US and EU contemplate reshaping WTO after Azevêdo’s departure

The departure of World Trade Organization director-general Roberto Azevêdo offers the US the opportunity to reshape the global body, say analysts — but European diplomats have warned it will take a transatlantic alliance to do so.

Mr Azevêdo announced last week he would leave the WTO in September, a year before his term in office runs out.

Both Democrat and Republican administrations have long accused the WTO of overreaching its remit by issuing quasi-judicial rulings on trade disputes between members, several of which have criticised US anti-dumping rules.

Stephen Vaughn, a former USTR trade counsel under US trade representative Robert Lighthizer and who is now at the law firm King & Spalding, said Mr Azevêdo’s departure offered Phil Hogan, the EU’s trade commissioner, a chance to enter into discussions over global trade rules with Mr Lighthizer.

“If we can, it’s still possible for us to come to some common understanding about how the WTO should work,” said Mr Vaughn. “And if so, we can try to build up.”

While the director-general of the WTO does not wield rulemaking authority, the US has become frustrated that its concerns about China, along with criticisms of the body’s dispute settlement mechanisms, have not been addressed.

“I think [Mr] Lighthizer is willing to play hardball,” said Clete Willems, a former Trump administration trade official who now works as a lawyer. “There need to be tough conversations about the focus — the organisation has become very bureaucratic and not as responsive to members as it should be.”

In a joint statement late last year, a bipartisan group of senators criticised the designation of China as a developing economy, which allows it to meet different trade targets and commitments, and suggested the WTO should do more to make sure Beijing was accurately reporting the level of state subsidies offered to businesses.

More recently, both Democrat and Republican lawmakers have argued the coronavirus pandemic has exposed the threat to US sovereignty posed by having the supply chains of several key US industries based in China. Republican senator Josh Hawley earlier this month called for the abolition of the WTO.

Mr Willems said while he sympathised with those on Capitol Hill who worried the WTO did not fairly enforce trade rules when it came to China, the US should stay in the organisation. “It would be a grave mistake to walk away and cede the global trading system to China. We need to work with Europe on this,” he said.

An EU official said there was “a broad agenda of reform to be enacted in the WTO in the coming period of time”.

“Now more than ever, in light of the ongoing Covid-19 crisis, we need a relevant and reformed WTO with strong and active leadership,” the official added.

There are already signs that Brussels wants Mr Azevêdo’s replacement to come from an advanced economy.

“We note that a director-general from a developing member has held the post for the previous two mandates,” the EU official said. “Following established precedent, it is now the time for a new DG to emerge from the developed group of members in the WTO.”

In a note to Mr Lighthizer sent on April 30 — before Mr Azevêdo’s resignation was announced — Mr Hogan proposed that the EU and US “should take the lead in updating the WTO framework for international trade with a view to rebalancing it to today’s realities”.

“The US does sense an opportunity and they need the EU to get anywhere,” said an EU diplomat, noting that “an American director-general is out of the question” but a European replacement for Mr Azevêdo was a more realistic prospect.

Candidates showing an interest in succeeding Mr Azevêdo so far have emphasised judicious reform rather than radical change.

The timing of the resignation will hand US president Donald Trump’s administration a considerable amount of power over the nomination, although the process could stretch into next year if the WTO appoints an acting director-general.

One US business lobbyist expressed concern over the US’s power to influence a multilateral organisation ahead of November’s presidential election.

“I don’t think a lot of countries are going to bend over backwards to pressure from Bob Lighthizer and the Trump administration right now, particularly when they don’t have to,” he said. “You can drag this thing out for some time.”

The European Commission declined to comment.

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