Yet another sign just lit up that the world trading order is overdue for renovation. In the biggest arbitration award ever handed out by the World Trade Organisation (WTO), the United States was last week given the right to impose punitive tariffs on its largest trading partner, the European Union. The WTO agreed with the US’ complaint, filed in 2004, that its aircraft manufacturer Boeing was harmed by the unlawful subsidies provided by the EU to prop up its own champion, Airbus. From Oct 18, the Trump administration will collect tariffs on US$7.5 billion (S$10.4 billion) worth of imports from the EU – 10 per cent on the purchase of large aircraft and 25 per cent on agricultural and industrial goods like Italian Parmesan cheese, Scotch whisky, German waffles and English bed linen. The EU has won some plaudits for forsaking retaliation. But it may only be biding its time. The WTO is expected to back the EU in a case it counter-filed against the US, also in 2004, for favouring Boeing with tax concessions and large government contracts. Eight months from now, the EU is likely to be armed with the right to levy its own punitive tariffs on the US.
If the tit-for-tat logic appeals, this may seem a fair outcome. But will it really be the best one? What it means is that both parties will have been found to have erred. The solution – imposing tariffs – will penalise consumers. Eventually, if Washington and Brussels do come around to a deal, the WTO will appear inadequate and ineffectual for delivering a verdict 15 long years after the dispute and for becoming the enabler of trade sanctions rather than of rules that promote trade.