Biden Faces Tough Challenges in Fixing World Trade System

Then-U.S. Vice President Joe Biden and Chinese leader Xi Jinping toast during a state luncheon for China hosted by U.S. Secretary of State John Kerry in Washington on Sept. 25, 2015. (Paul J. Richards/AFP via Getty Images)
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BY EMEL AKAN

WASHINGTON—Globalists await President Joe Biden’s reset on U.S. trade policy, although deep-seated problems and lack of consensus among allies are likely to create a significant hurdle for the new administration in fixing the global trading system that has failed to contain non-market economies such as China.

Biden has promised to take a more multilateral approach in dealing with trade issues, and he is expected to radically change U.S. policies toward the World Trade Organization (WTO).

The new administration signaled that it would engage with other members to revive the international body, which has been crippled by the Trump administration’s policies.

However, WTO is a longstanding bipartisan issue, and its downward spiral started long before Trump’s presidency. The United States has accused the organization of overstepping its mandate in dispute settlement and creating unjustified rules.

Under the Obama administration, Washington began to block the selection of judges to the WTO’s Appellate Body, a seven-member independent court. Since 2016, Washington blocked all new appointments to the court, depriving the organization of its ability to rule on trade disputes.

The Biden administration, however, isn’t expected to bring a quick end to the impasse over the appellate body.

The WTO is in crisis and needs ambitious reform to address new challenges and unfair trade practices, according to Clete Willems, top trade negotiator and former deputy director of the National Economic Council under the Trump administration.

The Biden officials “are not going to simply roll back the Trump administration’s position. The concerns about the appellate body are bipartisan, they’re long-standing,” Willems told The Epoch Times.

“The Biden administration will recognize the same problems but I think, unlike the Trump administration, they will put forward solutions to fix it,” he said.

In a recent paper, Willems argued that all three functions of the WTO—negotiations, implementation and monitoring, and dispute settlement—require reform to revitalize the organization.

The Trump administration, he noted, made progress in putting forward proposals on the negotiations side, trying to update agreements and improve commitments. Biden’s team is expected to pursue a similar trajectory and continue to push for new rules that govern non-market economies such as China.

On the dispute settlement side, while the previous administration raised concerns and got members’ attention to the issues, it was critiqued for not offering solutions, Willems said. Hence, the Biden administration will “seek a negotiated outcome to allow the resumption of appointments [of judges] to be made.”

As a first step to end the standoff at the WTO, trade experts believe that Biden will unblock the appointment of Ngozi Okonjo-Iweala, former Nigerian finance minister, to lead the organization.

“This step would reinstate direction at the highest level at the WTO and revitalize its ability to promote multilateral economic cooperation,” Chad Bown and Anabel Gonzalez, senior fellows at the Peterson Institute for International Economics, wrote in a report.

While Okonjo-Iweala was the consensus choice by the member states, the Trump administration vetoed her last year due to her lack of trade experience.

David Bisbee, charge d’affaires at the U.S. mission to the WTO, said at a virtual WTO ministerial gathering last week that the Biden administration is looking forward to progress on the selection of a new director-general and other key priorities in the short term.

Bisbee, however, gave no indication whether the administration would back Okonjo-Iweala.

The EU Challenge

The WTO was created in 1995 to oversee the global trade rules among nations; however, the world has changed significantly since then.

Former President Donald Trump criticized the organization for its outdated rules, which have become dysfunctional in regulating global trade disputes. He railed against the international body, calling it a catastrophe and a disaster.

At the G-20 summit in Buenos Aires, Argentina, in December 2018, world leaders came around to Trump’s views and called for “the necessary reform of the WTO to improve its functioning.”

After the summit, the United States, the European Union, and Japan held trilateral meetings to develop reforms to address concerns such as government subsidies, state-owned enterprises, and forced technology transfers.

Willems, who was previously involved in trade negotiations with foreign governments and bodies including the EU, believes that there’s a possibility for the Biden administration to make progress on WTO reforms. But Washington has reservations about Europe’s ambition to address China’s bad behavior.

“We often haven’t seen the level of ambition out of Europe necessary to really make progress on these issues,” Willems said.

“It’s really easy to say we all want to work together on China, but it’s really hard to actually come up with ambitious language that would achieve that,” he added. He also noted that the automotive and some other sectors of the EU’s economy are very much reliant on China, making it difficult for the bloc to harden its stance on Beijing.

Any successful WTO reform effort requires the United States and the EU to figure out how to better cooperate first and once they achieve that, they need to deal with other members, he said.

“It’s just so much easier to say than it actually is to do.”

The United States has repeatedly expressed discontent about the WTO’s inability to address China’s unfair trade practices. According to the latest report by the Office of the U.S. Trade Representative (USTR), China’s record in complying with WTO rules remains poor.

“Nearly two decades after its accession to the WTO, China still hasn’t embraced open, market-oriented policies. The state remains in control of China’s economy, and it heavily intervenes in the market to achieve industrial policy objectives,” the report stated.

China’s industrial policies, for example, have disrupted critical sectors of the global economy such as steel, aluminum, solar, and fisheries.

The United States and other WTO members have tried to address the challenges presented by China for nearly two decades. These efforts, however, haven’t resulted in meaningful changes in China’s behavior. Beijing has many times promised to address the concerns raised by other members but failed to fulfill its promises.

According to the report, the United States has brought about two dozen cases against China at the WTO to dispute its wide range of policies including massive subsidies, significant market access barriers, and inadequate intellectual property rights enforcement.

What compounds the problems in the WTO is the fact that some member states can self-declare developing-country status to avoid taking on the same commitments as other members. Among the WTO’s developing countries are some of the world’s wealthiest economies, such as Qatar, the United Arab Emirates, Kuwait, China, and Hong Kong.

The Biden administration says it will seek a more coordinated approach with U.S. allies to address all these challenges. But it’s unclear whether the administration will make trade policy a top priority and immediately return to multilateral economic cooperation.

In the near term, the administration has signaled that its focus will be to fight the pandemic and boost domestic manufacturing capabilities.

At the Davos Agenda event hosted by the World Economic Forum on Jan. 25, Chinese leader Xi Jinping warned about the consequences of building alliances to threaten other countries or starting a “new cold war,” in a veiled message to Biden.

“We cannot tackle common challenges in a divided world and confrontation will lead us to a dead-end,” Xi said, calling for a return to multilateralism.

Follow Emel on Twitter: @mlakan
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