U.S. and WTO Could Be Headed for Breakup, Wu Says

Prof. Timothy Wu said the WTO's challenge to U.S. tax policy could be the beginning of a "messy breakup."

While it may look from the sidewalk like they share a happy home, a breakup may be brewing between the United States and the World Trade Organization, according to law Professor Timothy Wu. The WTO's challenge to U.S. tax policy "may be the beginning of a messy breakup," he said at the J.B. Moore Society for International Law lunch speaker series March 25.

"From all external appearances the relationship is going well," Wu said. "Both major parties support the WTO. The only criticism comes from the extremes on both sides, Ralph Nader and Pat Buchanan and the Seattle protestors."

But Wu considers the early years of the United Nations instructive in how Americans can fall out of love with international organizations. "I could be totally wrong," Wu cautions about his prediction, but he clearly doesn't think so.

"International organizations tend to come into being in reaction to something," he said. "The U.N. was the receptacle for the idea that wars like World War II would never happen again. It was an idealistic period. The U.N. was focused on peace and based on a new idea for security arrangements. In the 1950s and '60s, there was strong U.S. support and the U.N. is, after all, headquartered in New York."

Things soured in the U.N.-U.S. relationship with the addition of the former colonial territories as independent states. The new members eroded U.S. control of the U.N. General Assembly, which in the 1960s and '70s became increasingly perceived in the U.S. as anti-American. The U.S. then began to abandon the U.N. and showed less willingness to fund it. Today, "the U.N. is no longer the U.S.'s receptacle for its aspirations for the world," Wu said.

"In the '90s the WTO became the receptacle for American post-Cold War aspirations," he said. "The U.S. hoped economic restructuring across the world would bring it into greater conformity with U.S. goals."

Now new factors are arising that may lead to the WTO being perceived as anti-American. The WTO appellate body is on a collision course with U.S. trade policy, Wu pointed out. It has clashed with U.S. environmental regulation and tax policy and now is trying to change U.S. tax policy. The WTO is using pressure tactics to question U.S. policy toward Cuba and Burma. All of these cause American political resentment.

"The WTO is asserting sovereignty on economic issues. The U.S. is a country that doesn't like being told what to do," Wu said.

New WTO members, especially China, are increasing the likelihood of WTO decisions being understood here as anti-American.

Meanwhile, U.S. steps toward regional and bilateral trade agreements, such as in Latin America, mean the United States has instruments that could make WTO treaties less important.

Furthermore, there is not much in the Doha Round, the next stage of world trade negotiations, for the United States, Wu said. "For the industries that the U.S. cares about, the tariffs are already gone through earlier negotiations, and the Uruguay Round gave the U.S. what it wanted on intellectual property law."

"These look like a major wedge developing between the U.S. and the WTO to me," he said.

"There is a general tendency in the U.S. not to like international organizations that are not controlled by the U.S. The U.S. likes bilateral agreements because its power makes it the party likely to control the outcome."

Wu said the United States is unlikely to make a formal break with the WTO, rather it would "begin to ignore it and work around it and simply let the Doha Round fail."

He said there is also a possibility that the WTO would be seen as pro-European, which would amount to it being perceived as anti-American by Americans.

Even if the WTO were to oppose U.S. aims, would other nations support WTO rulings? "It's not clear that countries would go along with WTO sanctions against the U.S. and risk bad trade relations with the U.S. and possible U.S. tariffs against them. It's unlikely that the European Union would demand American compliance except where it was in the EU's self-interest. Is the EU willing to risk a trade war with the U.S.? Not for routine disputes.

"The problem for the U.S. is that the WTO appellate body has set itself up as the final say for how the General Agreement on Tariffs and Trade and its exceptions should work," Wu said. "But what the U.S. really wants is a world in which everyone else is bound to WTO decisions and the U.S. is not."