This essay considers alternative scenarios for international trade policy for 2025 and beyond through the lens of the spectacular series of events that upended international trade beginning in 2017. These events are the direct results of Trump administration decisions, 2017-2021. During those years the Trump administration, with its emphasis upon nationalism and populism, effected a revolution in international trade policy that in many respects repudiated international trade policy as it existed from 1948 to 2016. Whereas for decades prior American administrations emphasized trade liberalization through international agreements, the role of multilateral institutions such as the World Trade Organization (WTO), and adherence to international law rules concerning trade, the Trump administration stood these policies on their heads, emphasizing protection of U.S. domestic markets, primacy of U.S. domestic trade laws over international law, and the irrelevance of international institutions such as the WTO. Trump administration trade policies had four major impacts: (1) a significant retreat from globalization; (2) paralysis of the World Trade Organization; (3) a revival of U.S. unilateralism in trade; and (4) a tariff and trade war between the U.S. and China.

Looking toward the future, given that 2024 is an important election year, I will discuss the announced trade policy intentions of the two presumed candidates for president — Democrat Joseph Biden and Republican Donald Trump. I will sketch briefly what each candidate intends to do concerning trade and the likely results for the American and global economies. I conclude that while both Trump and Biden advocate a certain degree of trade protectionism, Donald Trump intends to implement a radical protectionist vision concerning trade. Biden, on the other hand, will adopt a milder version of protectionism that emphasizes national security and enhancement of U.S. manufacturing autonomy. In addition, Donald Trump intends to pursue a hard U.S.- China economic decoupling. Joseph Biden, on the other hand, intends to pursue a milder approach to China, involving “derisking,” supply chain diversification, and “friend-shoring” of international trade and investment.

To his credit, Biden and his team have stabilized U.S.-China relations. Biden’s November 2023 summit with Chinese President Xi Jinping, along with diplomacy of Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo succeeded in restoring a degree of order to the U.S.-China relationship that was so chaotic during the Trump administration. China and the United States represent about 40 percent of the world economy; stability of this relationship is an essential component of global prosperity. The Biden administration has managed the U.S.-China relationship, essaying to prevent disagreements from spiraling into conflicts. 

Is the Past Prologue?

On January 20, 2025, someone will take the oath of office to serve as President for the next four years. A rematch seems to loom between Joseph Biden and Donald Trump. More than the names of the candidates will be on the ballot. Voters will choose the future role of the United States in the world. Voters will also choose the economy they will live with for the next four years and beyond. In terms of the subject matter of this symposium, we can pose the following key questions: (1) What will be U.S. economic policy toward China in the new administration? Will there be an attempted decoupling? (2) What will be the attitude toward tariffs and protectionism? (3) What will be the attitude toward new trade agreements? (4) Will the new president respect international law and institutions?

What will be the impact of international trade policies on the broader economy? The Federal Reserve seems to have engineered a “soft landing” for the U.S. economy. GDP rose 2.5 percent in 2023, and the unemployment rate is a low 3.7. percent. In 2023 inflation moderated to 3.4 percent. Which man, Trump or Biden, is more likely to maintain a good economy?

In this part I will address these and similar questions in the context of comparing the likely international economic policies of the Trump and Biden administrations. I will also describe a “third way” different from both.

Donald Trump’s “Maganomics”

Donald Trump on the campaign trail today still preaches the populist idea that tariffs benefit domestic industries and produce jobs and produce billions in revenue for the federal government. Trump has never been deterred by the opinions of economists who say that tariffs are taxes on American consumers and producers. Trump, the self-described “tariff man,” plans to double down on tariffs if he wins a second term as president.

First, he intends to impose a new “universal baseline tariff” of 10 percent on all imports into the United States.

Second, he is considering two possible options with regard to new tariffs on China. One option is to revoke China’s “most favored nation” status for trade with the United States. This would immediately result in huge tariffs on all Chinese products. If this option is problematic — it is against the rules of the WTO — Trump intends to simply impose across the board tariffs of 60 percent on all Chinese products. The magnitude of these proposed tariffs on Chinese products appears to mean that Trump will seriously aim to decouple the U.S. and Chinese economies.

