Biden Lines Up EU Help to Toughen Terms of Trade for China

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President Joe Biden and his European Union counterparts will take a big step next week toward repairing their fractured relationship and they’ll start the process of building an alliance to keep China in check.

During a U.S.-EU summit, the leaders will pledge to work toward reforming the World Trade Organization to stamp out unfair actions by countries that seek to take advantage of the current rules, according to a copy of the draft conclusions seen by Bloomberg ahead of the June 15 meeting.

Critics say that in the two decades since it joined the WTO, the Chinese government has exploited the Geneva-based organization’s rules to deploy as much as $500 billion of state aid to create dominant companies in sectors including robotics, aircraft and electric cars. A 2020 U.S. report said Beijing’s industrial plans will “likely result in oversupply, leading to loss of jobs and production,” for western companies.

The U.S. and EU intend to “update the WTO rulebook with more effective disciplines on industrial subsidies, unfair behavior of state-owned enterprises, and other trade and market distorting practices,” according to the draft, which is still subject to change. They’ll also commit to addressing “economic coercion” in China.

Beijing hoped “relevant countries” treated China in an objective, rational manner, Foreign Ministry Spokesman Wang Wenbin said Thursday at a regular press briefing in Beijing.

“Touting confrontation will be the wrong path to follow,” he said. “The practice of bloc politics and forming small cliques is unpopular and doomed to fail.”

Biden told reporters on Wednesday before departing for for the U.K. to attend a Group of Seven meeting that his goals for the trip were “strengthening the alliance, making clear to Putin and China that Europe and the United States are tight.”

A large-scale revamp of WTO regulations to curb China’s industrial subsidy regime could represent the most significant step toward rewriting international trade rules since China joined the body and could mark a new era for the global trading system. But the first step will be for the U.S and EU to eliminate tariffs on $18 billion worth of transatlantic trade.

The allies next week will commit to reaching a bilateral agreement on illegal government aid provided to Boeing Co. and Airbus SE before July 11. The dispute has seen the U.S. level tariffs against $7.5 billion of EU exports annually over the issue, and the EU retaliated with levies on $4 billion of American goods.

Policymakers in Brussels and Washington recognize that China’s state-sponsored aerospace manufacturer Commercial Aircraft Corp. of China, or Comac, is on track to displace the Airbus-Boeing civil aircraft duopoly. That’s why a new bilateral accord to replace the defunct 1992 U.S.-EU large civil aircraft agreement would mark a positive step toward developing new international rules to blunt Beijing’s aerospace ambitions.

Airbus Chief Executive Officer Guillaume Faury said this month that he expected China to become a legitimate rival in global planemaking by the end of the decade, which would risk shutting the two western incumbents from supplying China’s state-owned airlines.

Steel Fight

The U.S. and EU will also pledge to reach a year-end agreement on state aid for industrial sectors like steel and aluminum in return for a permanent withdrawal of tariffs on $6.8 billion worth of European metals and iconic American products, including Harley-Davidson Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey.

The Trump administration’s tariffs were ostensibly aimed at curbing inflows of cheap, subsidized Chinese metals into the U.S. market that were gutting jobs in America’s rust belt. The EU became a target when it refused to accept the Trump administration’s demand for voluntary export quotas.

While the Biden administration has been reluctant to remove the metals tariffs, which U.S. Commerce Secretary Gina Raimondo previously said were “effective,” Brussels offered an olive branch last month by declining to double its 25% tariffs on key U.S. exports in order to help resolve the dispute by Dec. 1.

Taken together, these forthcoming agreements could help solidify a successful transatlantic realignment on trade that could set the stage for a broader agreement among the world’s seven largest advanced economies to bolster regulations on industrial subsidies and curb actions by state-owned companies that distort trade.

“We have to deescalate EU-U.S. trade disputes,” EU Trade Commissioner Valdis Dombrovskis told lawmakers in Brussels on Wednesday. “We want to make decisive progress to resolve our bilateral disputes on aircrafts and the” steel and aluminum issue.

©2021 Bloomberg L.P.

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