The WTO’s national security ‘thin ice’ moment could shatter reform talks

The already-beleaguered World Trade Organization dispute settlement system suffered new blows in December when multiple panels found that U.S. actions were not justified on national security grounds, including U.S. tariffs on steel. 

The United States wasted no time in rejecting the findings, with U.S. Trade Representative Katherine Tai commenting that the WTO was “on very, very thin ice,” prompting angry reactions in Europe. The cases have made the critical work of restoring a consensus on WTO reform considerably more difficult. 

While reactions to the panel decision and its aftermath have focused on the Biden administration’s rejection and what it portends for the WTO, that reaction would have been the same regardless of the product and circumstances, and every U.S. president since Truman would have done the same. Any effort to move beyond this new crisis needs to start with recognizing that fact and accepting that bringing such damaging and shortsighted cases should be avoided in the future.

From the outset of the WTO’s predecessor, the 1947 General Agreement on Tariffs and Trade (GATT), the United States has been clear in its position that a party to the GATT and WTO may judge for itself when its national security interests justify raising tariffs or otherwise disregarding multilateral trade rules. Trade experts should not be second-guessing such decisions. The United States was not alone in taking this position; at various times, many other members have agreed, including some who would later challenge the U.S. steel tariffs such as the European Union and Norway. 

This position was minimally disruptive to the trading system because of a strong norm that national security was to be invoked only rarely, and because creative trade diplomacy contained the fallout when it was. That norm was broken during the Trump years, not only when he initiated several national security investigations ranging from steel to autos, but when others, including China and Russia, increasingly restricted trade in the name of national security. 

In response, WTO parties began to litigate the fundamental question of whether national security decisions could be reviewed. This was a lose-lose proposition since a clear finding for the U.S. position could open the door for abuse. And a finding against the U.S. position would almost certainly be disregarded, to the detriment of the system’s credibility. 

But even more fundamentally, the decision to bring the case was pointless. The same relief — the right to raise tariffs on U.S. goods — was available without touching this third-rail issue. When a WTO member fails to implement an adverse decision, the member bringing a case is permitted to raise duties on the losing party’s goods. But the U.S. has in the past acknowledged that others may retaliate against national security measures and it was willing to litigate the amount. That solution was likely available here and would have spared the fallout from having the WTO second guess a member’s national security decisions. That this solution was not pursued was a failure of diplomacy, and only reinforced the U.S. concern that the system has encouraged litigation over negotiation.

The national security decisions could not have come at a worse time for the WTO. WTO members have been discussing reforms that might lead to the restoration of the organization’s dispute settlement system to full functionality. The Trump administration hobbled the system by blocking appointments to its appellate body, acting on long-standing, bipartisan U.S. concerns that the body was overreaching its authority and making law. The path to restoring the WTO’s dispute settlement function lies in assuring the United States that the system can be trusted to respect its limits and that attempts by members to push beyond those limits through litigation will be rejected. The decision to bring the national security cases and the outcome of those cases is the opposite of reassuring. 

While these cases have complicated the path toward restoring the dispute settlement system, the effort must continue. For all its flaws, the system has played an important role in resolving and containing disputes. One need look no further than the trade wars unleashed by the Trump administration to see the value in a system that heads off escalating tit-for-tat duties between countries insisting on their own rectitude. And the system lends credibility to the multilateral rules that are the embodiment of international economic cooperation, and which our allies continue to insist serve as the baseline for our trade relations, even as we respond to new security and economic challenges that may require deviating from free-trade orthodoxy. 

Some in the United States may conclude from the national security decisions that the dispute settlement system should not be revived. But as the U.S. response illustrates in the clearest terms, a functioning dispute settlement system would not prevent the United States and its allies from going outside the system to take actions necessary to address China’s predatory targeting of key sectors, nor would it prevent the United States from addressing climate change or strengthening U.S. manufacturing. 

The WTO has no army. It has no black helicopters. Dispute outcomes are not U.S. law. The U.S. and others always can choose whether to comply, understanding that the complainant may raise duties on their goods if they do not — an option available in any event. But the system limits that retaliation to the impact of the inconsistent measure, avoiding cascading retaliation cycles. And the system brings stability to the vast majority of commercial transactions not implicated by the new challenges facing the global community.

Some U.S. trading partners may likewise conclude from the U.S. reaction to the national security decisions that the United States has no interest in multilateral rules or enforcement mechanisms. But any U.S. administration would have done the same, even during the decades when the United States was at the forefront of promoting the multilateral trading system. The outcomes should instead serve as a wake-up call that WTO members need to exercise greater restraint in litigating. Similar restraint must be directly built into the WTO enforcement mechanism itself so that it buttresses support for the system, rather than undermines it, for example, by codifying the past practice of limiting national security litigation to cover only the amount of retaliatory measures. 

Bruce Hirsh is principal at Tailwind Global Strategies. He previously served in senior positions at the Office of the U.S. Trade Representative and the Senate Finance Committee.