The EU’S Push for WTO Reform: Proposals, Paths and Impacts

Relying on its status and influence in the WTO, the EU has demonstrated initiative, flexibility and leadership in promoting WTO reform, thus helping reverse the tendency of trade protectionism and escalation of trade frictions, and maintaining the framework of the multilateral trading system, but there are also great limitations in the EU’S proposals which makes it difficult to solve the WTO’S fundamental contradictions.

At present, reform of the World Trade Organization (WTO) has become a global priority due to the pressure from the United States’ protectionist and unilateralist policies and the promotion of the European Union (EU) and other Western powers. As a beneficiary and defender of the multilateral trading system and an advocate for multilateral rules, the EU plays an important role in advancing WTO reform. By analyzing the EU’S specific proposals and measures for WTO reform, we can better understand the organization’s position and the logic behind its actions, and thus find out how China can cooperate with the EU to realize WTO reform.

The European Union’s Proposals on WTO Reform

Since President Donald Trump took office, the United States has pursued protectionist trade policies featuring high-handed extreme pressure, conducted trade investigations of its trade partners on the grounds of national security, and threatened to impose tariffs in response to what it considers “unfair trade practices.” What is even worse, the Trump administration has continued the practice in the Obama era of obstructing the appointment of WTO Appellate Body members for the Dispute Settlement Body, in a bid to compel all parties to address the US discontent, especially on the issue of the organization’s alleged “judicial overreach.”

The US considers that practices of the WTO, such as de novo review of its members’ domestic laws, “advisory opinions,” or “obiter dicta,” on issues unnecessary for the settlement of disputes, and the Appellate Body’s claim that its reports are entitled to be treated as precedent, are in fact creating rules of its own. Today, the Appellate Body has only three members, the minimum number for case hearings, and the term of office of two of them will expire on December 10, 2019. With no new members appointed, the Appellate Body and even the WTO will be paralyzed.

The WTO crisis has aroused the European Union’s concern. Although the US and the EU jointly led the establishment of the world’s multilateral trading system, the EU has paid more respect for and upheld to a greater extent the authority of the system than the US. It has stressed the importance of multilateral trade rules and order even in the face of Washington’s assertive trade sanctions. In Europe, scholars who stand for tough response, or fear that chain retaliation will undermine the WTO system, or have begun to explore the “post-wto era,” all share the view that it is in the EU’S longterm interests to defend WTO rules.1

Faced with US tariff threats, the EU conducted bilateral explorations and consultations with the US on the one hand, and on the other hand, anxious about the WTO’S future, has started discussions to provide remedies for the WTO mechanism. While the EU declared it was left with “no choice but to proceed with a WTO dispute settlement case”2 when the US still refused to grant permanent immunity to the EU on steel and aluminum tariffs in May 2018, the European Council recommended that the European Commission put forward comprehensive WTO reform plans

in several key functional areas in a resolution on June 28, in order to cope with escalating trade frictions and safeguard the rules-based multilateral system. The plans include: more flexibility in negotiations, new regulations on industrial subsidies, intellectual property rights and forced technology transfer, reduction of trade costs, new proposal dealing with the developing country status, establishment of a more effective and transparent dispute settlement mechanism to ensure fair competition, and improvement of WTO transparency and its supervision functions.3 The European Council resolution symbolized that EU member states have reached agreement on the significance and direction of WTO reform. The European Parliament, believing that the multilateral trading system based on the WTO is the best choice for international trade, has also called on the European Commission and other WTO members to work together to tackle the problems facing the Appellate Body, and advocated joint actions be taken by the US, Japan and the EU to address the issue of unfair trade practices and push forward the multilateral trade agenda.4

Proceeding from unanimous positions taken by major EU institutions, the European Commission put forward the EU’S proposals on WTO reform on September 18, 2018, namely the concept paper “WTO Modernization – Introduction to Future EU Proposals,” which includes the following propositions:

First, strengthening efforts against so-called “unfair trade practices.” The concept paper pointed out that the failed WTO supervision mechanism has not ensured WTO members report their subsidies to trading partners, thus preventing thorough resolution to industrial subsidies, state-owned enterprises and practices that “distort fair competition.” The paper also suggested improving transparency and subsidy notifications, better capturing state-owned enterprises, formulating new regulations to tackle barriers to

services and investment including forced technology transfer and digital trade barriers, and addressing the sustainability objectives of the global community including but not limited to the elimination of fisheries subsidies.5

