Thought July 02, 2019 / 01:24 pm UTC

EU-U.S. Trade: Does the WTO Have a Role to Play?

By Andrew Wroblewski

Having calmed global trade dispute worries over the weekend with more conciliatory rhetoric in regard to China, it seems that the U.S. is trying to maintain its tariff bravado by turning its attention to the EU. However, such threats may actually expose the limitations of possible U.S. tariff extensions.

On Monday, the U.S. said it was considering imposing additional tariffs worth $4 billion on goods from the EU in response to the latter's aircraft subsidies. Rather than a fresh escalation in trade hostilities, this is actually a relatively toned-down threat compared to what U.S. President Donald Trump proposed three months ago when he tweeted about imposing $11 billion of tariffs on the EU. In that tweet, Trump claimed that such action was fully warranted, as the World Trade Organization (WTO) had ruled in 2018 that the EU was using illegal subsidies to support Airbus.

The question here is if the U.S. is going to use WTO rulings to support its case for extending tariffs. Doing so would create a precedent that could backfire on the U.S., most notably in the wider threat from the Trump administration to levy tariffs of up to 25% on EU automotive goods. According to a yet-to-be-published report from the U.S. Commerce Department, the rationale behind such action would be to address a national security risk, probably by citing Article XXI of the General Agreement on Tariffs and Trade/WTO.

The problem is that another recent ruling from the WTO establishes that no single country has the automatic right to decide when and how such national security risks arise. Of course, the Trump administration may disregard this WTO ruling. At the same time, however, it could also increase the likelihood that trade frictions between the U.S. and EU remain locked in mutual threats rather than actually escalating.

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