Biden needs leverage to reform the WTO
Last week, the United States, the European Union and Japan announced that they would relaunch their trilateral initiative on subsidies and state-owned enterprises from November 30 to December 30. 3 Ministerial Conference of the World Trade Organization (WTO) in Geneva. In the wake of the US-EU deal to resolve tensions over Trump-era national security tariffs on steel and aluminum, the Biden administration’s approach to the issue trade policy – an approach based on building influence among like-minded economies to achieve multilateral goals – is coming into focus.
The three trade ministers representing the trilateral economies announced their initiative for the first time at the last WTO ministerial conference in Buenos Aires in 2017. They then met five times and released their last communiquÃ© in January 2020. This document reflected the progress made in identifying new areas in which WTO rules needed updating to reflect the behavior of marketless economies such as China. But he did not come up with a strategy to achieve concrete results.
Now, the Biden administration and its European and Japanese counterparts have the opportunity to remedy this Trump-era trilateral failure by taking three additional steps: initiating negotiations between them on the rules on subsidies and state-owned enterprises; transform these talks into a plurilateral agreement between a larger group of market economies; and present this agreement for adoption by all WTO Members. Only by pursuing the first two stages of economic policy will the US, EU and Japan be able to bring sufficient diplomatic weight to the WTO negotiating table on behalf of their collective interests in reforming the world trading system.
A similar dynamic is at work in the US-European agreement at the end of October at the G20 summit in Rome to suspend the national security tariffs imposed by President TrumpDonald Trump Overnight Energy & Environment – Biden to release 50 million barrels of oil reserve in 2018. Trump’s tariffs affected all steel and aluminum imports, even from allies and friends.
In a bid to tackle China’s overproduction of its carbon-intensive steel, the transatlantic partners have now agreed to a two-year tariff suspension. Meanwhile, they will seek to reach a “new arrangement to discourage trade in high carbon steel and aluminum which contributes to the global overcapacity of other countries and to ensure that national policies support the reduction of carbon dioxide. ‘carbon intensity of these industries’. Like the members of the trilateral initiative, the United States is already in talks with Japan that could lead Tokyo to join this new effort.
The steel agreement between the US and the EU will in principle lead to an alignment between the two parties on a methodology for measuring the carbon intensity of steel that they could then jointly use to determine sanctions against imports from third countries that do not meet high transatlantic climate standards. This methodology will have to take into account both the EU’s approach to climate policy (which includes an explicit carbon price via its emissions trading system) and US measures which are mainly based on the regulations to achieve climate goals.
If Washington and Brussels were successful in this exercise, they would agree on what could be called a Joint Carbon Border Adjustment Mechanism (CBAM) for the steel sector by the end of 2023. This is a just over two years before the EU plans to introduce its own CBAM covering five carbon-intensive sectors: steel, aluminum, fertilizer, electricity and cement.
What if the mutual understanding between the US and the EU on how to account for carbon intensity in steel was extended to other products and other countries with high climate standards in their methods? industrial production, there would be a vanguard group that could campaign to reform WTO rules so that they strike a better balance between trade and climate objectives. There is currently not enough clarity as to whether WTO Article XX governing exceptions to free trade would cover CBAMs and other tools that aim to create space for climate goals, even s ‘they temporarily restrict trade.
The Trump administration’s stand-alone approach to trade policy, including the challenge posed by China and the currently outdated nature of many WTO rules, has clearly failed. The Biden administration’s middle path – building market economy coalitions – may now be the only realistic option to advance U.S. national interests in the multilateral trading system.
Peter S. Rashish is Principal Investigator and Program Director of Geoeconomics at the American Institute for Contemporary German Studies at Johns Hopkins University and author of the recently published report, “The Link Between Trade and Climate and the Future of world trading system â.