Perspectives

Pascal Lamy: "The WTO must be able to exist without Donald Trump"

The US president threatens to drag the United States out of the WTO. Interview with the former Director General of the World Trade Organization.

Interview by Marie Bordet 2 September 2018.

Le Point: On Thursday 30 August, President Trump said the United States could leave the World Trade Organization (WTO). His precise words were: “If they don't shape up, I would withdraw from the WTO”. What do you think about these words?

Pascal Lamy: There are two possible ways of interpreting what Trump said, so we have to be prepared for two possible situations. Perhaps he wants to withdraw his country from the WTO, as he did with the Paris climate agreement. Generally speaking, he would venture to strike out any international discipline that limits the sovereignty of the United States and its ability to go back to bilateral relations. In terms of international trade, that's called mercantilism – up with exports, down with imports! Trade is seen as being all about power relations between sovereigns rather than about optimizing production systems based on the comparative advantages of all parties. This doctrine has gradually disappeared over the past three centuries.

Le Point: What's the other option?

Pascal Lamy: It may be a negotiation tactic. He's telling the rest of the world: I demand that you change some WTO rules that I consider detrimental to the United States. If you don’t, I quit. You could call that a form of blackmail. It’s curious, by the way, because when Trump refers to the WTO, he says "if they don’t shape up". He talks about it as if the United States were outside the WTO, even though Washington was one of its founders.

Which WTO rules is Trump referring to? What does he want to change?

He thinks the WTO’s current rules exert more discipline on the Americans than they do on the Chinese (who joined the organization in 2001), and in certain cases that’s not an incorrect statement. There are indeed areas where the gaps in the WTO’s net are wider. This is particularly the case with subsidies. Despite its accession to the WTO, the Chinese government is still subsidizing a part of the economy or keeping it under state control. This problem has been identified for some time now but has not been seriously addressed due to a lack of real willingness on various sides to negotiate tighter WTO rules.

Should the WTO see this as a negotiation weapon or a real threat of departure? What should its attitude towards Trump be?

My feeling is that in cases of uncertainty, you have to be prepared for both options. As regards the reform of the rules of international trade, the European Union has already taken matters into its own hands. With help from Japan, it’s talking with the Americans on one side and the Chinese on the other. Although the outcome of this initiative remains uncertain, work on finding a way out is in progress, but we must also be ready for the other hypothesis. Trump might withdraw from the WTO because the negotiations have not achieved their purpose or because he quite simply wants to get out of the system altogether. The WTO has to be able to exist without the Americans. That, of course, requires plenty of imagination because the Americans have been the system’s co-pilots since 1947. But we have to defend multilateralism and avoid a return to the law of the jungle. And here as elsewhere, the Europeans are on the front line in this battle.

What would a departure from the WTO mean for the Americans?

If the Americans leave the WTO, they will lose their anti-protectionism insurance. To put it bluntly, it would mean that anyone could do anything with American products. Any country could impose whatever import duties it chose on them. For the United States, it would be a sign of total deglobalization, almost a return to autarky! The consequences would be considerable; imagine, for example, the effect on intellectual property. If the Americans were no longer covered by the WTO rules on intellectual property, anyone could copy an original idea, a piece of software, or an invention from America. American creators would have recourse only to their own courts; they would be able to defend themselves only in their own territory.

Would such an exit be an economic disaster for the United States?

I think it would be. But let’s try to understand Trump’s thinking, let’s assume there’s a theory behind his whims: He wants deglobalization, he’s convinced that it will benefit the United States. He thinks a power relationship will do him some good. Without the WTO, what would prevail would be the law of the jungle, and that's where Trump thinks he is at his best! I think he’s wrong though; I think the United States would be bound to suffer economically. To put it more broadly, I’m convinced that a world regulated by law is less dangerous than one governed by the law of the strongest.

Donald Trump is opposing a new term for a judge of the Court of Appeal of the WTO Dispute Settlement Body. Can Trump jeopardize the functioning of the WTO by blocking a nomination?

There’s nothing in the WTO regulations which say that decisions on the appointments of judges have to be unanimous. The consensus rule has applied up to now, but it could also be seen as a procedural decision by the majority. With Trump, everything is always somehow contradictory. On the one hand, he blocks the appointment of judges, and on the other, he is bringing a lot of lawsuits before those very judges against WTO member countries which he thinks aren’t following the rules!

Trump also claims that the United States gains little from having recourse to the WTO Dispute Settlement Bodies...

“Fake news!” as he himself would say. There’s not a word of truth in it. Americans win most of the cases they bring and lose many of those against them, like the Europeans, the Chinese, and others. This idea that they get a bad deal out of the dispute resolution is utterly false.