EU plans WTO alternative as Trump escalates tariffs: FT
4 Min Read
Amid escalating US tariffs and the collapse of the WTO's dispute mechanism, the EU is proposing a new global trade framework with CPTPP nations while simultaneously grappling with internal divisions over Hungary's sanctions on Russia.
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European flags fly during a ceremony marking the 80th anniversary of the end of WWII in Europe, Wednesday, May 7, 2025, outside the European Parliament in Strasbourg, eastern France. (AP Photo/Antonin Utz)
The Financial Times on Friday reported that the European Union is considering the creation of a new dispute resolution mechanism to safeguard the global trade order, as US President Donald Trump intensifies tariffs and further undermines the World Trade Organization (WTO).
The renewed urgency stems from Trump's sustained attacks on the multilateral trading system, including his refusal to appoint judges to the WTO's Appellate Body, rendering it inoperative since 2019. The United States has also imposed unilateral tariffs on EU steel, aluminum, and other goods, actions that defy WTO procedures, and recently threatened to escalate them to a blanket 10% tariff on all EU imports by July 9.
European leaders gathered in Brussels on Thursday to coordinate a response. In addition to managing the immediate risk of retaliatory trade measures, the EU is looking beyond the current crisis to reshape the future of global trade governance.
European Commission President Ursula von der Leyen proposed an alliance between the EU and the 11 nations of the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) to create a parallel institution capable of fulfilling the dispute resolution function the WTO can no longer perform.
"Asian countries want to have a structured co-operation with the EU, and the EU want the same," von der Leyen said. "We can think about this as a beginning of a redesigning the WTO . . . to show to the world that free trade with a large number of countries is possible on a rules-based foundation."
She declined to say whether the United States would be invited to join the new framework.
German Chancellor Friedrich Merz endorsed the proposal, recalling conversations with French President Emmanuel Macron and UK Prime Minister Keir Starmer.
"The WTO does not work anymore," said Merz. "Can't we gradually establish something with our trading partners around the world that institutionally replaces what we actually already envisioned with the WTO, namely a dispute settlement mechanism through an institution like the one the WTO was supposed to be?"
Tariff Fallout
The EU and 28 other countries, including China, have already set up a temporary dispute mechanism known as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), but it lacks enforcement power and the global legitimacy of the WTO.
Meanwhile, the European Commission presented EU leaders with a draft trade proposal received from the United States. Although most member states are in favor of negotiating a rapid deal to avoid tariff escalation, several governments expressed concern over Trump's proposed 10% blanket tariff.
"We are preparing for the possibility that no satisfactory agreement is within reach," von der Leyen stated. "All options remain on the table."
Read more: WTO Chief warns of global trade contraction as US tariffs spark alarm
Trump's trade measures have already taken a toll. EU economic growth has slowed, with the European Commission lowering its 2025 forecast for the eurozone to 0.9%, down from an earlier estimate of 1.3%. Analysts warn that sustained US tariffs could reduce EU GDP by nearly 1% and disproportionately harm manufacturing economies like Germany.
Beyond trade, EU leaders also addressed other pressing geopolitical issues. Sanctions against Russia will be extended next month, but the latest package, targeting the remnants of Russian gas imports, remains stalled. Slovak Prime Minister Robert Fico has threatened to block the measures unless his country receives exemptions or compensation.