These proposals, if implemented, would spark a global trade war, not only with China but with virtually all U.S. trading partners. They would also cause inflation and unemployment. A report commissioned by the U.S.-China Business Council predicts more than 700,000 job losses and a cost of over $1.6 trillion to the U.S. economy.

Third, Trump intends to propose a new round of tax cuts for small business and the middle- class worker. He proposes to cut the corporate tax rate from 21 percent to 15 percent.

Critics point out that this tax cut, like Trump’s first term Tax Cut and Jobs Act, is unfunded. Republicans are fond of such unfunded tax cuts that add to the national debt, which now stands at over $34 trillion. During his term as president, Trump added $8 trillion to the U.S. budget deficit. In 2023, U.S. interest payments on the national debt totaled $659 billion. The U.S. debt is growing faster than the economy. Many believe this rise in the debt is unsustainable.

Summing up Trump’s economics it can only be said that they are totally wrongheaded and borderline lunacy.

Joseph Biden’s “Bidenomics”

The Biden administration’s trade policy prioritizes labor and the American worker over consumerism. Biden’s 2021 Report to Congress states that American workers should be at the forefront of trade policy. Trade must be conducted to benefit regular American communities and workers. Trade policy must recognize that people are not just consumers, they are workers and wage-earners. Trade policy must protect American jobs not just low prices for consumers.

A threshold decision for the Biden administration was whether to repeal the Trump tariffs. At the time inflation was high. Numerous commentators advised Biden to rescind the Trump tariffs, arguing this action would lower U.S. inflation by 1 to 2 percent. Biden rejected this advice; he chose to defend the Trump tariffs in court litigation. Biden’s defense was successful. Biden did, however, allow importers to seek exclusions on grounds such as lack of domestic supply.

The Biden administration also vigorously defended the section 301 tariffs on China and ultimately prevailed in court. The Biden administration has not sought to lift these tariffs either unilaterally or in conjunction with an agreement with China.

The central element of Bidenomics, one that is new and untried, is an industrial policy that shapes the international economic order to achieve economic goals that benefit particular industries and communities. Four new laws are essential to this process: (1) American Rescue Plan Act ($1.9 trillion); (2) Infrastructure and Jobs Act ($1.2 trillion); (3) Inflation Reduction Act ($369 billion); and the (4) Chips and Science Act ($52 billion). Industrial policy is any governmental effort to boost priority industries or to create structural economic change. The United States formerly looked down on industrial policy and criticized states that adopted it. No more — if you cannot beat the competition, you join it.

Biden’s industrial policy involves three elements. First, massive subsidies are available doled out by bureaucrats or made directly to consumers in the form of tax credits. Second, the subsidy must be spent in America under Executive Order 14005, the Buy American mandate. Third, Executive Order 14017 comes into play mandate special attention to the supply chain to ensure there will be no disruptions or delays. “Make it in America is no longer just a slogan,” said President Biden, “it is a reality in my administration.”

The Chips and Science Act addresses a long-term decline in U.S. semiconductor chip manufacturing. Of the world’s five largest chip manufacturers, only one, GlobalFoundries, is based in the United States. In February 2024, the U.S. Department of Commerce announced a $1.5 billion grant to GlobalFoundries to build a computer chip manufacturing plant in New York state. Additional grants include $35 million to BAE Systems, a defense contractor, and $162 million to Microchip Technology, a Colorado company. The Biden administration argues that subsidies are the only way to create a viable computer chip manufacturing industry in the United States. This may be the case, but the subsidies potentially contravene the prohibitions contained in the WTO Subsidies and Countervailing Measures Agreement, and the “buy American” program may violate the WTO Government Procurement Agreement.

In past administrations negotiating free trade agreements that open foreign markets to American exporters was a high priority. The Biden administration, however, is an exception to this rule. Early in his administration President Biden stated, “I am not going to enter any new trade agreement until we have made major investments here at home and in our workers.” Biden has not sought to enter into any free trade agreements and apparently does not intend to do so if he wins a second term as president. He has not sought to revive unfinished negotiations with the European Union or theUnited Kingdom. He has not expressed interest in joining the Progressive and Comprehensive Trans-Pacific Partnership free trade agreement, which is in force for eleven nations.

