The United States wasted no time in rejecting the findings, with U.S. Trade Representative Katherine Tai commenting that the WTO was “on very, very thin ice,” prompting angry reactions in Europe. The cases have made the critical work of restoring a consensus on WTO reform considerably more difficult. 

While reactions to the panel decision and its aftermath have focused on the Biden administration’s rejection and what it portends for the WTO, that reaction would have been the same regardless of the product and circumstances, and every U.S. president since Truman would have done the same. Any effort to move beyond this new crisis needs to start with recognizing that fact and accepting that bringing such damaging and shortsighted cases should be avoided in the future.

From the outset of the WTO’s predecessor, the 1947 General Agreement on Tariffs and Trade (GATT), the United States has been clear in its position that a party to the GATT and WTO may judge for itself when its national security interests justify raising tariffs or otherwise disregarding multilateral trade rules. Trade experts should not be second-guessing such decisions. The United States was not alone in taking this position; at various times, many other members have agreed, including some who would later challenge the U.S. steel tariffs such as the European Union and Norway. 

This position was minimally disruptive to the trading system because of a strong norm that national security was to be invoked only rarely, and because creative trade diplomacy contained the fallout when it was. That norm was broken during the Trump years, not only when he initiated several national security investigations ranging from steel to autos, but when others, including China and Russia, increasingly restricted trade in the name of national security. 

In response, WTO parties began to litigate the fundamental question of whether national security decisions could be reviewed. This was a lose-lose proposition since a clear finding for the U.S. position could open the door for abuse. And a finding against the U.S. position would almost certainly be disregarded, to the detriment of the system’s credibility. 

But even more fundamentally, the decision to bring the case was pointless. The same relief — the right to raise tariffs on U.S. goods — was available without touching this third-rail issue. When a WTO member fails to implement an adverse decision, the member bringing a case is permitted to raise duties on the losing party’s goods. But the U.S. has in the past acknowledged that others may retaliate against national security measures and it was willing to litigate the amount. That solution was likely available here and would have spared the fallout from having the WTO second guess a member’s national security decisions. That this solution was not pursued was a failure of diplomacy, and only reinforced the U.S. concern that the system has encouraged litigation over negotiation.

The national security decisions could not have come at a worse time for the WTO. WTO members have been discussing reforms that might lead to the restoration of the organization’s dispute settlement system to full functionality. The Trump administration hobbled the system by blocking appointments to its appellate body, acting on long-standing, bipartisan U.S. concerns that the body was overreaching its authority and making law. The path to restoring the WTO’s dispute settlement function lies in assuring the United States that the system can be trusted to respect its limits and that attempts by members to push beyond those limits through litigation will be rejected. The decision to bring the national security cases and the outcome of those cases is the opposite of reassuring. 

While these cases have complicated the path toward restoring the dispute settlement system, the effort must continue. For all its flaws, the system has played an important role in resolving and containing disputes. One need look no further than the trade wars unleashed by the Trump administration to see the value in a system that heads off escalating tit-for-tat duties between countries insisting on their own rectitude. And the system lends credibility to the multilateral rules that are the embodiment of international economic cooperation, and which our allies continue to insist serve as the baseline for our trade relations, even as we respond to new security and economic challenges that may require deviating from free-trade orthodoxy. 

Some in the United States may conclude from the national security decisions that the dispute settlement system should not be revived. But as the U.S. response illustrates in the clearest terms, a functioning dispute settlement system would not prevent the United States and its allies from going outside the system to take actions necessary to address China’s predatory targeting of key sectors, nor would it prevent the United States from addressing climate change or strengthening U.S. manufacturing. 

The WTO has no army. It has no black helicopters. Dispute outcomes are not U.S. law. The U.S. and others always can choose whether to comply, understanding that the complainant may raise duties on their goods if they do not — an option available in any event. But the system limits that retaliation to the impact of the inconsistent measure, avoiding cascading retaliation cycles. And the system brings stability to the vast majority of commercial transactions not implicated by the new challenges facing the global community.

