The recent ruling — long delayed and evidently toothless — that Europe’s unfair subsidies helped Airbus to compete against Boeing reminds us that the global trade rules are far from perfect. But while new approaches may be needed, replacing the system is fraught with peril.
I had a root canal a few years ago. It didn’t hurt a bit, which is too bad because that would have made it more valuable as a metaphor.
As in, I’d rather go through a painful root canal than endure the World Trade Organization’s 12-year process to find that European countries unfairly subsidized Airbus — and it’s still not over.
Sure, the global trade group’s compliance panel recently ruledthat the unfair launch subsidies cost Boeing a total 375 orders for commercial airliners. And the European Union has barely made a dent at putting things right.
The United States could impose billions of dollars in WTO-sanctioned tariffs. But given challenges from Russia, Brexit and ISIS, Washington is unlikely to antagonize its European allies.
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Nor could the sanctions probably be targeted at Airbus; its new assembly plant in Alabama gives the consortium two U.S. senators, and U.S. airlines would scream about higher prices on Airbus planes. In general, tariffs would raise prices for American customers and not help American aerospace workers.
Airbus snickered about the Sept. 22 ruling and may appeal, buying more years. It has a smaller complaint against Boeing before the WTO, anyway.
As Teal Group aviation analyst Richard Aboulafia told my colleague Dominic Gates, “It’s a nice moral victory. It validates what Boeing has been saying. But how does it produce anything tangible? It won’t change much.”
Seattle and the Puget Sound region already have a bad memory of the WTO — from the protests that disrupted the organization’s 1999 Ministerial Conference here. Now, in addressing the concerns of one of our most important industries, is the WTO this toothless?
If so, it comes at a fraught moment, when Republican presidential candidate Donald Trump campaigns on the claim that Americans get a raw deal from the status quo in world trade. Calling the WTO a “disaster,” he said he would pull America out.
Even Democrat Hillary Clinton doesn’t support the signature trade deal of President Obama, the Trans-Pacific Partnership (TPP).
Answering this requires some background.
The World Trade Organization was formed in 1995 and consisted of 164 member countries as of July. “Its main function,” as its website states, “is to ensure trade flows as smoothly, predictably and freely as possible.”
The WTO is the United Nations of trade, and the world trade cop, too. It works to enhance trade among nations. It’s also a forum for negotiation and dispute resolution. But it works in a tough neighborhood, or at least one where national interests can lead countries to circumvent or ignore the body’s complex trade rules.
The United States and Britain are WTO members. So are China, the Russian Federation and serial currency manipulator South Korea. And most WTO decisions require consensus.
Yet the WTO is the outgrowth of the American-led effort after World War II to establish a global economic order that trended toward peace. Policymakers in Washington saw the beggar-thy-neighbor protectionism of the prewar years as a driver of both the Great Depression and the rise of Hitler.
In 1947, 23 nations signed the first General Agreement on Tariffs and Trade or GATT. Through successive rounds of negotiations among members about what would constitute a rules-based world trading system, GATT grew larger, traditional tariffs fell and world trade expanded with everyone more or less playing by the same rules.
When the WTO succeeded GATT, in 1995, it seemed a grand American achievement. Even then, America was the world’s largest exporting nation and a net winner from trade.
It’s tempting to say China’s 2001 entry to the WTO upended the happy trade table. A landmark scholarly paper last year estimated Chinese imports had cost as many as 2.4 million jobs between 1999 and 2011.
But don’t forget the U.S.-Japan trade friction of the 1980s — and this between close allies.
In truth, each GATT round had become more difficult. The WTO is still stuck on the Doha Round, which began in 2001. Developed and developing nations are especially at odds.
As for dispute resolution, the WTO is dealing with hundreds of cases. The United States is the biggest potential victim and the biggest alleged perp, named as complainant 111 cases and respondent in 127.
The process has often worked to America’s benefit. But we aren’t always on the side of the angels.
For example, a case brought by eight nations and the EU accused the United States of unfair trade practices because of the 2000 Byrd Amendment, which put “anti-dumping” duties in place. The WTO ruled it illegal and said the nations could impose counter-duties. The amendment was finally repealed in 2006.
As Winston Churchill said, “To jaw-jaw is always better than to war-war.” Still, sclerotic dispute resolution was intended to take a year, not 12 years. And the WTO faces other risks, as economist Richard Baldwin pointed out.
“[T]he rules and procedures of the WTO were designed for a global economy in which made-here — sold-there goods moved across national borders,” he wrote in the Journal of Economic Perspectives. “But the rapid rising of offshoring from high-technology nations to low-wage nations has created a new type of international commerce.”
Meanwhile, major trade agreements such as the TPP are more focused on investments and the global supply chain. They make the WTO less relevant while giving critics ammunition that these managed trade deals coddle corporations and hurt American workers and wages.
Bottom line: The WTO is deeply flawed and Boeing is getting a raw deal.
But what would replace it or the two-tiered reality of the WTO and what Baldwin calls regional and mega-regional agreements? There’s the rub, even if the TPP is never approved.
Trump is tapping into many grievances but he’s ignorant about trade realities, and cavalier in making Americans believe the global trading system can be dealt with like a failing casino. Too much is at stake, not least in Washington, the nation’s most trade-dependent state.
That’s not to say we don’t need to find some fresh responses to a changing world. But it won’t be easy, and implementing the wrong policies could bite us back.