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 of the new EU Trade Commissioner is clear: to better assert Europe’s trade interests internationally while making a greater contribution to climate protection and sustainability. The corona crisis, however, means that EU trade policy faces new and serious challenges.

In early September 2019, the new President of the European Commission, Ursula von der Leyen, presented her trade policy priorities. First, she expects the new Trade Commissioner to 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 seeks to strengthen the capabilities of the EU to strike back more quickly and forcefully when 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; his main task will be to monitor and enforce the implementation of trade agreements.

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

Thirdly, von der Leyen expects EU trade policy to make an active contribution to sustainable development and climate protection. This is not merely 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 Adjustment Mechanism (CBA) to protect domestic producers from unfair competition caused by countries with less ambitious climate policies and to advance climate protection abroad.

Finally, the Trade Commissioner is also expected to maintain the highest level of transparency and communication with the European Parliament, the Council of Ministers, and civil society.

Phil Hogan, former Agriculture Commissioner, from Ireland and now the EU’s 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 affected industry/industries 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.

The Covid-19 pandemic has shown that state intervention such as export restrictions trigger chain reactions and disrupt supply chains. In the end, the supply of important medical products is endangered rather than improved. In order to avoid tit-for-tat protectionism and trade conflicts and to enable the global supply of key products and services, WTO members and in particular the G20 countries should better cooperate and ensure trade facilitation.

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 remain 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. The Commission has, for example, proposed that compliance with the Paris Climate Change Agreement should be an essential element of all future comprehensive trade agreements. Such an undifferentiated approach goes too far as it does not weigh up the interests of the Union. 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 established concept for CBA 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. In addition, the EU needs to enforce market economy principles (e.g. international rules for state-owned enterprises and limiting industrial subsidies). In its new Industrial Strategy for Europe (March 2020), the Commission announced, among other things, a new instrument against foreign subsidies. The BDI supports an open-minded review of this initiative.