Tai targets China, climate in call to reform WTO

The United States' top trade official today will make her strongest call yet to overhaul the World Trade Organization, desperate to convince allies that Washington is committed to the global trading body after former President Donald Trump hobbled the institution.

At a Washington speech with the WTO’s Director General Ngozi Okonjo-Iweala, U.S. Trade Representative Katherine Tai will declare that the next top-level meeting of the WTO in February should be focused on modernizing the organization and call on trading partners to bring ideas to address climate change and non-market economies like China, according to excerpts of the speech viewed by POLITICO.

“The WTO and the multilateral trading system’s rules were never meant to be immutable or static,” Tai will say in the speech at the Center for Strategic and International Studies this afternoon. “Right now, being committed to the WTO also means being committed to a real reform agenda.”

The speech is part of a campaign from the Biden administration to convince a skeptical world that the U.S. wants to revive the moribund WTO. One of the international organization’s most critical functions, adjudicating trade disputes, has been incapacitated since Trump blocked new judges to its highest dispute settlement panel in 2019. As part of that push, President Biden called on world nations this week at the UN General Assembly to reform the WTO as well.

“We’re going to continue our efforts to reform the World Trade Organization and preserve competition, openness, transparency, and the rule of law while, at the same time, equipping it to better tackle modern-day imperatives, like driving the clean-energy transition, protecting workers, promoting inclusive and sustainable growth,” Biden said on Tuesday.

Tai said in an interview this week that she hopes to make progress on reform soon, saying it is a “worthy goal” to reach an agreement on dispute settlement rules by 2024, as member nations set last year. That, she stressed, would rely on more than U.S. input in the 164-member, consensus-based organization.

But many trading partners remain unconvinced of U.S. intentions. Since blocking new judges for the WTO’s Appellate Body, the U.S. has refused to participate in an alternative dispute settlement process set up by European partners and others. At the same time, the Biden administration has passed industrial subsidies for clean energy — the core of its Inflation Reduction Act — that critics say violate WTO rules against state support for domestic industries.

Those actions have led some trading partners to conclude that the U.S. is best served by a dysfunctional WTO, despite reform rhetoric from the Biden administration. It’s a charge that Tai bristled at during the interview.

“I don't have enough time and money to waste resources in Geneva on a process that we don't actually believe in,” Tai said.

“When President Biden talks about it from the floor of the United Nations General Assembly, if we still have trading partners who want to question our seriousness, then I think the problem is those partners and it's not us,” she added.

But even as Tai calls for reform ideas, she and other U.S. officials have been unwilling to publicize their own preferences for how to reform the global trading body. With the U.S. reputation at the WTO so degraded, Tai and other U.S. officials have said that any official proposal endorsed by Washington would be rejected out of hand by many other trading partners — effectively dooming ideas in the consensus-based body.

Instead of making official proposals, the U.S. has put forward more than 30 informal ideas to reform the dispute settlement process during recent conversations in Geneva. Other WTO members say the Americans have pushed the idea of a two-tiered system where disputes would only advance beyond a first, non-binding judgment to a legally-binding Appellate Body stage if both parties agreed to move ahead. Tai resisted confirming or denying those plans in her interview.

“Let the process run,” she said, “because a fully functioning dispute settlement system that's accessible to all is about more than just these binary, yes or no [questions]. It's actually about a process where you get buy-in from everybody.”

In addition to discussions about dispute settlement, Tai also said the WTO should reconsider how it treats industrial subsidies from non-market economies like China, which has poured government money into key sectors like steel and clean energy technologies.

Those “non-market practices really go against the spirit of the WTO rules and have really tilted the playing field,” she said. “The WTO needs to contend and grapple with that reality.”

The key differences between the Chinese industrial subsidies and those enacted by the Biden administration, Tai said, is that the U.S. subsidies are transparent, whereas members don’t have clarity into China’s subsidy levels or decision making processes. And the U.S. actions come in response to those from Beijing.

“I know we get a lot of, ‘aren't you just imitating China?'” she said, referring to the clean energy and semiconductor subsidies passed under Biden. But those policies are “actually all defensive and corrective and built on a recognition that the playing field is not level right now, and that the trade is not fair.”

In Geneva, the U.S. wants the WTO to agree that countries have the unilateral right to decide when an action, such as former President Donald Trump's tariffs on steel and aluminum, is in its national security interest and therefore can't be challenged under WTO rules. That could allow the U.S. and other nations to more freely impose tariffs or subsidies to counteract China’s economic policies.

Tai said earlier this year that the WTO is on ”thin ice” when it questions members’ national security policies, but resisted being tied to specific plans in her interview. Instead, she said the WTO needs to “open up its eyes,” and “open up a conversation around that need to be corrective, and how do we re-attain a level playing field when it's gotten so tilted.”

In addition to subsidies, Tai said the WTO members should also consider changes to help nations address climate change and assist developing nations in industrialization. The aim, she said, should be to design rules that allow nations to support domestic clean energy industries and climate regulations without running afoul of international rules.

The WTO should avoid “holding its members back from exercising their rights — whether it's on the essential security side or their right to develop, or to correct for deindustrialization,” Tai said. “I think that we should figure out how to make the WTO part of the solution.”