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Sabine Weyand: We will need to re-engage China

The European Commission’s director-general for trade Sabine Weyand. Credit: EC.

Borderlex’s founder and editor Iana Dreyer spoke to the European Commission’s director-general for trade Sabine Weyand. The conversation covered the current state of transatlantic trade relations, the Brussels’ trade conversation with China and prospects for the World Trade Organization as its 12th ministerial conference approaches.

How do you assess EU-US relations ten months into the Biden administration?

Both the European Union and the United States decided to open a new chapter in our relationship after four very difficult years. And I think we got off to a good start with our bilateral summit in June.

There is real engagement on both sides, as we have seen with the speed with which we have followed up in setting up the EU US Trade and Tech Council.

This was not without its challenges. The TTC was agreed in June, then we held the first session at the end of September. To ensure we actually had concrete deliverables at the first session required a lot of work.

All this shows there is real commitment to the relationship.

There is also a determination to try and deal with the legacy of the past. We had a good bite at the cherry with the Airbus-Boeing truce concluded at the summit last June. That is on the positive side.

At the summit there also was a determination to deal with the Section 232 steel and aluminium tariffs. Now, resolving that is proving more difficult.

We have always said that we cannot be treated as a risk to the national security of the United States. Both the EU and the US suffer from overcapacity.  Neither of us is at the origin of that. It is somewhat absurd that we should be the ones paying the price for this. So we have to find a solution.

We are looking for a solution which preserves our historical trade flows to the US – and which is also WTO-compatible.

Last May, European Commission executive vice-president Valdis Dombrovskis decided that he wanted to send a signal of goodwill and cooperation by postponing for six months the second tranche of the 2018 rebalancing measures we took in response to the metals tariffs.

As always, a deadline focuses minds. We are now in very intense discussions.

What we are seeing is that introducing import tariffs, starting a trade war, is a lot easier than ending it because obviously you have to go against those who have benefited from these tariffs.

We see that our steel exports to the US have suffered a lot more than the steel exports of other countries, whether it is Canada, Mexico or Brazil. So there is something that urgently needs fixing.

We have strong support from member states to really sort this out. Our objective is to find a solution.

Where should the EU take its trade relationship with China? 

We can ‘walk and chew gum’ at the same time. We can have a discussion on supply chain resilience, work on our relationship with the United States, work on our relationship with China and diversify our trade relationships through our network of trade agreements.

I think there is a growing realisation in the EU that we have to re-engage with China.

There was a discussion at the informal European Council in Ljubljana in early October: I think there is a shared understanding that the EU’s multifaceted approach to China is still the right one.

Since relations with China broke down last March over the issue of human rights sanctions, we have noticed that in the economic field, a division of labour between EU member states and the EU institutions has set in. The EU as such has been paralysed by the issue of the sanctions, whereas member states were then continuing their economic engagement with Beijing at national level.

Now there is a realisation that that is not a sustainable approach.

Therefore, I think we will have to find a way to re-engage China. There are a lot of market access barriers which can only be addressed if there is political engagement on both sides: we would like to revive that process.

It is also clear that the EU side would be better off if we had CAI, the Comprehensive Agreement on Investment. The agreement would redress some of the existing market access imbalances our businesses suffer from.

The imbalances are not only between market access in China in contrast to Chinese market access in the EU, but also between the US and the EU in terms of their treatment in the Chinese market. This is something which will come to the fore more now that the United States has decided to re-engage with China and are insisting on the enforcement of the Trump-era Phase One agreement.

We have always made it clear that we have serious concerns about the US Phase One deal in terms of its WTO compatibility. It promotes managed trade, which relies on the very existence of a state-owned-enterprise sector and state-run capitalism which we all agree bring grave distortions to the market economy, to our disadvantage.

Now, CAI will only be unblocked the moment we no longer have Chinese sanctions on members of the European Parliament.

We are also interested in using the commitments that China has made in CAI in order to promote a discussion – first with like-minded countries – in the World Trade Organization about how to foster ‘competitive neutrality’.

I think there is a strong case to be made that we need to continue engaging multilaterally with China because they are a big beneficiary of the system. They also always say that they are very much attached to the world trading  system. We say yes, but the rules are not strong enough to deal with the distortions of the economic system of China. We are not in the business of regime change, but we need to deal with the fallout of China’s economic system on the rest of the world.

And we also have to continue building our own toolbox of unilateral trade measures where we cannot get fair treatment through negotiations.

What’s next for the WTO? What to expect from its 12th ministerial meeting?

We have recently held several ministerial discussions in the margins of the OECD and the G20.  There is very widespread support for our idea of a proposal for a WTO Reform Working Group looking at all three functions of the WTO, so we hope that that will take off.

In parallel, we are also discussing the WTO with the United States. Katherine Tai’s October speech in Geneva was the first public statement on the Biden administration’s approach to the WTO. Now we have to see how this will translate into engagement at MC12.

In terms of dispute settlement, I think that there is no way back to the status quo before the disappearance of the Appellate Body. However, there is very strong support in the system for restoring binding two-stage independent adjudication of trade disputes that works on the basis of ‘negative consensus’.

But that doesn’t mean that we look at the issue of the second stage in isolation, because obviously there are also challenges with the functioning of the panel stage of the WTO’s dispute settlement system.

We have said that already to the US until we got blue in the face: we are ready to look at all issues related to improving the functioning of the system or grievances they may have, etc. in order to find a solution.

We need the WTO to negotiate new rules. If you have rules or want to negotiate new ones, you also need to have a proper enforcement mechanism for these rules.

We are at risk of losing the rules-based system and having it replaced by a purely power-based one.

I don’t think that that is in anyone’s interest, not even in the interest of the powerful. Because even for them, enforcing what they think is fair treatment becomes very costly, as we have seen in the United States. The Trump-era trade policy has come at a great cost also for the American economy.

So I think there is a strong case to be made to restart the multilateral trading system.

This is not about the EU or the US or the EU and the US dictating the agenda for WTO reform. We will have to look at what reforms, for example, South Africa or India or other developing countries are interested in.

We want to have a real process that would get going at MC12 and which would hopefully lead to recommendations for settling these issues two years later at the following ministerial conference.

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