Europe Moves to Expand Trade Arsenal With Focus on Trump

(Bloomberg) --

Europe is arming itself for a more lawless world of trade -- and the bloc’s sights are on the U.S.

European Union trade chief Phil Hogan on Thursday sought an upgrade to EU legislation on enforcing international commercial rules. His proposal would allow the EU to impose sanctions against countries that illegally restrict commerce and simultaneously block the World Trade Organization’s dispute-settlement process.

Europe Moves to Expand Trade Arsenal With Focus on Trump

The timing of the initiative in Brussels is no coincidence. On Wednesday, the WTO’s much-prized appellate body ceased to be able to handle new cases because a U.S. veto of any appointments to the panel left it without the minimum three members required for verdicts.

The body is the WTO’s supreme authority, issuing binding decisions that give winning parties in disputes the right to apply trade penalties such as higher tariffs against law-breaking countries. Since before Donald Trump’s presidency, the U.S. has accused the appeals panel of overstepping its mandate and has demanded changes to the body’s practices.

“It’s unacceptable that the EU cannot enforce its rights through adjudication,” Hogan said at a press conference in the Belgian capital where he presented the proposal. “Our actions today are fully compatible with international public law.”

Read more: What’s Next for Trade Referee After Sabotage by U.S.

The EU is asserting itself more in a bid to prevent Trump’s “America First” agenda and protectionism from undermining the rules-based global order to which Europe is committed.

Over the past three years, Trump has angered Europe by hitting its steel and aluminum with tariffs based on controversial national-security grounds, dangled the threat of similar levies on foreign cars and drawn up plans to target French goods with levies as retaliation over a digital tax in France.

The U.S. president has also sought to restrict European trade with Iran after pulling out of an international agreement to control the country’s nuclear activities and backed out of a landmark United Nations accord to fight climate change.

The U.S. steel and aluminum duties, introduced in 2018, prompted the EU to complain to the Geneva-based WTO. The bloc also scrambled to put its own trade defenses in place for steel to prevent the American levies from diverting global shipments to the European market and flooding it.

Read more: Terms of Trade: ‘Big Phil’ Girds for Big Battles With U.S.

The amended EU legislation that Hogan put forward comes less than two weeks after he took office as part of a new leadership team at the European Commission, the bloc’s executive arm, under President Ursula von der Leyen. The proposal, which requires the support of EU governments and the European Parliament in a process that will last into next year, has political momentum.

Hogan said he expected EU capitals and the bloc’s Parliament to endorse the measure by mid-2020.

At a scheduled meeting in Brussels on Thursday afternoon and Friday, the EU’s national leaders will ask its legislative actors “to examine, as a matter of priority, the commission’s proposal,” according to a draft summit statement seen by Bloomberg.

The government chiefs are also due to express support for a stopgap arbitration system that the commission is pursuing with EU trade partners such as Canada and China pending any revival of the WTO appellate body.

The proposal from Hogan -- an amendment to 2014 European legislation -- would effectively serve as a third line of defense for the EU as it seeks to uphold the WTO system.

The extra tool would come into play in a scenario in which the WTO appellate body is still sidelined and the bloc wins a case against a country that doesn’t accept the initial ruling (by appealing “into the void”) and hasn’t signed up to the stopgap arrangement for handling appeals.

In that event, the EU would be in a position to impose countermeasures. The planned change to the European legislation would also empower the commission to calculate the level of penalties -- a ceiling normally set by the WTO.

In that context, the proposal may encourage more countries to join the makeshift appeals system that the commission is advocating. That model would essentially replicate the work of the defunct appellate body.

“Many, many countries now are beginning to realize this week that this is more urgent than they thought,” Hogan said. “They are looking for the leadership of major geographical blocs.”

He also repeated calls on the Trump administration to work with the EU to revamp the WTO including its appellate body, saying “we’ve asked the U.S. to engage with us and they have refused to do so to date.”

Jacques Pelkmans, a trade expert and senior fellow at the CEPS think tank in Brussels, said the EU would likely be prudent about deploying any new sanctions tool in its policy arsenal.

“When it comes to partners, the approach will undoubtedly be based on the primacy of consultation and peer pressure,” Pelkmans said. “In the extreme the EU might want to have the option of using it.”

©2019 Bloomberg L.P.

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