In his book titled The Great Transformation, Karl Polanyi analyzed the social and political upheavals that took place in England during the rise of the market economy.Footnote ¹ The period referred by Karl Polanyi has long passed, but the global economic development is standing at a historical crossroad once again, in the era of globalization and free trade. Profound changes in international trade and investment governance have taken place in recent years. Among these changes, the crisis of the multilateral trading system with the World Trade Organization (WTO) at the center is outstanding and significant.

While criticisms of the WTO have been in existence for a long time, the issue of a “WTO crisis” seems to have been brought to the global limelight since the United States changed its trade policies three years ago. The U.S. policy change has not only given rise to intense trade frictions between the United States and many other countries, but has also thrown the WTO multilateralism into an unprecedented storm. The United States has alleged, among other things, that the WTO cannot defend fair trade, and as a reaction, it has proposed to reform the WTO, blocked the designation of judges for the WTO Appellate Body (AB), and challenged the legitimacy of the newly established multiparty interim appeal (MPIA) arrangement. Aside from attacking the WTO, the United States has also frequently taken unilateral measures to defend its trade interests, especially in the form of tariff rise.

Notably, U.S. policy change has provoked an unprecedented trade war between the two biggest economies of the world, the United States and China. The United States alleged that China has not fulfilled its WTO commitments and engaged in unfair trade conducts that harms U.S. interests, such as intellectual property theft, whereas China accused the United States of taking unilateral acts, which violates WTO rules.Footnote ² Though the United States and China have concluded a trade agreement,Footnote ³ it seems that neither has since ceased taking unilateral measures, and it is unclear if they are satisfied with the performance of the agreement. Up to the present, the U.S.-China trade war has escalated into a full-fledged conflict. It is fair to say that the WTO has not only become an important frontline of the trade war, but the trade war has also “nourished the fears of WTO governance crisis.”Footnote ⁴

While it is easy to argue that unilateral conduct by a WTO member are a deviation from WTO multilateralism, such accusations do not truly help solve the issue. The key to the issue, in my perspective, is to find out whether and to what extent the WTO is able or unable to play a constructive role in ensuring a fair global trade order.

It is submitted that the WTO is inadequate in delivering and defending fair trade for a number of reasons. First, while free trade is deemed as a rationale for the WTO, fair trade is not an underlying notion for the WTO. In fact, the term fair trade is typically used in the context of competition law. Though WTO agreements contain various rules that could be applied to help level the playing field among members, they typically authorize members to take trade remedy measures to offset the harm to the domestic markets, in the form of tariff measures. Such rules could only have a limited role in ensuring fair trade, as they do impose affirmative obligations on members to engage in fair trade. In fact, disputes relating to trade remedy form a major part of WTO disputes,Footnote ⁵ and the settlement of these disputes do not seem to meet the satisfaction of the United States.Footnote ⁶ Such a situation partly explains why the United States demands reciprocity from China in the trade war.

Second, from a normative perspective, WTO law adopts a narrow understanding of fair trade. It is suggested that the General Agreement on Trade and Tariffs (GATT) of 1994 only incorporates a few agreements to deal with unfair trade practices, namely the Anti-Dumping Agreement and the Subsidy Agreement.Footnote ⁷ These agreements provide importing members an opportunity to take necessary tariff measures to confront imports that could distort the domestic market order. While they might be used to defend fair trade, they only capture a limited type of trade distorting practices due to their limited scopes. For instance, these agreements are unable to properly address the outstanding issue of state-owned enterprises (SOEs). In the high profile U.S.–Anti-Dumping and Countervailing Duties on Certain Products from China case, even though the WTO AB ruled that certain Chinese SOEs per se do not constitute a “public body” within the meaning of the Subsidy Agreement, the United States still opined that the involvement of Chinese SOEs constituted an act of unfair trade.Footnote ⁸ To some extent, the lack and vagueness of rules makes it difficult for the WTO to regulate a wide range of unfair trade in a more effective way.

Third, the WTO seems incapable of dealing with the grave concerns over non-market economy and state capitalism in a systematic way, which are often deemed as the root reason for unfair trade at the global level. To confront such a challenge, WTO members have to resort to unilateral or plurilateral measures. For instance, despite the expiration of paragraph fifteen of the China Accession Protocol by the end of 2016, major economies, including the United States, Japan, and the European Union (EU) refused to adopt the standard way of calculating dumping margin of exports from China; rather, new tests and methodologies have been introduced to deal with the post-expiration situation. In this way, the EU is a typical example. In 2017, the EU significantly changed its anti-dumping legislation by adopting a new way of calculating the dumping margin in anti-dumping investigations on imports from WTO members whose prices and costs are distorted because of state intervention.Footnote ⁹ In the accompanied country report on China, it was implied that the new legislation targets the “trade distortive acts” of China.Footnote ¹⁰ Clearly, the expiration of paragraph fifteen of the China Accession Protocol fails to expel members’ long-standing concerns over China's non-market economy; rather, it actually ignited greater concerns. While China has initiated WTO disputes against the United States and the EU, it has recently dropped the case against the EU without giving a clear explanation.

As can be seen, if one is to agree that the WTO should pursue and defend fair trade at the global level in addition to free trade, one may also agree that the WTO is incapable of living up to this goal. To achieve this goal, not only the WTO rules and institution should be reformed, but WTO members also should implement necessary reform measures. Yet, from a practical perspective, rule-making in the WTO is difficult, as has been shown by the failure of the Doha Round. Besides, as WTO decision making remains based on consensus, any major reform of the WTO would be difficult given the diversity of WTO members. In this sense, potential transformation of the WTO from a free trade institution to a fair trade institution is a great challenge to the international community and individual countries. Thus, it is worth observing whether and how the United States will use its global influence and leadership to reform the WTO at the multilateral level and/or to push individual WTO members at the bilateral or regional level.