Europe Between China and the United States

WTO reform could be the first step to an EU mediation offer in the U.S.-China trade war, writes columnist François Nordmann.

Ursula von der Leyen, president-elect of the European Commission who will be sworn in tomorrow by the European Parliament, pleaded on Nov. 8 for Europe to stretch its muscles and go beyond the soft power that is its trademark in international relations. Speaking in Berlin on the eve of the anniversary of the fall of the Wall, she stated, “[T]he EU is also China’s biggest trading partner. We can influence the terms under which we do business—and we have been doing so for some time … But in the future we will have to take a closer look at whether these companies comply with our standards.”

The issue of relations with Beijing will be one of the new Commission’s tests and be of strategic importance in the context of the U.S.-China trade war.

What Pascal Lamy Says

Ideally, Europe should be equidistant between the two warring states and adopt a “competitive neutrality.” In addition, it is clear that the United States is at the epicenter of this crisis. But Europe is nonetheless directly affected by the stakes and the progress of this clash of the titans. Indeed, beyond rhetorical postures, Europe and Japan are in a sense involved in this fight. They share the fundamental values that are spurring the United States to act even if there are deep disagreements in economic matters, in particular regarding the muscular method President Donald Trump has chosen with respect to China.

But this conflict is not just the result of the eruptive violence characterizing the occupant of the White House. It has taken many years to mature and results as much from the United States’ failure to shape a World Trade Organization capable of rebalancing Chinese-American trade relations. The American side is not alone in considering the WTO ill-equipped to settle the dispute between the U.S. and China. The organization lacks the means to enforce the commitments the country made during its accession to the WTO. This explains why the United States is attacking the organization’s dispute resolution mechanism and particularly its appellate body.

We know that Washington’s main grievances against Beijing concern state aid to Chinese industry—40% of which is in state hands—to the forced transfer of technology and to unfair competition in the country. Pascal Lamy, former director general of the WTO, expressed his views on this subject last weekend in Geneva, for the first time since he left his post six years ago. Referring to possible outcomes of the conflict, he noted that if bilateral pressure does not produce results, we must return to multilateralism. Recourse to the WTO implies institutional reform.

Role of the EU

Lamy proposed four ways to overhaul the WTO. The organization must first find a way to rebalance the asymmetries arising from different types of subsidies that distort international trade. It must next attack the problem of the environment, which goes beyond climate change alone, for example in the case of transportation, which generates carbon dioxide. Adjustments are necessary and the global capital market can withstand the price increases that will result. Third axis of reform: regulate data exchanges—a vast program.

Finally, the fourth chapter is the revision of the dispute resolution system, all while resisting American threats in this area. But difficult decisions are required—including procedural ones concerning the appointment of judges. And a challenge to the European Union: should it not be leading a coalition of interested countries—Canada, Australia, New Zealand, Switzerland, etc.—to propose mediation between the two warring countries? WTO reform could be the first step to an EU mediation offer.