U.S. Engagement at the World Trade Organization

U.S. Engagement at the World Trade OrganizationAmbassador Shea
Remarks by Ambassador Dennis Shea
Asia Society, Washington DC
February 6, 2020

Let me begin by thanking Wendy and the Asia Society for their kind invitation and for this opportunity to share some thoughts on the United States’ extensive engagement at the World Trade Organization.

In case you haven’t noticed, everybody is talking about WTO reform these days – not only in Geneva but in capitals around the globe. Let’s remember the reform conversation – long overdue – would not have started and taken hold without the leadership of the United States under President Trump. After all, it was Ambassador Bob Lighthizer’s call for reform at the 11th WTO Ministerial Conference in December 2017 that sparked the discussion we are having today.

The good news is that the United States sees potential for a more responsive and effective WTO, and we are hard at work to help guide the organization toward realizing that potential.

The path ahead, however, will not be easy.

Achieving the goal of WTO reform will require the institution and its Members to overcome some deep-rooted complacency – complacency about the trade-distorting impact of non-market policies and practices; complacency about the fact that so many WTO Members seek to opt out of WTO rules or maintain flexibilities they no longer need, rather than embrace these rules as promoting economic development; and complacency about the failure of far too many Members to fulfill basic obligations, particularly in the area of notifications and transparency.

To secure a brighter future, the WTO must also reconnect to its fundamental principles:

  • that the institution supports open, market-oriented policies across the membership;
  • that the rules of the WTO are meant to encourage stronger economic growth for everyone, and that Members should want to fully implement these rules; and
  • that the WTO was designed most essentially as a permanent and dynamic forum for negotiations to create new global trade rules that open markets.

To get the WTO back to these core principles, the United States has been working hard to advance ongoing negotiations, facilitate implementation of existing WTO rules, and bring forward new ideas and proposals on reform. I want to talk first about our work in current negotiations, and then I will discuss some of our specific reform efforts, including efforts to address longstanding concerns with the Appellate Body.

The United States is Actively Engaged at the WTO

I want to emphasize that the United States is one of the most active WTO Members and we are engaged constructively across a range of priority interests. We often do not get credit for this, so I want to highlight a few of our efforts.

We are working hard to secure an outcome in the fisheries subsidies negotiations by the WTO Ministerial in June – believing that a successful outcome in fish has enormous institutional importance for the WTO.

In a way, it won’t be the WTO that saves the fish, it will be the fish that save the WTO.

The fisheries subsidies negotiation is, of course, an opportunity for the WTO to contribute to the sustainability of the world’s oceans and deliver on a mandate established by world leaders. But, as the only active multilateral negotiation at the WTO, it will also be a test whether the institution is still capable of achieving meaningful multilateral outcomes.

Unfortunately, there are significant challenges in front of us.

Even at this late date, as we approach the Ministerial Conference in June, many Members remain more focused on protecting their fisheries subsidies programs rather than reducing or eliminating them.

For our part, the United States is aiming high to achieve meaningful reductions in these harmful subsidies and real constraints on the world’s largest subsidizers.

Working with key partners, the United States has put forward five specific proposals that would:

  1. Eliminate subsidies for illegal, unreported, and unregulated (IUU) fishing;
  2. Prohibit subsidies contingent upon fishing on the high seas;
  3. Cap and reduce the level of subsidies that contribute to overfishing and overcapacity;
  4. Prohibit subsidies for vessels not flying a Member’s own flag (and therefore out of the control and jurisdiction of the Member); and
  5. Enhance transparency by improving the notifications of fisheries subsidies.

The United States is also actively engaged in the Joint Statement Initiative on E-Commerce and Digital Trade where we are advancing proposals that seek to expand access to digital technologies around the world, lower costs for businesses and consumers, and provide a more transparent and predictable trading environment.

The United States has proposed rules in all key areas of digital trade, such as those related to cross-border data flows, privacy, source code, and cybersecurity to help ensure that digital trade can continue to drive economic growth and development, and support the success of firms of all sizes, across all sectors, around the world. We have also been an outspoken supporter of a permanent moratorium on customs duties on digital transmissions, highlighting the moratorium’s clear economic value.

Over the past year, the United States has been working closely with other participants in the Joint Statement Initiative to produce a consolidated text by MC12 that furthers our progress toward a high-standard WTO agreement on digital trade.

We have been consistent in our view that this agreement must be reciprocal, meaning that all obligations apply to all participants. We also believe that this effort can set a positive precedent for future plurilateral efforts at the WTO.

The United States has been active in the ongoing discussion around Agriculture. Over the past two years, we have been advocating for a “reset” of agriculture negotiations based on today’s realities.

To date, the U.S. has submitted six analytical papers that are focused on market access and tariff issues with the intent of updating our understanding of the current state of agricultural trade and the issues farmers are facing today.

Through our engagement, we are asking Members to reflect on why past negotiating efforts failed and to identify new approaches that can lower high tariffs and reduce trade-distorting subsidies and the application of non-tariff measures.

