Vital Interests: Greg, thanks for returning to the Vital Interests forum. Our last conversation was about the Trump’s administration's aggressive and norm-shifting trade policies toward China.

Today we will be discussing your new book Emerging Powers and the World Trading System: The Past and Future of International Economic Law. You begin in the post-war era when the United States and Europe were creating a world order after the debacle of the Second World War. But let’s briefly go back a bit further as trading systems have been an economic and cultural defining feature throughout history, going back to Roman times and when Marco Polo travelled the Silk Road to China.

For centuries European colonial empires were built on trade. After the First World War and the decline and collapse of the colonial imperialist order, there was a push for a more liberal world trading system. Could you provide a brief overview of the ideas that were in place when the United States and Europe orchestrated what they considered to be an effective and fair international trading system for the postwar era?

Greg Shaffer: Thank you, John. It's very important to go back in history to remember where we were because, unfortunately, people forget the historical antecedents for understanding and evaluating the current context. 

To recall, during the 1930s, you had a version of trade wars involving competitive currency devaluations. Countries adopted beggar-thy-neighbor policies through raising tariffs and other trade restrictions on each other, including by devaluing their currency and thus making imported foreign products more expensive. The aim was to increase employment at home and export unemployment problems abroad during the Great Depression. Of course, the natural response was that other countries did the same to protect themselves. In the end, everyone was hurt, and the global environment was primed for increased tension and conflict. This story of tit-for-tat retaliation and trade wars, which contributed to the deepening of the Great Depression, is well known. 

Another part of the story, which is less well-known, was the creation of trading blocs. Germany became the hub for trading networks in Central Europe. Japan feared that it was being cut off from vital natural resources. Part of Japan’s expansionist move throughout Asia and its investment in becoming a naval power was to protect its growing economy. As an island nation with limited natural resources, the Japanese were concerned that they would be cut off from vital supplies. 

These two aspects of that history are important for understanding the current U.S.-China relationship. We saw growing protectionist, tit-for-tat retaliation under the Trump administration’s trade war, which can be mutually harmful for both Chinese and American citizens. In addition, China is concerned that it can be cut off from vital natural resources given existing sea routes, such as through the Malacca Strait. Part of Chinese strategy has been to build new outposts in the South China Sea, develop new ports where it can dock its ships, and create a Belt and Road Initiative that ties Asian and other economies to it, thus enhancing its regional influence and leverage. These developments have led to increased international tensions that could result in more serious conflict.

VI: Hasn’t the United States also played this game? American involvement in the Middle East has been all about protecting vital supplies of oil. For many years the United States maintained its Monroe Doctrine attitude toward Latin America as a U.S. domain to extract natural resources and have free economic access to markets. So this is not just a European or Asian attitude?

Greg Shaffer: Yes, there is a neo-colonial aspect that is part of these developments where both sides are trying to enhance leverage vis-a-vis each other, including through their own expansionist tendencies and alliances. China has been relatively successful in Asia, and the U.S. has rebranded its policies for Asia, now called the Indo-Pacific, in the hope of developing new allies in India and elsewhere and "counter and constrain China".

VI: How did the peace negotiation at the end of WWII address the tariff wars and tit-for-tat economic policies that exacerbated the Depression and the economic tensions that led to the war? The UN was created to address aggression and provide for collective security but plans for an organization to oversee world trade were not realized until 1995. There was the General Agreement on Tariffs and Trade (GATT) which articulated free trade ideas, but it did not have any enforcement mechanism. What happened during the intense Cold War years in terms of economic expansion and protection of economic interests abroad?

Greg Shaffer: There was an attempt to create an International Trade Organization in 1948 of which the GATT was a part. It was the United States Congress, which long has been wary of international constraints, that blocked the creation of this organization. The U.S. executive, nonetheless, agreed to the GATT, which Congress never ratified. Even though the GATT was just an executive agreement (in U.S. constitutional terms), the parties to this agreement created a de facto institution, a very small one on the shores of Lake Geneva in the same building in which the WTO resides today. Over time a GATT dispute settlement system developed to resolve disputes under the rules, and although any member could block the creation of a panel or the adoption of a decision, it became relatively functional, with variation in its use and parties’ adherence to rulings over time.

In consequence, there is a sense of continuity between the GATT and the WTO. The GATT wasn't as formalized and centralized an institution as the WTO, but it did have a secretariat that helped organize meetings for members to negotiate further trade liberalization commitments, monitor existing ones, and attempt to resolve disputes. 

