Image for USMCA Heads for Approval as WTO Veers to Sidelines

The Trump administration and congressional Democrats have reached a compromise expected to lead to confirmation of the USMCA trade deal, which some call NAFTA 2.0.  At the same time, the Trump administration is continuing its assault on multilateral trade arrangements by defanging the trade resolution body of the World Trade Organization (WTO).

Democrats extracted two concessions that put more backbone behind enforcing new wage rates for Mexican autoworkers and scrapping longer patents for certain prescription drugs. Trump and House Speaker Nancy Pelosi both declared victory and the AFL-CIO endorsed the compromise. Observers expect Congress to approve the revised USMCA before the end of the year. Mexico and Canada also have to approve the compromise to the original trade deal signed by the three countries more than a year ago. 

The compromise was announced on the same day House Democratic leaders unveiled two articles of impeachment against President Trump, which reflects the complex web of politics in the nation’s capital. The agreement makes it harder for Trump to decry do-nothing Democrats and allows Pelosi to argue impeachment proceedings haven’t derailed important legislative matters.

The WTO is a below-the-radar entity designed to bring the rule of law to international commerce.

Trump “has spent two years chipping away at the WTO, criticizing it as unfair, starving it of personnel and disregarding its authority,” according to a New York Times story. “The Trump administration is expected to go one step further and effectively destroy the organization’s system for enforcing its rules – even as Trump’s widening trade war has thrown global commerce into disarray.”

That further step involves blocking replacements to the 7-member WTO body that airs trade disputes. There are only five current members and two of those members, perhaps ironically, have terms that expire today. Without a quorum, the body cannot hear or resolve trade cases brought to the WTO. Countries will be left to duke it out on their own.

The WTO came into existence in 1995, replacing the General Agreement on Trade and Tariffs (GATT), which was created in 1947 in the wake of World War II. World leaders believed promoting international trade by tearing down trade barriers would foster prosperity and discourage war. American and European leaders formed WTO to “open global markets, regulate commerce and promote peace and stability.” 

Following his “America First” policy, Trump has tried to sideline WTO involvement as he pushed for unilateral tariffs against Japan, China, Canada and Europe as a negotiating tactic. Trump has complained the United States always loses WTO cases, which is actually untrue. His more dominant complaint is that WTO membership in 2001 has emboldened China to subvert international trade rules, a point of view shared by other nations.

WTO backers admit the organization has limitations. Forging trade pacts between nations with disparate economies has proven challenging. Member countries have chafed at what US Trade Representative Robert Lighthizer calls a shift from a “negotiation forum to a litigation forum.” International trade rules have proven to be misfit for China’s economy that is a mix of private enterprise and state-sponsored industry. Despite its shortcomings, a world without a functioning WTO is everybody for themselves, with countries with big economies holding the upper hand.

While other countries share some US concerns, they disagree with Trump’s roughshod tactics. They have encouraged the Trump administration to “fix the problems and strengthen the global trading system, not abandon it.” Dennis Shea, who represents the US at the WTO, said efforts to make changes have fallen short. Shea blamed a lack of engagement on other countries. 

The current WTO director-general, Roberto Azevêdo, said mothballing the trade dispute mechanism was a serious blow, but not the end of a multi-lateral trading system. One of the outgoing trade dispute referees isn’t so sure, wondering why countries would bother to come to the WTO if it is unable to enforce its rules and rulings.