Dani Rodrik wonders why the U.S. has chosen to cede so much sovereignty to the WTO over trade (Isn't the WTO just so amazing?, Dec 20). I think its wrong to say there has been a significant surrender of sovereignty:
"The US must do more to eliminate billions of dollars in illegal subsidies to its cotton farmers" writes the FT. Who says? A dispute resolution panel of the World Trade Organization. And guess what: the U.S. may well grumble and choose to appeal, but in the end, it will have to act. Just as it did on earlier occasions, when it had to bring its tax regime and environmental regulations into line with WTO rules following similar procedures.
Whether you like it or not, the WTO is the only international organization in existence that actually makes the U.S. do what it would not otherwise have done on its own. No other organization has such power. I would love it if somebody would come up with a sensible story as to why the U.S. has ceded so much power in trade, while zealously guarding its sovereignty and right to unilateral action in every other domain.
I disagree that "the U.S. will have to act," and with the implication that the U.S. has ceded significant sovereignty over trade. One of his commenters, David K, has the appropriate response:
This isn't the WTO telling the U.S. what to do, this is the WTO reminding us that we made certain commitments in exchange for other countries making similar commitments, and if we want to be part of the global trading system we should live up to those commitments. It's not a question of sovereignty. If we want to keep agricultural subsidies that don't comply with WTO rules that we agreed to, we can either compensate other countries to keep those subsidies, or withdraw from the WTO. But then we can't expect any other countries to live up to their commitments if we can't live up to ours.
The WTO doesn't have the authority to tell the U.S. what to do. The Constitution gives Congress the authority to regulate commerce with foreign nations. Congress doesn't (can't) delegate this power. The Supreme Court would stop it from doing so. Moreover, as Robert Lawrence points out (Crimes and Punishments? Retaliation under the WTO, Peterson Institute),
Under US law, international treaties have the same authority as federal law, which implies that Congress can pass laws that violate US treaty obligations in precisely the same way it can pass new laws that conflict with earlier laws. In particular, Congress can legally pass trade measures that violate the WTO. Congress may thus later legally deny what it has previously given.
If the WTO's dispute settlement procedures indicate that a U.S. law is in violation of the agreement only Congress can decide whether or not to change the offending laws. Congress doesn't have to. But if it doesn't we have to realize that other countries that made concessions to us, in exchange for concessions they thought we had made to them, can take their concessions back. We'd have to live with that, but there is not the same thing as a loss of sovereignty.
The WTO will not, in general, try to penalize a country that loses a dispute, or even try to make the plaintiffs whole. It will simply allow the plaintiffs to withdraw concessions that are estimated to be equivalent to what they've lost by the defendant's actions.
Lawrence again:
In sum, claims that the WTO authorizes penalties are (with the exception of export subsidies) false. Those who make this claim forget that violators have in principle failed to keep their part of a deal for which they received concessions from the plaintiffs. The WTO allows rebalancing through suspension of concessions to allow the plaintiff to redress some of the harm from the breach, but it does not permit sanctions. Such suspension also provides countries with a de facto opt-out mechanism that allows them to avoid compliance and is thus also a mechanism for dealing with the dangers of excessive judicial activism.
There does appear to be an export subsidy involved in the cotton case, but it is only part of the situation (WTO tells US to act on illegal cotton subsidies, Frances Williams, Financial Times, Dec 19):
In response to the 2005 WTO cotton verdict, the US scrapped or amended programmes considered to constitute illegal export subsidies. However, the panel yesterday said the US had not gone far enough in reforming export credit guarantees and had failed to tackle two other trade-distorting subsidies: marketing loans and countercyclical payments that compensated farmers for low prices.
Rodrik says that in the end "the U.S. will have to act." Lawrence points out that sovereignty might not mean legal authority - the definition implicit in the discussion above - but ultimate power to compel action. The U.S. may have to act, but it won't be the WTO or even Brazil that compels action, it will be the domestic economic interests hurt by the withdrawal of Brazilian concessions.
There is another way to interpret Rodrik's question, which I think is more meaningful - why has this dispute settlement mechanism emerged in trade policy but not for the creation of other international public goods, like environmental treaties.
I've obviously been reading Lawrence recently. This post is based on his chapter 6.
Minor edits Dec 22.
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