As a substitute initiative the Biden administration formed what is called the Indo-Pacific Economic Framework for Prosperity. This is a “framework” not a free trade agreement. It is a voluntary document that does not contain any legal obligations but simply pledges cooperation. As Catherine Rampell describes it, “the only thing that can be reliably counted on is a growing aversion to anything branded as free trade.”

The words “free trade agreement” have become toxic on Capitol Hill and in the Biden administration.

The Biden administration eschews the inflammatory rhetoric of the Trump administration but has not sought to repair the damage to the multilateral trading system or to solve the thorny problems left over from Donald Trump.

The Biden administration’s trade policy, like Trump’s, is a huge break from decades of past trade policy. Biden rejects free trade negotiation to open foreign markets in favor of handing out lavish subsidies to favored industries. Critics decry the free spending and the emphasis on government creation of a manufacturing boom that will never materialize. They point out that manufacturing employment has been in steady decline for decades as automation makes it possible to produce more goods with ever fewer workers. Manufacturing accounts for just 8.3 percent of total employment, down from 8.6 percent when Biden took office.

A Third Way

Two prominent critics of Bidenomics, not to mention Trumpian Maganomics, are former Secretary of the Treasury Lawrence Summers and former USTR Robert Zoellick. These men constitute a “third way” in trade policy, different from Biden and more attuned to traditional trade policy of past decades. Summers has said, “I am profoundly concerned by the doctrine of manufacturing-centered nationalism that is increasingly put forth as a general principle to guide policy.” Summers decries much of the Biden administration’s industrial policy and the protectionism behind Biden’s emphasis on “buy American.”

Summers believes that excessive reliance on “buy American” exacerbates economic problems by driving up prices and fueling labor shortages. Summers argues that it sounds smart to use tariffs or buy American to protect the 60,000 workers in the U.S. steel industry. But when you raise the price of steel, the 6 million workers who use steel as an input all suffer as do consumers of steel. He reminds us that the workers who produce steel are only 1 percent of the workers who need and use steel as an input in the goods they make. Saving a few jobs for workers who make steel may not be the answer to economic malaise.

At a talk in 2023 at the Peterson Institute for International Economics, Summers made the following interesting points: (1) trade with China benefits the United States, which achieves job growth and consumer advantages; (2) government economic intervention aimed at bringing about a renaissance in U.S. manufacturing jobs is unrealistic and potentially counterproductive; and (3) the U.S. government should not try to maximize job creation over maximizing availability of low-cost goods to consumers.

Robert Zoellick makes four cogent criticisms of Bidenomics. First, team Biden ignores all fiscal discipline, embracing modern monetary theory that consigns fiscal constraints to the past. On the contrary, the U.S. budget deficit is worrisome and will have to be addressed. Second, “Biden’s team pursues trade and antitrust policies while questioning the importance of prices, costs, and efficiencies. Increased prices for consumers matter little to the administration compared with such goals as blocking foreign competition, doing away with fossil fuels, and experimenting with new regulations.” Third, team Biden distrusts the private sector of the economy, putting too much faith in statist solutions. Fourth, Biden now eschews American leadership in international trade. Instead, “Katherine Tai, Biden’s USTR, embraces Trumpian isolationism. She denies the power of deals to open markets and to accomplish other administrative objectives.

In short, Zoellick says, “Biden theorists imagine a national economy that Washington designs without foreign involvement.” There seems to be no memory that the post-war trade agreements signed between the 1940s to the 1990s produced unprecedented economic growth both for the United States and its trading partners.

Summers’ and Zoellick’s criticisms point toward a third way of handling the important subject of trade and investment policy. Why not return to multilateralism, which has stood the United States and its allies in such good stead for so many decades? This is not to advocate the multilateralism of the past. Why not adopt a multilateral approach suitable to deal with the problems of today. This multilateralism has three elements.

First, the United States should return to negotiating free trade agreements that open foreign markets to U.S. exporters. The U.S. traditionally was the largest exporting country. China became the world’s largest exporter only in 2009. The United States should again achieve this title; the way forward is the negotiation of free trade agreements.

