- - - - - 29 Free trade agreements trade Free Tariff Reductions and Trade Liberal As bilateral, regional, and plurilateral trade plurilateral and regional, bilateral, As heritage.org/Index ization for Everyone. for ization but through its rules and its staf, it ofers an from being any kind of “world government,” plished—or in some cases even could have ac seems as though there is always a new one be success in a number of areas. The WTO is far dreds of bilateral, regional, and plurilateral complished—in comparison with preferential or abandoned. agreements proliferate, it may seem that the it make that and vital is WTO the which in areas trade agreements are now in existence, and it there are several aspects of the trading system’s system’s trading the of aspects several are there trade agreements. What follows are some key unlikely that the system will be either replaced replaced either be will system the that unlikely ing negotiated. Despite their number, however, however, number, their Despite negotiated. ing international framework for promoting and managing freer trading relationships among countries. of the world’s most liberalization that only the WTO has accom FUNDAMENTAL IMPORTANCE IMPORTANCE FUNDAMENTAL OF THE WTO THE OF WTO’s role has diminished over time. However, However, time. over diminished has role WTO’s (FTAs) make a lot of headlines these days. Hun days. these headlines of lot a make (FTAs) ------The Heritage Foundation | Heritage Foundation The includes coverage of every WTO member and observer except Andorra and the Holy See. While the While and the Holy See. Andorra except member and observer WTO of every includes coverage

Like Like most trade the agreements, WTO con The GATT could have been just another SPECIAL FOCUS: THE FREEDOM TRADE TO

n 1947, a trade agreement called the General n 1947, s and Trade (GATT) was was (GATT) Trade and fs Tari on Agreement individual EU member states. The Index of Economic Freedom Economic of Index The to limits its EU coverage the Index as a full member of the WTO, countries joining its constituent by special status Union enjoys European permanent, with new elements added over time, time, over added elements new with permanent, stitution. stitution. Early in the era, GATT a Secretariat sists sists of individual elements that cover a range sequent trade agreements. Instead, it became supposed to be part of a larger project called signed by 23 nations. Its lasting impact may not not may impact lasting Its nations. 23 by signed curement, and intellectual property, among others. Just as important, however, it is an in of trade policy issues: tarifs, agriculture, do ching framework of rules that governs today’s couple of years later and never came into force. into came never and later years of couple and was expanded to cover many new countries. countries. new many cover to expanded was and tioning. That Secretariat has continued under the WTO and is a key element of the WTO’s trade agreement that was surpassed by sub the International Trade Organization, but that that but Organization, Trade International the have been clear to its creators at the time. It was was It time. the at creators its to clear been have mestic regulations, services, mestic government services, regulations, pro institution was rejected by the U.S. Congress a the U.S. rejected by was institution was established to oversee the func GATT’s world trading system. Simon Lester In 1995, the GATT was transformed into the

World Trade Organization (WTO), the overar I

THE WTO IN THE WORLD WORLD THE IN WTO THE SYSTEM TRADING THE CENTRAL ROLE OF OF ROLE CENTRAL THE 30 WORLD TRADE ORGANIZATION AGREEMENTS ORGANIZATION TRADE WORLD SOURCE legal_e/ursum_e.htm (accessed September 27, 2019). Procurement Government on Agreement Aircraft Civil in Trade on Agreement Mechanism Review Policy Trade Settlement of Disputes the Governing Procedures Understanding on Rules and Rights Property of Intellectual Aspects Trade-Related on Agreement Trade Services in on Agreement General Safeguards on Agreement Measures Countervailing and Subsidies on Agreement Procedures Licensing Import on Agreement Origin of Rules on Agreement Inspection Preshipment on Agreement Valuation of Customs Implementation on Agreement of Antidumping Implementation on Agreement Investment Measures Trade-Related on Agreement to Trade Barriers Technical on Agreement Measures Phytosanitary and Sanitary of Application the on Agreement Agriculture on Agreement ) 1947 ( Trade fand s Tari on Agreement General AGREEMENTS :

World Trade Organization, “Legal Texts: theWTO Agreements,” https://www.wto.org/english/docs_e/ 2020 Index of Economic Freedom goods and services purchased by. members for the non-discrimination and transparency Increases f Removes tari f non-tari and to . civil aviation barriers trade . agreements various the they upholding are whether and review for members a periodic Establishes members to litigate and resolve issues over other agreements. to enable system settlement dispute existing the Strengthens . settlement a dispute including property intellectual Establishes rules and disciplines around the protection of Establishes an equal treatment for services across members. . competition import from industry domestic to protect measures safeguard to enact ' ability members on limits Sets groups and the industry level. of countervailing duties imports against defia more Establishes nitive defi for for subsidies rules and nition . licenses import , for applicable of restrictions amount the , and required