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Europe aims to coax US back to WTO amid growing China challenge

Shipping containers next to gantry cranes at the Yangshan Deepwater Port in Shanghai on Jan, 11, 2021.

QILAI SHEN/BLOOMBERG

By BRYCE BASCHUK AND ALBERTO NARDELLI | Bloomberg | Published: February 11, 2021

The European Union will step up appeals to the U.S. to align its foreign policy priorities with the bloc, arguing that a common western front would stand a better chance of forcing China to pursue fairer trade policies.

When the EU unveils its new trade strategy next week, it will concede that the U.S. had valid concerns when it blocked the World Trade Organization's ability to rule on international disputes, and reform of the Geneva-based body should take those into consideration, according to a draft of the proposal seen by Bloomberg.

The EU is updating its trade priorities as it seeks to fundamentally alter its economy to meet new environmental and digital objectives, while also addressing growing inequalities caused by globalization. But the draft says one of the EU's main goals will be to ensure that China commits to its international obligations.

"The rapid rise of China, demonstrating global ambitions and pursuing a distinct state-capitalist model, has fundamentally changed the global economic and political order," according to the trade policy review. "This poses increasing challenges for the established global economic governance system."

A spokesman for the EU mission in Geneva said comments to the draft document are still under discussion and its final publication is scheduled for Feb. 17. An email sent to a European Commission spokesperson seeking comment wasn't immediately returned.

The WTO's appellate body, the main forum for settling worldwide trade disagreements, lost its ability in 2019 to rule on new dispute cases. This was because the Trump admininistration refused to consider any nominees to fill vacancies on the panel during the prior two years.

The result means that trade relations between the U.S. and China, two of the three largest members, is mostly conducted outside the WTO, according to the paper.

"A key driver of the crisis is that China's accession to the WTO has not led to its transformation into a market economy," according to the EU paper. "The level at which China has opened its markets does not correspond to its weight in the global economy, and the state continues to exert a decisive influence on China's economic environment."

The policy review underscores the urgency to act, saying that 85% of the world's gross domestic product will come from outside of the EU in 2024, with Chinese output growing by 4.7% annually over the next 10 years.

The EU said it agreed with some of the concerns that the Trump administration raised with regards to the functioning of the appellate body and urged members to consider a 2019 proposal that emerged from a process spearheaded by the WTO's then chairman of the dispute settlement body, David Walker.

The EU called upon President Joe Biden to break with the Trump administration's refusal to engage in negotiations to reform the dispute settlement system.

"An early signal by the United States of their readiness to enter into good faith negotiations to find a multilateral agreement on dispute settlement reforms would greatly enhance confidence and should enable reaching an agreement to restore binding dispute settlement and a functioning appellate body," the EU paper said.