Hard but Fair: Expectations for European Trade Policy 2019-24

judge's gavel ©fotolia.de/Paul Hill

judge's gavel ©fotolia.de/Paul Hill

The mission for the next Trade Commissioner of the European Union (EU), Phil Hogan, is clear: to better promote Europe’s trade interests in the world while making a greater contribution to climate protection and sustainability. Are these targets, set by Ursula von der Leyen, the elected President of the European Commission, also supported by industry?

Ursula von der Leyen presented what she expects from her Trade Commissioner in a public letter dated 10 September 2019. First, he should work towards fair conditions for international competition. Von der Leyen puts much stock in the rules-based multilateral trading system of the World Trade Organisation (WTO). At the same time, she wants to strengthen the capabilities of the EU to strike back more quickly and forcefully if other countries do not play by the rules and if disputes cannot be settled through the WTO. As such, a “Chief Trade Enforcement Officer” is to be appointed, who will be primarily responsible for monitoring and enforcing the implementation of trade agreements.

Secondly, the President of the Commission wishes for Europe’s leadership to be strengthened, including through balanced relations with the United States, a comprehensive investment agreement with China, a deeper economic partnership with Africa, and the conclusion of trade agreements, for example with Australia and New Zealand.

Third, von der Leyen expects EU trade policy to make an active contribution to sustainable development and climate protection. This is not just a question of enforcing the sustainability chapters in free trade agreements and helping to ensure that the goals for sustainable development of the United Nations (UN SDGs) are achieved. The Trade Commissioner is also expected to contribute to the design and introduction of a Carbon Border Tax (CBT) to protect domestic producers from unfair competition caused by countries with less ambitious climate policies.

Last but not least, the Trade Commissioner is to maintain maximum transparency and communication with the European Parliament, the Council of Ministers and civil society.

Phil Hogan, the current Agriculture Commissioner from Ireland and designated Trade Commissioner thus faces an ambitious agenda. He is considered an expert on trade policy, a tough negotiator, and a friend of clear words.

Opportunities and Risks

German industry largely supports the proposed trade agenda. The EU should play a more assertive role on the global stage. However, care must be taken that retaliatory measures are closely coordinated with the industry concerned and reflect the interests of the Union. The exclusion of companies from non-EU countries from public tenders or the prohibition of foreign direct investment from third countries should only be a last resort for the EU and should not lead to unnecessary burdens for domestic companies. The proposed instrument for public procurement therefore still needs to be readjusted. Furthermore, the EU needs to beef up its negotiations with economic powerhouses such as the United States and China. A prerequisite is that the members of the EU stand united and speak with one voice.

Regarding bilateral trade agreements, priority should be given to the negotiations with the countries of Southeast Asia and Mercosur. In addition, the EU should conclude further investment protection agreements and vigorously pursue negotiations on a multilateral investment court. German industry also supports binding and ambitious sustainability chapters in free trade agreements. However, sustainability in the area of labour standards and environmental protection will not be promoted if trade agreements ultimately fail due to excessively high demands. Expectations of the EU towards trade partners must therefore remain realistic. In addition, the EU should adhere to the cooperative approach in order to ensure that partner countries comply with the sustainability chapters.

German industry shares the concern that the high costs of climate protection will fuel the risk of carbon leakage. For this reason, instruments that create fair competitive conditions must also be examined. However, there is currently no convincing concept known for CBT that is both practical and in line with international rules and commitments. Border adjustment measures thus run the risk of creating additional costs for individual sectors and placing a burden on the multilateral trading system.

Finally, to ensure that European business will continue to excel on global markets, the EU needs to create a legal framework at home that fosters innovation as well as creativity and allows for technological change. The EU and its members should also invest more in education and training as well as hard and soft infrastructure.