Some Thoughts on Addressing Non-Market Policies and Practices through WTO Disputes
Earlier this week, the U.S. submitted a communication to the WTO entitled "On WTO Reform." There are a number of issues worth talking about in the document, but I want to highlight the sub-section on "Overcapacity and Overconcentration of Production," which falls in a section entitled "Problems the WTO Cannot Address":
4 PROBLEMS THE WTO CANNOT ADDRESS
...
Overcapacity and Overconcentration of Production
4.3. The pervasive use of non-market policies and practices is the root cause of two systemic problems in the global trading system: overcapacity and overconcentration of production in numerous industrial sectors.
4.4. The United States has continuously raised these systemic problems at the WTO since at least 2016. We have repeatedly described how overcapacity is causing serious damage to market-oriented industrial production in the United States and around the world. For example, in the steel sector, the OECD estimates that overcapacity was 602 million metric tons in 2024, driven by capacity expansion dramatically outpacing demand growth. When a country subsidizes its steel firms at 10 times the rate at which other countries subsidize their firms and develops capacity for almost twice the number of vehicles its own market purchases, global trade is distorted. When a country pursues such a beggar-thy-neighbor economic model, its output growth comes at the rest of the world's expense.
4.5. The United States has repeatedly warned that overconcentration of production is creating dangerous vulnerabilities that will be exploited and weaponized. Currently, a single country's manufacturing production exceeds that of the nine next-largest manufacturing countries combined. The resulting imbalance affects all economies, developing and developed. One country's exports of finished consumer electronics products have exceeded those of all other countries combined, despite wages in that country being more than double those of several alternative manufacturing locations. Many Members contribute to these dynamics. These distortions have led to severe overconcentration in key sectors.
4.6. The WTO—its committees, dispute settlement system, and negotiating arm—is not able to address these systemic problems. For example, the United States repeatedly attempted to use WTO committees to tackle well-chronicled, endemic lack of transparency, including by counter-notifying subsidy programs and state trading enterprises. But these efforts were band-aids on a gushing wound. The stubborn fact is that years of diligent monitoring work in WTO committees have had no discernible impact on certain Members' lack of transparency or pervasive use of non-market policies and practices. The WTO dispute settlement system also provided no help. Disputes took years to wind through the system, and even when a specific measure was found to be non-compliant, severe and irreversible harm to jobs, factories, and communities was suffered long before the dispute was resolved, if it was resolved at all. Further, the Appellate Body inappropriately restricted Members' ability to counter non-market economic distortions and to provide relief from unfairly traded imports.
4.7. Multilateral rulemaking cannot address these systemic problems unless relevant Members benefiting from such practices agree to fundamental changes to their economic systems. As there is no prospect of that happening, any WTO negotiation would surely result in watered-down obligations and gray zones that could easily be exploited.
As readers of this blog will know, I disagree that non-market policies and practices which lead to overcapacity is a problem the WTO cannot address. Perhaps it can't be totally and completely addressed, of course, because that is unrealistic on most issues, but I think the WTO could contribute significantly here. In particular, a functioning dispute settlement system could make a lot of progress. To use that system most effectively, I would suggest that WTO Members keep three things in mind.
First, it's true that WTO disputes can take a long time, but often that is because a large number of measures and claims are combined in a single dispute. If a complainant takes that approach to formulating its complaint, it is likely to take a while for the panel to sort through the facts and the law. A better approach in the context of non-market policies and practices, in my view, is to bring a lot of smaller cases rather than one big one. Putting everything in one proceeding can bog panels down, and it would help to break the issues up so they can be dealt with by multiple panels.
Second, to make sure implementation happens, it's going to be necessary to bring DSU Article 21.5 compliance cases. Article 21.5 can and should be used in a broad manner in this regard. Any subsequent policies/measures with a close enough connection to the originally challenged measures would be covered.
Third, industry groups often lobby for narrow, sectoral WTO complaints, but the focus of efforts related to non-market policies and practices should instead be on broad systemic issues such as industrial subsidies, the behavior of SOEs, or the use of export credits. I would worry less about what specific industries want, and more about promoting a sound foundation for the trading system as a whole.
I don't expect new WTO complaints in this area any time soon, as it seems like key actors prefer a different approach at the moment (and also there's the problem of appeals into the void that still needs to be resolved). But eventually I suspect we will get to the point where it becomes clear that other approaches aren't working, at which time maybe people will take another look at the WTO dispute option.
As a final point, I want to offer a quick comment on this part of the communication: "... unless relevant Members benefiting from such practices agree to fundamental changes to their economic systems. As there is no prospect of that happening ... ." Here, I would want to know more about the fundamental changes the U.S. has in mind, and based on that we could think about the prospects of them happening.