Economist on the world trade organization: “reform is overdue”.

The U.S. blockade is plunging the WTO into its deepest crisis. Yet it is only an expression of years of failures, says economist Felbermayr.

Standstill: red traffic light in front of the headquarters of the World Trade Organization in Geneva Photo: rtr

site: Mr. Felbermayer, the U.S. is blocking the WTO’s most important lever by preventing the appointment of new appellate judges. Now the body is unable to trade. Is this the end of the WTO?

Gabriel Felbermayer: No, it does not mean the end of the WTO. The second instance in the dispute settlement process is now blocked. But other dispute settlement instruments are still intact. Dispute settlement will now simply shift to other WTO formats.

43, is President of the Kiel Institute for the World Economy and Professor of Economics at Christian Albrechts University in Kiel.

But the dispute arbitrators have been the most important lever for resolving trade disputes.

Yes, the WTO is facing an existential crisis. But it started long before that. This dispute is just another expression of the WTO’s failure to give itself a contemporary set of rules 25 years after its founding.

So the U.S. blockade is not solely due to Trump’s policies?

No, not at all. The Americans’ blockade attitude began under Obama. The Americans are also not alone in their criticism at all. That’s just what many think now because Trump shouts the loudest and uses the most awful vocabulary. The WTO’s Court of Appeals is a very legal body; it does not deal much with economic issues. The procedural rules are also old. No question, Trump goes much further with his criticism. He wants to close bilateral deals and uses every opportunity to damage the WTO. But the fact that it has come to this is also due to the fact that the WTO has already failed to modernize itself. This is now taking its revenge.

In the current trade dispute, too, the two belligerents China and the USA do not really seem to take the WTO seriously.

This is only logical. Even if the WTO were to declare the American tariffs on steel and aluminum illegal, it would have no means of enforcing sanctions. And if geostrategic rivalries beyond trade law finesse are at the forefront, arbitration rulings are all the more ineffective. When the WTO was founded in 1995, no one thought that geostrategic rivalries would dominate world trade. At that time, the belief that the principles of liberalism in the form of democracy and a free market economy would finally prevail everywhere prevailed – a misjudgement.

WTO Director General Roberto Azevêdo hopes for a jolt from the shock. Do you think that the blocking attitude of the USA will now give the demanded reform momentum?

It is to be hoped, but I am not sure that it will really happen. Because the key question is what form reform might take that brings both the Americans and the Chinese to the table. Americans no longer want an overarching organization, but long for a return to a pre-1995 world when world trade rules were much less binding.

In its early days, the WTO was mainly under fire from left-wing forces, the globalization critics. Their criticism at the time was that the WTO would strengthen the already prosperous industrialized nations even more at the expense of the weak countries. The opposite now seems to be the case.

Exactly the same. The strong growth of a middle class not only in China, but also in Southeast Asia, and to some extent also in South America, has a lot to do with the deepening of the division of labor. And that, in turn, was linked to greater legal certainty through the WTO. In the U.S. and parts of Western Europe, globalization has led to some dislocation in the middle class, but not in the developing countries. There, the middle class has grown. At the same time, the WTO developed into a relatively democratically organized institution. Every country has a right of veto. If we now have a return of power politics, it will be at the expense of the small countries.