Mon, Jun 17, 2019 page6

• Walter Lohman On Taiwan: Don’t take the bait on the WTO; it’s a good thing

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  Many of the most hawkish takes on China emanating from Washington, DC, of late include a take-down of the World Trade Organization (WTO). It is usually not very well-resourced. In fact, for many, it is just a way to discard alternatives to the current trade war with China. For them, the imposition of new tariffs is not really a means to a “fairer” US-China trading relationship; it is the end. No one is going to change their minds about the WTO.

  The real problem is that so many better thinking people just go along with the narrative.

  Friends in Taipei shouldn’t.

  

  The WTO is a good thing. It was right to have admitted China. And it benefits Taiwan.

  If there were no WTO, we would have to invent one. It embodies its members’ detailed commitments to freer trade and provides a venue to both enforce those commitments and to improve them. There is an undeniable need for WTO reform. Each member negotiated its way into the organization. They did so on trade-offs that were equitable at the time. Looking back, based on current trade patterns, were they good bargains? For the US and Taiwan, yes, even today. But economies change and international institutions need to adapt if they are to fully deliver.

  This should not be a controversial observation. The WTO itself is a result of trade patterns and modes of protectionism having outrun international rules. By the late 1980s, its predecessor, the General Agreement on Tariffs and Trade (GATT), no longer addressed the most significant obstacles to trade. Issues included export subsidies, export restraint agreements, infringements of intellectual property rights, insufficient enforcement and trade-related investment rules. GATT didn’t apply to trade in services.

  Will a new negotiation be difficult? Darn right it will. It will be a 164-sided negotiation in which the greatest challenge to the current system — China — is also the world’s number one trading nation. (By the way, the Indians won’t be so easy to deal with either.) But the potential benefits of a new WTO round far outweigh a descent into an all-against-all trading regime in which every state seeks unilateral advantage through application of its domestic law.

  With regard to China specifically, the US would be much better off addressing its complaints through the WTO, both by use of its dispute settlement process and through negotiated reforms. The extent of WTO jurisdiction over the scope of America’s complaints — although certainly wider than the Trump Administration maintains — is legitimately disputed. But by bringing a comprehensive case, the US would put the organization to the test and expose areas most in need of new commitments by its members. There is no doubt it would find others to support the case.

  The response to this argument is inevitably that the Chinese don’t abide by WTO rulings. But this is just plain wrong. The CATO Institute last year put together a matrix spelling out China’s record. It found that out of 22 completed cases against China, “with one exception where a complaint was not pursued, China’s response was to take some action to move toward greater market access” in all of them. There were no cases, CATO’s researchers say, in which China simply ignored the rulings.

  The fall back argument is, “OK, but the process takes too long.” Depends what you measure it against. It takes about 3 years on average between the time a complaint is filed and the Chinese take remedial action. Not short. A lot of things can happen with a business in three years. But the US has been at its current unilateral approach for two years already. Assuming its new tariffs are intended to leverage China into a broader agreement — and not an end unto themselves — so far they have failed.

  There is yet another even more sweeping argument from the most severe critics of the WTO. They suggest this is all minutiae, that the WTO was always doomed in dealing with China. Looking at China’s remarkable economic performance since its accession, they say, “we” just should have never allowed it into the WTO.

  The problem is that the US, as well as Europe, already offered the Chinese access to their markets before China’s accession. The 2000 vote in the US Congress was not to admit China to the WTO. It was to extend most-favored-nation status to China on a permanent basis — something it was doing on a year-to-year basis anyway. Had it not made China’s status permanent, the US would have been unable to avail itself of the access China’s membership offered other WTO members. That’s what China’s accession was all about — opening the Chinese market.

  Besides, the idea of a WTO without China is an absurdity. That was apparent during the 1990s as negotiations over its entry proceeded. Rallying the international support necessary at that time to keep China out would have been impossible.

  Suggestions China could be expelled today are similarly delusional.

  Finally, it was good for Taiwan that China was admitted to the WTO. China’s admission provided the leverage necessary to secure Taiwan’s. In an era of tightening controls on Taiwan’s international space, its WTO membership is one of its greatest validations. And it’s very useful. It is part of WTO negotiations when new members are admitted or when new agreements, like the Information Technology Agreements, are inked. Taiwan has six cases filed at the WTO. Taiwan’s problem is not the economic ties it has with China, but that ties with other countries are artificially restrained. This makes the WTO even more important for Taiwan than it is for other members.

  Debates in Washington have a way of reverberating in Taiwan. Many observers there are thrilled with the new assertive approach the US has taken to China. This is justified. The Trump administration has, indeed, stepped up American support for Taiwan. But on American trade policy, they should take a step back and look more closely. Taiwan is more likely to be a victim of American protectionism than a beneficiary — no more so when it comes to attacks on the WTO.

  Walter Lohman is director of the Heritage Foundation’s Asian Studies Center.
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