TWN Info Service on WTO and Trade Issues (Sept18/05)
14 September 2018
Third World Network

EU, US poised for combined assault on China's trade policies
Published in SUNS #8750 dated 12 September 2018

Geneva, 11 Sep (D. Ravi Kanth) - The European Union and the United States seem to be ganging up against China for a combined assault on Beijing's trade policies, after closing ranks on some bilateral issues, according to people familiar with the development.

The EU and the US appear to be on the same wavelength when it comes to major changes to rules at the WTO barring issues concerning the improvements in the dispute settlement system.

The two trans-Atlantic trade elephants on Monday signalled their intention to conclude a partial agreement in the area of technical barriers to trade.

"An early harvest in the area of technical barriers to trade" could be concluded between the EU and the US by November, according to a report in the Financial Times of 10 September.

The US Trade Representative Ambassador Robert Lighthizer indicated that the proposed deal on technical barriers to trade will reduce regulatory hurdles that "hamper commercial exchanges across the Atlantic, such as conflicting standards on car safety, medical devices and pharmaceuticals, which had been the subject of lengthy negotiations between the Obama administration and officials in Brussels," according to the FT report.

"We discussed how to move forward and identify priorities on both sides, and how to achieve concrete results in the short and medium term," EU Trade Commissioner Cecilia Malmstrom tweeted after the meeting with Ambassador Lighthizer. "Lots of work remains this autumn," she wrote.

Significantly, the US had blocked several proposals from the EU in the Doha negotiations on industrial goods for addressing non-tariff barriers, particularly technical barriers to trade.

For example, the EU along with Norway, Switzerland, India, Malaysia, Thailand, and the Philippines had floated a proposal on "international standardization" on 19 January 2011.

In a document (Job/MA/81), the seven countries had underscored the need for "international standardization" by taking into account several different dimensions for facilitating trade.

The EU had also made several other proposals for addressing the non-tariff barriers. The US, however, blocked any negotiations, saying that it would not engage until negotiations on tariffs were concluded.

Against this backdrop, the USTR's statement to the FT about an "early harvest" on technical barriers to trade with the EU is puzzling.

It is not clear what else was discussed during the bilateral meeting between the EU and the US, as the two sides remained coy about other major issues, particularly China, which is prompting the two sides to close their ranks.

The EU along with Canada are spearheading efforts to bring fundamental changes to rules at the World Trade Organization in a manner that would please the US.

The US President Donald Trump and the USTR had repeatedly called for comprehensive reforms in the WTO threatening that Washington would leave the trade body without substantial changes.

The US, which had put the Doha negotiations to bed, is determined to bring fundamental changes at the Dispute Settlement Body (DSB) by doing away with the Appellate Body and by pursuing plurilateral negotiations on a limited number of issues, especially electronic commerce.

The EU and the US are on board on changes to rules concerning the monitoring function and enhanced role for the WTO Secretariat in overseeing the notification and monitoring aspects, for pursuing plurilateral negotiations on electronic commerce and other issues, for introducing differentiation to deny special and differential treatment for China, India, and South Africa among others, and most importantly, for crafting new rules to address issues concerning China's alleged trade-distorting policies.

In the unofficial non-paper for "modernizing the World Trade Organization" issued more than two months ago, the EU had set out the markers for changes to rules at the WTO that are in line with the US priorities.

For example, the EU called for making "the WTO more relevant and adaptive to a changing world" on grounds that "the accession of China in the WTO and its [Beijing's] failure to converge towards the market economy model has revealed gaps in the WTO rulebook that needs to be addressed now."

"These gaps [arising from China's accession]," according to the EU, "relate mostly to the way a government exercises its powers to either give preferential treatment to its domestic operators, i.e., through subsidies or skewed regulatory practices and policies or to obtain the competitive advantages of foreign operators for its own use (i.e., through forced technology transfer or failure to protect intellectual property)."

"The EU should therefore work to develop new rules to address current gaps in the rulebook with regard to level playing field issues such as subsidies and state-owned enterprises; investment market access; regulatory barriers to services and investment, including rules on technology transfer," the EU's non-paper had explicitly argued.

The USTR had raised the same concerns about China well before Brussels mustered courage to highlight them at the WTO and outside. Clearly, there is a convergence between the US and the EU in forging a common front against China for crafting new disciplines on subsidies, state-owned enterprises, and regulatory issues.

For the past several months, the EU along with the US and Japan were busy forging a common front as part of a "trilateral" process against China for bringing new disciplines on industrial subsidies, state-owned enterprises, and intellectual property.

The alliance with the EU has also become important for the US which is finding it difficult to make a significant dent in its trade war with China.

"The Trump administration has been seeking to temper its trade fights with its strategic allies in recent weeks, including the negotiation of a deal to reform NAFTA (North American Free Trade Agreement) with Mexico and Canada, in an effort to focus on its escalating trade dispute with Beijing," according to the Financial Times on 10 September.

The EU and the US are also on the same wavelength when it comes to pursuing "differentiation" that would allow a new approach "to development and special and differential treatment based on a case-by-case, needs driven analysis," and "encourage developing country members to move toward undertaking greater commitments."

It is only on the dispute settlement function of the WTO that the EU and the US differ significantly at this juncture.

The US is determined to terminate the Appellate Body after blocking the second term for the AB member Shree Baboo Chekitan Servansing. Washington wants to revert to the pre-WTO phase of negotiating panel findings instead of resolving before the highest adjudicating body.

In its non-paper, Brussels emphasized: "The EU should put forward a comprehensive proposal to address the concerns raised by the WTO member [the US] blocking the Appellate Body appointments to the extent that they have merit, while preserving and further strengthening the main features and principles of the WTO dispute settlement system. This proposal will - in a first stage, and i n order to unblock the appointments - aim at improving the efficiency of procedures, at creating conditions for a better interaction between the Appellate Body and the WTO members while at the same time strengthening the independence of the Appellate Body. In a second stage, substantive issues concerning the application of WTO rules would be addressed."

Prior to the EU-US bilateral meeting on Monday, the WTO director-general Roberto Azevedo had dispatched his chef de cabinet Tim Yeend to Brussels to share the WTO Secretariat's proposals for reform, according to a report in Politico on 5 September.

It is safe to conclude that there is a new bonhomie between the US and the EU for ganging up against China and for preparing the ground for fundamental reforms that would deny special and differential treatment to several countries of the Global South.