Former U.S. Trade Rep. Robert Lighthizer has a new book on trade policy. I haven't read the whole book, and I'll leave a full review to others. However, I did come across an excerpt of his seven specific recommendations for the WTO, and I had some reactions to each.
Lighthizer recommendation #1:
First, we need a reset on the global tariff system. This practice of countries having wildly different tariffs for the same products is unfair, inefficient, and historically anachronistic. We need a new baseline for all tariffs. There should be some small number of exceptions permitted to accommodate grave political and economic situations in some countries. The average tariffs of industrialized countries would be a good starting point for discussions on this baseline.
I assume he is upset that the U.S. has lower tariffs than many other WTO Members (although not the lowest). But it's worth noting here that tariffs aren't the only policy negotiated at the WTO. When thinking about the overall balance of obligations, you have to take into account non-tariff policies, such as IP protection. So, if the U.S. decides at some point that it wants other countries to lower their tariffs from existing levels (or the U.S. wants to raise its own tariffs), it will almost certainly have have to give up some of what it fought for and got on IP or some other issue.
Lighthizer recommendation #2:
Second, we need to stop the FTA end run around MFN treatment. Clearly, defined custom unions of contiguous states, such as USMCA or the European Union, should be permitted, but otherwise countries should have to treat all trading partners equally.
The USMCA is not a customs union, but putting that aside, GATT Article XXIV/GATS Article V do not currently have this kind of limitation on FTAs. I'm not sure what his goal is here. It is probably not to shift from trade-diverting to trade-creating FTAs, as some economists might suggest, so maybe he's just trying to reduce the number of FTAs? In a WSJ op-ed from 2020, he made this point in a way that suggests it is directed at the EU: "As multilateral trade negotiations have foundered, the most-favored-nation norm has eroded as well with the proliferation of bilateral free-trade agreements that discriminate in favor of preferred trading partners. By entering into trade deals with smaller economies—72 at last count—the European Union has effectively resurrected the system of colonial preferences that prevailed in the pre-GATT era. The EU uses its trade deals in many cases not to advance trade liberalization, but to force other countries to adopt thinly veiled protectionist measures like “geographic indications,” which prohibit the use of common labeling terms for wine and food items produced outside the EU."
Lighthizer recommendation #3:
Third, special and differential treatment has to be cut back so that only the poorest countries in the world get special treatment. The rest are either in the trading system or they are not.
Lots of people are interested in this issue right now. Jim Bacchus and Inu Manak had some suggestions here.
Lighthizer recommendation #4:
Fourth, the WTO needs new rules to stop Chinese economic aggression. Clearly, compensatory tariffs should be allowed in prescribed circumstances. Further, if necessary, countries should have the ability to act unilaterally to counter predatory, mercantilist policies.
On this issue, it's probably worth exploring the rules China agreed to in its accession protocol and working party report. There are some broad obligations in there that have been mostly overlooked. Having said that, it could be helpful to have certain policy areas covered a bit better by WTO rules, e.g., bring CPTPP SOE rules into the WTO. As for "the ability to act unilaterally to counter predatory, mercantilist policies," if this means AD/CVD, that has been heavily utilized for a long time now, without much impact on Chinese policies.
Lighthizer recommendation #5:
Fifth, the concept of a sunset should be incorporated into the WTO agreements. Economies change, and so should the obligations of members. No business would sign an eternal contract with its suppliers, nor should any country.
I'm against all sunset provisions, with the exception of policies I don't like, in which case I am for them. That's a joke! But seriously, it seems like people generally want sunset provisions for things they don't like, and I haven't come across many arguments for sunset provisions on principle.
Lighthizer recommendation #6:
Sixth, the WTO must adopt a mechanism that assures long-term balanced trade. Commitments must be flexible when a country such as the United States runs up trillions of dollars of deficits for decades.
If Lighthizer is concerned about the U.S. trade deficit, he'll need to address its core causes, which are mainly macroeconomic in nature. If he wants, for example, a WTO mechanism to increase U.S. savings and end the dollar's use as the dominant reserve currency, he can push for that.
Lighthizer recommendation 7:
Finally, the dispute settlement system should be scrapped. A new one, modeled after commercial arbitration, should be put in its place. There should be a one-stage panel process with a vote of the WTO member states being able to overturn the decisions. Further, the decisions should be the basis of party negotiations and not be binding.
Lighthizer also mentioned commercial arbitration in the WSJ op-ed, where he said: "The current two-tier system should be replaced with a single-stage process akin to commercial arbitration, in which ad hoc tribunals are impaneled and resolve particular disputes in an expeditious manner. The rulings of these one-off panels should apply only to the parties in the dispute, and not become part of an ever-evolving body of free-trade jurisprudence." I don't know much about commercial arbitration, and perhaps the methods used there work well for those disputes. But from what I do know about them, they don't seem well-suited for WTO law. At the WTO (and in bilateral and regional trade agreements), we need reasoning that clarifies what the vague terms of the rules mean, so parties know what their obligations are. If the meaning of national treatment, for example, is up for grabs in every dispute, it will be very difficult for governments to act in compliance with the principle.
