meta-creation_date: 12 November, 2003
JQ has apparently “convinced himself”:http://mentalspace.ranters.net/quiggin/archives/001358.html that the WTO’s rejection of the US steel safeguard action could spell “the end of the line” for the Organization. bq. As I’ve previously mentioned, the WTOmade lots of enemies by overreaching itself in the 1990s, on the assumption that big-country governments would always back it up in the end. The wisdom of that assumption is now being tested. It’s a somewhat premature obituary. The big countries back the WTO because they believe it’s in their own interests to do so: the foreign policy costs of returning to more traditional forms of settling trade conflicts (remember WWII?) are too big. They much prefer dispute settlement. What’s the evidence on disputes? Over and over, in the 8 years of WTO’s existence, the US, EU and Japan have complied with decisions against them (see the scorecard[⇒ related story] in my earlier story). Even in multibillion-dollar cases such as the EU ‘bananas’ case (a $50 billion industry at EU wholesale prices) which the EU lost. Comprehensively. Three times. To developing countries. JQ says the ‘WTO made a lot of enemies’. It’s certainly true that there are thousands of people—let’s say, even a million or two—wiling to make a lot of noise, destroy some property, cause disruption and even commit suicide to express their objections to WTO. But the preponderance of evidence points, nevertheless, to the wild popularity of WTO. Since the 1990’s the WTO membership has expanded from about 110 governments to nearly 150; and there are 27 more countries pressing to get in. So who exactly do it’s ‘enemies’ represent? On whose behalf do they fight? The steel case is far from an example of ‘overreach’. The Appellate Body that decided this case against US steel protection was set up with support from the USA and EU in 1994. In this case it did nothing more than interpret a rule that has been in place, with US support, since 1948. In fact, from a legal point of view, this case was a replay (more or less) of the WTO decision on US barriers to Australian lamb earlier this year; a case that didn’t bring any similar predictions of doom. Is there, in fact, anything that justifies Quiggan’s skepticism? Where the big powers are concerned, the honest answer is ‘probably’. Lots of things. Bush may well try to ‘tough it out’ over steel. But, JQ’s instincts aside, the evidence still points in the other direction. There are only two WTO disputes where the loser has not complied (yet) with the ruling: one involving an EU ban on imports of US beef allegedly containing growth hormones (it doesn’t) and one on the US income-tax subsidy to firms that own off-shore export corporations. The US has withdrawn retaliatory action on the Hormones case and the EU, although ‘huffing and puffing’, has not yet taken any retaliatory steps on FSC. Why? Because the foreign policy costs are high and retaliation simply penalizes consumers in the country taking the action: it doesn’t resolve the problem. But even without retaliation, the two big powers have sufficient reciprocal leverage to keep the pressure up. The EU is stonewalling on hormone/beef, so the US Congress is dickering over means to resolve the FSC tax problem (it’s made three attempts). At the moment, they’ve fought this to a stand-off. Whatever happens, experience suggests that they will avoid seriously undermining the credibility of the WTO system of rules and disputes. They both understand only too well what China might do in future if they weaken the WTO.
Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.
He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher