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Perspectives: The EU must defend the global trading system

The European Union is the major economic power most consistently supportive of the global trade system. Hasty actions undermining this such as vaccine export bans would come at a high price to its standing.

There has been a better start to trade policy in 2021 than many had expected.

Ngozi Okonjo-Iweala took office as new World Trade Organization director-general after the US lifted their veto. The suspension of transatlantic tariffs resulting from the Boeing / Airbus dispute for four months was a great relief to significantly affected exporters not least Scotch Whisky producers in Britain. Katherine Tai was confirmed as US Trade Representative with overwhelming support from US senators.

It may not be a major breakthrough but this ‘Biden spring’ at least fulfils the promise of a return to mature international relations. With the UK choosing to join the Ottawa group of WTO supporters that includes the EU among other usual suspects there are grounds to be hopeful that post-2016 difficulties have peaked for the time being.

Yet amid such cautious optimism comes concern that the EU is moving in the other direction. The missteps of vaccine supply coupled with the ambiguities of ‘open strategic autonomy’ have led in particular to recurrent talk of dramatic actions including export bans and seizure of intellectual property.

Such actions if implemented would seem to go beyond accepted norms for WTO members. Given that of all the major trade powers the EU has been most consistently supportive of the core principles of the current rules based system, going down that path is a major risk.

The Big Three are not equally supportive of the WTO

There are many influencers at the WTO, from the particularly supportive like New Zealand or Chile, to the often obstructive, India and South Africa. But there are only three major powers, the US, China, and the EU. Any meaningful future for the WTO requires their support and cooperation.

Unfortunately the major powers of the WTO have been unable to agree on much in the last twenty years. We know all about the bilateral problems, the number of disputes between the US and EU, and the significant concerns in the US about the rise of China. But fundamentally the depth of US and China commitment to the WTO must be questioned.

The US has been a reluctant multilateralist for over a hundred years, from the original League of Nations to the International Criminal Court. Their sharing of sovereignty and following of rules determined by others has always been problematic, a major factor in the long running concerns over the WTO appellate body. The Trump administration’s threats to core MFN disciplines was thus not a wholly new US direction.

China has an even longer history of suspecting global interaction, and membership of the WTO has always felt like a transactional arrangement at least in part. Membership of the WTO was important for China’s economic development, but despite occasional hopes there have been few signs of it aspiring to a leadership role.

This leaves the EU as the only major power that fully believes in the WTO and the global rules, albeit suitably updated. That is a serious responsibility.

Supporting the rules does not mean being naïve

In recent years there has been a growing narrative in the EU of too much openness and naivety. Supporters of the International Procurement Instrument for example spoke of an EU not able to get the best for companies because the existing openness of EU procurement markets left little to use for reciprocal commitments.

Since 2019 the EU’s approach of open strategic autonomy has shifted the dial towards greater assertiveness. This has involved remaining open while also emphasising enforcement, reshoring, while still being careful to respect global rules on subsidies, and more conditionality on trade deals.

It is too early to tell how whether this change will succeed, though many have concerns about damaging economic growth through closing markets or imposing so much conditionality that trade deals don’t happen. However the problems around vaccine procurement and deployment seem to be influencing the Commission to go further, and discuss actively blocking exports. Such an action would clearly undermine trust in global trade rules.

The EU has arguably been the premier rule setter in global trade, as explained through the Brussels Effect, strength in international standardization, and 40 bilateral trade deals. That has surely delivered economic benefit, even if specifically evaluating its value is difficult.

To risk economic benefit and the future of the global trade system by imposing export bans would clearly be a dramatic step for the EU. To do so apparently because another country secured greater supplies of a single vaccine simply looks totally reckless and out of proportion.

Risks to the global trading system remain significant

Meanwhile a more engaging US administration does not yet change the fragility of the global trade system. As yet this is just a truce between the US and EU, with the same difficult issues such as food, data, subsidies, and WTO reform remaining. The joint application of sanctions towards China is in part encouraging, but at the likely cost of an increasingly uncompromising China on issues where their support would be required. The Republicans’ change from free trade to protectionist party looks likely to last at least until the next election. Relations between EU and UK remain tense.

The current global system may not be perfect for the EU, but it is not evident that there is a better one on offer. The existing EU trade agenda is in any case changing, while still respecting the importance of the rules to the EU.

An export ban, even just on a matter of pressing interest like vaccines, would be a big statement of a bloc no longer considering itself bound by global rules. To do so when the vaccines are in any case on the way, when there is likely to be little benefit, looks like panic. The EU would do well to think of its broader interests before reaching such a decision.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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