Trade

EU and China break ultimate trade taboo to hit back at Trump

Anger over U.S. President Donald Trumps steel tariffs is pushing Europe and China to rip up one of the most sacrosanct unwritten rules in international trade policy: Dont question national security.

Brussels and Beijing on Wednesday launched explosive cases at the World Trade Organization, in which they will argue that Trumps tariffs on steel and aluminum, imposed in May, cannot be justified on grounds of national security, as the White House claims. The EU and China were joined in their protest by Mexico, Norway, Russia and Canada.

The six-fold attack on Trump is a landmark departure from the orthodoxy of trade diplomacy as countries have traditionally shied away from challenging restrictions justified by national security concerns, for fear that such a case could blow up the entire global trading system.

Whichever way the WTO rules, Pandoras box has been opened. If it rules that national security can justify tariffs, the decision could inspire other countries to play the security card. On the other hand, if Washington finds itself backed into a corner, it could simply quit the WTO.

“Permitting an unlimited national security exception is a fundamental risk to the trading system, but so is stringent judicial control over national security. To force a panel to decide risks opening Pandoras box,” said Holger Hestermeyer, an expert in trade law at Kings College London.

“The EU has realized that the soft approach to the U.S. administration hasnt worked” — Simon Lester, researcher at the Cato Institute

In comments last month on why the U.S. opposed the creation of the panels, U.S. Ambassador Dennis Shea warned that the case would “undermine … the viability of the WTO as a whole.” In short, Trump could just walk.

The EU, by contrast, has argued that the case is a point of principle.

“Of course we had to take this case to court, and we would do again if they launched tariffs on cars and car parts,” said Maria Åsenius, chief of staff to Trade Commissioner Cecilia Malmström. “The U.S. says that its a national security justification … and now they threaten to do it with cars and car parts, next time maybe French wine.”

“If they can decide themselves anything is a national security interest … you dont have any rules anymore in the WTO.”

In comments earlier this month, Chinas ambassador to the WTO Zhang Xiangchen said the WTOs national security exemption “should not be used in an abusive way” and “security issues should not be used as an excuse to restrict normal bilateral trade.”

A common position from the EU and China is a blow to many European and American officials, who had hoped that the trade war would morph into a united front against Beijing. The Trump administration has just unveiled a hardline policy on China. U.S. Vice President Mike Pence last week delivered a blistering speech against China, saying that Washington was in no rush to end the trade war and “would not change course until China changes it ways.”

The cases against the national security justification are not the first to reach WTO panels. There are two other cases still under investigation — involving Qatar and Russia — but the U.S. case is by far the most geopolitically significant. There has never been a ruling on the legitimacy of the national security defense.

The WTO panels should issue a decision within nine months. However, any further discussions over retaliation and appeals could take years.

The EU has already retaliated against the U.S. over the steel tariffs with countermeasures that the U.S. says are illegal.

“I dont think the WTO dispute settlement mechanism can resolve this dispute. A ruling will make one side or the other very unhappy, which could undermine the WTO,” said Simon Lester, a researcher at the Cato Institute specializing in trade law.

He argued the decision to challenge the national security justification was “taken probably more out of principle than as part of a strategy to get the tariffs removed.”

However, he added that the decision to request a panel also signals the EU is willing to be more aggressive. “The EU has realized that the soft approach to the U.S. administration hasnt worked,” he said.

Maxime Schlee and Hans von der Burchard contributed reporting.

Read this next: Thanksgiving, European style

Related Posts