Some U.S. trading partners may likewise conclude from the U.S. reaction to the national security decisions that the United States has no interest in multilateral rules or enforcement mechanisms. But any U.S. administration would have done the same, even during the decades when the United States was at the forefront of promoting the multilateral trading system. The outcomes should instead serve as a wake-up call that WTO members need to exercise greater restraint in litigating. Similar restraint must be directly built into the WTO enforcement mechanism itself so that it buttresses support for the system, rather than undermines it, for example, by codifying the past practice of limiting national security litigation to cover only the amount of retaliatory measures. 

Bruce Hirsh is principal at Tailwind Global Strategies. He previously served in senior positions at the Office of the U.S. Trade Representative and the Senate Finance Committee. 

To read the full paper, please click here. 

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LDC exports to Canada in 2017 represented just under $4 billion, around one per cent of total Canadian imports (or, more colloquially, about two hours of Canada-U.S. trade.) Their importance lies in their sector specificity; the majority of manufactured exports are apparel. After the 2003 liberalization, Bangladesh and Cambodia became the second and third largest suppliers of apparel to Canada after China, as much an achievement in import diversification for Canada as in export growth for Bangladesh and Cambodia.

Between 2003 and 2017, Bangladesh’s year-over-year exports to Canada grew at an average rate of 22 per cent, Cambodia’s at 58 per cent, Laos at 17 per cent and Nepal at 10 per cent. On the other hand, Canada’s exports to Bangladesh grew six-fold between 2004 and 2018. Bangladesh is now Canada’s fourth largest importer of pulses.

The 2003 market opening was enabled by of a GATT/WTO rule that facilitates preferential arrangements for countries on the United Nations’ Least Developed Countries list; effectively, the world’s poorest countries. Canada’s initiative was a near-impeccable preferential arrangement. It grew trade in both directions between Canada and some low-cost exporters without the bother of negotiations for bilateral free trade agreements, and without significant trade diversion. Together with the EU liberalization (and subsequent liberalizations in several other countries), it contributed to both export-led growth and poverty reduction in some least developed countries.

Canada’s relationship with these LDCs could change shortly. Along with six developing island countries and mineral-rich Angola, Bangladesh, Myanmar, Laos and Nepal are scheduled for graduation from the UN/WTO list of least developed countries (three were eligible as far back as 2018), and Cambodia has begun to meet the criteria for graduation. Graduation could mean the loss of the preferential tariff treatment that contributed to a rapid increase in exports in the last 17 years. Of the countries that are about to graduate, or have been graduated, the developing island countries export very little to Canada. Angola’s mineral exports enter duty free anyway, but the remaining countries – Bangladesh, Myanmar, Laos, Nepal and at some point Cambodia – are now heavily integrated into the Canadian apparel market. Apparel has become the primary manufactured export for most of these countries. Graduation therefore could have consequences for Canadian consumers, and for economic growth and poverty reduction in the countries concerned. Later, we discuss this problem specifically with reference to Bangladesh.

The earliest date for graduation is 2021; the latest date so far is 2024. Canada may agree to Bangladesh’s request for a three-year deferral from 2021, particularly in light of COVID-19’s impact on the economy, or it could follow the EU, which is reportedly considering a phased-in graduation process of three years, 2021-2024. If LDCs graduate, they will be subject to the tariffs and rules of origin of Canada’s General Preferential Tariff (GPT). Graduation is not restricted to Canada and the EU. During the World Trade Organization’s Doha round of multilateral trade negotiations, several WTO members offered similar concessions; graduation from the LDC list will require WTO members to consider whether to extend or terminate preferential treatment for the graduating LDCs.

Canada can continue duty-free treatment – to grandfather the zero tariff and maintain LDC treatment for as long as it deems desirable. It is also in Canada’s interests to do so; the relationship with the Asian LDCs has been a win-win for both sides. Graduation could cost Canadian consumers and exporters alike and if both the EU and Canada graduate these countries, it could stall economic growth and poverty reduction efforts in the LDCs.