The driving rationales for the GATT involved both cooperation and conflict. On the one hand, the GATT was based on the idea that economic integration would facilitate peaceful, mutually beneficial international relations. This was central to regional integration efforts in Europe as well. There the aim was to bring together Germany, France, Benelux and other countries, including the United Kingdom, in an economic and eventually a political community as a response to the two great World Wars that had plagued the first half of the 20th Century. The GATT was, in part, a multilateral variant of these integration efforts in Europe. 

On the other hand, the GATT developed in the context of the Cold War involving fierce geopolitical and ideological rivalry. The Soviet Union, as well as most of the Warsaw bloc, were never part of the GATT. Western Europe and the United States developed the GATT in part to globalize a liberal capitalist model as a collective response to concerns over the spread of Soviet communism. The Soviet Union was a military power, but not an economic trading power. In that sense, its non-inclusion in the GATT did not matter economically for GATT members. 

In the 1990s, following the end of the Cold War and the fall of the Berlin Wall, the Soviet economic and political model was discredited, which facilitated the WTO’s creation and its expanded membership. The WTO became much more legalized than the GATT. For the first time, there was an automatic and binding dispute settlement system, one in which no member could block the formation of a panel or the adoption of its decision. Moreover, the WTO had an Appellate Body with its own secretariat, which had a judicialized feel. In response, lawyers constituted a growing proportion of the WTO secretariat and private lawyers became central to cases, both directly representing governments and working behind the scenes on behalf of private companies. This development I empirically documented in my first book Defending Interests: Public-Private Partnerships in WTO Litigation.

The WTO involved much deeper economic integration than the GATT because most goods became bound by tariffs and average bound tariff rates for the major economies fell to around three or four percent.  In addition, the agreements increasingly covered behind-the-border issues, such as technical, sanitary, and phytosanitary measures, incorporated trade in services, and harmonized, for the first time, intellectual property rights. Finally, the WTO became a truly global organization after China joined in 2001 and Russia in 2012. In this sense, the WTO appeared to represent a triumph for liberalized trade and Western capitalism.

VI: What was the relationship of the newly formed WTO to the developing world, the Global South? Was part of their organizing mission to create more of a level playing field in the arena of global trade for those nations as well?

Greg Shaffer: There are different views in terms of a level playing field for low- and middle-income countries. The dominant players in creating the rules were the United States and Europe. Although developing countries did participate going back to the GATT, they had little influence in determining the core negotiating principles and rules.

They found that the GATT was basically a club dominated by wealthy countries. They tried to create what they called a “new international economic order” in the 1970s following the end of colonialism and the creation of new nation-states in Africa, Asia, and elsewhere. They wanted to control access to their natural resources, and they wanted preferential treatment because their economies had so long been dominated by the colonial powers, where the colonial powers would import their raw materials and export, in return, manufactured products. Developing countries wanted to develop manufacturing and move up the value chain of production. They tried to develop a new international economic order within the United Nations, but they were unsuccessful. 

Their lack of success is exemplified by their joining a new World Trade Organization, in which for the first time they had to commit to binding tariffs and agree to new binding rules, including regarding intellectual property, as part of a “single package” of WTO rules. In contrast, under the GATT there was a de facto understanding that while the U.S. and Europe would dominate negotiations, developing countries would receive special and differential treatment and not be expected to agree to significant tariff commitments.

Because of their lack of tariff commitments, developing countries were called "free riders", benefitting from the lower tariffs negotiated between the United States, Europe, and other developed countries. However, because they were not engaged in reciprocal bargaining, the end result was that tariff rates in the United States and other OECD countries were much higher for products from developing countries than those of rich countries. Trade barriers remained high for textiles, agricultural, and other products where they were competitive. 

VI: The negotiating meetings to create the WTO commenced in Uruguay and are known as the Uruguay Round. While national representatives from all over the globe participated, in the end, didn’t the views of the United States and Europe dominate discussions of how the new WTO was to be defined and how it would operate?

Greg Shaffer: At the time that the WTO was negotiated, developing countries/the Global South didn't have much leverage. The United States deployed two techniques that were central to the successful creation of the WTO and its body of rules. The first was to adopt unilateral measures and threats, typically pursuant to what is known as Section 301 of the 1974 Trade Act. It adopted measures against India, Brazil, and other key developing countries.

