World Trade Organization: Overview and Future Direction
Released: 2019-02-15T00:00:00

Introduction

The World Trade Organization (WTO) is an international organization that administers the trade rules and agreements negotiated by its 164 members to eliminate trade barriers and create nondiscriminatory rules to govern trade. It also serves as an important forum for resolving trade disputes. The United States was a major force behind the establishment of the WTO in 1995 and the rules and agreements that resulted from the Uruguay Round of multilateral trade negotiations (1986-1994). The WTO encompassed and expanded on the commitments and institutional functions of the General Agreement on Tariffs and Trade (GATT), which was established in 1947 by the United States and 22 other nations. Through the GATT and WTO, the United States and other countries sought to establish a more open, rules-based trading system in the postwar era, with the goal of fostering international economic cooperation, stability, and prosperity worldwide. Today, the vast majority of world trade, approximately 98%, takes place among WTO members.

The evolution of U.S. leadership in the WTO and the institution's future agenda have been of interest to Congress. The terms set by the WTO agreements govern the majority of U.S. trading relationships. Some 65% of U.S. global trade is with countries that do not have free trade agreements (FTAs) with the United States, including China, the European Union (EU), India, and Japan, and thus rely on the terms of WTO agreements. Congress has recognized the WTO as the "foundation of the global trading system" within U.S. trade legislation and plays a direct legislative and oversight role over WTO agreements. U.S. FTAs also build on core WTO agreements. While the U.S. Trade Representative (USTR) represents the United States at the WTO, Congress holds constitutional authority over foreign commerce and establishes U.S. trade negotiating objectives and principles and implements U.S. trade agreements through legislation. U.S. priorities and objectives for the GATT/WTO are reflected in trade promotion authority (TPA) legislation since 1974. Congress also has oversight of the USTR and other executive branch agencies that participate in WTO meetings and enforce WTO commitments.

The WTO's effectiveness as a negotiating body for broad-based trade liberalization has come under intensified scrutiny, as has its role in resolving trade disputes. The WTO has often struggled to reach consensus over issues that can place developed against developing country members (such as agricultural subsidies, industrial goods tariffs, and intellectual property rights protection). It has also struggled to address newer trade barriers, such as digital trade restrictions and the role of state-owned enterprises (SOEs) in international commerce, which have become more prominent in the years since the WTO was established. Global supply chains and advances in technology have transformed global commerce, but trade rules have failed to keep up with the pace of change; since 1995 WTO members have been unable to reach consensus for a new comprehensive multilateral agreement. As a result, many countries have turned to negotiating FTAs with one another outside the WTO to build on core WTO agreements and advance trade liberalization and new rules. Plurilateral negotiations, involving subsets of WTO members rather than all members, are also becoming a more popular forum for tackling newer issues on the global trade agenda.

The most recent round of WTO negotiations, the Doha Round, began in November 2001, but concluded with no clear path forward, leaving multiple unresolved issues after the 10 th Ministerial conference in 2015. Efforts to build on current WTO agreements outside of the Doha agenda continue. While WTO members have made some progress toward determining future work plans, no major deliverables or negotiated outcomes were announced at the 11 th Ministerial conference in December 2017 and no consensus Ministerial Declaration was released.

Many have concerns that the growing use of protectionist trade policies by developed and developing countries, recent U.S. tariff actions and counterretaliation, and escalating trade disputes between major economies may further strain the multilateral trading system. The WTO is faced with resolving several significant pending disputes, which involve the United States, and resolving debates about the role and procedures of its Appellate Body, which reviews appeals of dispute cases.

In a break from past Administrations' approaches, U.S. officials have recently expressed doubt over the value of the WTO institution to the U.S. economy and questioned whether leadership in the organization is a benefit or cost to the United States. While USTR Robert Lighthizer acknowledged at the most recent Ministerial that the WTO is an "important institution" that does an "enormous amount of good," the Trump Administration has expressed deep skepticism toward multilateral trade deals, including those negotiated within the WTO. In remarks to the Asia-Pacific Economic Cooperation (APEC) forum in November 2017, President Trump stated the following: "Simply put, we have not been treated fairly by the World Trade Organization.... What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty, and make meaningful enforcement practically impossible." President Trump has also at times threatened to withdraw the United States from the WTO. In addition, amid concerns about "judicial overreach" in WTO dispute findings, the Administration is currently withholding approval for judge appointments to the WTO Appellate Body—a practice that began under the Obama Administration. While many of the U.S. concerns are not new and are shared by other trading partners, questions remain about U.S. priorities for improving the system.

With growing debate over the role and future direction of the WTO, a number of issues may be of interest to Congress, including the value of U.S. membership and leadership in the WTO, whether new U.S. negotiating objectives or oversight hearings are needed to address prospects for new WTO reforms and rulemaking, and the relevant authorities and the impact of potential WTO withdrawal on U.S. economic and foreign policy interests.

This report provides background history of the WTO, its organization, and current status of negotiations. The report also explores concerns some have regarding the WTO's future direction and key policy issues for Congress.

Background

Following World War II, nations throughout the world, led by the United States and several other developed countries, sought to establish a more open and nondiscriminatory trading system with the goal of raising the economic well-being of all countries. Aware of the role of tit-for-tat trade barriers resulting from the U.S. Smoot-Hawley tariffs in exacerbating the economic depression in the 1930s, including severe drops in world trade, global production, and employment, the countries that met to discuss the new trading system considered open trade as essential for peace and economic stability.

The intent of these negotiators was to establish an International Trade Organization (ITO) to address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. Unable to secure approval for such a comprehensive agreement, however, they reached a provisional agreement on tariffs and trade rules, known as the GATT, which went into effect in 1948. This provisional agreement became the principal set of rules governing international trade for the next 47 years, until the establishment of the WTO.

General Agreement on Tariffs and Trade (GATT)

The GATT was neither a formal treaty nor an international organization, but an agreement between governments, to which they were contracting parties. The GATT parties established a secretariat based in Geneva, but it remained relatively small, especially compared to the staffs of international economic institutions created by the postwar Bretton Woods conference—the International Monetary Fund and World Bank. Based on a mission to promote trade liberalization, the GATT became the principal set of rules and disciplines governing international trade.

The core principles and articles of the GATT (which were carried over to the WTO) committed the original 23 members, including the United States, to lower tariffs on a range of industrial goods and to apply tariffs in a nondiscriminatory manner—the so-called most-favored nation or MFN principle (see text box ). By having to extend the same benefits and concessions to members, the economic gains from trade liberalization were magnified. Exceptions to the MFN principle are allowed, however, including for preferential trade agreements outside the GATT/WTO covering "substantially" all trade among members and for nonreciprocal preferences for developing countries. GATT members also agreed to provide "national treatment" for imports from other members. For example, countries could not establish one set of health and safety regulations on domestic products while imposing more stringent regulations on imports.

Although the GATT mechanism for the enforcement of these rules or principles was generally viewed as largely ineffective, the agreement nonetheless brought about a substantial reduction of tariffs and other trade barriers. The eight "negotiating rounds" of the GATT succeeded in reducing average tariffs on industrial products from between 20%-30% to just below 4%, facilitating a 14-fold increase in world trade over its 47-year history (see Table 1 ). When the first round concluded in 1947, 23 nations had participated, which accounted for a majority of global trade at the time. When the Uruguay Round establishing the WTO concluded in 1994, 123 countries had participated and the amount of trade affected was nearly $3.7 trillion. As of the end of 2018, there are 164 WTO members, and trade flows totaled $22.6 trillion in 2017.

During the first trade round held in Geneva in 1947, members negotiated a 20% reciprocal tariff reduction on industrial products, and made further cuts in subsequent rounds. The Tokyo Round represented the first attempt to reform the trade rules that had existed unchanged since 1947 by including issues and policies that could distort international trade. As a result, Tokyo Round negotiators established several plurilateral codes dealing with nontariff issues such as antidumping, subsidies, technical barriers to trade, import licensing, customs valuation, and government procurement. Countries could choose which, if any, of these codes they wished to adopt. While the United States agreed to all of the codes, the majority of GATT signatories, including most developing countries, chose not to sign the codes.

The Uruguay Round, which took eight years to negotiate (1986-1994), proved to be the most comprehensive GATT trade round. This round further lowered tariffs in industrial goods and liberalized trade in areas that had eluded previous negotiators, notably agriculture and textiles and apparel. It also extended rules to new areas such as services, trade-related investment measures, and intellectual property rights. It created a trade policy review mechanism, which periodically examines each member's trade policies and practices. Significantly, the Uruguay Round created the WTO as a legal international organization charged with administering a revised and stronger dispute settlement mechanism—a principal U.S. negotiating objective (see text box )—as well as many new trade agreements adopted during the long negotiation. For the most part, the Uruguay Round agreements were accepted as a single package or single undertaking , meaning that all participants and future WTO members were required to subscribe to all of the agreements.

World Trade Organization

The WTO succeeded the GATT in 1995. In contrast to the GATT, the WTO was created as a permanent organization. But as with the GATT, the WTO secretariat and support staff is small by international standards and lacks independent power. The power to write rules and negotiate future trade liberalization resides specifically with the member countries, and not the WTO director-general (DG) or staff. Thus, the WTO is referred to as a member-driven organization.

Decisions within the WTO are made by consensus, although majority voting can be used in limited circumstances. The highest-level body in the WTO is the Ministerial Conference, which is the body of political representatives (trade ministers) from each member country ( Figure 1 ). The body that oversees the day-to-day operations of the WTO is the General Council, which consists of a representative from each member country. Many other councils and committees deal with particular issues, and members of these bodies are also national representatives.

In general, the WTO has three broad functions: administering the rules of the trading system; establishing new rules through negotiations; and resolving disputes between member states.

Administering Trade Rules

The WTO administers the global rules and principles negotiated and signed by its members. The main purpose of the rules is "to ensure that trade flows as smoothly, predictably, and freely as possible." WTO rules and agreements are essentially contracts that bind governments to keep their trade policies within agreed limits. A number of fundamental principles guide WTO rules.

In general, as with the GATT, these key principles are nondiscrimination and the notion that freer trade through the gradual reduction of trade barriers strengthens the world economy and increases prosperity. The WTO agreements apply the GATT principles of nondiscrimination as discussed above: MFN treatment and national treatment. The trade barriers concerned include tariffs, quotas, and a growing range of nontariff measures, such as product standards, food safety measures, subsidies, and discriminatory domestic regulations. The fundamental principle of reciprocity is also behind members' aim of "entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations."

Transparency is another key principle of the WTO, which aims to reduce information asymmetry in markets, ensure trust, and, therefore, foster greater stability in the global trading system. Transparency commitments are incorporated into individual WTO agreements. Active participation in various WTO committees also aims to ensure that agreements are monitored and that members are held accountable for their actions. For example, members are required to publish their trade practices and policies and notify new or amended regulations to WTO committees. Regular trade policy reviews of each member's trade policies and practices provide a deeper dive into an economy's implementation of its commitments—see " Trade Policy Review Mechanism (Annex 3) ." In addition, the WTO's annual trade monitoring report takes stock of trade-restrictive and trade-facilitating measures of the collective body of WTO members.

While opening markets can encourage competition, innovation, and growth, it can also entail adjustments for workers and firms. Trade liberalization can also be more difficult for the least-developed countries (LDCs) and countries transitioning to market economies. WTO agreements thus allow countries to lower trade barriers gradually. Developing countries and sensitive sectors in particular are usually given longer transition periods to fulfill their obligations; developing countries make up about two-thirds of the WTO membership—WTO members self-designate developing country status. The WTO also supplements this so-called "special and differential" treatment (SDT) for developing countries with trade capacity-building measures to provide technical assistance and help implement WTO obligations, and with permissions for countries to extend nonreciprocal, trade preference programs.

In WTO parlance, when countries agree to open their markets further to foreign goods and services, they "bind" their commitments or agree not to raise them. For goods, these bindings amount to ceilings on tariff rates. A country can change its bindings, but only after negotiating with its trading partners, which could entail compensating them for loss of trade. As shown in Figure 2 , one of the achievements of the Uruguay Round was to increase the amount of trade under binding commitments. Bound tariff rates are not necessarily the rates WTO members apply in practice to imports from trading partners; so-called applied MFN rates can be lower than bound rates, as reflected in tariff reductions under the GATT. Figure 3 shows average applied MFN tariffs worldwide. In 2017, the United States simple average MFN tariff was 3.4%.

A key issue in the Doha Round for the United States was lowering major developing countries' relatively high bound tariffs to below their applied rates in practice to achieve commercially meaningful new market access.

Promising not to raise a trade barrier can have a significant economic effect because the promise provides traders and investors certainty and predictability in the commercial environment. A growing body of economic literature suggests certainty in the stability of tariff rates may be just as important for increasing global trade as reduction in trade barriers. This proved particularly important during the 2009 global economic downturn. Unlike in the 1930s, when countries reacted to slumping world demand by raising tariffs and other trade barriers, the WTO reported that its 153 members (at the time), accounting for 90% of world trade, by and large did not resort to protectionist measures in response to the crisis.

The promotion of fair and undistorted competition is another important principle of the WTO. While the WTO is often described as a "free trade" organization, numerous rules are concerned with ensuring transparent and nondistorted competition. In addition to nondiscrimination, MFN treatment and national treatment concepts aim to promote "fair" conditions of trade. WTO rules on subsidies and antidumping in particular aim to promote fair competition in trade through recourse to trade remedies, or temporary restriction of imports, in response to alleged unfair trade practices—see " Trade Remedies ." For example, when a foreign company receives a prohibited subsidy for exporting as defined in WTO agreements, WTO rules allow governments to impose duties to offset any unfair advantage found to cause injury to their domestic industries.