This paper maintains that while COVID-19’s impact makes a short-term deferral likely, it makes more sense to look long term at both the trade and development implications of graduation for both Canada and the LDCs. It recommends that Canada continue preferential treatment for an extended period of time or simply leave the low tariffs in place.

Fauzya Moore is an Ottawa-based consultant and writer. She has worked as a Senior
Economic Advisor at the various iterations of Global Affairs Canada, and also as a Senior Advisor on Governance at the Treasury Board of Canada. She is also a graduate of the Harvard Kennedy School (2009) where she held both a Fulbright scholarship and a fellowship from the Ash Centre for Governance and Innovation. She has worked in both the developed and developing world.

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U.S. customs law has contained prohibitions against importing goods produced by certain categories of labor since the end of the nineteenth century. Beginning in 1890, the United States prohibited imports of goods manufactured with convict labor. In 1930, Congress expanded this prohibition in Section 307 of the Tariff Act to include any (not just manufactured) products of forced labor. Although a few Members of Congress brought up humanitarian concerns during debate, the central legislative concern was with protecting domestic producers from competing with products made with forced labor. As such, Section 307 allowed the admission of products of forced labor if it could be shown that no comparable product was made in the United States or the level of domestic production did not meet domestic demand (“consumptive demand” clause).

Over the decades, lawmakers and civil society became increasingly concerned about forced labor in the context of human trafficking. The Victims of Trafficking and Violence Prevention Act of 2000 (P.L. 106-386), for example, included forced labor in its definition of human trafficking. In 2015, Congress removed the “consumptive demand” clause, as part of the Trade Facilitation and Trade Enforcement Act (reflecting this interest in addressing human rights abuses in the context of forced labor).

Issues for Congress

Trade Policy and Forced Labor Provisions

The treatment of forced labor in U.S. trade policy and free trade agreements (FTAs) has been of long-standing congressional interest and has evolved in recent years. Consistent with negotiating objectives set by Congress in Trade Promotion Authority, recent U.S. FTAs commit countries to maintain laws on core labor rights/principles of the International Labor Organization (ILO). This includes the elimination of forced or compulsory labor.

For the first time in a U.S. FTA, the U.S.-Mexico-Canada Agreement (USMCA) also commits parties to prohibit imports of goods produced by forced labor through “measures it considers appropriate,” and to establish cooperation for identifying such goods. The 116th Congress passed USMCA implementing legislation in early 2020. It created a Forced Labor Enforcement Task Force, chaired by the Secretary of Homeland Security, to monitor enforcement of Section 307, and reporting requirements.

In addition, eligibility criteria for U.S. trade preference programs, such as the Generalized System of Preferences (GSP), includes taking steps to maintain internationally recognized worker rights. Some eligibility reviews by the U.S. Trade Representative have involved concerns over labor practices. Recently, the Administration withdrew GSP benefits for Thailand over forced labor in the fishing sector.

Trade agreements and programs have expanded coverage of trade and labor issues in part because the World Trade Organization (WTO) does not cover such rules. However, Article XX(e) of General Agreement on Tariffs and Trade (GATT), provides exceptions to a country’s obligations for measures related to imports of products of prison labor.

Christopher A. Casey is an Analyst in International Trade and Finance for the Congressional Research Service.

Cathleen D. Cimino-Isaacs is an Analyst in International Trade and Finance  for the Congressional Research Service.

Katarina C. O’Regan is an Analyst in Foreign Policy for the Congressional Research Service.