Second, when the United States joined the WTO, it withdrew from the GATT, which meant that U.S. tariff bindings would no longer apply to countries unless they also joined the WTO. That was a critical move. Developing countries basically had a choice of either joining the WTO or no longer benefiting from any U.S. tariffs commitments, while also facing ongoing threats of US unilateralism. Under the WTO, in contrast, the new Dispute Settlement Understanding contained binding provisions that could constrain U.S. unilateral measures.

In addition, negotiations were facilitated by ideological shifts that took place in the late 1980s and 1990s. Developing country officials increasingly were convinced that trade openness would be economically beneficial, a reflection of what was known as the Washington Consensus. The creation of the WTO resulted both from this shift in prevailing ideology as well as the use of bargaining leverage.

VI: By the time the next substantial discussions for WTO reforms took place in Doha in 2001, the Global South had more leverage, there was more consistency in their arguments, and they organized to confront the United States, Europe, and the developed world in demanding changes that were advantageous to them. Is that right?

Greg Shaffer: Once countries from the Global South joined the WTO, they were now in a multilateral system with binding rules and binding dispute settlement, where they increasingly exercised their voice. As the membership grew and as some developing country economies developed more rapidly, their voice became more important. The WTO— unlike the UN Security Council, the International Monetary Fund, and the World Bank—has voting rules that are not skewed in favor of large, rich countries. Voting within the World Bank and the International Monetary Fund is tied to contributions, favoring wealthy countries. These voting rules cannot be changed except by vote, and the U.S. set its quota to provide it with a veto right, which it has retained. That voting structure doesn't exist in the WTO. In this sense, the WTO is a much more democratic organization than the IMF, World Bank, and the UN Security Council. It is a forum where Global South countries increasingly exercised their voice.

During the Doha Round (named because the round commenced in Doha), Global South countries successfully framed the round as a “development” round in order for it to be launched, and they blocked U.S. and European initiatives that they believed did not support their needs.

VI: I recently had an interesting conversation with Luis Eslava about the Global South and how they used great powers' rivalry to maneuver in the international system for their own advantage. We talked about the Bandung Conference that took place in the 1950s. At Bandung, emerging nations, seeking to be recognized as not aligned, gathered to discuss their common challenges of having a voice in the evolving new world order. Is there a legacy of Bandung that lives on as Global South nations maneuvered for advantages within the WTO?

Greg Shaffer: Following Bandung, developing countries formed what was called the G77 group of nations that at times coordinated their negotiating positions. In doing so, they attempted to create a new international economic order as we just discussed.  You still see this legacy in Geneva just up the street from the WTO at the United Nations, under the auspices of UNCTAD—the United Nations Conference on Trade and Development. Today, UNCTAD at times acts as a think tank to provide input for Global South countries in developing their negotiating positions and common strategies to gain greater benefits from, and protect their interests in, the global economy.

However, under the WTO, UNCTAD and the G77 have become much less important than was earlier hoped. India and South Africa still try to work with blocs of Global South countries, but negotiating positions are often fragmented. Moreover, countries that have become more economically successful have pursued their own development paths. For example, you see such splintering of positions even within the Mercosur bloc in Latin America, covering the southern cone, where countries like Argentina, Brazil and Uruguay push to go in different directions. 

For a time, a group of large emerging economies—the BRICS named for Brazil, Russia, India, China, and South Africa—met with some hope of coordinating negotiating strategies, but tensions among these countries have undercut its prospects of working together as a collective force. 

China’s rise as an economic and military power poses the question of what are the implications for the Global South? Should China’s rise be viewed as a new challenge or a new opportunity? Because you see China and the United States both jockeying for allies, competing to offer financing for infrastructure initiatives, there is a possible silver lining from US-China rivalry in producing public goods in the form of infrastructure, provision of vaccines, and access to capital for the Global South.  Yet they also could get caught within the rivalry, creating new dilemmas.

VI: Let’s get into the core argument of your book Emerging Powers and the World Trading System. You present an interesting consequence emanating from the establishment of the WTO and its rules covering all members. Conforming to WTO rules required an institutional, economic, and professional transformation within the three countries you focus on - Brazil, India, and China. Can you explain why there had to be these deep changes in emerging nations?

