Mathias Döpfner, chairman and CEO of Axel Springer, has raised significant concerns regarding the future of the World Trade Organization (WTO) in his latest book, “Dealings with Dictators.” With a compelling analysis, he argues that the WTO is facing a critical juncture as geopolitical tensions rise and trade disputes loom over Europe.
The challenge of a faltering multilateral system
The WTO, which survived the turbulent waters of U.S. President Donald Trump’s administration, now finds itself threatened by a potential trade war sparked by rising tariffs and retaliatory measures. As we approach this year’s Munich Security Conference, it is imperative to reassess an organization that appears ill-equipped to handle today’s complex trade environment.
Döpfner notes the intrinsic link between freedom and economic prosperity, stating that “the less free an economic system, the less successful it will be.” This reality, however, does not apply uniformly, with China representing a notable exception. The nation has adeptly utilized its participation in the WTO to bolster its economic power while operating under a model of state-controlled capitalism.
China’s exploitation of WTO provisions
Under the guise of promoting free trade, China has leveraged its WTO membership to pursue strategies that undermine true economic freedom. The WTO is increasingly seen as a contributor to the erosion of democratic economies, as it facilitates the rise of authoritarian practices. It has unintentionally become a platform for dependencies and unfree trade practices.
“The WTO isn’t the solution but a fundamental part of the problem.”
Established in Marrakesh in 1994, the WTO expanded upon the earlier General Agreement on Tariffs and Trade (GATT), which emerged in 1947 to prevent the recurrence of devastating tariff wars. However, the transition from GATT to the WTO has led to a cumbersome structure that struggles to enforce its principles effectively.
The WTO operates on three foundational principles: non-discriminatory trade practices, reciprocity, and the reduction of tariffs and trade barriers. Nonetheless, its provisions for developing nations allow countries to exploit these rules without a clear definition of what constitutes “developing.” This loophole has enabled China to maintain its status while enjoying significant advantages, such as extended deadlines for compliance and preferential market access.
Over the years, China has repeatedly violated WTO regulations, engaging in practices like forced technology transfers and providing substantial subsidies to state-owned enterprises, which distort competitive markets. Foreign companies often face exorbitant costs to access the Chinese market, undermining their growth and innovation.
For instance, the photovoltaic sector illustrates this disparity vividly. Before 2005, China had no solar manufacturing industry; by 2022, it controlled over 80% of the global market, primarily through copied technology and state support.
Moreover, China’s stringent antitrust laws have penalized foreign firms for innovation, creating an environment where competition is severely skewed. As a result, Chinese companies enjoy significant advantages when entering Western markets, while international businesses continue to face barriers in China.
The implications extend to global environmental concerns as well. Since joining the WTO, China’s carbon emissions have surged by over 200%, overshadowing global efforts to reduce pollution. In 2021, China accounted for nearly a third of global emissions, surpassing the combined total of the next five largest polluters.
Döpfner concludes that the admission of China to the WTO was a flawed decision driven by optimistic assumptions about trade policy. The decision to classify China as a developing country has resulted in significant disadvantages for democratic market economies, creating an uneven playing field.
Ultimately, the current state of the WTO reflects a systemic failure to adapt to the complexities of international trade and geopolitics. The organization, now perceived as a “dysfunctional and paralyzed colossus,” may need to reevaluate its fundamental role in the global economic landscape.
As the international community grapples with these pressing issues, Döpfner’s analysis calls for a critical reassessment of the WTO’s future and its ability to foster fair and equitable trade relations in an increasingly polarized world.