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At the time of writing, the world is experiencing a deadly pandemic that brings to the fore vulnerabilities linked to the interconnectedness of the global economy. Once the immediate crisis has been overcome, there will be a need to reorient policies for reconstruction and, in that context, review the work of institutions responsible for managing global interdependence. In principle, two scenarios can be imagined. In the absence of a global hegemon, and in a world of increased geopolitical tensions, countries may opt for retrenchment, choose their camps and deepen the tendency to decouple their economies. This was the path followed after the 1918 global pandemic… The other path is for the leading powers to assume joint responsibility for the management of interdependencies and revitalise and renew global institutions so that they are fit for purpose. Common goals for the international community have already been identified in the UN Sustainable Development Goals. What is needed is that each relevant institution is adapted to make the contribution that best suits its mandate. In some areas like health or climate change, it is already clear that this calls for substantially reinforced international cooperation. The strengthening of the welfare state also needs to be supported by a reform of the rules applied to the taxation of international income. But the trading system is a vital artery of the global economy and the legacy of the GATT/WTO system is too precious to discard. Rather than levelling down by weakening cooperation on trade, the requirement is to level up cooperation across a broad range of interconnected policy areas.

This paper has argued that the GATT/WTO system has acted as the essential anchor for the global economy by facilitating progressive liberalisation, ensuring the stability provided by commonly agreed rules and providing a neutral and objective system of third-party adjudication. As such it has made a major contribution to growth and development.80 While the GATT was originally sustained by a common commitment to combine openness with domestic stability through welfare policies, the WTO has proven unable to identify a common sense of purpose that reflects its almost universal membership. While the drafters of the WTO treaty inscribed sustainable development in the preamble, there has never been a common understanding as to how the new body should respond to those lofty words. To this lack of common purpose has been added the tectonic geopolitical shift resulting from the emergence of China as the world’s largest economy and trading nation.

This paper argues that for the WTO to retain its relevance, it needs to reform. And such reform would need to be jointly promoted by the three main trading powers as part of an inclusive process that also integrates the concerns of all other WTO members. Of particular importance is to integrate the concerns and interests of those developing countries that currently play a marginal role in trade and investment flows, many of which are in Africa. As the African Union develops the project of an African Continental Free Trade area, there is a strong case to make support for African integration in the global economy a central pillar of WTO reform.

The advantages of an ambitious WTO reform agenda would appear to be self-evident:

• Cooperation on trade will contribute to economic recovery from the pandemic and reduce the tensions affecting the global trading system. It would also facilitate reinforced international cooperation to tackle other global challenges such as climate change.

• Multilateral trade liberalisation would send a signal of confidence to traders and investors with a positive impact on the world economy at a time of reconstruction and significant downward risks. It would also make a direct contribution to sustainability objectives.

• Heads of state and government would renew their commitment to multilateral rule-based trade and provide political guidance on the contribution of trade to SDG implementation.

• The WTO would be reinforced both in terms of its effectiveness and its legitimacy. This reinforcement would also ensure a better balance between the role of members, secretariat and Appellate Body.

While the agenda is ambitious, it is also realistic. The market access commitments by many WTO members would essentially consist of binding the existing level of openness. Liberalisation commitments could be undertaken without affecting core sensitivities, thereby avoiding the pitfalls that led to failure of the Doha Development Agenda. While China would need to accept more constraints on its industrial policies, it would be on the basis of disciplines that are even-handed and apply to other WTO members. Those disciplines would only be subject to enforcement through a legitimate process of third-party adjudication. The US and the EU would benefit from an improved balance of commitments and a level playing field with China which would see its leading role in the trading system recognised and protected against unilateral pressures. Cooperation on WTO reform would also provide a stronger political glue to the transatlantic relationship and lead to reduced bilateral tensions.

The postponement of the WTO Ministerial Conference provides time to properly prepare the launch of an ambitious reform agenda. Reform would, of course, need to proceed in different stages and not every issue would necessarily be ripe for decision by the time of next year’s conference (MC 12). But it is important that a sense of direction is provided with the overall goal of seeking to reach substantial results over a time frame of not more than four years. Early implementation of results should be possible and open plurilateral agreements should be integrated within the WTO framework. At the time of writing, one cannot predict what would be the state of the world economy in 2021 owing to the uncertainties created by the global pandemic. A sense of crisis could, it is hoped, lead to greater boldness and a decision to agree by MC12 on some urgent steps to restore confidence in rule-based trade and launch an ambitious agenda for reform.

