World Trade Organization (WTO) is an international institution. Although it is not an agency of the U.N., it has a strong relation with the U.N. WTO is an intergovernmental organization concerned with international trade regulation. It was established on January 1, 1995 under the GATT Marrakesh Agreement, signed by 123 nations on April 15, 1994. GATT (General Agreement on Tariffs and Trade) was established after WW II in 1948 after economists recommended the establishment of three international institutions to manage, promote and regulate world economy, namely the International Money Fund (IMF, concerning with fiscal and monetary issues), the World Bank (WB, concerning with financial and structural issues) and the International Trade Organization (ITO, for international trade and economic cooperation). The three organizations were proposed to be part of the United Nations system. The ITO was to be a UN specialized agency to address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. However, the ITO treaty was not approved by the U.S. and a few other nation members thus never became a reality. Hence, GATT had to transform into an international organization to deal with international trade. Reviewing GATT’s history, one can see its complex growth just from the statistics of its ‘meeting rounds’ - starting year, number of members and length of meeting in months: (4/47, 23, 7; 4/49, 34, 5; 9/50, 34, 8; 1/56, 22, 5; 5/60. 45, 11; 5/64, 48, 37; 9/73, 102, 74; 9/86, 123, 87; 11/2001, 159, still going on). Membership grew to 159 with meeting became continuous nearly every month.
It was at the end of Uruguay round (1986-1994), the Marrakesh Agreement was signed to establish WTO (commenced on 1-1-1995). The standards of GATT on trade in goods were updated and additional 60 agreements added into the WTO agreement, falling under six categories: 1. General WTO member agreement, 2. Goods and investments, 3. Services, 4. Intellectual properties, 5. Dispute settlements and 6. Review of government trade policies (TPRM). In fact, WTO just published its TPRM on China on July 13, 2018. The report contains 38 summary points mostly with positive comments, meaning making improvements and adhering to WTO regulations. China is moving more to consumption based economy, reducing merchandise trade in percentage of GDP with growing services, improving in processing imports, one third of imports through one window taking 16.7 hours in 2017 down from 22 hours in 2016 and only 1.1 hour for processing exports in 2017, amazing efficiency. China has opened more free trade zones and allowed more foreign investment especially encouraging oil exploration. China’s State involvement in economy remains (which contributed to China’s success but also drew criticism from the U.S.) and China still maintains a price control list on commodities and services (that impact national economy and people’s livelihood) which was updated with items such as explosive materials, tobacco, drugs and construction projects removed. Over all, the WTO has a positive effect on China in managing her economic development and contribution to the world economy.
The last WTO review on the U.S. was in 2016, the 2018 report has not been produced yet. The 2016 report pointed out the deteriorating infrastructure and rising income gap as the challenges for the U.S. as well as her concern of anti-dumping, having 269 AD orders as of 6/2016 against China, EU, India, Japan, S. Korea and Taiwan concentrated in the steel industry. The anti-dumping issue is an odd topic in economics. When nations selling goods to another nation at low price (subsidized), the Importer has the freedom to accept or reject the sales. It is hardly a devastating problem, say, compared to a nation monopolizing a certain technology or material or goods and selling at a very high price. One well known example is medicine which many poor countries cannot afford to buy. It will be interesting to see how the WTO 2018 TPRM report will say about the trade war launched by President Trump and what impact it may have on WTO members. The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements. Most of the issues that the WTO focuses on were derived from previous trade negotiations, from the Uruguay Round (1986–1994) to Doha Round (2001 to present). For example, the average tariff levels for GATT participants was 22 percent in 1947, reduced to 15% in 1960’s and further reduced to below 5% after the Uruguay Round. The economic historian Douglas Irwin at Dartmouth attributed the prosperity of the world economy, the growth of world trade, over the past half century to the creation of GATT and WTO. Now the U.S. is threatening to pull out of WTO, unilaterally imposing tariffs (25% on steel, 10% on Aluminum imports and 10% on Chinese imports and threatening to apply new tariffs on 500 billion Chinese goods), rejecting existing trade agreements and seeking unilateral preference negotiation. Granted, President Trump might have a point that the US economy and her trade relations with the world were the result of previous US Administrations, however, any change of policy must be well thought out and debated. The current US action seems to be random and impulsive, certainly disturbing to the world economy and the stability WTO was created to maintain.
China first gained observer status in GATT in1986, working towards joining that organization. China hoped to be a WTO founding member but her attempt was thwarted by the U.S., European countries, and Japan. When China later joined the WTO, she had to agree to considerably harsher conditions than other developing countries. She was required to reform various tariff policies, including tariff reductions, open markets and industrial policies. China also had to deal with transparency and intellectual property issues. These changes were difficult steps for China as they were conflicting with her prior economic strategy. Accession required China to engage in global competition according to rules that she did not make. China's admission was a collective decision symbolizing a clear commitment towards multilateralism. After China joined WTO, her service sector was considerably liberalized and foreign investment in previously prohibited areas was allowed; restrictions on retail, wholesale and distribution ended. Banking, financial services, insurance and telecommunications were also opened up gradually to foreign investment. China’s economic growth is definitely helped by her membership in WTO, but it was her decades of hard work contributed to her success and benefitted herself as well as other WTO members.
The issue of deteriorating US-China trade relations is not the problem of WTO nor caused by it. The US-China trade imbalance can be summarized in one phrase, ‘mismatch of economic development policy’, no one especially WTO should be blamed for it. The U.S. has been favoring service sector, particularly the financial service sector, over manufacturing. Her technological lead is also heavily applied to the financial sector. Thus, domestically, the U.S. suffered job loss in manufacturing which could not be made up numerically by the thriving financial industry. This economic trend also contributed to widened income gap and less goods export. On the other hand, China has been focused on manufacturing thriving in an export oriented economy. China is slow perhaps planned so purposely in pumping her service sector growth, particularly in financial services. Therefore China was not a ripe environment to receive financial services from the U.S. This mismatch of economic development policies between the two great nations created a trade imbalance solvable only by policy adjustment. As China is moving more into consumption based economy and a more service demanding country, she will import more services including the financial services. China’s strategy to upgrade her manufacturing (China Manufacture 2025) will need more technology imports from the advanced nations like the U.S. The above two areas are both strong suits of the U.S. Looking forward, the mismatch will be disappearing. The US-China trade relations will ensure a more balanced trade. This can be achieved under the sound WTO umbrella.
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