They have the most coronavirus cases in the world, and now they have joined forces against China in the World Trade Organization.
Brazil sided with the U.S. yesterday and made vocal their stance for market-oriented principals to drive all 164 members of the WTO. China’s not too happy about it.
The U.S. and Brazil released a joint statement that outlined what the two countries considered to be “market-oriented conditions.” The U.S. has previously pushed for a draft General Council resolution that amplified that for its members, but China has pushed back successfully and so has the Brazilian General Director of the WTO, Roberto Azevedo, who is resigning early and leaves his post next month.
“When Members opened their economies to competition through the WTO, they did so with a shared understanding that market-oriented conditions would take hold in each of their economies and this would help ensure a level playing field for that competition to take place,” U.S. Ambassador to the WTO Dennis Shea said in Thursday’s General Council meeting, according to a copy of his remarks. “Yet more recently, non-market-oriented policies and practices have been working against that collective goal, creating unfair competitive conditions that hurt other members’ workers and businesses,” he said.
Everyone knows he was talking about China.
China’s WTO ambassador, Zhang Xiangchen, said the U.S. was making membership too academic. “The issue is of interest to me, but not within the framework of the WTO,” he said.
“We don’t have the luxury to pursue such an academic endeavor because the WTO is not, and should not be, an academic organization,” he said.
During his final remarks as the leader of the WTO yesterday, Azevedo reminded everyone that the WTO was just too diverse to ever see eye-to-eye.
“We should remember that agreements at the WTO have always sought to accommodate the diversity of our members with flexibilities of different kinds,” he said, mentioning special and differential treatment for some, especially newcomers, and member-specific allowances that include subsidy caps, quotas, tariffs, and individual services commitments that open some areas – but not others.
This has been the primary problem, as Washington and many manufacturers have seen it, for at least the last decade. China was granted many allowances upon entry into the WTO, with some still in effect, namely state subsidies that help power China’s manufacturing base.
As a result of China’s growth since its 2001 entry into the WTO, the U.S. has pushed for significant reforms that include an institutional rethink on just how China’s state-run economy promotes fair competition.
Ngozi Okonjo-Iweala, a former Nigerian minister who is one of the candidates to replace Azevedo, was quoted by World Trade Online on Wednesday saying that while the WTO is not in the business of commenting on a member’s economy, they should be in the business of dealing with its consequences.
She proposed tightening rules on state subsidies and told World Trade Online, a subscription trade news service, that the U.S. would look more favorably at the WTO if it saw “demonstrable efforts” to address China’s industrial subsidies.
The WTO’s future depends on U.S. relations with China.
When the world’s No. 1 economy is an open market and the world’s No. 2 economy is largely a closed one that employs massive amounts of state capital to favored industries, leading to global oversupply and funding advantages, foreign competitors cannot compete, do not invest, and labor markets suffer.
The WTO cannot handle both systems. Something has to give.
Last month, Robert Lighthizer called the WTO a mess. “I think the WTO is a mess. The WTO has failed America and it’s failed the international trading system,” he said.
The WTO negotiation function has been broken since Doha. Azevedo admitted so today, saying that “despite intense efforts, including daily meetings and consultations with permanent representatives, it became apparent that positions in many areas were further apart than ever, with gaps widening instead of closing.”
The WTO dispute resolution function is on hold now without enough judges, making it harder for countries to challenge other countries over trade. By the time anything gets done, companies facing dispute settlements have either lost market share, or risk going under.
The Senate Finance Committee will hold a hearing WTO reform next week.
A key question among American manufacturers when thinking about the WTO is why the U.S. remains an open door, and other member states charge high tariffs for their goods.
According to the WTO and UNCTAD’s World Tariff Profiles publication, the U.S. has the lowest Simple Average Bound Tariffs, at just 3.4% across all product lines. India averages 48.5%. Turkey tariffs are around 28.9%; Brazil is 31.4%; Indonesia is even more at 37.1%.
The wide disparity between tariffs among member states makes it easier to import goods, than manufacture. It also makes it more expensive for the U.S. to export due to those high port duties, comparably. Having such a gap between applied tariffs and bound tariffs is a disadvantage for the U.S manufacturer, whether they’re an exporter or focused domestically but competing with companies from countries they struggle to access due to higher tariffs pushing up prices in those markets.
Mitch McConnell and Nancy Pelosi recently nixed allowing for a Senate and House vote to stay in the WTO, an organization that by their director general’s own admission will never have broad agreement among members.
“Don’t assume that the WTO has a future irrespective of what you do here,” Azevedo warned members in his farewell speech. “To assure the future of the WTO, it is fundamental that members believe in the need to update the system. Some may still believe that the pressures afflicting the WTO are localized, and temporary… I assure you that they are not.”