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| Robert DeFrancesco |
The WTO and its predecessor, the General Agreement on Trade and Tariffs, formed the bulwark of the postwar new world order. The theory was that by increasing trade among nations and allowing countries like China and Russia to participate in and benefit from the enhanced reciprocal trade enjoyed by WTO members, the world would become more secure.
As these countries benefited from the increased international trade afforded by WTO membership, they would gradually assimilate and embrace more Western democratic ideals. If goods cross borders, tanks do not.
The reality of the last 20 years of the WTO as an institution shows that this is simply not the case. In many ways, allowing entry to China and then Russia, two nations that reject the very democratic ideals that are the underpinnings of a functioning WTO, was destined to fail.
Even before Russia's invasion of Ukraine, all the U.S.' major Western trading partners agreed that there must be significant systemic reforms to the WTO's structure and rules to make it a functioning institution. China and to a lesser degree Russia's presence in the WTO, along with the WTO's own rules, however, make reforming the institution virtually impossible. Therefore, any consideration of real reform must include eliminating the institution and starting over.
Those institutionalists who advocate for reforming the institution, or worse yet, creating a second institution outside the WTO to provide even greater benefits for those members, miss the point. Allowing countries like China and Russia who do not adhere to Western democratic ideals into the WTO, an organization that operates by consensus, makes reforming the institution, or in the case of Russia, expelling them as a member, difficult if not impossible.
Recently, in an opinion piece, former WTO Appellate Body member James Bacchus advocated that Russia should be expelled from the WTO under Article X of the agreement.[1] Bacchus admits that there is no specific legal provision in the WTO agreement that would allow a member to be expelled. Article X allows for a two-thirds vote by the members to amend the agreement, and if a member does not accept the amendment a three-quarters vote by the members will force adoption of the amendment.
Besides the obvious conceptual difference between amendment and expulsion, obtaining the necessary two-thirds and three-quarters approval takes time, and in a crisis such as Russia's invasion of Ukraine, action must be taken now. Working through the institution is simply not feasible. More importantly, it highlights the degree to which the institution even remains viable in today's world.
Recognizing the inherent infirmities of working through the institution, the U.S. Congress appears poised to act. There are currently at least three bills that have been presented in the U.S. Congress to formally revoke Russia's permanent normal trade relationship, or PNTR.
While each bill achieves the ultimate goal in different ways, the message is clear: Russia's naked aggression must be checked, and its invasion of Ukraine forfeits its right to any benefits of a rules-based trade regime.
The PNTR is the domestic mechanism by which the U.S. effectively recognizes its WTO commitments to China and Russia. Withdrawing PNTR status, as the U.S. government is currently considering in response to Russia's invasion of Ukraine, is akin to terminating the U.S. recognition of that country's WTO rights.
By terminating Russia's PNTR status, the U.S. would effectively be saying that as far as it is concerned, Russia is no longer a WTO member. It appears that the U.S. is not alone, as Canada is also considering withdrawing Russia's PNTR status.
All of this, however, serves to reinforce just how broken the WTO is as an institution. Because it is incapable of reforming itself, its members must act, and withdrawing WTO treatment by terminating the PNTR is a start.
As the world's largest economy with the world's largest market, the global trading structure functions because the U.S. agrees to and adheres to the concessions and commitments it has made under the WTO Agreement. Even when there are disputes, the U.S. has always in good faith come into compliance with dispute settlement decisions.
When the ability, however, to reform the system is blocked because consensus of all member nations is required to implement any change, the system is incapable of evolving.
By withdrawing PNTR status for certain WTO members, the U.S. is recognizing that it can no longer remain shackled to a framework that no longer functions properly. If the institution is unable to force reform because of the gridlock created by its own rules, then it is time to consider abandoning the institution. Withdrawing PNTR is a first step in creating a system for countries that adhere to Western democratic ideals.
Robert E. DeFrancesco is a partner at Wiley Rein LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] James Bacchus, "Boot Russia from the WTO," Wall Street Journal (Feb. 28, 2022).
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