Economic nationalism is a threat to world-wide—and American—prosperity.
by Greg Rushford
July 4, 2018, in The Wall Street Journal
President Harry S. Truman and Secretary of State George Marshall successfully pressed America’s war allies to create the General Agreement on Tariffs and Trade more than 70 years ago. Leaders across the globe, mindful of how economic nationalism in the 1930s had contributed to the devastation of World War II, wanted to open the world up again. The agreement focused on slashing of tariffs and other barriers to trade—bringing unprecedented prosperity to hundreds of millions of people. The GATT, which evolved into the World Trade Organization in 1995, became the world’s most successful international economic experiment.
But now economic nationalism and tariff wars are back. President Trump regards the WTO with disdain and would like to withdraw. He has ordered aides to come up with ways to inflict punitive tariffs on U.S. trading partners anytime he wishes—in clear violation of the system the WTO administers. And it’s not only talk. Mr. Trump and U.S. Trade Representative Robert Lighthizer have taken a wrecking ball to the legal machinery sustaining the global trade regime.
The White House is slowly killing the WTO’s seven-member appellate body, which is the institution’s court of final appeal in trade litigation. The ploy is a simple war of attrition: The U.S. has whittled the court down to four members by withholding the consensus to replace jurists when their four-year terms expire. Another vacancy in September will leave three—barely a quorum but not enough to handle the caseload. By the end of next year, only Hong Zhao, a veteran Chinese trade official, will be left.
Mr. Lighthizer, who declined to comment for this article, has left WTO diplomats in the dark as to what he wants. But that’s not difficult to figure: higher tariffs. Mr. Lighthizer has been a longtime advocate for the protectionist domestic steel lobby, which has often lost at the WTO.
Mr. Lighthizer argued in 1995 that it had been “a mistake” when the appellate body’s decisions were made binding on member countries. American presidents since Ronald Reagan had championed that reform. It meant that losing parties would have to bring trade policies into compliance with their WTO legal obligations or pay compensation. To economic nationalists like Mr. Lighthizer, this infringed on sovereign rights.
In a 2001 speech, Mr. Lighthizer raised eyebrows in the normally genteel trade bar by saying that he believed some WTO jurists “may be crooked, although I have no evidence of that.” Perhaps due to such intemperance, his 2003 campaign to become a WTO jurist was rebuffed. Now he can exact revenge.
Mr. Lighthizer’s gripes about judicial overreach could find some support—if it weren’t for his bullying. The WTO’s negotiated trade agreements, subjected to rounds of compromise, include imprecise legal obligations. Stuck analyzing diplomatically fudged language, the appellate body has been forced to fill the gaps by applying enlightened international legal theories.
“There are issues that governments have chosen not to raise in negotiations in the hope that they could obtain their goals through litigation at the WTO, even though they knew what they sought had never been agreed to by the other members,” Washington trade lawyer Terrence Stewart wrote last year. It’s a legitimate concern, but judicial overreach still is in the eye of the beholder.
Despite Mr. Trump’s assertion that the WTO has been “a disaster” for the U.S., Washington has won 85% of the 117 WTO cases it has brought against foreign trading partners. Japan complained in 2003 that WTO jurists had stretched the law by determining that Japanese health officials used phony science to ban American apples.
The real U.S. gripe is that foreign governments have won most of the 145 cases that they have brought against American protectionist policies. Mr. Lighthizer’s steel clients have screamed the loudest whenever jurists in Geneva have found legal hanky-panky in the way U.S. antidumping officials hit foreign competitors with tariffs. This is fodder for Mr. Trump’s base.
The Democratic Party has its share of protectionists too. In 2011 President Obama’s trade office, cloaked in secrecy, blocked the appointment of Washington trade lawyer Jennifer Hillman to a second term on the appellate body. Ms. Hillman was subjected to a whisper campaign suggesting her vote was not considered “reliable.” Translation: She was too intellectually honest to tilt her legal determinations in the White House’s favor. This pleased the steel lobby.
In 2016 Mr. Obama’s trade advisers blocked Seung Wha Chang, a South Korean legal scholar, for a second term on the appellate body. Mr. Chang had ruled against the U.S. too often, especially in cases involving steel and aluminum. The Koreans complained bitterly.
Tim Reif, the Obama trade lawyer whose fingerprints were all over the moves against Ms. Hillman and Mr. Chang, is currently advising Mr. Lighthizer. On June 7 he was nominated by President Trump to fill a vacancy on the U.S. Court of International Trade. As a federal judge, Mr. Reif will enjoy lifetime tenure. He declined to comment.
The debate over the WTO isn’t going to be resolved by lawyerly tinkering. The real problem rests in the return of economic nationalism. Both political parties would be well-advised to consider the wisdom of Truman and Marshall. They understood that true national-security imperatives meant resisting protectionism.
Mr. Rushford edits the Rushford Report, an online journal that tracks trade politics.