Three free trade agreements should be high on the agenda of the next administration:

(1) The United States should join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); this free trade agreement was negotiated by the United States and is in force for eleven friendly Asian-Pacific countries. President Trump withdrew his support for this agreement in 2017, part of his mistaken “Maganomics” protectionism. This was a grievous error. The provisions of the CPTPP were created in Washington and are in the American interest.

(2) The United States should restart and complete negotiation of the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union and the UK. This negotiation was scuttled by Trump. It can easily be revived.

(3) The United States should come to a free trade agreement with eleven (or more) Western Hemisphere nations. The Biden administration has launched talks with these nations but only to discuss what is called an “American Partnership for Economic Prosperity.” This is a toothless political agreement to be “nice,” but would not open any foreign markets or carry economic obligations. Nothing less than a full free trade agreement should be the administration’s goal.

(4) The United States should reengage with African nations through the African Continental Free Trade Agreement.

The purpose of entering into free trade agreements is not only to open foreign markets, but also to compete with China, which is very active all over the world promoting its Belt and Road initiative and other goals. By entering into these free trade agreements, the United States can help craft a global standard of conduct in trade and investment that China must observe. Without new trade agreements China is free to pursue its “divide and conquer” strategy to negate American influence around the world. New trade agreements would also confirm and reanimate America’s relations with its allies, who are anxious to create a counterweight to China.

As a second element of a “third way” in trade, the United States should reengage with the WTO and again play a leadership role in that organization. Since 2017 a leadership vacuum has existed at the WTO. Now is an excellent time to reassert American leadership. There is still a need for clear multilateral rules in trade. American leadership of the WTO could help shape the rules to our liking. It is not enough to merely criticize the rules and the role of the Appellate Body. The U.S. should also actively promote new rules more to our liking.

Third, the United States should establish a wide-ranging dialogue with high-level Chinese counterparts to provide transparency and to justify American actions in the ongoing economic competition with China. While decoupling is not and should not be the American goal, strategic decoupling may be warranted. The United States is taking numerous actions regarding China unilaterally. But that is not enough; there should be a bilateral forum to discuss American and Chinese actions in real time as they are happening. Establishing such a forum could help each side to understand this strategic decoupling process and to make corrections where warranted. The Trump administration abandoned economic dialogue with China shortly after taking office in 2017 in favor of a one-sided, “lay down the law,” monologue with its Chinese counterparts. This was a mistake. Larry Summers has described how bilateral talks with China have been fruitful to change Chinese behavior with respect to currency valuation and other matters.

Conclusions

In November 2024, voters will choose between Trump and Biden to be president of the United States. This essay has compared the different international trade policies of each man. While Trump’s policy views are sheer lunacy, embracing full-throated protectionism, Biden’s trade policy views are troubling. Biden also leans toward protectionism to some degree.

It is surprising that Biden on trade resembles his Republican predecessor more than the presidents of both parties who preceded him in the White House. Biden errs in turning his back on past trade liberalization pursued by successive presidents before Trump. The next administration should adopt a “third way” set of policies on international trade, emphasizing (1) negotiation of wide-ranging new free trade agreements; (2) reengagement with the WTO; and (3) robust bilateral forums to discuss trade matters with China.

Thomas J. Schoenbaum is presently the Harold S. Shefelman Professor of Law at the University of Washington in Seattle. He received his Juris Doctor degree from the University of Michigan and his PhD degree from Gonville and Caius College, University of Cambridge (UK). He is also Research Professor of Law at George Washington University in Washington DC. He is a practicing lawyer, admitted in several U.S. states and before the Bar of the Supreme Court of the United States.

To read the executive summary as it is posted on the website of the Institute for European Policymaking at Bocconi University, click here.

To read the full policy brief published by Institute for European Policymaking at Bocconi University, click here.

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Introduction

“Electronic commerce” or “digital trade,” as it is now more frequently referred to, is a topic that has steadily moved up on the priority list of trade negotiators. On the one hand, this interest has to do with the advanced digitization and the critical importance of data to global economies; on the other hand, it can be linked to the multiple new issues that the data-driven economy has raised, such as those in the areas of personal data protection or national security, which demand urgent regulatory responses. The multilateral forum of the World Trade Organization (WTO), despite its long-acknowledged stalemate, together with its troubles to move forward with the Doha negotiation round and to secure a working dispute settlement mechanism, has also become active on the topic. There seems to be a broad agreement among the WTO Members that it is high time to finalize an agreement on electronic commerce that can address many of the so far unresolved issues of digital trade in the body of the WTO Agreements, provide a platform for cooperation, and ensure legal certainty and equity. This Article follows and contextualizes this development and seeks to address critical questions as to the form and substance of the new WTO treaty on electronic commerce.