There are in particular three areas where WTO members could give a strong signal of support for multilateral cooperation and show the organisation’s relevance when it comes to delivery on the broader goals of the international community. These would include agreement on the elimination of trade distortive fisheries subsidies, a trade and health initiative and the elimination by as many countries as possible of tariffs both on medical products and on environmental goods. Ideally, a decision could also be taken to proceed to the appointment of Appellate Body members on the basis of a decision to improve the appellate function.

Beyond such a boost of confidence, the Ministerial should launch a broad programme of WTO reform that includes pursuing open plurilateral initiatives on drawing up new rules, exploring the scope for negotiations on industrial and agriculture subsidies as well as on tariffs and services/investment, improvements in the dispute settlement understanding and clarification of rules on trade remedies as well as reinforcing the policy monitoring and deliberation function with the overall objective of contributing to SDG implementation. The ministerial meeting that follows in 2023 should be able to identify further progress in the reform agenda and define more precisely the steps needed to conclude reform negotiations. By 2025, a summit meeting at heads of state and government level could seal the process of WTO reform and agree on a statement that includes political commitments to implement the SDGs along with a work programme to deliver on such commitments.

This article has sought to make the case for an ambitious WTO reform agenda. Before concluding, it is worth discussing the issue of political feasibility. The new European Commission has identified WTO reform as its main trade policy priority. The EU can be expected, therefore, to actively promote WTO reform. Of critical importance would be to place such reform within a broader political context of global efforts to recover from the consequences of the pandemic and to renew multilateral institutions’ capacity to act not only on trade, but also on climate change, health and other global challenges. An outward-looking EU should be ready to invest politically to strengthen alliances in support of multilateralism. Here, the key determinant for the prospects of moving forward on the reform agenda depends on the interaction between the EU and three other key players: the US, China and the African Union. This is not intended to minimise the contribution of other WTO members, but simply to illustrate that little can be achieved in the absence of sufficient common understanding amongst those four players.

An essential building block for WTO reform is a high degree of convergence in the reform agenda between the US and EU. Throughout the history of the multilateral trading system, EU-US cooperation has been the main driving force for progress achieved in GATT/WTO negotiations. With the demise of TTIP, cooperation on WTO reform can also restore a climate of transatlantic trust and cooperation on trade with positive spill overs for the bilateral WTO Crisis and Reform. Looking into the agenda of WTO reform, there is likely to be a high degree of convergence between EU and US on ideas to restore the credibility of the WTO negotiating function. So far, the US has not been active in discussions relating to the relationship between WTO reform and sustainable development, although its position is likely to depend on the outcome of the November elections. The main area of substantive disagreement is the reform of WTO dispute settlement. The hope of this author is that the ideas presented in this paper, together with others that may come from the US side, could facilitate a transatlantic dialogue to identify a package of reforms that restores a properly functioning binding dispute settlement system. As they are the two main users of WTO dispute settlement, there is a h likelihood that other members would be ready to support changes to which both the US and the EU can subscribe.

Beyond convergence on the detailed reform agenda, the fundamental political question is whether the US is ready to accept that its trade relationship with China cannot be managed exclusively at the bilateral level and that priority should be attached to negotiations in a multilateral setting. This paper argues that the phase one agreement with China does not have the potential to develop into an instrument to secure Chinese reforms or to level the playing field. Instead of relying on bilateral purchase commitments, the US would be better served if China were to agree to autonomously reduce tariffs and to further open its market to investments. A suspension of retaliatory tariffs, as well as restrictions linked to the steel and aluminium national security actions and the civil aircraft dispute, would provide a signal of confidence for the world economy and create the conditions to enter into good faith negotiations on WTO reform. Whether the US would be ready to go in this direction is a question for which an answer can only be provided after its November elections.

