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Comment: Can the European Union’s plans for the WTO withstand reality?

The European Union’s trade ministers are expected to broadly endorse the new direction of trade policy as proposed by the European Commission in its Trade Policy Review last February. But can the EU’s plans hold given current geopolitical realities and the pandemic context?

This week’s Foreign Affairs Council in its trade configuration is also expected to discuss broader World Trade Organization matters. Two special guests will attend the event: the WTO’s Ngozi Okonjo-Iweala and USTR Katherine Tai.

This is a good moment to look in detail at the EU’s policy proposals to bring the WTO forward in the Biden era.

Can they withstand the Geneva institution’s realities and the broader geopolitical environment that underpin them?

The new EU strategy puts multilateral rules-based trade at its centre. The text of the Review contains one single annex: and this one that is exclusively dedicated to WTO reform, giving the matter special political salience.

The reform proposals react to the gridlock in the world trade institution. The long-simmering crisis reached a climax in late 2019 with the demise of what used to be seen as the ‘jewel in the crown of the institution’, the Appellate Body. The Trump administration blocked the nomination of new members of the global judicial ‘body’ to replace members whose terms expired. To date, the Biden administration has not lifted this veto and has given no indication on what it wants to do with the Appellate Body matter.

The EU believes the crisis at the Appellate Body is partly the result of the failure to update the institution’s rules through negotiation. It also believes that new topics need to be tackled in the institution, not least related to digital and today’s global concerns with the climate and the environment.

The EU proposals tackle five topic areas:

  • Sustainability: environmental, health, and societal issues such as gender equality
  • The China question: subsidies for industry, level playing field, ‘competitive neutrality’
  • Appellate Body restoration and judicial settlement of trade disputes
  • Negotiation of new rules in a flexible format, i.e. ongoing ‘plurilateral’ initiatives
  • Institutional and procedural improvements to the WTO

Among the proposals, the following are worth highlighting:

  • Finishing off on the fisheries subsidies talks
  • A Trade and Health Initiative tabled alongside the Ottawa Group
  • A yet-to-be-fully-articulated Trade and Climate initiative
  • New rules to discipline industrial subsidies and state-owned enterprises
  • Reform of the Appellate Body in a way to suit the US’ criticisms of it
  • Gradual reduction of the scope for ‘special and differential treatment’ for developing countries support for the portfolio of ‘plurilateral’ agreements currently under negotiation, such as on e-commerce, services domestic regulation, trade and gender, among others.

There are a few genuinely new ideas in the strategy: for example, offering observer status to the African Union, which has formed a continent-wide free trade area only this year.

The mood at the WTO is much more upbeat ever since the Biden administration allowed the nomination of the institution’s first female and African leader to lead the secretariat. Since the new director-general started working last March, there is a flurry of activity at the WTO.

An agenda for the new ministerial meeting in December is emerging and there is a big push to have an outline of a deal on fisheries at a ministerial meeting set for mid -July.

The new DG also vowed to prove to the world that the WTO was relevant to real lives and current issues. She has been at the forefront of an attempt to create a form of ‘compact’ between international organisations, governments and businesses from rich and poor countries to ensure that vaccines are supplied to the world’s poorer countries.

Amidst this political push, India and South Africa’s requests made last year to ‘waive’ intellectual property protections on medical products used to combat the COVID-19 pandemic gained new salience. And on this matter, the tables turned when the Biden administration recently indicated that it was ready to discuss this. USTR Katherine Tai is genuinely engaged in this matter.

There are three main challenges for the EU’s trade strategy, I would say.

Challenge One: United States

It goes without saying: without the US genuinely on board in critical areas of EU interest on WTO matters, reform will be impossible.

Nothing so far indicates that the Biden administration is in a hurry to resolve the Appellate Body issue, which, for the EU, is one of the top priorities. The institution is not only a punching bag for the US far right. It is also one for the left wing of the Democrats, whose views the administration is accommodating.

There has been some United States movement on the 2018 tariffs it imposed on steel and aluminium for national security reasons. The political allies affected by the Section 232 tariffs, not least the Europeans, were treated as a national security threat. More profoundly the recourse of the US president to a major loophole in the WTO’s rule-book for reasons that few see as genuinely related to national security, was a signal that the US still wanted to exempt itself from multilateral rules at convenience.

The fact that President Biden has not moved early on in the administration on removing those tariffs, or at least to transform them into other types of protection(ist) measures that are somewhat regulated at the WTO – such as a safeguard – is rather disturbing.

The US and China’s new geopolitical confrontation and other tech wars risk having a genuine negative effect on the future of the institution. If everyone – the US, some of its allies, China – continue down their current path of ‘decoupling’ indiscriminately their supply chains, subsidising massively otherwise competitive industries to have them relocated away from where they are for political reasons, randomly blocking foreign take-overs, creating ‘dual circulation’ systems, all this whilst not updating the WTO rules and letting the dispute settlement situation fester, then, dear friends, we are in serious trouble.

There are some signs of hope. One of them is that indeed the United States has just made a move to discuss the Section 232 tariffs with the EU – and can be expected to do so with ex-EU member, the UK soon.