The scope of the WTO is broader than the GATT because, in addition to goods, it administers multilateral agreements on agriculture, services, intellectual property, and certain trade-related investment measures. These newer rules in particular are forcing the WTO and its dispute settlement system to deal with complex issues that go beyond tariff border measures.

Establishing New Rules and Trade Liberalization through Negotiations

As the GATT did for 47 years, the WTO provides a negotiating forum where members reduce barriers and try to sort out their trade problems. Negotiations can involve a few countries, many countries, or all members. As part of the post-Uruguay Round agenda, negotiations covering basic telecommunications and financial services were completed under the auspices of the WTO in 1997. Selected WTO members also negotiated deals to eliminate tariffs on certain information technology products and improve rules and procedures for government procurement. A recent significant accomplishment was the WTO Trade Facilitation Agreement in 2017, addressing customs and logistics barriers.

The latest round of multilateral negotiations, the Doha Development Agenda (DDA), or Doha Round, launched in 2001, has achieved limited progress to date, as the agenda proved difficult and contentious. Despite a lack of consensus on its future, many view the round as effectively over. The negotiations stalled over issues such as reducing domestic subsidies and opening markets further in agriculture, industrial tariffs, nontariff barriers, services, intellectual property rights, and SDT for developing countries. The negotiations exposed fissures between developed countries, led by the United States and the EU, on the one hand, and developing countries, led by China, Brazil, and India, on the other hand, who have come to play a more prominent role in global trade.

The inability of countries to achieve the objectives of the Doha Round prompted many to question the utility of the WTO as a negotiating forum, as well as the practicality of conducting a large-scale negotiation involving 164 participants with consensus and the single undertaking as guiding principles. At the same time, many proposals have been advanced for moving forward from Doha and making the WTO a stronger forum for negotiations in the future. (See " Policy Issues and Future Direction .")

The WTO arguably has been more successful in the negotiation of discrete items to which not all parties must agree or be bound (see " Plurilateral Agreements (Annex 4) "). Some view these plurilaterals as a more promising negotiating approach for the WTO moving forward given their flexibility, as they can involve subsets of more "like-minded" partners and advance parts of the global trade agenda. Some experts have raised concerns, however, that this approach could lead to "free riders"—those who benefit from the agreement but do not make commitments—for agreements on an MFN basis, or otherwise, could isolate some countries who do not participate and may face new trade restrictions or disadvantages as a result. Others argue that only though the single undertaking approach to negotiations can there be trade-offs that are sufficient to bring all members on board.

Resolving Disputes

The third function of the WTO is to provide a mechanism to enforce its rules and settle trade disputes. A central goal of the United States during the Uruguay Round negotiations was to strengthen the dispute settlement mechanism that existed under the GATT. While the GATT's process for settling disputes between member countries was informal, ad hoc, and voluntary, the WTO dispute settlement process is more formalized and enforceable. Under the GATT, panel proceedings could take years to complete; any defending party could block an unfavorable ruling; failure to implement a ruling carried no consequence; and the process did not cover all the agreements. Under the WTO, there are strict timetables—though not always followed—for panel proceedings; the defending party cannot block rulings; there is one comprehensive dispute settlement process covering all the agreements; and the rulings are enforceable. WTO adjudicative bodies can authorize retaliation if a member fails to implement a ruling or provide compensation. Yet, under both systems, considerable emphasis is placed on having the member countries attempt to resolve disputes through consultations and negotiations, rather than relying on formal panel rulings. See " Dispute Settlement Understanding (DSU) " for more detail on WTO procedures and dispute trends.

The United States and the WTO

The statutory basis for U.S. membership in the WTO is the Uruguay Round Agreements Act (URAA, P.L. 103-465 ), which approved the trade agreements resulting from the Uruguay Round. The legislation contained general provisions on

approval and entry into force of the Uruguay Round Agreements, and the relationship of the agreements to U.S. laws (Section 101 of the act); authorities to implement the results of current and future tariff negotiations (Section 111 of the act); oversight of activities of the WTO (Sections 121-130 of the act); procedures regarding implementation of dispute settlement proceedings affecting the United States (Section 123 of the act); objectives regarding extended Uruguay Round negotiations; statutory modifications to implement specific agreements, including the following: Antidumping Agreement; Agreement on Subsidies and Countervailing Measures (ASCM); Safeguards Agreement; Agreement on Government Procurement (GPA); Technical Barriers to Trade (TBT) (product standards); Agreement on Agriculture; and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

U.S. priorities and objectives for the GATT/WTO have been reflected in various trade promotion authority (TPA) legislation since 1974. For example, the Omnibus Trade and Competitiveness Act of 1988 specifically contained provisions directing U.S. negotiators to negotiate disciplines on agriculture, dispute settlement, intellectual property, trade in services, and safeguards, among others, that resulted in WTO agreements in the Uruguay Round (see text box above). The Trade Act of 2002 provided U.S. objectives for the Doha Round, including seeking to expand commitments on e-commerce and clarifications to the WTO dispute settlement system. The 2015 TPA, perhaps reflecting the impasse of the Doha Round, was more muted, seeking full implementation of existing agreements, enhanced compliance by members with their WTO obligations, and new negotiations to extend commitments to new areas.

Section 125(b) of the URAA sets procedures for congressional disapproval of WTO participation. It specifies that Congress's approval of the WTO agreement shall cease to be effective "if and only if" Congress enacts a joint resolution calling for withdrawal. Congress may vote every five years on withdrawal; resolutions were introduced in 2000 and 2005, however neither passed.

WTO Agreements

The WTO member-led body negotiates, administers, and settles disputes for agreements that cover goods, agriculture, services, certain trade-related investment measures, and intellectual property rights, among other issues. The WTO core principles are enshrined in a series of trade agreements that include rules and commitments specific to each agreement, subject to various exceptions. The GATT/WTO system of agreements has expanded rulemaking to several areas of international trade, but does not extensively cover some key areas, including multilateral investment rules, trade-related labor or environment issues, and emerging issues like digital trade or the commercial role of state-owned enterprises.

Marrakesh Agreement Establishing the World Trade Organization

The Marrakesh Agreement is the umbrella agreement under which the various agreements, annexes, commitment schedules, and understandings reside. The Marrakesh Agreement itself created the WTO as a legal international organization and sets forth its functions, structure, secretariat, budget procedures, decisionmaking, accession, entry-into-force, withdrawal, and other provisions. The Agreement contains four annexes. The three major substantive areas of commitments undertaken by the members are contained in Annex 1.

Multilateral Agreement on Trade in Goods (Annex 1A)

The Multilateral Agreement on Trade in Goods establishes the rules for trade in goods through a series of sectoral or issue-specific agreements (see Table 2 ). Its core is the GATT 1994, which includes GATT 1947, the amendments, understanding, protocols, and decisions of the GATT from 1947 to 1994, cumulatively known as the GATT- acquis , as well as six Understandings on Articles of the GATT 1947 negotiated in the Uruguay Round. In addition to clarifying the core WTO principles, each agreement contains sector- or issue-specific rules and principles. The schedule of commitments identifies each member's specific binding commitments on tariffs for goods in general, and combinations of tariffs and quotas for some agricultural goods. Through a series of negotiating rounds, members agreed to the current level of trade liberalization (see Figure 2 above).

In the last four rounds of negotiations, WTO members aimed to expand international trade rules beyond tariff reductions to tackle barriers in other areas. For example, agreements on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures aim to protect a country's rights to implement domestic regulations and standards, while ensuring they do not discriminate against trading partners or unnecessarily restrict trade.

Agreement on Agriculture (AoA)

The Agreement on Agriculture (AoA) includes rules and commitments on market access and disciplines on certain domestic agricultural support programs and export subsidies. Its objective was to provide a framework for WTO members to reform certain aspects of agricultural trade and domestic farm policies to facilitate more market-oriented and open trade. Regarding market access, members agreed not to restrict agricultural imports by quotas or other nontariff measures, converting them to tariff-equivalent levels of protection, such as tariff-rate quotas—a process called "tariffication." Developed countries committed to cut tariffs (or out-of-quota tariffs, those tariffs applied to any imports above the agreed quota threshold) by an average of 36% in equal increments over six years; developed countries committed to 24% tariff cuts over 10 years. Special safeguards to temporarily restrict imports were permitted in certain events, such as falling prices or surges of imports.

The AoA also categorizes and restricts agricultural domestic support programs according to their potential to distort trade. Members agreed to limit and reduce the most distortive forms of domestic subsidies over 6 to 10 years, referred to as "amber box" subsidies and measured by the Aggregate Measure of Support (AMS) index. Subsidies considered to cause minimal distortion on production and trade were not subject to spending limits and exempted from obligations as "green box" and "blue box" subsidies or under de minimis (below a certain threshold) or SDT provisions. In addition, export subsidies were to be capped and subject to incremental reductions, both by value and quantity of exports covered. A so-called "peace" clause protected members using subsidies that comply with the agreement from being challenged under other WTO agreements, such as through use of countervailing duties; the clause expired after nine years in 2003. Members are required to regularly submit notifications on the implementation of AoA commitments—though some countries, including the United States, have raised concerns that these requirements are not abided by in a consistent fashion.

Further agricultural trade reform was a major priority under the Doha Round, but negotiations have seen limited progress to date (see " Ongoing WTO Negotiations "). However, in 2015, members reached an agreement to fully eliminate export subsidies for agriculture.

Trade-Related Investment Measures (TRIMS)

The framework of the GATT did not address the growing linkages between trade and investment. During the Uruguay Round, the Agreement on Trade-Related Investment Measures (TRIMS) was drafted to address certain investment measures that may restrict and distort trade. The agreement did not address the regulation or protection of foreign investment, but focused on investment measures that may violate basic GATT disciplines on trade in goods, such as nondiscrimination. Specifically, members committed not to apply any TRIM that is inconsistent with provisions on national treatment or a prohibition of quantitative restrictions on imports or exports. TRIMS includes an annex with an illustrative list of prohibited measures, such as local content requirements—requirements to purchase or use products of domestic origin. The agreement also includes a safeguard measure for balance of payment difficulties, which permits developing countries to temporarily suspend TRIMS obligations.

While TRIMS and other WTO agreements, such as the GATS (see below), include some provisions pertaining to investment, the lack of comprehensive multilateral rules on investment led to several efforts under the Doha Round to consider proposals, which to date have been unfruitful (see " Future Negotiations "). In December 2017, 70 WTO members announced plans to begin new discussions on developing a multilateral framework on investment facilitation, in part to complement the successful negotiation of rules on trade facilitation.

General Agreement on Trade in Services (GATS) (Annex 1B)

The GATT agreements focused solely on trade in goods, excluding services. Services were eventually covered in the GATS as a result of the Uruguay Round agreements. The GATS provides the first and only multilateral framework of principles and rules for government policies and regulations affecting trade in services. It has served as the foundation on which rules in other trade agreements on services are based.

The services trade agenda is complex due to the characteristics of the sector. "Services" refers to a growing range of economic activities, such as audiovisual, construction, computer and related services, express delivery, e-commerce, financial, professional (e.g., accounting and legal services), retail and wholesaling, transportation, tourism, and telecommunications. Advances in information technology and the growth of global supply chains have reduced barriers to trade in services, expanding the services tradable across national borders. But liberalizing trade in services can be more complex than for goods, since the impediments faced by service providers occur largely within the importing country, as so-called "behind the border" barriers, some in the form of government regulations. While the right of governments to regulate service industries is widely recognized as prudent and necessary to protect consumers from harmful or unqualified providers, a main focus of WTO members is whether these regulations are applied to foreign service providers in a discriminatory and unnecessarily trade restrictive manner that limits market access.

The GATS contains multiple parts, including definition of scope (excluding government-provided services); principles and obligations, including MFN treatment and transparency; market access and national treatment obligations; annexes listing exceptions that members take to MFN treatment; as well as various technical elements. Members negotiated GATS on a positive list basis, which means that the commitments only apply to those services and modes of delivery listed in each member's schedule of commitments. WTO members adopted a system of classifying four modes of delivery for services to measure trade in services and classify government measures that affect trade in services, including cross-border supply, consumption abroad, commercial presence, and temporary presence of natural persons ( Figure 4 ). Under GATS, unless a member country has specifically committed to open its market to suppliers in a particular service, the national treatment and market access obligations do not apply.

In addition to the GATS, some members made specific sectoral commitments in financial services and telecommunications. Negotiations to expand these commitments were later folded into the broader services negotiations.

WTO members aimed to update GATS provisions and market access commitments as part of the Doha Round. Several WTO members have since submitted revised offers of services liberalization, but in the view of the United States and others the talks have not yielded adequate offers of improved market access (see " Future Negotiations "). Given the lack of progress, in 2013, 23 WTO members, including the United States, representing approximately 70% of global services trade, launched negotiations of a services-specific plurilateral agreement. Although outside of the WTO structure, participants designed the Trade in Services Agreement (TiSA) negotiations in a way that would not preclude a concluded agreement from someday being brought into the WTO. TiSA talks were initially led by Australia and the United States, but have since stalled; the Trump Administration has not stated a formal position on TiSA.

