Will the US block a new WTO director-general?

Hello from Brussels. There’s a newish slogan about, which has the feeling of having spent a good while being prodded and poked in some (presumably virtual) focus groups before being released into the wild. Trade commissioner “Big Phil” Hogan (who is now properly interested in the World Trade Organization director-general position, see below) has used the term several times in the past month. The EU’s policy towards trade, supply chains, economic resilience and all that now follows a philosophy of “open strategic autonomy”.

Something for everyone here: “open” for the free-traders, who evidently aren’t extinct yet; “strategic” for those who think it would be cool to be a superpower, even if you evidently aren’t; “autonomy” for some of the more protectionist member states. Naturally, anyone can have a go at this, so we’ve designed a create-your-own-policy-philosophy tool, which we’d have made into a proper online name generator if we’d thought of it before late last night. After picking one from each column at random, we proudly announce that Trade Secrets’ philosophical orientation is “flowing tigerish sovereignty”, though as a fallback we also like “Ricardian crunchy self-determination”. Have a go and let us know how you get on.

Today’s main piece is on the challenge of saving the WTO from the Trump wrecking ball, which has unfortunately been given another breach in the wall to aim at. Charted Waters looks at a rise in US pork exports to China, while our Tit for Tat guest is Huw Thomas, political adviser at the National Farmers’ Union Cymru with his views on a UK/EU trade deal.

Deal or no deal on the Appellate Body? No one’s sure

Phil Hogan, the EU’s trade commissioner, has signalled that he is interested in the WTO director-general post © Olivier Matthys/Bloomberg

First, a quick update on the WTO director-general race. Phil Hogan has signalled (originally in the Irish Times and confirmed by people familiar, as they say, with his thinking) he is definitely interested. The obvious problem is getting past the US veto, given his habit of spicy comments about the Trump administration. Hogan might hope for some goodwill given US trade representative Robert Lighthizer’s Irish family connections (his middle name is “Emmet”). Despite Hogan’s recent calls for co-operation, their relationship was combative from the beginning.

Anyway, no matter who the new DG is, when they take up the chalice and gingerly sniff the contents for evidence of toxins, among their biggest tasks will be to try to unblock the organisation’s dispute settlement process.

To recap: the WTO Appellate Body has been in abeyance since December when the US blocked the appointment of new judges, citing deep-seated objections to the AB’s judicial over-reach.

The EU and Canada got together and designed a workaround system that has now created the laboriously-entitled “multi-party interim appeal arbitration arrangement” (MPIA), whose naming could frankly have done with some of the creative effort that produced “open strategic autonomy”. Anyway, the MPIA has signed up 20 other countries including some of the biggies, such as China and Brazil. That system has now got around to appointing its own jurists. Good ones, too — the EU recently nominated the redoubtable Joost Pauwelyn of the Graduate Institute in Geneva, who was very widely rumoured to be Brussels’ candidate for the appellate body itself when the next vacancy came up.

But the MPIA hasn’t exactly driven the US to compromise by the horror of being bypassed. Washington continues to argue a maximalist position that the AB must return to its original intent of a narrow technical revising body.

The odd thing is that there’s privately quite a lot of agreement among other member countries that, well, yes, maybe the AB’s judicial creativity did get a bit out of hand. Some countries — including Japan, which has been chary of the MPIA and hasn’t joined — have put out their own quite radical proposals for change to the AB, including its habit of explicitly regarding its past rulings as precedent, such as those against US anti-dumping laws.

Even the EU has been considering publicly moving further towards the US position. In theory there is a deal to be done, with Brussels accepting and pushing for US-style reforms. Being very optimistic, that could be a trade-off for making Hogan DG.

But here’s the problem. It’s not clear whether the administration of the Great Negotiator, aka Trump, actually wants a deal. It doesn’t seem to have adopted what political campaigners call a “theory of change” — how to get from here to there.

The USTR instead seems to want a Spanish Inquisition-style auto-da-fé, with a mass confession of guilt among all other members about their dark past of aiding and abetting heretical judicial freethinking, presumably accompanied by the ritual public burning of all the relevant AB rulings.

But that isn’t really how politics works, is it? You have to let everyone claim victory. The US’s insistence on a collective admission of wrongdoing fuels suspicion it just wants to be destructive. In that case, why would the rest of the WTO membership abase themselves to no end?

It’s tempting to think that maybe we’ve reached an unhappy but at least somewhat stable equilibrium. The AB is frozen but the MPIA workaround is up and running, the organisation remains alive, and let’s see what happens in the US election. 

This was always a dicey proposition. The US has plenty of potential leverage over the other members. It can have another big fight over the WTO’s budget, as it did last year. It can encourage the headbangers in Congress who want to leave the organisation altogether. And now the Trump administration has been given a great new opportunity to be a pain in the form of Roberto Azevêdo’s resignation as DG a year early.

If it doesn’t want a deal — or doesn’t think Hogan or any new DG can deliver the rest of the membership — the US can block the whole appointment process. This would leave the WTO leaderless and directionless. In that case, it really would just be a case of hoping the US electoral college can deliver a new president, and leaving both the succession campaign and any serious reform until next year. It’s not a happy thought.

Charted Waters

Pork producers have had to deal with not one, but two health crises in the past year, after African swine flu hit pigs themselves and now coronavirus has affected pork plants through closures and labour shortages. Yet one direction of travel has been positive: US exports to China are climbing in recent months among three large producers. 

Tit for Tat

Huw Thomas, political adviser at the National Farmers’ Union Cymru, joins us for three blunt questions.

What would the National Farmers’ Union Cymru like to see in a UK/EU trade deal?

The EU is our nearest and most valuable export market, with some 450m comparatively wealthy consumers just a short distance away. We export about a third of Welsh lamb, with around 95 per cent of that going to the EU. For NFU Cymru, securing market access to the EU27 that is as free and frictionless as possible is an absolute priority: this means no tariffs or quotas on our agri-food exports to the EU, and non-tariff barriers eliminated or minimised wherever possible.

Do you believe it will be possible to negotiate these points by the end of the year, or do you believe the deadline should be extended, given the current circumstances?

The EU/Canada trade deal (Ceta) took seven years to negotiate — so at less than one year, the timetable for negotiating a UK/EU trade deal already looked incredibly challenging before coronavirus came along. I would question whether any government would have the capacity to manage a pandemic of such magnitude, while concurrently negotiating and preparing to implement a completely new trading relationship with a trading partner as important as the EU27. For NFU Cymru and Welsh agriculture, leaving the EU’s single market at the end of the implementation period without a trade deal would be disastrous as our agri-food exports would, overnight, be subject to eye-watering tariffs, as well as non-tariff barriers to trade. The government must be prepared to seek an extension to the implementation period if that is what is needed to secure a trade deal.

Do you think that leaving the EU will create opportunities for the UK farming industry?

Although the UK is now pursuing its own independent trade policy, securing a trade deal with the EU27 has to be the priority for the UK government before seeking trade deals with third countries. While there may be opportunities in some markets, we have to remember that in a trade deal with the US, for example, Welsh agriculture’s offensive interests are fairly modest owing to Americans’ historically low consumption of lamb. Our defensive trade interests are far greater, and so we would be deeply concerned at the prospect of food produced in third countries (such as the US), to standards that would be illegal here (such as hormone-treated beef or chlorinated chicken) being admitted to our markets and undermining domestic production.

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