The EU – Multilateralist by Conviction

The duties of the WTO can be divided into three pillars – first, the organisation provides a forum for its members to reduce trade barriers and to establish rules for global trade. Its second duty is to monitor the extent to which the members comply with these rules. The WTO commits its members to report subsidies and non-tariff barriers to trade which they impose. Finally, the WTO is responsible for the settlement of disputes. Although the WTO, together with its predecessor, the General Agreement on Tariffs and Trade (GATT), has contributed significantly to fair conditions of competition in global markets, the organisation finds itself unfortunately today in deep crisis. The EU calls for comprehensive reforms.

Modernisation of WTO Rules

The new EU trade strategy, published in February 2021, dedicated a substantial annex to WTO reform. In striving to modernise the WTO rulebook to adapt to the realities of the 21^st century, the EU recommended new WTO rules on e-commerce, investment facilitation, services domestic regulation and subsidies, the first three of which are currently being negotiated on a plurilateral basis. The justification is that these are “essential to make the rules of international trade responsive to the digital transformation of the economy, the growing importance of services and the need to facilitate investment as a key for development.”

Reaching towards a Level Playing Field

New areas such as e-commerce do need to be regulated within the WTO, but it is equally important that WTO rules tackle competitive distortions and pursue competitive neutrality. The EU states that WTO reform must modernise rules on subsidies, state-owned enterprises, forced technology transfer and domestic regulation. As a first step, together with its partners in the Trilateral Initiative (the U.S. and Japan), the EU proposed in January 2020 a reform of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). For example, the partners advocate a broader definition of subsidies, coverage of other types of subsidies (especially those flowing through state-owned enterprises), and stricter reporting obligations and sanction mechanisms. The aim is to create fairer competition, particularly with China. The Trilateral Initiative is also pressing for reforms of the rules in the areas of state-owned enterprises, overcapacity, and market distortion.

Plurilateral Agreements and Initiatives

The EU is party to three plurilateral WTO agreements – the Agreement on Trade in Civil Aircraft, the Government Procurement Agreement (GPA), and the Information Technology Agreement (ITA). The Union is particularly active in plurilateral negotiations within the WTO. In May 2019, the Commission published an extensive proposal for the plurilateral negotiations on digital trade (e-commerce), which among other things covered electronic contracts and authentication, consumer protection, cross-border data flows, and protection of personal data. The EU moreover supports the multilateral moratorium not to enact customs duties on electronic transmissions.

Improvement of Notification

Furthermore, the EU advocates for more transparency and adherence to reporting obligations from the members. Here, both timely compliance and quality of information are key. The European Commission, together with several other WTO members including the United States, advises, among others, more effective monitoring at committee level, improved sanctions in the case of deliberate and repeated non-compliance, reduction of ineffective committee work and a strengthened Trade Policy Reporting Mechanism (TPRM).

More Effective Dispute Resolution

The crisis of the Dispute Settlement Mechanism (DSM) is particularly pressing. The EU is the second-most active user of the DSM, having initiated 104 cases against 18 countries – 35 against the United States, the heaviest target, 11 against India, 9 against China and 8 against Argentina. The majority of EU-initiated DSM cases (82) are in reference to violations of the General Agreement on Tariffs and Trade (GATT), in particular violations of Article VI on Antidumping (18 cases), followed by violations of the Agreement on Subsidies and Countervailing Measures (SCM Agreement, 26 cases). 86 cases within the DSM were filed against the EU. The EU therefore has a particular interest in an effective dispute settlement instrument.

Differentiation according to Development Status

The European Commission furthermore proposed the development of a “needs-oriented and evidence-based” approach for the special and differential treatment (SDT) of developing countries. Together with its Trilateral partners, the EU finds the self-determination of development status problematic; emerging economies, such as China, still classify themselves as developing countries and can profit from the resulting benefits accorded to them. The Commission supports a case-by-case consideration of development status that would make SDT as targeted, needs-oriented, and connected to economic criteria as possible.

What are the Next Steps?

In order to end the stalemate at the WTO and resolve the DSM paralysis, reform of the organisation is urgently needed. The EU should therefore press ahead with its reform agenda and recruit support from other members.