World Trade Organization In “Serious Trouble” Ahead of UAE Meeting; Might Not Be Salvageable

World Trade Organization

The World Trade Organization (WTO) may be on its last legs heading into its 13th Ministerial meeting in Abu Dhabi later this month. Despite its importance, and usefulness as a gathering place for 164 (soon to be 166) nations to discuss global commerce, the surprising takeaway from a House Ways and Means Subcommittee hearing on trade this week suggests the organization’s influence has peaked. The WTO is in decline. It may not even be salvageable, key witnesses told the Subcommittee on Feb. 7

“The WTO is completely divorced from what’s actually happening on the ground and what’s impacting everyday Americans. And so from that perspective, we need an ambitious negotiating agenda. And that’s not going to happen among 164, soon to be 166 members,” said witness Kelly Ann Shaw, a partner at Hogan Lovells and former Deputy Assistant to the President for International Economics in the Trump administration. [Testimony] “While I wish it were, that’s not possible in a consensus-based system. So we need to find like-minded allies who want to undertake that exercise with us.”

I think we need to have very low expectations for the WTO. Two-thirds of the members don't have to abide by the rules – least developed countries (two of which are joining now – East Timor and Comoros), self-declared developing countries, and of course the Chinese economic system, the largest trader in the world and the second largest economy in the world. Their system is fundamentally at odds with WTO norms. So that's the WTO right now. Fixing it is not a small endeavor. It is a significant one and I do recommend it. Nevertheless, the WTO is in serious trouble. And when it comes to the upcoming ministerial, there is very little, if anything, on the agenda that will advance U.S. interests. As someone who spent years working in and around the multilateral system, I wish I could deliver a more positive message. But the WTO in its current form is no longer capable of advancing mutually beneficial concessions or developing new rules that further facilitate trade, address new challenges, and deal with China's unfair trade practices.

The majority of the five witnesses were not happy with the WTO. The only one less critical was there to speak specifically about Covid vaccine intellectual property waivers. The three trade experts on the panel, and one witness representing rice exporters, all felt the WTO was more hindrance than help.

Dennis Shea, former Deputy U.S. Trade Representative and U.S. Ambassador to the World Trade Organization [Testimony] said the WTO was especially incompatible with China’s non-market economy. He said despite the Biden administration’s approach to WTO reform, “very little has changed in Geneva that would signal a sustained, upward trajectory for the organization.”

Shea said that looking ahead to the Abu Dhabi meeting in the United Arab Emirates, “we can expect the outcomes will be even less ambitious than those achieved at the 12 Ministerial, and from the U.S. perspective, that outcome should be perfectly acceptable.”

Rep. Greg Stuebe (R-FL-17) said the WTO is unpopular in his neck of the woods. 

“I can guarantee you the people in Southwest Florida don’t think we should be a part of the WTO. If I polled my district, they’d think why are we wasting millions of dollars. I just had my staff look up the numbers. So in 2022, the U.S. gave $23 million which was about 12 percent of the budget; China gave 10 percent of the budget; Germany, 7 percent of the budget; everybody else is less than 4 percent. We give the most money yet each of you say we basically — even the Democratic witnesses here say it — that we don’t get the best of results,” he said.

Some Republicans and Democrats still think the WTO can be reformed and that it is worth the effort. Though it is clear that both parties on the trade subcommittee lean more in favor of the U.S. economy, rather than waiting for WTO approval so as not to offend the so-called rules-based order. 

I urge the Biden administration to resist any efforts from our trading partners, including some of our closest allies, to agree to outcomes that do not fully reflect American interests, just for the sake of agreeing and getting along. Nonmarket practices are fundamentally inconsistent with the norms of the WTO. China, which continues to discriminate against American companies and subsidizes its companies, is the most egregious example. WTO reform needs to address these harmful nonmarket practices.

Sullivan turned to Shea and Shaw and asked about farming, a topic that took up much of Tuesday’s hearing.

“Tell me what I should tell my farmers in my state about why we should be in the WTO,” he said.

Shaw reminded him of the usual, that 96 percent of the world’s consumers live outside of the US and farmers need to export excess supply they don’t sell locally. The WTO has been dealing with agriculture and global ag subsidies since the Doha Round of talks. It’s an ongoing issue.

Shaw warned that despite WTO rules, if the U.S. did a deal with one country, that same country could do a deal with another country and that deal might end up undercutting the need for the U.S. deal, rendering it almost useless.