To engage in these inquiries, the Article first sketches the status quo of WTO rules of pertinence for electronic commerce. It then provides an in-depth analysis of the rule-making on digital trade in preferential trade agreements (PTAs), which not only compensates for the lack of developments at the WTO, but also effectively creates a new, albeit fragmented, governance framework for the data-driven economy. The analytical lens here is directed in particular to the newer and more advanced models, such as those under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the United States-Mexico-Canada Agreement (USMCA), as well as those endorsed by dedicated digital economy agreements, such as the ones between the United States and Japan through the Digital Trade Agreement (DTA) and among Chile, New Zealand, and Singapore through the Digital Economy Partnership Agreement (DEPA). The Article then covers the EU’s new generation of trade deals, in particular the currently negotiated deals with Australia and Tunisia, the post-Brexit agreement with the United Kingdom (U.K.) and the recent treaty with New Zealand. The Article also looks at the Regional Comprehensive Economic Partnership (RCEP), the first agreement with digital trade provisions that includes China, to give a sense of the dynamic governance environment on issues of digital trade. Subsequently, the Article compares these PTA rule-frameworks with the WTO negotiations on electronic commerce and seeks to identify points of convergence and divergence reflected in the latest negotiation proposals tabled by WTO Members. The analytical focus is placed on the legal substance and form of the prospective WTO deal and on its viability to adequately address the practical reality (and the future) of the data-driven economy. 

Mira Burri is a Professor in International Economic and Internet Law at the University of Lucerne.

To read the abstract as it is posted on Social Science Research Network’s website, click here.

To read the full article published in the Georgetown Journal of International Law, click here.

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The vigor with which major economies – including Europe, India, China, and beyond – are pursuing data sovereignty policies is concerning, particularly as research on the issue is still emerging. Policymakers are proposing regulations without understanding their inevitable effect – an internet with borders that threatens to reverse trends in growth and equity. A world wherein data cannot cross borders is one where international trade is more difficult, communication is more inconvenient, and opportunities shrink.

This paper by Dr. Deborah Elms of Asian Trade Centre discusses the potential consequences of data sovereignty regulation in Asia and the Pacific. Policies seeking to achieve digital sovereignty are fraught with risks, with small economies and businesses bearing the brunt.

To read the full report from the Hinrich Foundation, please click here.

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The COVID-19 pandemic has exacerbated these trends. According to one estimate, COVID has accelerated the digitalisation of business operations by up to a decade. The move towards more digital governance is also becoming more widespread with many recent free trade agreements (FTAs) including “e-commerce” chapters and provisions. Six months into the pandemic, however, a new kind of digital trade agreement was ratified with, very fittingly, the electronic signatures of three small, open, Asia-Pacific economies: New Zealand, Singapore, and Chile. Since that virtual signing ceremony, several similar agreements have followed or are in prospect.

In this paper, former New Zealand trade negotiator Stephanie Honey explores several policy options for digital trade governance. It outlines the innovative features of the DEPA approach and details its goal to realise the full potential of digital trade for businesses, while also safeguarding policy space for governments. The paper also reflects on the DEPA’s scope of impact, given that many of its provisions are “soft law” rather than legally binding rules – and whether flexibility might in fact be an advantage in this fast-moving area.

To read the original report from the Hinrich Foundation, please visit here

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Globally, there are three different regulatory models for personal data: the model applied by the US, based on an open approach to transfer data and process data locally; the model developed by the EU, which is a model based on so-called conditional transfers and processing; and finally, the model put forward by China, a framework that lurches towards autarky.

The differences in regulatory approaches reflect different economic realities, and it is important to better understand how and why countries regulate in the way they do – particularly in the EU and US. The EU’s regulatory approach seeks model followers among trading partners and offers adequacy for countries following a different model. Many countries apply a similar model and, together, they cover a big portion of global trade in data-reliant services.