Second, redesigning standards for the “developing country status” and relevant treatment. The concept paper pointed out that “the current distinction between developed and developing countries, which allows no nuance, no longer reflects the reality of the rapid economic growth in some developing countries,” thus creating “an obstacle to the progress of negotiations.” It suggested members be actively encouraged to “graduate” and opt-out of special and differential treatment (SDT), and present roadmaps detailing when they would expect to be able to assume all the obligations stemming from the WTO agreement, which could form an integral part of a member’s trade policy review (TPR) process. Also, SDT in future agreements should be time-bound, and the number of members participating and the ambition of an agreement should be taken into consideration. Moreover, the grant of additional SDT in existing agreements should be determined on the basis of detailed analysis.6

Third, pushing “plurilateral negotiations” forward with “flexible multilateralism.” According to the EU concept paper, the main reason for the stagnation of the WTO’S negotiation functions and the scarcity of results coming from multilateral agreement negotiations lies in the principle of consensus, which restricts the achievement of negotiation results. Therefore, additional flexibilities are required in negotiation methods. In areas where multilateral consensus is not possible, plurilateral negotiations should be actively supported and promoted. Negotiations are open to all members and the outcomes can be applied on the basis of most-favored-nation status.7 Cecilia Malmström once noted that “Members should be free to move forward at different speeds – to integrate and meet criteria at different times.

Exploring this option would allow us to make progress in key areas.”8

Fourth, rescuing the dispute settlement mechanism to resolve the crisis of its paralysis. The EU’S proposals for reforming the dispute settlement mechanism are mainly in response to the United States’ dissatisfaction with the WTO Appellate Body. The proposals include: (i) Article 17.5 of the Understanding on Dispute Settlement Rules and Procedures (DSU) could be amended to provide that “in no case shall the proceedings exceed 90 days, unless the parties agree otherwise”; (ii) concerning transitional rules for outgoing Appellate Body members, the DSU could provide that an outgoing Appellate Body member shall complete the disposition of a pending appeal in which a hearing has already taken place during that member’s term; (iii) regarding the concern about Appellate Body making long “advisory opinions,” or “obiter dicta,” not necessary to resolve the dispute, Article 17.12 of the DSU could be added the expression “to the extent this is necessary for the resolution of the dispute”; (iv) as for concern about Appellate Body review of facts and review of a WTO member’s domestic law de novo, clarification should be limited to “issues of law covered in the panel report and legal interpretations developed by the panel,” excluding the meaning of domestic measures; (v) establishing regular exchanges between the Appellate Body and WTO Members to express views on Appellate Body reports when they are adopted, and for the latter to comment on more systemic issues or on trends in the jurisprudence; (vi) concerning the independence of Appellate Body members, one single but longer (6-8 years) term could be provided for.9

Overall, the European Union intends to achieve three major objectives via WTO reform: first, to resolve the US dissatisfaction with the WTO and avoid paralysis of the dispute settlement mechanism; second, to update rules and suppress any advantages brought about by unfair trade practices and

the developing country status; and third, to promote trade liberalization negotiations in a more flexible and pragmatic approach.

The European Union’s Motivations for WTO Reform

At a time when the United States is pursuing unilateralism and trade protectionism, the European Union strives to maintain the global multilateral trading system on the one hand, and on the other hand believes that as the global economic and trade pattern has undergone profound changes, relevant WTO rules need to be urgently updated and new approaches adopted to promote a new round of global trade liberalization negotiations, which have been stagnated with no progress made.

Paralysis of multilateral trading system detrimental to EU economy

Among the world’s major economies, the EU has the highest dependence on foreign trade, and is therefore more sensitive to changes in the external trading environment. Its import and export heavily rely on rules-based international trade.10 According to World Bank data, the contribution rate of goods and services exports to GDP in 2017 was 12.1% for the United States, 19.8% for China, 17.7% for Japan, 31% for Canada, and the European Union had the highest rate of 44.4%. Among EU member states, the figure was 47% for Germany, 30.9% for France, 31.2% for Italy, and 83% for the Netherlands. Since the 2008 global financial crisis, this figure has had an increase of lower than 1 and 3 percentage points for the US and Canada respectively. In Japan, the increase has been less than 4 percentage points; a drop was even witnessed in 2015-16. A decline of nearly 5 percentage points has been seen in China, while the data for the EU, in stark contrast to other countries, has continued to grow by nearly 10 percentage points.11

