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International trade

EU Launches Initiative to Bypass WTO Paralysis

Strategic Insights

— 2 min read

As the World Trade Organization (WTO) struggles with US-imposed paralysis, Brussels and Berlin have launched a new initiative to create an alternative global trade body. Speaking at the EU leaders' summit in Brussels on June 27, German Chancellor Friedrich Merz and European Commission President Ursula von der Leyen proposed forming a new trade organization, citing the WTO's ineffective dispute resolution mechanism. The EU aims to establish a new trade alliance, possibly with like-minded nations in Asia, and recently joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). International trade policy expert Jürgen Matthes from the German Economic Institute (IW) supports the initiative, believing it would send a clear signal to the US that its protectionism isolates it from the rest of the world.

Key Takeaways:

  • The EU is proposing a new trade organization to bypass the WTO's paralysis caused by the US's blockade of the Appellate Body.
  • The new organization could include mechanisms for resolving disputes, similar to the WTO's original intent.
  • European Commission President Ursula von der Leyen and German Chancellor Friedrich Merz have mentioned the possibility of close partnerships with like-minded trade nations in Asia, referencing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
  • The CPTPP currently includes 11 member countries, with the United Kingdom being the first European country to join.
  • Trade expert Jürgen Matthes supports the initiative, believing it would send a clear signal to the US that its protectionism isolates it from the rest of the world.
  • The EU aims to enshrine strict competition rules within the new framework, particularly regarding state-owned enterprises and industrial subsidies.
  • The initiative is part of a deliberate communication strategy to isolate the US and China, which the EU sees as protectors of market distortions.
  • Business groups, such as the Federation of German Wholesale, Foreign Trade and Services, are wary of the risks of undermining the WTO.
  • The EU's goal is not to replace the WTO but to reform it, with Brussels clarifying that "structured cooperation" with CPTPP members is a starting point for reshaping the WTO.

Statistics:

  • 57 countries, representing 57.6% of global trade, have joined the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), including the UK and all EU member states.
  • The CPTPP covers around 13.5% of global GDP.
  • The EU is the largest bloc in the CPTPP, with over 460 million people and a GDP of around €20 trillion.

Sources:

  • European Commission: [https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3365](https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3365)
  • German Economic Institute (IW): [www.iwkoeln.de](http://www.iwkoeln.de)
  • Deutsche Welle: [www.dw.com](http://www.dw.com)
  • Reuters: [www.reuters.com](http://www.reuters.com)

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