The main agreement that still governs international trade is the General Agreement on Tariffs and Trade (GATT). Twenty-three countries – including the United States – signed GATT in 1947, agreeing to charge the same tariffs to all other member countries.

​

In the beginning, GATT functioned as a de facto international organization and sponsored eight rounds of multilateral trade negotiations, the most important being the Uruguay Round (1987-1994) which, through the Marrakesh Agreement, established the World Trade Organization to administer GATT rules and negotiations, plus provide a way to arbitrate disputes.

​

The WTO provides a multilateral rules-based system that governs global trade, including a process for resolving disputes, and is the “only global international organization dealing with the rules of trade among nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their (domestic) parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.”

The WTO trading system applies in 166 countries and to 98 percent of worldwide trade. The agreements cover agriculture, textiles and clothing, banking, telecommunications, government purchases, industrial standards and product safety, food sanitation regulations, and intellectual property.

​

One of the most important features of WTO membership is the “most-favored-nation” clause, which guarantees that countries cannot normally discriminate between their trading partners. In other words, if a country grants someone a special favor, they must do the same for all other members. < Note: Non-discrimination among trading partners is one of the core principles of the WTO; however, regional trade agreements – or reciprocal preferential trade agreements between two or more partners – are also authorized under the WTO, subject to a set of rules. >

 

One analysis between the WTO and other trade agreements since World War II found that “the WTO substantially increased trade for countries with institutional standing, and that other embedded agreements had similarly positive effects. Moreover, international trade agreements have complemented, rather than undercut, each other.”

 

The WTO is by far the best way to address thorny global trade issues – for example, China. For example, there is nothing stopping the WTO from setting rules on how to detect market distortion, along with how to properly monitor and punish it. Same goes with state subsidies. The WTO can do this through “plurilateral” agreements which have a narrower group of signatories, in this case a group of the larger WTO economies.

 

The WTO can also enforce and employ the Trade Facilitation Agreement (TFA). The TFA “contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.”

 

The United States and other WTO members, particularly the European Union and Japan, can apply significant pressure and unite against China, creating a unified block so significant that China has no choice but to behave. If not, China will be completely isolated and that simply doesn’t fit into its ambitious international plans. In fact, these ambitious plans are the best source of leverage the United States and our allies have on China.

 

It probably won’t come as a galloping shock that Donald Trump doesn’t care much for the WTO, saying it’s “a disaster,” “rigged” against the United States, and that he must “do something about the WTO because they’ve let China get away with murder.”

 

These claims are absurd because the Economic Report of the President for 2018, signed by none other than Donald Trump himself, said that “the United States had won 85.7 percent of the cases it has initiated before the WTO since 1995, compared with a global average of 84.4 percent. In contrast, China’s success rate is just 66.7 percent.”

 

A 2019 analysis by the Peterson Institute revealed this: “Contrary to President Trump’s assertion that ‘We lose the lawsuits, almost all the lawsuits in the WTO,’ U.S. officials have won 20 times in their challenges to Chinese trade practices since the first U.S. WTO case against China in 2004. None were lost, and three cases are still pending. Chinese officials have brought 16 complaints against the United States since 2002 and won five, lost one, and gotten a split decision on three, with seven cases pending.”

 

By this point, it also won’t come as a galloping shock that we believe President Trump is deeply misguided on this. To us, one of the most important functions of the WTO is the appellate body that essentially functions as the Supreme Court for international trade. As designed, this body hears appeals regarding decisions by lower WTO dispute settlement panels (which provides a mechanism to challenge unfair trade practices). Roughly two-thirds of all WTO disputes reach the appellate body, and its rulings are binding on WTO member states. There are seven seats on the appellate body and the rules require at least three judges appear to form a panel to adjudicate a given dispute.

 

… and herein lies the problem. Since December 2020, all seven seats on the appellate body have been vacant. Beginning in the Obama administration, the United States started blocking all new appointments to the appellate body as the terms of its judges expired. Without a functioning appellate body to hear cases, the entire process has broken down. By May 2024, the United States had blocked a motion to fill these vacancies seventy-five times in a row.

​

This is ridiculous. Do Presidents Obama, Trump and Biden not understand that, far from looking tough, they look foolish because they have done nothing more than allow China’s transgressions to go unpunished for years?