In contrast, the US model has fewer followers and represents a much smaller share of trade. However, this model comes with other benefits as it allows firms to experiment more than in the EU and China, leading to more digital innovations with data and faster growth of new firms with a strong boosting effect on productivity. The US model aims to capture the benefits to prosperity that comes from data-based innovation.

The China model is in a league of its own. It is a large economy in itself and its economic scale has served the country well by developing many new and fast-moving digital technologies; China therefore shares some impulses of an experimental approach. Yet, this regulatory approach comes along with great restrictions, which inhibit the cross-border integration with other countries. The China model has the lowest number of followers and represents the smallest share of digital services trade. China’s closed economy makes it therefore much harder to regulate internationally.

These three blocs have chosen regulatory models that reflect their institutional structures and economic opportunities. Hence, there may not be one model that fits every type of economy: there is rather a path dependence in the way regulations are developed.

However, it is important to acknowledge that the different regulatory structures will produce different economic outcomes. The US model will generate a lot of innovation-led growth – but not necessarily a lot of innovation-driven trade. European outcomes are the opposite: the regulatory structure doesn’t produce as much Schumpeterian growth, but it encourages trade and Smithian growth.

To read the full policy brief by the European Centre for International Political Economy, please click here. 

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1. Negotiations: The negotiations creating the WTO were a major success, leading to a broad range of new rules that prohibit members from raising tariffs beyond agreed-upon levels, restrict non-tariff barriers, and ban discriminatory trade measures. Since then, a few negotiations have helped further lower barriers, including the Trade Facilitation Agreement (TFA) and Information Technology Agreement (ITA). Today, average applied tariffs are approximately half of what they were when the WTO was created, and numerous unfair trade practices have been discontinued.2
2. Implementation and Monitoring: The WTO recognizes that the implementation and monitoring of commitments are essential to maintaining the integrity of an effective rules-based system. Accordingly, the WTO includes mechanisms to track implementation and rules that require members to notify it of changes in trade policies and share information on trade-distorting practices (e.g., subsidies). Transparency and information sharing promote business predictability, while the discussion of trade-distorting policies often leads to their modification or abandonment before adoption.
3. Dispute Settlement: The WTO dispute-settlement system helps resolve trade disputes to minimize unilateral action and cycles of retaliation. Many countries use the dispute-settlement system to challenge adverse measures. In most cases, the member losing the dispute changes the offending measure. In other cases, that member exercises its sovereignty and chooses not to change the policy, freely accepting the consequences (retaliatory tariffs). Additionally, many disputes are settled before litigation commences.

The world has changed considerably since the WTO’s creation. It has experienced the rise of the Internet and other advanced technologies, China’s economic expansion, greater skepticism about the benefits of trade, and greater concern about income inequality. The world has changed, and so must the WTO. At the same time, the WTO itself has not met expectations. WTO negotiations have not readily facilitated new rules or additional market-access openings, the implementation and monitoring pillar has not held countries accountable for ignoring its requirements, and the dispute-settlement system has not strictly applied the rules as negotiated. As a result, the WTO is falling far short of its promise and mandate in different ways.

WTO negotiations have failed to update international trade rules to: account for non-market economies and deal with related unfair trade practices, such as forced technology transfer and massive industrial subsidies; account for new technologies, such as the Internet; improve commitments in key areas covered in detail by free-trade agreements (FTAs), such as intellectual property and services; and fully address politically important policy issues, such as labor and the environment. WTO negotiations have also failed to substantially lower or equalize tariff treatment among major economies.

The ability of large emerging economies to self-declare “developing-country” status and avoid taking on the same commitments as competitors has compounded the challenge. Worse yet, many countries claim that trade liberalization and the WTO rules that promote it are anti-development, undermining the WTO’s core mission.

Compliance with the WTO’s implementation and monitoring function has not been widespread, with many members failing to follow the basic notification requirements necessary to ensure the transparency and predictability of trade.

WTO dispute settlement has drifted from its original design. It has failed to properly adjudicate certain disputes, including by inventing new rules without consensus and improperly applying the rules to non-market economies;  allowed the WTO Secretariat to wield too much power in decision-making; and taken too long, depriving workers and businesses of real-time solutions.

