Senior Vice President for International Policy
September 27, 2022
Business executives, civil society representatives, and government officials are gathering in Geneva on Sept. 27-30 for the World Trade Organization’s annual Public Forum. U.S. Chamber staff and members will participate in panels, presentations, and a variety of side meetings to examine the path forward for the organization and the rules-based trading system. The following briefing reviews some of the basics — including the value of the WTO to the business community, its recent accomplishments, and some of the controversial issues it is working to address today.
The Value of the WTO to U.S. Business
The continued success of the World Trade Organization (WTO) is critical to the U.S. business community. The global rules-based trading system the WTO embodies has benefited countries around the world — but none more than the United States.
While the WTO was created in 1995, it built on the foundation of the 1947 General Agreement on Tariffs and Trade (GATT). Combined, the WTO and the GATT have revolutionized global commerce. Eight successful multilateral negotiating rounds have helped increase world trade from $58 billion in 1948 to well above $25 trillion today. This 40-fold increase in real terms has brought a rising tide of commerce, job creation, and rising incomes.
It isn’t just the tariff elimination brought about under the GATT and the WTO that benefits American companies and the workers they employ. WTO rules protect U.S. firms operating abroad from unfair, discriminatory treatment. American firms rely on these rules every day of the year.
It’s become commonplace to say the WTO’s accomplishments are long in the past, but this isn’t so. Consider the following:
Information Technology Agreement: An agreement entered into force in 2016 to expand the 1996 ITA’s product coverage, sweeping aside all tariffs on tech goods ranging from healthcare devices to advanced semiconductors and software media. World trade in goods covered in the expansion was valued at more than $1.3 trillion per year in 2016. The EU has estimated the expansion covers 9-13% of world merchandise trade.
Trade Facilitation Agreement: This agreement entered into force in early 2017, modernizing customs procedures, eliminating red tape, and cutting trade costs. Once fully implemented, it has the potential to increase global merchandise trade by up to $1 trillion annually, according to WTO estimates.
Government Procurement Agreement: Entering into force in 2014, this renegotiated agreement expanded opportunities for businesses to supply goods and services to foreign governments estimated to be worth between $80-100 billion annually. All told, the GPA parties have opened procurement activities estimated to be worth more than $ 1.7 trillion annually to international competition from suppliers from other GPA parties.
Services Domestic Regulation Joint Initiative: In December 2021, 67 WTO members accounting for 90% of world services trade successfully concluded negotiations to increase transparency, predictability, and efficiency of authorization procedures for service providers hoping to do business in foreign markets. These new disciplines aim to mitigate the unintended trade-restrictive effects of measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards.
Agreement on Fisheries Subsidies: Agreed in June 2022, this accord marks a key step forward for ocean sustainability by prohibiting harmful fisheries subsidies, which are a key factor in the widespread depletion of the world’s fish stocks. It prohibits subsidies to illegal, unreported and unregulated (IUU) fishing, to the fishing of overfished stocks, and to fishing on the high seas outside the control of regional fisheries management organizations. Negotiations continue on disciplines for other subsidies. The agreement is pending ratification.
Ongoing Issues: The TRIPS Waiver
While discussions in Geneva continue on such issues as e-commerce, investment facilitation, and the unfinished business of the fisheries agreement, the Chamber is particularly concerned about the proposal to waive the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) beyond the scope agreed at the 12th WTO Ministerial Conference in June 2022. Extending this waiver beyond COVID-19 vaccines to include therapeutics and diagnostics as well would undermine the U.S. manufacturing base, harm American workers, and erode the innovation ecosystem that enhances American prosperity.
The Chamber described the WTO’s June decision as a “a solution in search of a problem: Intellectual property rights helped deliver COVID-19 vaccines in record time, and today the world is awash in vaccine doses. We can’t let this unfortunate measure set a precedent for undermining IP rights.”
Unfortunately, the waiver’s champions have moved quickly to do just that. In the U.S. context, the Chamber views efforts to extend the waiver to new areas as antithetical to the Biden administration’s sustained efforts to cement the strength of the U.S. industrial base, cultivate critical workforce skills and the American jobs they support, and secure U.S. supply chains. As the Chamber wrote in a September 2022 letter to senior administration officials:
The Chamber is urging WTO members to reconsider the effort to expand the TRIPS waiver and will be conducting outreach to that end in Geneva.