information the Increases . restrictive is that excessively not areas certain from originating goods of trade for the standard a long-term and transparency Increases outflthe to restrict inspections . ow of trade preshipment use excessively cannot governments Ensures . members between goods of imported value customs the Normalizes f a su through going . at Worldthe Trade investigation cient Organization fi without measures antidumping to apply ' ability rst members Limits . requirements content local on well as restrictions as investment for treatment ' equal members allowing includes . This trade distort or restrict could that members between to investment barriers Removes . members between for trade process regulatory the Eases . products certifi for and , cations testing f, non-tari Removes like standards trade on restrictions . rules additive restrictive overtly on based imports restricting from governments . Prevents like pesticide additives with certain produced animals and of plants trade for the transparency Increases security, environment, and concerns of developing countries . of food issues addresses . Also access market limited and subsidies like export produces for agricultural support domestic Reduces the for fair internationalallowed trading system betweenhas members. It . it know f in e toan trade we of barriers removal ato as more build ort Organization Trade The legal framework that established the modern World DESCRIPTION 1 Table

A heritage.org - - - 31 The The When 2 Dispute Settlement Understanding. Settlement Dispute One of the key reasons for the WTO dispute dispute WTO the for reasons key the of One While FTAs violate the MFN principle, WTO WTO principle, MFN the violate FTAs While heritage.org/Index been the NAFTA’s, but in 2000, the United barriers to trade with outsiders. barriers to Without such trade with outsiders. panels, and a separate Secretariat assists the pute mechanism of choice for resolving trade system could see a downward spiral toward continued success is the settlement system’s sector-specific sector-specific arrangements are prohibited. existence of an independent Secretariat to enterprise of multilateralism, and the trading dis trade international the been has it decades, conflict. As of this writing, in the years since contrast, the hundreds of FTAs in existence barriers, trade about complaints have countries other countries. They represent preferential conditions the but exception, an as conditions, could undermine FTAs the whole constraints, appellate “judges” who hear appeals of panel appellate rulings, and 51 arbitration rulings. By By rulings. arbitration 51 and rulings, appellate Secretariat provide primary assistance to the States blocked the appointment of a panel, and and panel, a of appointment the blocked States trade alliances and greater conflict. the establishment of the WTO in 1995, under the Dispute Understanding (DSU), Settlement they generally go for resolution. to the WTO tarif s to the FTA partners than they ofer to than free trade. trade rather that cover substantially all trade are allowed; under attack. Nonetheless, for the past several several past the for Nonetheless, attack. under have led to only a handful of complaints. The manage the process. Two divisions of the WTO WTO the of divisions Two process. the manage The reports. role of the WTO f sta is crucial in needed, when appointed are panels sure making most active non-WTO dispute mechanism has mechanism dispute non-WTO active most no panels have been set up since then. rules do allow FTAs, provided they meet certain meet they provided FTAs, allow do rules in this act exception as a constraint on the de riers the between partners rather than raising velopment of sectoral trade alliances through 586 complaints have been filed, in addition to which there have been 242 panel rulings, 141 FTAs. Only deep FTAs (or customs unions) bar internal lowering on focus must also FTAs WTO’s dispute settlement issystem WTO’s currently Appellate Body, the standing group of seven ------One spe One In addition, for 1 The Heritage Foundation | Heritage Foundation The Most Favored Nation Principle. Nation Favored Most In contrast to this, FTAs are fundamentally are FTAs this, to contrast In The WTO provides an overarching frame The GATT started with 23 “contracting par “contracting 23 with started GATT The At its core, the GATT/WTO has always been been always has GATT/WTO the core, its At but they cannot replace it. but they cannot ber government, there have been commitments commitments been have there government, ber between each member and 163 other members. other 163 and member each between favored favored nation (MFN) treatment. This princi ple means that countries agree to treat all other other all treat to agree countries that means ple products was brought down from over 40 per static in their membership; the WTO has grown grown has WTO the membership; their in static countries and They against others. ofer lower cific principle that FTAs cannot o fer is most of almost the entire world, including all of its cent to less than 4 per cent.” each WTO member government, there is a commitment not to use domestic regulations at odds with the MFN principle. By their very area of food safety), it commits to applying and taxes to discriminate against foreign goods. foreign against discriminate to taxes and about trade liberalization. For each WTO mem WTO each For liberalization. trade about and many more accessions are underway. That underway. are accessions more many and those