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EUROPE-WIDE: An Introduction to International Trade/WTO

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Overview: Recent developments in international and EU trade policy: challenges and opportunities

Van Bael & Bellis 

The last few years have seen a fundamental shift in international trade policy and, by necessary implication, international trade law. For a long time, international trade law was seen as an extremely technical and even boring discipline. This is no longer true. The irruption of power politics and national security considerations in trade policy has fundamentally changed the old free trade paradigm. This move away from a multilateral rules-based trading system aimed at promoting free trade towards one where trade becomes a geopolitical tool has been further compounded by the need to take into account social and environmental objectives in adopting trade policies.

Both developments have forced international trade lawyers to fundamentally rethink their practice. The old arsenal of trade defence instruments and WTO dispute settlement proceedings that formed the bread and butter of most trade practices has become considerably less relevant.

First, WTO-related work has decreased and is likely to decrease even further. Not only is there no longer an appeal phase in many disputes, WTO members have been hesitant to start dispute settlement proceedings that will not result in binding outcomes. Indeed, panel reports can be blocked by the losing party by appealing to a non-functioning Appellate Body. Such “appeals into the void” have become increasingly common. Trade lawyers are faced with the challenge to convince their clients that panel reports - even when appealed into the void - remain useful since they still provide an “expert opinion” on the WTO-(in)consistency of the challenged measures.

Second, companies increasingly doubt the usefulness of cooperating or challenging trade defence measures. In the absence of binding WTO dispute settlement, many investigating authorities have relaxed legal standards in the belief that they can ignore the WTO rules with impunity. This feeling of impunity has been reinforced by the Trump administration’s use of the national security exception to adopt Section 232 measures on steel and aluminium and the imposition of steel safeguard measures of dubious legality by the EU.

Not surprisingly, countries have turned to alternative means and fora. We have seen a return to bilateral arrangements not unlike the orderly marketing arrangements prevalent during the eighties. Following the US and EU example, countries have also relied on fast-track safeguard measures rather than carrying out more cumbersome anti-dumping or anti-subsidy investigations.

In light of these developments, the EU has abandoned its free trade mantra in favour of a more geopolitical, protectionist policy called Open Strategic Autonomy. “Strategic” refers to the need to use trade as an instrument to achieve the EU’s geopolitical objectives while “Autonomy” flags the urgency to reduce the EU’s dependence on strategic inputs from unreliable supply sources such as gas from Russia and semiconductors or rare earths from China.

The realisation of this already ambitious programme by the EU has been made further complicated by need to take into account ethical and environmental objectives. “Open Strategic Autonomy” has become an “Open Sustainable Assertive” trade policy.

All of this has meant that there is less work in the traditional areas of trade law. However, this will be more than compensated by an increase in trade-related work resulting from the EU’s new policy initiatives. The following is a brief overview of such new initiatives.

The paralysis of the WTO dispute settlement negotiation functions has meant that the EU has shown a renewed interest in the conclusion of free trade agreements. It has also brought claims under the dispute settlement mechanism in the existing agreements with Ukraine, Korea and South Africa.

In this respect, the creation of a Chief Trade Enforcement Officer and the adoption of a strengthened trade enforcement regulation signal that the EU is ready to enforce more aggressively its rights under the various bilateral, regional and multilateral agreements of which it is a member.

The renewed assertiveness of the EU has translated itself further in a large number of proposals aimed at levelling the playing field. The Foreign Subsidy Proposal intends to subject foreign companies to rules similar to the state aid rules applicable to EU companies when participating in public tenders or acquisitions. Companies receiving subsidies from foreign governments may see their acquisition blocked or may be excluded from public tenders. Although formally administered by DG Competition, the involvement of trade lawyers familiar with the notion of subsidisation in trade defence investigations is likely to be indispensable.

In order to avoid that imports from countries with lax environmental rules displace the EU’s domestic production, the EU has proposed the levying of a Carbon Border Adjustment. This charge would be levied on products subject to the EU’s Emission Trading System when produced in the EU. The WTO compatibility of this new border charge and the way it will be implemented raises many trade issues, not in the least the WTO compatibility of the scheme as currently envisaged.

The more strategic objective of the EU’s new trade policy is also apparent from the Commission’s proposal for an anti-coercion instrument which would authorise it to restrict trade and investment by countries trying to coerce the EU in changing its policies. The new Export Control Regulation which tightens controls on trade in dual-use items in order to protect the EU’s security interests has as an additional aim to support secure supply chains for strategic items. The same objective to protect the EU’s security of supply underlies the envisaged European Chips Act and the EU’s insistence during the negotiation of free trade agreements on the elimination of export restrictions or dual pricing systems affecting the export of raw materials such as lithium.

Finally, a number of proposals aim at promoting sustainability in international trade. The recent proposal for legislation addressing deforestation intends to minimise trade in products coming from supply chains associated with deforestation. Likewise, the proposed Directive on Corporate Sustainable Due Diligence aims at making companies responsible for environmental and human rights violations in their entire supply chain. It is expected that this directive will be complemented by additional legislation targeting trade in goods produced using forced labour.

For clients, the change in EU and global trade policies is worrying. The EU’s new legislation on corporate sustainable due diligence, foreign subsidies, deforestation and the carbon border adjustment mechanism places additional administrative burdens on companies. Moreover, many of the concepts used are new and ill-defined resulting in considerable legal uncertainty. Simultaneously, the lower legal standards applied by investigating authorities in trade defence investigations make the outcome of investigations more arbitrary than was already the case in the past.

In contrast, the EU’s new trade policy will create significant opportunities for those trade lawyers who are able to incorporate in their approach geopolitical, environmental and digital policy considerations. While detailed knowledge of EU trade defence and WTO law will remain a prerequisite, in-depth understanding of international politics, public international law as well as environmental and human rights legislation will become more and more important. Firms should therefore incorporate into their trade law teams lawyers who have these wider competences.