It’s not business as usual at the World Trade Organization

Vladimir Putin’s brutal invasion of Ukraine was a seismic event for the world’s major democracies, bringing them together in a way that only a few weeks ago seemed unimaginable. A stronger and more unified NATO is an example of this, as is the impressive solidarity between a range of countries in implementing far-reaching sanctions and winning a vote of condemnation at the United Nations.

As the collective will grows to confront the destabilizing authoritarianism of Russia, as well as one of its staunchest supporters, China, what must become of the institutions that enabled their rapid integration into the global economy of Europe? post cold war? The beleaguered World Trade Organization (WTO) has opened markets for Russia and China and granted them equal status in the drafting of international trade rules. Does the WTO continue to drift into irrelevance as Cold War rivalries reappear and divisions between competing economic systems intensify? Or can the market-oriented democracies that created the WTO find a new unity of purpose and forge a common agenda that challenges the growth of authoritarianism and attacks the Chinese economic model?

Critics argue that the WTO has made it too easy for authoritarian systems to reap large benefits while contributing little in return. Governments have so far failed to resolve this dilemma, but recent events have changed this dynamic. In addition to the financial and other sanctions already imposed, Russia’s advantages under the WTO are now under attack. Key countries set to scrap Russia’s most-favoured-nation (MFN) tariff status, a keystone of WTO membership, or completely block imports from Russia despite their rights at the WTO. President Joe Biden has suspended Russian oil and gas imports. Congress is agitating for a complete cut off from the NPF. Canada has already acted, and the United States, other G7 members and the European Union (EU) are about to act.

Revoking Russia’s WTO membership would present a much more difficult path under the organization’s consensus rules, where Russia could block its own suspension. China also would not support an expulsion resolution. But the fact that the expulsion of Russia is even under discussion reveals the depth of the determination to remove Russia from world trade.

With Russia the immediate target, these actions send a strong message to China that the United States and other market-oriented democracies are increasingly frustrated with a status quo at the WTO that benefits disproportionate to autocratic and mercantilist economies. The Trump administration’s tariffs, clumsy as they are, already challenge that reality, and Biden has not withdrawn them. A close reading of bills in Congress to repeal Russia’s MFN status suggests that similar action against China is not unthinkable. And the United States is not alone. In recent years, the EU has become increasingly concerned about China’s unfair trade practices and its human rights record, putting its bilateral investment agreement on ice and launching a dispute at the on China’s coercive measures against Lithuania. Other WTO members have also raised deep concerns about China’s unfair practices.

Of course, China is not Russia. As the world’s second largest economy, it has strong and growing economic ties with most countries and its gravitational economic pull is on the rise. But China’s relationship with the WTO is getting tougher, not easier, in the wake of Russia’s war, especially as Xi Jinping has maintained his political alignment with Russia despite Putin’s behavior. As political divides deepen, so does the disaffection of major WTO democracies with the idea that China should be a major player in setting WTO rules. .

It is impossible to detach trade from politics. The world has just seen how autocracy can not only create horrible human suffering, but also destroy the foundations of peaceful trade. This war will therefore have an inevitable and perhaps dramatic significance for the future of the WTO. In the short term, this creates new headwinds to an already existing state of sclerosis. It’s hard to imagine Americans or Europeans in the same room as Russian delegates pretending that one WTO member hasn’t just invaded another. But in the longer term, we now have a powerful incentive for the United States and other democracies to overcome their long-standing disagreements, as happened recently in the US-EU aircraft dispute, and to exercise collective pressure on economies like China to play along. Indeed, the current crisis may cause the US and like-minded members to chart a new trading future outside the WTO framework , without necessarily abandoning the WTO entirely, but creating a new multilateral structure with deeper commitments between countries dedicated to free market democracy. This may be the only lever available to change the status quo.

Responsible world leaders now face a troubling reality: The old idea that countries that trade together are less likely to go to war has been buried on Ukrainian soil. It can no longer be like before at the WTO.

Amb. Rufus Yerxa, former deputy director general of the WTO and senior adviser at McLarty Associates, advises clients on global trade issues

Wendy Cutler, vice president and general manager of the Washington, DC office of the Asia Society Policy Institute and senior counsel at McLarty Associates, advises clients on business matters in Asia.

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