Buy European, Buy Democracy
Copyright Council of Europe
In the wake of the realization that Europe must now provide its own security, the EU is launching a Buy European regime to support the effort. For those familiar with EU trade policy, the public discussion of Buy European by European officials represents a radical departure.
In the before times, the EU position would generally go like this: begin with a veneration of the World Trade Organization; explain that compliance with WTO rules is of paramount importance; wax poetic on the European commitment to non-discrimination. What’s striking is that as Europeans launch this effort, leadership doesn’t seem to be fretting over WTO rules. President Von Der Leyen is emphasizing the imperative of having European defense, European R&D, and European supply chains. It is sovereignty and democracy that are of paramount importance — not trade rules. Good.
The Truth About the EU’s Compliance with WTO Decisions
The reality is, the Europeans have never actually put WTO compliance above domestic priorities. If you listen to EU trade PR, you’d think the Europeans don’t breach WTO rules, and certainly if they do, they fix those breaches lickety-split. Nope.
Under WTO rules, if you lose and choose not to fix what’s wrong, the winning party can retaliate against you (and maybe negotiate a settlement). A few years ago, researchers calculated the EU’s compliance rate when the WTO has found it to be in breach of the rules. According to their analysis, the EU brought its measures into compliance less than 40% of the time. You can debate the methodology, but whatever methodology you use, it’s not 100%.
To be clear, that is totally within the rules of the rules-based order. The problem isn’t keeping non-compliant measures in place – it’s the fiction that fealty to WTO rules is the top priority for the EU. It isn’t.
So let’s understand that even before the Buy European movement began to take hold, the EU was already practicing political economy in deciding how to deal with WTO commitments. Like every other WTO Member.
The willingness to put political economy above strict adherence to WTO commitments is plain old good governance. Europe is fighting for its sovereignty and for its democracy — and you undermine your ability to preserve your sovereignty and your democracy if your priority is messaging compliance with an external institution that doesn’t care about your sovereignty or your democracy.
What About Litigation Risk?
Now, you can want to engage in political economy and save your democracy while also wanting to understand your litigation risk. The litigation risk will depend on what the EU executes in terms of a Buy European program. There are different tools available, such as government procurement and local content requirements.
Rather than going through the ins and outs of these various methods and the applicable rules, let’s just assume that the EU’s preferred choice for saving itself runs afoul of WTO rules. Before we do that, one flag: people who do not live and breathe trade policy will say “oh but we can invoke the national security exception at the WTO.” Sure, you can invoke it. But invoking it doesn’t mean you prevail. It just means the WTO gets to tell you whether it agrees with you or not. The WTO was fine when Russia invoked it (against Ukraine) – but not when the United States invoked it.
Ok, so, let’s assume Europe loses. What then? Does Europe say “oh, no, I signed up for these commitments and three people in Geneva get to decide what qualifies as national security so I guess I’ll have to buy military stuff from my geopolitical rivals.” Of course not. Only a suicidal government would put trade commitments above existential threats.
It also will matter who sues. If say the United States were to sue, that’s simple. The United States froze the Appellate Body years ago. The EU established an alternative AB. The United States did not sign up for it. If the United States were to sue the Europeans at the WTO, it would go to a panel, and the panel would make its decision, and then if Europe lost…. Europe could “appeal into the void” – that is, appeal to a mechanism that is defunct. The EU trade types loathe the fact that the United States appeals into the void, and appealing into the void would be a painful pill for the EU trade bureaucracy to swallow. But again, you have to come back to what your priorities are. If “Paris vaut bien une messe,” then democracy would seem to be worth eating a little crow.
If another WTO Member sued, then you’d look at whether that WTO Member signed up for the alt-AB. The list is here. Suppose a WTO Member that signed up for the alt-AB sued the EU and won. The EU could come into compliance, or remain out of compliance and that other WTO Member could retaliate. The EU has been fine with this outcome before. Maybe the most well-known example is the Biotech dispute, which goes back to 2008. The United States sued the EU years ago, the EU lost, and instead of fixing the measure to come into compliance with WTO rules, the EU negotiated a settlement. Again, that is within the rules. So if you’re willing to do it for your farmers, why wouldn’t you be willing to do it for your democracy?
One curious wrinkle is whether the PRC would be one of the WTO Members likely to sue. The PRC is not a party to the WTO Government Procurement Agreement, so it would not have a cause of action there. But if the form of Buy European were to run afoul of other WTO commitments, then the PRC might have a claim. And the PRC is part of the EU’s alt-AB.
Here is a wrinkle to the wrinkle. Remember that the EU trade types talk a big game on fealty to WTO rules that turns out to be more apparent than real. This is what a senior EU trade official was overheard explaining to their boss last year: “China does not like to be out of compliance and therefore brings its measures into compliance – nominally, of course. They always find other ways to do exactly what they were doing before. But, you see, being seen as in compliance is very important for them. This is why the Appellate Body is so important.” Wait what? The point of using the dispute settlement system isn’t to achieve tangible results for your people, but to tout Potemkin dispute settlement victories?
Since then, the Europeans have woken up to the relationship between their deindustrialization and the PRC’s non-market policies and practices. Time to update the thinking on the purpose of dispute settlement. Hint: if your victories don’t help you solve the problem you’re solving for, they’re not victories.
Europe’s quest to be able to supply its own armaments will not only shield Europeans from external threats to democracy, but offers a path to reindustrialization that can help shield Europeans from internal threats to democracy, too.
For those struggling to accept that WTO compliance is in fact not the most important thing when it comes to economic policy, a word from one of the American trade negotiators who helped establish the multilateral trading system in the 1940s: “Where the objectives of domestic stability and international freedom [of commerce] come into conflict, the former will be given priority.”
The people who delivered the post-war peace knew a thing or two about sovereignty and democracy.
Author: Beth Baltzan