Accordingly, all three pillars require reform to ensure the WTO retains a constructive and central role in resolving disputes before they spiral out of control, and in shaping international trade rules and behavior. When the WTO is functioning properly, it provides a mechanism to enforce agreed-upon rules in a predictable manner and create new rules to protect workers and businesses. When the rules are inadequate and disputes take too long, countries are more inclined to adopt unfair practices, and may be forced to respond unilaterally to protect their interests.

WTO reform provides the quickest and most constructive path to adequately address China’s unfair trade practices. The US-China Phase One trade deal made important progress on certain structural issues, but did not meaningfully address industrial subsidies or state-owned enterprises (SOEs), and it is unlikely that China will ever address these matters bilaterally given the government’s central role in its economy. Therefore, concerted multilateral pressure that paints these policies as a threat to the global trading system as a whole is necessary to effectuate change. In many respects, the WTO provides the ideal forum for countries to work together to persuade China to change its most problematic behavior. The WTO already has a core set of principles, such as non-discrimination, that are critical to countering such practices, and an existing infrastructure for negotiating, monitoring, and enforcing those rules. The WTO’s membership is also critical—it includes many countries impacted by these issues, as well as China itself. The broad reach of the WTO will also help ensure other countries do not adopt similar non-policies.

The United States has been calling for significant WTO reform for years, and many countries have recently joined the chorus. For example, in December 2018, all Group of Twenty (G20) members endorsed the following language in the leaders’ statement: International trade and investment are important engines of growth, productivity, innovation, job creation and development. We recognize the contribution that the multilateral trading system has made to that end. The system is currently falling short of its objectives and there is room for improvement. We therefore support the necessary reform of the WTO to improve its functioning.

Despite these high-level statements, WTO members have struggled to gain momentum toward tangible reform. Some blame the United States for refusing to offer specific proposals on dispute settlement, the European Union (EU) for an unwillingness to meaningfully address US concerns on this issue, China for refusing to engage on proposals related to its practices, and India for leading the fight to preserve preferential developing country status for large, emerging economies.

Regardless of who is to blame, the WTO is in crisis, and momentum for ambitious reform must be generated before the system loses its relevance. To catalyze momentum, members should quickly resolve ongoing negotiations while “thinking big” about the future and significantly raising their levels of ambition. The successful conclusion of ongoing negotiations, such as those on fisheries subsidies, will create new confidence in the WTO by demonstrating that the system is still capable of solving problems. But, negotiations will not solve the biggest problems facing the system. Therefore, even as members seek to make incremental progress, they increase their ambition with respect to the overall scope of reform needed to create a system fit for purpose in the twenty-first century and on “outside-the-box” ideas to solve some of the more intractable problems before it is too late.

Any successful WTO reform effort requires the United States and the European Union to better cooperate and coordinate. The United States and EU share common values, jointly spearheaded the creation of the original international trading system, and have both used it to promote trade-liberalizing, market-oriented policies around the globe. The economies of the United States and the EU are also equally challenged by China’s policies. If they cannot reach consensus on how to fix the WTO, it is inconceivable that the rest of the world could do so.

To this end, this paper proposes an ambitious WTO reform proposal that both the United States and the European Union should be able to endorse, and ultimately work together to promote. In particular, a joint US-EU WTO reform proposal should

• address problems with all three pillars—negotiations, implementation and monitoring, and dispute settlement; these functions complement each other and reform is needed in all three to make the system work as a whole;
• address the most difficult issues, including China’s unfair trade policies and how to fit a non-market economy into a system built by market economies;
  • create new rules to address issues that have emerged since the WTO was created, such as digital trade, and upgrade existing agreements, such as the intellectual property and services agreements, to the higher standards included in many FTAs;
• include more robust commitments on politically important issues, such as labor and the environment, which are critical to regaining domestic support for trade;
• eliminate the unfairly high tariff rates imposed by certain countries, and bring greater parity in tariff levels among major economic powers;
• promote liberalization by all members, not just “developed” economies, while recognizing the unique challenges faced by least-developed countries (LDCs) and allowing for differential treatment predicated on fact-based need;
• consider novel approaches to rescue the negotiating function, such as the use of plurilateral agreements that only benefit participants (non-most favored nation), or non-binding commitments for LDCs as an initial approach in certain areas;
• increase high-level political engagement from capitals to promote greater ambition in Geneva;
• hold countries accountable for failing to follow fundamental rules related to transparency;
• fully address the underlying shortcomings of the dispute settlement system by
  • ensuring that adjudicators better respect the limited mandate provided by WTO members, and do not create rules to which members never agreed;
  • making institutional reforms to improve the transparency and accountability of the process, and address the imbalance in decision-making between the WTO Secretariat and the appointed adjudicators; and
  • improving the system’s efficiency so it serves as a viable “real-time” alternative to unilateral action; and
• recognize that fixing the negotiating function is critical to fixing dispute settlement in a sustainable manner.

