America's closest European allies are revolting against Brussels' attempt to build a parallel World Trade Organization court with Russia, China and Brazil but without the U.S.

A group of EU countries fears the plan of outgoing European Commissioner for Trade Cecilia Malmström could further drive a wedge between Europe and America, according to a dozen EU diplomats, ministers and other national government officials.

Malmström has made no secret of her view that Donald Trump is wrecking the global trade system and needs to be stopped. To circumvent the U.S. president's blockage of the Appellate Body, the WTO arbiter of last resort, Malmström said last week at a meeting of EU trade ministers that the EU should build "an identical system in order to give some clarity and reassurance to our companies. Ideally we would like to have this as a plurilateral agreement with at least a critical mass of countries."

But critics fear that parallel court could outlive Trump's presidency, undermining attempts to reform the WTO and cementing a new system in which the EU works closer with Russia and China than with the United States.

Lithuania, a close U.S. ally, has been the most outspoken critic. “If we start real action and drafting plurilateral legal instruments for a WTO dispute settlement with Russia and China but without the U.S., that would raise serious doubts,” Albinas Zananavičius, Lithuania's vice minister of foreign affairs, said in an interview with POLITICO.

"We are ready to look into proposals for an alternative, as long as it is not undermining the existing WTO system and our partnership with the United States" — Latvian government spokesperson

"We need to know what precisely we want to achieve and what will be the long-term implications for the WTO as a whole. There are several member states which are very worried about that development.”

Indeed, at least five other EU countries asked the EU's trade chief to tread carefully at last week's summit of EU trade ministers, telling Malmström that the EU's priority should be to strengthen and reform the WTO together with Washington.

Some also pointed at attempts by Russia to leverage the talks to get the EU to drop a dispute over Russian sanctions targeting EU meat imports.

Officials from Latvia, the Netherlands, Luxembourg, Denmark and Germany said they preferred alternatives that included the U.S, although a majority of EU countries support the Commission's initiative.

A diplomat from one EU country worried that the Commission's plans risked "pushing the Americans over the final edge. They are blocking the WTO but they haven’t left the building yet."

Officials in Berlin told POLITICO that they were open to any proposals made by the Commission for an "interim" solution, but said their preferred way of dealing with the situation would be an existing WTO mechanism to tackle disputes bilaterally, rather than a new "plurilateral" court.

A spokesperson for the Latvian government struck a similar note, saying, "We are ready to look into proposals for an alternative, as long as it is not undermining the existing WTO system and our partnership with the United States. For us, the primary goal is to make the system that we have work again."

Such concerns led to a clash at the summit last Thursday, four officials said. Following the publication of a POLITICO article revealing that the Commission had already started talks on the plan with other countries such as China, the Council Presidency had to change the summit's written conclusions, officials said.

"The Presidency had conclusions which were welcoming of that mechanism, but they were changed after the discussion,” one EU official said.

Asked about those changes, a spokesperson for the trade minister of Finland, which currently holds the Presidency, said, "The initial draft for the Council Conclusions undergoes always some changes based on the eventual discussion. The final Conclusions reflect well the discussion in the Council."

Lithuania's Zananavičius, who knows the WTO well from his previous job as his country's top man in Geneva, said the Commission's plan also raised legal concerns. “It will be a problem if the Commission tries to negotiate a legally binding instrument — which has financial implications — with third countries, without a mandate from EU countries."

A spokesperson for Malmström refuted that criticism, saying its negotiations were technically not new "international agreements setting up a new 'court' and requiring a 'mandate' from the Council," because they were constructed on the basis of existing WTO provisions.

Geopolitical 'signal'

The Commission spokesperson said Brussels' negotiations were "not policy statements whereby the EU would align itself with or against any particular WTO members," namely the U.S.



However, that doesn't mean they won't be seen as such by other countries. One senior EU diplomat worried about the "signal" Brussels was sending. "Instead of joining forces with the Americans, we would now be joining forces with countries such as China and Russia."

Other countries contacted by POLITICO stressed that they supported Malmström's overall fight to defend the rules-based multilateral system against attacks from Trump. Their criticism centered on a perception that the Commission was excessively focused on the Appellate Body and less on attempts to reform the WTO, including to deal with China's state-led system and subsidies.

Some officials said they feared the Commission's focus on dispute settlement was coming at the expense of a parallel initiative to reform the WTO.

Two Commission officials and several diplomats said the EU had turned down a proposal by the United States in talks with Japan and the EU to create a new WTO rule to ban excessive subsidies over concerns that it was too far-reaching. France, they said, was particularly opposed because it wants to maintain or even ramp up industrial subsidies.

“Whether it is on a bilateral basis or a plurilateral basis, we need to preserve a two-staged system of appeals in the WTO" — Ivan Scalfarotto, Italian trade official

If the EU decided to build a plurilateral court with Russia and China, it would undermine all efforts with Tokyo and Washington, some officials feared.

Malmström insists the urgency of the dispute settlement collapse should make it the EU's number one priority. "Arguably the most dangerous [misconception] facing trade at the moment," she said at a speech in September, is "the idea that the WTO is useless ... It is like oxygen – you would not notice it until it is gone, and then you are in serious trouble."

A majority of EU countries agreed with the Commission. France, three officials said, supported efforts for a "plurilateral" court.

Italy was also welcoming of the idea. “Whether it is on a bilateral basis or a plurilateral basis, we need to preserve a two-staged system of appeals in the WTO,” Ivan Scalfarotto, Italy's undersecretary of state responsible for trade, told POLITICO.

Malmström herself seemed to address the criticism at a speech Tuesday night. The dispute-settlement plan "is not an alternative system creating a new normal without the U.S. It’s an ad hoc solution with certain partners, hopefully leading to a plurilateral system," she told EU parliamentarians.

The European Parliament passed a motion on the Appellate Body on Thursday, calling "upon the European Commission to continue its engagement with all Members of the WTO, including the United States."

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