EU Official Says It Could Take More Than Two Years to Restore Appellate Body

A top European Commission trade official said that it's not reasonable to expect that countries can agree on reforms to dispute settlement that would satisfy the U.S. by November this year. So, Ignacio Garcia Bercero said, countries will need to set a goal of restoring the binding dispute settlement system for the 2023 ministerial meeting of the World Trade Organization. “The WTO without binding dispute settlement is not the WTO,” Garcia Bercero said during a presentation online at the Peterson Institute for International Economics on March 19. “The continued escalation of conflicts if we don’t have a functioning dispute settlement system should be something we should all be worried about.”

Garcia Bercero said the European Union's only non-negotiables on a new approach to dispute settlement are that there needs to be an independent appellate body and that its decisions can only be blocked if everyone agrees to do so.

He said that negotiators in Geneva and their home countries' trade ministries should also be shooting for modernizing the WTO rule book by the 2023 ministerial conference.

To start, Garcia Bercero said, it's extremely important to resume trilateral discussions that began during Robert Lighthizer's time as the U.S. trade representative, to see how the EU, Japan and the U.S. can agree on how to tackle trade distortions caused by state ownership of companies and excessive subsidies. He said that once there's agreement, it's important to expand those discussions to like-minded countries.

He said that the Comprehensive Agreement on Investment that the EU reached with China “is in no way limiting our capacity on how to cooperate on how to tackle distortions from state owned sectors.”

He acknowledged that it will be challenging to get China to agree to new disciplines in the WTO, but said the more countries that are allied asking for the changes, the more likely it is that China will respond. He said that the EU is already talking with India on this topic.

Garcia Bercero was asked if the fact that the U.S. is now getting more interested in industrial policy will make this effort harder. He said that with countries aiming to change major parts of their economies to respond to climate change, there will be more state intervention in many countries. “From my point of view, that makes it even more necessary” to update the rules on subsidies, he said. “It’s not just saying all subsidies are wrong. Some are clearly distortive; others can be treated in a different manner. Otherwise, we are going to be engaging in a subsidies war.”

PIIE Senior Fellow Anabel Gonzalez, a former Costa Rican trade minister, praised the EU for putting complex issues on the table in its policy paper, and flagging possible concessions on WTO reform.

Garcia Bercero said that while reaching agreement on these knotty issues isn't possible by November, he thinks it's crucial to conclude “long overdue fishery subsidy negotiations” by then, to build confidence.

He said if the WTO cannot be reformed, there will be “a very damaging fragmentation of the world trading system.”