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How to write multilateralism again?

On the question of purchase guarantees and WTO rules

German and European producers are supposed to receive purchase guarantees by the German government in order to boost the development of renewable energies. Nevertheless, this practice violates World Trade Organization rules. However, there are alternatives such as tenders that allow for qualitative aspects. This article discusses the implications of these proposals and notes that deliberate violation of multilateral trade rules is troubling, especially as the importance of such rules in other areas is emphasized.

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Purchase guarantees as a key element of the energy transition: Violation of WTO rules 

Purchase guarantees for German and European manufacturers have recently been mentioned repeatedly as a key element in achieving the development goals for renewable energies. The basic idea is simple: if, for example, a solar cell manufacturer sets up a factory in Germany, the state guarantees that its solar cells produced here will be purchased at a certain price. This allows the manufacturer to calculate what it can earn from production over a long period of time as early as the investment decision.

According to a report in the Handelsblatt on February 15, such purchase guarantees are a central part of a strategy paper that the Ministry of Economics will present in the coming days. The report quotes several key politicians from the government's parliamentary group who are positive about the idea of purchase guarantees. Yet this proposal quite obviously violates World Trade Organization (WTO) rules. For according to Art. III of the GATT agreement on which the WTO is based, the so-called national treatment, it is not permissible to place domestic producers in a better position than foreign ones. But that is the goal of purchase guarantees.


Ignorance of central rules of the multilateral order

Now, one could take the already problematic position, that for the higher goal of converting German energy production to climate-neutral, there would be no other way. As an exception, one would have to bend what is actually a meaningful rule. But not even this is true: Even if one agrees with the argument that more domestic production is necessary for the success of the energy transition, there are other solutions. For example, tenders that allow qualitative aspects such as environmental standards, durability, or the reliability of the manufacturer as award categories alongside price. In this way, no manufacturer would be discriminated against because it comes from a certain country, but because it does not meet important criteria. Purchase guarantees would therefore automatically be awarded. In this way, no manufacturer would be discriminated against because it comes from a certain country, but because it does not meet important criteria. Acceptance guarantees would therefore violate central elements of the world trade order, although there are good alternative solutions. This ignorance of central rules of the multilateral order is all the more striking given that representatives of the German government are currently repeatedly emphasizing the importance of multilateral rules to address poverty, war or environmental destruction. The recent government is thus well aware of how global regulatory systems work.

This reinforces the suspicion that the tried and tested global trade rules at the heart of which is the WTO are no longer wanted here. If the government really does want this, it should also state it clearly. This would be a welcome step, because at the very least, a reform of the multilateral trading system is indeed necessary. Then we must also debate it in the political and public spaces provided for this purpose, instead of simply undermining en passant the rules that don't suit us at the moment.

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Dr. Jan Cernicky


Head of the Economy and Innovation Department +49 30 26996 3516 +49 30 26996 3551


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About this series

Concise, reduced to the essentials, but always highly topical. In our series "kurzum", our experts summarise an issue or problem on a maximum of two pages.