For the EU, the normal operation of a multilateral trading system is not only a guarantee for the development of global trade, but also serves as a barrier to protect itself from “bullying” practices. The United States, free from constraints of rules for the system, is likely to exert pressure on the EU at will. At the end of 2018 when the report of the United States’ Section 232 investigation on European auto imports was yet to come out, senior executives from three German auto companies, impatient with the EU’S official consultations with the US, directly went to Washington to lobby the US government.12 In addition, according to predictions of the World Economic Outlook report issued by the International Monetary Fund in October 2018, economic growth in the euro zone will continue to slow from 2% to 1.9% in 2019.13 Due to limited space for monetary and fiscal policies, and unchanged internal structural contradictions, the EU must do its utmost to maintain a favorable external trading environment to ensure economic and employment stability and avoid further worsening of European integration, which is already in deep crisis.14

Rising competitive advantages of emerging economies prompting the EU to consider revision of trade rules

With the rising competitiveness of emerging market economies in international trade, in particular the budding advantages China and India have shown in high-end manufacturing industries, substantial pressure has been felt by many European countries. On the surface, they seem to criticize such issues as industrial subsidies and forced technology transfer, but in fact they are worried about the impacts of changes in international production capacity structure and relative technological power, and fear they would lose the advantages in trade they enjoyed in the past. It is in this context that

the EU prepared to revise trade rules. The EU’S position, as demonstrated in the European Commission’s Reflection Paper on Harnessing Globalization in 2017, is neither to marginalize multilateral mechanisms as the United States does nor to render unconditional support to these mechanisms, but to propose modifying them on the basis of maintaining their existence.15 Malmström has also indicated that while the rest of the world are rapidly developing and catching up, “In 2018 we are still using the rules of 1995. Little has been updated, little has changed – indeed, some rules are the same as they were in 1947.”16

The EU, in the absence of a superpower’s comprehensive strength to enjoy overwhelming advantages in negotiations, has the “power of norms” as its biggest capital in international politics. It seeks to transform its own interest appeals into international rules that are universally binding to all parties, and then maximize its interests by relying on and maintaining the rules-based international order. Therefore, the EU’S push for WTO reform not only intends to maintain the stability of the multilateral trading system in the short and medium term, but also focuses on shaping globalization in the long run and ensuring beneficial trade rules to cope with the evolving international economic structure and the competitive advantages of emerging market economies.

Slow progress in global trade liberalization negotiations driving the EU to seek an efficient negotiating model

The EU, benefiting from the high standards of multilateral trade agreements, has been actively promoting negotiations in an attempt to expand international market access. With increasing industrial competitiveness and its management of trade negotiations, the EU once had a bigger ambition for global trade liberalization than the United States

in order to pursue a broader international market. However, in recent years, its efforts to promote global trade liberalization have suffered repeated setbacks. The existing negotiating model under the WTO framework is not able to overcome contradictions both old and new, leading to stagnation of the global trade liberalization process. The profound divergences between developed and developing countries and between the US and the EU in multiple sectors such as agriculture still cannot be removed; at the same time, with a shrinking cake of global economic growth and mounting difficulty in balancing the distribution of interests, a rising trend of anti-globalization and populism has been witnessed. Multilateral negotiations under the WTO framework, regional trade agreement talks, or even free trade talks between the US and the EU are all faced with insufficient political and social mandate.

At the 11th WTO Ministerial Conference held in Buenos Aires in 2017, Cecilia Malmström pointed out that one fundamental problem facing the WTO was “an inability to discuss issues of concern to Members and to agree on a suitable way forward.”17 In the final meeting of the conference, Malmström expressed her disappointment with the failure to reach any agreement even on stopping harmful fisheries subsidies.18 Therefore, the EU has initiated a proposal similar to its idea of a “multi-speed Europe” or its strategy of “competitive liberalization.” The EU has advocated allowing some members to start talks on some WTO reform issues in order to reduce obstacles to the negotiation process caused by divergent interests and enhance the WTO’S efficiency in trade liberalization.

To sum up, the key reason why the EU is able to put forward a complete reform plan in a short time ahead of other economies and actively promote it is that it has new demands for multilateral trade rules and has been working on this for several years.