Greg Shaffer: At the core of the book lies a paradox, which is why the United States, which was central to creating the WTO and its binding dispute settlement system, has now attacked and undermined it. The U.S. didn't have to create new institutions or a series of new laws and institutions to comply with WTO commitments, but countries in the Global South did. China reportedly had to “clean up” over 3,000 laws and regulations and created new institutions and courts as part of joining the WTO. As one lawyer for a Chinese state-owned company told me, joining the WTO completely changed our mentality. 

The prediction across international relations theories is that emerging powers will be the revisionist powers and incumbent powers like the United States will try to defend and retain the system that they created. But in the case of the WTO, the opposite has been the case. The U.S. has become the revisionist power, neutering the WTO’s dispute settlement system, and China, Brazil, and India now defend it. The book investigates why. Its central contribution is to trace how these countries developed what I call trade law capacity to take on and challenge, and go lawyer-to-lawyer, expert-to-expert, with the United States and Europe, whether in the negotiation of new rules or litigation and settlement under existing ones.

China, Brazil, and India developed broad-based trade law capacity. The book investigates how they adapted their institutions and developed new professional expertise both within and outside of state institutions. This included the development of new standard-setting institutions, intellectual property institutions, import relief institutions, think tanks, academic specialization, the private legal bar, civil society organizations, and networks among them. The result was enhanced state capacity within these countries.

If you think about how the development of infrastructure was central to China's economic success, this legal capacity is a form of infrastructure. 

VI: So conforming to WTO norms motivated a transformation of governance within these countries? It necessitated a focus on the importance of trade and what was needed to engage successfully in the international forum initially created by the United States and other powers. Did this lead to state-sponsored initiatives to create institutions, pass laws, and train a professional class to be able to be players in this global realm?

Greg Shaffer: Exactly and in fact, from that perspective, the WTO was amazingly successful. It had profound impacts within China, Brazil, and India. It changed the mentality of governance and the role of lawyers and lawyering with respect to international trade and the economy within all three countries. You could imagine that this is exactly what those opposing the WTO feared—that the WTO would have profound implications on governing elites and norms within these countries. It did, and the book traces how it had those impacts. 

The critical point in terms of the paradox is that, recursively, it also enabled these countries to defend themselves and their constituents and to use the very rules and negotiating principles against the United States and other countries. It also enabled them to better protect themselves and their constituents where the U.S. and Europe brought claims against them, and to tailor regulations in ways that advanced their development goals in light of WTO constraints, while fending off their protectionist sectors when desired. They could now better justify, both internally and externally, their trade measures under the WTO system.

VI: While the WTO generated these developments, this modernization within these countries—in terms of administrative and professional abilities to successfully engage on complex international trade issues—didn't happen indigenously. Weren’t the Chinese, Brazilian, and Indian civil servants, lawyers, corporate managers and think tank consultants, educated in the United States and Europe? Didn't the West provide the training, the experience, and the professional networking that is so necessary for a country to effectively represent its interests in the WTO?

Greg Shaffer: Not only did the United States and Global North provide these skills, it also provided financing for much of it. In the late 1990s and early 2000s, scores of Chinese came to the United States by official invitation to learn international trade law. For example, Yang Guohua, who would lead the Chinese WTO Dispute Settlement unit, and who is now a member of the interim appeals body created between 23 WTO members, came to Georgetown Law School to study under John Jackson, the U.S. law professor who was a renowned authority on international trade law.

Thousands of Chinese, Brazilian, Indian, and other students from the Global South attended advanced graduate programs in law, economics, management, and finance in the United States and Europe. These individuals returned to their countries and worked in the government, established specialized consultancies and trade law practices, became academics, created think tanks, and got positions within international organizations such as the WTO, often migrating between these different positions.

This can be viewed as a form of technology transfer. Just as there has been technology transfer to build high-tech infrastructure within these countries, there has been technology transfer to create trade law and policy capacity. It involves the transfer of human capital.

VI: Not only did a large cohort of foreign students study in the U.S. and Europe, weren’t a significant number of American and European academics and professionals also invited to China, India, and Brazil to participate in workshops and conferences?

Greg Shaffer: It was a two-way flow. A large number of students and professionals from these countries came to the United States and Europe to study and work, while high-level academics and professionals from the United States and Europe went to these countries, including economists, business school professors, and lawyers. These were impactful exchanges.

VI: Greg, isn’t this exchange we have been discussing the essence of globalization? Isn't this cross-fertilization of ideas and skills from developed to developing countries to assist all global citizens to benefit from international trade the ultimate goal of an organization like the WTO?