Ongoing Issues: The E-Commerce Moratorium
Retaining and making permanent the moratorium on customs duties on electronic transmissions — often called the e-commerce moratorium — is critical to global commerce. In the early days of the digital era, WTO members agreed that for internet-based commerce to flourish, it made sense not to impose the kind of fees known as customs duties that are levied on conventional goods traded across borders. Instead, countries would let electronic transmissions be transferred duty-free. By keeping costs low and eliminating the need for paperwork, the WTO’s 1998 decision helped usher in an era of rapid expansion in global access to internet services and communication tools.
Unfortunately, that time-tested approach is now under fire. In the leadup to the WTO’s 12th Ministerial Conference in June 2022, some countries questioned if they should continue to support the arrangement that keeps electronic transmissions duty-free. In the end, a decision was made to extend the moratorium until the 13th Ministerial, which is due to be held in late 2023, or until March 31, 2024, should the Ministerial be delayed beyond that date. Opponents continue to argue that imposing new duties would be a revenue generator for governments. Some have offered a protectionist rationale: By hiking the cost of competing foreign products, they say, duties would give a leg up to local industries.
However, there is ample evidence that the moratorium remains sound public policy, judged by the economic and social benefits. Research has clearly documented the net benefits of the e-commerce moratorium. An OECD study found that putting duties on electronic transmissions would exact greater costs than any marginal gains in tariff revenues. The OECD’s analysis indicated that countries that began imposing duties on electronic transmissions would face a net loss in consumer welfare and export competitiveness. These findings are consistent with earlier research from the European Centre for the International Political Economy (ECIPE), which likewise showed an economic benefit for countries that maintain the moratorium.
From a business perspective, the case for duty-free digital services and software is straightforward. The current system makes it fast and efficient for entrepreneurs, traders and farmers to leverage digital services, avoiding the delays and added costs associated with customs collection. Currently, small and large firms alike can easily tap into the most advanced online marketing, financing, and logistics applications, as well as cloud data processing and storage. These digital tools provide a cost-effective way for companies not only to market and deliver products domestically, but also to reach new overseas markets, helping develop export economies.
The bottom line is that the entire economy benefits when digital trade stays duty free. The e-commerce moratorium is not just an important issue for tech companies anymore. Digitally enabled services and software now serve as vital inputs in sectors from manufacturing to agriculture. Farmers depend on digitally enabled services to monitor global weather patterns, while carmakers track logistical details from overseas plants to maintain inventory levels. Semiconductor manufacturers with global supply chains rely on constant transfers of R&D, design, engineering, and manufacturing data across borders. Layering on online customs collection would create chokepoints that would reverberate across the global economy.
From a practical standpoint, it’s not even clear how digital customs collection would work. During internet transfers, data is routinely spliced into a set of small packets that speed along a network of different routes to a final endpoint, where they are reassembled. This means that if you watch a movie streamed from overseas, the data could be arriving from multiple jurisdictions – and if the moratorium were to expire, each of those governments could mandate different tariff schedules. Which tariff rate would prevail, and how much of a delay would duty collection pose for any given micro data transfer? A world of balkanized digital tariffs threatens to snarl internet traffic and create massive administrative headaches for companies and governments alike.
Finally, there’s the privacy issue. Imagine a world in which governments routinely inspect cross-border digital traffic, including to check whether a tariff is payable on the content. Imposing duties on digital data flows would entail a disconcerting level of intrusive government surveillance on even common exchanges.
The agreement to protect digital trade from tariffs has stood the test of time. Digital trade has transformed consumer access to online products and services and boosted economic competitiveness around the world. From the Chamber’s perspective, abandoning an approach that has worked so well for so long would be a mistake.
Ongoing Issues: The Appellate Body
In addition to serving as a forum for negotiations, the WTO also has a critical role in dispute settlement. The WTO’s Dispute Settlement Understanding outlines procedures for panels to rule on disputes brought by its member states, and it also establishes an Appellate Body in the event panel decisions are appealed.
The United States has been a major beneficiary of WTO dispute settlement, bringing and winning more cases than any other WTO member. In fact, the United States has won or favorably settled more than 90% of the completed WTO cases it has brought, which total more than 100 of the 350 disputes on which decisions have been issued.
The U.S. record in WTO dispute settlement with China is especially strong: As the Peterson Institute for International Economics has reported, U.S. officials had challenged Chinese practices 23 times in the WTO as of 2019 — and won 20 times, with three cases pending.
However, the benefits of this system go much further. The fact that the WTO’s rules are enforceable under its dispute settlement system motivates governments to adhere to the commitments they have undertaken without resort to litigation.
