Wednesday, June 8, 2011

Crazy Thought: Maybe, Just Maybe, the Multilateral Trading System Works

One of the more fashionable claims out there right now is that the World Trade Organization (WTO), and the multilateral trading system more generally, is on its last leg.  Critics on the left and right claim that this inevitable demise is due in large part to (i) the embarrassing and economically harmful implosion of the Doha Round negotiations, and (ii) China's refusal to comply with global trade rules and WTO Members' inability to do anything about it.

Yesterday's USTR announcement regarding Chinese wind power subsidies, however, would seem to indicate otherwise.  On both counts.

I've rebutted each of these arguments in previous posts.  On the former, I've noted that, while the Doha Round is certainly a tragic victim of really boneheaded politics, the existing WTO/GATT rules are a great baseline, nations are still itching to join the WTO (for pretty obvious economic reasons), and the global trade body is and will continue to be a uniquely peaceful and (relatively) efficient system of settling global trade disputes.  On the latter complaint, I've pointed out China's recent success in dispute settlement and (relative) willingness to comply with adverse WTO decisions.

And that brings us back to the USTR announcement, which provides further support for my arguments.  Here's Bloomberg with the summary:
China agreed to end hundreds of millions of dollars of subsidies to wind-power manufacturers following a complaint the U.S. filed at the World Trade Organization, the U.S. Trade Representative’s Office said.

China’s Special Fund for Wind Power Manufacturing illegally required aid recipients to use Chinese-made parts, the U.S. said in a case filed in December at the WTO after getting a complaint from the United Steelworkers union. Individual grants were for as much as $22.5 million.

“Subsidies requiring the use of local content are particularly harmful and are expressly prohibited under WTO rules,” U.S. Trade Representative Ron Kirk said today in a statement. “We challenged these subsidies so that American manufacturers can produce wind turbine components here in the United States and sell them in China.”
As you may recall, the US WTO complaint originated from a petition by the US Steelworkers Union under Section 301 of US trade law.  As I noted last year, the USW petition was sure to have some merit given the Chinese government's rampant support for its "green" manufacturers, and the US WTO complaint smartly targeted "prohibited" import substitution subsidies - pretty low hanging fruit in the trade world.

So to recap: the USW filed a petition seeking USTR action (which, by law, had to go through the WTO) against Chinese "green manufacturing" subsidies; USTR reviewed the petition and then filed a WTO complaint against the most trade-distorting (and easily provable) Chinese subsidies targeted by the USW; and, after several weeks of WTO-required bilateral consultations, the Chinese government voluntarily agreed to eliminate the subsidies, to the tune of hundreds of millions of dollars.

Wow.  It's almost like the rules-based trading system works or something.  Weird.

Now, if only we could get USTR to challenge the United States' own trade-distorting green subsidies.  Sigh.

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