The world trading system, embodied in the World Trade Organization (WTO), is in great peril and lacks a real champion, notably neither the U.S. nor China — the top two global trading countries. The notion of multilateral trade liberalization and the system that provided stability, order and prosperity in the global economy for more than 75 years is being undermined by protectionism and economic nationalism on many fronts. Sadly, neither U.S. presidential candidate shows any sign of seeking to reinvigorate the WTO, so the prospects for resuscitation are dismal.
The U.S., which spearheaded several successful global rounds of trade liberalization, has essentially abandoned its commitment to free trade and respect for the rule of law on trade. Implementing tariffs and massive subsidies across a range of industrial sectors, America has flagrantly violated basic WTO rules and principles. By blocking all appointments to the WTO’s Appellate Body — a group of seven judges that hears appeals about dispute resolution verdicts — it has neutered the WTO’s ability to enforce trade law. With no judges able to consider appeals, this body has been incapacitated since 2019. To evade punishment for its blatant violations of trade rules, the U.S. ignores judgments against it, and invokes the “appeal into the void” escape hatch. Any country can invoke the same tactic to prevent enforcement. The erosion of the WTO’s dispute resolution mechanism is the greatest single threat to world trade order.
After indulging heavily in the “open” aspects for trade provided by the WTO, China is the leading scofflaw on trade rules, disingenuously shielding its chronic violations of trade and investment principles with policies and practices that contradict basic market principles.
Ever since the collapse of the Doha Development Round more than 15 years ago, caused primarily by a deadlock between the U.S. and China, multilateral trade negotiations have stagnated. When attempts were made to move to plurilateral rather than multilateral trade negotiations, India, South Africa and Turkey combined to squelch the effort. The WTO’s legal structure requires unanimity for progress.
Attempts to combat over-fishing — 90 per cent of global fish stocks are already exploited or depleted — almost succeeded in reducing fishery subsidies until India blocked agreement by insisting on sweeping exemptions that would have nullified the result. This past spring, embattled WTO Director General Ngozi Okonjo-Iweala openly castigated states for what she described as a “lose-lose” negotiating stance that has damaged the institution by preventing consensus.
Unless the United States chooses to lead by example and unblocks the appointment of judges to the Appellate Body, the WTO will be doomed to the atrophy and ineffectiveness also evident now at the United Nations.
The most urgent need for common action among like-minded groups of trading partners is to challenge China’s dominance of many global supply chains. Issues like supply chain resilience, digital trade, AI and cyber security need attention and are fundamental to concerns about economic security. Since all involve direct challenges to China, they would provide a useful agenda for the next G7 Summit, which Canada will host.
A major Canadian casualty of the current WTO paralysis is the never-ending softwood lumber dispute with the U.S. Even when we win dispute resolution decisions at the WTO, we inevitably lose due to the lack of enforcement. Canadian producers have paid more than $9 billion in duties since the last “managed trade” agreement ended in 2017. The U.S. alleges unjustifiably that Canada subsidizes its industry and that companies “dump” their product at prices lower than the price of production. As Ian Dunn wrote in the Globe and Mail, the U.S. Department of Commerce persistently uses any pretext to limit our competitive advantage “regardless of whether it hurts U.S. consumers, ignores legal commitments under CUSMA (Canada-United States-Mexico Agreement) or brushes off international rulings in favour of Canada.” The fact that the U.S. cannot produce sufficient lumber to meet domestic demand means that American homebuilders and homeowners pay an unnecessarily heavy price for Canadian supply.
Canada is overly dependent on the U.S. market where access may become more precarious no matter who wins the presidency. Donald Trump recently cited Canada as one of several countries “screwing” the U.S. on trade. Kamala Harris was one of only 10 senators to vote against CUSMA, saying it was “worse than NAFTA.” The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) has delivered for the Europeans but not for us. Our exports were down globally in 2023. Unless we quickly lift our heads out of the sand, we will never exploit the global demand for our energy resources and our critical minerals.
With the prevailing protectionist mood in U.S. political and government circles, Canada faces an uphill battle in the pending renegotiation of CUSMA. We should press firmly for a collaborative, common approach with the U.S. on North American energy, critical minerals and other natural resources like uranium to reduce the U.S.’s inexplicable reliance on Russia for some of that commodity. These are strengths for both countries and genuine sources of our competitive advantage.
In this renegotiation, our focus must be exclusively on the U.S. trade partnership. Since joining the North American Free Trade Agreement (NAFTA), Mexico has rarely demonstrated common cause with Canada on trade. It has been singularly focused on its trade with the U.S. The negative fallout in the U.S. about NAFTA is largely attributed to the perceived imbalance of benefits gained by Mexico in that negotiation, especially the loss of jobs from the U.S. — a principal reason for anti-trade-liberalization sentiments in the U.S.
Beyond salvaging CUSMA as best we can, Canada should focus on promoting further accessions to the Trans-Pacific Partnership (TPP), turning particularly to Taiwan now that the U.K. accession is complete. For future growth our exporters should take better advantage of the access available from TPP, especially with Japan and our free trade agreement with Korea.
The threats to economic security are as daunting as the challenge to global security. Both need inspired leadership, creative thinking and practical sense to chart bold solutions. History offers grim reminders of the folly of perfervid economic nationalism.
National Post
Derek H. Burney is a former 30-year career diplomat who served as Ambassador to the United States of America from 1989 to 1993.