Can the City of Peace resolve trade wars?

There's nervousness in the WTO corridors. © KEYSTONE / MARTIAL TREZZINI

In the grand corridors of the World Trade Organisation, there is a new sense of urgency. 

As Donald Trump ramps up trade tariffs, WTO headquartersExternal link, originally designed by Swiss architect George Epitaux in 1923 to house the new League of Nations International Labour Office, are coping with an unprecedented number of dispute cases. 

“It’s fair to say our mettle is being tested,” says the WTO’s Director of Information, Keith Rockwell. 

It’s all rather different from 2008, the last time I reported extensively on the World Trade Organisation. Then, trade ministers from around the world had gathered, they hoped, to put the final touches on an ambitious new deal which would lower trade barriers around the world and help developing countries access global markets. 

That optimism was short lived: after nine days of fractious meetings, hours and hours of stalled talks followed by late night last minute developments, the deal known as Doha looked dead. 

It was partially revived in Bali in 2013, when a much simpler and more modest pact was agreed. But those many disagreements, the long, painstaking and often fruitless meetings are all signs of just how difficult trade negotiations can be. Now, some fear we are on the brink of an all out trade war. 

Worst yet to come? 

Switzerland is the latest country to file a formal complaint with the WTO in protest at the Trump administration’s new tariffs on steel and aluminium. A polite letter from Bern to Washington in March, requesting an exemption for Switzerland’s modest CHF80 million steel exports, went unanswered. 

Jan Atteslander, of the Swiss business organisation EconomiesuisseExternal link, agrees that tariffs on this small export alone will not do much harm to Switzerland’s currently healthy economy, nevertheless, he is worried. 

“My fear is that the worst is yet to come,” he says. “That is my personal perception. The US has acted, China has reacted, the EU preparing to react…if this continues at this speed this will potentially destroy the growth of the world’s economy.” 

There are jitters, then, in boardrooms around the world. No one knows how far this unpredictable US administration will take the trade tariffs. And as everyone knows, business abhors uncertainty. 

Snail’s pace trade diplomacy 

So can the WTO sort things out? “The only way you are going to resolve this situation is through the WTO,” says Rockwell. “Keep in mind that the creators of the multilateral trading system which evolved into the WTO created it for exactly things like this.” 

The United States was of course one of the founders of the rules-based trading system, but even before the election of Donald Trump Washington had voiced concerns that the WTO’s disputes procedure was too slow, or that it strayed beyond its remit. 

Rockwell agrees that some reform may be needed; after all the world does business differently now than it did when some of the WTO’s rules were first drafted. But, he says ‘those discussions are not happening…we need greater clarity from them [the US] as to how they would address these issues.” 

The end of the WTO? 

Instead, the US is following what some suspect is a more subtle policy to undermine the WTO: imposing unilateral trade tariffs, while at the same time blocking the appointment of new WTO appeal judges. The WTO appellate body (and 80% of disputes go to appeal) is supposed to have seven judges but only has four at the moment. This will be reduced to three – the minimum needed – if Washington blocks the reappointment of a judge whose term ends in September. 

Cedric DupontExternal link, a trade specialist at Geneva’s Graduate Institute, sees the tactic as rather cynical, a way for the US to “hurt the organisation” without actually leaving it, which Dupont believes even President Trump would still not dare to do. 

“It’s a way for the US to show power,” he says. “Holding up the judges’ renewal is a way for the US to exit without actually exiting.” 

And so while the world may not be witnessing a total trade war yet, the very body which is supposed to prevent these conflicts could, in just a few months, see its dispute mechanisms paralysed by the member state which is causing the disputes. 

“That’s a very serious worry,” says Rockwell. “It is very difficult to know what would happen then.” 

Nevertheless both Rockwell and Atteslander agree that the fact that member states are using the WTO to try to resolve trade disputes is a positive sign. 

“It shows a degree of confidence in the dispute system,” says Rockwell. 

“It’s still the backbone and basic infrastructure of law in the world trade system,” adds Atteslander. “The dispute settlement system is like a life boat, we don’t want to have to use it, but it’s good that we have it.” 

Dupont is also confident the WTO can deal with what he says are trade “skirmishes”. But, he warns “if there were a real trade war I don’t really think the WTO could do anything about it, it is a fair weather, member-driven organisation.” 

Business leadership 

And that, believes Atteslander, is where business leaders need to step in. 

“Business needs to stand up and say ‘this is not on Mr Trump’.” 

“Do we want to have an open market system globally where every country has its chance to participate, or to have protectionism which destroys wealth and jobs?” 

For the next few months at least then, the WTO must tread a difficult path: resolving multiple trade disputes with a reduced number of judges, trying to lure the US into constructive discussions about the future of international trade, and trying to prevent a total paralysis of the dispute system. 

And although Atteslander still fears this particular trade skirmish will get worse before it gets better, he believes the widespread concern may even persuade those, on the right and the left, once skeptical of global trade agreements, that they are valuable, and that the Geneva-based body which upholds them is very important too. 

“I can imagine once the shooting has stopped the WTO will emerge stronger. 

“Thank goodness we have the WTO.  All of a sudden you realise this is the floor we stand on, this is our business model, this is the world trade system.”

You can follow Imogen Foulkes on twitter at @imogenfoulkes, and send her questions and suggestions for UN topics.