The lawless free-for-all of greening world trade

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Welcome to Trade Secrets. Last week I made one of my infrequent trips to Geneva to the WTO’s annual public forum to hear stimulating debate on the issues of the day.* Appropriately enough, as I’ll discuss later in the week, the big trade news during the forum was a unilateral action that took place elsewhere — the EU’s decision to open an investigation into Chinese subsidies to electric-vehicle manufacturers. Charted waters is on the related issue of Germany’s declining export dependence on China.

*steal ideas and pass them off as my own

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Now you CBAM, now you don’t

There are lots of new issues for the global trading system to grapple with, many tinged with green, and they all got a good airing in the WTO forum panel discussions: the big powers going all-in with industrial policy, massive production subsidies and some trade restrictions and all that; the global clean-tech transition with all that implies for trade, knowledge transfer and carbon pricing; the weaponisation of trade for national security.

But the traditional obeisance from speakers to the need to bring all these issues to the WTO and corral them into the famous rules-based multilateral order was even more perfunctory and unconvincing than normal. The WTO isn’t even hosting proper negotiations over the environment and trade beyond some “structured discussions”.

The action in trade these days is mainly unilateral and bilateral: governments subsidising domestic industries, trying to secure supply chains by banning sensitive exports and cobbling together exclusive critical minerals agreements, designing carbon border tariffs and generally tearing up the rule book of the past 30 years of globalisation. As one attendee pointed out, the big trading powers are all sinners on subsidies that affect trade, so there isn’t much enthusiasm for stopping them.

The most likely substantive role for the WTO, as I’ve written before, is the dispute settlement system adjudicating on whether the EU’s carbon border adjustment mechanism (CBAM) meets WTO rules or not. CBAM is not popular among middle-income countries, and China, as part of its tactic of close engagement with the WTO (see below), has proposed multilateral discussions on the issue, but that seems unlikely to defuse the row.

An Appellate Body rising from the dead?

And of course it doesn’t help, even if the US isn’t likely to be the first country to bring a WTO CBAM case, that the Appellate Body (AB) of the dispute settlement process remains in the deep freeze where Washington put it in 2019. All WTO member governments have in theory agreed the issue will get fixed and a “fully and well-functioning dispute settlement system” sorted out by 2024. Realistically, this won’t be at the big ministerial meeting in February in Abu Dhabi. Waiting until after November’s US presidential election lest the Republican candidate uses it to bash Joe Biden for being a hapless globalist seems more likely.

That assumes it can happen at all. The US is clear about what it doesn’t like — judicial over-reach, and particularly the idea that AB rulings create precedent for future cases. The administration would clearly prefer not to have a second appeals stage at all, just a single-stage ad hoc panel arrangement more akin to traditional investor-state litigation.

After years of complaining without suggesting solutions, the US has now apparently come up with some, which are, let’s say, ambitious. One is reportedly that either government in a dispute can decide to block an appeal after seeing the verdict from the initial panel hearing. (Obviously governments are hardly likely to win cases and then voluntarily let them go to appeal.) Another is raising the standard for AB review so high that appeals are rarely heard.

Other countries have briskly rejected these kind of suggestions, believing they are designed to kill any meaningful second-stage process, which the EU, China and others say is a red line for them. Talks continue. At least the US is finally engaging rather than just moaning, but it doesn’t seem we’re making much progress.

China bullish on a talking shop

The US might wish the WTO didn’t exist, but one country that can’t get enough of it is China. President Xi Jinping might not bother turning up to the G20, but the WTO is definitely one of the institutions China has consistently cared about — right down to the small but elegant Chinese garden built in front of the WTO a decade ago as a gift from the Ministry of Commerce and a Chinese city government.

You can see why. Conscientiously participating in talks that don’t achieve very much, making a pretty good stab at adhering to rules that are so narrowly drawn they don’t really constrain Chinese state capitalism, allowing it to continue portraying itself as a developing country and hence a leading light in what I personally refuse to call the Global South. All of these make China look good while annoying the Americans no end. And when there are proposals Beijing might want watered down if not killed, an agreement on fisheries subsidies being one of them, the WTO’s resident awkward squad in the form of India and sometimes South Africa are often on hand to do the business.

Of course, the WTO’s critics, especially the US, would say it precisely underlines the institution’s problems that a country like China feels pretty comfortable there despite its massive trade-distorting subsidy, regulatory and currency interventions. Hence Washington’s decision to join Beijing in the distortive camp rather than use the WTO to hold it back.

Charted waters

Germany’s exports to China, traditionally one of its juiciest export markets, have fallen sharply. The EU’s investigation into putting antisubsidy tariffs on imports of electric vehicles from China is unlikely to improve German automakers’ prospects of selling cars the other way.

Trade links

The South American Mercosur trade bloc has responded to demands from the EU for more environmental standards to be added alongside a bilateral deal between the two before it can be ratified.

The FT’s Lex column looks at European battery start-ups growing to meet local demand from car manufacturers.

The Polycrisis newsletter looks at the resilience of global trade despite all the forces ranged against it.

Ukraine is threatening to take the EU to the WTO over restrictions on its grain exports by Poland, Hungary and Slovakia, Politico reports.

The UK opposition Labour party leader, and probable next British prime minister, Sir Keir Starmer has told the FT he wants to renegotiate Britain’s post-Brexit deal with the EU to achieve a closer trading relationship.

Trade Secrets is edited by Jonathan Moules

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