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Annex 1C)

The TRIPS Agreement marked the first time multilateral trade rules incorporated intellectual property rights (IPR)—legal, private, enforceable rights that governments grant to inventors and artists to encourage innovation and creative output. Like the GATS, TRIPS was negotiated as part of the Uruguay Round and was a major U.S. objective for the round.

The TRIPS Agreement sets minimum standards of protection and enforcement for IPR. Much of the agreement sets out the extent of coverage of the various types of intellectual property, including patents, copyrights, trademarks, trade secrets, and geographical indications. TRIPS includes provisions on nondiscrimination and on enforcement measures, such as civil and administrative procedures and remedies. IPR disputes under the agreement are also subject to the WTO dispute settlement mechanism.

The TRIPS Agreement's newly placed requirements on many developing countries elevated the debate over the relationship between IPR and development. At issue is the balance of rights and obligations between protecting private right holders and securing broader public benefits, such as access to medicines and the free flow of data, especially in developing countries. TRIPS includes flexibilities for developing countries allowing longer phase-in periods for implementing obligations and, separately, for pharmaceutical patent obligations—these were subsequently extended for LDCs until January 2033 or until they no longer qualify as LDCs, whichever is earlier. The 2001 WTO "Doha Declaration" committed members to interpret and implement TRIPS obligations in a way that supports public health and access to medicines. In 2005, members agreed to amend TRIPS to allow developing and LDC members that lack production capacity to import generic medicines from third country producers under "compulsory licensing" arrangements. The amendment entered into force in January 2017.

Trade Remedies

While WTO agreements uphold MFN principles, they also allow exceptions to binding tariffs in certain circumstances. The WTO Agreement on Subsidies and Countervailing Measures (ASCM), Agreement on Safeguards, and articles in the GATT, commonly known as the Antidumping Agreement, allow for trade remedies in the form of temporary measures (e.g., primarily duties or quotas) to mitigate the adverse impact of various trade practices on domestic industries and workers. These include actions taken against dumping (selling at an unfairly low price) or to counter certain government subsidies, and emergency measures to limit "fairly"-traded imports temporarily, designed to "safeguard" domestic industries.

Supporters of trade remedies view them as necessary to shield domestic industries and workers from unfair competition and to level the playing field. Other domestic constituents, including some importers and downstream consuming industries, voice concern that antidumping (AD) and countervailing duty (CVD) actions can serve as disguised protectionism and create inefficiencies in the world trading system by raising prices on imported goods. How trade remedies are applied to imports has become a major source of disputes under the WTO (see below).

The United States has enacted trade remedy laws that conform to the WTO rules:

U.S. antidumping laws (19 U.S.C. §1673 et seq.) provide relief to domestic industries that have been, or are threatened with, the adverse impact of imports sold in the U.S. market at prices that are shown to be less than fair market value. The relief provided is an additional import duty placed on the dumped imports. U.S. countervailing duty laws (19 U.S.C. §1671 et seq.) give similar relief to domestic industries that have been, or are threatened with, the adverse impact of imported goods that have been subsidized by a foreign government or public entity, and can therefore be sold at lower prices than U.S.-produced goods. The relief provided is a duty placed on the subsidized imports. U.S. safeguard laws give domestic industries relief from import surges of goods; no allegation of "unfair" practices is needed to launch a safeguard investigation. Although used less frequently than AD/CVD laws, Section 201 of the Trade Act of 1974 (19 U.S.C. §2251 et seq.), is designed to give domestic industry the opportunity to adjust to import competition and remain competitive. The relief provided is generally a temporary import duty and/or quota. Unlike AD/CVD, safeguard laws require presidential action for relief to be put into effect.

Dispute Settlement Understanding (DSU) (Annex 2)

The dispute settlement system, often called the "crown jewel" of the WTO, has been considered by some observers to be one of the most important successes of the multilateral trading system. WTO agreements contain provisions that are either binding or nonbinding. The WTO Understanding on Rules and Procedures Governing the Settlement of Disputes—Dispute Settlement Understanding or DSU—provides an enforceable means for WTO members to resolve disputes arising under the binding provisions. The DSU commits members not to determine violations of WTO obligations or impose penalties unilaterally, but to settle complaints about alleged violations under DSU rules and procedures.

The Dispute Settlement Body (DSB) is a plenary committee of the WTO, which oversees the panels and adopts the recommendation of a dispute settlement panel or Appellate Body (AB) panel. Panels are composed of three (or five in complex cases) panelists—not citizens of the members involved—chosen through a roster of "well qualified governmental and/or non-governmental individuals" maintained by the Secretariat. WTO members must first attempt to settle a dispute through consultations, but if these fail, a member seeking to initiate a dispute may request that a panel examine and report on its complaint. A respondent party is able to block the establishment of a panel at the DSB once, but if the complainant requests its establishment again at a subsequent meeting of the DSB, a panel is established. At its conclusion, the panel recommends a decision to the DSB that it will adopt unless all parties agree to block the recommendation. The DSU sets out a timeline of one year for the initial resolution of disputes (see Figure 5 ); however, cases are rarely resolved in this timeframe.

The DSU also provides for AB review of panel reports in the event a panel decision is appealed. The AB is composed of seven rotating panelists serving four-year terms, with the possibility of a one-term reappointment. According to the DSU, appeals are to be limited to questions of law or legal interpretation developed by the panel in the case (Article 17.6). The AB is to make a recommendation and the DSB is to ratify that recommendation within 120 days of the ratification of the initial panel report, but again, such timely resolution rarely occurs. The United States has raised several issues regarding the practices of the AB and has blocked the appointments of several judges—for more on the current debate, see " Proposed Institutional Reforms ."

Following the adoption of a panel or appellate report, the DSB oversees the implementation of the findings. The losing party is then to propose how it is to bring itself into compliance "within a reasonable period of time" with the DSB-adopted findings. A reasonable period of time is determined by mutual agreement with the DSB, among the parties, or through arbitration. If a dispute arises over the manner of implementation, the DSB may form a panel to judge compliance. If a party declines to comply, the parties negotiate over compensation pending full implementation. If there is still no agreement, the DSB may authorize retaliation in the amount of the determined cost of the offending party's measure to the aggrieved party's economy. There have been some calls for reform of the dispute settlement system to deal with the procedural delays and new strains on the system, including the growing volume and complexity of cases.

Filing a dispute settlement case provides a way for countries to resolve disputes through a legal process and to do so publicly, signaling to domestic and international constituents the need to address outstanding issues. Dispute settlement procedures can serve as a deterrent for countries considering not abiding by WTO agreements, and rulings can help build a body of case law to inform countries when they implement new regulatory regimes or interpret WTO agreements.

That said, WTO agreements and decisions of panels are not self-executing and cannot directly modify U.S. law. If a case is brought against the United States and the panel renders an adverse decision, the United States would be expected to remove the offending measure within a reasonable period of time or face the possibility of either paying compensation to the complaining member or becoming subject to sanctions, often in the form of higher tariffs on imports of certain U.S. products.

As of the beginning of 2019, the WTO has initiated nearly 580 disputes on behalf of its members and issued more than 350 rulings, with 2018 marking its most active year to date. Nearly two-thirds of WTO members have participated in the dispute settlement system. Not all complaints result in formal panel proceedings; about half were resolved during consultations. The complainants usually win their cases, in large part because they initiate disputes that they have a high chance of winning. In the words of WTO Director-General (DG) Roberto Azevêdo, the widespread use of the DS system is evidence it "enjoys tremendous confidence among the membership, who value it as a fair, effective, efficient mechanism to solve trade problems."

The United States is an active user of the DS system. Among WTO members, the United States has been a complainant in the most dispute cases since the system was established in 1995, initiating 123 disputes, followed by the EU with 100 disputes. The two largest targets of complaints initiated by the United States are China and the EU, which, combined, account for more than one-third ( Figure 6 ). The latest summary by USTR reports that among WTO disputes through 2015 the United States largely prevailed on "core issues" in 46 of its complaints and lost in 4. Since the report was released, additional cases have been ruled in favor of the United States, including disputes over India's solar energy policies and Indonesia's import licensing requirements. The majority of disputes initiated by the United States between 2016 and early 2019 remain in the consultation or panel stages and have not been decided.

As a respondent in 153 dispute cases since 1995, the United States has also had the most disputes filed against it by other WTO members, followed by the EU (85 disputes) and China (43 disputes). The EU is the largest source of disputes filed against the United States, followed by Canada, China, South Korea, Brazil, and India. A large number of complaints concern U.S. trade remedies, in particular the methodologies used for calculating and imposing antidumping duties on U.S. imports. The latest summary by USTR reports that as a respondent, the United States won on "core issues" in 17 cases and lost in 57 cases through 2015. Since then, the WTO has ruled against the United States on certain aspects of complaints related to U.S. trade remedies, including in cases initiated by South Korea, China, Canada, and Turkey. The United States has prevailed in other cases, for example in December 2017, a panel ruled in U.S. favor in a case brought by Indonesia over U.S. duties on coated paper imports. The DSB has authorized retaliation against the United States for maintaining a measure in violation of WTO rules in just a handful of cases. Most recently, in February 2019, a panel authorized South Korea to retaliate in a complaint over U.S. methodology for calculating antidumping duties on South Korean imports of large residential washers.

Several pending WTO disputes are of significance to the United States. One involves China's complaints over U.S. and EU failure to grant China market economy status (see " China's Accession and Membership " ) . Other cases involve challenges to the tariff measures imposed by the Trump Administration under U.S. trade laws, including Section 201 (safeguards), Section 232 (national security), and Section 301 ("unfair" trading practices) ( Table 3 ). Nine WTO members, including China, the EU, Canada, and Mexico, initiated separate complaints at the WTO, based on allegations that U.S. Section 232 tariffs on steel and aluminum imports are inconsistent with WTO rules. Consultations were unsuccessful in resolving the disputes, and panels have been established in all nine cases. Most countries notified their consultation requests pursuant to the Agreement on Safeguards, though some countries also allege that U.S. tariff measures and related exemptions are contrary to U.S. obligations under several provisions of the GATT. Several other WTO members have requested to join the disputes as third parties.

On July 16, 2018, the United States filed its own WTO complaints over retaliatory tariffs imposed by five countries (Canada, China, EU, Mexico, and Turkey) in response to U.S. actions, and in late August, it filed a similar case against Russia. The United States has invoked the so-called national security exception (GATT Article XXI) in defense of the tariffs (see " Key Exceptions under GATT/WTO "), and states that the tariffs are not safeguards as claimed by other countries. By the end of January 2019, all of the disputes had entered the panel phase.

Trade Policy Review Mechanism (Annex 3)

Annex 3 sets out the procedures for the regular trade policy reviews that are conducted by the Secretariat to report on the trade policies of the membership. These reviews are carried out by the Trade Policy Review Body (TPRB) and are conducted periodically with the largest economies (United States, EU, Japan, and China) evaluated every three years, the next 16 largest economies every five years, and remaining economies every seven years. These reviews are meant to increase transparency of a country's trade policy and enable a multilateral assessment of the effect of policies on the trading system. These reviews also allow each member country to question specific practices of other members, and may serve as a forum to flag, and possibly avoid, future disputes.

The most recent trade policy review of China occurred in July 2018. During the review members noted and commended some recent initiatives of China to open market access and liberalize its foreign investment regime. Several concerns were also raised, including "the preponderant role of the State in general, and of state-owned enterprises in particular," and "China's support and subsidy policies and local content requirements, including those that may be part of the 2025 [Made in China] plan."

Plurilateral Agreements (Annex 4)

Most WTO agreements in force have been negotiated on a multilateral basis, meaning the entire body of WTO members subscribes to them. By contrast, plurilateral agreements are negotiated by a subset of WTO members and often focus on a specific sector. A handful of such agreements supplement the main WTO agreements discussed previously.

Within the WTO, members have two ways to negotiate on a plurilateral basis, also known as "variable geometry." A group of countries can negotiate with one another provided that the group extends the benefits to all other WTO members on an MFN basis—the foundational nondiscrimination principle of the GATT/WTO. Because the benefits of the agreement are to be shared among all WTO members and not just the participants, the negotiating group likely would include those members forming a critical mass of world trade in the product or sector covered by the negotiation in order to avoid the problem of free riders—those countries that receive trade benefits without committing to liberalization. An example of this type of plurilateral agreement granting unconditional MFN is the Information Technology Agreement (ITA), in which tariffs on selected information technology goods were lowered to zero, as negotiated by WTO members comprising more than 90% of world trade in these goods (see below).

A second type of WTO plurilateral is the non-MFN agreement, often referred to as "conditional-MFN." In this type, participants undertake additional obligations among themselves, but do not extend the benefits to other WTO members, unless they directly participate in the agreement. Also known as the "club" approach, non-MFN plurilaterals allow for willing members to address policy issues not covered by WTO disciplines. However, these types of agreements require a waiver from the entire WTO membership to commence negotiations. Some countries are reluctant even to allow other countries to negotiate for fear of being left out, even while not being ready to commit themselves to new disciplines. Yet, according to one commentator, these members are "simply outsmarting themselves" by encouraging more ambitious members to take negotiations out of the WTO altogether, such as the proposed expansion of the GATS through the plurilateral (and outside the WTO) TiSA.

