Given the speed with which US President Donald Trump has acted so far on some of his election promises—however controversial these were —it may just be a matter of time before he imposes tariffs on imports that violate World Trade Organisation (WTO) rules. What then?
WTO Director General Roberto Azevêdo, during his New Delhi visit on Thursday, said any country unhappy with what the US may possibly do could challenge that in the WTO. “The US is going to do certain things just like any other country. The members who aren’t happy can say what you are doing isn’t consistent with your obligation and in violation of WTO rules. And, challenge it,” Azevêdo said at an interactive session organised by the Research and Information System for Developing Countries (RIS).
Trump had spoken of using tariffs to “bring factories back” from Mexico, impose tariffs on Chinese imports, dump the North American Free Trade Agreement (Nafta) and, calling the WTO a “disaster”, even suggested pulling the US out of it.
Azevêdo, who had expressed concerns on anti-free trade debates when the American election campaign was on, pointed to the WTO Secretariat’s limitations: “I cannot go out there and say that what you are doing is in violation of rules to any member. I do not have the power to do that. But, we are presuming (on what the US might do) and I am not going to speculate on what is going to happen,” said the former Brazilian diplomat.
What could happen if Trump levies tariffs, say, on Mexican imports? He wants to score a political brownie point on making the Mexicans “pay” for the wall he plans to build across their border. “It will depend on the particular product. If it’s covered by Nafta, then it would be dealt under its provisions,” says Ram Upendra Das of RIS. What if Trump pulls out of Nafta? “The US is a sovereign country and will take its own decisions, which will have its costs,” says Das.
However, Nafta is just a regional multilateral body, unlike the WTO, which has 164 member countries and regulates about 98% of global trade flows. Here, the dynamics are different. The affected countries can resort to the ‘dispute settlement’ provisions. Disputes arise when a country adopts a trade policy measure that other fellow members may consider to be breaking the WTO agreements. The dispute settlement is based on clearly-defined rules, with timetables for completing a case—one year and 15 months if it’s appealed. First rulings are made by a panel and endorsed, or rejected, by the WTO’s full membership.
So, if he doesn’t get the deal he wants, would Trump go as far as to use Article XV to pull out of the WTO? There certainly would be heavy costs involved for the US. “I don’t think the US will withdraw from the WTO,” says Arpita Mukherjee of Indian Council for Research on International Economic Relations. Das concurs: “Trump will soon realise the that he needs to give leadership to the multilateral processes. To make ‘America great again’, providing intellectual and policy-making leadership is important too.”
“Trump will soon realise the that he needs to give leadership to the multilateral processes. To make ‘America great again’, providing intellectual and policy-making leadership is important too.”Ram Upendra Das, RIS
Das, in fact, thinks that Trump will “work in cohesion with the BRICS countries.” That would be interesting as Trump had earlier blamed China’s WTO entry in 2001 as causing American job losses. However, he seems to be lessening his antagonism towards the Dragon after having irked it by inviting Taiwan for his presidential inauguration. Trump was reported to have accepted the ‘One China’ policy on Friday.
Being a smart businessman, he may get more flexible. With his travel ban being revoked by the courts, he may want to tread pragmatically on other issues.
Besides, the US was in the forefront in WTO’s birth. “WTO was formed because the corporates in developed countries like the US and Europe wanted market access to the developing world that had high tariff barriers. The corporates would not want to lose those advantages,” says Mukherjee.
However, what may be the immediate worry for the WTO could be of the Trump administration not having appointed its trade representative yet to replace Michael Froman. “The US needs to send out a representative to the WTO soon so that discussions can begin before the next ministerial meet in Argentina,” says Mukherjee. As of now, that seems to be the worry as no representation from the US—though not a withdrawal—may make the multilateral discussions lacklustre and mostly ineffective.