Tuesday, January 11, 2005

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When bilateral is better than multilateral

Raphael Minder reports for the Financial Times that the United States and European Union have decided to settle the Boeing/Airbus dispute through bilateral talks rather than continue to seek a WTO ruling:

The US and the European Union buried the hatchet on Tuesday in their trade dispute over aircraft subsidies, saying they would return to the negotiating table to reach a bilateral agreement curtailing aid to Airbus and Boeing.

In October, the US and the EU launched the biggest dispute in the history of the World Trade Organisation in an effort to end what each side said were unfair subsidies to the world's two largest aircraft makers.

Brussels and Washington appear to have decided that too much was at stake to risk the prospect of a WTO ruling that could prove self-defeating for both sides. Instead, the two parties will give themselves three months to reach an agreement "to end subsidies to large civil aircraft producers in a way that establishes fair market competition for all development and production" of aircraft.

Peter Mandelson, the EU's trade commissioner, said: "When disputes arise in transatlantic trade relations we should try to solve them by dialogue and co-operation. Today's agreement creates a positive atmosphere for more work to strengthen the economic partnership between the EU and the US, which is vital for both of us." From the start, Mr Mandelson expressed hope that the dispute might be "kept out of the WTO net through a proper discussion."

....The US was due to ask for the formation of a WTO panel later this week, but both sides appear to have concluded that a lengthy WTO dispute settlement procedure, which would no doubt have led to appeals, would have created huge uncertainty for the two aircraft makers at the time at a crucial time in their product development.

Click here and here for previous posts on this topic.

This is a win-win-win decision. The United States and the European Union benefit from being able to craft a compromise rather than risking a WTO arbitration ruling that theoretically could have hurt both governments. Furthermore, bilateral talks permit the kind of give-and-take in bargaining that a WTO panel can't provide.

The WTO wins because it doesn't have to deal with this case -- which for many reasons is ill-suited for its dispute settlement mechanism. More importantly, the WTO keeps its reputation intact. The high stakes nature of this dispute virtually guaranteed that one or both economic great powers would not have complied with the WTO ruling. All that would have done is weaken the legitimacy and credibility of one of those rare multilateral organizations that is generally acknowledged to be effective.

posted by Dan on 01.11.05 at 11:56 AM


All quite true. The only thing I might add is that, if you think reforming the dispute-settlement process is long over due, you miss out on a high-profile issue that could spur your cause.

On the other hand, given that the Hong Kong Ministerial is forthcoming, and completing the Doha round will be difficult (perhaps especially because a new Director-General and a new USTR will both need to be found), it's best to limit the controversies.

posted by: Robert Tagorda on 01.11.05 at 11:56 AM [permalink]

What possible endpoint for these talks could there be that would be of benefit to the United States? The key players in EADS (Airbus) created the situation the way it is now for a reason. They have achieved their goal, and the Iraq adventure has surely solidified their thinking as to why EADS was necessary. The EU is in a position of strength on this one - why would they back down in any forum?


posted by: Cranky Observer on 01.11.05 at 11:56 AM [permalink]

I won't argue that this is not a win-win for the careers of those who argued it, or for the organizations for which they argued it. And it is certainly a better outcome than many other possible outcomes.

But I'm sceptical when it comes to the possibility of "win-win" solutions in general, for the same reasons that I am very sceptical of any organization whose name includes the wqords "public interest". There is no public interest, as such (at least when it comes to controversial issues- we can all agree that large scale nuclear war would be against the public interest, but... no-one is arguing for one- I hope)- there is an aggregate interest, but that is a different thing entirely. Optimizing for a number of variables equal to the number of economic actors in our economy is a Sysiphean task. There is no public interest, in any interesting sense of the phrase.

It is good that airplane manufacturing is opening up. But an easier solution to these tense trade talks is to open trade up entirely- this is clearly a gain in terms of the aggregate interest. I work in an industry that has been offshored heavily in the last few years- I still have a job, but my wages must be depressed as a result.

I don't mind Indians competing for my job, as long as they can compete for every job in the economy (where feasible). But I resent bearing the brunt of offshoring. If my work is offshored, I want yours offshored as well, so I can benefit from the lower labor costs in your industry.

Partial free trade is fundamentally unfair- damaging workers in vulnerable industries (by which I mean not organized) without allowing them to reap the benefits- so, great, these guys come to some sort of agreement that is a bit more free in terms of airplane sales- the existence of these trade resolution bodies indicates a problem. I'm all for free trade, but I want it to cut across all industries- if my wages are depressed by it I want to see my costs depressed as well.

So pardon me if I am less than enthused about the results of this particular round of jockeying. The jockeying is the problem, and there is no reason to celebrate this isolated victory (unless of course I get cheaper airline tickets thereby, at which point I will break out the champaigne).

posted by: Tagore Smith on 01.11.05 at 11:56 AM [permalink]

OT, but a nice line caught my eyes:

"...that theoretically could have hurt both governments."
If we still don't have yet a constitution, at least we have a government in Europe...
For sure Europe is a "fait accompli", as you corroborate it there, I sometime just wonder which a fact it is.

posted by: Lacordaire on 01.11.05 at 11:56 AM [permalink]

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