WTO Trade Rules Benefit the United States, Says New Council Report

The Doha negotiations have stalled and the November elections in the United States showed that advocates of economic nationalism are growing in strength. Nevertheless, a new Council Special Report makes a case for the effectiveness of the World Trade Organization (WTO), particularly its dispute settlement system. “The dispute settlement system reflects a delicate balance between toughness and respect for sovereignty; rather than criticizing the result, U.S. policymakers and legislators should invest more energy in defending it,” says the report.

Author Robert Z. Lawrence of Harvard University says that the United States benefits from the WTO dispute settlement mechanism, which has “reduced the need for the United States to resort to unilateral retaliatory measures, limiting an important source of tension between the United States and its partners.” The system has also been helpful in opening foreign markets for U.S. exports. Further, the dispute settlement mechanism “curbs the protectionist instincts of U.S. trade policymakers and so underpins prosperity” by acting as a counterweight to less productive but politically influential domestic industries.

“Enforceable rules offer the best hope of forestalling a tit-for-tat use of protective barriers that would further contribute to the deterioration of support for trade. In sum, and contrary to what many policymakers suppose, vigorous dispute settlement tribunals make the revival of the Doha Round more likely,” says the report, The United States and the WTO Dispute Settlement System. Improving the efficacy of the system provides benefits to the United States and others, including expanding world trade. “Good trade agreements provide a country with benefits by making it easier to implement policies at home that boost productivity and competitiveness.”

However, the report finds that the United States has “been repeatedly judged to be in violation of its WTO commitments by the organization’s dispute settlement panels” because U.S. officials and members of Congress have adopted provisions, from cotton subsidies to steel tariffs, that are in violation of WTO rules. “Given that successful global institutions such as the WTO are both rare and fragile, this attitude is reckless,” says the report.

Saying that “grand proposals for reform are fundamentally misguided.” Lawrence proposes a series of realistic fixes to bring about a more effective system:

• Allow greater participation by multinational corporations and nongovernmental organizations that have a stake in the proceedings;
• Open hearings before the dispute settlement panels to the public;
• Allow countries to appeal decisions in which the panel has authorized the plaintiff to retaliate;
• Increase the resources of the dispute settlement mechanism so as to accelerate decision-making.

The report, part of the Bernard and Irene Schwartz Series on American Competitiveness for the Council’s Maurice R. Greenberg Center for Geoeconomic Studies, suggests that the U.S. government could make better use of the dispute settlement panel. It observes that “in the first six years of the current dispute settlement system, the United States brought sixty-eight cases; by contrast, in the past six years it has brought only sixteen.”

Recommendations for the U.S. government include:

• Encourage the U.S. Trade Representative and Department of Commerce to be proactive in using dispute-settlement procedures to open significant export markets;
• Improve the United States’ record of compliance with WTO rulings;
• Establish a panel to examine incidences of U.S. violations of WTO rules and recommend steps to avoid recurrence.

Robert Z. Lawrence is the Albert L. Williams Professor of International Trade and Investment at Harvard University ’s John F. Kennedy School of Government, a senior fellow at the Institute for International Economics, and a research associate at the National Bureau of Economic Research. He served as a member of the President’s Council of Economic Advisers from 1998 to 2000.

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