May 25, 2018 / 1:34 AM / a month ago

Breakingviews - U.S.-China spat poses serious hazard for WTO

By Christopher Beddor

Xiangchen Zhang, Chinese Ambassador to the World Trade Organization (WTO) attends an interview with Reuters in Geneva, Switzerland March 22, 2018. REUTERS/Denis Balibouse

HONG KONG (Reuters Breakingviews) - A trade fight between the world’s two biggest powers is a hazard to the World Trade Organization. The United States and China are sparring at the Geneva-based body about how it should handle Beijing’s brand of state capitalism. An American threat to veto the appointment of judges could paralyse the trading body’s dispute resolution mechanism – and hold the outfit to ransom.

The U.S. ambassador to the WTO on May 8 complained that the People’s Republic’s attempt to portray itself as an upholder of the global trading system entered “the realm of Alice in Wonderland”. His Chinese counterpart accused the United States of holding the judicial appointment process “hostage” and last week asked if it and the EU could bend the organisation’s rules to its whim. The war of words revolves around a concern about China’s status within the WTO.

The administration of President Donald Trump has refused to let the WTO appoint judges to its Appellate Body, a key part of its system for resolving trade disputes among members. If the U.S. hold-up continues, the court might grind to a standstill by the end of next year. Members could pursue some creative options to keep the system moving, but these have significant drawbacks. 

U.S. diplomats believe judges have been effectively writing new rules without the consent of members. That claim has some merit but also looks like an attempt to threaten the WTO into siding with America against China on key issues, especially whether to award the latter “market economy” status. The decision could change how some countries calculate anti-dumping duties, with tens of billions of dollars on the line.

Some sort of reckoning would probably have come even without Trump. His predecessor also rejected China’s bid for market economy status; many diplomats from the European Union and elsewhere also find the People’s Republic request unacceptable.

The difference now is that the Trump administration seems especially ready to fight its case. Years before taking his current post, now-U.S. Trade Representative Robert Lighthizer questioned whether the WTO is institutionally capable of handling China’s blend of state capitalism and weak rule of law. The current round of name-calling may be comical, but this time it might end in a bitter gridlock.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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