World trade: The EU is forging a secret plan against Trump

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BCecilia Malmström is cautious about this topic. At a press conference this week, the EU Trade Commissioner promised that the European Union would work to avert the impending blockade of the World Trade Organization (WTO). When asked what an emergency solution might look like if the US government's impasse on a key WTO body were to be lifted, she did not respond.

However, EU and federal government internal documents available to WELT AM SONNTAG indicate that the Trade Commissioner's staff are working with other countries on an emergency solution that could eventually become an alternative WTO.

The background is the attack by US President Donald Trump on the WTO and thus on free trade in its previous form. Not only that, the US impose punitive tariffs on important trading partners and thus destroy prosperity worldwide.

The US government is also working to ensure that trading partners within the WTO can no longer defend themselves against the punitive tariffs. For this, the Americans are relying on a blockade of the dispute settlement within the Geneva organization, which has been working successfully for almost a quarter of a century.

There are no appeal judges

Specifically, Washington prevents new arbitrators from being appointed to the Appeals Chamber of the WTO. Currently the chamber consists of only three judges instead of seven; From the end of the year, she will no longer be a quorum. Then two members retire at the end of their term. To be quorate, three judges are necessary.

US President Trump attacks the WTO

US President Trump attacks the WTO

Source: AP

At first glance, the excitement surrounding the appellate court seems exaggerated, since trade disputes in the WTO first of all come before a first instance, whose work can continue even without an appellate body. The members of the organization would only be deprived of the opportunity to appeal for a valid judgment of the first instance.

But going to the second instance is usually the rule. Often the trials deal with politically charged disputes, such as the US punitive tariffs justified by security concerns – an absolute novelty in non-wartime times.

The lengthy trial – with appeals alone lasting an average of 1300 days – ensures that conflicts are prolonged until parliamentary and government leaders are re-elected and there may be room for compromise. Therefore, the US blockade threatens to paralyze the entire dispute settlement mechanism of the WTO – and thus a central task of the organization.

Dramatic consequences for world trade

The reoccupation is only superficially about a harmless administrative process, but in fact is the continued existence of free trade in its present form at stake, warns Gabriel Felbermayr, the president of the Kiel Institute for World Economics (IfW). "This body is just the tip of the iceberg. In fact, the US wants to abolish the entire WTO and replace it with a structure that gives them more influence. "

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The consequences for world trade would be dramatic, warns Felbermayr: "If the US destroys the WTO, confidence in the legal security of international trade would be shaken. However, the global value chains need this security, "warns the trade expert. "The consequences would be a deglobalization and loss of wealth throughout the world, but especially in Germany and Europe."

No wonder the EU wants to find a solution to the dispute; they have just made a new offer to the US for a reform of the dispute settlement, said Malmström on Monday. An agreement with the US is considered unlikely.

The EU is therefore already working in secret on an emergency plan to save arbitration. The extent to which these plans have progressed is demonstrated by internal documents from various EU bodies and the Federal Government. Accordingly, the EU Commission wants to build an alternative arbitration court outside the WTO with other states.

Blueprint for further contracts

Concrete negotiations are currently underway with Canada. If successful, the degree should become a blueprint for contracts with other countries. A draft for the bilateral agreements already exists. He is WELT AM SUNDAY.

The draft is the basis for the negotiations with Canada and provides that three people should decide any arbitration case: "They are selected by the Director-General from the pool of available former members of the Appeals Chamber," it states.

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The consequences of the EU negotiations are far-reaching: if there were really to be a network of corresponding treaties between states, this would create a parallel organization; a mini-WTO. The draft agreement underlines in several places that it is a temporary solution.

In fact, the blockade situation is likely to persist in a re-election of Trump in the coming year until 2024. "EU negotiations are moving in the direction of a two-speed WTO with some members more integrated than other countries," says trade expert Felbermayr.

China, India and the EU are in agreement

The prerequisite would be that important trading partners join. Chances are not bad: China, India and the EU have already agreed on a common position to solve the crisis on the Appeals Board. Maybe the group can also win Russia for a WTO light. During the visit to China by Federal Minister of Economics Peter Altmaier may also have been spoken about the interim solution.

The Federal Government and more than 20 other EU countries expressly support this course; This is also clear from internal diplomatic wire reports between Brussels and Berlin. The opposition in the Bundestag supports the procedure. "Only if Germany uses its diplomatic weight also bilaterally in favor of this project, the prosperity, which brings the German export economy, can be defended", say Gerald Ullrich (FDP), member in the European committee. "The EU thus defends the rules-based world trade system."

Source: Infographic WORLD

Although Katharina Dröge, trade expert of the Greens, welcomes the EU's attempt in principle, she warns against an overly exclusive solution: "The EU must not make such an interim solution an elite club of major economic powers," warns the politician. "Such a solution must be open to small countries that need the security of international law much more." In fact, it is not yet clear whether the EU can win over other trade powers for its idea. Understandably, Malmström prefers to remain silent in the face of all the uncertainties.

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