WTO judgment no one wanted to happen

Welcome to Trade Secrets. The year’s winding down, but even the sedate processes of trade policy can spring surprises over the festive season. The classic year for Yuletide drama was 2020, where the EU and UK sealed a frantic Christmas Eve agreement to avoid a no-deal Brexit, like the weirdest Richard Curtis movie ever made, and then Germany recklessly drove through a hugely contentious EU investment agreement with China literally in the last hours of the year. Last week’s gift was less spectacular, but still pretty big: on Friday the World Trade Organization’s dispute settlement body said the US was wrong to cite national security to impose its infamous steel and aluminium tariffs. We look at the implications below, plus the latest (perhaps the last) word on the tussle over Covid-related intellectual property rights. Charted waters focuses on WTO concerns about the rise of protectionism.

A natsec nasty

This was the ruling no one really wanted to happen. It was initially Donald Trump who invoked the national security exemption (Article XXI) in the WTO’s rule book to impose tariffs on steel and aluminium from China, Norway, Switzerland and Turkey, but the Biden administration maintained the tariffs and defended the case. (Trump also put tariffs on imports from a bunch of other trading partners including the EU, but Biden’s people are working out a deal with Brussels which has put litigation on hold.)

After the ruling on Friday, the US promptly said it had no intention of removing its tariffs just because the WTO said so. That’s not necessarily as destructive as it sounds, but it’s definitely a step further towards undermining the multilateral order, on top of the US crippling the institution’s Appellate Body by refusing to appoint new judges.

It was a horrible decision to force a dispute panel to make. The dispute settlement system has asserted its right to judge the use of the rationale before, in a case involving Russia and Ukraine in 2019, but didn’t actually rule against the measures under question on that occasion.

There’s been a kind of mutual non-aggression pact among governments for decades to use the loophole very sparingly, in case it becomes a catch-all for ignoring whatever rules you want to. The US forced the dispute settlement panel to choose between issuing a carte blanche for governments to use the exemption at will or take the politically explosive step of second-guessing Washington’s assessment of its national security needs.

To choose the former would have looked silly — Norwegian steel is a threat to US national security? — but it’s a decision it would rather not have made. You can see why the former WTO director-general, the exceedingly cautious Brazilian Roberto Azevêdo, was against national security being litigated in the WTO at all.

To be clear: just because the US said it’s not going to lift the tariffs doesn’t necessarily mean it’s destroying the WTO. It could always offer the aggrieved countries some compensation elsewhere, as when the EU maintained its rules against hormone-raised beef despite losing a case on the issue and instead opened up a new import quota for hormone-free beef.

But using Article XXI on such a flimsy pretext and calling WTO dispute settlement illegitimate for judging it is another step towards turning the world trading system back into an arrangement of security-based power relations where the big guys crush the small. God bless us, every one.

An IP imbroglio

In other “US behaving badly” news, one story that has probably now reached its conclusion is the drive to waive patents and other intellectual property on Covid-19 vaccines and other treatments at the WTO. You may remember this idea, pushed by India and South Africa, got some legs when the Biden administration suddenly declared itself in favour in principle in May 2021. The proposal would have expanded radically on the flexibilities already allowed under the WTO Trips agreement that protects intellectual property.

I rapidly became sceptical that the US really supported a far-reaching waiver, and indeed it turned out that Washington was basically pandering to its domestic health campaigners. In the end, at the WTO ministerial in June this year, the Biden administration went along with a minimal deal on vaccines inspired by the EU, which at least had the honesty to say it was against a big bonfire of IP rights.

The second leg of this debate was on a waiver for “diagnostics and therapeutics” (antivirals, Covid tests and so on), considered separately to vaccines. Since the US pharmaceutical industry is stronger in this field, there was even more gloom about Washington allowing broad IP waivers here. And thus it has proved. Last week the US said some people it had talked to were for a waiver, some were against it and it was all very tricky — hey, look over there! They punted it into an internal investigation, a good way of smothering the issue until everyone’s forgotten about it. The health campaigners were duly outraged. As far as I can see, that’s likely to be the end of the initiative. Score another for US cynicism at the WTO: they’re really racking up the points over there.

As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.

Charted waters

The WTO supplies the data for this week’s chart, illustrating what many people already know: protectionism is on the rise. The graph also helps us put the current rise in trade-restrictive measures, which so concerns the WTO, in some context.

The key factors behind the problem are well known: war in Ukraine, the pandemic and (related to both the previous two) concerns about food security. Some restrictions have been eased but overall trade got less free in the past year. The situation might look different in the future if (and hopefully when) either of the first two factors ease, but that looks a long way off right now. (Jonathan Moules)

Trade links

The EU has reached outline agreement on a new law to prevent trade in products associated with deforestation, a plan that does not find favour with some trading partners.

A new report details the use of forced Uyghur labour in Xinjiang in the car industry, the most salient issue in the debate over ethical supply chains.

An Atlantic Council report discusses the possibility of a US outbound investment control regime which would restrict American companies investing in countries of concern (China).

The UK has launched its first Freeports, a bad idea that will most likely waste money and lead to inefficiencies if not money laundering. And despite what the government says, the move has nothing at all to do with post-Brexit freedoms.

Trade Secrets is edited by Jonathan Moules