Government Procurement Agreement

The Government Procurement Agreement (GPA) is an early example of a plurilateral agreement with limited WTO membership—first developed as a code in the 1979 Tokyo Round. As of the end of 2018, 47 WTO members (including the 28 EU member countries and United States) participate in the GPA; non-GPA signatories do not enjoy rights under the GPA. The GPA provides market access for various nondefense government projects to contractors of its signatories. Each member specifies government entities and goods and services (with thresholds and limitations) that are open to procurement bids by foreign firms of the other GPA members. For example, the U.S. GPA market access schedules of commitments cover 85 federal-level entities and voluntary commitments by 37 states.

Negotiations to expand the GPA were concluded in March 2012, and a revised GPA entered into force on April 6, 2014. Several countries, including China—which committed to pursuing GPA participation in its 2001 WTO accession process—are in long-pending negotiations to accede to the GPA. South Korea, Moldova, and Ukraine were the latest WTO members to join the GPA in 2016. According to estimates by the U.S. Government Accountability Office (GAO), from 2008 to 2012, 8% of total global government expenditures, and approximately one-third of U.S. federal government procurement, was covered by the GPA or similar commitments in U.S. FTAs.

Information Technology Agreement

Unlike the GPA, the Information Technology Agreement (ITA) is a plurilateral agreement that is applied on an unconditional MFN basis. In other words, all WTO members benefit from the tariff reductions enacted by parties to the ITA regardless of their own participation. Originally concluded in 1996 by a subset of WTO members, the ITA provides tariff-free treatment for covered IT products; however, the agreement does not cover services or digital products like software. In December 2015, a group of 51 WTO members, including the United States, negotiated an expanded agreement to cover an additional 201 products and technologies, valued at over $1 trillion in annual global exports. Members committed to reduce the majority of tariffs by 2019. In June 2016, the United States initiated the ITA tariff cuts. China began its cuts in mid-September 2016 with plans to reduce tariffs over five to seven years. ITA members are expected to review the agreement's scope in 2018 to determine if additional product coverage is needed.

Trade Facilitation Agreement (TFA)

The Trade Facilitation Agreement (TFA) is the newest WTO multilateral trade agreement, entering into force on February 22, 2017, and perhaps the lasting legacy of the Doha Round, since it is the only major concluded component of the negotiations. The TFA aims to address multiple trade barriers confronted by exporters and importers and reduce trade costs by streamlining, modernizing, and speeding up the customs processes for cross-border trade, as well as making it more transparent. Some analysts view the TFA as evidence that achieving new multilateral agreements is possible and that the design, including special and differential treatment provisions, could serve as a template for future agreements.

The TFA has three sections. The first is the heart of the agreement, containing the main provisions, of which many, but not all, are binding and enforceable. Mandatory articles include requiring members to publish information, including publishing certain items online; issue advance rulings in a reasonable amount of time; and provide for appeals or reviews, if requested.

The second section provides for SDT for developing country and LDC members, allowing them more time and assistance to implement the agreement. The TFA is the first WTO agreement in which members determine their own implementation schedules and in which progress in implementation is explicitly linked to technical and financial capacity. The TFA requires that "donor members," including the United States, provide the needed capacity building and support. Finally, the third section sets institutional arrangements for administering the TFA.

Key Exceptions under GATT/WTO

Under WTO agreements, members generally cannot discriminate among trading partners, though specific market access commitments can vary significantly by agreement and by member. WTO rules permit some broad exceptions, which allow members to adopt trade policies and practices that may be inconsistent with WTO disciplines and principles such as MFN treatment, granting special preferences to certain countries, and restricting trade in certain sectors, provided certain conditions are met. Some of the key exceptions follow.

General e xceptions . GATT Article XX grants WTO members the right to take certain measures necessary to protect human, animal, or plant life or health, or to conserve exhaustible natural resources, among other aims. The measures, however, must not entail "arbitrary" or "unjustifiable" discrimination between countries where the same conditions prevail, or serve as "disguised restriction on international trade." GATS Article XIV provides for similar exceptions for trade in services.

National security exception. GATT Article XXI protects the right of members to take any action they consider "necessary for the protection of essential national security interests" as related to (i) fissionable materials; (ii) traffic in arms, ammunition, and implements of war, and such traffic in other goods and materials carried out to supply a military establishment; and (iii) taken in time of war or other emergency in international relations. Similar exceptions relate to trade in services (GATS Article XIV bis) and intellectual property rights (TRIPS Article 73).

More f avorable t reatment to d eveloping c ountries . The so-called "enabling clause" of the GATT—called the "Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries" of 1979—enables developed country members to grant differential and more favorable treatment to developing countries that is not extended to other members. For example, this permits granting unilateral and nonreciprocal trade preferences to developing countries under special programs, such as the U.S. Generalized System of Preferences (GSP), and also relates to regional trade agreements outside the WTO (see below).

Exceptions for r egi onal tr ade agreements (RTAs ) . WTO countries are permitted to depart from the MFN principle and grant each other more favorable treatment in trade agreements outside the WTO, provided certain conditions are met. Three sets of rules generally apply. GATT Article XXIV applies to goods trade, and allows the formation of free trade areas and customs unions (areas with common external tariffs). These provisions require that RTAs be notified to the other WTO members, cover "substantially all trade," and do not effectively raise barriers on imports from third parties. GATS Article V allows for economic integration agreements related to services trade, provided they entail "substantial sectoral coverage," eliminate "substantially all discrimination," and do not "raise the overall level of barriers to trade in services" on members outside the agreement. Paragraph 2(c) of the "enabling clause," which deals with special and differential treatment, allows for RTAs among developing countries in goods trade, based on the "mutual reduction or elimination of tariffs." RTA provisions in the GATS also allow greater flexibility in sectoral coverage within services agreements that include developing countries.

Joining the WTO: The Accession Process

There are currently 164 members of the WTO. Another 22 countries are seeking to become members. Joining the WTO means taking on the commitments and obligations of all the multilateral agreements. Governments are motivated to join not just to expand access to foreign markets but also to spur domestic economic reforms, help transition to market economies, and promote the rule of law. While any state or customs territory fully in control of its trade policy may become a WTO member, a lengthy process of accession involves a series of documentation of a country's trade regime and market access negotiation requirements (see Figure 7 ).

For example, Kazakhstan joined the WTO on November 30, 2015, after a 20-year process. Afghanistan became the 164th WTO member on July 29, 2016, after nearly 12 years of negotiating its accession terms. Other countries have initiated the process but face delays. Iran first applied for membership in 1996 and, while it submitted its Memorandum on the Foreign Trade Regime in 2009 (a prerequisite for negotiating an accession package), Iran has not begun the bilateral negotiation process, and the United States is unlikely to support its accession.

As the WTO generally operates by member consensus, any single member could block the accession of a prospective new member. As part of the process, a prospective member must satisfy specific market access conditions of other WTO members by negotiating on a bilateral basis. The United States has been a central arbiter of the accession process for countries like China (joined in 2001, see below), Vietnam (2007), and Russia (2012), with which permanent normal trade relations had to be established concurrently under U.S. law for the United States to receive the full benefits of their membership.

China's Accession and Membership

China formally joined the WTO in December 2001. China has emerged as a major player in the global economy, as the fastest-growing economy, largest merchandise exporter, and second-largest merchandise importer worldwide. China's accession into the WTO on commercially meaningful terms was a major U.S. trade objective during the late 1990s. Entry into the WTO was viewed as an important catalyst for spurring additional economic and trade reforms and the opening of China's economy in a market, rules-based direction. These reforms have made China an increasingly significant market for U.S. exporters , a central factor in global supply chains, and a major source of low -cost goods for U.S. consumers. At the same time, China has yet to fully transit ion to a market economy and the government continue s to intervene in many parts of the econom y, which has created a growing debate over the role of the WTO in both respects .

Negotiations for China's accession to the GATT and then the WTO began in 1986 and took more than 15 years to complete. During WTO negotiations, China sought to enter the WTO as a developing country, while U.S. trade officials insisted that China's entry into the WTO had to be based on "commercially meaningful terms" that would require China to significantly reduce trade and investment barriers within a relatively short time. In the end, a compromise was reached that required China to make immediate and extensive reductions in various trade and investment barriers, while allowing it to maintain some level of protection (or a transitional period of protection) for certain sensitive sectors (see text box ).

According to USTR, after joining the WTO, China began to implement economic reforms that facilitated its transition toward a market economy and increased its openness to trade and foreign direct investment (FDI). China also generally implemented its tariff cuts on schedule. However, by 2006, U.S. officials and companies noted evidence of some trends toward a more restrictive trade regime and more state intervention in the economy. In particular, observers voiced concern about various Chinese industrial policies, such as those that foster indigenous innovation based on forced technology transfer, domestic subsidies, and IP theft. Some stakeholders have expressed concerns over China's mixed record of implementing certain WTO obligations and asserted that, in some cases, China appeared to be abiding by the letter but not the "spirit" of the WTO.

The United States and other WTO members have used dispute settlement procedures on a number of occasions to address China's alleged noncompliance with certain WTO commitments. As a respondent, China accounts for about 12% of total WTO disputes since 2001. The United States has brought 23 dispute cases against China at the WTO on issues, including IPR protection, subsidies, and discriminatory industrial policies, and has largely prevailed in most cases. Though some issues remain contested, China has largely complied with most WTO rulings. China has also increasingly used dispute settlement to confront what it views as discriminatory measures; to date, it has brought 15 cases against the United States (as of February 2019).

More broadly, the Trump Administration has questioned whether WTO rules are sufficient to address the challenges that China's economy presents. USTR Robert Lighthizer expressed this view in remarks in September 2017: "The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented. Unfortunately, the World Trade Organization is not equipped to deal with this problem." USTR views efforts to resolve concerns over Chinese trade practices to date as limited in effectiveness, including through WTO dispute settlement, as well as recent proposals by WTO members to craft new rules and WTO reforms. In its latest report to Congress on China's WTO compliance, USTR stated the following:

[The WTO dispute settlement] mechanism is not designed to address a trade regime that broadly conflicts with the fundamental underpinnings of the WTO system. No amount of WTO dispute settlement by other WTO members would be sufficient to remedy this systemic problem. Indeed, many of the most harmful policies and practices being pursued by China are not even directly disciplined by WTO rules.

Another related concern some have is whether China claims it is a "developing country" under the WTO. Through developing country status, which countries self-designate, countries are entitled to certain rights under special and differential treatment (SDT), among other provisions in WTO agreements (see " Treatment of Developing Countries " and text box ). USTR has claimed that "China persists in claiming to be a 'developing Member'" in future negotiations at the WTO. While it is unclear what SDT provisions China has sought in ongoing negotiations, China is a part of the coalition group of Asian developing members at the WTO and has claimed to be a developing country in various fora. Chinese officials have asserted that despite being the world's second-largest economy, China remains a developing country, due to its relatively low GDP per capita and other economic challenges.

Concerns over China's trade actions have led the Trump Administration to increase the use of unilateral mechanisms outside the WTO that in its view more effectively address Chinese "unfair trade practices;" the recent Section 301 investigation of Chinese IPR and technology transfer practices and resulting imposition of tariffs is evidence of this strategy. Prior to the establishment of the WTO, the United States resorted to Section 301 relatively frequently, in particular due to concerns that the GATT lacked an effective dispute settlement system. When the United States joined the WTO in 1995, it agreed to use the dispute settlement mechanism rather than act unilaterally; many analysts contend that the United States has violated its WTO obligations by imposing tariffs against China under Section 301. The United States also initiated a WTO dispute settlement case against China's "discriminatory technology licensing" in March 2018. Subsequently, China filed its own complaints at the WTO over U.S. tariff actions.

The United States has pursued cooperation to some extent with other countries with similar concerns over certain Chinese trade practices and the need to clarify and improve WTO rules on industrial subsidies and SOEs in particular. At the WTO Ministerial meeting in December 2017, USTR Lighthizer, the European Commissioner for Trade Cecelia Malmström, and Japan's Minister of the Economy, Trade and Industry Hiroshige Seko announced new trilateral efforts to cooperate on issues related to government-supported excess capacity, unfair competition caused by market-distorting subsidies and SOEs, forced technology transfer, and local content requirements. Observers believe that China, while not specifically named, is the intended target of the coordinated action. The three officials continued talks in 2018 and 2019, issuing a scoping paper on stronger rules on industrial subsidies, as well as joint statements on technology transfer and "market-oriented conditions." They indicated plans to propose a draft text on subsidies rules by spring 2019. Some experts have questioned whether recent U.S. tariff actions might undermine efforts to coordinate further action to address these challenges (see " Selected Challenges and Issues for Congress ").

Another pending dispute involving China could have significant implications for the treatment of China's economy under WTO rules, in particular debate over the terms of China's "nonmarket economy" (NME) status under its WTO accession protocol. Under its accession, China agreed to allow other WTO members to continue to use alternative methodologies, such as surrogate countries, for assessing prices and costs on products subject to antidumping measures. This concession was a result of WTO members' concerns that distortions in the Chinese economy caused by government intervention result in Chinese prices that do not reflect market forces, making them poorly suited to determining dumping margins. China contends that language in its WTO accession protocol requires all WTO members to terminate their use of the alternative methodology by December 11, 2016, including the United States, which has classified China as a NME for trade remedy cases since 1981. The NME distinction is important to China because it has often resulted in higher antidumping margins on Chinese exports; moreover, a significant share of Chinese exports is subject to trade remedies, namely AD duties. The United States and the EU have argued that the WTO language is vague and did not automatically obligate them to extend market economy status (MES) to China because it is still not a market economy.

