U.S.-China like disputes should not 'contaminate' the trading system, WTO hopeful says

• Trump has said that the WTO is "broken" and that China has taken advantage of the institution.
• He has also used trade links between the United States and other world economies as leverage over digital taxation and security matters.
• The election of a new WTO director general comes at a time when officials in the European Union and the United States agree that the organization needs to be reformed.

The World Trade Organization is not responsible for disputes over security and other non-trade related matters, Liam Fox, one of several candidates to be the new WTO chief, told CNBC in an exclusive interview on Friday.

The organization, created in 1995 to expand world trade beyond goods, has been embroiled in sensitive political battles over recent years — in particular since President Donald Trump arrived at the White House and adopted a protectionist approach to international trade.

Trump has said that the WTO is "broken" and that China has taken advantage of the institution. He has also used trade links between the United States and other world economies as leverage over digital taxation and security matters.

In recent days, the U.S. ordered the closure of the Chinese consulate in Houston for reportedly stealing intellectual property. China has retaliated with the closure of the U.S. consulate in Chengdu. 

It is "very important to understand what the World Trade Organization is for and what it is not," Liam Fox, one of the eight candidates to take on the leadership of the WTO, told CNBC's Julianna Tatelbaum.

"What we cannot do is allow bilateral disputes or regional disputes over security or other issues to totally contaminate the trading system so that it stops effectively working because there will be wider consequences than just the parties to those disputes themselves," Fox said.

Britain's first post-Brexit international trade secretary Liam Fox gives a press conference on July 17, 2020 in Geneva.

FABRICE COFFRINI | AFP | Getty Images

The WTO has been scarred by the United States' decision in December to block the appointment of two new members to the appellate body. The move has meant that the WTO has not been able to rule on new trade disputes between member countries since then.

The election of a new WTO director general comes at a time when officials in the European Union and the United States agree that the organization needs to be reformed and its rules updated. However, there is no consensus on how to do it.

"We need to get a sense of the importance of the rules-bases system out there, we cannot have some countries obeying the rules that they want but not to the rules they do not want and the alternative to a rules-based system in trade would be a free for all and I think we have to understand the consequences of that and it goes well beyond economics," Fox told CNBC.