The will of all WTO members will ultimately be necessary to achieve the broad-based reforms envisioned in this paper, but improving cooperation and coordination between the United States and European Union is a necessary start. Section II of this paper further outlines some of the existing problems with the WTO system, while Section III details a joint US-EU reform agenda.

To download the full report, please click here.

Clete R. Willems is a Nonresident Senior Fellow with the Atlantic Council’s GeoEconomics Center. Mr. Willems is a partner at Akin Gump Strauss Hauer & Feld, where he advises multinational companies, investors, and trade associations on international economic law and policy matters. Until April 2019, Mr. Willems was Deputy Assistant to the President for International Economics and Deputy Director of the National Economic Council.

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While there are some country-wide factors at play, such as the quality of governance and corruption, context remains vital. In some countries, high volumes of trade and reduced incentives for customs oversight may create a uniquely enabling environment compared to the rest of the national territory. In others, such as Morocco, FTZs pose lesser criminal risks than many of the country’s other border crossings by virtue of being subject to at least some level of control and security arrangements. Yet, in other countries, like Singapore, the country’s tariff regime is so liberal that the distinction between FTZs and the country’s customs territory is all but obliterated, which reduces incentives for smuggling goods from an FTZ into Singapore’s domestic market but does not affect its position as a prime transhipment node for illicit goods.

But, not everything is relative, and some generalisations are possible. The spotlight on FTZs in recent years has disclosed common vulnerabilities, and the research for this paper has added further depth to the understanding of crime-related challenges that beset multiple FTZs around the world. Of these, the following areas are especially problematic:

• The lack of consistent international standards and incentives in relation to the policing of goods that pass through FTZs in transit.
• Inadequate understanding of FTZ-related criminal risks in general and financial crime risks specifically, including at the stage of planning and approving the establishment of an FTZ.
• Insufficient clarity of FTZ-related responsibilities and lacking coordination among various agencies involved, including limited information sharing and failure to involve customs agencies in FTZ-level risks assessment.
• The absence of credible monitoring of FTZ administrators and users, as well as the resulting gap in enforcement.
• The lack of proportionate AML/CTF supervision of FTZ-based businesses that would take account of the risk profile and volume of FTZ activities.
• Limited cooperation with the private sector.

In a positive development, however, the international conversation on FTZs has now moved beyond cataloguing a litany of real or perceived failings. The OECD’s Code of Conduct for Clean Free Trade Zones and the WFZO’s Safe Zone certification programme hold out the promise of both promoting good governance in FTZs and enabling compliant FTZs to distinguish themselves from those that are not.

These are commendable initiatives with the potential to make a difference. However, voluntary certification programmes for the best in class are not sufficient to address a host of FTZ-related vulnerabilities. This requires a concerted effort from governments, FTZ administrators, users and other private sector actors. Voluntary actions are especially unlikely to succeed in preventing criminal misconduct in those FTZs that are neither alive to criminal risks nor face any tangible pressure to raise their game.

With that in mind, this paper offers the recommendations summarised below as a means of advancing the global effort to strengthen FTZ integrity and further advance the useful work already done in this area.

To download the full report, please click here.

Anton Moiseienko is a Research Fellow at RUSI’s Centre for Financial Crime and Security Studies.

Alexandria Reid is a Research Fellow in the Organised Crime and Policing team at RUSI.

Isabella Chase is a Research Fellow at RUSI’s Centre for Financial Crime & Security Studies.

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