On December 12, 2016, China requested consultations under WTO dispute settlement with the United States and EU over the failure to grant China MES, and the cases are now pending. In April 2017, a panel was established in the EU case, and in November 2017, the United States formally submitted arguments as a third party in support of the EU. The panel said it expected to issue its final report during the second quarter of 2019.

Current Status and Ongoing Negotiations

Buenos Aires Ministerial 2017

The 11 th WTO Ministerial Conference took place December 10-13, 2017, in Buenos Aires, Argentina. The Ministerial generally convenes every two years to make decisions and announce progress on multilateral trade agreements. After countries were unable to complete the Doha Round (see text box ), many questioned what could effectively be achieved in 2017. Members have made some progress in recent years, reaching the Trade Facilitation Agreement in 2013, followed by a small package of deals in 2015 concerning agriculture and rules for LDCs. Still, they remain sharply divided over how to prioritize both unresolved and new issues on the agenda, and, more fundamentally, how to conduct negotiations to better facilitate successful outcomes.

WTO Director-General Azevêdo had tempered expectations for major negotiated outcomes or announcements at the 11 th Ministerial, acknowledging that "members' positions continue to diverge significantly on the substantial issues." These differences were perhaps most apparent by the inability of WTO members to reach consensus over a draft Ministerial Declaration, largely due to staunch disagreements over including references to the mandate of the Doha Round (see text box ). Instead the Ministerial became primarily an opportunity for members to take stock of ongoing talks and further define priority work areas.

WTO members had worked intensively to build consensus over proposals in several areas, including reducing fisheries subsidies, a permanent solution to public stockholding for food security, domestic services regulations, and e-commerce. Some members pushed for new initiatives in areas such as investment facilitation; others like India advocated for a greater focus on trade facilitation in services. The U.S. proposal to improve overall transparency at the WTO, with penalties for countries that fail to comply with notification requirements, did not garner enough support to be discussed extensively at the Ministerial.

The 11 th Ministerial did not result in major breakthroughs. WTO members committed to intensify fisheries subsidies negotiations, "with a view to adopting" an agreement by the next Ministerial; the United States has supported these efforts. A joint statement was issued by 60 members in support of advancing multilateral negotiations on domestic regulations in services. Subsets of WTO members also issued statements committing to new work programs or open-ended talks for interested parties to potentially conclude plurilateral agreements in areas, including the following:

E-commerce : among 71 WTO members (covering 77% of global trade); Investment facilitation : among 70 WTO members (covering 73% of global trade and 66% of inward FDI); and Micro, small and medium-sized enterprises (MSMEs) : among 87 WTO members (covering 78% of global trade).

Of these, the United States signed on to the declaration in support of e-commerce.

The lack of concrete multilateral outcomes at the 11 th Ministerial was a reminder of the continued resistance of some countries to a new agenda outside of the original 2001 Doha mandate. In the view of EU Trade Commissioner Malmström, the Ministerial "laid bare the deficiencies of the negotiating function at the WTO" and that "members are systematically being blocked from addressing the pressing realities of global trade." Malmström blamed the lack of progress on "procedural excuses and vetoes" and "cynical hostage taking." Some developing country members, including India, attempted to block progress in a range of areas—including the renewal of the decades-old moratorium on e-commerce customs duties—absent more progress on Doha issues such as agricultural stockholding for food security. Such "hostage-taking" tactics, widely acknowledged to have hindered progress in the Doha Round, further highlight the difficulty of achieving future consensus among all 164 members.

While the United States provided input and signaled support for select proposals, the overall perception of many was a lack of U.S. leadership in the Ministerial discussions. Consistent with the Trump Administration's "America First" trade policy, the U.S. stated objective for the Ministerial was broadly to "advocate for U.S. economic and trade interests, including WTO institutional reform and market-based, fair trade policies." Several observers were relieved when USTR Lighthizer acknowledged in Ministerial remarks that the WTO plays an important role, even as he outlined key criticisms. The United States viewed the Ministerial outcome positively—that it signaled "the impasse at the WTO was broken," paving the way for like-minded countries to pursue new work in other areas. USTR expressed U.S. support in particular for forthcoming work on e-commerce, scientific standards for agriculture, and disciplines on fisheries subsidies.

Ongoing WTO Negotiations

While WTO members did not announce any negotiated outcomes at the 11 th Ministerial meeting, several countries committed to make progress on ongoing talks, including fisheries subsidies and e-commerce. In other areas, such as agriculture and environmental goods, talks remain stalled with no clear path forward.

Agriculture

For some issues multilateral solutions arguably remain ideal, for example, disciplines on agricultural subsidies, which are widely used by developed and advanced developing countries alike. One concern is that such important, unresolved issues may founder for want of a negotiating venue. While the Doha Round largely did not achieve its comprehensive negotiating mandate to lower agricultural tariffs and subsidies, negotiations more limited in scope have continued. The 2015 Nairobi Ministerial agreed to eliminate export subsidies for agriculture, but the issue of public stockholding remains seemingly intractable. Public stockholding, also known as food security programs, is used by governments, especially in developing countries, to purchase and stockpile food to release to the public during periods of market volatility or shortage. These programs become problematic when governments purchase food at a price and quantity that effectively become trade-distorting domestic support. While no agreement was reached at Buenos Aires, some developing countries, such as India, have demanded that the issue be resolved before new issues are considered in the WTO work program.

The United States has also flagged the broader issue of notification and transparency. Under WTO agreements, members are required to notify subsidies and trade-distorting support to ensure transparency and consistency with a member's obligation. Compliance with notifications has been notoriously lax, with some countries years behind on their reporting. According to U.S. Department of Agriculture trade counsel Jason Hafemeister, these practices have consequences:

In the absence of transparency, how are we to determine whether Members are complying with existing obligations? Moreover, only with comprehensive and current information can negotiators understand, discuss, and address the problems that face farmers today: high tariffs, trade distorting support, and non-tariff barriers.

The United States with other countries recently issued new proposals to address these concerns—see " Transparency/Notification ."

Fisheries Subsidies

As noted above, WTO members committed to negotiate disciplines related to fisheries subsidies at the 11 th Ministerial with a view toward reaching an agreement by 2020. The proposals aim to meet the goals outlined in United Nations Sustainable Development Goal 14 targeting illegal, unregulated, and unreported (IUU) fishing. Though multiple areas of disagreement remain, members have been negotiating on the scope of exemptions, such as for fuel subsidies. The United States reportedly seeks to minimize the level and scope of such exclusions. Members are expected to move from discussions of proposals into negotiations on a consolidated draft text by early 2019. The Trump Administration has voiced support for the talks, stating that it continues "to support stronger disciplines and greater transparency in the WTO with respect to fisheries subsidies."

Electronic Commerce/Digital Trade

Digital trade has emerged as a major force in world trade since the Uruguay Round, creating end products (e.g., email or social media), enabling trade in services (e.g., consulting), and facilitating goods trade through services, such as logistics and supply chain management that depend on digital data flows. While the GATS contains explicit commitments for telecommunications and financial services that underlie e-commerce, trade barriers related to digital trade, information flows, and other related issues are not specifically included. The WTO Work Program on Electronic Commerce was established in 1998 to examine trade-related issues for e-commerce under existing agreements. Under the work program, members agreed to continue a temporary moratorium on e-commerce customs duties, and have renewed the moratorium at each ministerial meeting. Some developing countries, however, have begun to question the moratorium, seeing it as blocking a potential government revenue stream. Progress under the work program has largely stalled as multiple members have put forward competing views on possible paths forward.

In advance of the 2017 Ministerial, various members had submitted proposals for specific work agendas in e-commerce. The U.S. submission, dated July 4, 2016, reflected many of the ideas included in the proposed Trans-Pacific Partnership (TPP), an FTA with 11 other countries in the Asia-Pacific from which the United States withdrew in January 2017. The proposal may gain the support of other TPP members as several have already ratified a slightly modified agreement—the Comprehensive and Progressive Agreement for TPP (CPTPP or TPP-11)—which maintained the digital trade provisions as negotiated by the United States. The Chinese WTO submission, on the other hand, more narrowly focuses on facilitating e-commerce. India has said it would not agree to any new obligations in the WTO related to e-commerce or digital trade, preferring to focus on issues identified under the original Doha mandate, including agriculture. As a result, the 2017 Ministerial ended with an agreement to "endeavor to reinvigorate our work."

The plurilateral effort announced at the ministerial agreeing to "initiate exploratory work on negotiations on electronic commerce issues in the WTO" may provide the best avenue to pursue an agreement within the WTO framework. A U.S. discussion paper on the initiative outlined potential provisions, including protecting cross-border data flows, source code, and encryption technology; prohibiting discrimination, customs duties, technology transfer or localization requirements; and promoting cybersecurity and open government data. The United States also included the WTO Telecommunications Reference Paper, seeking all WTO members to adopt its principles on telecommunications competition. Notably, the U.S. submission did not list privacy or consumer protection among its provisions.

The group of 49 WTO members formally launched the e-commerce initiative in January 2019, on the sidelines of the World Economic Forum annual meetings. Their joint statement lists not only the United States and EU as participants, but also several developing countries, including China and Brazil. In the statement, the group agreed to seek a "high standard outcome that builds on existing WTO agreements and frameworks with the participation of as many WTO Members as possible," but did not specify which trade barriers and issues are to be addressed. USTR's statement after the meeting emphasized the need for an enforceable agreement with the "same obligations for all participants."

The negotiation process is expected to begin in March 2019. It is unclear how, or if, the plurilateral effort will overlap or be incorporated into the existing multilateral work program.

Environmental Goods Agreement (EGA)

Some countries viewed the 11 th Ministerial meeting as a missed opportunity to reinvigorate the stalled EGA plurilateral negotiations. The EGA negotiations, initiated in mid-2014 by 14 WTO members including the United States and China, seek to liberalize trade in environmental goods through tariff liberalization. Current EGA members represent 86% of global trade in covered environmental goods. Like the ITA, the EGA would be an open plurilateral agreement so that the benefits achieved through negotiations would be extended on an MFN basis to all WTO members. Despite 18 rounds of negotiations, members were unable to conclude the agreement at the December 2016 General Council meeting, and talks have since stalled. Most parties blamed China for the lack of progress, as it rejected the list of products to be included and requested several lengthy tariff phaseout periods which other countries refused to accept. The EGA's future now remains uncertain—while several countries have expressed support for resuming the talks, the Trump Administration has not put forward a public position on the agreement.

Policy Issues and Future Direction

The inability of WTO members to conclude a comprehensive agreement during the Doha Round raised new questions about the WTO's future direction. Many intractable issues from Doha remain unresolved, and members have yet to reach consensus on a way forward. Persistent differences about the extent and balance of trade liberalization continue to stymie progress, as evidenced by the outcomes of recent ministerial meetings. Further, members remain divided over adopting new issues on the agenda, amid concerns that the WTO could lose relevance if its rules are not updated to reflect the modern global economy. Some WTO members seek to incorporate new issues that pose challenges to the trading system, such as digital trade, competition with SOEs, global supply chains, and the relationship between trade and environment issues.

These divisions have called into question the viability of the "single undertaking," or one-package approach in future multilateral negotiations and suggest broader need for institutional reform if the WTO is to remain a relevant negotiating body. Moreover, the consistent practice of some countries like India to block discussion of new issues serves as a reminder of the power of a single member to halt progress in the WTO's consensus-based system.

As a result of slow progress at the WTO, countries have increasingly turned to other venues to advance trade liberalization and rules, namely plurilateral agreements and preferential FTAs outside the WTO. Plurilaterals have been seen as having the potential to resurrect the WTO's relevance as a negotiating body, but have also been seen as possibly undermining multilateralism if the agreements are not extended to all WTO members on an MFN basis. Regional trade agreements have also been seen as potential laboratories for new rules. How these negotiations and agreements will ultimately affect the WTO's status as the preeminent global trade institution is widely debated. In addition, an open question is whether U.S. leadership within these initiatives will continue under the Trump Administration.

More recently, concerns for some have been mounting about further strains on the multilateral system, due to the growing use of trade protectionist policies by both developed and developing countries, the recent U.S. tariff actions and counterretaliation by other countries, and the escalating trade disputes between major economies. Many countries are questioning whether the WTO is equipped to effectively handle the challenges of emerging markets, as well as the deepening trade tensions. Some experts view the system as facing a potential crisis, while o thers remain optimistic that the current state of affairs could spur renewed focus on reforms of the system. Certain WTO members, like the EU and Canada, have begun to explore some areas for reform (see below).

Negotiating Approaches

Plurilateral Agreements

In contrast to the consensus-based agreements of the WTO, some members, including the United States, point to the progress made in sectoral or plurilateral settings as the way forward for the institution. By assembling coalitions of interested parties, negotiators may more easily and quickly achieve trade liberalizing objectives, as shown by the ITA. Sectoral agreements are viewed as one way to pursue new agreements and extend WTO disciplines and commitments in new areas, including, for example, U.S. trade priorities in digital trade and SOEs. The commitments by some WTO members to pursue talks in e-commerce, investment facilitation, and SMEs could plant the seeds for future plurilaterals.