Greg Shaffer: That is the positive part, but it is also a controversial one given the rise of inequality within countries benefiting economic elites. 

Regarding the impact on China, some have written of the WTO as creating a new de facto constitution in China in the 2000s, as it changed Chinese perceptions of sovereignty in the area of international economic law. China remains very protective of its sovereignty in other areas of international law and refuses to recognize binding dispute settlement, such as where it might implicate China’s assertions of sovereignty in the South China Sea. But in the area of international trade law, there was a major shift where China accepted binding WTO dispute settlement. It accepted an international institution telling China that it had failed to comply with international rules, and it largely responded positively to these rulings, much more so than the United States did.

China understood that the WTO is an international institution to which it also could present claims that the United States and Europe had failed to meet their commitments toward China, including when raising import barriers against Chinese products. Since then, China and Chinese lawyers have become much more engaged in transnational contracts and dispute settlement, as reflected in China’s Belt and Road Initiative.

VI: When did this benevolent attitude toward China and other Global South nations, particularly in the United States, start to sour? When did people start saying, "Wait a minute now? This is not what we intended. We are not prepared for these kinds of challenges. These countries are making demands and are usurping the kind of power that we want to hold, and we don't want to give up our control of these rules. We want to interpret them our way and with these challenges, this is more than we bargained for"?

Greg Shaffer: I think almost from the start. It reflects an American attitude of exceptionalism, and it applies to the U.S. response to most international organizations. International rules and institutions are fine as long as the U.S. can use them to tell others that they must comply. But no one else should tell the United States that it is not complying. Take international human rights, for example. The United States has never agreed to be subject to an international human rights court, which might hear claims regarding U.S. racial discrimination, war crimes, and other matters. The United States has always been uncomfortable with having an international institution engage in binding oversight of what the U.S. does. Most recently we see this in international investment law where the U.S. had pushed for binding arbitration to protect U.S. investors but became much more reticent when it began to face challenges from foreign investors.

Trade looked like it might be an exception. But soon after the WTO’s creation, there were American negotiators who said, "You know, we were naive, we made a mistake." Countries started to bring claims against the United States and the United States started to lose and find it difficult to comply with WTO rulings. The United States lived with this situation for a while. It was aggravated, and it at times failed to comply with WTO rulings, but it worked out solutions to these challenges.

The real shift came with China’s economic rise, especially following the global financial crisis of 2007 and 2008 in which the U.S. capitalist model was called into question and the U.S. lost confidence. The closing of the economic gap accelerated during these years, and U.S. officials became more conscious of this closing of the gap and the new threat to U.S. hegemony. In parallel, it took China time to develop its legal capacity and to start to bring cases against the United States and Europe. That really only started after the 2007/2008 financial crisis.

The result was that, on the one hand, you had relative and persistent U.S. decline economically vis-a-vis China. On the other hand, China was becoming much more self-confident and successful in bringing and defending WTO cases. In particular, China challenged U.S. import relief measures that raised tariffs on Chinese products. After the U.S. lost key cases, even under the Obama Administration, the Office of the U.S. Trade Representative started coming up with new strategies regarding what to do about China.

VI: When you said the United States lost some key WTO cases, you're talking about the impact on certain American industries? There must have been trade groups and major corporations with considerable political power that were knocking on the door of the U.S. Trade Representative saying, "This is not what we expected from involvement with the WTO, maybe we need to have a different kind of dialogue".

Greg Shaffer: Yes, and there was one industry that stood out, and still has enormous influence, and that was the steel industry. Many of the Trump administration's chief trade policymakers, from Commerce Secretary Wilbur Ross to USTR Robert Lighthizer and USTR General Counsel Stephen Vaughan, came out of or worked at law firms that represented the steel industry. The steel industry in the U.S. clearly was threatened by a glut of steel that could be linked to Chinese subsidies that created a global glut of steel, decreasing prices and profits. The U.S. raised tariffs on Chinese steel under conventional U.S. import relief law in the form of anti-dumping and countervailing duty measures. But this often resulted in Chinese steel going to third country markets that then exported steel to the U.S., affecting the industry.

In turn, there was a broader awareness that China’s economic model wasn't just challenging the steel industry. The Chinese government, in particular, was investing in high technology. Chinese subsidies, as well as purchases, transfers of technology through joint ventures, and alleged theft of technology, implicates the U.S. predominance in the commanding heights of the global economy for the future.