The other good news is the readiness the EU and US have shown in resolving their long-standing aircraft subsidies dispute (Airbus-Boeing). There is some optimism in the air on both sides of the Atlantic that the matter can and will be resolved.

The US has indicated interest in leveraging this discussion to discuss new global rules to address what I call in short ‘the China subsidies issue’. But it is going to take time for the two sides to find a settlement.

Challenge Two: a credibility or consistency problem

There was something nice about being the European Union in the Trump era: it could shine as the nice guy in town. And here comes Katherine Tai and turns the tables around by announcing it is ready to talk – hold your breath – pharma patent waivers (yes you read this correctly – to save the pandemic-stricken world? And then you look like the villain by being among the recalcitrants.

This adds to the fact that the EU introduced export controls on vaccines in early 2021, denting its reputation as a free and seamless trader, and indicating that the EU is ready to engage in beggar-thy-neighbour policies. Despite the fact that in face few vaccine export requests have been refused, the damage is done.

And there is the fact that the EU plays it all pro-African at the WTO but then says no to an intellectual property waiver request that is widely popular among African members.

The good thing about this WTO TRIPS conversation is that it has actually forced the US to start exporting COVID-19 vaccines and forced the EU to accelerate efforts to support investments in production in Africa.

There are other issues. Say fish and agriculture subsidies. The EU is advocating for a deal in those two areas at the WTO and is not the worst or toughest player here. But on agriculture it wants others to pay for the recent reforms it did and not make further efforts. The EU is also testing the grounds on domestic support for ‘green initiatives’ not something that other agriculture exporters in the WTO – some of them like-minded players in other areas – look on with joy.

Challenge Three: India and South Africa

India and South Africa are leading a rear-guard action against plurilateral agreements in the WTO.

The two TRIPS waiver proponents also recently tabled ‘legal arguments’ stating that the plurilateral initiatives that were born at the Buenos Aires ministerial in December 2017 were illegal under WTO law, despite almost 130 members out of more than 160 actually participating in at least one such ‘Joint Statement Initiatives’.

New Delhi and Pretoria are holding a rigid view about the consensus-driven nature of the institution. The two countries have a vast majority against them. But the sacro-sanct WTO consensus ‘rule’ means they can hold the whole institution hostage. This also means that any plurilateral initiative that is concluded successfully might have to happen outside the WTO.

Such a drastic move – and it could happen – would be basically the end of the institution. Overcoming this impasse with Pretoria and New Delhi will require heavy diplomatic lifting by all the great WTO powers.

Global institutions only function when their rules and functions are upheld by the large and mighty who are ready to lead, to make some sacrifices to be able to offer global public goods such as rules-based trade and open global markets – and perhaps at this moment in time access to critical medical knowledge.

The EU is large and powerful and wields a lot of influence in the WTO. But it cannot replace the United States as the former super-hegemon in the institution. It is trying to find common ground on key issues with China and India.

Its new trade strategy also insists on the need to ‘build alliances’. But its ‘alliances’ so far – say the Ottawa Group on WTO reform or Trump-era trilateral talks on subsidies reform that also included Japan – are still only with countries with comparable levels of economic development, similar interests and world-views.

The challenge now is to bridge much bigger gaps and not only engage in alliance-building in a bubble of like-minded countries. It’s time to dare engaging in grand bargains with the likes precisely of China, India and the Africans. Might the TRIPS waiver conversation offer such an opportunity?

2 Comments

  1. euadvisory@skynet.be

    Great Article. Thanks Iana.
    On your challenge two I do though somewhat disagree as I do not find the EU has a credibility or consistency problem. The EU problem is that we do not know how to market ourselves. Too humble and too silent.
    On the COVID-19 vaccine issue: No region in the world is developing, producing and exporting more COVID-19 vaccines than the EU.
    We forgot to shout it out before the US comes with a warmly welcomed message of an IP waiver. And that, despite the fact that an IP waiver in itself is no guarantee for any third country to be able to start manufacturing COVID-19 vaccines any time soon.
    Offering an IP waiver is like sharing a cake recipe without securing that the receiver has all the needed ingredients and tools to make that cake.
    EU’s strategy of upscaling production for increased export and securing trade facilitation of vaccines in the short term and local production capability in the long term is of much higher value for the lesser developed countries than a stand-alone IP waiver.

    Thanks
    Morten PETERSEN

    • Iana Dreyer

      Dear Morten, Thanks for this feedback. On the contrary I do think there is a consistency/credibility issue on the IP waiver. Everyone knows it is not a panacea and that production won’t just happen out of the blue and that it will have to be actively pushed and pursued by governments to get the businesses – and themselves – moving. There are systemic issues with pharma and other patents that serious economists have worked on that now come to haunt us: so reviewing when, under what circumstances, and how long to grant tight-knit monopolies on critical issues such as global health in a world where there is also a lot of tax money involved deserves serious consideration (and probably no simplistic response)…

      Also the consistency pb I raise is about political signalling. And that matters too.

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