Plurilateral negotiations, however, still involve resolving divisions among developed and advanced developing countries. Members were able ultimately to overcome their differences in the ITA negotiation, but thus far have been unable to reach consensus in the EGA. At the same time, the participation of developing and emerging market economies, such as China and India, is critical to achieving agreements that cover a meaningful share of global trade. There is also a concern that plurilateral agreements not applied on an MFN basis could lead nonparticipating countries to become marginalized from the trading system and face new trade restrictions. To attract a critical mass of participants and lower barriers for developing countries and LDCs who may be hesitant to agree to ambitious commitments, agreements could allow flexibility in implementation timeframes and provide additional assistance, as in the TFA.

Some experts question whether potential waning U.S. leadership in plurilateral and multilateral trade negotiations might slow momentum toward concluding new agreements (see " Value of the Multilateral System and U.S. Leadership and Membership "). The Trump Administration has yet to clarify its position on plurilaterals pursued under the Obama Administration, such as EGA and TiSA, which have stalled, but is supporting new efforts on e-commerce/digital trade.

Preferential Free Trade Agreements

Given that the WTO allows its members to establish preferential FTAs outside the WTO that are consistent with WTO rules, many countries have formed bilateral or regional FTAs and customs areas; since 1990, the number of RTAs in force has increased seven-fold, with 290 trade agreements notified to the WTO and in force, as of the end of 2018. FTAs have often provided more negotiating flexibility for countries to advance new trade liberalization and rulemaking that builds on WTO agreements; however, the agreements vary widely in terms of scope and depth. Like plurilaterals, many view comprehensive FTAs as having potential for advancing the global trade agenda. Also like plurilaterals, however FTAs can also have downsides compared to multilateral deals.

The United States currently has 14 FTAs in force with 20 countries. The Trump Administration has stated a preference for negotiating bilateral FTAs, rather than multiparty agreements. In September 2018, the United States, Mexico, and Canada completed negotiations of the proposed USMCA, which revamps the North American Free Trade Agreement (NAFTA). The United States and South Korea also agreed to some modifications of their bilateral FTA. In addition, USTR notified Congress of its intent to begin trade negotiations with the EU, Japan, and the UK. In general, U.S. FTAs are considered to be "WTO-plus" in that they reaffirm the WTO agreements, but also eliminate most tariff and nontariff barriers and contain rules and obligations in areas not covered by the WTO. For example, most U.S. FTAs include access to services markets beyond what is contained in the GATS or, more recently, digital trade obligations.

While U.S. FTAs cover some major trading partners, the majority of U.S. trade, including with significant trade partners such as China, the EU, and Japan, continues to rely solely on the terms of market access and rulemaking in WTO agreements. In 2017, the United States traded $3.4 trillion with non-FTA partners, compared to $1.8 trillion with its FTA partners ( Figure 8 ).

More recently, groups of countries have also been pursuing so-called "mega-regional" trade agreements that cover significant shares of global trade. These include the CPTPP signed in March 2018 between 11 countries in the Asia-Pacific to replace the TPP, ongoing negotiations over the Regional Comprehensive Economic Partnership (RCEP) between the Association of Southeast Asian Nations (ASEAN) and six of its FTA partners including China, and the Pacific Alliance signed in June 2012 among Chile, Colombia, Mexico, and Peru. Negotiations on the proposed Transatlantic Trade and Investment Partnership (T-TIP) between the United States and EU stalled, and though new U.S.-EU trade talks are to resume, their scope remains unclear. Such agreements could potentially consolidate trade rules across regions and to a varying extent address new issues not covered by the WTO.

There has been wide debate regarding the relationship of preferential FTAs to the WTO and multilateral trading system. Some argue that crafting new rules through mega-regionals could undermine the trading system, create competing regional trade blocs, lead to trade diversion, and marginalize countries not participating in the initiatives. On the other hand, some view such agreements as potentially spurring new momentum at the global level. WTO DG Azevêdo has supported the latter sentiment, expressing that "RTAs [regional trade agreements] are blocks which can help build the edifice of global rules and liberalization." Many analysts have viewed the CPTPP specifically through this lens. Some experts view plurilateral agreements in particular as potential vehicles for bringing new rulemaking from RTAs into the multilateral trading system. While RTAs may propagate precisely what the multilateral system—with MFN and national treatment at its underpinnings—was designed to prevent, namely trade diversion and fragmented trading blocs, some observers believe it may be the only way trade may be liberalized in the future as additional interested parties could join the agreements over time.

Future Negotiations on Selected Issues

Since the founding of the WTO, the landscape of global trade has changed dramatically. The commercial internet, the growth of supply chains, and increasing trade in services have all contributed to the tremendous expansion of trade. However, WTO disciplines have not been modernized or expanded since 1995, aside from the TFA and the renegotiation of the ITA and the GPA. In addition to ongoing WTO efforts to negotiate new trade liberalization and rules in areas like e-commerce and digital trade, the following are selected areas of trade policy that could be subjects for future negotiations multilaterally within the WTO, or as plurilaterals. Meaningful progress in areas such as services, competition with SOEs, investment, and labor and environment issues could help increase the relevance of the WTO as a negotiating body.

Services

Since the GATS, the scope of global trade in services has increased tremendously, spurred by advances in IT and the growth of global supply chains. Yet, these advances are largely not reflected in the GATS. WTO members committed to further services negotiations (GATS Article XIX), which began in 2000 and were incorporated into the Doha Round. Further talks were spurred by the recognition among many observers that the GATS, while it extended the principles of nondiscrimination and transparency to services trade, was not thought to provide much actual liberalization, as many countries simply bound existing practices. However, services negotiations during Doha also succumbed to the resistance of developing countries to open their markets in response to developed country demands, as well as dissatisfaction with other aspects of the single undertaking. Whether the stalled plurilateral TiSA talks will ultimately lead to services reform in the WTO is an open question.

Aside from increased market access, several issues are ripe for future negotiations at the WTO, such as transition from the current positive list schedule of commitments to a negative list. Instead of a member declaring which services are open for competition, it would need to declare which sectors are exempted. This exercise in itself could force members to reexamine their approximately 25-year-old commitments and decide whether current market access barriers will be maintained. New services sectors, such as online education and telemedicine, that were not envisioned at the founding of GATS could also be the subject of future negotiations, at least on a plurilateral basis. The issue of "servicification" of traditional goods industries—for example, services that are sold with a good, such as insurance or maintenance services, or enabling services, such as distribution, transportation, marketing, or retail—has also attracted attention as the subject of possible WTO negotiations. Other issues of interest to members include services facilitation (transparency, streamlining administrative procedures, simplifying domestic regulations), and emergency safeguards, envisioned in the GATS (Article X) as an issue for future negotiation.

Competition with SOEs

The United States and other members of the WTO see an increased need to discipline state-owned or state-dominated enterprises engaged in international commerce, and designated monopolies, whether through the WTO or through regional or bilateral FTAs. However, WTO rules on competition with state-owned or state-dominated enterprises are limited to state trading enterprises (STE)—enterprises, such as agricultural marketing boards, that influence the import or export of a good. GATT Article XVII requires them to act consistently with GATT commitments on nondiscrimination, to operate in accordance with commercial considerations, and to abide by other GATT disciplines, such as disciplines on import and export restrictions. The transparency obligations consist of reporting requirements describing the reason and purpose of the STE, the products covered by STE, a description of its functions, and pertinent statistical information.

Meanwhile, countries desiring disciplines on SOEs have turned to FTAs. The TPP and the proposed USMCA have dedicated chapters on SOEs. The USMCA includes commitments that SOEs of a party act in accordance with commercial considerations; requires parties to provide nondiscriminatory treatment to like goods or services to those provided by SOEs; and prohibits most noncommercial assistance to its SOE, among other issues. The SOE chapter in USMCA likely is aimed at countries other than the three USMCA parties, such as China, to signal their negotiating intentions going forward. While there could be a desire to multilateralize these disciplines, they likely would face objections from those members engaged in such practices.

State support provided to SOEs, including subsidies, is a closely related issue, as it can play a major role in market-distorting behavior under current rules. The WTO ASCM covers the provision of specified subsidies granted to SOEs, including by the government or any "public body." Some members, including the United States and EU, have contested past interpretations by the WTO Appellate Body of what qualifies as a public body as too narrow, and remain concerned that a large share of Chinese and other SOEs in effect have avoided being subject to disciplines. As discussed, the United States, EU, and Japan are engaged in ongoing discussions on strengthening rules on industrial subsidies and SOEs, including "how to develop effective rules to address market-distorting behavior of state enterprises and confront particularly harmful subsidy practices." They commit to both "maintain effectiveness of existing WTO disciplines" and also initiate negotiations on "more effective subsidy rules" in the near future. At the latest meetings in January 2019, the three partners indicated plans to finalize a proposed text on industrial subsidies by spring 2019.

Investment

With limited provisions under TRIMS and GATS, rules and disciplines covering international investment are not part of WTO. More extensive protection for investors was one of the "Singapore issues" proposed at the 1996 WTO Ministerial as a topic for future negotiations, but then dropped under opposition from developing countries at the 2003 Cancun Ministerial. The OECD also attempted to liberalize investment practices and provide investor protections through a Multilateral Agreement on Investment, however, that effort was abandoned in 1998 in the face of widespread campaigns by nongovernment organizations in developed countries.

While multilateral attempts to negotiate investment disciplines have not borne fruit, countries have agreed to investment protections within bilateral investment treaties (BITs) and chapters in bilateral and regional FTAs. The U.S. "model BIT" serves as the basis for most recent U.S. FTAs. These provisions are often negotiated between developed countries and developing countries—often viewed as having less robust legal systems—that want to provide assurance that incoming FDI will be protected in the country. Developed countries themselves have begun to diverge on the use and inclusion of provisions on investor-state dispute settlement (ISDS).

Incorporating investment issues more fully in the WTO would recognize that trade and investment issues are increasingly interlinked. Moreover, bringing coherence to the nearly 3,000 BITs or trade agreements with investment provisions could be a role for the WTO. In addition, agreement on investment disciplines could help to resolve the thorny issue of investment adjudication between the competing models of ISDS and an investment court, as proposed by the EU in its recent FTAs, given that disputes likely would remit to WTO dispute settlement. While it remains unclear whether developing countries would be more amenable to negotiating investment disciplines multilaterally than they were in 2003, this area could be ripe for plurilateral activity.

In the meantime, since the Ministerial some WTO members are pursuing the development of a multilateral framework on investment facilitation. The group is comprised of a mix of developed and developing economies, including the EU, Canada, China, Japan, Mexico, Singapore, and Russia, but not the United States.

Labor and Environment

Labor and environmental provisions were not included in the Uruguay Round agreements, largely at the insistence of developing countries. Some observers maintain that this has created major gaps in global trade rules and call for the WTO to address these issues. Related provisions have developed and evolved within U.S. FTAs outside the WTO. Recent U.S. FTAs require partner countries to adhere to internationally recognized labor principles of the International Labor Organization (ILO) and applicable multilateral environmental agreements, and to enforce their labor or environmental laws and not to derogate from these laws to attract trade and investment. The CPTPP and proposed USMCA also contain provisions, though not identical, prohibiting the most harmful fisheries subsidies, and relating to illegal trafficking, marine species, air quality, marine litter, and sustainable forestry. More broadly, while inclusion of labor and environmental provisions within FTAs has expanded in the past decade, in general the commitments can vary widely in their scope and depth, with only some subject to dispute settlement mechanisms.

While general provisions on labor and environment may be a heavy lift at this time given these differences, the WTO has undertaken an effort to discipline fisheries subsidies, which could have a beneficial environmental effect (see above). However, fisheries subsidies may be a special case, as it directly pertains to an existing trade-related agreement, the ASCM.

Proposed Institutional Reforms

Many observers believe the WTO needs to adopt reforms to continue its role as the foundation of the world trading system. In particular, its negotiating function has atrophied following the collapse of the Doha Round. Its dispute settlement mechanism, while functioning, is viewed by some as cumbersome and time consuming. And some observers, including U.S. officials, contend it has exceeded its mandate when deciding cases.

Potential changes described below address institutional and negotiation reform, as well as reforms to the dispute settlement system. Reforms concern the administration of the organization, including its procedures and practices, and attempts to address the inability of WTO members to conclude new agreements. Dispute settlement reforms attempt to improve the working of the dispute settlement system, particularly the Appellate Body (AB). Addressing concerns related to the dispute settlement system may take priority in the near term, as the WTO faces a pending crisis should the AB fall below its three-member quorum in late 2019.

Certain WTO members have begun to explore some aspects of reform. In July 2018, the European Commission produced a discussion paper on WTO reform proposals, and in September published a revised paper on its comprehensive approach "to modernise the WTO and to make international trade rules fit for the challenges of the global economy." As noted, the United States, EU, and Japan have issued scoping papers and joint statements on strengthening WTO disciplines on industrial subsidies and SOEs and cooperating on forced technology transfer.

In addition, Canada organized a ministerial among a small group of "like-minded" countries interested in WTO reform, including Australia, Brazil, Chile, the EU, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea, and Switzerland, held in Ottawa on October 24-25, based on a discussion draft of its proposals. Canadian trade officials have said that "starting small has allowed us to address problems head-on and quickly develop proposals," while acknowledging that a larger effort must include the United States and China. In a joint communiqué, the group of 13 countries emphasized that "the current situation at the WTO is no longer sustainable," and identified three areas requiring "urgent consideration": safeguarding and strengthening the dispute settlement system; reinvigorating the WTO's negotiating function; including how the development dimension can be best pursued in rulemaking; and strengthening the monitoring and transparency of WTO members' trade policies. The group met again in January 2019 on the sidelines of the annual World Economic Forum meetings, committing to make "significant progress" toward WTO reform before the G20 meetings convene in June 2019. Some Members of Congress have expressed support for these new efforts to address long-standing concerns of the United States.

