marginal tax rates should be in the United States? Of course not.
Myth # 8 — The WTO is biased against the United States
Because the WTO is “member-driven,” the truth is, there is no entity called the “WTO” that can be biased against anyone, including the United States. Moreover, the international civil servants who work for the members on the WTO Secretariat shed their nationality as soon as they cross the threshold of the WTO. They are, by definition and in practice, unbiased and bound by a mandatory set of ethics rules that keeps them so. Therefore, what this assertion is really saying is that other countries are biased against the United States. All countries have their biases, some more than others. The United States itself is not universally popular with all other countries all the time. In part, this is the price of global leadership; in part, this is because of some of America’s best geopolitical actions; in part, too, it must be said, this is because of some of America’s recent geopolitical mistakes.
The United States also has its biases against a few other countries (with some, rightly so). Yet, 164 countries of all geopolitical views have agreed to cooperate on trade matters by signing the WTO agreement. The United States has long agreed that such cooperation is necessary. The WTO members can make trade rules that bind all members only by consensus. The United States can, if it wishes, block that consensus; it can only be bound legally by rules with which it has agreed. Dating back decades, though, the far bigger problem for the United States has been that other countries have sometimes refused to go along with the new rules that the US has sought for world trade as the world economy has evolved and changed.
One charge made by some critics is that the United States (and other developed countries) suffer because WTO rules are biased against all developed countries and are tilted toward developing countries. In his own unique and jejune style, former President Trump voiced this
sentiment on Twitter in this way: “The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. No more!!!”15 The assumption in this statement is that developing countries are profiting from being in the WTO while developed countries are not. The results of the Bertelsmann study refute this; so do many other economic studies based on the evidence of the facts of actual performance. Being in the WTO is an economic “win-win” for all its members.
True, the least developed countries — currently 47 countries with less than $1025 in per capita income — are generally given “special and differential treatment” that has frequently excused them from trade liberalization. This is not, in fact, in their economic interest; but, because the economies of these countries are so small, this is hardly a policy that causes economic harm to the United States.16 Also, developing countries that have entered higher stages of development — such as China — still claim to be entitled to “special and differential treatment.” Yet, this claimed status is not especially benefiting China, Brazil, India, or other larger developing countries in the WTO.17 The whole concept of “special and differential treatment” has failed because, as my co-author Inu Manak and I concluded in our book The Development Dimension, “it is based on the premise that the growth of developing countries will be hastened if they postpone opening their markets to freer trade for as long as they can.”18 The opposite is true. The truth is, the entire notion of “special and differential treatment” should be revisited by the members of the WTO, for the sake of developed and developing countries alike.
Myth # 9 — Through the operation of the rules in the WTO agreement, the WTO has “police power” to impose its will on sovereign countries
The WTO cannot do anything unless its members agree to it. There are no black WTO helicopters. There are no blue WTO helmets. There is no WTO “police force.” The WTO has a legal identity in international law only for the limited and practical purposes of providing office space; retaining employees; purchasing pens, paper, and computers; and keeping the cafeteria open and the windows clean. The WTO has an annual budget of about $220 million, a small sum by global standards, which is contributed by members based on their proportion of international trade
Truth About Trade: Reflections on International Trade and Law
each year. Because the United States has the largest proportion of international trade and thus contributes the most to the WTO budget, it chairs the WTO budget committee, which makes all financial decisions for the organization.19
Moreover, all members of the WTO — including the United States — can choose to ignore WTO rules and WTO rulings if they wish. That is their sovereign right. As a matter of principle, and consistently with their collective interest in the success of the enterprise of making and upholding international law, no country should exercise this right. Every country should respect — as the United States Constitution puts it — “the law of nations”20 by complying with all international law, including the international trade law in the WTO agreement. However, if WTO members so choose, they remain free to subvert international law by ignoring WTO rules and rulings — if they are willing to accept the loss of previously granted trade concessions that is the price for making such a choice, as has been set out and agreed by all WTO members in the WTO agreement. This price can sometimes total billions of dollars of lost trade benefits annually, which has usually proven a strong incentive for WTO members to comply with the rules and the rulings.