regulations to all of its trading partners trade. For trade.example, For if a government commits percent, 2.5 to s f tari automobile its lowering to tions that applies to the trading relationships to reduce tari fs. “In eight rounds of negotia WTO leading a as 1994,” and 1947 between tions textbook explains, “the average level of tari fs tremendously. The WTO now has 164 members, members, 164 has now WTO The tremendously. ties,” but the the over years, accession process, ties,” these agreements do not cover all of the trading the of all cover not do agreements these has domestic regulations (for example, in the nature, FTAs discriminate in favor of some in the same way. in the same rather than discriminate among them with a it must charge that same rate to all countries major economies. FTAs can supplement that, imposed by developed countries on industrial means the WTO covers the trading relationship relationship trading the covers WTO the means many more. Most trade agreements remain relationships covered by the WTO. by covered relationships variety variety of Along rates. the same where lines, it work of general principles and specific obliga with the assistance of the Secretariat, added WTO member countries equally in relation to Appellate Body were able to figure out that most 32 Technical Barriers to Trade and on Sanitary Sanitary on and Trade to Barriers Technical III, paragraphs 2 and 4, or the agreements on on agreements the or 4, and 2 paragraphs III, In cases where the tax or regulation explicitly explicitly regulation or tax the where cases In FTA disputes, parties have to figure out the the out figure to have parties disputes, FTA Body have beenhelpful:therulesondisguised way, the balance of commitments way, is maintained. of commitments the balance neutral on its face. However, the panel and the obvious,but is protectionism ones,the mestic a provided has that way a in cases specific in to used be to not are taxes and regulations actions take to governments force not does it it strikes a good balance between enforcement ready in place for every dispute that might arise. ucts on the basis of alcohol content looked looked content alcohol of basis the on ucts the true purpose of the law was thus to protect do similar than worse goods foreign treats that are politically infeasible. If a government is always straightforward. provi These Measures. Phytosanitary and accept retaliation from the complainant. In this ance with panel and Appellate Body rulings, but compli flexibility. encourages and strongly It legal and administrative providing as well as great deal more certainty about the boundaries. clarifications by panels and the Appellate Appellate the and panels by clarifications where particular in one is there but issues, of instead and policies its change to not choose systemal fectivee is and efcient an contrast, domestic producers. domestic goods had a low alcohol content, and prod liquor taxed that law Chilean a example, to rules these apply to How competition. eign support in handling complex litigation. For litigation. complex handling in support sometimes the discrimination is implicit. For implicit. is discrimination the sometimes specific government measures, however, is not domestic that terms broad in explain sions pellate Body have applied these obligations obligations these applied have Body pellate for from goods of producers domesticprotect GATTArticle in those as such protectionism, process from scratch each time. At the WTO, by foreign goods had a high alcohol content, most found to have violated WTO obligations, it can dence. The DSU has been successful in part because Over the years, WTO panels and the Ap the and panels WTO years, the Over igie Poetoim Jurispru Protectionism Disguised The DSU has dealt with a wide range range wide a with dealt has DSU The 3 2020 Index of Economic Freedom ------ects” (loosely speaking, econom speaking, (loosely efects” “adverse WTO disciplines, it would be much more dif more much be would disciplines,it WTO It specifically prohibits export subsidies and and subsidies export prohibits specifically It yond a certain amount, and these amounts are veloped jurisprudence under the DSU, the WTO initiated under the DSU, 196 have been related remedies may be politically necessary in order ic harm to foreign competitors). In addition, addition, In competitors). foreign to harm ic help toprevent thisprotectionist abuse. has become the natural place to hear these cases. to trade remedies. In such cases, without the the without cases, such In remedies. trade to tlement. Of the 586 complaints that have been tors. What the WTO rules in this area do is ofer competi foreign from protection seeking tries indus domestic by abuse to subject tentially po are they but completed, deals trade get to causes that trade “fair” and “unfair” both to covernot FTAsdo that but disciplines tensive FTAs,are and there WTO the of coverage the tween two countries, but because of the well-de through theWTO’s AgreementonAgriculture, a set of procedural and substantive rules that that rules substantive and procedural of set a and countervailing duties and safeguards. Such and are unlikely ever to cover. Two of particular governments have made commitments not to to not commitments made have governments of traderemediesincheck. disguisedprotectionismoften the keep to cult set dispute WTO of subjects main the of one antidumping include measures ducers.These pro domestic to injury economic threatens or response in used be can that measures other areas for