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The Rules-Based, Multilateral Trade System Enables U.S. Innovation

The COVID-19 crisis is having an unprecedented impact on international trade at a time when the World Trade Organization (WTO) – guardian and principal arbiter of the global trade rulebook – is under significant pressure to reform elements of its key functions.

Despite statements from world leaders encouraging open markets, we are seeing a proliferation of trade-restrictive measures as governments confront concerns around supply chain security and access to essential goods and services. Developments related to the WTO have created additional uncertainty, including, most recently, news of an early departure by Director General Roberto Azevêdo. As we approach the dates during which the now-postponed twelfth WTO Ministerial Conference was set to take place, there is a continuing debate about the benefits of WTO membership to the United States. While there is a real and pressing need for reform, the WTO remains integral to U.S. leadership, growth, and innovation, particularly in the technology sector. The United States must, in turn, remain a leader in the WTO.

Promoting U.S. Growth and Leadership

Membership in the WTO plays to basic American strengths. It enables world-class U.S. firms and American workers to sell their goods and services to the 96 percent of the world’s population that lives outside the United States. It ensures that U.S. manufacturers can source components and services competitively, and that American families can enjoy affordable and high-quality food products and consumer goods from around the world. For example, it is estimated that the WTO has contributed to increased purchasing power of $1,300 to $2,000 per year for the average American family. And it allows the United States to advance key American values, including openness, transparency, and a commitment to the rule of law.

Supporting U.S. Exports of Goods and Services

These values, and the commitments they underpin, remain core to the continued success and innovation of the U.S. technology sector. Consider the impact of the WTO’s rules relating to trade in services. The General Agreement on Trade in Services, or GATS, requires WTO member economies to open their services markets to foreign competitors and to treat those companies in a fair and non-discriminatory way. According to U.S. Census Bureau data, U.S. services exports – a large proportion of which are digitally delivered – increased from $200 billion in 1994 to $845 billion in 2019.

The WTO agreements relating to trade in physical goods have also created significant market opportunities for U.S. companies, including those in the technology industry. These increases can be largely attributed to the general tariff reductions that countries promise to enact as a condition of being a WTO Member. In addition, the United States has benefited disproportionately from the conclusion and expansion of the Information Technology Agreement (ITA) – an agreement among half of the WTO’s Members that eliminates tariffs on 97 percent of global trade in information and communications technology (ICT) products. By reducing the price of ICT goods, the ITA has boosted U.S. export competitiveness, increased the availability of productivity-enhancing goods such as mobile phones, and reduced the import prices of computers and semiconductors by 66 percent since 1996. These benefits flow throughout the U.S. and other economies, to companies and workers in all economic sectors.

Enabling Data Flows and Digital Trade

WTO efforts related to data flows and digital trade also benefit U.S. consumers and firms across all sectors. While not yet reflected in a formal agreement, for more than two decades the WTO’s moratorium on the imposition of duties on electronic transmissions has essentially ensured that countries cannot apply tariffs to cross-border data flows. This directly benefits U.S. companies in every sector, enabling automotive companies to move data to organize production and distribution, insurance companies to write digital life and property policies, and technology companies to provide cloud computing services and online marketplaces across borders. The continued support of the moratorium by the vast majority of WTO members continues to prevent the emergence of an entirely new class of damaging trade barrier.

Additionally, negotiations through the WTO provide a critical opportunity to advance digital trade. If ongoing negotiations are successful, they will codify groundbreaking digital trade commitments like those contained in the U.S.-Mexico-Canada Agreement (USMCA) and the U.S.-Japan Digital Trade Agreement, and equip countries with the tools to counter a wide range of emerging measures restricting access to data, emerging technology, and internet services. U.S. leadership is essential in ensuring that the rules that govern trade in the modern economy are ambitious, effective, and inclusive.

Providing Enforcement for Commitments

Finally, the WTO is notable among international institutions in that its rules are, by and large, enforceable. Over the past 25 years, the WTO dispute settlement system has developed a level of credibility that causes most countries to follow its decisions most of the time. It has also broadly served U.S. national and commercial interests by fostering a legal environment in which businesses can plan and grow. As one metric of success, since 2002, the United States has challenged Chinese practices 23 times at the WTO without suffering a single loss. There are legitimate grievances with respect to the WTO Appellate Body, and we support the goals of improving the predictability, credibility, and effectiveness of the WTO’s dispute settlement system. In that spirit, we encourage all WTO members to take steps to protect its integrity and continuity – even where that might entail significant structural reform.

The Way Forward

To be clear, the WTO is not perfect. With one notable exception, the WTO has failed to deliver on one of its core functions by developing new rules covering all of its members. In addition, elements of the WTO dispute settlement system have received justifiable U.S. criticism for nearly two decades, and the United States’ ongoing trade dispute with China has underscored key unfair trading practices not currently covered by the WTO rulebook. However, these shortcomings should not obscure the merits and accomplishments of the WTO.

The WTO, and the rules-based international order it reflects, remains central to U.S. innovation, economic growth, and international leadership in a modern, global economy. At the same time, after a generation of being tested against a rapidly evolving economic environment the WTO has struggled to keep pace, showing the need for reform. There is no substitute for U.S. leadership. Adapting the WTO to meet the challenges of the next 25 years will require vision and pragmatism commensurate to that which the United States showed in building the multilateral economic order after World War II and in forming the WTO a generation ago. As an industry that has an enormous stake in the success both of the United States and of the multilateral trading system, we support active U.S. engagement toward ensuring that the WTO remains a relevant anchor of the global economy.

Public Policy Tags: Trade & Investment