If anyone still doubts that the global trade system is facing a make-or-break moment, the responses by the EU, Canada and Japan to US president Donald Trump’s “America First” policies should settle the matter. Paradoxically, the champions of rules-based international trade are undermining the system in their attempts to save it.
In response to the US’s imposition of tariffs on steel and aluminium imports in the name of national security, the EU and Canada have challenged the measures at the World Trade Organization. But instead of waiting for a ruling, they retaliated immediately. The EU argues that there is no national security rationale for the US steel and aluminium tariffs, and that American actions constitute a de facto “safeguard measure” — which would make the EU’s “rebalancing duties” consistent with WTO rules.
Not surprisingly, the US disagrees and has opposed the EU’s countermeasures. Regardless of the legal merits of the EU’s case, the fact that the bloc is short-circuiting the process means it is helping Mr Trump to undermine the WTO.
Another example of friendly fire is the EU’s and Canada’s attempts to deal with the looming crisis of the WTO appellate body — the highest instance of dispute resolution. Because the US has blocked appointments, the appellate body will not be able to hear new appeals after December 10, 2019. As a workaround, the EU and Canada adopted an interim appeal arbitration arrangement in July. The EU also laid the groundwork to enter into similar arrangements with other countries.
While such agreements are based on WTO rules and even though the EU and Canada remain committed to restoring the appellate body, the interim mechanism could undermine the impetus for reform. If the parallel system persists in the long term, it could lead to a fragmentation of the global trade dispute settlement system.
The partial US-Japan trade deal signed in September is the latest case of a champion of global trade being willing to skirt WTO rules in order to reduce tensions with the US. Although it covers market access for certain agricultural and industrial goods, as well as digital trade, such a narrow deal is potentially inconsistent with WTO rules stipulating that an agreement should cover “substantially all the trade” between the two parties. Both sides have left the door open to further negotiations for a more comprehensive agreement, which could address the concerns. But for now, Japan has pursued a partial deal with the US in order to get Mr Trump to withdraw the threat of car tariffs.
If even the champions of the global trade system are stretching the rules in order to save it, perhaps that system is beyond saving? I think not, but what is needed is a path that allows the supporters of the rules-based international trade system to continue to defend it, while simultaneously ensuring that US violations of the rules do not lead to its unravelling.
In engaging with the Trump administration, the focus should be on issues of shared concern. The US, EU and Japan are already taking steps — inside and outside the WTO — to work jointly on dealing with China’s state-owned enterprises and industrial subsidies, as well as technology-transfer practices. This group could be extended to include Canada, Australia and Singapore.
Supporters of the global trade system should focus collectively on new issues such as digital trade. This should be done without losing sight of some of the unresolved tensions of the past, especially around agriculture.
Finally, these countries should continue to promote trade with the rest of the world. If done right, and in compliance with WTO rules, this could be a stepping stone towards a reinvigorated multilateral trade system. Following this path would strengthen, rather than undermine, the foundations of that system, with the WTO at its heart.
The writer is a research fellow at Chatham House