which the WTO has ex certain policy be applies one if FTA an in handled be could country-by-country basis, subsidies have a broad cause anythat to subsidies related obligations has also it and subsidies, content domestic goods. for subsidies of use the on constraints significance aretraderemediesandsubsidies. subject toreductioncommitments over time. provide subsidies to designated products be products designated to subsidies provide sidies. “Trade remedies” refers to certain tarifs and As for subsidies, the WTO provides general general provides WTO subsidies,the for As Intheory, cases ofdisguised protectionism Unlike tariffs, which can be applied on a on applied be can which tariffs, Unlike Over the years, trade remedies have been been have remedies trade years, the Over Obligations on Trade Remedies and Sub While there is a great deal of overlap in ------33 - In the view from the agreed upon rules. The Bush and from the agreed upon rules. of the United States, the Appellate Body— of the United States, gaged in “judicial activism” (exceeding its gaged in “judicial activism” (exceeding Role of the Appellate Body. and blocked the reappointment of certain the reappointment of certain and blocked judgesnew substituting “judges,” appellate the WTO’s appeals “court”—has been en the WTO’s mandate in various ways) and has deviated mandate in various ways) icisms of the Appellate Body on this basis Obama Administrations voiced some crit Obama Administrations voiced One source of problems is the broader mem broader the is problems of source One Despite all of these benefits, it is clear that not not that clear is it benefits, these of all Despite In addition, the Trump Administration has heritage.org/Index

bership that exists today and the growing pow and the today growing bership that exists been enough to bring the rest of the member but broader liberalization has remained elusive. but broader liberalization for the future. However, protests for at protests the the future. 1999 However, Se put forward several serious criticisms of the ship along and serve as the basis for a deal. Now, Now, deal. a for basis the as serve and along ship side of the more contentious litigation process. litigation contentious more the of side er of certain middle-income which countries, cus on plurilateral agreements by which coun own without having to seek others’ consent. point this at clear not is it and system, existing each other’s trade policies and raise issues out issues raise and policies trade other’s each cess of the Uruguay Round, which led to the es Agreement, Facilitation Trade the as such cesses, great deal of angst about the future of the WTO as as WTO the of future the about angst of deal great agreement among the United States, the Eu this of success the but made, being are attempts been demonstrated. yet approach has not all is well withAfter thethe WTO. immense suc the of failure the and Conference Ministerial attle a negotiating forum. There have been some suc though, China, Brazil, India, and others have to be on board as well. Some have suggested that perhaps the WTO negotiations should fo their on so do can forward move to willing tries tablishment of the WTO, expectations were high high were expectations WTO, the of tablishment how these issues should be resolved. how makes agreement harder to reach. In the past, ropean Union, and Japan, Canada might have Doha Round talks launched in 2001 have caused a caused have 2001 in launched talks Round Doha E-commerce and services are two areas where areas two are E-commerceservices and CURRENT THECRISES WTO AT • ------The Heritage Foundation | Heritage Foundation The 4 Many of the WTO’s benefits, benefits, WTO’s the of Many Laws, regulations, judicial decisions and judicial decisions regulations, Laws, ments, restrictions or prohibitions on imports or prohibitions restrictions ments, pertaining to the classification or the valuation or the valuation the classification pertaining to ecting their sale, distribution, distribution, their sale, ecting or af therefor, inspec warehousing insurance, transportation, use, other or mixing processing, exhibition, tion, as to enable governments and traders to be to and traders enable governments as to administrative rulings of general application… rulings of general administrative shall be published promptly in such a manner in such shall be published promptly come acquainted with them. with acquainted come or exports or on the transfer of payments of payments or on the transfer or exports of products for customs purposes, or to rates rates purposes, or to customs for of products require or to or other charges, taxes of duty, Finally, the WTO periodically conducts However, publicationHowever, and notification are First, through several specific obligations, Transparency. In addition, each of the individual WTO fect trade so that other governments will be provide detailed information on their trade pol trade their on information detailed provide country-specific “trade policy reviews” of each each of reviews” policy “trade country-specific of committees where governments meet to dis to meet governments where committees of raise and notified been have that measures cuss concerns about their trade efects. In this way, others are more subtle and receive less atten ect on all trading partners. As a result, they are they result, a As partners. trading all on efect governments to enhance their understanding of of understanding their enhance to governments governments. With assistance from the Secre the from