'Head Resigns and US Threatens Withdrawal'... WTO Faces Its Greatest Crisis (Comprehensive)

Loss of Arbitration and Dispute Resolution Functions Spurs Futility Debate
Trump Calls WTO "Terrible"

Roberto Azevedo, Director-General of the World Trade Organization (WTO)
[Photo by Yonhap News]

[Asia Economy Reporter Lee Hyun-woo] The World Trade Organization (WTO), once regarded as a symbol of global free trade, has faced its greatest crisis in 25 years since its establishment. The outbreak of the novel coronavirus disease (COVID-19) has led to a rise in protectionism among countries, and renewed conflicts between the G2 powers, the U.S. and China, have caused the WTO to completely lose its mediation function. U.S. President Donald Trump strongly criticized the WTO, calling it "terrible."

According to the Associated Press (AP) and others on the 14th (local time), Roberto Azev?do, the WTO Director-General, announced at an informal WTO delegation video conference held that day that he would resign at the end of August this year. He stated that he would step down one year before the expiration of his term. Although Director-General Azev?do cited personal reasons for his resignation, interpretations that it was due to pressure from the U.S. are gaining credibility.

Despite the announcement of Director-General Azev?do's intention to resign, President Trump continued his attacks on the WTO. At a press conference that day, he strongly criticized, saying, "The WTO is terrible. We have been treated very badly." Even before his inauguration, President Trump had mentioned the possibility of the U.S. withdrawing from the WTO, claiming that "the WTO is ruining America."

Eventually, a bill to withdraw from the WTO was even introduced in the U.S. Congress. Republican Senator Josh Hawley introduced a resolution for the U.S. to withdraw from the WTO earlier this month. According to Politico, a U.S. political news outlet, bills to withdraw from the WTO have only been introduced twice before, in 2000 and 2005. This is the first case under the Trump administration.

The WTO crisis began to emerge in earnest after President Trump's inauguration. In particular, China, which the U.S. has designated as its biggest adversary, was seen as exploiting its developing country status within the WTO to gain advantages, which was a thorn in the side of the U.S. This became more overt after the Trump administration took office. President Trump explained the reason he called the WTO terrible by saying, "Because the WTO treats China as a developing country, China enjoys benefits that the U.S. does not get." Senator Hawley, in an article for The New York Times (NYT), emphasized, "The WTO has enriched communist China while sending American manufacturing overseas. It has disrupted supply chains and taken American jobs. To stop China, which is a major threat to U.S. security, America must rebuild its economy and revive its workers, and the first step is to withdraw from the WTO."

Especially, China's victory in the U.S.-China countervailing tariff dispute filed with the WTO in July last year is seen as further exacerbating the WTO's crisis. At that time, the WTO's highest adjudicatory body, the Appellate Body, ruled that the U.S. had not complied with WTO rules by imposing anti-dumping and countervailing duties on 22 items, including solar products, paper, and steel exported from China since 2012. It also ruled that China could impose retaliatory tariffs.

In response, the Trump administration refused to appoint members to the WTO Appellate Body. As of December 11 last year, the terms of two of the three Appellate Body members expired, rendering the WTO unable to adjudicate trade disputes. The Appellate Body consists of seven members, and three members are required to hear trade disputes. However, the Trump administration has continuously refused to appoint members. Appellate Body members must be approved by all 164 member countries, serve a four-year term, and can be reappointed for up to eight years.

Following the paralysis of the Appellate Body, ministerial meetings were also suspended. The WTO had planned to hold the 12th WTO Ministerial Conference (MC12) in Kazakhstan on the 8th of next month to discuss the normalization of the Appellate Body, but this has been indefinitely postponed. In March, after the World Health Organization (WHO) declared COVID-19 a pandemic, the Kazakhstan government and the WTO announced the postponement of the ministerial meeting. So far, they have only agreed to resume after the COVID-19 situation subsides by the end of this year or June next year, without setting a specific date. Seo Jin-gyo, a senior researcher at the Korea Institute for International Economic Policy and a trade expert, said, "The WTO has legislative, executive, and judicial functions, but currently all functions have collapsed."

[Image source=Reuters Yonhap News]

With the spread of protectionism due to the COVID-19 pandemic causing a sharp decline in global trade volume, arguments about the WTO's obsolescence are expected to gain more traction. The WTO's trade outlook report predicted that global trade volume in the second quarter of this year would drop by 27% compared to the same period last year, and the United Nations Conference on Trade and Development (UNCTAD) warned that the trade value of global goods in the second quarter would decrease by 26.9% compared to the first quarter and by 29.3% year-on-year, signaling a contraction in international trade.

However, there are counterarguments that the collapse of the WTO system could actually harm the U.S. Jeffrey Schott, senior fellow at the Peterson Institute for International Economics (PIIE), emphasized, "The multilateral trade system under the WTO has brought great benefits to the U.S., and in a situation where supply chain diversification is necessary due to the COVID-19 pandemic, breaking the WTO system and engaging in individual trade negotiations would be foolish."

According to CNBC, Robert Lighthizer, U.S. Trade Representative (USTR), said at a press conference that day, "It is unfortunate that Director-General Azev?do, who has played an irreplaceable role, is resigning, and the Trump administration hopes to participate in the selection process of his successor." Ropes Yesa, chairman of the U.S. National Foreign Trade Council (NFTC), said, "Reforms within the WTO must continue, and the U.S. government should focus on finding a successor to the WTO who can fight against the wave of protectionism emerging after COVID-19."

☞ World Trade Organization (WTO): Established on January 1, 1995, with the goal of lowering global trade barriers and spreading a free trade system worldwide. It was launched as an international organization to monitor the implementation of the General Agreement on Tariffs and Trade (GATT) and the Uruguay Round (UR) agreements, which were concluded to eliminate tariff barriers after World War II, and to mediate trade disputes between countries. The WTO started with 76 member countries and has grown to 164 members as of the end of last year.

This content was produced with the assistance of AI translation services.