Earlier this year, Robert Lighthizer, the Trump administration’s top trade official, told a Senate committee the WTO had changed “from a negotiation forum to a litigation forum”.
The US has accused the WTO of being too soft on China and curtailing its ability to protect American workers. Frustrated by the dispute resolution process, the Trump administration has avoided the WTO in pursuing the first phase of a trade deal with China.
More than two years of hostility between the two superpowers has wiped billions of dollars from financial markets and slashed global economic growth forecasts.
University of Oregon trade expert Yeling Tan warned the US-China deal could shift the balance from “rules-based globalisation” to “deals-based globalisation” and fuel power imbalances.
“That is obviously very worrying to many different countries and, I would imagine, firms as well, because that injects a whole lot of uncertainty,” she said.
The agreement, delivered on Friday, buoyed markets after the US said it would reduce tariffs in exchange for Chinese purchases of agricultural products.
Speaking at the Columbia-Harvard China and the World Program at the Australian National University on Tuesday, Professor Tan said from one perspective it was “better than nothing” because of the small move towards de-escalation of trade tensions.
“From another it is very worrying because it reinforces this shift towards deal-based globalisation,” she said. “To resolve bilateral disputes by purchasing more soy beans brings distortions into the trading system.”
Australia, backed by Brazil, lodged a formal complaint with the WTO in March, alleging India’s sugar subsidies to farmers had led to a market glut and depressed global prices. A WTO panel has been established to hear the case.
Australia also has a complaint on foot against several of Canada’s biggest provinces, alleging they had discriminated against Australian wine producers by forcing stores to effectively hide foreign wines in back corners or basements as a “store within store” to favour local produce.
These cases, along with disputes over A4 paper and tobacco plain packaging with Indonesia, are before the WTO.
Peter Van den Bossche, a former WTO appellate judge, said the shutdown had created a “law of the jungle” scenario in which powerful nations felt free to violate trading norms.
Stephanie Murphy, a Democratic congresswoman from Florida, said: “We are in a crisis moment for our global trading system.”
Jennifer Hillman, a senior fellow for trade at the Council on Foreign Relations, said small and medium businesses were scrambling to figure out the rules of global trade.
“That chaos and uncertainty is going to create a drag on economic growth because nobody wants to make an investment into a realm in which the rules are uncertain and there’s no telling what will happen to that investment,” she told a congressional hearing.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra
Matthew Knott is North America correspondent for The Sydney Morning Herald and The Age.