Through our “reset” efforts, we are trying to break the bad habit of taking the same entrenched positions and somehow expecting a different outcome. We have also repeatedly asked how the WTO would credibly negotiate disciplines on agricultural domestic support when we do not have a clear picture of what the major subsidizers are doing.

In addition to these efforts, the United States continues to lead in important committee work in areas such as Sanitary and Phytosanitary Measures, Technical Barriers to Trade, and Trade Facilitation where we seek to improve Member compliance with existing commitments and to oversee the full implementation of the WTO agreements. The United States is also often the only country substantively participating in the hard and critically important work of WTO accessions.

The United States is Leading the WTO Reform Effort

Promote Market-Oriented Policies

Turning now to our efforts on WTO reform, we believe that the WTO must respond directly to the unanticipated challenges of non-market economies – those economies that fail to respect basic principles such as non-discrimination, market access, reciprocity, fairness and transparency.

The current rules leave Members with insufficient tools to address these challenges.

The distortions caused by non-market practices threaten the goals we share for a free, fair, and mutually advantageous trading system. Non-market practices in which governments intervene to distort competition and drive preferred outcomes to benefit certain domestic actors have led to severe overcapacity in many industries and unfair competitive conditions for our workers and businesses. They have also undermined the public’s confidence in the WTO.

The concept of a market orientation for the WTO is not new, nor should it be viewed as optional by any WTO Member. Those who founded the WTO had the goal of moving all economies toward market openness and free market competition. After all, the Marrakesh Declaration set out our collective intention to establish the World Trade Organization to promote participation in a world trading system “based on open, market-oriented policies and the commitments set out in the Uruguay Round Agreements and Decisions.”

I have delivered multiple statements on this subject and we are preparing to table a General Council decision that will reaffirm the importance of market-oriented conditions to the world trading system.

These efforts in Geneva have been supported by work done in the Trilateral process together with the EU and Japan, where we have expressed a shared view that market-oriented conditions are fundamental to a free, fair, and mutually advantageous global trading system, leading to a level playing-field among all operators in the market.

Our work under the Trilateral initiative is also seeking to advance new rules around industrial subsidies, state enterprises, and forced technology transfer. The most recent Trilateral statement proposed several new types of prohibited subsidies under the Agreement on Subsidies and Countervailing Measures. In the coming months, I look forward to joining my EU and Japanese colleagues in Geneva in discussing this proposal with other like-minded WTO members.

Advance Differentiation

Turning to the issue of differentiation, the WTO is the only economic institution that permits its Members to self-declare their development status. There are no economic indicators or other measurements of what constitutes a developing country at the WTO.  Countries merely need to state that they are “developing,” regardless of their GDP or role in global trade, and are afforded flexibilities from WTO rules, which could take the form of transition periods, higher tariff bindings, or the ability to use prohibited subsidies, among others.

The United States believes that full implementation of WTO rules benefits all WTO Members, but understands that some Members may still require special and differential treatment because, for whatever reason, they are not able to compete on a level playing field.  But this does not justify the current situation at the WTO – where some of the world’s richest and most powerful economies have claimed “developing country” status.

It is simply unrealistic to expect any U.S. administration to accept that these countries are entitled to “special and differential” treatment at the WTO as a matter of right. Such a result is supported neither by economic policy nor basic fairness.

Last year, the United States tabled an analytical paper highlighting how the global economic landscape has changed dramatically from 1995 to the present time. The paper shows that countries who could plausibly present themselves at the WTO as “developing” in 1995 can no longer plausibly do so today. The paper also demonstrates how the lack of differentiation among self-declared developing countries has severely damaged the institution’s negotiating function. Following the distribution of this analytical paper, the United States then submitted a proposed General Council decision that would establish objective criteria for determining whether a WTO Member may continue to avail itself of blanket, open-ended “special and differential treatment” (S&D) in current and future WTO negotiations.

Countries that meet any of the following four criteria would be prevented from doing so:

  • A WTO Member that is a Member of the OECD, or a Member that has begun the accession process to the OECD;
  • A WTO Member that is a member of the G20;
  • A WTO Member that is designated as a “high income” country by the World Bank; or
  • A WTO Member that accounts for no less than 0.5 percent of global merchandise trade.

Initially, we faced strong resistance from others even to have this discussion, but – in large part because of our perseverance – this discussion is no longer considered “heretical” or “polarizing.” Other WTO members are now finally recognizing that unless we are able to differentiate between the advanced economies and those that are less developed, the prospects for new multilateral negotiated outcomes are bleak.

Brazil, Korea and Singapore recently demonstrated leadership when each agreed to forego special and differential treatment in current and future negotiations, and we believe there are others getting ready to take this important step.

Ambassador Lighthizer continues to engage directly with his counterparts, and as you know, President Trump has reinforced the importance of these efforts.

Achieve Transparency – So we can negotiate

Another key reform initiative of the United States is improving transparency and compliance with basic notification obligations, a theme first raised by Ambassador Lighthizer at MC11.

It is difficult, if not impossible, to negotiate new rules on issues like agricultural subsidies or industrial subsidies when you do not have data on what the largest subsidizers in the world are doing. To get this kind of information, WTO Members need to fulfill their existing notification obligations.

