The Domestic Political-Economy of the WTO Crisis: Lessons for Preserving Multilateralism

Abstract

A major contributor to the crisis at the World Trade Organization (WTO) is the decline
in support for multilateralism in the United States. Three key problems with WTO design
precipitated the decline. First, incomplete rules related to trade remedies are interpreted
by the WTO’s Appellate Body (AB) in ways that conflict with a narrow set of sensitive
US domestic priorities. Second, existing WTO rules do not sufficiently account for nonmarket
economies, such as China. Third, remediation of these problems is infeasible due to
consensus-based decision-making in the WTO. These problems represent more fundamental
challenges induced by increased economic integration—loss of sovereignty and erosion
of democracy. To alleviate these problems in multilateral agreements we suggest: 1) a narrow
solution that carves out a special process for handling trade remedy disputes; 2) a broad
solution that relaxes the requirement of consensus for WTO reform, adopting some form
of supermajority voting or a sunset clause; 3) the reform of domestic consensus-building
institutions within the US that directly address the political-economy sources of voter discontent.

Keywords: World Trade Organization, WTO, multilateralism, Appellate Body, trade agreements

JEL Classification: F1, F10, F13, F53, F55