EU and Germany Push for a New World Trade Organization

A proposal, introduced by European Commission President Ursula von der Leyen and German Chancellor Friedrich Merz, has sparked considerable attention.

Speaking at the end of a summit of EU leaders in Brussels on June 27, they floated the idea of the EU taking the lead in forming an alternative to the World Trade Organization (WTO), the world trade body that has been in place since 1995.

Merz said the idea was in its early stages but could include mechanisms to resolve disputes, as the WTO was meant to do.

"You all know that the WTO doesn't work anymore," he said, adding that a "new kind of trade organization" could gradually replace "what we no longer have with the WTO."

The German chancellor was referring to the near-total breakdown of the WTO's dispute resolution mechanism.

It was former US President Barack Obama who first blocked appointments to the WTO's Appellate Body — its top court for trade disputes — during his later years in office.

That blockade has continued under every US administration since, regardless of party affiliation, as successive governments have opposed WTO rulings that they argue undermine US national interests.

As a result, trade disputes can no longer be conclusively resolved once a party appeals. Currently, unresolved cases include disputes between the EU and Indonesia over nickel ore exports, rulings on subsidies for aircraft manufacturers Boeing and Airbus, and anti-dumping cases against China.

The EU's von der Leyen emphasized plans for a particularly close partnership with like-minded trade nations in Asia, referencing potential cooperation with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The CPTPP agreement aims to reduce trade barriers and promote economic integration among its membersImage: Jorge Villegas/Xinhua/picture alliance

This trade alliance currently includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The United Kingdom has also joined, becoming the first European country in the bloc.

Trade liberalization without the US

But can Europe realistically create a new WTO without US involvement? And how effective would an alliance with like-minded global partners be, especially in the Asia-Pacific?

Jürgen Matthes, an international trade policy expert at the Cologne, Germany-based German Economic Institute (IW), expressed support for the initiative in an interview with DW.

Matthes says an alliance with CPTPP would create an 'open club' with transparent entry conditions based on fair tradeImage: DW

"A formal EU application to join the CPTPP would be a strategically important move in several respects," Matthes said. "It would send a clear signal to the US that its protectionism is isolating it, while the rest of the world continues to liberalize trade."

Matthes also said this would create a "remarkably large trans-regional trade agreement," involving major economies, "with the EU as the largest bloc."

"It would cover nearly all continents. And maybe some African countries could be brought on board as well," he added.

Without the US, without China

Such a club, however, would initially exclude China, which Matthes argued is not known for playing by fair competition rules.

"The goal is to form a strategic trade alliance that addresses today's pressing issues in global trade — not only US protectionism, but also the massive market distortions caused by China's subsidies, which current WTO rules don't effectively address," said Matthes.

For the EU, the priority would be to enshrine strict competition rules within the new framework, particularly regarding state-owned enterprises and industrial subsidies. "Anyone who meets those standards can join," he added.

That would require China to make major reforms, such as reducing market distortions and subsidies, or finally agreeing to a comprehensive overhaul of WTO rules.

Coalition of the willing 

Free trade advocates have already created a workaround to the WTO's stalled appeals process called the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). Formed within the WTO itself, MPIA provides an alternative dispute resolution system that functions without US participation.

According to the European Commission, 57 countries, representing 57.6% of global trade, have joined the MPIA, including the UK and all EU member states.

Still, business groups such as the Federation of German Wholesale, Foreign Trade and Services (BGA), which represents Germany's export sector, are wary of undermining the WTO.

Speaking to news agency Reuters, BGA President Dirk Jandura acknowledged the strategic benefits of forming a new framework among functioning democracies via CPTPP, but warned of the risks. "We must not allow global trade to splinter into competing blocs with different rules," he said. "This new organization must only be a transitional solution, clearly aimed at reforming — not replacing — the WTO."

Reform, don't replace

Brussels has also been careful to clarify that the goal is not to render the WTO obsolete. European Commission President von der Leyen described the "structured cooperation" with CPTPP members as a potential starting point for reshaping the WTO.

Even the WTO's former chief economist, Ralph Ossa, who recently returned to the University of Zurich, openly acknowledged the need for change. "Does the WTO need reform? Absolutely," he told DW.

Germany's economy ministry echoed that view, with a spokesperson for Minister Katharina Reiche confirming that the German government, together with the European Commission, is actively pushing for WTO reforms.

These include new rules to curb industrial subsidies to ensure fair competition, digital trade initiatives and investment facilitation. The EU is already in talks with countries that support open and rules-based trade — including CPTPP members.

Strategic ambiguity in trade policy

The EU's dual message to both the US and China appears to be part of a deliberate communication strategy that has evolved since US President Donald Trump's tariff war.

The message sent out by Germany's Merz (left) and the EU's von der Leyen is that the majority of global trading nations still support a rules-based systemImage: Nicolas Tucat/AFP

Matthes envisions a new alliance under the banner of "Open Markets with Fair Trade." In such a setup, "the US is out when it comes to open markets, and China is out when it comes to fair trade — unless things change under a new US administration or a reformed China emerges."

He sees multiple advantages to this strategy. "We'd achieve more trade liberalization and gain access to new markets. We'd isolate the US more and show Trump that protectionism is ultimately a dead end." At the same time, Europe could send a clear message to China that it will no longer tolerate market distortions, he added.

This article was originally written in German.