EU trade latest, Internal EU politics, Steel, United States & TTIP, WTO disputes

Comment: WTO crisis, Trump, and the EU’s credibility challenge

The EU is struggling to find a consistent, coherent and efficient strategy approach to the US administration’s choking off of the World Trade Organization’s Appellate Body and to its unilateral tariffs on steel and aluminium.

 

There is a lot of back-and-forth in the background – both in Brussels and in Geneva – in trying to figure out what to do long term about the situation. On paper, the WTO issue is separate from the tariff issue. In practice, the two  have become entangled.

 

Other major WTO members are looking to the EU. It’s the largest trading entity in the world, a major US ally and famed for its preference for a rules-based international order. So expectations are high.

 

The EU is trying to both be principled – uphold the rules-based trading order enshrined in the WTO and its dispute settlement body — and to pursue its short-term interest: to seek an exemption from President Donald Trump’s duties on steel and aluminium.

 

Cecilia Malmström, the EU’s trade commissioner, asserted yesterday that the EU was not negotiating any trade concession with the Trump administration in return for obtaining an exemption from the tariffs. She insisted that the bloc was ready to discuss trade irritants raised by the administration – such as auto tariffs or restrictions on beef imports – but only after the EU had obtained a “permanent and unconditional exemption” from the metals levies.

 

Side deal — or not

 

Back in March, the EU and the US agreed there would be a ‘working group’ on trade that would address these issues. But nobody really knows how it will be structured. The idea of such a group was floated already in the summer 2017 during a visit to Brussels by Trump. It never materialised.

 

Small member states in the EU are wary of the big beasts, Germany and France – which have apparently met with European Commission negotiators on this issue. They wonder what’s being put into the working group programme. Ideas floated by the EU for this programme range from a minimalist tariff-only deal to a full-fledged free trade negotiation.

 

France itself is afraid Germany will be tempted to negotiate anything to protect its car industry – a target of Trump – should the tariff situation escalate. Paris would prefer the EU to take a principled stance, while Berlin and countries like Italy insist the priority is to keep talking to Washington.

 

Marc Vanheukelen, the EU ambassador to the WTO, repeated the bloc’s position during an event in Brussels today: “We are not going into any side deals.”

 

The EU has already obtained a temporary exemption from the duties, which were adopted on national security grounds in late March. These tariffs hit China, Russia, as well as US allies such as Japan, Brazil, Argentina and Turkey, a NATO member. That exemption will end in late April.

 

At the time of writing, it is impossible to guess what decision the US administration will take. Chad Bown, a senior fellow at the Washington-based economics think tank PIIE, said “the element of surprise” is at the heart of Trump’s negotiating strategy.

 

The EU has threatened to respond to the US tariffs with import restrictions on a list of steel and industrial tariffs that member states approved on Tuesday. The response would be relatively mild, covering a package worth €2.8 billion. Only part of it would be applied after 1 May, and the rest rolled out only if any further discussions with the US fail. The EU is trying to secure a legal basis for such retaliation — Europe says these are ‘rebalancing’ measures — by arguing in the WTO that the US measures are disguised safeguard measures.

 

The contacts between the commission and the US administration are tenuous, according to several sources interviewed this week in Brussels.

 

The US Trade Representative’s office is not dealing with these cases and is instead focusing on the ongoing renegotiation of NAFTA with Canada and Mexico. This leaves Malmström to deal mainly with Wilbur Ross at the commerce department, which has reportedly not put in resources and sufficient personnel to deal with the steel exemption issue. Ross is the channel to the White House, which is seen as something of a black box, especially since key advisers such as Gary Cohn left.

 

Most observers are wondering what the EU is negotiating. Few believe the bloc isn’t negotiating without a gun aimed at its head. “The EU should have not fallen into the trap of negotiating bilaterally with the US,” said André Sapir, senior fellow at the think tank Bruegel in Brussels.

 

This is also indeed what other WTO partners tend to think.

 

This is a problem in Geneva. The EU is trying to garner a coalition of partners that could help it ensure the WTO, including its dispute settlement  system, continues to work.

 

Washington is blocking the nomination of Appellate Body members whose mandates have expired or are due to expire. Washington criticises a variety of  — what it sees as — flaws in the system. But WTO members fail to pin down what exactly is motivating the US.

 

Ideas are being circulated on how to get around the problem. Some say governments could use Article 25 of the Dispute Settlement Understanding, which WTO members to resort to classic international ad hoc arbitration. Others have argued that the Appellate Body itself should use the powers it was given to decide on its own rules to close itself to new appeals until the issue of nominations is resolved. Indeed, under WTO rules new appeals judges are appointed by unanimity among all members. Another solution floated is to resort to majority voting on nomination issues, along the lines of Article IX of the WTO agreement.

 

Asked what the EU should do if all goes wrong , Vanheukelen said: “We will not sit still. We have to think about Plan B.”

 

The most striking issue here is less the intensity and richness of the debate and discussions than the lack of concrete actions. In Geneva, there is yet no sign of a concrete alliance of WTO members proposing a precise set of solutions, jointly, to respond to the Appellate Body situation. The EU’s decision to seek an exemption from steel tariffs is perceived by some WTO members as a sign of lack of multilateral solidarity.

 

The fact that many major EU member states are seeking in parallel an exemption from the Trump duties means that nobody is willing at this time to rock the boat with Washington in the WTO.

 

So everyone is fending for themselves. That serves Donald Trump.

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