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Comment: No going back to trade school. Welcome to the jungle!

Welcome to the jungle. The title of a 1990s song by US rock group Guns ‘n’ Roses seems apt in the world that EU trade policy is facing this autumn. It is a world at risk of descending into lawlessness, where guns start to prevail over roses in the international order. The EU will not emerge unscathed from its current confrontation with the United States over trade. First mistakes were already made this summer.

When searching for a quick political bon mot, British people pull out a quote from Winston Churchill, French people a quote from Charles De Gaulle. Yours truly is French (among others), so De Gaulle it is. “Treaties are like young girls and roses: they last only so long,” De Gaulle told German Chancellor Konrad Adenauer when signing the famous Elysée Treaty that cemented French-German reconciliation back in 1963.

Churchill, De Gaulle and Adenauer had all experienced first-hand how easily international rules and treaties could unravel and become utterly meaningless. Global order is anarchical and Hobbesian. Current events remind us daily about this crude fact.

Return of anarchy

The failure of the League of Nations, the predecessor of the United Nations, in the interwar period is linked to the fact that the law-based global order it was supposed to uphold was not supported by the new major power of the time, the United States. Washington was behind its creation, but Congress ultimately voted against joining. The League also had no sanctions mechanism for countries violating their obligations. The world could only watch helplessly when Germany, Japan and Italy went on a violent conquering rampage in the 1930s.

Post-WWII international institution builders learned their lessons. The UN was organised in such a way that the big powers would enforce its rules via the Security Council – with mixed results.

In the 1990s, the creation of the World Trade Organization’s Appellate Body was seen as the first step in ‘constitutionalising’ global law. Contrary to other UN-linked international tribunals resolving disputes between states, the WTO dispute settlement mechanism makes rulings more easily enforceable through a mechanism that can lead to sanctions against members found to flout the rules. The WTO’s clout and legitimacy was also upheld by the fact that the US, the world’s superpower in the 1990s, put its political weight behind it.

The EU is an extreme case of constitutionalisation of international order. The Court of Justice in Luxembourg is the final arbiter of law. Mechanisms are in place by which member states can be fined for not enforcing rules. Majority voting in many areas of policy, and not unanimity as in classic international law, helps limit the otherwise still-absolute sovereignty of governments. The EU’s institutional machinery is intended to be a dull bureaucracy that eases political tensions and produces political compromises and common rules.

None of these systems abolished the Hobbesian nature of the international order. The fact remains: when states don’t want to subject themselves to global rules, they won’t. The most powerful among them will simply get away with it, whereas smaller countries can be more easily pressured into complying. We have, of course, witnessed this so often in the UN.

We are now witnessing it with the US its attitude towards the WTO, international trade agreements and its trading partners.

The main global power behind the WTO is destroying the very jewel in the crown, the Appellate Body. The WTO is being downgraded to a classic international organisation, unable to reform itself, and without effective enforcement mechanisms.

The White House is waging a guerrilla trade war against the EU and a major trade war against China, and is mistreating Mexico and Canada in the torture chambers (aka NAFTA renegotiation).

Toying with WTO illegality?

High tariffs on EU autos continue to hang like knives above the European economy’s head as the bloc gets drawn into informal negotiations – even if its officials deny they are negotiating with a gun pointed at their heads – with the United States. In many ways, the ‘truce’ that European Commission President Jean-Claude Juncker obtained from US counterpart Donald Trump in July was a diplomatic feat. But we don’t know how long Trump will stick to his word. And we don’t know how well the EU itself can manage the process with Washington and back home without losing in this high-stakes political game.

Alas, it looks like the US is already winning the war of symbols. As became clear during trade commissioner Malmström’s exchange of views with MEPs last week, the EU has clearly agreed to discuss the possibility of a preferential trade agreement on tariffs on industrial goods that would be WTO-illegal. This is a big credibility-killer with the EU’s international partners, and with its domestic audience.

The EU denied this summer that its truce with the US was about negotiating on agriculture products. But yesterday, the commission communicated loudly through a widely amplified press release that it wanted a member state mandate to discuss with Washington the reallocation of an informal US quota on hormone-free beef offered to fellow WTO members for disregarding the famous hormone-beef ruling. Now the EU is presenting this as a means to reduce tensions with the US.

This beef quota renegotiation is something the EU should have done anyway, given that the request was made under the Obama administration. Ideally it should have been done discreetly, and kept technical. Now, high politics, NGOs and farm lobbies will get involved in an issue that doesn’t deserve that much attention. Knowing the strength of EU farm interests, any concession to the US could make the conclusion of the difficult free trade negotiations with the South American bloc Mercosur this autumn even more complicated. It would certainly make renegotiation of post-Brexit quotas in the WTO more tricky than it already is.

Yet, shouldn’t the EU’s priority be to make progress with the new “ring of friends” that Malmström says she is keen to work with?

The bloc is also coming up with lofty and sophisticated proposals to reform the WTO, partly to allay US criticisms and to try to keep it on board (see breakdown of its initial proposals here), partly out of recognition that this reform is overdue. Few deny this fact.

The EU needs to win as many friends as possible in the WTO on its reform agenda. Other WTO members are also looking to the bloc as a potential new leader in world trade. The EU still has some tests to pass to get here. Staying WTO-legal with the US is one element of political credibility that Brussels should see as a priority.

The second element of credibility and strength is to not be seen as conceding too easily to Trump. The EU is indeed conceding hardly anything to the US. It is trying to spin rising imports and a technical beef renegotiation as a concession to Washington. The US administration won’t be fooled. But the EU public might. And that could backfire on the commission.

So the track record to date in being the new beacon of free rules-based trade isn’t that good. It’s only early September. Where will we be in November? Deep in the jungle?

Preliminary talks with the US on a possible future trade agreement will be messy. Any outcome – if there is one – will be the product of pure power politics and domestic protectionist lobby constraints on both sides of the Atlantic. The EU is not good at the high politics games. Negotiating a big tariff deal outside WTO legality is a dangerous game that could backfire: how can you make it stick if only politics count?

Welcome to an autumn of gun pointing. Forget about any bed of roses and young girls.

2 Comments

  1. Kerneis

    Great article, Iana!

  2. roderick.abbott@ecipe.org

    WTO illegality? no point in arguing who sinned first, since US Admin has decided either that WTO rules count for nothing or can be flouted without penalty. In that context to propose to discuss another illegal idea might seem like a logical response. It provides a fragile shield against Trump action on cars which was the immediate danger. As you say the EU has not concede anything yet.

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