How would China react if there was a joint transatlantic offer to cooperate in the launch of WTO reform negotiations? In the absence of signals from the US, it is difficult to gauge what Beijing’s position would be. China has been highly critical of US proposals on special and differential treatment as well as on the trilateral proposals on industrial subsidies. In reality, however, China has little to gain from claiming special treatment in rules negotiations and could even find an interest in market access negotiations provided a solution could be found on the issue of free riding. Even on the issue of subsidies, China has been careful not to rule out negotiations at the same time as signalling its interest on certain issues such as restoring the Uruguay Round green box.82 The fundamental political question is whether China is ready to accept responsibilities commensurate with its weight in the global economy. Much may depend on whether it is possible to restore a climate of trust by de-escalating the current conflict.

It may be, of course, that China refuses to engage and insists on maintaining the status quo. In that case, the US and the EU could seek to enhance leverage by intensifying cooperation on making use of WTO-compatible instruments to respond against distortive Chinese practices. This could include sharing information on Chinese subsidies for the purpose of countervailing duty cases as well as intensifying cooperation on investment screening and export control procedures. The EU should still seek to persuade the US to cooperate in reforming WTO dispute settlement, as well as moving forward on those aspects of WTO reform not linked to the US-China conflict, notably those relating to sustainable development, trade and health, support for Africa and institutional reform.

Agreement on an agenda by the three main trading powers, while critically important, would not suffice on its own to launch a reform process that has the necessary legitimacy and restores a sense of common purpose to the multilateral trading system. Africa is the region of the world that is least integrated within the world economy and would suffer most from a collapse of the rule-based trading system. African countries can, moreover, be expected to play a key role in developing an acceptable approach on the two key enabling conditions for restoring the WTO negotiating function, i.e. the new architecture for plurilateral agreements and a new approach to special and differential treatment. They are also likely to insist on the importance of agriculture reform and strong commitments to inclusiveness and support for capacity building. At this stage, the African Union is engaged on the major political project of establishing the African Continental Free Trade Area. The synergies between regional integration and fuller participation in global value chains is a key challenge for African development. How to develop these synergies should therefore be one of the central objectives of the WTO reform agenda.

The task of winning political support for an ambitious reform agenda is therefore far from being simple. Political developments in the relationship between the US and China will have a major bearing on the prospect to restore trust in multilateral institutions. But all participants in the trading system would need to contribute if the WTO is to regain its place at the centre of a rule-based trading system. While there are no reasons for optimism, the world has already witnessed the consequences of a collapse of cooperation on trade – and the challenge of recovering from the global pandemic and managing the climate transition makes cooperation even more essential.

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Current WTO Disputes Involving the Security Exception

A series of WTO disputes involving the security exception has emerged in the last two years. The most advanced of these disputes is brought by Ukraine against Russian restrictions on traffic in transit from Ukraine to third countries via Russia. Ukraine alleges breaches of the “Freedom of Transit” provisions of GATT Article V. In response, Russia has invoked the security exception in Article XXI.

In 2017, Qatar requested the establishment of a panel with respect to “measures taken in the context of coercive attempts at economic isolation” allegedly imposed by the UAE against Qatar. Qatar brings claims under GATT 1994, GATS, and TRIPS, including under provisions regarding transit and nondiscrimination. The UAE contends that, pursuant to the security exceptions in these three agreements, it was “forced to take measures in response to Qatar’s funding of terrorist organizations.”

Additional disputes have arisen more recently in relation to the U.S. imposition of tariffs on steel and aluminum imports, under Section 232 (“Safeguarding national security”) of the Trade Expansion Act of 1962. Of the countries that export these products to the United States, only Argentina, Australia, Brazil, and the Republic of Korea are exempt from these tariffs, with Australia subject to monitoring in an undisclosed arrangement and the other three countries agreeing to import quotas of questionable WTO legality.

Nine countries have commenced WTO disputes against the United States in relation to these tariffs: China, India, Canada, the European Union, Mexico, Norway, Russia, Switzerland, and Turkey. In addition, the United States has commenced six disputes against retal- iatory tariffs imposed by Canada, China, the European Union, Mexico, Russia, and Turkey. WTO panels have already been requested in most of these fifteen disputes.

Read the full report here

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