Unfortunately, compliance has been woefully inadequate – less than half of the WTO Members have provided their latest industrial subsidies notification.

The situation is similar for agriculture, where a third of regular notifications are outstanding.

The United States was the first to table a transparency proposal that establishes appropriate consequences for chronic non-compliance with notification obligations. Eight co-sponsors have now joined us, and we are actively engaging other Members.

One of the elements of our proposal is to encourage the use of counter-notifications, a form of peer pressure in which one WTO Member notifies what it thinks another Member is doing. This is a mechanism already used by the United States, but could be more widely employed by others.

To improve transparency under the Subsidies Agreement, the United States has submitted five counter-notifications on China’s subsidy programs; nearly 500 Chinese subsidy measures have been counter-notified in total.

In addition, the United States has sought transparency in the area of agricultural domestic support by submitting three counter-notifications on India’s market price support programs for wheat, rice, cotton and pulses. This effort highlighted the excessive policies some members have pursued in agricultural subsidies.

Any future negotiations will need to address the role of all major subsidizers, including countries like India and China.

The U.S. “transparency drive” at the WTO is producing tangible benefits, though these efforts are often behind-the-scenes and not noted in the press. China’s recent industrial subsidies notification was by far its most timely and comprehensive notification since becoming a WTO Member. A number of countries have also submitted updated fishery subsidy notifications as a result of U.S. encouragement.

We plan to keep at it. We are also advancing work with other like-minded Members to enhance transparency in dispute settlement proceedings, including making submissions publicly available and opening hearings to the public.

Appellate Body

That brings me to our efforts to address our longstanding concerns with the Appellate Body.

Let me start by saying that no Member has been more constructively and consistently engaged on these substantive issues than the United States.

As many here today know well, for nearly two decades across multiple U.S. Administrations, the United States has been raising serious concerns with the Appellate Body’s disregard for the rules set by WTO Members. Whether it is appointing its own members, engaging in fact-finding, issuing unnecessary advisory opinions, insisting that its rulings are binding precedent absent undefined “cogent reasons,” exceeding the 90-day deadline for issuing its rulings, and altering Members’ rights and obligations through erroneous interpretations of the WTO agreements, the Appellate Body has repeatedly broken the rules.

Over the past two years at the WTO, the United States has outlined its concerns in exhaustive detail.  We have not avoided discussion; rather, we have laid out in the clearest possible terms the U.S. position on the issues raised.

As we have explained, the fundamental problem is that the Appellate Body was not respecting the current, clear language of the Dispute Settlement Understanding, the DSU. While a number of Members have expressed concern with actions or approaches by the Appellate Body, others appeared willing to tolerate – or even encourage – those actions.

We have repeatedly made clear our willingness to discuss these concerns further with any Member in order to deepen each other’s understanding of these substantive issues.

But, of course, engagement is a two-way street.

For many months, in the General Council and the Dispute Settlement Body, we sought to deepen Members’ collective understanding of the concerns raised and asked Members to engage on a fundamental question: why did the Appellate Body feel free to disregard the clear text of the agreements?

The United States did not pose this question as part of an academic exercise.

Rather, this question is critical in the context of any “solution-focused discussion.” Without an accurate diagnosis, we cannot assess the likely effectiveness of any potential solution.

Despite the absence of meaningful engagement on the “why” question by other WTO members, the United States has volunteered some possible answers.

For example, the virtual collapse of the WTO’s negotiating function has undoubtedly contributed to unchecked “institutional creep” by the Appellate Body as Members have pushed to achieve through litigation what they have not achieved or cannot achieve at the negotiating table. It’s clear that some WTO Members view the Appellate Body as an “international court” and its members as “judges” who inherently have more expansive authority than is provided in the DSU, to create “jurisprudence” and fill gaps in the WTO agreements. The WTO membership itself has failed, even refused, on numerous occasions to rein in the Appellate Body when it has departed from the clear text of the DSU.

With respect to the General Council decisions that my friend and colleague, Ambassador Walker, has put forward in Geneva, we have asked why simply repeating the existing words of the DSU would make any difference when the Appellate Body has felt free to act contrary to those very same words.  We have not received an adequate response to that question either. Nor have Members engaged when we have provided specific comments about the language contained in these General Council decisions. For the most part, these comments have been ignored.

Despite this failure of engagement by other WTO Members, the United States will continue to look for ways to improve the WTO’s dispute settlement system. As I’ve told my colleagues in Geneva, we remain open-minded, but we are not empty-minded.

Closing

To sum things up, I hope I’ve been able to highlight today the tremendous amount of effort the United States is putting into the WTO. The United States is actively engaged in the key negotiations seeking meaningful, high-ambition outcomes. We are there at the table, contributing to the important day-to-day committee work of the institution. We have initiated the reform conversation and provided some of the guideposts for where the organization needs to go. And, yes, we are stirring things up in Geneva.

As I said at the outset – we see potential for a more responsive and effective WTO, and we’re working hard to realize such an institution.

Thank you very much for the opportunity to be here with you today.