assistance With governments. graph 1 of the GATT requires the publication of of publication the requires GATT the of 1 graph agreements on particular subjects requires that requires subjects particular on agreements a wide range of measures: and notify all of their measures that might af aware of them. In this regard, Article X, para tariat, this is a very useful exercise that allows the covered measures be notified to the WTO. notified measures be the covered this in a number of ways. this in a number of the WTO requires governments to publicize tion. One that gets less acclaim than it should is is should it than acclaim less gets that One tion. other and regulations laws, on transparency the does It provides. WTO the that measures trade icy actions and respond to questions from other other from questions to respond and actions icy member. member. During these reviews, governments many many trade conflicts can be resolved without reaching the formal dispute stage. not the end of the story. The WTO has a number number a has WTO The story. the of end the not not likely to be disciplined through FTAs. to be disciplined likely not like those described above, are well known, but but known, well are above, described those like • • 4. 34 1. 3. 2. ENDNOTES members have responded with various reform WTO other issue, pressing and serious most 5. gard to the Appellate Body crisis, which is the the is which crisis, Body Appellate the to gard of the WTO in a state of uncertainty.of re state With a in WTO the of

These issues have put the future functioning United Stateswouldlike toapplyobjective Notifications. lection asitisnow. na in particular, but many other developing result, by theendof2019, theremay not be in theirplace.TheTrumpAdministration has ratcheted upthecriticismandtactics until itsconcernsareaddressed.Asa than letting itbepurelyamatter ofself-se their laws, regulations, and other measures and has proposed harsh penalties for gov and hasrefusedtoappointany newjudges Development Status. criteria todetermine whether acountry on theirfairshareofcommitments. The er basis, thus allowing them to avoid taking developing countrystatus withoutaprop ernments thatfailtonotify properly. countries aswell)arenot properlynotifying tohearnewappeals.enough judges should beclassifiedasdeveloping rather pressed concernthatsomecountries(Chi believes thatsomecountriesareclaiming =True&HasSpanishRecord=True (accessed September 7, 2019). World Trade Organization, Peter Van denBossche andWerner Zdouc, “Testimony ofRobert E.Lighthizer Before theU.S. Senate Committee onFinance,” March 12,2019, p. 2,https://www.finance.senate. World Trade Organization, “WTO AnalyticalIndex, GATT 1994—Article X(Practice),” https://www.wto.org/english/res_e/ Simon Lester, InuManak,andAndrej Arpas,“Access to Trade Justice: FixingNAFTA’’s Flawed State-to-State Dispute Settlement flawed_statetostate_dispute_settlement_process.pdf (accessed September 7, 2019). gov/imo/media/doc/ARL%20Finance%20Testimony%20March%202019%203.12.2019%20FINAL.pdf (accessed September 7, 2019). core/content/view/833E151474CD2198068A6EB094759545/S147474561800006Xa.pdf/access_to_trade_justice_fixing_naftas_ aspx?language=E&CatalogueIdList=49341&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord University Press, 2017), p. 84. publications_e/ai17_e/gatt1994_art10_oth.pdf (accessed September 9, 2019). DS110/AB/R, December 13,1999, adopted January12,2000, https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP. Process,” World Trade Review TheUnitedStateshasex Chile—Taxes onAlcoholic Beverages , Vol. 18,Issue 1(January 2019), pp. 63–79, https://www.cambridge.org/core/services/aop-cambridge- TheUnitedStates 2020 Index of Economic Freedom The Law andPolicy of theWorld Trade Organization ------, AB-1999-6, Report of the Appellate Body, WT/DS87/AB/R, WT/ A good-faithA e fort allonsides should leada to Trump Administration. The Administration Administration The Administration. Trump In all likelihood, there will be workarounds that CONCLUSION Representative Robert Lighthizer, although a although Lighthizer, Robert Representative weaknessesand concerns about its functioning. we would need to inventit.”to need would we that. achieve to how about ideas own its ward long-time critic of the WTO, has emphasized its its place at the center of the world trading system. some address to opportunity an represent WTO the currentatcrisesperfect.ever The is importance: “The WTO is a valuable institution, members can adopt, such as agreements not to for put not has but 1995 in written as rules have said before, if we did not have the WTO,the have not did we if before, said have the reflect systemshould the that insisted has the Appellate Body poses a real threat to the to threat real a poses Body Appellate the States to advance our interests on trade. As I As trade. on interests our advance to States ers many opportunities for the United United the for opportunities many ers f o and system.U.S.trading world the of part Trade al of use the or case a appeal gional FTAs can supplement the WTO, but they cannot replaceit. dispute settlement system. strengtheningofthe WTO inorder topreserve proposals, but none of these has satisfied the the satisfied has these of none but proposals, for appeals, but the potential disappearance of The WTO is a fundamental and foundation and fundamental a is WTO The Nevertheless, no organization or set of rules rules of set or organization Nevertheless,no , 4thed.(Cambridge: Cambridge ad hoc ad 5 Bilateral and re arbitrations arbitrations - - -