Myth # 10 — WTO rules
do
not
allow sovereign countries the “policy space” they need to address, health, safety, environment, and other important domestic issues
Critics of the WTO talk much about “policy space” — about the concept of a sovereign “space” reserved for domestic policymaking, a “space” that is beyond the reach of international economic rules and rulings by international institutions such as the WTO. Many of them fear that the WTO, in service to selfish and shortsighted multinational corporate interests, will overrule numerous local laws and local regulations that serve other vital, non-commercial societal values, and establish higher standards than those that avail in the rest of the world. And this, it is widely feared, will lead, if trade is allowed to trump all else, to tainted “Frankenfoods,” other toxic products, diminished labor protections, shrinking public services, and a long list of harmful risks to public health, public safety, the environment, and much more. These critics fear that WTO rules and rulings will undermine local efforts to guard against these risks by overturning existing laws and by having a “chilling effect” on the enactment of needed new laws.21
None of this is true. The truth is, WTO rules allow considerably more local policy space than many WTO critics realize or, in some cases, will admit. National “measures” — domestic laws, regulations, and practices — are unlikely to be inconsistent with WTO rules so long as they provide an equal competitive opportunity in the domestic marketplace for all like foreign and domestic products. The basic WTO rules on trade in goods generally intrude on the reserve of the sovereign “right to regulate” only if local laws or regulations discriminate between and among like traded products, either in favor of domestic over foreign products or in favor of some foreign products over others.22 Much the same is true in the reservation of policy space under the WTO rules on trade in services. The services rules, to cite just one instance, allow ample room for domestic regulation of financial services for “prudential reasons… to ensure the integrity and the stability of the financial system.”23
Likewise, although intellectual property rights must be protected under the WTO rules, considerable latitude is allowed to WTO Members, if done consistently with those rules, to provide such protection “in a manner conducive to social and economic welfare,” and “to promote the public interest” through domestic measures that “protect public health and nutrition” and promote “socio-economic and technological development….”24 Moreover, the WTO rules on technical regulations generally limit local regulations only if they discriminate between and among like traded products, or if they create unnecessary obstacles to international trade or are more trade-restrictive than necessary to fulfill a legitimate objective.25
Similarly, the rules on “sanitary and phytosanitary” measures specify that WTO Members have the right to take measures that are necessary for the protection of human, animal, or plant life or health.26 Such so-called “SPS” measures must, however, be based on a risk assessment and on scientific principles, and must not be maintained without sufficient scientific evidence.27 In addition, such local health and safety measures must be applied only to the extent necessary to achieve their purposes; and they must not involve arbitrary or unjustifiable discrimination, or be applied in a manner which constitutes a disguised restriction on international trade.28 Would we Americans, for example, want to maintain health and safety measures that are not based on a risk assessment and sufficient scientific evidence? Many of us have forgotten that it was the United States that insisted on these rules when the WTO was established.
Truth
About Trade: Reflections on International Trade and Law
Myth # 11 — WTO rules cause a global “race to the bottom” in environmental protection
WTO critics also maintain that WTO rules encourage a “race to the bottom” in a competition to lower environmental standards worldwide.29 This, too, is not true. Economists have mostly concluded that international trade is, overall, beneficial for the environment. One reason they usually give for this conclusion is that, in adding to economic growth, trade adds also to the tax revenues available for paying for more effective environmental protection. In addition, there is the positive environmental payoff from the elongation of Adam Smith’s division of labor and from the application of David Ricardo’s concept of comparative advantage. By encouraging more specialization, freer trade increases productivity. This, in turn, enhances the ability to expand production while employing relatively fewer resources, and thus improves the efficiency of the overall allocation and use of resources, which, with the right domestic policies in place, should limit environmental harm. As the distinguished trade economist Jagdish Bhagwati has said, “Efficient policies, such as freer trade, should generally help the environment, not hurt it.”30 Furthermore, there is empirical evidence that — over time — a rising income in a country, results in rising environmental protection. Economists call this the “Environmental Kuznets Curve.” At first, in the early stages of development, as incomes start to increase, environmental degradation increases as well. But then, as incomes continue to rise, “Eventually environmental degradation peaks. It then begins a steep descent as economy and incomes continue to grow.”31
Despite this evidence, there is, however, a widespread fear in developed countries such as the United States that freeing trade and foreign direct investment leads, inevitably, to fleeing jobs as producers — in search of sanctuary from environmental regulation — shift jobs from developed countries to dirty “pollution havens” in developing countries.32 Following from this fear is a widespread belief that lowering barriers to trade leads, unavoidably, to pressure everywhere to reduce environmental standards. The assumption is that developed countries will lower their standards to keep jobs, and that developing countries will lower their standards to get jobs. This belief inspires all the endless talk by the opponents of liberalizing trade of a so-called global “race to the bottom” in environmental protection. Especially in the United States and in the European Union, the “race to the bottom” is a staple of political stump speeches along the campaign trail. Few of those seeking or holding elected office ever bother to question it.