“So the multilateral system is not working,” Steube said.

Shaw responded, “It’s not working. We need markets, yes, but the WTO is a flawed way to do it, but I think it can do better.”

Steube then got to the heart of his question: “By better, do we dump more financial resources in the WTO?”

Shaw: “Not as the WTO stands today. That would be a massive waste of money.”

Shea agreed. “The WTO is a good place to discuss trade in a formal setting, that is the main value. Some positives come out of it. But I would never outsource U.S. economic security to this organization. We need to do what we need to do, and that’s just the way it is.”

Talk of make it or break at the WTO has been going on for years. But now it is a general consensus in Washington that the organization is stuck in the mud, and the U.S. can – and probably should – just ignore it.

Today, 65 percent of U.S. trade is covered exclusively by WTO rules, rather than rules from U.S. free trade agreements. American farmers, ranchers, small businesses and workers need strict enforcement of these trade rules to export competitively and survive in a competitive market that favors cheap labor, cheap currencies, and lackluster environmental rules.

American Fisheries and Farmers vs the WTO

Top of mind at the hearing was agriculture.

Subcommittee Chairman Adrian Smith (R-NE-48) said U.S. trade diplomats going to the UAE need to “drive a hard bargain” in favor of American fishermen that are getting blown out of the water by overfishing in Asia, and subsidies to fishing fleets.

At the last ministerial, WTO members reached an agreement on fisheries subsidies. There was some progress to limit subsidies for illegal, unreported and unregulated fishing. 

Rep. Jimmy Panetta (D-CA-19) said overfishing in Asia hurts domestic commercial fishing businesses. 

“We need to prioritize the inclusion of forced labor provisions in the fisheries subsidies agreement. Why have countries been so darn reluctant to agree to higher standards, especially when it relates to forced labor and overfishing? Have they ever given you any justifications for their opposition?” he asked Shea. “What is the impact of this problem on our fishing industry?”

(The U.S. is a net importer of seafood, recording a $7.926 billion deficit in 2023.)

Shea stated the obvious, saying if fishing fleets in Asia are using forced labor, that makes their seafood even cheaper to sell here. 

“A lot of major fish producers, or fisheries are in developing countries at the WTO. So because they are considered a developing country, they are constantly seeking carve-outs from the rules,” Shea said, though forced labor and overfishing should not be an exemption to any rule. Clearly, the WTO is not in the business of policing such things, and is hamstrung to act minus a trade case victory for the victim. That’s hard when the WTO doesn’t have a fully functioning trade dispute settlement body at this time.

“We get 92 percent of our seafood from overseas and it’s done with some of these bad practices. What do you think is going to happen with the second agreement of fisheries,” asked Rep. Greg Murphy (R-NC-3)

“We’re not the only ones at the table and as of now it seems very unlikely that we’re going to get any outcome on overcapacity overfishing subsidies which is really the heart of the problem,” Shaw said.

Full Committee Chair Jason Smith (R-MO-8) noted that the fishing agreement never included important provisions on forced labor and subsidies that contribute to overcapacity.

“There has also been no progress on agriculture overall, even as many nations undermine the competitiveness of our farmers and growers with unfair and protectionist barriers,” the Missouri Congressman said. 

He pivoted away from seafood imports and to Missouri rice farmers who generate some $150 million to the state’s coffers each year. They blamed Indian subsidies on rice for their loss of markets in Asia. 

Bobby Hanks, CEO of Supreme Rice and a Chairman at the USA Rice Foundation said the support Indian rice farmers get means American rice farmers are getting priced out of Asian markets. [Testimony]

“We compete with them in many countries, and the market in those countries is becoming inaccessible to us because of their cheap subsidies flooding into their rice production, and that correspondingly flooding into those markets,” Hanks said.

Rep. Don Beyer (D-VA-8) brought up an important issue regarding subsidies in India. “Why can’t India just declare the protection of rice growing and rice farmers a national security matter?”

Bruce Hirsh, Founder of international trade consultancy Tailwind Global Strategies, LLC [Testimony] said they could do that.

“This option has been on the books since 1947. The U.S. has taken this position ever since. And what held it back really from becoming this kind of loophole was this mutual recognition, this norm that it should not be overused,” he said. “The U.S. has never denied when a member invokes national security. Once you do that, this is frankly the end point of any dispute.” 

The U.S. invoked national security for imposing steel and aluminum tariffs.


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