VI: China has clearly expressed that its goal is to be the dominant global leader in all the new high-tech fields with the United States now scrambling to counter this reality. The Biden administration recently announced allocating billions of dollars to support high tech innovation and development in the U.S.. Isn’t the U.S. government in fact engaging in the same kind of subsidy practice that we're accusing the Chinese of?

Greg Shaffer: The United States responses are similar to what we saw a bit earlier in 1970's and '80s with respect to Japan. The U.S. recognized that it had a new rival, and this new rival state was supporting key industries, triggering a U.S. response. The question, however, is whether the U.S. is willing to invest in technology to the extent China is investing, including in education and basic science.

VI: Don’t we also see the Biden administration talking about the importance of industrial policy to make the American economy more globally competitive - something that we haven't heard about for a long time in the United States?

Greg Shaffer: Yes. You also can see a legacy with respect to the space race in earlier Cold War competition with the Soviet Union. Now the U.S. is competing with China. There's great resistance in the Republican party to industrial policy, however, and it generally does not want Biden to be successful politically. The polarization of politics in the U.S. is making it difficult to develop a coherent U.S. strategy, including as regards industrial policy in relation to high tech and China. Nonetheless, the competition with China has opened greater possibilities for an enhanced government role in the economy within the United States, especially in the areas of infrastructure and high tech.

VI: And similar to the Cold War, the continuance of American economic power is put in security terminology to confront and contain the global influence of China.

Greg Shaffer: To quote the U.S. national security strategy, "Economic security is national security." Economic security particularly with respect to high tech implicates national security. But the national security rationale also can be abused, so that it is expanded to include everything from steel and aluminum, to automobiles, including those made by allies in Canada and Europe, as occurred during the Trump administration. Everything risks being viewed in national security terms, as there are incentives for all industries to say, "Well, we're part of national security". This dynamic can pose risks to U.S. competitiveness.

VI: So what has been the impact of this changing geo-political and economic landscape on the WTO? During the Trump administration, there was an aggressively negative posturing toward the WTO with threats to pull out, dismantle the dispute resolution system, and in many instances just ignore the WTO and conduct their own unilateral or bilateral trade policies. Now, we have the Biden administration and its attitude of re-engagement with the global community. What will this mean for the WTO, what is the current status?

Greg Shaffer: Well, the status at the moment is unclear. Formally, not that much has changed toward the WTO, although the U.S. is engaging much more closely with allies. Within the Biden administration, one can imagine that there are strong debates over what the U.S. position should be. 

One policy is clearly changing, however. The Trump administration was raising tariffs against everybody, including U.S. allies—Canada, Europe, and so forth. The Biden administration has shifted tactics and is trying to negotiate the removal of these tariffs. It already has resolved some disputes and is working to resolve others by the end of the year, such as existing tariffs on steel and aluminum.

At least with U.S. allies, there is some hope that more positive trade relations will result. Inevitable disputes will arise, but they likely will be better managed. One could call this Phase One of the Biden strategy. Phase Two, however, is unknown, which is what will be its strategy towards resolving issues with respect to China and the broader WTO dispute settlement system. So far, the Biden administration has maintained the tariffs that the Trump administration imposed on China. This, then, appears to be its opening negotiating position vis-a-vis China. Any removal of tariffs will have to be negotiated, which will include, of course, Chinese removal of tariffs that it imposed in retaliation against the United States.

Some insight into the Biden administration’s China policy can be gleaned from one of the key players in the administration, Kurt Campbell, White House coordinator of its Asia/Indo-Pacific policy. Campbell said earlier this year that the era of engagement with China is over. It is not completely clear what that means because there's going to have to be engagement with China, including to manage tit-for-tat reprisals against each other.

Nonetheless, the statement broadly signifies that the administration does not trust China, and in particular that it does not trust that China will change its economic model to become more like that of the United States, as some had thought, in part with the sense that this would be in China’s interest. 

This raises the question of what will be the administration’s policy going forward for U.S.-China trade relations? I think there are two possibilities - one in which the WTO will be largely irrelevant and one where there's still a possibility for it to play an important role. I fear that the former is more likely, but it is not inevitable.

The WTO will become largely irrelevant in a world of geopolitical/geoeconomic competition between China and the United States in which each side wishes to undermine the other’s economic development. Under this scenario, what matters is no longer the mutual benefits from trade, but rather assurance that China benefits less than the United States. That will mean that even if a trade measure imposed by the United States hurts the United States, if it hurts China more, then the U.S. will apply it. Of course, that mentality triggers the same response in China, potentially giving rise to what game theorists call a prisoner’s dilemma. 