But it turns out that, in truth, there is “very little evidence” that we are seeing a “race to the bottom.”33 In particular, “there is actually little evidence that polluting industries relocate to jurisdictions with lower environmental standards in order to reduce compliance costs.”34 The empirical research thus far, as distilled in a study done for the World Bank, “has found little or no evidence that pollution intensive industry is systematically migrating to jurisdictions with weak environmental policy; hence maintaining a weak environmental policy regime appears to have little effect on a country’s comparative advantage. Other factors such as labor productivity, capital abundance, and proximity to markets are much more important in determining firm location and output.”35
In describing the “race to the bottom” as a “non-existent threat,” the American political scientist Daniel Drezner, who has focused a good deal of his scholarship on international trade, has been blunt: “The race-to-thebottom hypothesis appears logical. But it is wrong. Indeed, the lack of supporting evidence is startling.”36 He contends that, despite the generalized fears, “there is no indication that the reduction of controls on trade and capital flows has forced a generalized downgrading in labor or environmental conditions. If anything, the opposite has occurred.”37 Detzner observes that the countries that are the most open to trade and investment — the OECD countries — have the highest environmental standards, and that a number of developing countries have raised their environmental standards even as they have become more open to trade and investment.
Myth # 12 — The WTO offers no remedies for the trade and other commercial abuses of the “state capitalism” of China, nor does it offer any redress for unfair trade practices in many areas of the new “21st century” economy
Another prevailing myth about the WTO within the Beltway is that WTO rules are antiquated and therefore not up to the contemporary task of disciplining the trade and other commercial abuses of the state-directed version of capitalism of China. This is not true. It is true that, in a number of respects, China’s economic rise poses a unique challenge to the world trading system. Yet, WTO dispute settlement has more potential to address China’s practices than is understood within the Beltway or has been employed by the United States.38 A lengthy list of legal claims could be made by the United States against an array of abusive Chinese trade practice
Truth About Trade: Reflections on International Trade and Law
under existing WTO rules. 39 Four promising areas of WTO complaints against China under existing WTO rules are general intellectual property protection and enforcement; trade secrets protection; forced technology transfer; and subsidies. The case is waiting to be made against by the United States or by some other country or group of countries in WTO dispute settlement; but, so far, it has not been brought to the dispute settlement system.
This is not to say that current WTO rules should not be improved or that new WTO rules should not be negotiated and agreed that could do more to help counter the challenge posed by China to the multilateral trading system. They should be. But the means of accomplishing this (admittedly difficult) end is not by ignoring the WTO and WTO rules; it is by employing those rules in dispute settlement and by giving priority to negotiating new and improved rules within the WTO. (And, by the way, it is also a myth that China routinely ignores adverse WTO rulings; in fact, given US foot-dragging all along and its recent bipartisan recalcitrance, China may have a better record of complying with adverse WTO rulings than the United States.40)
This is also not to say that WTO rules do not need to be broadened while being modernized. Indeed, they do. The fundamental nondiscrimination principles of the WTO are timeless, and most WTO rules are still mostly current and fit for purpose. However, on digital trade, trade in medical goods, trade in environmental goods and services, investment facilitation, the relationship between trade and climate change, and much more that has emerged into the forefront of the world economy since the establishment of the WTO in the last decade before the turn of the century, there is pressing need for more and better rules. As it is, for example, the WTO has no specific rules on digital trade. How, then, can the WTO expect to remain relevant, much less central, to world trade in this century? Yet, on this, too, the answer is not to set aside the WTO; the answer is to seize the opportunity once again to use it in negotiating and agreeing on the new and improved trade rules the world much needs.41
Myth # 13 — The United States has lost all its cases in WTO dispute settlement
President Trump told Americans that “we lose the lawsuits, almost all the lawsuits in the WTO,” and many Americans, including many decisionmakers within the Beltway, believe him.42 The truth is that, quite the
contrary, the United States has won the vast majority of the cases it has brought as a complainant in WTO dispute settlement (including the overwhelming majority of the cases it has brought against China).43 US wins in the WTO are, however, discounted politically in the American trade debate because, of course, the United States, being the United States, is, in the US view, supposed to win the cases it takes to the WTO. In its winning record, the United States is like other WTO members. Out of more than 600 international trade disputes so far, complaining countries have won about 90 percent of the cases they have taken to WTO dispute settlement. For the most part, this is because countries tend not to undertake the laborious task of filing a complaint against another country in WTO dispute settlement, with all the costs and geopolitical consequences that sometimes result, unless they believe they have a strong legal case that can be made.