Paths of the EU’S Push for WTO Reform

Putting the European Union’s WTO reform proposals and practices in the context of its overhauling of the broader trade policy in recent years, we can see that the EU has adopted a three-step strategy that evolves from internal, bilateral and then to multilateral fields, integrating internal and external reforms and progressing in stages. WTO reform is actually the last step in strengthening its trade policy and the projection of its upgraded internal trade policy to the outside world.

Internal reform taking the lead

The above-mentioned EU concept paper expounded at great length how to address the issue of government subsidies that have “distorted the market.” In fact, the trade defense instruments (TDIS) within the EU have already been updated. As a set of policies and measures adopted to rebuild a competitive environment for EU industries when they are hurt by dumping and subsidies, TDIS include anti-dumping, countervailing and relevant safeguards. From 2015 to 2016, there was heated debate on China’s market economy status. Although the 2016 plenary session of the European Parliament adopted by an overwhelming majority a non-legislative resolution to reject recognition of China’s market economy status, and called on the EU to take anti-dumping measures, the European Commission did not immediately implement such measures as the United States did. Instead, it began to upgrade its TDIS internally to establish a new price comparison standard.19 As early as in April 2016, the European Commission had proposed legislative amendments to the existing TDIS. At the end of 2017, the European Commission, the European Parliament and the European Council reached a political agreement on TDI modernization.20 In June 2018, the EU’S new TDIS came into force.

The upgraded TDIS are no longer obsessed with the definition of “market economy” or the applicable period of third-country price comparison, but introduce the concept of “significant market distortions” as a new criterion for recognizing dumping and suspending application of the low tax principle. In addition, in all countervailing investigations, the European Commission will no longer apply low tax to strengthen crackdown on foreign subsidies. This means that the EU will promote the concept of “significant market distortions” from the inside out and weaken the controversial and inoperable standard of “market economy” at the WTO level, thus ensuring the legitimacy of levying anti-dumping and countervailing tariffs on China. Such tariffs may even increase rather than decrease.21

Expanding bilateral economic and trade partnerships

In addition to updating its TDIS, the EU, in the wake of the financial crisis, has also accelerated bilateral free trade agreement (FTA) talks to create a favorable trading environment and network of partnerships in the context of global economic and trade downturn. At present, the EU is engaging in FTA talks with more than 20 countries or regions. There is a view that as the major trade entity with the most bilateral trade agreements, the EU will not be the worst loser if the WTO disintegrates or it operates without the United States, as the EU can still carry out trade activities normally with other countries.22 The FTA between the EU and South Korea reversed the

EU’S trade balance with South Korea from a deficit of 11.6 billion euros in 2011 to a surplus of 3.1 billion euros in 2016.

In addition, long-term strategic considerations are present in the Eucanada Comprehensive Economic and Trade Agreement (CETA) and the Eu-japan Economic Partnership Agreement (EPA). On February 15, 2017, the European Parliament adopted the CETA, which reduces 99% of bilateral tariffs and benefits a wide range of enterprises. The agreement provides unprecedented preferential access to government procurement for EU enterprises, and cuts down enterprises’ expenditure without lowering standards. It includes reform of the investment protection mechanism, strictly regulates the government’s supervision over public interests, and establishes the Investment Court System to replace the Investorstate Dispute Settlement (ISDS) prevalent in traditional EU investment agreements. Moreover, it stipulates protection of people’s working and environmental rights, and establishment of new global standards for sustainable development.23 Regarding the deal that includes various elements of Eu-proposed trade policies, President Jean-claude Juncker of the European Commission said, “This progressive agreement is an opportunity to shape globalization together and influence the setting of global trade rules.”24

While the CETA with Canada helps the EU achieve its strategic goal of setting new standards for global trade, the EPA with Japan has more geopolitical considerations.25 In order to institutionalize the strategic alliance with Japan, effectively promote its Asia Strategy, enhance its economic and political presence in the Asia-pacific region, consolidate relations with other like-minded Western partners who are supportive of globalization, avoid

taking sides between Beijing and Washington, and unite with as many forces as possible to shape the globalization process, the EU has done more to satisfy Japan’s appeals than Japan has made compromises to the EU. For example, the EU almost completely met the demand of Japan to open up its auto market, while Japan has not fully met the EU’S request to open its food, agricultural and public procurement markets.26

Flexible coordination on multilateral occasions

Since the parties concerned have both consensus and divergent opinions on WTO reform, the EU, with a prominent pragmatic attitude and flexibility, has set up or participated in different “like-minded alliances” on different reform issues in order to improve efficiency of consultation and action.