Yet just like in arms control, there are incentives to have some limits because otherwise it can lead to mutual harm and destruction. What should those limits be? Well, you have to have some common norms and agreed upon principles and rules. Once you start moving in this direction, then you ask what those principles and rules should be and what role  a multilateral institution might play in providing assurances? Is there any role for a third-party institution such as the WTO to monitor adherence to those principles and rules, and to issue rulings with respect to their interpretation when the two parties disagree?

In theory, there can be agreement that builds from existing WTO rules and a relaunched WTO dispute settlement system, subject to some reform. In that case, where a party believes that a commitment has been violated, it can bring a claim and be authorized to respond with a proportionate remedy, giving rise to a rebalancing of trade relations. There then would be greater assurance that retaliation will not proliferate in a way to either side’s benefit. Arguably, in my view, that is in both side's interest. I have a forthcoming article in the American Journal of International Law entitled Governing the Interface of U.S.-China Trade Relations that proposes governing principles and rules and that builds from the current WTO system. It would result in some pragmatic rebalancing of U.S.-China trade relations, giving rise to increased policy space for each country to protect its national security, its economic model, and its social values. Nonetheless, all could be accomplished within the umbrella of the multilateral system of dispute settlement to guarantee that responses are kept proportionate. It provides a multilateral option for governing trade relations, but it is by no means clear that the two sides will pursue this route.

VI: What's interesting, Greg, as you talk about the significance of accepted international norms, when you listen to the rhetoric of Chinese officials and diplomats, they are always talking about international cooperation, promoting global goods, adherence to the rule of law, and the importance of international law and international organizations. There are Chinese in leadership positions within the WTO and other international organizations. China has taken on the mantle of international law. Meanwhile the United States vaguely states, "Oh, international law and institutions are fine, just as long as they don’t impact our sovereignty.”

In a way, the United States is on the back foot with regard to multinational engagement, global cooperation, and adherence to international rule of law norms. Understandably the United States is recovering from the Trump years, but it doesn’t seem like the Biden administration has gotten its message clear about what they understand America’s role in the world to be, is that correct?

Greg Shaffer: That's the paradox which lies at the core of the book, which the book explains and then provides a way forward. Peter Beinart recently had a wonderful guest essay in the New York Times in which he critiques the trope that the Biden administration continues to use, which is its defense of “a rules-based order.” The administration maintains that China is not adhering to the rules-based order, but what is a rules-based order, Beinart asks?

Beinart says (to paraphrase), "Well, I'm not quite sure what ‘rules-based order’ means, but I do know the meaning of another term and that is ‘international law’." In the WTO context, there is law and a neutral dispute settlement system to resolve disputes under it. The big question is whether the Biden administration will agree to relaunch binding WTO dispute settlement and use this international law system? Or is it going to continue to block the relaunching of binding dispute settlement within the WTO while maintaining that China is undermining the “rules-based order”?

VI: Thanks Greg - we're coming to the end of our time. You have provided a clear and informed overview of how the WTO has evolved and the significant impact it has had and the prospects of the future role it can play in a world of increasing international tensions. It will be interesting to see how the WTO, under the leadership of its first woman Director-General, Ngozi Okonjo-Iweala, will try, with the support of the European Union, and hopefully with U.S. reengagement, and the continued involvement of China and Global South countries, to foster global cooperation and prosperity. 

Greg Shaffer: Thank you, John. Yes, it will take at least a year to see how the Biden administration’s strategy develops and plays out. I look forward to seeing Vital Interests being at the center of these debates.

Gregory Shaffer is the Chancellor’s Professor of Law and Director of the Center on Globalization, Law, and Society at the University of California, Irvine School of Law. Professor Shaffer writes theoretically and empirically on international economic law and law and globalization. His publications include seven books and over one hundred articles and book chapters. The work is cross-disciplinary, addressing such topics as transnational legal ordering, legal realism, hard and soft law, comparative institutional analysis, public-private networks in international trade, the rise of China and other emerging economies, and the ways trade and investment law implicate domestic regulation and social and distributive policies. His forthcoming book is Emerging Powers and the World Trading System: The Past and Future of International Economic Law (Cambridge University Press).