In contrast, the United States — again like other WTO members — has lost most of the cases that have been brought against it in WTO dispute settlement. Many of these losses could have been avoided. Many of the cases the United States has lost have involved the expansive American use of anti-dumping duties, countervailing duties to governmental subsidies, and other trade retaliations that are generally known as “trade remedies.” In these cases, the US has pushed past the legal boundaries of some of the WTO rules relating to the conditions and the procedures for applying such trade restrictions — rules which the US had much say in negotiating and with which it agreed when the WTO was established. A number of these lost trade remedies cases have involved the same legal issues and similar challenged US measures because the United States has, in an exercise of its sovereignty, chosen not to comply with these WTO trade remedies rulings, often by construing them in the narrowest possible way or by dragging its administrative feet while purporting to comply. In general, the United States seeks much broader latitude in applying trade remedies than WTO rules allow. Because of the political salience of this issue for both US political parties, namely the desire of both parties to win votes in swing states where trade protectionism is popular, these losses are the source of much of the reactive angst of the US to these outcomes in WTO dispute settlement. The existence of this angst is not, however, evidence that, in ruling against the United States in these trade remedies cases, WTO jurists have, as the US alleges, been wrong.44
Myth # 14 — It is always bad when the United States loses a case in the WTO
In the narrow context of the discreet dispute at issue involving a certain product and a certain group of producers, losing a WTO case may well be seen by those immediately affected by the ruling as bad. But each WTO case can be seen as two cases. One case is about the product immediately affected by the dispute. The other case is about the meaning of the WTO rules that are invoked by the legal claims made in the dispute. Over the long term, the outcome on the rule may prove to be more important than the outcome on the product. A legal ruling against the United States position in one case may well be (and frequently has been) the legal position the United States has asserted successfully in a later case. WTO rulings are not precedents. There is no law of precedent — no stare decisis — in public international law, including international trade law. However, the clarification of the meaning of a WTO rule in one case can have an impact on the outcome of a future case if the jurists in the future case think the reasoning by the jurists in the first case makes sense and is also appropriate to their case.45 Not surprisingly, very often that is what they think. Fundamental WTO rules — such as those prohibiting trade discrimination — must mean the same thing every day in world trade to ensure — as the WTO agreement seeks — “security and predictability” in the trading system.46 Otherwise, the global flow of trade will be impeded. As the largest trading country in the world, this “security and predictability,” which is furthered by consistent legal rulings by WTO jurists, should surely continue to be the goal of the United States. In addition, as an economic matter, there is also this. If, in, for instance, a trade remedies case, the United States has acted outside the bounds of WTO rules in applying a trade restriction, then the removal of that restriction in compliance with a WTO ruling will result in lower prices for American consumers of that product, both at retail and in inputs into the production of American-made goods, and thus in greater American productivity and therefore competitiveness. Economically, this is not a “loss.”
Myth # 15 — WTO jurists are biased against the United States and routinely exceed their authority under the WTO agreement
In berating the WTO dispute settlement system, former President Trump told the American people, “Because we have fewer judges than other
Truth About Trade: Dispelling the Beltway Myths About the WTO 17
countries. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States.”47 In reply, one might begin by asking: on what basis should the United States expect to have “majorities” of American jurists in a dispute settlement system that serves 164 countries and other customs territories? But, more than that, this assertion betrays a total lack of knowledge of the facts about WTO jurists. The jurists who serve the WTO do not serve any one country; they serve the multilateral trading system as a whole. Toward this end, they shed their nationality when they become WTO jurists. To ensure this, there are WTO Rules of Conduct, which states that WTO jurists “shall be independent and impartial” and “shall avoid direct or indirect conflicts of interest,” among other requirements designed to safeguard “the integrity and impartiality” of the dispute settlement system.48 In the nearly three decades since the establishment of the WTO and the adoption of these rules of conduct, the United States has brought not even one claim contending that a WTO jurist is not “independent and impartial” or has a “direct or indirect conflict of interest.”
Nevertheless, the Trump administration emptied the WTO Appellate Body of jurists, which denies all members of the WTO — including the United States — of their right of appeal from the decisions of the panels selected to judge each WTO case. President Joe Biden has continued this policy of obstructionism, even calling for the formal abolition of the Appellate Body. As a result, the United States and other members that lose before WTO panels are filing appeals of legal rulings by WTO panels into the abyss of the absence of a sitting appellate tribunal, causing them to be denied their legal right to appeal and therefore preventing the WTO from adopting the panel rulings. Also, in the absence of an Appellate Body to help ensure “security and predictability” for the trading system through a consistency in legal rulings, WTO panels are showing the early signs of straying from consistency and toward an inconsistency in their legal conclusions and recommendations, which could add more and entirely unnecessary obstacles to the continued flow of world trade.
This American obstructionism has been rationalized — first by Trump and now by an echoing Biden — by a charge that the WTO jurists on the Appellate Body have routinely exceeded their authority under the WTO agreement. The Appellate Body members are said to have frequently engaged in “overreaching” and in “gap filling” that has altered and added to the obligations of the United States in the WTO agreement, which is in