A US-JAPAN-EU reform grouping targeting unfair trade practices. Though the EU and Japan have differences with the United States on the WTO’S role, the future of the multilateral trading system and the appointment of Appellate Body members, the three parties are still working closely in leading WTO reform. From the end of 2017 to the end of 2018, the three sides met five times on WTO reform and issued joint statements, pushing forward their reform objectives step by step.

First, they have reached consensus on maintaining the ultimate goal of fair competition. In December 2017, the three parties issued a joint statement on the maintenance of fair competition, expressing their common concerns on serious overcapacity caused by government support and unfair competition caused by government subsidies, state-owned enterprises (SOES), forced technology transfer and the requirement for international firms to partner up with a local entity. They agreed to “enhance trilateral cooperation in the WTO and in other forums to eliminate unfair market distorting and protectionist practices by third countries.”27

Second, they reached consensus on how to reinforce rules and measures. In March 2018, the three parties agreed to strengthen rules on industrial subsidies, WTO notification requirements, and information sharing on trade distortions. During the May 2018 OECD Ministerial Meetings in Paris, they held talks on the above-mentioned issues again, and reached the EU-JAPAN-US Scoping Paper to Define the Basis for the Development of Stronger Rules on Industrial Subsidies, the Joint Statement on Technology Transfer Policies and Practices, and the Joint Statement on Market-oriented Conditions. The three documents all repeatedly expressed the three parties’ common willingness to improve and reform WTO rules, and stressed their firm commitment to promoting future Wto-related discussions.28 The agreement reached between Juncker and Trump in July 2018 also included content on WTO reform, claiming that they would work closely with “likeminded partners” for WTO reform, address unfair trade practices such as intellectual property theft, forced technology transfer and industrial subsidies as well as problems of market distortion and overcapacity caused by SOES.29 On September 25, 2018, the US, Japan and the EU held another meeting and issued a joint statement on non-market orientation, industrial subsidies, forced technology transfer and WTO reform. They agreed to promote WTO reform and make joint proposals on the reform of WTO monitoring and supervision functions for the consideration of the WTO Council on Trade in Goods at its next meeting. The trilateral meeting also called for strengthening activities of regular committees, instructing experts to discuss potential joint proposals put forward by the three parties, as well as promoting best practices and improving the efficiency of committees.30

Third, consensus was reached on the issue of “developing country status.” During the New York talks in September 2018, trade ministers from

the three parties considered that the broad classification and self-definition of developing country status has hindered the WTO’S negotiations on new trade agreements and undermined its effectiveness. They called on the “developed members” who claim to have developing country status in the WTO to make full commitments in WTO negotiations.31

Fourth, they agreed on severe penalties for unfair trade practices. On November 1, 2018, the EU, the US, Japan, Argentina and Costa Rica jointly made a proposal to the WTO on the issue of transparency, in which the provisions on severe penalties caused controversy. That is, if a member continues to take preferential measures for their own industries without notifying the WTO, it may face the penalty of expulsion. Although it is stipulated that members are obliged to notify the WTO when introducing subsidies and systems that may affect trade, the US, long dissatisfied with certain economies which have offered excessive subsidies for a long time to steel and other industries but failed to submit reports, demanded change of the status quo where no economy has ever been punished even if it fails to report. Therefore, the “penalty clause” suggested that if such a member did not make corrections after one but less than two full years from a notification deadline, its representatives cannot be nominated to preside over WTO bodies and would be required to pay more contributions to the organization; and if it did not make corrections after two but less than three full years following a notification deadline, it would be designated as an “inactive member” and denied the right to speak in meetings, which is virtually close to the suspension of all its activities.32

A reform grouping for improving the dispute settlement mechanism and addressing “market distortions.” This reform grouping does not include China and the United States. From October 24 to 25, 2018, trade

ministers from 13 WTO members — the EU, Japan, Canada, Australia, New Zealand, Norway, Switzerland, South Korea, Singapore, Brazil, Mexico, Chile, and Kenya — met in Ottawa for discussions on WTO reform. The final joint statement was highly consistent with the content of the EU’S proposals, including: (i) improving the dispute settlement mechanism and ending the Appellate Body crisis; (ii) supporting the resumption and promotion of WTO negotiation functions through diversified approaches, and addressing market distortions caused by subsidies; and (iii) recognizing the importance of ensuring the WTO’S effective supervision and transparency, and committing concerted efforts for concrete solutions, such as “enhancing compliance with notification obligations” as emphasized in the WTO reform proposals by the US, Japan and the EU.33