Institutional Issues

Consensus in Decisionmaking

While consensus in decisionmaking is a long-standing core practice at the GATT/WTO, voting on a nonconsensus basis is authorized for certain activities on a one member-one vote basis. For example, interpretations of the WTO agreements and country waivers from certain provisions require a three-fourths affirmative vote for some matters, while a two-thirds affirmative vote is required for an amendment to an agreement. However, even when voting is possible, the practice of consensus decisionmaking remains the norm.

As an organization of sovereign entities, some observers believe the practice of consensus decisionmaking gives legitimacy to WTO actions. Consensus assures that actions taken are in the self-interest of all its members. Consensus also reassures small countries that their concerns must be addressed. However, the practice of consensus has often led to deadlock, especially in the Doha Round negotiations. The ability to block consensus also has perpetuated so-called "hostage taking," in which a country can block consensus over an unrelated matter.

In order to attempt to expedite institutional decisionmaking, some expert observers have proposed alternatives to the current system, such as the following:

Use the voting procedures currently prescribed in the WTO agreements. Adopt a weighted voting system based on a formula that includes criteria relating to a member's gross domestic product, trade flows, population, or a combination thereof. Establish an executive committee composed of a combination of permanent and rotating members, or composed based on a formula as above or representatives of differing groups of countries. Maintain current consensus voting but require a member stating an objection to explain why it is doing so, or why it is a matter of vital national interest.

The Single Undertaking Approach

The "single undertaking" method by which WTO members negotiate agreements means that during a negotiating round, all issues are up for negotiation until everything is agreed. On one hand, this method, in which nothing is agreed until everything is agreed, is suited for large, complex rounds in which rules and disciplines in many areas of trade (goods, services, agriculture, IPR, etc.) are discussed. It permits negotiation on a cross-sectoral basis, so countries can make a concession in one area of negotiation and receive a concession elsewhere. The method is intended to prevent smaller countries from being "steamrolled" by the demands of larger economies, and helps ensure that each country sees a net benefit in the resulting agreement.

On the other hand, arguably, the single undertaking has contributed to the breakdown of the negotiating function under the WTO, exemplified by the never-completed Doha Round, as issues of importance to one country or another served to block consensus at numerous points during the round. Some members, including the EU, have called for "flexible multilateralism," based on continued support for full multilateral negotiations where possible, but pursuit of plurilateral agreements on an MFN basis where multilateral consensus is not possible.

Transparency/Notification

An important task of the WTO is to monitor each member's compliance with various agreements. A WTO member is required to notify the Secretariat of certain relevant domestic laws or practices so that other members can assess the consistency of WTO members' domestic laws, regulations, and actions with WTO agreements. Required notifications include measures concerning subsidies, agricultural support, quantitative restrictions, technical barriers to trade, and sanitary and phytosanitary standards.

Compliance with the WTO agreement's notification requirements, especially regarding government subsidy programs, has become a serious concern among certain members, including the United States. Many WTO members are late in submitting their required notifications or do not submit them at all. This effectively prevents other members from fully examining the policies of their trading partners.

In response, some members—notably the United States and the EU—have proposed incentives for compliance or sanctions for noncompliance with notification reporting requirements. These include the following:

A U.S. proposal to impose a series of sanctions including steps to "name and shame" an offending member, limiting the member from using certain WTO resources, and designating a member "inactive." An EU proposal to create a rebuttable presumption that a non-notified subsidy measure is an actionable subsidy or a subsidy causing serious prejudice, thereby allowing a member to challenge the subsidy under WTO dispute settlement. An EU proposal to encourage counternotifications—a challenge to the accuracy or existence of another member's notification—against members that do not voluntarily notify on their own. In May and November 2018, for example, the United States launched counternotifications of India's farm subsidy notifications regarding wheat, rice, and cotton.

In November 2018, the United States, EU, Japan, Argentina, and Costa Rica put forward a joint proposal that reflects several of these elements, including penalties for noncompliance. It also specifies exemptions for developing countries that lack capacity and have requested assistance to help fulfill notification obligations.

Treatment of Developing Countries

A country's development status can affect the pace at which a country undertakes its WTO obligations. Given that WTO members self-designate their status, some members hold on to developing-country status even after their economies begin more to resemble their developed-country peers. In addition, some of the world's largest economies, including China, India, and Brazil, may justify developing country status because their per capita incomes more closely resemble those of a developing country than those of developed countries. Developing country status enables a country to claim special and differential treatment (SDT) both in the context of existing obligations and in negotiations for new disciplines (see text box ). The WTO specifies, however, that while the designated status is on the basis of self-selection, it is "not necessarily automatically accepted in all WTO bodies."

Developed countries, including the EU and United States, have expressed frustration at this state of affairs. In January 2019, the United States circulated a paper warning that the WTO is at risk of becoming irrelevant due to the practice of allowing members to self-designate their development status to obtain special and differential treatment. The paper noted that some of the world's richest nations, including Singapore, South Korea, and the United Arab Emirates, as well as some of the world's major trading economies, such as China and India, consider themselves developing countries at the WTO. The paper maintained that self-designation has damaged the negotiating function of the WTO, and contributed to the failure of the Doha Round and possibly ongoing negotiations, if countries can avoid making meaningful offers by claiming exemptions from the rules.

Several suggestions have been made to address the situation, including encouraging countries to graduate from developing country status; setting quantifiable criteria for development status; targeting SDT in future agreements on a needs-driven, differential basis; and requiring full eventual implementation of all new agreements. Some of these steps were implemented in the WTO Trade Facilitation Agreement.

Dispute Settlement

Supporters of the multilateral trading system consider the dispute settlement mechanism (DSM) not only a success of the system, but essential to maintain the relevance of the institution, especially while the WTO has struggled as a negotiating body. However, the DSM is facing increased pressure for reform, in part due to long-standing U.S. objections over certain rules and procedures. USTR Lighthizer contends that the WTO has become a "litigation-centered organization," which has lost its focus on negotiations. While WTO members have actively used the DSM since its creation, some have also voiced concerns about various aspects, including procedural delays and compliance, and believe the current system could be reformed to be fairer and more efficient.

The Doha Round included negotiations to reform the dispute settlement system through "improvements and clarifications" to DSU rules. A framework of 50 proposals was circulated in 2003 but countries were unable to reach consensus. Discussions have continued beyond Doha with a primary focus on 12 issues, including third-party rights, panel composition, and remand authority of the Appellate Body. Under prior Administrations, the United States proposed greater control for WTO members over the process, guidelines for the adjudicative bodies, and greater transparency, such as public access to proceedings. However, these negotiations have yet to achieve results. Some experts suggest that enhancing the capabilities and legitimacy of the dispute settlement system will likely require several changes, including improving mechanisms for oversight, narrowing the scope of and diverting sensitive issues from adjudication, improving institutional support, and providing WTO members more input over certain procedures.

Appellate Body (AB) Vacancies

The immediate flashpoint to the system is the refusal of the United States to consent to the appointment of new AB jurists. The United States has long-standing objections to decisions involving the AB's interpretation of certain U.S. trade remedy laws in particular—the subject of the majority of complaints brought by other WTO members against the United States. The AB consists of seven jurists appointed to four-year terms on a rolling basis, with the possibility of a one-term reappointment. Each dispute case is heard by three jurists. Like the previous Administration, the Trump Administration blocked the process to appoint new jurists in 2017 and 2018, leaving only three AB jurists remaining to hear all cases. Concerns are rising that the AB, already facing a backlog of cases, could come to a halt in 2019 if additional appointments are not made. Deputy DG of the WTO Alan Wolff summarized the stakes in recent remarks, noting that if the Appellate Body were to cease to function, member countries would be unable to appeal an adverse panel decision against one of their policies, and without that option, "there is a risk of every trade dispute devolving into small and not so small trade wars, consisting of retaliation and counter-retaliation."

Proposed DS Reforms

The United States expounded on some of the perceived shortcomings of the dispute settlement system in its most recent trade policy agenda. Arguably the main U.S. complaint is that the system, particularly the AB, is "adding to or diminishing U.S. rights by not applying the WTO agreements as written" in the areas of subsidies, antidumping and countervailing duties, standards, and safeguards. At its crux, the current controversy is over the autonomy of the AB, its deference to the DSB, and its obligations to implement the provisions of the DSU. The United States has been the most vocal in its criticisms, yet other WTO members have expressed similar concerns. While the United States has not tabled specific reforms for these complaints to the WTO membership, other members have. Two groups (G-12, G-3) submitted specific proposals for the December 2018 General Council meeting to attempt to break the impasse. The G-12 submission reflects proposals of all 12 members; the G-3 submission contains supplementary proposals put forward by a subset of the 12.

The United States criticized the proposals as seeking to change WTO DS rules to fit the practices objectionable to the United States, rather than adhering to the rules as originally negotiated. Instead of seeking to accommodate current practices, U.S. Ambassador to the WTO Dennis Shea proposed that WTO members "engage in a deeper discussion of the concerns raised, to consider why the Appellate Body has felt free to depart from what WTO Members agreed to, and to discuss how best to ensure that the system adheres to WTO rules as written." Ambassador Shea also criticized the G-3 proposals as lessening the accountability of the Appellate Body, rather than increasing it.

Under each of the following issues, these proposals are raised along with other reform proposals that members or observers have put forward to address current concerns.

Disregard for the 90-day, DSU-mandated deadline for AB appeals. USTR claims that the AB does not have the authority to fail to meet the deadline without consulting the DSB, maintaining that the deadline "helps ensure that the AB focuses its report on the issue on appeal." The G-12 submission proposes to amend the DSU to allow parties, based on a proposal by the AB, to extend the length of time to conclude an appeal. If the parties do not agree on an extension, the AB would propose work procedures or arrangements to allow it to conclude the appeal within 90 days. In addition, the G-3 submission proposes to amend the DSU to increase the number of AB jurists from seven to nine to allow for greater efficiency and geographical diversity. Extension of service by former AB jurists on cases continuing after their four-year terms have expired. The United States maintains that the AB does not have the authority unilaterally to extend the terms of jurists, rather that authority lies with the DSB and that it is a matter of adherence to the DSU. In actual practice, however, it may be the case that having former jurists stay on to finish an appeal may be more efficient than having a new jurist join the case. The G-12 submission proposes to amend the DSU to allow outgoing AB jurists to complete the disposition of a pending appeal, provided that the hearing stage has taken place. In addition, the G-3 submission proposes that outgoing AB members continue to serve until replaced, but not more than two years following expiration of their term. Alternatively, some trade experts have suggested that the AB could refrain from assigning cases to jurists less than 90 days before their exits.

During the Obama Administration, the United States blocked the reappointment of a South Korean jurist to the AB in May 2016. The United States cited what it considered "abstract discussions" in prior decisions by the jurist that went beyond the legal scope of the WTO. This action has led to the concern that the prospect of non-reappointment could affect the independence of the AB system. However, one former AB jurist opines that, "reappointment is an option, not a right," and calls for the WTO members to determine if a more formal process similar to initial appointment of AB jurists is needed for reappointment. The G-3 submission proposes to amend the DSU to permit AB members to serve one term of longer length (6-8 years) and not allow for reappointment.

Other criticisms of the AB involve the extent to which it can interpret WTO agreements. The United States, in arguing for a more restrictive view of the power of the DSB, points to Article 3.2 that "recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements" (see text box above). However, those supporting a more expansive view of the DSU's role can point to the same article, which highlights the role "to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." The scope and reach of the AB's activities is an enduring controversy for the organization, not limited to the Trump Administration. USTR has flagged several specific practices relating to these issues, such as the following:

Issuing advisory opinions on issues not relevant to the issue on appeal. This point is related to the U.S. concern that the AB is engaged in "judicial overreach" by going beyond deciding the case at hand. USTR contends that the ability to issue advisory opinions or interpretations of text rests with the Ministerial Conference or General Council. The G-12 proposes to amend the DSU to stipulate that the AB address each issue raised in a dispute "to the extent necessary for the resolution of the dispute." Rather than issue advisory opinions, some observers have suggested that the AB also could "remand" issues of uncertainty to the standing committees of the WTO for further negotiation. In addition, members could also use a provision of the WTO Agreement (Article IX.2) to seek an "authoritative interpretation" of a WTO text at the General Council or Ministerial Conference, which could be adopted by a three-fourths vote. De novo review of facts or domestic law in cases on appeal. The United States alleges that the AB is not giving the initial panel due deference on matters of fact, including regarding the panel's interpretation of domestic law. This point derives from USTR's view that a country's domestic law should be considered as fact, and that the panel's interpretation of the domestic law is thus not reviewable by the AB. The G-12 submission proposes to amend the DSU to clarify that the meaning of a party's domestic laws is a matter of fact, and not reviewable by the AB. Treatment of AB decisions as precedent. Like the previous two concerns, this complaint speaks to the alleged overreach of the AB. USTR asserts that while AB reports can provide "valuable clarification" of covered agreements, they cannot be considered or substituted for the WTO agreements and obligations negotiated by members. However, according to a former DG of the WTO, "the precedent concept used in the WTO jurisprudence is ... centrally important to the effectiveness of the WTO dispute settlement procedure goals of security and predictability." A related concern some WTO members have is "gap-filling" by the DS system, where the legal precedent is unclear or ambiguous or there are no or incomplete WTO rules regarding a contested issue. Here there are diametrically opposite beliefs: a U.S. trade practitioner asks, "Is filling gaps and construing silences really not the creation of rights and obligations through disputes vs. leaving such function to negotiations by the members?" The former DG, however, contends that "every juridical institution has at least some measure of gap-filling responsibility as part of its efforts to resolve ambiguity." The issue of the legitimacy of precedence or gap-filling may be one of the thorniest issues of all with few solutions proposed that would potentially satisfy differences among members. The G-12 submission proposes to amend the DSU to establish a yearly meeting between the AB and the DSB. This session would allow for WTO members to comment on rulings made during the year. According to the submission, it could be a venue "where concerns with regard to some Appellate Body approaches, systemic issues or trends in the jurisprudence could be voiced."

