Will the US-EU bonhomie on trade last?
For agreeing to purchase unquantified amounts of soybeans and LPG from the US, the EU managed to stave off the imposition of punitive 20% import duties on its cars for the time being
It remains a puzzle how a foe could become a friend in just two weeks. Without significant and material change, it is almost impossible to witness such a change. But the trans-Atlantic trade elephants have proved that it is possible in a liberal trade order based on mercantile principles. For agreeing to purchase unquantified amounts of soybeans and liquified petroleum gas (LPG) from the US, the European Union (EU) managed to stave off the imposition of punitive 20% import duties on its cars for the time being.
Thus, “a new phase in the relationship” between Washington and Brussels has commenced. “Either a country which has treated the United States unfairly on trade negotiates a fair deal, or it gets hit with tariffs,” US President Donald Trump tweeted a day before he agreed to the new dawn with his counterpart from Brussels.
Can such an unprincipled relationship that avowedly wants to contain China survive by the day? The jury is out. The preliminary details announced from the Rose Garden of the White House on 25 July contains more thorny issues than rose buds. The two sides could hammer out a plurilateral (more than two countries) auto deal along with Japan and Korea. Without China on board, such a plurilateral deal will be meaningless as the world’s second-largest economy is the largest exporter of auto parts.
Washington has forced the EU to negotiate for eliminating tariffs and other barriers on the import of agricultural products supplied by American farmers. The US also managed to put all issues concerning industrial products, except autos, on the table. The US, which was unsuccessful all these years in forcing the EU to lift the regulatory barriers for American biotechnological products, will now pressurize on this controversial front. Also, whatever the EU agrees on agriculture, it will offer almost the same treatment on a most-favoured-nation basis to Canada, Australia and New Zealand.
The two trans-Atlantic trade elephants agreed to bring comprehensive reforms at the World Trade Organization (WTO). The WTO is a body of questionable compromises they hammered out in the Uruguay Round of trade negotiations since 1986. Small wonder that the Round was closed only after the Blair House agreement in Washington in 2002, which enabled their fat-cat farmers to be sheltered from trade-distorting subsidies. “The idea is to pick a number of things and make a balanced package,” the US trade representative, ambassador Robert Lighthizer, told Senators on 27 July.
The US and the EU are almost on the same page when it comes to reforming the WTO to bring about new disciplines for countervailing actions against the state-owned enterprise and industrial subsidies provided by the Chinese administration. The EU has already unofficially prepared a non-paper that seeks to fundamentally transform the WTO by doing away with special and differential flexibilities for China, India, Brazil, South Africa, and Indonesia, among others, and eliminate the consensus principle once and for all.
In short, the EU has now found its erstwhile accomplice for killing two birds with one stone. Force new disciplines on China so that its rapid economic growth is undermined and eliminate special and differential flexibilities for the big developing countries through “differentiation” and the consensus principle through which the poorest countries found a voice for their existential problems.
In 2001, the US and the EU joined forces after the 9/11 terrorist attacks to launch the Doha Development Agenda (DDA) trade negotiations for addressing what are called the built-in agenda issues of the Uruguay Round in agriculture and services. Then they devised a mirage promising that developing countries will be offered developmental goodies. But in what could constitute as daylight dacoity for future historians of the Doha Round, the US and the EU secured what they wanted—trade facilitation agreement—and then left the developing countries deserted.
After 17 years, the EU and the US have come out with another devious strategy: block China and developing countries from further economic development by denying policy space and by delegitimising the WTO without the consensus principle. They found a superb navigator Roberto Azevedo, the WTO’s director general, for accomplishing their goals while permanently drowning the developing countries in the rough waters of the Atlantic.
Gloating about his successes for delivering the trade facilitation agreement last Wednesday, the venerable chief of the trade body chose not to mention once about the unfinished Doha Round under which he continues to chair the trade negotiations committee.
Azevedo spoke a great deal about updating the rules to suit the realities of the 21st century. But perpetuating the asymmetrical trade rules of the 20th century is unforgivable. Such is the selective amnesia that requires him to remain silent on issues inimical to the interests of Washington.
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