A reform grouping dealing with the Appellate Body crisis. On November 26, 2018, the EU, together with Canada, Australia, China, Iceland, India, South Korea, New Zealand, Mexico, Norway, Switzerland and Singapore, submitted proposals on specific measures to resolve the deadlock in the WTO dispute settlement mechanism, including: (i) putting in place new rules for outgoing Appellate Body members which make clear in which cases they can stay on to complete the appeal proceedings they are working on; (ii) ensuring that proceedings are finished on time in line with the 90day timeframe set out in the WTO rules, unless the parties in the dispute agree otherwise; (iii) clarifying that the legal issues that are subject to appeal by the Appellate Body do not include the meaning of domestic legislation; (iv) indicating that the Appellate Body should only address issues necessary to resolve the dispute; and (v) introducing annual meetings between WTO members and the Appellate Body to discuss in an open way systemic issues or trends in jurisprudence.34 The above recommendations are basically consistent with the EU’S proposals on reforming the Appellate Body and

appellate procedures, and also respond fully to and appease Washington’s dissatisfaction with the Appellate Body. In December 2018, the EU, China and India submitted to the WTO another proposal on the reform of the dispute settlement mechanism, suggesting increasing the number of Appellate Body members from seven to nine, each with a term of six to eight years, with a maximum extension of two years if there is no successor at the end of the term.

Impact of EU Proposals and Related Measures on WTO Reform

The integration of trade policy and the launch of the euro have enabled the European Union to participate in the world economic system as a major power, form a “G2 power structure” with the United States in the WTO, and win recognition from world leaders who are in favor of multilateralism following the WTO Seattle Ministerial Conference when the US failed to play its leading role.35 Relying on its status and influence in the WTO, the EU has demonstrated initiative, flexibility and leadership in promoting WTO reform, thus helping reverse the tendency of trade protectionism and escalation of trade frictions, maintaining the framework of the multilateral trading system, and providing opportunities for all parties to resolve differences and reach consensus. However, there are also great limitations in the EU’S proposals, which are essentially an extension of its trade policy. As the starting point of the EU’S proposals is still distant from the ultimate goal of the multilateral trading system, it is difficult to solve fundamental contradictions and they may even exacerbate some divergences.

Bringing parties back from “tariff war” to multilateral platform

While the trade policy pursued by the Trump administration forces

all parties into a tariff war and marginalizes the multilateral trading system, the EU has taken the lead in putting forward a well-articulated reform plan for the WTO, demonstrating mature economic and diplomatic skills, agenda-setting capabilities and full preparation for global economic and trade governance. Although the content of the EU’S proposals may not be unanimously agreed, the text provides the basis for negotiations and brings the parties back from tit-for-tat tariff sanctions to a rational game on rules. In addition, the EU has taken practical measures to set up like-minded alliances and reform groupings at multiple levels and coordinate positions on the basis of respective differences and consensus. This, to a certain extent, has helped steer clear differences and break deadlocks, thus restarting the willingness of all parties to jointly promote WTO reform.

Fundamental differences with Washington not yet removed

Despite its unremitting efforts, the EU’S proposals to reform the WTO’S dispute settlement mechanism have failed to address the United States’ core concerns. Although the joint statement issued by the EU, Japan, Canada and Australia in October 2018 mentioned the reform to the dispute settlement mechanism, there were no specific measures. The proposals submitted by the EU, Canada, Australia and China on the reform of the Appellate Body in November 2018 basically covered the concerns of the US, but in Washington’s eyes the issue of judicial overreach has not been totally resolved, especially when it is related to cases involving “constructive ambiguity.” In the view of the US, the establishment of regular exchanges between the Appellate Body and WTO members will at best offer a soft alternative to “legislative remand” for cases involving “constructive ambiguity” and would probably not spur negotiations to resolve legal uncertainties.36 The proposal by the EU, China and India on Appellate Body reform in December 2018, which mainly deals

with the number and tenure of Appellate Body members, is much narrower in scope and does not address most of the US concerns, and the US may reject giving the members a longer tenure on grounds that it increases difficulty in checking the Appellate Body’s power.37 As the key demands of the US have not been met, the Office of the US Trade Representative (USTR), in its newly released 2019 Trade Policy Agenda and 2018 Annual Report, declared that in 2019 it would insist on the position of reforming the dispute settlement mechanism,38 indicating that the US would continue to achieve its objectives by obstructing the appointment of Appellate Body members. The reason why the EU has failed to satisfy the US despite great efforts lies in the fact that Brussels and Washington have fundamental divergences on how to establish the future international trade order.

