Comment on “Can the World Trade Organization Act as a Bulwark Against Deglobalization?”

Abstract

Evenett (2024) makes a well-evidenced argument on the capacity of the World Trade Organization (WTO) rules to contain deglobalization. His argument is straightforward. He argues that the WTO rules offer little constraint on state-led deglobalization. He justifies this argument with three sets of evidence. First is the set of evidence from recent high-profile commercial policy episodes such as the US–China trade war, the “weaponization” of medical goods and food exports under the outbreak of the COVID-19 pandemic, and the discriminatory tariff hike invoking national security by the US Trump administration. These episodes show us that governments violated WTO rules without hesitation either overtly in the case of the US–China trade war, or less overtly in the case of export restrictions on medical goods and foods.

The weakness of the WTO rules is, however, not a recent phenomenon. The second set of evidence that Evenett (2024) presents is on commercial policy choices since the Global Financial Crisis of 2008. According to the Global Trade Alert, created by Evenett and his team, commercial policy interventions implemented by about 200 customs territories since 1 November 2008 are traced. The result is striking. The share of world goods trade covered by discriminatory unilateral commercial policy grew over time, and now it is about 80% (Evenett's figure 4).

The third set of evidence is from the WTO tariff schedules of the G20 members. It shows that eight G20 members can legally raise tariff rates by more than 7%, that is, the Smoot Hawley tariff rate, due to the difference between applied tariff rates and bound tariff rates (Evenett's tables 1 and 2). This means that the WTO tariff bindings do not constrain the capacity of these governments to substantively raise tariffs.

The argument of Evenett (2024) aims at demystifying the capacity of WTO rules in controlling member states' commercial policy. If we look at only the recent episodes of deglobalization such as the US–China trade war, we may still expect that the WTO rules will regain their capacity soon after the end of these episodes. However, Evenett (2024) does not allow us to embrace such an illusion, because discriminatory unilateral commercial policy has been growing at least since the Global Financial Crisis of 2008.

Still, we can argue that many governments observe the WTO rules, notably the most favored nation (MFN) principle and tariff binding. For instance, even though governments have cumulated discriminatory unilateral commercial policy since the Global Financial Crisis, they have depended more on non-tariff measures than tariff measures. The fact that eight G20 members can legally raise tariff rates by more than the Smoot Hauley tariff rate does not mean that they actually did so. The fact is that these countries unilaterally lowered the applied tariff rates substantively below the bound tariff rates, while the latter remained high as a result of the failure of the Doha round of tariff negotiations. This reinforces the argument of Evenett (2024) that the tariff bindings of the WTO do not control member governments' commercial policy.

If we are to make an objective assessment of the capacity of the WTO rules to constrain discriminatory unilateral commercial policy, we must recognize the limits of such capacity. As evidenced by Evenett (2024), governments have been able to take policy measures other than tariff measures that did not overtly violate the WTO rules. The capacity of the WTO rules to control such measures, notably local subsidies, is limited.

While the WTO rules do not effectively control member governments' commercial policy, some members may want to introduce such control by negotiating free trade agreements (FTAs) and/or plurilateral agreements with wider and stricter rules. The Comprehensive and Progressive Agreement of the Trans-Pacific Partnership (CPTPP) is an example of the former, and the Joint Statement Initiative on electronic commerce is an example of the latter. Evenett (2024) acknowledges that the CPTPP may create an oasis of less-distorted trade among its members. Although this does not refute his main argument, seeking bilateral, regional, and/or plurilateral trade rules with wider and deeper coverage than the WTO rules will continue to be an option to compensate for the limited capacity of the WTO to control member governments' commercial policy.

Finally, Evenett (2024) refers to the business community as a likely countervailing power against deglobalization. It is true that the business community has been supporting the rules-based multilateral trading system (for example, Japan Business Federation, 2022), but this is not strong enough to contain deglobalization. As is shown by the recent tightening of export controls on semiconductor manufacturing equipment by the US, Japan, and the Netherlands, business communities are facing strong pressure from their respective governments to decouple their supply chains. Supporters of an open trading system, notably the business community, are frustrated with this fragile situation.