EU Nations Upgrade Trade Arsenal to Offset U.S. Attack on WTO

(Bloomberg) -- European Union governments agreed to expand the bloc’s trade-sanctions power, signaling that concerns about the U.S. challenge to the global commercial order run deeper than the coronavirus pandemic.

Diplomats from the 27-nation EU approved an upgrade to European legislation on enforcing international commercial rules. The envoys decided to let the EU impose penalties against countries that illegally restrict commerce and simultaneously block the World Trade Organization’s dispute-settlement process.

The deal on Wednesday in Brussels advances a proposal made by EU Trade Commissioner Phil Hogan in December -- before Europe became the epicenter of the deadly Covid-19 pandemic and governments across the region unleashed unprecedented economic stimulus. The measure still needs the approval of the European Parliament.

The EU is rushing to upgrade its trade arsenal after U.S. President Donald Trump’s administration sidelined the WTO’s key appellate body four months ago. The 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.

Hogan’s proposal -- 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, including through a stopgap appellate process.

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 a) doesn’t accept the initial ruling, b) hasn’t signed up to the stopgap appellate arrangement and c) appeals nonetheless.

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.

©2020 Bloomberg L.P.

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