In essence, the US wants to reduce the adjudication power of the WTO Dispute Settlement Body in order to gain greater trade autonomy with fewer international legal restrictions. This is fundamentally different from the EU’S position that international rules and systems guarantee “fairness” and prevent “bullying.” While the EU is unwilling to compromise on the principles of “rules-based” and “multilateralism,” the US has taken the Us-mexicocanada Agreement (USMCA) as the starting point and gone even further along the road of overturning existing WTO rules. Therefore, although the US and the EU agree on combating unfair trade practices and revising the standards for defining “developing countries,” they have actually put forward two different paths for future global governance on the fundamental issues of whether to rely on the international system or follow power politics, and whether to pursue functionalist integration or stick to free intergovernmental integration.

Deepening gap between developed and developing countries

The proposals by the EU and other parties except the US on reform

of the dispute settlement mechanism have not resolved Washington’s discontent. The EU’S joint reform actions with the US and Japan have not alleviated, but rather exacerbated, long-standing contradictions between developed and developing countries on trade issues. To reset the standards for “developing countries” is not conducive to bridging the differences between developed and developing countries, nor will it help overcome the diversity of development levels among WTO members and the obstacles brought about by diversified interests to multilateral trade talks. On February 15, 2019, the US proposed dramatically cutting down the number of states eligible for “special and differential treatment.” In essence, questions about the concept of “developing countries” are the concerns of Western developed industrial countries about the rising competitiveness of emerging market economies. The reclassification of “developing countries” will only aggravate the already deteriorating differences among developed, developing and less developed countries.

In addition, the one-sided emphasis on “fairness” and strengthened regulations on some members will not eliminate the threat of trade protectionism to the multilateral system. Those WTO members implied in the EU’S proposals as having market-distorting practices are not initiators of current trade protectionism. Instead, they are beneficiaries and supporters of the multilateral trading system. To sacrifice the interests of these WTO members in order to appease other members who actually pursue trade protectionism and unilateralism will only condone protectionism and deviate further from the real “free and fair trade.”

Moreover, many developing members have come to realize that the EU’S “plurilateral negotiation” model is actually pushing hard talks on controversial issues such as e-commerce, domestic regulation and investment facilitation at the expense of the multilateral system. For example, the representative of Uganda believed that the launching of plurilateral negotiations on e-commerce would bring the WTO Work Program on Electronic Commerce to a standstill, and change the nature of WTO decision-making. Vanuatu, as the representative of African, Caribbean and

Pacific island countries, persisted in the principle of consensus and believed that the Doha Development Agenda should still be given priority. Some members, headed by India, also reiterated that talks on issues of the Doha Agenda should be completed.

To sum up, the EU’S objectives for WTO reform are in line with its trade policy. Its three-step strategy that evolves from internal, bilateral and then to multilateral fields also shows that it is trying to present its concerns over global competition and challenges to the multilateral platform. At the same time, the EU is dividing and regrouping parties with diverse positions, and pushing forward issues according to their respective concerns. Such narrow-mindedness restricts the EU’S normative power and leadership in global economic and trade governance. As a result, neither the current crises nor the WTO’S fundamental contradictions can be removed.

Conclusion

At present, trade protectionism has exerted tremendous pressure on China and the European Union. Both China and the EU are faced with the risk of economic damage caused by tariffs imposed by the United States. While China has to calculate the possibility of being blocked, the EU is in the plight of having to take sides. At a time when the fight against trade protectionism has gradually shifted from the inevitable lose-lose tariff war to an achievable win-win game of rules, China and the EU, as firm supporters of the multilateral trading system and rules, should seize the opportunity to expand consensus and deepen cooperation on WTO reform, make joint efforts to maintain the multilateral trading system, and help unleash more trade dividends from the system. The two sides should give full play to their respective advantages and work as a bridge in coordinating positions between developing and developed countries. At the same time, they should expand two-way market access, make the cake of global economic growth bigger, and work together to create new growth points in the world economy.