“The WTO is dead: long live the WTO?”
By Maria Demertzis, courtesy of the Bruegel Institute
The World Trade Organisation (WTO) is pivotal in enabling and protecting trade between countries. The recent US failure to appoint a judge at the WTO’s appellate court has meant that it will no longer be able to intermediate trade disputes. This means that the WTO, is at least partially, dead. The EU, while acknowledging its faults, ultimately wishes to save it.
But what is the best way of protecting the multilateral system?
Should the EU fight to save the WTO or is that equivalent to fighting the last war? Should it instead aim for a substantial overhaul of the system, in recognition of the fact that it needs to function in a world that looks very different to the one for which it was originally designed? Who is in charge of writing this new global rule-book and how does the EU ensure that it, too, holds the pen?
Before the EU can answer these questions, it needs to understand why the US wishes to dismantle WTO operations and openly antagonise all its global partners. And understanding the US position requires looking beyond the tactics and understanding the underlying strategy, which may be founded on arguments that transcend presidential quirks and remits.
The US perceives the recent Chinese economic rise and increasing global dominance built on unfair practices. From excluding US firms from its domestic markets (Facebook, Google) all the way to subsidising the creation of giants, China may respect the letter of the WTO but it does not respect its spirit. Here the US and the EU are in full agreement. But when these giants operate in digital technology, the US views China as a threat to its own security. This has justified a ‘logic’ of decoupling: decreasing US dependence on Chinese markets and technology. The EU is less concerned (at least on the face of it) with the implicit Chinese “security threats” and is less willing to exclude Chinese technology firms from its domestic markets.
But US antagonism does not stop with China. The US has actively threatened the EU with trade wars and has single-handedly put global multilateralism at risk, destroying the system that allows countries around the world to engage with each other.
Why would US interests be better secured with a dissolved WTO and no credible alternative? The EU believes that the US tactic of provoking global trade wars, alienating historical allies and actively destroying global institutions, is counterproductive and misplaced. However, the objective here is to stop China’s dominance from expanding any further. But the US realises that it cannot do it alone. It needs to stop others from engaging with China (by dissolving global multilateralism) and it also needs its European allies to do their fair share in securing the west’s military supremacy. It remains to be seen whether such tactics serve the strategy well.
The EU can make progress in terms of what it wants from the global multilateral system, by looking beyond American tactics and understanding American strategy.
Aimed at continuity, EU actions so far have been a response to US tactics: engaging in talks with the US, advancing bilateral trade agreements across the globe, taking proportional retaliation measures to deal with US aggression. Early this summer, and in anticipation of America’s recent failure to appoint a judge, the EU signed an interim appeal arbitration agreement with Canada, to establish some continuity. In the joint statement made “Canada and the EU (were) proud to have demonstrated leadership in the creation of this interim arrangement” and they hoped that others will opt in to prevent the demise of global multilateralism. It remains unclear whether China will sign this agreement but it will certainly not have any incentive to do so if it proved to be more restrictive than the current WTO dispute settlement system. If it is equivalent to the current one, it may wish to sign, but then none of its inefficiencies would have been resolved. Either way, the system continues to function but remains ineffective.
But what about the strategy? Does the EU believe that the US objective of containing China is also misplaced? The EU will be unable to address such questions until it has a firm position on China.
Can the EU continue to engage with China under the WTO without jeopardising its own industries?
Are China‘s Belt and Road and 17+1 initiatives about anything more than just investment relations?
Is Chinese 5G dominance a threat and why?
How can Europe ensure that opening up its markets to Chinese firms does not distort the level playing field and damage its own firms?
Can EU industries have access to Chinese markets on fair and transparent terms?
How can the EU coordinate its actions so that member states do not pursue actions that serve their narrow economic interests that come at the detriment of EU unity?
Salvaging the WTO requires understanding the US strategy. And that requires the EU to make its mind up about China.