We have highlighted what Ambassador O'Sullivan said about WTO dispute settlement because it is the immediate crisis facing the organization. It was the subject of the last GBD event (see below) and, almost certainly, of more work to follow. The time is long past when a U.S.-EU agreement was, essentially, a sufficient basis for a multilateral deal - those were the GATT years, not the WTO. By the same token, however, it is hard to imagine any solution to this problem (or any other in the WTO) without some meeting of the minds between Brussels and Washington.
If the challenges to the dispute settlement system are the immediate crisis facing the WTO, the smoldering and possibly larger crisis goes by the name of preferences. Originally, there were no preferences among the signatories to the General Agreement on Tariffs and Trade. That is the meaning of the bedrock principle of Most Favored Nation (MFN), enshrined in the first article of the GATT. It reads in part:
Any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.
That is not the world we live in. Today's world is a world of preferences. NAFTA, CETA, TPP, KORUS. They are all preference arrangements, and MFN is a second-class status at best. We can't put our fingers on the global import data that would drive this point home, but the following USTR statement about the United States is instructive:
Approximately 96 percent of U.S. merchandize imports are industrial (non-agricultural) goods. ... One half of all industrial goods entering the United States enter duty free.
Surely the explanation for that is the large number of imports from countries with which the U.S. has free-trade agreements.
We do not offer these observations as criticisms of the European Union. In today's world, its pursuit of preferential trade agreements is eminently sensible and its success in those endeavors laudable. In his remarks at WITA, Ambassador O'Sullivan also talked about the negotiating side of the WTO, describing it as not functioning well. (He called that "Irish understatement.") Yes, there have been some successes such as the Trade Facilitation Agreement, but the major effort, the Doha Round, failed. Our impression is that many over the years, ourselves included, have ascribed that failure to a north-south divide within the WTO membership, with India often taking the lead as spoiler. At some point, however, one has to ask: If MFN is now an anachronism, what is the guiding principle of the WTO-based world trading system?