Underscoring bipartisan political support in the United States for the principle of binding dispute settlement, House Democrats in 2019 pressed the Trump administration to prioritize dispute settlement in the United States-Mexico-Canada Agreement (USMCA) negotiations. Specifically, they urged removal of the NAFTA-era threat of “panel blocking,” thus allowing decisions to be binding and effective. House Ways and Means Chairman Richard Neal (D-MA) memorably insisted that, of his priorities, “enforcement, enforcement, enforcement is the most important of all.” This imperative surely applies at the WTO as well.
The benefits of WTO dispute settlement for the United States aren’t just theoretical. These wins include the following examples:
Dispute with the EU over Tariffs on IT Products: In 2010, WTO dispute settlement proceedings upheld the U.S. claim that the EU violated its WTO tariff commitments by imposing duties as high as 14% on flat panel computer monitors, multifunction printers, and cable, satellite, and other set-top boxes. The EU had claimed it could charge duties on the products simply because they incorporated newer technologies or additional features.
The United States successfully argued that the EU was taxing innovation in a manner that could impair continued technological development and raise prices for millions of businesses and consumers. At the time, global exports of the covered products were estimated at more than $44 billion, so the EU’s elimination of its duties to comply with the WTO ruling was significant: It meant real market access, more sales, and direct benefits for American workers. Absent the WTO decision, it’s likely the EU would still be levying the duties today.
Dispute with Indonesia over Barriers to U.S. Agricultural Exports: In 2016, WTO dispute settlement proceedings upheld the U.S. claim that Indonesia’s restrictions and prohibitions on U.S. apples, grapes, potatoes, beef, poultry, and other agricultural products violate commitments the country has made as a WTO member. The WTO ruled in favor of the United States on 18 out of its 18 claims, which involved a complex array of trade barriers.
Because Indonesia is the fourth most populous country in the world, the long-term benefit to U.S. agricultural producers are potentially very large. U.S. exports of the affected products had reached $115 million even with the onerous barriers in place. As in the other cases cited above, the United States had no obvious way to press for the elimination of these barriers outside WTO dispute settlement.
Despite these and many other successes, the future of the WTO dispute settlement system — and particularly its Appellate Body — is in jeopardy. U.S. administrations over the past 20 years have raised concerns about “overreach” in Appellate Body decisions, arguing that some are not clearly supported in the WTO agreements and that the slow pace of its operations saps its utility.
There’s growing agreement in the United States and elsewhere that a number of these concerns have merit and call for reform; the question is, what is the appropriate remedy? The Trump administration’s answer was to block Appellate Body appointments to the point that, by December 2019, the retirement of term-limited Appellate Body members had left it without the quorum it needs to function. At no time did the Trump administration offer concrete proposals to resolve its complaints, to the frustration of other members.
As a result, U.S. companies have been unable to secure relief from discriminatory treatment abroad or to address instances in which a trading partner has otherwise violated its WTO obligations. While governments may continue to request panels to consider violations, either party can exercise its right to appeal a panel decision, which, with the Appellate Body inoperative, dispatches the dispute to perpetual limbo. Other governments have been developing workarounds to continue to use the system for their citizens, but the United States remains shut out of this crucial element of the WTO’s binding dispute settlement process entirely. What was once an important tool in the U.S. enforcement toolbox is unavailable, and no effective substitute has been identified.
The price of allowing this impasse to linger could be high. Executives with American companies fear that other countries’ compliance with the WTO agreements will decline over time if its dispute settlement system is no longer binding. They are concerned that new trade barriers and discriminatory treatment will become more common.
The time is ripe for the United States to lead efforts to overcome this impasse. Over the past several years more countries have come to recognize the need to address the concerns the United States has raised. The United States should lead reform efforts by engaging substantively with other WTO members to address its concerns and restore a binding dispute settlement system. The Chamber has expressed support for efforts to translate the Walker Principles (articulated by New Zealand’s Ambassador to the WTO David Walker) into a form that can address the legitimate concerns that U.S. administrations have identified.
At the 12th WTO Ministerial Conference in June 2022, WTO members committed to establish a structured work plan to address recognized shortcomings and restore the Appellate Body. In the Ministerial’s outcome document, WTO members acknowledged “the challenges and concerns with respect to the dispute settlement system including those related to the Appellate Body, recognize the importance and urgency of addressing those challenges and concerns, and commit to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024.”
The stakes are high, but the door is open for reform of WTO dispute settlement and restoration of the Appellate Body. The U.S. Chamber of Commerce and the U.S. business community stand ready to support this important undertaking.