It is likely that many of the issues that could arise from proposed reforms to the WTO system would require clarification of or amendment to the language of the Marrakesh Agreement or the DSU. Clarification could take the form of interpretation of the agreements. As noted above, interpretation can be undertaken by the Ministerial Conference (held every two years), General Council, or Dispute Settlement Body, with a three-fourths vote of the WTO membership. Amending the decisionmaking provisions of the Marrakesh Agreement (Article IX) or the DSU would require consensus of the membership at the Ministerial Conference (Marrakesh Agreement, Article X.8). Amendments to the Marrakesh Agreement would require a two-thirds vote of the membership. As noted above, negotiations related to reforms of the DSM occurred during the Doha Round, and despite the criticism of the DSM by the United States and others, the General Council or the DSB has not undertaken serious consideration of these reforms.

Selected Challenges and Issues for Congress

Value of the Multilateral System and U.S. Leadership and Membership

The United States has served as a leader in the WTO and the GATT since their creation. The United States played a major role in shaping GATT/WTO negotiations and rulemaking, many of which reflect U.S. laws and norms. It was a leading advocate in the Uruguay Round for expanding negotiations to include services and IPR, key sources of U.S. competitiveness, as well as binding dispute settlement to ensure new rules were enforceable. Today, many stakeholders across the United States rely on WTO rules to open markets for importing and exporting goods and services, and to defend and advance U.S. economic interests.

The Trump Administration has expressed doubt over the value of the WTO and multilateral trade negotiations to the U.S. economy. As a candidate, President Trump asserted that WTO trade deals are a "disaster" and that the United States should "renegotiate" or "pull out." In late June 2018, media reports suggested that President Trump was considering withdrawing the United States from the WTO. While U.S. officials have downplayed talks of withdrawal as "premature" and an "exaggeration," the President has since reportedly repeated these threats in July and August 2018. The Administration has continued to express skepticism toward the value of multilateral agreements, preferring bilateral negotiations to address "unfair trading practices." In addition, "reform of the multilateral trading system" is a stated Administration trade policy objective. While some U.S. frustrations with the WTO are not new and are shared by other trading partners, the Administration's overall approach has spurred new questions regarding the future of U.S. leadership of and participation in the WTO.

Most observers would maintain that the possibility of U.S. withdrawal from the WTO remains unlikely for procedural and substantive reasons. Procedurally, a withdrawal resolution would have to pass the House and Senate; it has also been debated what legal effect the resolution would have if adopted. Moreover, if the United States were to consider such a step, withdrawal would have a number of practical consequences. The United States could face economic costs, since absent WTO membership, remaining members would no longer be obligated to grant the United States MFN status under WTO agreements. WTO rules also restrict members' ability to use quotas, regulations, trade-related investment measures, or subsidies in ways that discriminate or disadvantage U.S. goods and services. They also require members to respect U.S. IPR. Consequently, U.S. businesses could face significant disadvantages in other markets, as members without FTAs with the United States could raise tariffs or other trade barriers at will. Nondiscrimination, a key bedrock principle of the multilateral trading system, could be eroded, particularly given the added impetus U.S. withdrawal could give to the proliferation of FTAs.

Withdrawal could also lead to a U.S. loss of influence over how important international trade matters are decided and who writes global trade rules. In the process, economic inefficiencies and political tensions could increase. Exiting the WTO and the international trading relationships it creates and governs could have broader policy implications, including for cooperation between the United States and allies on foreign policy issues.

Another question is whether the WTO would flounder without U.S. leadership, or whether other WTO members like the EU and China would increase their roles. As some in the United States question the value of WTO participation and leadership, other countries have begun to assert themselves as leaders and advocates for the global trading system. As noted, cooperation on WTO reform has become elevated as a major topic of discussion at recent high-level meetings, including the latest EU-China Summit held in July 2018 and at the October summit held in Canada among trade ministers from 13 WTO members.

Congressional oversight could examine the value, both economic and political, of U.S. membership and leadership in the WTO. As part of its oversight, Congress could consider, or could ask the U.S. International Trade Commission to investigate, the value of the WTO or potential impact of withdrawal from the WTO on U.S. businesses, consumers, federal agencies, laws and regulations, and foreign policy. Congress could vote on a resolution expressing support of the WTO, instructing USTR to prioritize WTO engagement, or, conversely, a resolution for disapproval of U.S. membership under the URAA in 2020.

Respect for the Rule and Credibility of the WTO

The founding of the GATT and creation of the WTO were premised on the notion that an open and rules-based multilateral trading system was necessary to avoid a return to the nationalistic interwar trade policies of the 1930s. There are real costs and benefits to the United States and other countries to uphold the rules and enforce their commitments and those of other WTO members. A liberalized, rules-based global trading system increases international competition for companies domestically, but also helps to ensure that companies and their workers have access and opportunity to compete in foreign markets with the certainty of a stable, rules-based system. A framework for resolving disputes that inevitably arise from repeated commercial interactions may also help ensure such trade frictions do not spill over into broader international relations.

However, certain actions by the Trump Administration and other countries have raised questions about respect for the rules-based trading system, and could weaken the credibility of the WTO. In particular, recent U.S. actions to raise tariffs against major trading partners under Section 232 and Section 301, and to potentially obstruct the functioning of the dispute settlement system by withholding approval for appointments to the AB, have prompted concerns that the United States and other countries who have retaliated to the U.S. actions may undermine the effectiveness and credibility of the institution that it helped to create. Moreover, the outcomes of controversial ongoing dispute cases at the WTO, initiated by several countries over U.S. tariffs, could set precedents and have serious implications for the future credibility of the global trading system. In particular, several U.S. trading partners view U.S. action as blatant protection of domestic industry and not a legitimate use of the national security exception. Some are concerned that U.S. actions may embolden other countries to protect their own industries under claims of protecting their own national security interests. Furthermore, U.S. tariff actions outside of the multilateral system's dispute settlement process may open the United States to criticism and could impede U.S. efforts to use the WTO for its own enforcement purposes.

Respect for the rules is also weakened when any country imposes new trade restrictions and takes actions that are not in line with WTO agreements. In particular, China's industrial state policies, including IPR violations and forced technology transfer practices, arguably damage the credibility of the multilateral trading system that is based on respect for the consensus-based rules. In part, the WTO's perceived inability to address certain Chinese policies led to the United States resorting to Section 301 actions. Other countries' pursuit of industrial policy or imposition of discriminatory measures broadly in the name of national or economic security further call into question the viability of the WTO rules-based system.

U.S. Sovereignty and the WTO

Under the Trump Administration, USTR has put new emphasis on "preserving national sovereignty" within the U.S. trade policy agenda, emphasizing that any multinational system to resolve trade disputes "must not force Americans to live under new obligations to which the United States and its elected officials never agreed."

The question of sovereignty is not a new one. The withdrawal procedures in the URAA responded to concerns that the WTO would infringe on U.S. sovereignty. During the congressional debate over the Uruguay Round agreements, there were some proposals to create extra review mechanisms of WTO dispute settlement, and many Members stressed that only Congress can change U.S. laws as a result of dispute findings.

While U.S. concerns regarding alleged "judicial overreach" in WTO dispute findings are long-standing, the Trump Administration has also emphasized unilateral action outside the WTO as a means of defending U.S. interests, including national security. Some observers fear that disagreements at the WTO on issues related to national security (e.g., Section 232 tariffs) may be difficult to resolve through the existing dispute settlement procedures, given current disagreements related to the WTO AB and concerns over national sovereignty that would likely be raised if a dispute settlement panel issued a ruling relating to national security. As noted previously, Article XXI of the GATT allows WTO members to take measures to protect "essential security interests." WTO members and parties to the GATT have invoked Article XXI in other trade disputes. These parties, including the United States, have often argued that each country is the sole judge of questions relating to its own security interests. However, neither the WTO members nor a WTO panel have formally interpreted the Article XXI exception to define its scope. Accordingly, there is little guidance as to (1) whether a WTO panel would decide, as a threshold matter, that it had the authority to evaluate whether U.S. invocation of the exception was proper; and (2) how a panel might apply the national security exception, if invoked, in any dispute before the WTO involving the steel and aluminum tariffs.

Role of Emerging Markets

The broadened membership of the WTO over the past two decades has promoted greater integration of emerging markets such as Brazil, Russia, India, and China in the global economy, and helped ensure that developing country interests are represented on the global trade agenda. At the same time, many observers have attributed the inability of WTO members to collectively reach compromise over new rules and trade liberalization to differing priorities for reforms and market opening among developed countries and emerging markets.

One question is to what extent emerging countries like China, with significant economic clout, will take on greater leadership; will such countries play a constructive role, advance the global trade agenda, and facilitate compromise among competing interests? China has voiced support for globalization and the multilateral trading system under which it has thrived. The Chinese government's recent white paper on the WTO stated the following: "The multilateral trading system, with the WTO at its core, is the cornerstone of international trade and underpins the sound and orderly development of global trade. China firmly observes and upholds the WTO rules, and supports the multilateral trading system that is open, transparent, inclusive and nondiscriminatory." At the same time, China has blocked further progress in certain initiatives, including the WTO plurilateral Environmental Goods Agreement, and has not put forward a sufficiently robust offer on government procurement to join that WTO agreement, a long-standing promise. With its industrial policies that advantage domestic industries, some analysts contend that China often abides by the letter but not the "spirit" of WTO rules, raising questions about the country's willingness in practice to take on more leadership responsibility in the WTO context.

Another related concern voiced by the United States and other WTO members is the role of large emerging markets and the use of developing country status by those and other countries to ensure flexibility in implementing future liberalization commitments. The United States could work with other WTO members to set specific criteria to clarify the "developing" country qualification, such as using a combination of metrics including GDP, per capita income, and trade volume. Members could be given incentives to graduate from developing status; different WTO agreements could offer different incentives.

Priorities for WTO Reforms and Future Negotiations

The Administration included "reform of the multilateral trading system" in its 2018 trade policy objectives. Congress may also hold oversight hearings to ask the USTR about specific plans or objectives regarding WTO reforms for the institution, dispute settlement, or in regards to updating or amending existing agreements to address trade barriers and market-distorting behaviors not sufficiently covered by current rules. Congress could also consider directing the executive branch to increase U.S. engagement in reform negotiations, by, for example, endorsing the current trilateral negotiations announced by USTR, the EU, and Japan to address nonmarket practices, mostly aimed at China. Congress may also want to review the recent report by economists from the WTO, the IMF, and the World Bank that identifies potential areas for greater trade integration, and determine which are in the U.S. national economic interest. Congress could further consider establishing specific or enhanced new negotiating objectives for multilateral trade agreement negotiations, possibly through amendment to TPA. Congress may request that USTR provide an update of ongoing plurilateral negotiations to address new issues, including digital trade—specified by Congress as a principal trade negotiating objective of TPA.

Some experts argue however, that recent U.S. unilateral tariff actions may limit other countries' interest in engaging in future WTO or other negotiations to reduce international trade barriers and craft new rules. Such concerns are amplified given the proliferation of preferential FTAs outside the context of the WTO, which have the potential for discriminatory effects on countries not participating, including the United States. Congress may consider the long-term implications of the U.S. actions on current and future trade negotiations.

Outlook

The future outlook of the multilateral trading system is the subject of growing debate, as it faces serious challenges, some long-standing and some emerging more recently. Some experts view the system as long stagnant and facing a potential crisis; others remain optimistic that the current state of affairs could spur new momentum toward reforms and alternative negotiating approaches moving forward. Despite differing views, there is a growing consensus that the status quo is no longer sustainable, and that there is urgent need to improve the system and find ground for new compromises if the WTO is to remain the cornerstone of the trading system.

Debate about the path forward continues. Recent proposals for WTO reforms and for new rules have provided the seeds for new ideas, though concrete solutions and next steps have yet to be agreed among countries involved in discussions. In the near term, several events on the horizon could provide added impetus for resolving differences and assessing progress. The dispute settlement system could cease to function by late 2019 if the terms of the three remaining AB members continue to expire without the approval of new appointments. WTO members will also face their biennial Ministerial Conference in June 2020, which could provide an opportunity for countries to announce completion of ongoing negotiations, such as on fisheries subsidies, and concrete progress in other areas of long-standing priority, including the plurilateral efforts launched during the 2017 Ministerial. Meanwhile, other ambitious trade initiatives outside the WTO are proceeding, including the CPTPP, which entered into force in December 2018 for several members and which many analysts view as providing a possible template for future trade liberalization and rulemaking in several areas.